The wrongs of loans

Is it right, or even reasonable, to argue that our debt-based economy is in any sense un-Christian, or to argue that lending money at interest, particularly for the purchase of something as basic as a house, is somehow wrong?

Before considering these questions, I’d like to quote something said by CS Lewis in the original radio talks that eventually became his classic Mere Christianity:

There is one bit of advice given to us by the ancient heathen Greeks, and by the Jews in the Old Testament, and by the great Christian teachers of the Middle Ages, which the modern economic system has completely disobeyed. All these people told us not to lend money at interest: and lending money at interest — what we call investment — is the basis of our whole system. Now it may not absolutely follow that we’re wrong. Some people say that when Moses and Aristotle and the Christians agreed in forbidding interest (or "usury" as they called it), they could not foresee the joint stock company, and were only thinking of the private money-lender, and that, therefore, we need not bother about what they said. That is a question I can’t decide on. I am not an economist and I simply don’t know whether the investment system is responsible for the state we are in or not. This is where we want the Christian economist. But I should not have been honest if I had not told you that three great civilisations had agreed (or so it seems at first sight) in condemning the very thing on which we have based our whole life.

Lewis avoided giving judgement. Can we, however, go a bit further?

Peter Kirk asks, for example, with respect to investing in a building society, “Is it wrong that I invest that money in a way which allows relatively poor people to buy homes to live in?”

There is, however, a difficulty with phrasing the question this way. Perhaps at one stage the aim and effect of building societies was, indeed, to allow the relatively poor to buy a home. The present situation, however, is very different, where almost no-one can afford even to get on the so-called ‘first rung’ of the housing market in the UK without mortgaging themselves to the hilt.

I would argue it is an example of the principle of ‘unintended effect’, with the initial provision of relatively small loans actually driving up the cost of house-buying, exacerbated further by the prevalence of two-income households. What has happened is a competition not for housing but for loans, with sellers able to ask more for their property because people are willing to borrow more to buy it.

The result is, increasingly, a nation of mortgage slaves under the delusion that they own an ‘investment’. But a house is only an investment if you can dispose of it without having to buy another at a similar or lower price. In other words, it is an investment for downsizing pensioners or for people who own more than one house — who do not therefore fit the category of those who need to buy ‘homes to live in’. In fact, as we know, another pressure driving up the price of housing is the ‘buy to let’ market. Yet this is only made possible by the ‘lend to buy’ mortgage market, which has arguably fuelled the problem, benefiting a few at a cost to the many.

This is why I would say it is a mistake to suggest that ‘playing the stock market’ is motivated by greed, whereas investing in a building society is free from ethical dilemmas. First, there is nothing necessarily ‘greedy’ about stock market investment. Secondly, the housing market has itself become the epitome of greed where some are raking in fortunes whilst others are struggling to hold on to their homes.

What, though, of other loans? Martin Luther would have had no problem with investments where the value of the investment could go down as well as up. That was just the nature of business. But in ethical terms, is the prohibition of interest just a matter of ‘risk good, no risk bad’?

The biblical injunction is based clearly on the principle of not exploiting the poor. It is unnecessary to explain why this is a bad thing! The problem for us is in recognizing that our debt economy is based almost entirely on the same form of exploitation, without us realizing it.

The Bible specifically forbids charging interest on a loan to a brother Israelite who borrows in order to buy what he needs. Such borrowing would fall into the category of a ‘consumptive loan’. However, any consumptive loan must be open to question either on the same grounds of need or on the grounds of greed.

If somebody needs something — really needs it, such as food or clothing or shelter — then charging them interest (in other words, further increasing the cost of what they cannot afford so that we can profit from the deal) is clearly immoral.

If, on the other hand, they want to buy something that they don’t need, then they should wait and work until they can afford it. To borrow money at interest in order to buy what you do not absolutely need only increases the cost of something you can’t afford already. For the buyer it is folly to get into debt, and for the lender it is collusion with their folly to take their money. On this basis, most of the credit industry stands condemned as operating on the principle of a sucker being born every minute!

That only leaves the charging of interest on ‘productive’ loans — loans which are taken out in order to develop a venture which will hopefully make money and provide economic benefit.

Luther’s own invective against charging interest was directed precisely at this kind of system. His arguments were that the lender sought to insulate himself from risk, leaving only the borrower exposed, which in his view was both unloving and contrary to the principle of accepting that life contains risks for all of us.

Of course, there is a certain simplicity in charging a fixed rate of interest on such loans. Moreover, if the venture goes particularly well, the borrower stands to gain more than otherwise might have been the case with a ‘shared profits, shared losses’ arrangement.

Nevertheless, we cannot necessarily say that is the end of the argument. The Islamic world operates on the principle that fixed interest is wrong, and yet there are major Muslim investors in the Western economy committed to abiding by that principle. If it can be done by them, why cannot it be done by us?

There is something clearly not quite right about an economic system which can take from the endeavours of others without a shared risk. Equally, it is clearly not impossible to operate on another basis. Given that we now have perfectly sober commentators appearing on the BBC saying, “We do not have a debt problem in this country, we have a debt crisis,” and given that the Bible is quite clear that this crisis is avoidable, do we not have, as Lewis observed, the responsibility at least to question the system and, where possible, to extricate ourselves and others from it?

Revd John P Richardson
4 August 2007

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