Sunday, March 29, 2009

An ancient basis for tomorrow's financial regulations: Rethinking usury law

From a blog post by Jay Michaelson in The Huffington Post :

 On Thursday, Treasury Secretary Timothy Geithner announced sweeping changes in the nation's finance rules, specifically targeting the derivative financial products that led to the credit crisis, mortgage crisis, banking crisis, and the crisis in the American automobile industry.. Predictably, some conservatives have responded that such policies would lead to "socialism," or a similar compromise of the free-enterprise American dream.

In fact, such regulations are as old as the Ten Commandments, and as American as apple pie: they are nothing more than an update of the ancient prohibitions on usury, or the unfair charging of interest. And while today, "usury" has a whiff of the antiquarian about it (or worse, one of antisemitism), if we look closely at what usury laws were meant to do, I think we'll discover that they are much more relevant, and worthy, than we might suppose.

Western civilization's original usury laws are found in the Bible: the Torah contains several prohibitions against lending money at interest, and the New Testament several condemnations of it. Deuteronomy 23:20-21 is representative: "Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest. Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the LORD thy God may bless thee in all that thou puttest thy hand unto, in the land whither thou goest in to possess it."

I will return to the distinction between Israelite and foreigner below, but first, however, I want to explore rationales for the usury prohibition in the first place. In the Deuteronomy passage above, the reason is somewhat generic: interest is forbidden, like many other ritual and ethical acts, "so that the Lord thy God may bless thee in all that thou puttest thy hand unto."

In Leviticus 25:35-37, however, a more specific reason is given: "And if thy brother be waxen poor, and his means fail with thee; then thou shalt uphold him: as a stranger and a settler shall he live with thee. Take thou no interest of him or increase; but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon interest, nor give him thy victuals for increase."

Here, at least two reasons are given: first, the ethical value of caring for the poor, an second, "that thy brother may live with thee." If one were to charge interest, the text suggests, the bonds of society would collapse; rich and poor could not live together. Leviticus goes no further than this, but later commentators in Jewish and Christian traditions developed these dual rationales. St. Thomas Aquinas, for example, said that usury is both morally wrong and an improper form of "double-charging," because money is a means of commerce, not a thing in itself.

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