- Because of the risk of not getting paid back in the days before banking, typically, money lenders charge high interest. Today, we call them loansharks.
- The system of money-lending actually makes it a certainty that if interest is charged, then some loans will not be paid in full. Newly created money is hard to come by in a hard-currency system. You can mine it, or take it from somebody else. So essentially, hard currency systems are fixed. They are a zero sum game. Anybody’s gain is someone else’s loss. All interest charged has to be a loss to somebody somewhere.
- To pay Freida back with interest, Zeke has to get more gold from elsewhere. But before banking started, the amount of money was pretty well fixed. Sometimes new gold or silver came into a village or town, perhaps from a mine, but aside from minor amounts of gold, you could theoretically inventory all of it, and the total amount of money would never change.
- That means that unless there is a gold mine, or somebody is bringing in lots of gold, any interest paid on a loan has to be paid with money from someone else’s loan. So someone loses. That makes it guaranteed that many moneylenders will never get paid back. With a fixed amount of money, somebody always has to lose. Perhaps this is why some of the cultural prohibitions on charging interest came about.
- The high interest puts more burden and limits what ventures can be profitable. That helps keep the society from advancing.