The Financial Ignorance of Religious Texts

Among the many other prohibitions in the Old Testament, there are several verses that prohibit charging interest on loans (at least to one’s fellow Israelites – foreigners are apparently OK to gouge). Some of them are:

“You shall not lend upon interest to your brother, interest on money, interest on victuals, interest on anything that is lent for interest. To a foreigner you may lend upon interest, but to your brother you shall not lend upon interest…”

—Deuteronomy 23:19-20

“And if your brother becomes poor, and cannot maintain himself with you, you shall maintain him; as a stranger and a sojourner he shall live with you. Take no interest from him or increase, 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.”

—Leviticus 25:26

“If a man is righteous and does what is lawful and right – if he does not eat upon the mountains or lift up his eyes to the idols of the house of Israel… does not lend at interest or take any increase… he is righteous, he shall surely live, says the Lord God.”

—Ezekiel 8:5-9

The New Testament, meanwhile, is more ambiguous on the subject. Matthew 25 and Luke 19 contain the parable of the talents, where a wealthy landowner gives money to his servants and rewards the ones who invest it and return him a profit. But this is most likely intended as a moral lesson about developing one’s god-given talents, not as financial advice. Luke 6:35, however, is more explicit: it instructs Christians to “lend, hoping for nothing again”.

The Qur’an, meanwhile, contains similar injunctions. Sura 2:275 says that Allah “permitteth trading and forbiddeth usury”, and 3:130 and 30:39 similarly warn believers not to lend money in the hope of “increase”. These rules, like other vague guidelines in the Qur’an, have been expanded in sharia law into a total prohibition of charging interest that’s widely observed in Islamic countries (as opposed to the Jewish and Christian response, which is to largely ignore the inconvenient commands).

You might be wondering how you get a mortgage if you live in Malaysia, Saudi Arabia or other Muslim theocracies. The answer is that Islamic banking companies have invented a concept called sukuk to get around this prohibition, which would otherwise make it impossible for them to do business. In essence, rather than you buying a home with money borrowed from a bank and then repaying the bank with interest, the bank buys the home outright and then permits you to live there for a fixed period, paying rent to do so, while at the same time you slowly acquire ownership of the property by paying back the bank’s principal. If you think this sounds like a legalistic fiction, invented to technically comply with the prohibition on interest while exactly reproducing its legal structure, you’re right.

As the tortured reasoning that created sukuk shows, regardless of what originally motivated these prohibitions, in the modern world they’re archaic and irrational. Interest isn’t always a cruel imposition by wealthy lenders (though it can be) – in a capitalist economy, it serves several important purposes. It compensates the lender for credit risk – that is, the risk that the loan recipient will go bankrupt and won’t be able to repay. It compensates the lender for opportunity cost – for them giving up the ability to do something else, potentially more profitable, with the money that’s loaned. And it compensates the lender for inflation – the fact that money becomes less valuable over time as a society becomes more productive and prosperous and the money supply increases.

The charging of interest has transformed lending from an activity that’s the largesse of a few wealthy elites, to a bona fide profession whose benefits are available to everyone. Interest has made it possible for tens of millions of people to buy a home, start a business, or finance anything else that they couldn’t have paid for up front and out of pocket, and it’s enabled the global capitalist revolution that’s lifted hundreds of millions out of subsistence and poverty. If we had obeyed the prohibitions of religious texts, none of this would ever have come about. However well-meaning these rules originally were, their existence shows that the texts that contain them were authored by fallible humans, ignorant of the mathematical and economic arguments that would propel the human species to prosperity.

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