Money, Greed and God--Part VII

The Boon of Lending Money At Interest

In his book, Money, Greed, and God: Why Capitalism is the Solution and Not the Problem, Jay Richards takes up the Usury Myth in the sixth chapter. This Myth, whilst less common, lies behind much of the common unease about wealth and prosperity. The Myth asserts that working with money (for example, banking) is inherently evil and that charging interest on money is always exploitative.

Like many of the misleading myths related to wealth, there is a biblical allusion which can give it the appearance of being grounded in Scripture. The Bible condemns charging interest on loans as being exploitative and oppressive. For example: Exodus 22:25; Leviticus 25: 35—37; Psalm 15: 1, 5. When the prophets indicted Israel before God's bar, they cited charging interest on loans as evidence of Israel's rebellion against God (Ezekiel 18:13). It was thus common in the Medieval Period both to condemn and forbid lending money at interest.

However, the prohibition against lending money at interest was not absolute. For example, whilst lending money to a fellow Israelite was forbidden, charging interest to a non-Israelite was not: Deuteronomy 23: 19—20. Moreover, in the Parable of the Talents, our Lord has the Master of the house rebuking the worthless third servant for not generating a return on the capital he had entrusted to him. At least he could have put the money in the bank and have paid it back along with the interest! (Luke 19:23)

A careful reading of the prohibitions on interest reveals that the context is one of charity. It refers to situations where people are on hard times or have debts and obligations which they cannot meet, through no fault of their own. To lend and require interest at the same time would only serve to make the hardship greater. When an Israelite saw a brother in need he could either make a gratis gift, or he could lend him the money to be paid back in time—but with no interest attached. To charge interest in such a situation would be nothing other than exploiting the weak and vulnerable.

But a completely different situation applies when people want to borrow money in order to finance a commercial venture or to sustain a lifestyle to which they have become accustomed or to which they aspire. In these cases charity and hardship is not in the picture: lending money at interest is nothing other than ensuring a reasonable return on capital whilst other people use it for their own benefit. As commerce expanded throughout Europe and the use of money in exchange for goods and services increased, Christendom was forced to re-think a simplistic blanket ban on lending money at interest. John Calvin, in particular, made the distinction between lending without interest to the poor, and lending capital for business, personal, or commercial gain.

The church didn't decide that usury was OK, however. Rather, it became much more precise in defining usury. Usury isn't charging interest on a loan to offset the risk of the loan and the cost of forgoing other uses for the money; it's unjustly charging someone for a loan by exploiting them when they're in dire straits. That's the world of loan sharks, not banks. (Richards, p.144)

Thus, prohibitions against usury are still binding when properly understood and applied. Lending to those in genuine need without interest is a form of charity and generosity—and we should see more of it. Lending to enable someone else to make money is something entirely different. The explosion of micro-finance in underdeveloped countries makes this distinction very clear. Micro-finance extends small loans to families to enable them to purchase some basic machinery, such as a sewing machine, or raw materials to enable them to start trading, and so improve their lot in life and increase their standard of living. The loans are usually small and have to be paid back with reasonable interest, often within a year. It has proved to be a great boon in developing countries.

Micro-finance has not oppressed people, but on the contrary has been liberating for millions. The reason is that the lending is for commercial not charitable purposes. The capital has been carefully husbanded and used to enable poor people to produce goods and services which they can trade with their neighbours or nearby villages, thereby taking the first steps toward lifting themselves out of degrading poverty.