harvardfinance

Yesterday I found some time to drop in on part of a conference on Finance in Religious Law.  While unfortunately I was unable to attend to the entire conference, it seemed that much of it revolved around one particular issue: usury or the charging of interest.  The problem goes back to several biblical verses (e.g., Exodus 22:25; Leviticus 25:37; Deuteronomy 23:19-20; Ezekiel 18:17; Psalms 15:5) that condemn or prohibit the collecting of interest on loans.  Since there is a similar prohibition in the Quran (e.g., 2:275), Jews, Christians, and Muslims have all had to wrestle with this norm as it applies to their commercial activities.   While each religious tradition has extensively debated the precise definition of “interest,” the basic idea behind it – using money to make money – is at the heart of modern finance.

The papers and issues raised at the conference were interesting, if not earth-shattering, and helped me to reflect on the intersection of religion and money.  There were three issues or themes in particular that I saw running through the conference:

  1. Actors.  As is well-known, both rabbis and Catholic canon lawyers took the biblical verses (1) to prohibit the charging of any cost for the use of capital if it involves little or no risk on the lender’s part; and (2) to apply only to co-religionists.  This has been seen, quite simplistically but perhaps not without a grain a truth, as leading to the rise of Jewish bankers in northern Europe in the Middle Ages; they supplied the necessary capital to Christian leaders.  At the same time, the Muslim prohibition is a universal one (not just limited to co-religionists), and may thus have played a role in limiting the growth of banking in Islamic lands.  This distinction, though, is hardly as clean as it looks.  Islamic economies were also shot through with credit, and creative ways of raising capital were (as today) used in avoid these strictures.  Religion was not the only potential limiting application, though.  John Calvin was among many other Christians of his day to link the prohibition to its (perceived) social goal, and he thus ended up prohibiting loans with interest only to the poor.  The rich are free to use their capital productively.
  2. Religion and Reality.  What is the relationship between religious law and society?  The Jewish case is particularly interesting: whereas northern European rabbis, living among Jews who increasingly made their livings off banking, developed instruments for evading the prohibitions on charging interest, rabbis in Islamic lands did not.  Here would seem to be a case of religious law merely following what the people did anyway.  This, however, was hardly an obvious or necessary step.  Religious leaders are often out of step with their co-religionists, sometimes intentionally and sometimes less so.  The more interesting question is the social place of the individual rabbis, whose economic interests they were most attuned to, and why.  The narrative of religious legal development in this case marginalizes the many rabbis and canon lawyers who continued to oppose the charging of interest.  Were they, as individuals, embedded in different social networks?
  3. Morality and Formalism.  Here is what I see as the real nub of the issue:  Why prohibit interest to begin with?  The papers at this conference suggested a real divergence between Christian, on the one hand, and Jewish and Islamic approaches, on the other.  Beginning in the Early Modern period, Christians were increasingly comfortable loosening restrictions on interest and focusing on the underlying goals of social justice and economic equity.  Such moral considerations, though, are largely absent from the formal rules of Jewish and Islamic jurists.  Partly, of course, this is simply due to the genre of religious legal writings.  Nevertheless, the occasional gap between the formal rules and their (supposed?) purpose is striking.  One speaker related that according to some rabbis, the biblical prohibition against interest was meant only for an ancient agrarian society, which, since the prohibition must remain applicable anyway, therefore justifies finding formal legal ways around it.

One final, more personal reflection.  I found the modern Catholic position on the economy – that, to be a bit reductionist and perhaps misrepresent it, the economy should be seen as a means to human flourishing – to be powerfully compelling.  Such a view need not be naive, nor must it deny the right of some people work harder than others in order to achieve greater material comfort.  How that view, which I doubt that many rabbis or muftis would disagree with, can find expression in norms is a matter that should deeply concern us all, religious or not.