23. Cash coinage and the rate of interest.
Again the free circulation of metal currency and its adoption as a medium for all transactions has hitherto been to the disadvantage of the debtors. Interest on money was probably little in vogue among pastoral peoples, and was looked upon with disfavour, being prohibited by both the Mosaic and Muhammadan codes. The reason was perhaps that in a pastoral community there existed no means of making a profit on a loan by which interest could be paid, and hence the result of usury was that the debtor ultimately became enslaved to his creditor; and the enslavement of freemen on any considerable scale was against the public interest. With the introduction of agriculture a system of loans on interest became a necessary and useful part of the public economy, as a cultivator could borrow grain to sow land and support himself and his family until the crop ripened, out of which the loan, principal and interest, could be repaid. If, as seems likely, this was the first occasion for the introduction of the system of loan-giving on a large scale, it would follow that the rate of interest would be based largely on the return yielded by the earth to the seed. Support is afforded to this conjecture by the fact that in the case of grain loans in the Central Provinces the interest on loans of grain of the crops which yield a comparatively small return, such as wheat, is twenty-five to fifty per cent, while in the case of those which yield a large return, such as juāri and kodon, it is one hundred per cent. These high rates of interest were not of much importance so long as the transaction was in grain. The grain was much less valuable at harvest than at seed time, and in addition the lender had the expense of storing and protecting his stock of grain through the year. It is probable that a rate of twenty-five per cent on grain loans does not yield more than a reasonable profit to the lender. But when in recent times cash came to be substituted for grain it would appear that there was no proportionate reduction in the interest. The borrower would lose by having to sell his grain for the payment of his debt at the most unfavourable rate after harvest, and since the transaction was by a regular deed the lender no longer took any share of the risk of a bad harvest, as it is probable that he was formerly accustomed to do. The rates of interest for cash loans afforded a disproportionate profit to the lender, who was put to no substantial expense in keeping money as he had formerly been in the case of grain. It is thus probable that rates for cash loans were for a considerable period unduly severe in proportion to the risk, and involved unmerited loss to the borrower. This is now being remedied by competition, by Government loans given on a large scale in time of scarcity, and by the introduction of co-operative credit. But it has probably contributed to expedite the transfer of land from the cultivating to the moneylending classes.