What is interest?

In my last post, we discussed whether paying back debts is a moral issue – now let’s turn that question to the issue of interest. It is believed that interest rates originated as early as 2400 BC and were primarily used to stimulate agricultural and urban development. Aristotle viewed money not as a good in itself, but primarily as a means of exchange, and so viewed “money begetting money” as unnatural. In a similar vein, Plato saw the potential for interest leading to social instability – perhaps like the municipal bankruptcies we discussed in the last post. 

Judeo-Christian religions universally adopted a negative view of interest, known as usury during this time. Clergy were specifically prevented from charging interest at all, and other religions merely prohibited excessive interest. Religious objections to interest often concern the morality of class relationships: lenders were generally rich, whereas those lended to were generally poor, so the charging interest serves to widen the financial disparity. The bible specifically contemplate the “love of money” as the root of all evil. This leads to prohibitions against usury across Europe and the Middle-East.

Attitudes about the morality of interest begin to shift as medieval usury laws are stricken. Some say Aristotle was proven wrong by history – money did indeed have use in-and-of-itself. Many philosophers and economists have held this view in many different variations: from Bentham, to Smith, to modern neo-liberal politicians. 

However, negative attitudes about lending still persist today, for example, predatory payday loans are almost universally disfavored. It also clear that negative attitudes and general distrust of financial institutions pervade sections of society. 

Is it wrong to charge interest? Well, not necessarily. The practices of lending have done enormous good for the growth of the economy under a variety of financial situations in the past centuries. However, it is also clear that lending and interest can be abused, with externalities disproportionally affecting the poor. 

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If you are interested in the history and philosophy of the economy, bankruptcy, and debt, stay tuned for my blog posts. And, if you have been the target of predatory interest, or if you are thinking about filing, reach out to us at www.lifebacklaw.com.