God’s Wisdom Found In Israel’s Usury Laws: Part 2
35 Now in case a countryman of yours becomes poor and his means with regard to you falter, then you are to sustain him, like a stranger or a sojourner, that he may live with you. 36 Do not take usurious interest from him, but revere your God, that your countryman may live with you. 37 You shall not give him your silver at interest, nor your food for gain.
Let’s think further about the results of charging interest, the alternatives to it, and why God made it such a point to prohibit the behavior in Israel.
The first thing to realize is that lending with interest can increase the money supply. It is common for banks to give out bank notes instead of hard currency like gold or silver. I don't know how common that was in the ancient world, but we know that it is also the tendency of kings to devalue coins in order to have more to spend. The Greek’s understood this phenomena because their word for interest, tokos, means birth or offspring. They equated charging interest with multiplication like breeding animals or planting for harvest. I think the logic goes something like this. If I borrow $100 to buy something, and I have to pay back $110, that means the price for me is really $110. There is also the idea of time preference which says that present goods are more valuable than future goods. Therefore, for someone to give me $100 today, I will have to give back that plus interest for it to be worthwhile to the lender. That could increase the price of things over time.
Back to the issue of banks and kings devaluing the currency by increasing money supply. Increasing the money supply doesn't always produce negative consequences. According to some, more money promotes economic activity and therefore wealth building. As long as the economy is growing faster than the increase in money, there can be some benefit. However, a currency’s value is debased when the amount of money increases faster than the economy. This is why counterfeiting is illegal. But if counterfeiting is so wrong then why is it okay to debase money’s value through other means?
It isn’t really okay because it causes inequality. At least in the case of Leviticus 25, the borrowers are poor and middle class, trying to pay for the necessities of life. They end up paying more for an item than someone who is wealthy. It basically extracts money from the average person and gives it to the rich.
Borrowing with interest can still be positive if the loan leads to a successful business. In that case the borrower isn't paying for the necessities of life, but setting up an operation to increase their own productivity. This leads to the borrower building their own wealth using the loan. So again, interest isn’t bad in and of itself, but in what context the interest is charged. However, I think God knew that this type of activity would be abused, and gives us warnings that we should take seriously.
Just look at the system we have in the US. Working with the Department of the Treasury, the Federal Reserve creates money out of nowhere (i.e. counterfeiting) and buys treasury bonds. Then that new money is given to large banks. Then, those banks make loans on a fractional reserve system. For large banks, the minimum reserve ratio was around 10%. Therefore, when that bank receives $1 million of this “counterfeited” money, they can then loan $10 million. Now I think the reserve ratio is closer to 0%. So what we have today is multiplication upon multiplication upon multiplication. Even if you have no loans, your money is worth less every day because of how our economic system works.
The effect of this system is that prices for things go up, even while salaries and wages for the working class are stagnant. Think of some problem areas in our economy today: healthcare, higher education, real estate prices. These are all areas where these new dollars are first sent in the form of loans. It’s no coincidence that they are becoming less and less affordable. You have seen the same effect the past decade as the stock market has increased sharply while the economy grows very slowly or not at all like in 2020.
Still, why would a bank or a wealthy individual ever loan money if there isn’t some benefit to them? How do we convince people to use their money to benefit the people around them? First, we need a culture that values charity. It is important that we provide basic needs for people who can’t provide for themselves. Moreover, even when charity isn’t the issue, the greatest benefit to the community happens when people invest their money in others who have good ideas for new products but don’t have the money to get started.
During multiple times in history, usury has been outlawed, but critical economic investment was still possible though maybe economic development was slowed down. During these times investors had to become partners with whom they gave money. That way both risk and reward was shared. Simply to loan money and require repayment with interest regardless of the success of the venture is described as a type of slavery in Proverbs 22:7. That is how I would define usury actually. Beyond economics, these partnerships are a way the rich and poor can work together. Instead of exploitation or oppression, new mutually beneficial personal relationships would be created. Instead of an economic system where the elite enriched themselves while isolating them from other social classes, there could be a system where everyone was brought together to benefit each other. That doesn't mean that lending on interest should be banned. But how wise is God who can teach us so much through something as simple as declaring “Don’t charge interest!”