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January 22, 2011

Is charging interest on a loan immoral? A surprising historical perspective

InterestRates
The idea of charging interest for the use of money is ingrained in our culture, as American as apple pie and baseball.  Nowadays, hardly anyone questions the philosophy on which the practice is based.  Instead, we argue how much interest is too much.  If we were to go back in history a few hundred years, we would learn that the current wrangling over rates is somewhat surface and that there exists a more potent debate beneath.   

Around the 14th century, religion had the most influence on thoughts regarding usury, which during those times meant charging any interest at all. The Catholic Church took a solid stance against it.  Numerous Biblical passages in both the Old Testament and New Testament condemn or restrict usury. Likewise, passages in the Quran are interpreted to condemn the practice. Chris Anderson’s bestselling book “Free”, which explores the topic briefly, highlights some examples of the Catholic Church's official condemnation:

Pope Clement V made the belief in the right to usury heresy in 1311, and abolished all secular legislation that allowed it.  Pope Sixtus V condemned the practice of charging interest as ‘detestable to God and man, damned by a sacred canons and contrary to Christian charity.  

Perhaps the most compelling description of the religious argument of the times is found in a Wikipedia entry regarding the subject:

… usury creates excessive profit and gain without “labor” which is deemed “work” in the Biblical context. Profits from usury are argued not to arise from any substantial labor or work but from mere avarice, greed, trickery and manipulation. In addition, usury is said to create a divide between people due to obsession with monetary gain. Most importantly, usury is the derivation of profit from biological time, which is linked to life, considered sacred, God-given and divine, leading to excessive worrying about money instead of God, thus subjugating a God-given sanctity of life to man-made artificial notions of material wealth.

Conversely, contemporary proponents had no moral objections to usury and thought that the service justified the cost.  Regarding the labor argument, they retorted that the labor induced when administering a loan constituted work and that charging interest was an optimal model to quantify and compensate that effort, especially over time.

Without delving deeper into the arguments—I hope my cursory introduction of two basic arguments is clear—I pose the question to you: Do you believe that charging interest for the use of money is immoral? Why or why not? What situations, if any, are acceptable?

Comments

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It’s the time when people are making money by using their money and we can't deny the fact that its too profitable business now.history has gone so we better focus on the present and try to improve the future.

Based on my experience, if there are no clear terms from the policy and agreement for the interests, then it is not legal and immoral. Companies do charge a lot on interest rates with shady computation.

There's an exchange of service involved so it's necessary. The fees depend on the amount involved in the loan and the purpose as well.

I don't think charging interests on base loans are immoral. We need some compensation and banks need their profit.

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Greetings! I’m Kevin D. Johnson, a business owner who has recently assumed the role of consumer advocate and internet activist. Atlanta, Georgia is my home.

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Upon returning from my wonderful honeymoon in Jamaica in October 2008, I received what I thought was an ordinary American Express bill, but to my surprise it was a disappointing letter informing me that my credit line was reduced by about 65% for a highly suspicious and discriminatory reason. Considering my excellent credit score and pristine payment history, it just didn’t make sense. However, what does make sense are the unfair and insidious policies that I have uncovered when asking why. It is time to change them.

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