952 FINANCIAL REFORM AND THE ECONOMYLimits on Interest
One of the worst problems created by the use of cash, at least in Yongjo's mind,
was high interest rates for loans, but he was incapable of drawing a connection
between the shortage of cash, high value of money, and high interest rates, Had
the money supply been increased by more minting, interest rates should have
declined, but some officials at court preferred to reduce those rates by govern-
ment command, Yi K wangjwa recommended that YOngjo limit interest payments
by forbidding the total amount of interest payments ever to rise above the amount
of the initial loan (I 00 percent of the principal). Yi did not articulate this prin-
ciple in terms of the interest rate, but since loans were normally granted
throughout the growing season for a maximum of ten months, he probably con-
ceived of an upper limit of IO percent per month simple interest (for a term of
ten months).
This figure was only Yi 's theoretical upper limit, for he rcally intended to reduce
interest rates far more severely. He pointed out that the current interest rate for
a cash loan of one yang was 2 percent (two p'un, pUll in Sino-Korean pronun-
ciation) per month (for ten months), but borrowers never had sufficient resources
during the growing season to repay their loans, and almost always did so after
the fall harvest. Since the usual period of the loan was ten months, interest was
calculated at 20 percent for a ten-month loan (2 percent times IO). He now pro-
posed that no additional interest be charged after the ten-month period even if
took the debtor ten years to repay the loan, fixing the interest limit at a 20 per-
cent maximum by limiting the time when interest could be charged. If the lender
then broke the law by demanding more interest, he would be subject to physi-
cal punishment, cancellation of interest, and repayment of the principal alone.
Yi believed that his formula would prohibit not only the current usurious loans
(changni), but the practice of refinancing unpaid loans by adding the unpaid inter-
est to the principle (i.e., compound interest) as well.
Yi also hoped to end the practice of loaning grain in the spring and demand-
ing repayment in cash. Even though a loan in the spring might be calculated in
cash according to the spring price of grain, the borrower would only be obliged
to repay the loan in grain, at a simple interest rate of 5 percent per month, or 5
toe (.5 mal) per IO mal, or a total of 50 percent (5 mal for a IO mal loan) for
ten-month limit, with no additional interest thereafter.
Thus, though a theoretical limit on total interest payments for any type of loan,
not the interest rate, would be a sum equal to the size of the original loan, in
practice interest could only be charged for ten months, and total interest pay-
ments could not exceed 20 percent for cash loans and 50 percent for grain loans
for the ten-month period. The per annum simple interest rate would have been
24 percent and 60 percent, respectively, but these figures would have been mean-
ingless because the key feature of the proposal was to limit the time for inter-
est to bc charged to ten months. The interest rate for official debts would be still
less, IO percent interest for a ten-month time limit for either cash or grain loans.