An Ancient Basis for Tomorrow's Financial Regulations: Rethinking Usury Law
On Thursday, Treasury Secretary Timothy Geithner announced sweeping changes in the nation's finance rules, specifically targeting the derivative financial products that led to the credit crisis, mortgage crisis, banking crisis, and the crisis in the American automobile industry.. Predictably, some conservatives have responded that such policies would lead to "socialism," or a similar compromise of the free-enterprise American dream.
In fact, such regulations are as old as the Ten Commandments, and as American as apple pie: they are nothing more than an update of the ancient prohibitions on usury, or the unfair charging of interest. And while today, "usury" has a whiff of the antiquarian about it (or worse, one of antisemitism), if we look closely at what usury laws were meant to do, I think we'll discover that they are much more relevant, and worthy, than we might suppose.
Western civilization's original usury laws are found in the Bible: the Torah contains several prohibitions against lending money at interest, and the New Testament several condemnations of it. Deuteronomy 23:20-21 is representative: "Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest. Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the LORD thy God may bless thee in all that thou puttest thy hand unto, in the land whither thou goest in to possess it."
I will return to the distinction between Israelite and foreigner below, but first, however, I want to explore rationales for the usury prohibition in the first place. In the Deuteronomy passage above, the reason is somewhat generic: interest is forbidden, like many other ritual and ethical acts, "so that the Lord thy God may bless thee in all that thou puttest thy hand unto."
In Leviticus 25:35-37, however, a more specific reason is given: "And if thy brother be waxen poor, and his means fail with thee; then thou shalt uphold him: as a stranger and a settler shall he live with thee. Take thou no interest of him or increase; but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon interest, nor give him thy victuals for increase."
Here, at least two reasons are given: first, the ethical value of caring for the poor, and second, "that thy brother may live with thee." If one were to charge interest, the text suggests, the bonds of society would collapse; rich and poor could not live together. Later commentators developed these dual rationales. St. Thomas Aquinas, for example, said that usury is both morally wrong and an improper form of "double-charging," because money is a means of commerce, not a thing in itself.
"That thy brother may live with me," in other words, is a prudential argument, not a moral/ethical one. The concern here is not only that usury is immoral -- it takes advantage of the weak -- but also that civil society itself would be compromised if usury were allowed. This, not ethnocentrism, is why lending to foreigners was allowed; the concern was with the economic health and civil cohesion of Israelite society, which would are not threatened by lending to outsiders. But if usury multiplied risk and magnified inequity within the community of Israel, chaos would result.
Notice, too, that these twin rationales extend the purview of usury law far beyond the narrow contemporary meaning of charging excessive interest. Today, all states have usury statutes that cap the rate of interest for loans. But the Biblical and exegetical usury statutes are broader: they are aimed at the moral turpitude, societal inequity, and economic instability inherent in making money from money.
Translated into today's economic realities, this has indeed come to pass. Wealthy institutions have lured poor people into unsustainable and unstable credit arrangements, and indeed, the basic cords of our society have begun to fray. As we have seen in the excesses of executive compensation, we have lost the moral compass which once tied pay to some notions of actual work and fairness, rather than to the made-up prices of economic bubbles. Indeed, our current crisis is exactly the economic, societal, and ethical chaos which the usury laws sought to prevent.
Today's derivatives market, for example, is precisely about "making money from money" -- but taken to new and ludicrous extremes. The credit default swaps which were largely responsible for sinking insurance giant A.I.G. were essentially bets about whether certain debts would be paid or defaulted-upon. Now, as it happened, debtors defaulted in such numbers that they brought down the house. But this derivative security should never have been legal in the first place. It is a bet on making money from money; or rather, a bet on making money from lending money at a near-usurious rate of interest, and thus a usurious attempt to make money from making money from making money. As the Bible itself knew, bubbles pop.
The anti-usury value does not and should not depend on the percentage rate of interest. It is a wider prohibition, both ethical and prudential, against making money from money. Of course, it cannot be taken too literally, either; credit is what makes our economy run, as we have now learned the hard way. But in principle, anti-usury values are fundamental to the American experience, and more needed now than ever.
To ban or heavily regulate usurious derivative securities is not socialism. It's the Bible.
Loading comments…
Want to reply to a comment? Hint: Click "Reply" at the bottom of the comment; after being approved your comment will appear directly underneath the comment you replied to
Islam is the only one of the world's major religions that completely OUTLAWS usury. Islamic banking, offered by all the major banks in South Africa, where I live, does not use usury. There are fees for services and that is it.
Funny enough the banking systems in the Islamic world survive and thrive without usury. Wudda think. Cud be God knows better than us humans... about the greed of our fellow humans.
All the States had usury laws capped at 9% until 1978. To attract the banks to South Dakota for business, it repealled its urury laws and the banks flooded there and the credit card was born. All the other States followed suit to keep their banks from leaving. Credit cards are unsecured debt and rates of over 10% guarantee that the payer will never get out of debt. It's called ensalvement. This works good for the banks. What is the next good deal for the banks? Why its stealing billions of dollars from the taxpayers in bail-out money and bankrupting the US Treasury!
Christian conservatives who are also Republican and well-off will try to suddenly reinterpret the Bible, and say, "That isn't in there!" This would reveal that their interpretations are really supporting their agenda and need for profit at any price, including throwing ethics out the window, even if, especially if it is at the expense of someone else, even if that someone else is poor or vulnerable in any way. Cafeteria Christians. That's what the Repugs are. Greedy beyond all avarice.
So how do we get Rev. Rick Warren to start preaching this from his pulpit.
everyone thinks that payday lenders should be banished.
and rates capped at say 15%.
anyone wanna take a shot at what will the outcome be if it happens? i will save you the hassle.
1) lending will stop to people who were credit risks. Now i know we all will say, well thats great, because those people wont be abused any more.
but where will these same people go if they need a loan.
A bank wont lend them. and the bank shouldnt.
They cant get credit cards. and they shouldnt.
so who would lend them money in need.
Speaking as a person who was in that group, it would have been better WITHOUT being loaned to in the first place!
His brother.
Depends on the risk...
If they have no credit history, but show stable employment
If they have credit history, but it's bad because they didn't make their payments..
Pyramid scheme went global. Those who want to protect it are not dealing with the pressure of a small top big bottom existence, they are not feeling the downward trends -- yet! The weight is on the bottom and the bottom is ever-increasing -- see frightened and threatened middle-class for proof. Throw corruption and the dark heart behind corrupting greed into the mix and you have a recipe for a contemporary disaster created over centuries and refined over decades and propagated (tentacle or poison hand like) over local and wide area networks. We have efficient, symmetrical multi-processor and distributed blowback now for flawed economic theory. It is light speed for change, and light’s out on the unsustainable. Today a run on a bank occurs in several New York microseconds.
Upheaval is necessary for change. Pain will create upheaval. At the highest point of pain so begins healing and always within pain there is an element of healing, the reverse is true also. We will learn...on
Sharia Law forbids it
So is this an argument for, or against, the post??
Some 'smart person' will surely call this another form of Islamic fundamentalism or 'fiscal terrorism' :)
Where are the islamic banks in the US?... I'll take a loan.
I wonder what that means for the rich Muslims that own shares in companies like CitiGroup?
God's way of doing things is always the best way.
you know this business of the CDS/CDO whatever you want to call it is GAMBLING CLEAR AND SIMPLE...o
I don't gamble, I don''t ask people to pay for my mistakes and I thought that was the REPUBLICAN way...but it is not....REA
Thank you.
thank you for providing an interesting historical context to prohibitions of usury. This is an excellent counterargument to those who say that limiting usury is "socialist
You must be logged in to comment. Log in or connect with
