THE THEORY OF INTEREST

of such common observation that no special collection offacts is necessary. Every lender or borrower knows thatthe rate of interest varies directly with risk. A bird in thehand is worth two in the bush.

The principle applies not only to the explicit interestin loan contracts, but to the implicit interest which goeswith the possession of all capital. Where there is uncer-tainty whether income saved for the future will ever beof service, but the certainty that it can be of service ifused immediately, the possessor needs the possibility ofa very high future return in order to induce him to save.It is noteworthy that in time of war there is a ruthlessdestruction of crops and a tendency among the possessorsof consumable wealth to enjoy it while they may. Thesame conditions are characteristic of communities whichare in a perpetual state of political insecurity. 14 “The rateof interest is everywhere proportional to the safety ofinvestment. For this reason we find in Korea that a loanordinarily brings from 2 to 5 per cent per month. Goodsecurity is generally forthcoming, and one may well askwhy it is so precarious to lend. The answer is not credit-able to Korean justice. ... In a land where bribery isalmost second nature, and private rights are of smallaccount unless backed up by some sort of influence, thebest apparent security may prove a broken reed when thecreditor comes to lean upon it.” 15

There remains the second part of the proposition inregard to risk, namely, that, while risk tends to increasethe rate of interest on risky loans, it tends at the same

“ On the uncertainties of Indian life, see Rae, The Sociological Theoryoj Capital, pp. 69 and 70.

“Hurlbert, H. B. The Passing oj Korea. New York, Doubleday, Pageand Co., 1906, p. 283.

[ 382 ]