Does the Bible Ban Interest (and, if so, what should we do about it?)
by Michael Schluter and Dan Montoya
This is an important question for Christians for two reasons. Firstly, the Bible addresses the use of interest at several points in both the Old and New Testaments. Secondly, our economy relies heavily upon the use of interest, and we need to have clear answers for the ethical issues this raises. This article sketches a brief history of Christian thought and practice on the topic, examines the key Biblical texts, and outlines the relational arguments against interest before suggesting some practical measures for change.
The history of the interest ban
The church's position on the use of interest has varied throughout its history. Early church Fathers like Augustine continued the OT ban on interest, and it wasn't until the Reformation that the church's position changed. Luther opposed the use of interest because he understood it to be a means of extorting the poor. However his reasoning did not address the use of interest in commercial transactions. Calvin on the other hand sanctioned the use of interest so long as it did not contravene equity and brotherly union. This was for two reasons. Pragmatically, he used interest as an incentive to bring capital into Geneva in order to deal with unemployment. Hermeneutically, he argued that the political system of Israel no longer had relevance. The Catholic Church followed suit in overturning the ban on interest in the 1850's, and today the majority of churches are unopposed to interest. If a church does question the use of interest, they normally argue that it is unallowable between believers, but permissible elsewhere.
The key passages in the Bible
How should we approach understanding what the Bible says about interest? Firstly, it is important to keep in mind that Christianity is a relational religion. All the key tenets of our faith are relational " our God is Trinitarian, three persons in a unity who through all eternity have loved each other; humanity, as male and female, is created in His image; the "fall", or more relationally, "the rupture" was the breaking of relationship between God, humanity and creation; in Christ we find reconciliation; in Christ He has made a covenant with us; eternal life is to know God the Father and Jesus Christ . On that last day, Christ will ask us about our relationship with God and with other people. God therefore looks at the world through a relational lens. Money has a large impact on the way people relate. It often plays an important role as a form of social glue, providing an alternative to, or strengthening the mutual obligation created by familial ties or altruism. The breakdown of the family in Western societies is due in part to the removal of financial and other obligations from the family to the State. The observation some sociologists have made of the family becoming a multi purpose leisure center seems to have an element of truth given the State now looks after health, education, housing, welfare and so on. It is important then to consider what the Bible says about money because of the large impact it has on relationships.
Secondly, there is the issue of the purpose of OT law, and its applicability in New Testament times. In Matthew 5:17-20, Jesus talks about the continuing relevance of the OT law, and states that those who are great in the kingdom of heaven will practice and teach the law. The question this raises is what parts of the law still apply? Reformers like Calvin divided the law into three sections: the ceremonial law (including the exclusivity laws), the civil law (which applied to the community) and moral law (between the individual and God); and held that only the moral parts of the law applied to the NT believer. Christopher Wright has argued that, in terms of the relevance of OT law for Christians today, the divide should be between the civil and moral on one hand, and the ceremonial on the other . Many laws had all three functions. For example, the Sabbath was a time to be spent with God, time with family and friends, and was a sign of the covenant (hence, punishment for breaking the Sabbath was death). The division of the law adopted by the Reformers also meant that Israel came to be seen solely as a picture of the church. However, Israel was always intended to be a picture of the people of God as a nation (the civil law) as well as a picture of the relationship between individuals and God .
There are several Biblical passages that address interest in the Old Testament. Exodus and Leviticus both contain a law that bans interest on loans to the poor. Deuteronomy 23:19-20 broadens the command to ban interest on loans to all "brother Israelites" but not to foreigners. Here the command is accompanied by the promise of God's blessing on everything the Israelites put their hands to. The same principle is at work behind Deuteronomy 15:1-6, where all loans must be cancelled every seven years, except to the foreigner. This creates a disincentive for the lender, as the only reasons to lend money become non-financial, there being no profit to be made through charging interest. Ezekiel 18:8-17, 22:12, Psalm 15:5 and Nehemiah 5:7-11 all condemn the taking of usury from fellow Israelites.
Interest is only mentioned once directly in the New Testament in the parable of the talents , and is prohibited by implication in Luke 6:35. Many Christians say that Jesus condones interest through his use of it in the parable of talents. However, this is not the case for two reasons. Firstly, parables are not meant to justify significant shifts in ethics from the OT to the NT, but are primarily meant to demonstrate spiritual principles of the Kingdom of God. Secondly, Jesus is arguing that seeking to gain interest from money is the sign of a hard man i.e. an unloving person, and is reaping where one hasn't sown. Many commentators have said of Luke 6:35 that not only does it seem to assume a ban on interest, but it goes further by telling Christians that they should not even expect the loan back.
Specific arguments against interest
Why does the Bible say what it says about interest? Jesus said that all the Law and the Prophets hang on the two great commandments . Not charging interest is therefore one way in which we show love to our neighbour. There are at least seven specific arguments against charging interest because of the relational consequences.
(1) There are two possible moral arguments for charging interest. Firstly, you could argue that interest covers the loss of original capital caused by inflation. However, many economists argue that we only have inflation because we charge interest. The second reason is the convenience factor for the lender. It could be argued that the lender is entitled to some compensation for giving up temporary control of their money. However, in this situation Jesus equates charging interest as the action of a hard man who reaps where he hasn't sown.
(2) Debt contracts involve an unfair distribution of risk, all of it being loaded upon the borrower. In the case of a business loan, the lender receives a fixed return despite the success or otherwise of the business. The lender is also secure because of the collateral they have on the loan. Christianity on the other hand seems to say that taking risk merits a return on capital. So, as Marx has a labour theory of value, Christianity has a risk theory of capital.
(3) Charging interest allows people to take financial risks with multiple negative social consequences. A study done by the Relationships Foundation of 1000 people with multiple debts found that most had experienced depression, divorce, wife-beating or child abuse. Though causality is a little difficult to prove, there is undoubtedly a high correlation between debt and a range of social problems.
(4) Debt finance reduces the relational contact between lender and borrower, hence increasing the level of atomization across society. From the lenders point of view, there is no need to carefully track the use of the loan because they have a guaranteed return. Equity finance, however, promotes relationship, as the lender needs to check how the money is being used.
(5) A study in the late 1980's by Professor Utley at Reading University found that over two-thirds of corporate growth came from debt finance rather then being internally generated. Therefore, if interest were banned, companies would grow more slowly and more organically. This would increase stability in corporate ownership and a sense of corporate responsibility. It would also reduce the likelihood of the corporate bullying that occurs between large companies and their providers and even consumers because of size and power differences.
(6) Interest allows government borrowing to occur with negative consequences. One possible consequence is that it makes it easier to fight wars. Another is that governments may borrow from the next generation.
(7) Interest encourages the volatility of the economic cycle and increases the instability of the banking system.
What can we start to do about it?
It is not possible to undo the effects of a complex financial system built over 400 years around debt finance overnight. We need to have a 50 to 100 year perspective and start with achievable goals that demonstrate the benefits of banning interest. Here are five suggestions for where we might start.
One important place to start is the tax system. This is because debt finance is privileged over equity sources of finance. With debt finance, interest is only taxed once because companies can use interest payments as a legitimate business expense. The person who pays tax on the interest in this case is the lender. On the other hand, equity dividends are taxed twice. Firstly, the company pays tax on any profits before it declares the dividends. Secondly, they're taxed again when they are distributed to the person who owns the equity. This means that if you're in charge of corporate finance, it pays you to borrow money at interest rather than on an equity basis. Equally if you're a lender, it pays to put your money into bonds rather than put it into equity. Arguably the tax advantage should be given to those who put money into equity finance because the risk is shared. We believe that changing the tax system would have many economic benefits through the impact on the way in which companies operate and the size of companies.
Placing a cap on interest rates would be a step towards banning interest. Those most affected by interest are often the poor, who can pay up to 1000% p.a. on money borrowed from moneylenders. Capping interest rates would have to be done carefully in this situation because moneylenders have high collection costs and might become less likely to lend money if this happened, further affecting the poor.
The Relationships Foundation is exploring the possibility of creating "Family Welfare Syndicates' at the moment. Tax incentives could be given to encourage extended families to create a fund from which they can offer interest free loans to their members to get through university, buy a house or provide for the elderly. This type of system could also be used to radically change the insurance system. For example, 20 people could bring together $12,000 and ask an insurance company to insure all their cars with a $2000 excess on any claim. This would reduce the insurance premium and the size of the insurance industry. It would also provide an incentive for more responsible driving by the owners and users of the cars insured. They would also promote beneficial relational outcomes through the creation of mutual financial interdependence.
Student debt is a problem faced by many in Western societies given rising university fees. It often leads to people marrying and having children later in life, hence affecting the sustainability of the population of a country. This could be avoided by taxing new graduates at a higher rate.
Debt is one of the biggest issues facing developing countries. A more radical solution to debt is required than that proposed by the Drop the Debt and Make Poverty History campaigns because Africa pays more in interest repayments that it get in new loans. What is needed is not only the cancellation of debt every seven years , but also interest-free loans.
Conclusion
Interest is clearly banned in both the Old and New Testaments. The damaging relational consequences of interest are something the Bible abhors, and therefore something we too should abhor. The question now is, what changes can we make to remove the use of interest from our societies. A long-term approach is required to deal progressively with the structures that encourage the use of interest. Encouraging a move towards equity-based finance through changes to the tax system will develop a system where risk and reward is fairly shared. Family and community relationships can be built by moving away from individualized financial services towards more mutual systems like Family Welfare Syndicates. These are just some ways in which we can start to deal with a practice that has so many negative relational consequences.
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