Is charging interest sinful?
A bid to reconcile Scripture and the modern economy.
"There is one bit of advice given to us by the ancient heathen Greeks, and by the Jews in the Old Testament, and by the great Christian teachers of the Middle Ages, which the modern economic system has completely disobeyed. All these people told us not to lend money at interest: and lending money at interest – what we now call investment – is the basis of our whole system. Now it may not absolutely follow that we are wrong.... This is where we want the Christian economist."
– C.S. Lewis, "Mere Christianity"
In an age of subprime mortgages, credit cards, and payday lending, it's hard to imagine that charging any interest was once considered immoral. Yet like many ancient moral leaders, Moses commanded, "If you lend money to any of my people who are poor, do not … require him to pay interest." (Exodus 22:25, Good News Translation).
Interest is what fuels savings and investment. Without interest, borrowing – from home loans to bonds – would virtually disappear. Most of us today don't lend to the poor. Rather, we "lend" to the very rich: When we buy bonds or set up a savings account, we give banks and government our money, expecting a modest rate of return in exchange. Does Moses' injunction apply in such cases? If so, is our modern economy intrinsically sinful?
After 20 years of thought, prayer, and practice in the financial industry, I'm convinced that interest can be an important part of financial and spiritual blessings. But a distinction must be made between lending for charity and lending for investment. When we help a neighbor in need – and the Bible says we are obliged to do so! – we ought not seek financial profit. But when we lend to boost a neighbor's productivity, a return on investment is sound.
This distinction isn't always recognized, which explains the usury laws and prohibitions on "excess" profit that persist today. An extreme example comes from Robert Wuthnow's book, "God and Mammon in America." In 1639, merchant Robert Keayne was censured by his Boston church and convicted in court for earning 6 percent profit, two points above the limit.
That concern over greed is alive today. Many cities are passing laws to cap the interest that payday lenders can charge. Washington wants to lower interest rates for troubled homeowners. Politicians complain about price gouging by Big Oil, and threaten a windfall-profits tax. But the "evils" of interest rates cut both ways: America is suffering the consequences of easy money – where interest rates stayed too low for too long, encouraging speculation in housing.
For most of Christian history, loans were made only to those in need. And charging interest on such loans was forbidden. That ban among Christians in medieval Europe spurred many Jews to become money lenders – a job that attracted persecution and resentment at the time but is imitated today.
After the Protestant Reformation, wealth spread rapidly, making lending for profit more mainstream. Meanwhile, philosophers such as Adam Smith began to liberalize the rules on interest and profit. The idea of investing for profit was a liberal one resulting from a long moral battle. Without that victory, the Industrial Revolution – and the social and political reforms it brought – may never have happened in the West.
By comparison, consider the Muslim world, where interest is forbidden by sharia. Has its illiberal attitude toward interest hindered its economic development? Maybe. But there are signs of accommodation. There are special Muslim mortgages that don't involve interest, but that carry higher costs. And Muslim banks don't pay interest on deposits; they declare a "dividend" for depositors. The dividend typically reflects interest rates, leading to the cynical inference that such creative financing is just a charade.
But we ought not judge such creativity harshly. The bending of strict codes may be appropriate in some cases. Inflation, for example, frustrates biblical morality. Most commerce in ancient times was conducted by barter. The rise of currency – paper money especially – made commerce much easier but also made inflation a greater concern.
In an economy with 5 percent inflation, a borrower who pays 5 percent interest is simply returning the original purchasing power. And that doesn't take taxes into account, which is why interest rates are usually higher than inflation. So when we lend to a needy neighbor, is it OK to charge interest to cover inflation?
C.S. Lewis called for Christian economists to help us sort through these issues. We'd have more of them to consult if the Protestant Reformation, which helped to foster capitalism, hadn't also weakened the notion that religious leaders should mediate between the individual and God. Muslims today still have imams to guide them in such matters, but a relative few priests and pastors weigh in on financial matters, so most Christians must rely on their own conscience.
Here's where the golden rule provides invaluable guidance. My own understanding is this: If I lend to a poor person in temporary need, I shouldn't compound that person's problem by charging interest. Yet if I lend to help someone – or some organization – be more productive, it's moral for me to share in the gain by earning interest. It's the same as accepting a few apples for lending my neighbor my ladder so he can pick more.
But how do we apply the golden rule to today's financial crises? Should lenders and taxpayers forgive the interest that delinquent mortgage-holders owe, as Moses also suggested? Would Moses say adjustable-rate mortgages are speculative? Just what would Jesus do about the Fannie Mae and Freddie Mac mess?
They sound like facetious questions, since capitalism has grown immeasurably complex since the Bible was recorded. But scriptural principles remain just as relevant today. We can't simply put our heads in the sand and pretend lending for interest isn't a moral issue. After all, Jesus reminds us: "If, then, you have not been faithful in handling worldly wealth, how can you be trusted with true wealth?" (Luke 16:11, Good News Translation).