Saturday, September 30, 2023

Origin Of Interest

Must Read

Covid And The Global Warming Fraud

Educated Indians fall for every fraud that comes out of the west. In the awe of the Colonials, everything...

COVID And The Economic Illiteracy Of The Educated Indians

The Indians who live in the Europe or North America retain their economic illiteracy all their lives in those...

The COVID Pandemic

1. Of the major countries at war in the WW II, the US and the UK lost the least...

Assume you have four apples. Assume your neighbour has five oranges. Assume that today’s rate is that four apples are equal to five oranges (introducing medium of exchange, money, will not change anything.). Now if your neighbours says that he wants to have your four apples today, but will pay the five oranges one year later.
You will say that if the payment will come after one year, you will give the apples today only if he promises to pay six oranges, not five. That is you value an orange you are getting today more than you value an orange you will get after one year, even though, and only if, you are giving your apples today. An orange to be paid one year later is worth only 0.83 of an orange paid today in your valuation.
This is interest.
Interest is the ratio of value you attach to a thing if paid today and value you attach to the same thing if paid one year later to you in exchange of something you give today.
In above case interest is 20% per annum.
Interest arises because man values a thing in the present more than he values the same thing if promised to be given in the future.
Man will always value present things more than the promise of the same things in future. And therefore there will always be interest.
This is the origin of interest.
If there is no interest that means man values a thing now equal to promise of the same thing in future. That is he holds present and future to be one and the same thing. This is not the reality, and therefore any talk of abolishing interest is same as abolishing future. And if man comes to believe that there is no future, he will not give his apples at all, even for a promise of million oranges. That is, if future is abolished, by abolishing interest, rate of interest will actually become infinite, and people will not invest. Investment is done only IF people believe in future. Any society that bans interest by fiat withers away.
As for सूद, सूद is not interest, it is entrapment of a man in his hour of distress, and then holding him hostage for life, using him as a beast of burden, using violence (all सूदखोर use violence). Any society that allows violence by one private citizen against another private citizen also withers away. In fact, leading a man to such distress that he walks into the trap of soodkhor itself is an indication that familial ties and social customs have broken down, and no society survives such breakdowns.
Coming to interest, RBI, or any Central bank, or any govt can not fix it. Interest arises from valuations of man in a free market, and any attempt to fix it by an “authority” is destruction of free market, and will always have the same consequences as destruction of free market by any other means has. In a free market, interest, that is ratio of value attached to a thing given today and value attached to the same thing if promised to be given one year later, tends to be same for all commodities, because of trade.
People do not save because they expect interest. They save because they want to provide for the future. They demand interest on this saving if they give it to somebody else who promises to return it one year later, because in effect they are giving away their apples today with a promise of getting oranges one year later, not immediately.
In a society with rule of law, rate of interest tends to be low because people are more sure of getting oranges one year later for the apple they give today, so they value orange promised to be given one year later not much lower than the orange of today. But whatever be the state of rule of law, man will not value as equal an orange paid today, and one promised to be paid one year later. So interest can not become zero in a free market.

- Advertisement -
- Advertisement -

Latest News

Covid And The Global Warming Fraud

Educated Indians fall for every fraud that comes out of the west. In the awe of the Colonials, everything...
- Advertisement -

More Articles Like This

- Advertisement -