I was reading an article recently about how Islamic folk are forbidden by the Koran to earn interest from invested money, and about how very wealthy Islamic men employ an elaborate system of money-lending to get around that stricture. What doesn’t seem to come up in anything I’ve read on the subject is why it’s forbidden to earn interest on money. Anybody know why that is?
Without getting into too much of a theological quarrel, ISTM to be a way of keeping poorer Islamic folks in their place - without being able to make capital-earning investments, the poorer folks are stuck living on their daily wages with very little chance of moving ahead in the world (interest-earning investing being the chief tool for creating wealth and therefore upward social mobility). Meanwhile, the wealthy class who inherit property and large fortunes are capable of employing a relay system for flouting this commandment and amassing ever-larger fortunes whilst technically adhering to the letter of the law of the Koran.
But then, I admit I know very little about Islamic culture, so perhaps there are plenty of reasons for why interest is considered evil. Just would like to know what Mohammad had against it.
Islam is hardly unique in that respect. IIRC, both Judaism and Christianity forbid charging interest; it’s just that no one actually follows that particular edict. The word “usury” originally meant charging any interest at all, not “excessive” interest.
Earning interest is a way of gaining wealth without actually having to work for it. It is an attempt to get something for nothing. You make it sound like debt leveraging benefits the poor, when in reality it benefits the rich who represent the ‘house’ like in a Casino. With usury one can accumulate wealth without actually producing anything of value. They merely earn off the dividends of those who are stuck in debt in perpetuity. I don’t think that the wealthy Muslims who are getting around it are really getting around it theologically.
Because pre-industrial tribes had little understanding of modern economics.
I don’t know much about Islam, but I suspect that it’s tied to the idea that there is moral good in working directly at something and personally producing something of value. Since those cultures didn’t understand the value of loaning money (as a culture, I suppose. Individuals obviously saw the value in borrowing money, or they wouldn’t have kept trying to do it), it didn’t seem like the lender should be able to profit off of it.
But, I guess the ancients weren’t alone in lacking an understanding of modern economics. Borrowing money benefits both parties, when its done openly and honestly. Even in the absolute worst-case scenario, where poor people are literally mortgaging their futures to survive today, it lets them survive today.
Surely you’re taking a risk by lending someone your money and you deserve a return for that risk. Sure they may lose your mony and end up owing you, but if they’ve got nothing with which to repay you, you’re SOL. That’s your risk, and you deserve a return on that every bit as much as the person who builds roads or whatever.
I think it was more against the idea of preventing exploitation. The idea was, if you saw someone in need, you should help them, because they were tied to you. You shouldn’t say, “Ok, you need help, I’ll help you, but then you have to, not just pay me back, but pay me back more than I’ve given you.”
Is that (“not working for your reward is bad”) the real reason for those ancient anti-usury exhortations?
My assumption has always been that Islamic, Jewish, and Christian leaders repeatedly saw the detriments of moneylending (i.e., the endless cycle of debt in which so many borrowers become trapped … something that clearly hasn’t changed in several millennia) and spoke against that, rather than against the “something for nothing” idea.
But when the Koran or the Bible were written, interest-earning investing wasn’t an option for poorer folks. Remember, it’s only in the 20th century that ordinary non-rich people started investing in stock markets. Poor people before then were much more likely to find themselves being charged interest by moneylenders than they were to be in a position to profit from interest.
But it does transfer wealth from poor to rich, creating greater income inequality at least in the short term. The prophet Amos said that is not a characteristic of a good and just society:
There are a number of laws in the Torah that seem to be designed to prevent long-lasting inequality of wealth as well- the Jubilee year was intended to return all property to its original owners every 50 years, which would keep people from gaining wealth in land at the expense of others.
Well, maybe, but when I take out a mortgage, the lending company gets my house if I default, and I have to insure it against falling down and myself against dropping dead, so they’re covered every which way. What’s left? That they get compensated for not being able to gouge interest out of someone instead of me. And in practice I suspect the typical lending institution rakes in way more on interest than it ever loses on defaulted debts.
Are you serious? This has been recognised by political economists for hundreds of years. The only way of producing wealth is labour. The vast majority of us don’t keep the wealth we produce (and in a society with specialization of labour that would be pretty stupid anyway) but instead turn the wealth over to an employer, who compensates us with a fee, wage, or salary. If the employer does well enough with this arrangement, he won’t need to work himself, but can live off the profit. That’s one type of income derived without having to work oneself. The other two are rent and interest, whereby someone with amassed wealth or money allows someone else to make use of it temporarily in exchange for a fee. Again, no labour is necessarily involved here, except for the labour required to produce the wealth in the first place.
Even if you subscribe to the idea that lenders and lessors “deserve” their income because of the risk they took, that doesn’t have any bearing on this argument. Risk is not work.
Y’know, I’m not so sure that I didn’t have to insure against that too, on consideration of the amount of the loan being a large fraction of the purchase price. Might not have needed to on a 75% mortgage.
On top of that, your lender is going to securitize your mortgage as fast as humanly possible, which reduces its risk to next to nothing, and spreads the overall risk over a very large pool of investors. Not to mention the fact that your typical lender has insured itself, over and above the insurance they require you to obtain.
As Rysto said, it didn’t originate with Islam. Usury is a very bad thing in the Bible. The Koran draws on the Bible. It’s just that Christians and Jews long ago gave up observing that prohibition on usury.
It says what it says. That is enough for the Faithful.
A couple of things are worth noting.
As already mentioned, the prohibition on usury is very ancient. Small villages in Russia, China and elsewhere had a strong taboo against money-lenders and others who “prey upon the poor.” But the good done by interest-lending is darn to deny.
As a result, modern Islamic (and other) society does all sorts of backflips in order to get around the plain words of the Holy Texts. My Saudi accounts do not pay interest. They pay “Fruit.” The fruit comes from the gifts provided to the bank for the privilage of borrowing money. So there. The definition of ‘usury’ is open to endless debate. Nowadays most think it means “excessive” interest.
Others thnk the probition is on any form of interest. This leads to the idea of “Fruit” instead. When money is invovled, the mind becomes very flexible.
As I mentioned above, the only means of creating wealth is labour, not interest-earning investments. Take a simple gold-based economy. There’s lots of gold in the ground, but it takes human labour to extract it and process it (or to make machines to do so). If there are currently 10 pieces of gold in existence and split evenly among five people, no amount of lending this gold amongst themselves is going to increase the overall supply. On the other hand, say Carl Capitalist who owns a two gold pieces and a gold mine persuades Joe Worker to mine gold for a wage of 10 pieces of gold per day. But Joe can actually mine enough gold in a day to produce 15 pieces of gold. No one person can afford to pay Joe. So Carl borrows two pieces of gold from the four others at 50% interest, thus getting all 10 pieces, and employs Joe for a day, after which he has 25 pieces. He then pays Joe his wage of ten pieces and pays back his lenders their two gold pieces each plus an extra gold piece in interest. Carl and the other capitalists now have three gold pieces each instead of two. Where did the extra gold piece come from? Well, from Joe, of course, who was the one who actually worked to get it out of the ground. The fact that Joe didn’t get to keep all the gold he extracted was a consequence of the agreement he and his employer entered into; the fact that the capitalists got some of this wealth was a consequence of their agreement with Carl.
With respect to the purpose of the usury law, though, I don’t see this as a way of keeping (relatively) poor people in their place. The vast majority of people have to work for a fee, wage, or salary at or slightly above a subsistence level so, unless they are extremely lucky, no amount of investing will be sufficient for them to become rich from the interest. The Koran was written at a time when slave and feudal economies were the norm, and capitalism had yet to take off. If anything, the prohibition on usury was aimed at maintaining the existing social order at the expense of those who sought to benefit from interest: the wealthy but non-aristocratic merchant class, or bourgeoisie.
In ancient times, wealth was land. Land that could be worked by tenants, who were essentially sharecroppers…pretty much what they didn’t need for their daily lives went into the hands of the aristocracy. Merchants and traders were viewed as little more than con-men. If you bought something for one price, and sold it for a higher price, the presumption was that someone was being cheated. After all, if the sack of grain was worth one price, you should buy it for that price and sell it for that price. If someone had money, the “proper” thing to do was to purchase land with that money. Even up until the 18th century “trade” was seen as something shameful. Operating a plantation with slave labor was honorable and aristocratic, lending money at interest or running a business was disreputable and lower class.
Interest is simply a method of buying and selling money (a special form of good) at different prices. Except this violates the notion that things have a particular price, and to buy something under that price is to cheat the seller, and to sell things over that price is to cheat the buyer.
But of course, lenders have no incentive to lend money if they cannot be compensated in some way for lending that money. If interest is forbidden by law or custom, then there will be no loans, except loans that come with some form of non-monetary strings attached. So you might give a loan, but the borrower becomes your client. Or in current Islamic practice, there is a lump-sum “fee” that must be paid when the loan is repaid, of course this is simply a form of interest that is not called interest, since interest is forbidden.
And of course, in a system where the poor cannot borrow money (because no one will lend with no interest) they resort to other methods…like selling themselves or their children into slavery. Or dying of starvation.
I think the issue is how you define “work”. If I’m in the lending business, isn’t it “work” when I have to evaluate the risk/reward tradeoff of a given loan or understand what interests rates will be doing 5 years from now? Do bankers not “work”? Of course they do-- it’s just a different kind of work. You have to keep in mind that not every investment pays off, and if inflation suddenly kicks in, my 5% loan on that house might not be such a good idea afterall.