Ronald Wallace summarizes John Calvin’s view of usury (charging interest on loans):
“For centuries before Calvin’s day, the Church and most other authorities had applied the Biblical condemnation of usury quite directly to commercial practices, and had prohibited loans at interest…
Calvin was the first to question the older method of interpreting the Bible on this matter. He insisted that “usury” in the context of the Biblical world was not entirely the same as in that of the sixteenth century. In Biblical times, he argued, business enterprises required little capital and it is obvious from the contexts that the loans there referred to were purely loans given to people in necessity. It was only in relation to such unproductive loans given for relief and consumption that usury was forbidden, but the most common in the 16th century was of another type. It was the loan given for production so that the borrowers could profit from the use of it in his business or commercial enterprise. Even though man might not like this kind of usury there was, Calvin argued, no ground for suggesting that it is forbidden in the word of God.
He denied the teaching of Aristotle that money is sterile and cannot therefore beget more of its kind. He argued that it was wrong that a rich and monied man who has borrowed in order to buy a piece of land should be allowed to profit from the proceeds of the farm without paying to the lender some part of the revenues as interest till the principal is repaid. The usury forbidden in the Bible “is only as to the poor, and consequently if we have to do with the rich … usury is freely permitted”. Calvin thus gave a clear and bold alternative to the traditional teaching, and people found his arguments much more convincing than the sophistries by which exceptions were allowed against what seemed a straightforward blunt prohibition. In place of the arguments for such complicated, casuistical exceptions he laid down one simple rule: “how far it may be lawful to receive usury upon loans, the law of equity will better prescribe than any lengthened discussions.”
I would argue that Calvin’s view of usury is the biblical one. The Torah distinguishes between loans given to the poor in need and loans given for other reasons, particularly business investment. The Christian Reconstructionists did quite a bit of work on this, and their arguments are conclusive in my view. See Gary North’s discussion here: https://garynorth.com/public/4007.cfm
I wonder how many people who argue that the Bible (or natural law) forbids usury, and therefore we should in our society today as well, have savings accounts from which they draw interest? Do they know where that interest comes from? Economic illiteracy is rampant. Too many have relied on Aristotle rather than sound biblical exegesis.
Jesus clearly thought it was not wrong to expect a return on investment, as seen in the parable of the talents in Matthew 25. Note that in that parable, the servant who did NOT give his master a return on the talent by, at the very least, giving it to the bankers to draw interest, is the one who is condemned. Those who forbid all interest-charging and interest-drawing are contradicting Jesus.
And by the way, Scripture nowhere authorizes the civil magistrate to set the interest rate on loans any more than it authorizes the civil magistrate to fix prices for other commodities. A just interest rate is the one agreed to by the loaner and the borrower, just like just prices are set by the buyer and seller.
ADDENDUM: Bailouts are a form of crony capitalism and welfare for the rich. The complication is that sometimes it’s bad government policy that caused the need for the bailout, not (merely) bad business decisions.
ADDENDUM: The core interest rate in America today is set by the fed – which has obviously caused all kinds of problems. When the state controls and manipulates the cost of money (and the supply of money), it skews all kinds of things.
To the degree the average man cannot understand things like compound growth, he has to be treated like a child and protected from himself – which means he cannot take responsibility for himself and is not suited to live in a free society. A citizenry cannot have freedom without responsibility.
Payday loans are obviously foolish and prey upon the ignorant – but a high risk borrower is always going to have to pay a higher rate. The alternative is not having access to credit at all.
Limiting interest rates on such loans would mean a lot of people won’t be able to get credit, just like minimum wage laws mean a lot of people don’t get jobs.
ADDENDUM: Jesus is a usurer.
Matthew 25:26-27
“[26] But his master answered him, ‘You wicked and slothful servant! You knew that I reap where I have not sown and gather where I scattered no seed? [27] Then you ought to have invested my money with the bankers, and at my coming I should have received what was my own with interest.”
ADDENDUM: If interest on all loans was outlawed, there would be no loans, period. No one is going to loan money to you to buy something or start a business if they will get no return. But the sterility of money theory has already been disproven. Economics is not a zero sum game.
The core interest rate today is set by the fed – which has obviously caused all kinds of problems. The rate is not agreed on by borrowers and lenders in a free market; it is controlled and manipulated by the state, which is a form of price fixing. When the state controls and manipulates the cost of money (and the supply of money), it skews all kinds of things.
To the degree the average man cannot understand things like compound growth, he has to be treated like a child and protected from himself – which means he cannot take responsibility for himself and is not suited to live in a free society. A citizenry cannot have freedom without responsibility.
Payday loans are obviously foolish and prey upon the ignorant – but a high risk borrower is always going to have to pay a higher rate. The alternative is not having access to credit at all.
Limiting interest rates on such loans would mean a lot of people won’t be able to get credit, just like minimum wage laws mean a lot of people don’t get jobs.
ADDENDUM: “We should outlaw credit cards, payday loans, title loans, etc., because no actual value is created by loans.”
How do we know no value is created by those loans? What counts as “value”? Is profit the only form of “value”?
However, I will grant that in many cases things like payday loans could fall into the “poor loan” category (= no interest) but obviously in a welfare state, determining what counts as a poor loan is tricky business.
Bottom line: When the state takes away freedom in an effort to protect people from themselves, there are always unintended (negative) consequences. I have a better solution: Do away with fractional reserve banking, let the market set interest rates (end the fed!), and go back to a hard currency.
ADDENDUM: “What about Rushdoony’s critique of the limited liability corporation?”
Great question. It’s bit above my paygrade — I’ve never been able to connect the dots in his argument. I also wonder how it relates to his views on bankruptcy (which seems like a form of limited liability for individuals/families). This is a good overview, if you haven’t already read it:
https://chalcedon.edu/resources/articles/rushdoony-revisited-on-limited-liability
ADDENDUM: Biblically, predatory lending would be loans that charge interest to the poor who need the money for life’s necessities. It’s not defined by the interest rate per se, but by the purpose of the loan. A lot of payday loans, title loans, etc. often fall into this category – which means they should be zero interest loans and a form of charity rather than business. Of course, the problem we have is that biblical law is set in the context of a larger legal and social matrix that encourages responsibility, not a modern welfare state which subsidizes irresponsibility.
The “unintended consequence” of outlawing too many forms of credit because they seem “predatory” is that lower to middle income people end up getting cut off from credit altogether – which actually disadvantages them even further. Loans become a luxury item for the rich – and since it takes money to make money, the rich get even richer while the rest are left behind. In that sense, it’s not the same as outlawing porn or harmful drugs – we want everyone cut off from those things because they are always harmful.
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