Those who wrote the book on economics said, “Avoid high interest rates for the sake of production”

The fact that the British economist John Maynard Keynes defined interest—in relation to the use of money as a means of payment—as merely a monetary phenomenon also highlights the role of money within the discipline of economics and across the entire economic system.

Keynes’s monetary theory of interest, following the mercantilist theory of the 18th century which argued that money played significant roles, reintegrated money with the theories of production and employment. In the analysis developed in this context, the interest rate is linked to investment, and investment, in turn, is of great importance in terms of job creation.

Accordingly, if the aim is to achieve a real increase in employment, investment must be increased; if investment does not increase, expecting an increase in employment becomes meaningless. On this basis, the emerging monetary theory, through its relationship with interest rate theory, becomes a fundamental part of general economic theory, whilst monetary policy also gains importance within general economic policy.

According to Keynes, the root of the confusion surrounding interest rates lies in the failure to properly distinguish between the monetary economy—which reflects the advanced production process—and the exchange economy, and consequently in a failure to understand the unique characteristics of money. Monetary theory offers an alternative explanation for the determination of the interest rate, which links the real and monetary sectors of the economy. According to this, the essence of the explanation lies in the notion that the concept of interest is a monetary phenomenon and is therefore determined in the money market.

In an article written in 1937, Keynes states that, according to the approach he termed the ‘liquidity preference theory’, the interest rate is determined—albeit subject to other factors—primarily by the supply of and demand for money. According to the developed theory of money and interest, savers hold monetary funds in the form of money and bond-like financial assets. This, in turn, creates the necessary and sufficient condition for the emergence of involuntary unemployment. This situation—which implies that savings are not being converted into investment expenditure—leads to a shortfall in effective demand and, consequently, to the economy operating below the level of full employment.

In Keynes’s theory of interest, the demand for money, in a sense, reflects the liquidity preference. In this context, the preference of individuals to keep their money in a liquid form—that is, readily available for use at any time—is referred to as the liquidity preference. According to this definition, the interest rate functions as a cost of forgoing this liquidity preference; in other words, it acts as a premium that must be paid to money holders to encourage them to hold their wealth in forms other than money.

In other words, according to this theory, a person wishing to keep their money readily available will only give up their preference for liquidity if an attractive premium is paid to them. Consequently, the interest rate is not only the cost of giving up the preference for liquidity but also the cost of holding money in a liquid form. In the face of a high interest rate, the convenience of holding money as money is not cost-free or free of charge, as it is with a low interest rate; on the contrary, it is expensive. For this reason, even if a money holder persists in preferring liquidity for a long time, once the interest rate reaches a certain level, they will no longer be able to bear the high cost of holding money and will agree to lend out their liquid assets.

This means that the amount of money one wishes to hold is sensitive to the interest rate.

When the interest rate is high, less money is held; when it is low, more is held. This relationship between the interest rate and the amount of money one wishes to hold can be represented on a diagram—with the interest rate on the vertical axis and the amount of money on the horizontal axis—by a

curve that slopes downwards from left to right. This curve is called the liquidity preference curve and shows how much money is held at various interest rates; or, to put it the other way round, the liquidity curve shows what interest rates are required to hold various amounts of money.

The Austrian economist Eugen von Böhm-Bawerk, who made significant contributions to the development of the Austrian School of Economics, defended the validity of the phenomenon of interest based on the concepts of time preference and the scope of complex production processes. According to the concept of time preference, the subjective value of goods today is higher than that of the same quantity of goods in the future.

Böhm-Bawerk argues that interest arises from the difference between these two, pointing out that borrowing amounts to an exchange of present goods for future goods. Another important concept used to explain the phenomenon of interest is circular employment production. Böhm-Bawerk emphasises that cyclical employment production is superior to direct production. The reason for this is that cyclical employment production involves raw materials, labour and natural resources, and is more productive. Consequently, the interest income resulting from this production is a well-deserved income.

Eugen V. Böhm-Bawerk, who also taught Political Economy at the University of Innsbruck, states in his book *Capital and Interest*: ‘It is always possible for a capital owner to obtain a fixed income known as interest.’

Adam Smith, whose economic explanations are heavily influenced by his background as a professor of moral philosophy, asserts that there is an order in the economy and in natural phenomena, and that this can be identified through observation and ethical sensitivity. Adam Smith is the author of *The Wealth of Nations*, a work whose fame has at times surpassed his own.

Adam Smith emphasises that as savings increase, the interest rate will fall, whilst in situations where the demand for capital exceeds total expenditure, the interest rate will rise. According to Adam Smith, interest is an instrument of significant economic importance. Smith believed that a low interest rate was crucial for the development of the economy’s various sectors. In his view, funds in England could flow to the areas where they were needed ‘only in this way’.

Consequently, Adam Smith was in favour of a statutory interest rate and believed that this rate should not exceed 10 per cent. The importance of money and its effects on the real economy are explained through the interest rate mechanism. According to these explanations, whilst the money supply is a given, the interest rate—which varies in line with expectations under conditions of uncertainty and the degree of liquidity—can lead to a state of underemployment in an economy due to a shortage of effective demand; this can be seen as the core message of the ‘general theory’.

Naturally, the focus of these important observations—put forward years and decades ago by these renowned economic theorists who have made their mark on history—is on the ‘money-production-employment’ nexus…

During the period of tight monetary policy and high interest rates in Turkey (2024–2026), whilst the narrowly defined (official) unemployment rate remained in single figures, the broadly defined (underutilised) unemployment rate experienced a very significant rise. In particular, the slowdown in domestic demand under the pressure of high interest rates and rising borrowing costs placed significant strain on the production and employment markets.

In this context, according to DİSK-AR data for September 2026:

• Number of Broadly Defined Unemployed: Rose to 12 million 608 thousand, approaching 13 million.

• Broadly Defined Unemployment Rate: Reached 31 per cent.

• Narrowly Defined (Official / Narrow) Unemployment Rate: Was reported as 8.4 per cent.

• Consequently, the Difference Between Narrowly and Broadly Defined Unemployment: Reached 23.2 percentage points.

• Broadly Defined Female Unemployment: It climbed to 40.1 per cent.

• Youth Unemployment (Overall): It rose to 38.3 per cent.

• Female Youth Unemployment: Broadly defined female youth unemployment reached 49.1 per cent.

Despite the Central Bank of Turkey (TCMB) keeping interest rates at peak levels for an extended period as part of its fight against inflation, and subsequently initiating a measured process of rate cuts, the persistently high cost of commercial credit has made it difficult for manufacturers to access working capital. When combined with stagnation in the domestic market and weakness in export markets, this situation has pushed Turkish industrial production off its growth trajectory as of 2026, leading it into a process of controlled contraction and rebalancing.

Such a prolonged period of high interest rates in Turkey has also exerted significant pressure on industrial production, consequently leading to a contraction in the manufacturing sector. The high borrowing costs resulting from high interest rates caused the wheels of industry to slow down during the 2024–2026 period, when high interest rates prevailed.

According to industrial production index data released by the Turkish Statistical Institute (TÜİK), successive declines in production occurred as high interest rates dampened both domestic and external demand, and by the summer of 2026, industrial production had contracted year-on-year for several consecutive months. In the most recently published figures for August 2026, total industrial production fell by 1.9 per cent year-on-year and by 1.0 per cent month-on-month.

Whilst high interest rates – and consequently rising working capital costs – did not affect all industrial sectors to the same extent, they hit the manufacturing sector, which forms the ‘backbone of the economy’, particularly hard.

In August 2026, the manufacturing sector contracted by 2.5 per cent year-on-year, becoming the main factor dragging down the overall index. The slowdown was felt more acutely in labour-intensive and finance-sensitive sectors such as ready-to-wear clothing, textiles, leather and furniture.

As production is stifled and unemployment rises, the high interest rates responsible for all this are also causing the ‘interest share’—the portion of the budget derived from everyone’s taxes—to climb at an ever-increasing rate. As we know, interest expenditure, which was forecast at 1 trillion 950 billion lira in 2025, actually amounted to 2 trillion 54 billion lira. Subsequently, interest expenditure, which was targeted at 2 trillion 741 billion lira for 2026, is set to rise to 2 trillion 824 billion lira according to the latest calculations. Under the new budget, interest expenditure is also targeted at 3 trillion 975 billion lira for 2027.

In short, to turn a blind eye to the principle—articulated nearly a century ago by those who wrote the book on economics, who closely monitored and researched the emerging global economy and arrived at this conclusion through extensive calculations—that ‘production is essential, and to increase production, one must avoid high interest rates’ is to turn a blind eye first to unemployment, then to severe poverty and the crime it triggers.

As criminologists and socio-economic experts have also warned: “One of the fundamental causes of rising crime rates is socio-economic factors. Poverty, unemployment and a lack of education contribute significantly to crime. When individuals are deprived of sources of employment or opportunities, they may turn to crime as a means of survival.”

Indeed, academic research and field analyses clearly demonstrate the impact of economic downturns and social fragility on the types of crime committed.

These studies reveal that income shortages arising from ‘unemployment and low wages’, as discussed above, drive individuals to commit property offences such as theft, robbery and fraud for subsistence reasons. The same factors also create intense anxiety about the future and psychological pressure on individuals, thereby increasing social tension and incidents of physical assault and violence.

Furthermore, the widening gap between the rich and the poor in society, linked to the ‘inequality in income distribution’ that becomes strikingly apparent during such periods, creates a sense of ‘relative deprivation’ amongst individuals. Moreover, this situation can undermine individuals’ belief in achieving prosperity through legal means, thereby making informal activities and involvement in criminal networks more appealing.

The same academic studies also highlight how fundamental factors such as unemployment and insufficient income, alongside uncontrolled waves of migration—whether domestic (from rural to urban areas) or international—lead to ghettoisation and cultural conflicts in major cities. Consequently, excessive population density in metropolitan areas weakens traditional neighbourhood pressure and social control mechanisms, whilst also making it easier for offenders to remain hidden within society.

More importantly, the early withdrawal of children and young people from education due to economic hardship leaves them vulnerable to the risks of street crime. Furthermore, it is well known—particularly from examples reported in the press—that divorces and domestic discord triggered by financial hardship lay the groundwork for the emergence of individuals prone to criminal behaviour.

In summary, the decline in economic prosperity and the resulting social disintegration are recognised as the fundamental dynamics fuelling both property crime and the tendency towards social violence in Turkey. Drawing on the examples we have listed one after another, we are all witnessing how structural factors—such as unemployment, income inequality, intense waves of migration and rapid urbanisation—which have emerged as consequences of the new socio-economic conditions in Turkey in recent times, are driving up crime rates in society both directly and indirectly.

In short, it is clear that in order to prevent the stifling of production, the rise in unemployment and the state budget being riddled with interest payments—and to ensure the healthy development of the whole of society and that new generations gain access to the education and employment opportunities they deserve—this massive burden of high interest rates must be rolled from the summit of Mount Ağrı down to the bottom of Pandora’s box.