Update: 4/13/20
If you lend money to any of my people among you who are poor, you must not be like a moneylender to him or charge him interest (Exodus 22:25).If your fellow countryman becomes poor, so that he can no longer provide for himself, then you must help him as you would help a foreigner or anyone else living as an outsider among you. Do not charge him interest or try to profit from him in any way, but honor your God so that your brother may keep living with you. You must not give him a loan of money and charge interest, nor sell him your food to earn a profit (Leviticus 25:35–37).
You must not lend on interest to your fellow Israelite—interest of money, interest of food, or the interest of anything that is lent on interest. To a foreigner you may lend on interest; but to your fellow Israelite you must not lend on interest, so that the Lord your God may bless you in all that you put your hand to, in the land which you are going in to possess (Deuteronomy 23:19–20).
Therefore you should have given my money to the bankers, and at my coming I would have received back my own with interest (Matthew 25:27).
These passages seem to be contradictory. The passages in Exodus and Leviticus are explicit: the prohibition against interest applies to fellow believers who are poor. The passage in Deuteronomy 23 prohibits interest taken from a fellow Israelite. It does not specify that the Israelite should be poor. It seems more comprehensive. [North, Deuteronomy, ch. 57] But then we come to the passage in Jesus’s parable of the talents, and here there is no prohibition whatsoever. How are we to sort out these passages?
Leviticus 25:37 also prohibits the sale of food at a profit to a poor person who is a fellow believer. [North, Leviticus, ch. 28] But there is no prohibition anywhere in the Bible on selling food at a profit to a fellow covenant-keeper who is not poor. If there had been such a prohibition, then agriculture would not have been profitable. The Israelites would have had to specialize exclusively in manufacturing, exchanging the output of their efforts for food produced outside of the nation of Israel. There was no such society in the ancient world. The whole world was agricultural in the days of Moses. The whole world was agricultural until the twentieth century. This is why we can be certain that the prohibition on interest was limited in exactly the same way that the prohibition on selling food at a profit was limited. It had to do with poor fellow believers.
In Deuteronomy 15, we find that the prohibition on interest involves more than simply a prohibition. The law had to do with charity. [North, Deuteronomy, ch. 36] It was not just that Israelites were not allowed to take interest from fellow believers who had fallen into poverty. They were told by God that they had to lend to these people at no interest. “If there is a poor man among you, one of your brothers, within any of your gates in your land that the Lord your God is giving you, you must not harden your heart nor shut your hand from your poor brother; but you must surely open your hand to him and surely lend him sufficient for his need” (Deuteronomy 15:7–8). Jesus extended this law. “If you only lend to people from whom you expect to be repaid, what credit is that to you? Even sinners lend to sinners, to get back the same amount. But love your enemies and do good to them. Lend, expecting nothing in return, and your reward will be great, and you will be sons of the Most High, for he himself is kind toward unthankful and evil people. Be merciful, just as your Father is merciful” (Luke 6:34–36). [North, Luke, ch. 10] I have never read a Christian expositor who takes these words literally without qualification. If this were to be mandatory, then covenant breakers could strip Christians of all their wealth by constantly coming to them, begging for loans, and then refusing to repay anything, including the principal. So, what did Jesus have in mind? He was talking about the general attitude toward mercy. If somebody is really in desperate straits, and a Christian is in a position to help this person, even at the expense of missing out on an investment opportunity, he should do this. But he should do it on this basis: the person really is in need, he has nowhere else to go, and it is a life-and-death situation. If it does not mean this, then it means that Christians will perpetually be subsidizing the self-destructive lifestyles of covenant-breakers.
Jesus’s words should be interpreted in terms of their context. He was speaking to a nation under the yoke of the Roman Empire. Here’s what I wrote in my commentary on this passage. Jesus was speaking to politically oppressed people. “The Romans were in control. Israel had been politically oppressed by foreigners ever since the Assyrian and Babylonian captivities. Israelites had long lived in empires whose rulers did not have the Israelites’ best interests at heart. Politics means power. There were Jewish rulers who were low-level enforcers of Roman power, but the typical Jew was outside of the power structure. He was on the receiving end of political power. So, he was in a position of weakness. What is the proper response in such a situation? Jesus here described a plan of action: give away more than you expect to get. He presented the same message in Matthew. “You have heard that it was said, ‘An eye for an eye, and a tooth for a tooth.’ But I say to you, do not resist one who is evil. Instead, whoever strikes you on your right cheek, turn to him the other also. If anyone wishes to go to court with you and takes away your coat, let that person also have your cloak. Whoever compels you to go one mile, go with him two. Give to anyone who asks you, and do not turn away from anyone who wishes to borrow from you” (5:38–42). [North, Matthew, ch. 9] These are rules for a captive people. Following these rules keeps people out of confrontation situations that they will lose. Here are my comments on the Matthew passage and the Luke passage. “Jesus did not call His listeners to revolt. He called them to obedience. He did not teach revolution through power. He taught revolution through moral example. His concern was the kingdom of God. In its historical manifestation, this kingdom is one of justice and righteousness. The program to defeat tyranny is a return to personal justice and righteousness. The answer to bad civil laws begins with good personal rules. This is not the final answer, however. It is only the first step.”
With respect to dealing with fellow believers, Christians should not lend money at interest to people in poverty. Under the Mosaic law, a person who received a charitable, zero interest loan who then defaulted on the loan was put into slavery until the next sabbatical year. This was not a no-risk loan. Deuteronomy 15 was clear about this. “If your brother, a Hebrew man, or a Hebrew woman, is sold to you and serves you for six years, then in the seventh year you must let him go free from you. When you let him go free from you, you must not let him go empty-handed. You must liberally provide for him out of your flock, out of your threshing floor, and out of your winepress. As the Lord your God has blessed you, you must give to him. You must remember that you were a slave in the land of Egypt, and that the Lord your God redeemed you; therefore I am commanding you today to do this” (vv. 13–15). This was not the penalty for defaulting on a profit-seeking loan. This is not a business venture. It was governed by a different set of laws. The loan was not collateralized by land or other property. The loan was collateralized by a man’s freedom.
The Economic History site states: “. . . Christian theologians from the fourth century on defined lending for gain as a sin. Aquinas and his fellow scholastics amplified authors like St. Jerome on the subject, and Gratian built it into the code of Canon Law. Aquinas must have been gratified to find that Aristotle shared his hostility toward usury. By the late Middle Ages there was a consensus that lending at interest for guaranteed return was illegal and damnable. However, they also agreed that if the lender shared in the risk of the venture, the loan was legal. Consequently, laws against usury seldom interfered with merchant capitalism.”
The Council of Nicea (325) announced:
Canon 17: Forasmuch as many enrolled among the Clergy, following covetousness and lust of gain, have forgotten the divine Scripture, which says, “He hath not given his money upon usury,” and in lending money ask the hundredth of the sum, the holy and great Synod thinks it just that if after this decree any one be found to receive usury, whether he accomplish it by secret transaction or otherwise, as by demanding the whole and one half, or by using any other contrivance whatever for filthy lucre's sake, he shall be deposed from the clergy and his name stricken from the list.
The Council of Carthage (459) announced:
Canon 5: Of Avarice: Aurelius, the bishop, said: The cupidity of avarice (which, let no one doubt, is the mother of all evil things), is to be henceforth prohibited, lest anyone should usurp another's limits, or for gain should pass beyond the limits fixed by the fathers, nor shall it be at all lawful for any of the clergy to receive usury of any kind. . . . And what is reprehensible in laymen is worthy of still more severe censure in the clergy. The whole synod said: No one has gone contrary to what is said in the Prophets and in the Gospels with impunity.
The Second Lateran Council (1139) announced:
Canon 13. Furthermore, we condemn that practice accounted despicable and blameworthy by divine and human laws, denounced by Scripture in the old and new Testaments, namely, the ferocious greed of usurers; and we sever them from every comfort of the church, forbidding any archbishop or bishop, or an abbot of any order whatever or anyone in clerical orders, to dare to receive usurers, unless they do so with extreme caution; but let them be held infamous throughout their whole lives and, unless they repent, be deprived of a christian burial.
The Third Lateran Council (1179) announced:
Canon 25. Nearly everywhere the crime of usury has become so firmly rooted that many, omitting other business, practise usury as if it were permitted, and in no way observe how it is forbidden in both the Old and New Testament. We therefore declare that notorious usurers should not be admitted to communion of the altar or receive christian burial if they die in this sin. Whoever receives them or gives them christian burial should be compelled to give back what he has received, and let him remain suspended from the performance of his office until he has made satisfaction according to the judgment of his own bishop.
Pope Benedict XIV in 1745 issued an encyclical, Vix Pervenit: On Usury and Other Dishonest Profits. He announced:
The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious. . . . First of all, show your people with persuasive words that the sin and vice of usury is most emphatically condemned in the Sacred Scriptures; that it assumes various forms and appearances in order that the faithful, restored to liberty and grace by the blood of Christ, may again be driven headlong into ruin. Therefore, if they desire to invest their money, let them exercise diligent care lest they be snatched by cupidity, the source of all evil; to this end, let them be guided by those who excel in doctrine and the glory of virtue.This hostility to interest on loans is in obvious defiance of Jesus’ parable of the talents. The owner of the talent who entrusted it to the resentful, lazy servant deserved an interest payment on his money. That is what he told the servant, just before he transferred the money to the most successful servant, and then condemned the lazy servant forever. Immediately thereafter, Jesus gave the account of the final judgment. In the history of the church, no one took seriously Jesus’ parable of the talent’s favorable view of interest. Instead, commentators invoked the Mosaic law’s prohibition on usury, a prohibition that applied only to charitable loans.
I have dealt with this at length in Chapter 49 of my commentary on Exodus. Here is what I wrote.
Why was this not a statute law? Because biblical civil law presents only negative injunctions. It prohibits publicly evil acts. Biblical civil law does not authorize the courts to seek ways to make men good. It does not authorize the state to force men to do good things. It does not authorize the creation of a messianic, salvationist state. The state cannot search the hearts of men. God does this, as the Creator and Judge, so the state must not claim such an ability. The state is only authorized by God to impose negative sanctions against publicly evil acts. It is not authorized to seek to force men to do good acts. In short, the Bible is opposed to the modern welfare state.
There is no way for biblical statute law to define what poverty is apart from the opinions of those affected by the law, either as taxpayers, charitable lenders, or recipients of public welfare or private charity. “Poverty” is too subjective a category to be defined by statute law. The state needs to be able to assign legal definitions to crimes, in order that its arbitrary power not be expanded. Yet economic definitions of wealth and poverty that are not arbitrary are not available to the civil magistrates for the creation of positive legal injunctions. Thus, God’s civil law does not compel a man to make a loan to a poor person.
Nevertheless, the civil law does prohibit taking interest from poor people. How can it do this without creating the conditions of judicial tyranny through arbitrariness? If the magistrates cannot define exactly what poverty is for the purpose of writing positive civil injunctions, how can they define what a charitable loan is? How can the state legitimately prohibit interest from a charity loan if the legislators and judges cannot define poverty with a sufficient degree of accuracy to identify cases where a charity loan is legally obligatory for the potential lender?
The lender decides who is deserving of his loan and who is not. This is his moral choice. God, not the state, will judge him. However, once the lender grants this unique, morally enjoined charity loan, he may not extract an interest payment. This is a negative injunction—not doing something which is forbidden by law—and therefore it is legitimately enforceable by civil law, as surely as the civil magistrates in ancient Israel were supposed to enforce the release of debt slaves in the seventh (sabbatical) year (Deuteronomy 15:12–15). The requirement to lend to the brother in need under the terms specified in biblical law, being a positive injunction, therefore comes under the self-government provisions of the conscience and the negative sanctions of God. This positive injunction is not under the jurisdiction of the civil courts. On the other hand, the prohibition against interest on these unique loans, being a negative injunction, does come under the enforcement of both civil courts and church courts.
The key to understanding the Bible’s civil definition of poverty is the loan’s contract. There must be a mutually agreed-upon contract, explicit or implicit, in order to establish a legally enforceable loan. If the borrower comes to the lender and calls upon him to honor Deuteronomy 15:7–8, then the borrower admits that his is a special case, a charity loan, and it is governed by the civil law’s terms of the sabbatical and year and the prohibition against interest. The borrower makes his request a matter of conscience.
In so doing, he necessarily and inescapably places himself under the terms of biblical civil law. If he cannot repay his debt on time, he can be legally sold into bondservice. This is not a collateralized commercial loan. The borrower is so poor that he has no collateral except his land. He chooses not to use his land as collateral. He therefore chooses not to become a landless man, meaning landless until the next jubilee year. Yet he is still in dire need. All he can offer as collateral is his promise, his cloak, and his bodily service until the next sabbatical year should he default. Thus, the borrower admits that he in principle has already become a bondservant. He admits through the loan’s contractual arrangement that the borrower is servant to the lender. If he cannot repay, he will go into bondservice until the next sabbatical year, or until his debt is repaid, whichever comes first.
How would the civil magistrate in Israel know which kind of loan was in force, commercial or charitable, and therefore whether interest was valid or illegal? By examining the nature of the loan’s collateral. If a loan went to an individual who, if he should default on the loan, would be placed in debt slavery, then this was a charitable loan governed by the provisions of Deuteronomy 15. This is why the year of release applied to both kinds of servitude: debt servitude and bodily servitude that arose because of a man’s default on a charity loan.
The law of inventory charity was part of the laws governing the sabbatical year and the jubilee year. As I demonstrate in Chapter 50, the sabbatical year and the jubilee law were both annulled by Christ’s ministry. He announced that He was the fulfillment of the jubilee year.
He came into Nazareth, where he had been raised, and as was his custom, he entered the synagogue on the Sabbath day and he stood up to read aloud. The scroll of the prophet Isaiah was handed to him. He opened the scroll and found the place where it was written, “The Spirit of the Lord is upon me, because he anointed me to tell good news to the poor. He has sent me to proclaim freedom to the captives, and recovery of sight to the blind, to set free those who are oppressed, to proclaim the year of the Lord's favor.” Then he rolled up the scroll, gave it back to the attendant, and sat down. The eyes of all in the synagogue were fixed on him. He began to speak to them, “Today this scripture has been fulfilled in your hearing” (Luke 4:16–21).
With the abolition of the jubilee year came the abolition of the sabbatical year principle. [North, Luke, ch. 6] Therefore, the whole system of morally mandatory zero-interest charitable loans, which were abolished in the seventh, sabbatical year, also came to an end. These laws had to do with the land of Israel as the God-given inheritance of the conquest generation. Rural land went back to the original families of the conquest. This law did not apply to walled cities (Leviticus 25:29–30). It applied only to rural land. With the abolition of the land of Israel as holy land, which came in A.D. 70, the jubilee laws ceased.
Beginning in the early church, there were theologians who opposed all taking of interest. They did not distinguish between a charitable loan and a business loan. They did not discuss the abolition of the jubilee year and the sabbatical year system of resting the land. Again, I cite Chapter 49 my commentary on Exodus.
Aristotle taught that money is sterile—that it cannot increase by moving from person to person over time—and therefore undeserving of any return beyond the principal. Economist Joseph Schumpeter wrote this of Aristotle: “He condemned interest—which he equated to‘usury’ in all cases—on the ground that there was no justification for money, a mere medium of exchange, to increase in going from hand to hand (which of course it does not do). But he never asked the question why interest was being paid all the same. This question was first asked by the scholastic doctors. It is to them that the credit belongs of having been the first both to collect facts about interest and to develop the outlines of a theory of it. Aristotle himself had no theory of interest.” Neither did the early church.
Early medieval theologians were unaware of Aristotle’s specific arguments; copies of his manuscripts were not available until the eleventh century. Later, Aquinas did follow Aristotle in condemning interest. On the other hand, some of the late-medieval scholastic theologians broke with Aristotle on this point. With or without Aristotle, however, the Roman Church remained officially hostile to usury throughout the medieval period. We still find a few isolated Roman Catholic theologians who try to defend the view of those medieval scholastic theologians who opposed all interest as usury. Sadly, we occasionally find Protestant non-theologians and non-economists who say the same thing.
The phenomenon of interest is inescapable in any economy. It is not something “extracted” from borrowers by lenders. It is inherent in the very way we all think about the future, whether as borrowers or lenders. We are creatures. We are always time-constrained. We live in the present. Those items which we presently possess are of greater use to us —and therefore of greater economic value to us—right now than the prospect of using those same physical items in the future. We are covenantally responsible now for the use of whatever we presently own or control. We therefore discount future value as against present value. It is this present market discount of future value, above all, which is the reason why there is an interest phenomenon in economics.
Any attempt to legislate away the inescapable effects of the rate of interest (discount for time-preference) should be seen as a doomed attempt to escape both time and creaturehood. To put it as bluntly as possible, anyone who argues that an economy can operate apart from the effects of the time-preference factor has adopted the economic equivalent of the perpetual motion machine. Both arguments—perpetual motion physics and zero interest economics—rely on men’s obtaining “something for nothing.” In fact, anyone who would recommend civil legislation against all interest payments is far more dangerous than a person who would argue for legislation prohibiting all machines except perpetual motion machines. The second person is instantly recognized as a crackpot whose proposed legislation would destroy civilization, assuming that the civil government would seriously attempt to enforce it. The anti-usurer isn’t as readily recognized as a dangerous crackpot, even though his recommendation, if seriously enforced by civil law, would be equally a threat to the survival of civilization. Both forms of legislation, if enforced, would de-capitalize society. The crackpot amateur physicist, however, cannot do what the crackpot amateur economist can do and has done in the past: present himself as a defender of “love” in social theory, a protector of society’s “bank-oppressed” little people, and a person who has found a long-neglected way to eliminate from this world a group of corrupt money middlemen and their extortionate ways, thereby making everyone else a little bit richer. Even worse, the anti-interest destroyer of nations who would ruin society by making illegal all interest payments can easily present his case in the name of the Bible. The nut (or outright occultist) who would prohibit by civil law all non-perpetual motion machines cannot easily appeal to anyone in the history of moral thought. Nevertheless, both types of self-professed reformers—the perpetual motion “physicist” and the zero-interest “economist”—are ultimately appealing to the occult or to magic, but the anti-usurer’s appeal is not recognized as such, not even by Christians. Usury laws are the destroyer of nations.
It would be nice if I did not have to mention any of the following crackpot theories of economics. The reason why this task is unavoidable is that these ideas have spread far and wide in Christian circles. Christian economics has been an ignored topic for centuries. What has passed for Christian economics in the past has either been baptized moralism or baptized humanism. Numerous crackpot schemes have been promoted in the name of Christian economics, and still are being promoted. The closer we get to the question of monetary policy and interest, the more likely we are to discover pamphlets attacking interest claiming to be Christian.
Anyone who seriously discusses the possibility of judicially compulsory zero-interest loans in a “free” or “wise” economy is a monetary crank, a person with no formal training in economics or social theory, and a person dangerously devoid of understanding regarding the human condition. You know for sure that you are listening to an economic amateur when you hear someone seriously propose the possibility of an economy without any legal debt, meaning an economy without legally enforceable contracts to deliver goods or services in the present in exchange for a greater quantity of goods or services in the future. This would be an economy run exclusively in terms of zero-interest business loans.
The prohibition on usury clearly and absolutely prohibits interest payments on all charitable loans to other Christians. This includes loans to churches and other non-profit institutions that come to Christians in the name of Christ. The church is not a business. A Christian who loans the church anything, at any time, for which he requires an extra amount in repayment, is violating the Bible’s law against interest. Any leader in a church or charitable Christian organization who encourages Christians to make interest-bearing loans to it is involving its supporters in the sin of usury. This restriction on “church bonds” is almost universally ignored by denominational leaders today. The Bible is clear on this point: usury is a terrible crime (Jeremiah 15:10). The prophet Ezekiel announced that it is actually a capital crime in the eyes of God, and will not go unpunished (Ezekiel 18:8–9). [North, Prophets, ch. 19] Yet churches and Christian schools in almost every denomination can be found offering “Christian stewardship” (usury) contracts to their supporters. They come in the name of charitable, kingdom-building projects, and yet they promise to pay interest.
A church may lawfully request a loan from a bank or other thrift institution. This is unwise, given the fact that the borrower is servant to the lender (Proverbs 22:7). [North, Proverbs, ch. 67] Nevertheless, the bank is not wrong in taking an interest return from a church. The bank is not a Christian. It is not a member of a church. It does not face damnation or salvation. The church does not approach it in the name of Jesus, or with the promise of future rewards in heaven. The bank is strictly a commercial lending institution. The bank is the agent of depositors of all religious faiths.
Interest is inescapable. It is not a uniquely monetary phenomenon. It is the discount we apply to future goods as against present goods. This process goes on continually, whether or not there is a money market, whether or not published loan rates are available. When we loan anything, we forego the use of it for a time. This is opportunity foregone. It is God’s asset. It is His opportunity cost. He expects us to make good use of His goods over time. This is why we discount the value of future goods. Present goods are more valuable, more value-laden. This was not understood by theologians. They did not ask themselves why the owner in the parable of the talents expected a positive rate of return from bankers. But by God’s grace and businessmen’s creativity, Catholic theologians eventually found ways around this ancient prohibition.
The confusion throughout the Middle Ages and early modern period concerning the evil or illegitimacy of interest came as a result of not paying attention to the biblical texts, and then mixing in the fallacious economic opinions of Aristotle.
The Bible is clear: there is to be no interest return from money loaned to a poverty-stricken neighbor. This applies to money loans and loans of goods. But the definition of poverty must be the willingness of the borrower to serve as a slave to the lender for up to six years, should he be unable to repay the loan on time. Ordinarily, though, charity loans would be small, and the time to repay would probably not be seven years, unless it was for something like the payment of physicians’ bills or lawyers’ fees.
There is no prohibition on interest returns from business loans or loans to covenant-breakers. The Hebrew word translated as “usury” in the King James Bible (1611) is narrow and precise in its application: interest derived from morally mandatory charity loans, either from poverty-stricken righteous brothers in the faith or from resident aliens who live alongside believers. The word does not mean “exorbitant” interest. That usage was the product of the early modern period, and is not the product of biblical analysis.
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