Hindu Capitalism #18: Absence of unnecessary controls on interest (usury) in Hindu India

I think I’ll call it a day now, as far as preliminary research on Hindu capitalism is concerned. I’ve requested two books from the library, and will perhaps revert in the coming week/s or months to this topic. Until then, this last bit on usury (below). It is this piece that me the reference to Jain’s book/s.

Basically, as you’d expect, Hindu capitalism didn’t have much to say against ‘usury’. This was a key driver of prosperity in India, and gave its merchants and bankers enormous clout. The massive temples (all endowed privately) across India are testimony to the absence of restrictions on trade and free banking.

Yes, there were excesses – when high rates were charged in villages from the poor. But there was nothing in principle, in Hindu captalism, that prevented economies of scale. It is increasingly clear that had it not been for deliberate suppression, first by the British, then by Nehru and his Godchildren, India would have been a super-wealthy nation by now.

Yes, the Indian state (or rather, kingdoms) needed to impose a few more protections, perhaps, but Hindu capitalism was largely self-sufficient. It could have been easily converted into a GREAT FREE MARKET SYSTEM. Anyway, that’s my hypothesis.

EXTRACTS

A Short Review of the Historical Critique of Usury (Riba)
BY Wayne A.M. Visser and Alastair McIntosh
Centre for Human Ecology
First published in Accounting, Business & Financial History, 8:2, Routledge, London, July 1998, pp. 175-189
 
INTRODUCTION
The concept of “usury” has a long historical life, throughout most of which it has been understood to refer to the practice of charging financial interest in excess of the principle amount of a loan, although in some instances and more especially in more recent times, it has been interpreted as interest above the legal or socially acceptable rate[i].  Accepting this broad definition for the moment, the practice of usury can be traced back approximately four thousand years (Jain, 1929), and during its subsequent history it has been repeatedly condemned, prohibited, scorned and restricted, mainly on moral, ethical, religious and legal grounds.  Among its most visible and vocal critics have been the religious institutions of Hinduism, Buddhism, Judaism, Islam and Christianity.  To this list may be added ancient Western philosophers and politicians, as well as various modern socio-economic reformers.  It is the objective of this paper to outline briefly the history of this critique of usury, to examine reasons for its repeated denouncement and, finally, to intuitively assess the relevance of these arguments to today’s predominantly interest-based global economy.  The scope will not extend to a full exploration of some of the proposed modern alternatives to usury, except to describe the growing practice of Islamic banking as an example.

Usury in Hinduism and Buddhism
Among the oldest known references to usury are to be found in ancient Indian religious manuscripts and Jain (1929) provides an excellent summary of these in his work on Indigenous Banking in India.  The earliest such record derives from the Vedic texts of Ancient India (2,000-1,400 BC) in which the “usurer” (kusidin) is mentioned several times and interpreted as any lender at interest. More frequent and detailed references to interest payment are to be found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas (600-400 BC). It is during this latter period that the first sentiments of contempt for usury are exressed.  For example, Vasishtha, a well known Hindu law-maker of that time, made a special law which forbade the higher castes of Brahmanas (priests) and Kshatriyas (warriors) from being usurers or lenders at interest.  [Sanjeev: This is not a restriction on usury but a form of occupational regulation, a labour market restriction. This must be deplored, but this didn't really regulate interest rates, it would appear.] Also, in the Jatakas, usury is referred to in a demeaning manner: “hypocritical ascetics are accused of practising it”.
 
By the second century AD, however, usury had become a more relative term, as is implied in the Laws of Manu of that time: “Stipulated interest beyond the legal rate being against (the law), cannot be recovered:  they call that a usurious way (of lending)” (Jain, 1929: 3-10).  This dilution of the concept of usury seems to have continued through the remaining course of Indian history so that today, while it is still condemned in principle, usury refers only to interest charged above the prevailing socially accepted range and is no longer prohibited or controlled in any significant way.