A World Without Interest
When you study economics, the concept and reality of charging interest on a loan is taken for granted as normal and advantageous for society. I would like to challenge the common conceptions about the benefits and ethics of interest, basing my exploration of the subject on the writings of John Ryan and Heinrich Pesch.
First it should be said that it would not be wise to all of a sudden one day criminalize the institution of interest from that day forward. It would cause complete havoc. Many people rely on interest for their personal needs and professional stability. If interest were properly evaluated by ethicists and moral philosophers and determined to be not fitting for the purposes of justice (and, hence, a peaceful society), then there could be two ways that this economic paradigm shift could take place. The first of these would be to plan ahead and to pick a date in the future where certain types of interest would no longer be legal, to give people time to prepare for the huge cultural change. The second way that a system of no interest could be implemented would be following some sort of world catastrophe after which the whole human race would have to start from scratch.
Let it also be said that one country could not do this alone without seriously weakening its economic stance in the world. All of the economically giant nations, if not the entire human race, would have to agree to this. So, let’s explore further exactly what interest is and the ramifications of its abolition.
John A. Ryan was a Catholic priest and moral theologian instrumental to the New Deal. So much so that President Roosevelt called him the “Right Reverend New Dealer.” Ryan is one of the most important early proponents of the minimum wage in the United States, and his economic theories, largely based on the teaching of Pope Leo XIII’s encyclical, Rerum Novarum
In his book, Distributive Justice, Ryan compares the charging of interest for the use of capital to the charging of rent for the use of land, keeping the two concepts as distinct as possible but describing their similarities. I tend to think that these two things are more greatly dissimilar, as land is a physical reality and money is merely an abstraction of worth. I will have to read more, think about it, and get back to you.
Ryan argues that there is nothing intrinsic to money that justifies the use of interest, nor can it “be conclusively justified on the ground of either productivity or service,” but there are cases in which there are jusifications extrinsic to the money itself, for example if a person sacrifices his money, either by making a loan of capital that was designated for some personal purpose to make money or by making the sacrifice of saving money for the common good. Read more about Ryan Here.
Heinrich Pesch (b.1854-d.1926) was another priest-economist. A Jesuit from Germany, Pesch championed a theory of economics called “Solidarism,” rooted in the same word as “Solidarity.” Solidarism criticized the de-humanizing of socialism and while also denouncing the evils of unbridled capitalism. Solidarism is a hybrid of the two based on the Christian concept of justice. It is an economic theory largely based on the strength of the formation of guilds among people of similar professions.
In his work, Lehrbuch, on the topic of interest, Pesch focuses on the fact that money is “fungible.” Fungibility is the property of only having a single, one time use. Money can only be used once, and then it is gone - like an apple or an attempt at a carnival game. There is not a prolonged use, such as in the purchase of a bicycle or a unit of land. In addition to fungibility, Pesch analyzes, piece-by-piece, the attributes and nature of what a loan is as well as the difference between interest and usury.
What makes both of these economists stand out is that they reject the positivist stance of accepting “what is” and adopting the normative “what ought to be.” Both men are worth reading, although it will take some patience and a good dictionary. Both authors to not claim to have the final word, but present an honest attempt at rational economic dialogue.
Money for money’s sake is bad for society. Jesus said it is the root of evil, as as far as I can tell nothing Jesus alledgedly said has proven to be wrong. The way I see it, life is a loan from God, freely given. God asks for nothing more to be given back to him than our lives in return - He does not charge interest. This example is a good starting point for the longevity of justice and peace in the world.
People argue that if you eliminate interest, then there will be no money poured into progress, because loaners will not be able to profit. True, but is this an altogether bad thing? People would only invest in projects where in addition to the initial principal there was some sort of personal satisfaction or societal benefit. Sounds pretty good to me. Also, there would be much less of an impact on the environment if there were nothing to gain by tearing it apart. What’s more, it would slow down the gap between the rich and the poor.
It is strange to me that certain commodities, like food, can be forecasted to have a greater or lesser value in the future. How in the world can food be of a different value to people in the future? We all need to eat. “But,” you say, “it’s supply and demand. There might be less food in the future.” Fine, I say - Then control demand. Make people want less of it. 25% of Americans are obese, and I heard that the number is going to push 100% by 2040.
The people who are hardest to convince of this are the people who don’t believe in Heaven. To them I would give another option: If there is to be a cost of someone else’s money it should be a one time payment up front and only the original principal after that. If the lender does not want the risk of loaning to a stranger, then he will have to build up a relationship of trust to realize if the lendee is worth the risk. Millions of human bonds and trust would be strengthened, and that would fortify all of our lives here on Earth.
Aug 16th, 2008 at 6:38 am
Burke, I see the problem of charging any interest on money is that fractional lending with interest will compound into creating more money which will lead to inflation. The higher the interest rate the faster things get out of hand. Today with the the advent of the computer to generated digital money, this has tempted off-shore banks to wire transfer dollars to on-shore banks. The feds can’t check the books on many of these island nations. I have heard that about half the dollars in the world are made up by a computer somewhere in the world. Printing too many dollars will cause the same problems. For profit-banks are motivated to generate profit on money which leads to these economic down cycles which we all know harms many people. Credit unions do not in general get in trouble like the for-profit banks. This is of course, in the end, is an unjust result.
Aug 18th, 2008 at 3:46 pm
My economic sense tells me that interest is absolutely essential for a society to thrive. We might encourage people to do good things with their money, but they need money first. Interest helps build wealth for the borrower and the lender.
Some deals go bad and the agreement hurts one side or the other, but freely-agreed upon contracts help much more than they hurt. Interest lets people build homes, buy cars, and go to school. We would be much worse without it.
When dealing with friends and family members, making short-term loans, it is probably best to skip interest. Society as a whole, however, needs to permit it.
At Mass this week, our priest told us that we were going to have to borrow money from the diocese to finish our building project. We will also have to pay interest to the diocese. That is a common situation across the US when major building projects take place. (Our local mosque, by the way, was built by the local Muslims without borrowing any money due to their view on interest.)
Nov 14th, 2008 at 1:05 pm
I think the best thing to do is to create a nationalised bank that is controlled and owned by the government (people). This bank will be funded by tax payers money there should be interest charged but the profits made by this nationalised bank will go back in to government coffers and so the tax payers will benefit. This will create a better society as the only people getting richer are the taxpaying public. This is the best future for modern banking.