The Ethics of Interest and Usury

A Biblical and Economic Assessment

You can listen to an audio narration of this article here.

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Introduction:

In last week’s article reviewing “Mere Christianity” by C. S. Lewis, I noted a brief comment by Lewis on the subject of interest. I didn’t explore the question in depth there, but due to the curiosity voiced by some readers, we’ll look at it more closely. Lewis observed that the general consensus of Christianity prior to the modern age was against interest, but he took an agnostic view and said, “This is where we want the Christian economist.” I have little formal training in economics, though it’s long been a hobby of mine. So perhaps I can posthumously answer Lewis’ call. To do this we must first ask…

What Are Interest and Usury?

At the most basic level, interest is payment to a creditor over and above repayment of the principal. As Scripture makes clear, there are certain instances where this is inappropriate, which is what I refer to as “usury.”¹

In my estimation, most incorrect ethical assessments of interest and usury are rooted in faulty assumptions about the economic nature and function of interest. Eugen von Böhm-Bawerk, possessor of a tongue twister of a name, economist, and the finance minister of the Austro-Hungarian Empire, wrote a massive tome, “Capital and Interest,” chronicling historical views on interest. In the Introduction, he made this exact point:

[I]t appears to me that there is no better way of coming to a correct decision on the question whether interest be a good thing, than by getting a proper knowledge of the causes which give rise to it.²

I already gave a basic definition of interest: repayment beyond the sum of the principal, but why does interest exist in the first place? It’s obvious why interest would be desirable to a creditor: It compensates him for the use of his property, during which time he cannot use it, and incentivizes him to take on the risk of the debtor defaulting. But why would the debtor agree to pay back more than he borrowed? Simply put, because he would prefer to have the money now as opposed to later. Essentially, interest is a premium paid to receive a sum as yet unearned. As Böhm-Bawerk states later,

The loan is a real exchange of present goods against future goods. …[P]resent goods invariably possess a greater value than future goods of the same number and kind, and therefore a definite sum of present goods can, as a rule, only be purchased by a larger sum of future goods. Present goods possess an [exchange rate premium] in future goods. This [premium] is interest.³

Or, we could put it like this: In lending, there is an exchange not just of principal and repayment but also of the intangible but valuable privilege of receiving the money now and interest (i.e., the price of this privilege). The creditor is providing real value and receiving due compensation.

The Case against Interest:

But of course, not everyone sees it this way, and it’s only fair to consider both sides. Thomas Aquinas is both a competent and representative spokesman for anti-interest arguments. In his “Summa Theologiae,” Aquinas devotes a section to usury, and since it’s somewhat lengthy, I’ll summarize his central argument:

1. There are two categories of goods, consumable and non-consumable (Aquinas gives the example of wine versus a house).

2. It is unjust to charge for the use of a consumable good in addition to charging for the good itself because “the use of the thing must not be reckoned apart from the thing itself.” (Aquinas builds on his example and says that it would be unjust for a merchant to sell “the use of wine” in addition to the wine itself. Clearly no one would accept this exchange, which is precisely Aquinas’ point: It’s obviously unfair.)

3. Money falls into the category of consumable goods.

4. Therefore, to charge for “the use of” money in addition to the sum of the principal is unjust.

It’s Aquinas’ third premise I find objectionable, which he supports thus:

Now money, according to [Aristotle,] was invented chiefly for the purpose of exchange: and consequently the proper and principal use of money is its consumption or alienation whereby it is sunk in exchange.

Setting aside the appeal to authority, Aquinas is mistaken on two further points. First, money is not simply a medium of exchange but also a store of value, which means that interest, as a compensation for the forgone value of retaining one’s money, is perfectly in line with money’s “proper and principal use.” Second, money is not “consumed” in exchange but rather traded for some other good(s). Ergo, it falls in the category of non-consumable goods, the use of which can rightly be charged for. To use Aquinas’ illustration of leasing a house, this is like subleasing.

The Biblical Texts:

Theologian R. J. Rushdoony said, “Few laws are more misunderstood than the usury laws of the Bible.”⁴ Indeed, these texts have been subject to a myriad of misinterpretations. The first passage is Exodus 22:25-26:

“If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him. If ever you take your neighbor’s cloak in pledge, you shall return it to him before the sun goes down…

Calvin observes that this passage is not commenting on usury as such, but rather prescribing charity to poor brethren by prohibiting charitable loans made at interest. Rushdoony takes the phrase “with you” to refer specifically to poor brethren in one’s employment⁵ since the pledge would be held as a security in cases of advance wage payment. Leviticus 25:35-37 makes this clear:

“If your brother becomes poor and cannot maintain himself with you, you shall support him as though he were a stranger and a sojourner, and he shall live with you. Take no interest from him or profit, but fear your God, that your brother may live beside you. You shall not lend him your money at interest, nor give him your food for profit.

That these texts discuss cases of poverty and charity is clear, but the term “brother” has been interpreted in numerous ways. Jews have understood it to refer to fellow Jews whereas Aquinas asserts that it really refers to everyone. However, Deuteronomy 23:19-20 states:

“You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest. You may charge a foreigner interest, but you may not charge your brother interest....

Aquinas is clearly incorrect, but the Jewish view is also incorrect. Every other Scripture passage discussing interest makes explicit that it discusses the case of poor brethren only, and this context is implicit here. God prescribes interest free loans as a means of charity for poor fellow covenant members, and Jesus reaffirms this in his discussion of charity with the words, “lend, expecting nothing in return,” (Luke 6:34-35).

From this, we can deduce, for our present day, that commercial lending and lending to well-off Christians (which, in America, is most everyone) may be done at interest. However, Christians ought to give interest free loans to poor brethren as a means of charity. And while the command to give interest free advance wages mentions only “brethren,” I would argue the general equity⁶ taught therein would indicate that payday lending is usurious and ought to be supplanted by Christian charity. Thus…

Interest Is Ethical in Most Cases

There are a number of biblical supports for this. First, as we just saw, God expressly permits interest in Deuteronomy 23. Second, Paul, quoting Jesus, says, “The laborer deserves his wages,” (1 Timothy 5:18). While it’s true the lender is not directly working, he is providing real value and forgoing other gain from his money, which merits compensation. But second, in most cases, money is only acquired through previous labor, and so the lender is indirectly using his labor.⁷ Third, the Parable of the Talents shows that interest and investment are not only permissible but, when used toward good ends, are themselves good. This parable illustrates that Jesus has, in a sense, “loaned” us our lives and, upon his returning, expects to collect with interest. Fourth, both Jesus and Paul frequently use the imagery of sowing and reaping. Just as a farmer, with prudence, rightly expects to reap more than he sowed, so an investor, with prudence, rightly expects to collect more than he lent. Finally, as one of the blessings for covenant faithfulness, God promises in Deuteronomy 28:12, “[Y]ou shall lend to many nations, but you shall not borrow.” Since lending to foreigners was done at interest, one of God’s promised blessings is exacting interest.

Conclusion:

Interest is by and large ethical, but history shows that it is a situation ripe for abuse. In a letter to Oecolampadius on the subject of interest, Calvin said that if usury is allowed, “with that pretext, very many will at once seize upon unlicensed freedom, which can then be restrained by no moderation or restriction.” This led him to say, “It could be wished that all usury and the name itself were first banished from the earth.” Indeed, I would argue that the error of blindly prohibiting all interest is a healthier error than our blind acceptance of an economy entirely saturated with it. Interest and investment have made large-scale business possible, which has increased material prosperity. However, it’s large businesses who have been the most effective promoters of progressivism.

Lewis said, when expressing his agnosticism on interest, “I simply do not know whether the investment system is responsible for the state we are in or not.” I assume by “the state we are in,” Lewis means the degeneracy, rebellion, and resulting misery our civilization is neck deep in. My answer would be, “Mostly not.” It was the great apostasy of the “Enlightenment,” previous to the modern economy, and the many illicit children she bore, which are responsible for our current state. However, capitalism, as the most efficient economic system, quickly produces the desired results. And since our current desire is to run from God, the economy is doing its part to help take us there.

 So while interest is, generally speaking, ethical and permissible, I think we should share Calvin and Lewis’ hesitancy and refrain from a full-throated endorsement of the modern economy. The only thing that can get us out of “the state we are in” is not some bureaucracy dedicated to stamping out usury but a return to God’s law as the foundation for our ethical and legal thought.

1. The term “usury” is older and, before modern times, was used to describe any and all interest. However, now “usury” has come to mean interest the speaker deems unjust. I follow this modern distinction both for ease of reference and to avoid using the pejorative, but be aware that older authors usually make no such distinction.

2. Böhm-Bawerk, Eugen von. Capital and Interest. London, MacMillan and Co., 1890. Pg. 3

3. Ibid., 259

4. Rushdoony, Rousas John. The Institutes of Biblical Law. P&R Publishing, 1973.Pg. 473

5. Ibid., 477

6. Cf. Chapter 19, Article 4 of the Westminster and London Baptist Confessions.

7. This applies only to loans made by an individual, not by a bank or other credit institution.

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