Trish Morrow Islamic Economics

E9846 ASSIGNMENT 3
IS IT ETHICAL TO CHARGE/PAY
INTEREST ON LOANS AND SAVINGS?
Islamic Economics, Usury & the Ethics of Sustainable Development
DOCUMENT INFORMATION
Student’s Name: Patricia Morrow
Student Number: 110178-848
Course: Postgraduate Diploma in Environmental Management -
Cleaner Production Technology
Subject: Theoretical Foundations of Sustainable Development
Lecturer: Professor Tor Hundloe
Date: 19 February, 1999
19/02/99 This assignment has been printed on 100% recycled paper 1

Is it ethical to charge/pay interest on loans and savings? Patricia Morrow
Figure 1: Our economic system (based on interest) claims to be amoral, and this is usually only questioned by philosophers and
religious zealots. (Source: Action for World Development 1993)
ABSTRACT
In this paper, the question of whether it is ethical to pay interest on savings and
charge interest on loans is considered. While interest is generally taken for granted
as an essential part of our modern economic system, until the seventeenth century
usury was widely condemned by philosophers and Christian theologians, and it
continues to be condemned today by the majority of Islamic theologians. In the light
of today’s ecological crisis, partly fuelled by debt and poverty in the third world, the
ethics of interest and usury needs to be reconsidered.
The question of usury is examined here from a number of different philosophical

frameworks, from the ancients such as Aristotle to the more modern philosophers
such as Bill Mollison. Practical means of implementing interest-free banking and
investment are discussed. It is concluded that usury is not ethical and never has
been, and that our economic system urgently needs to be reformed. The reform of
our economic system would make a significant contribution to intragenerational
equity, an important component of sustainable development.

TABLE OF CONTENTS
Abstract
Page
1.0 Introduction 1
2.0 Definition of Usury 1
3.0 Discussion of the ethics of usury

from the viewpoint of different philosophical frameworks. 3
3.1 Islam 10
3.2 Christianity 13
4.0 A critique of usury froma modern philosophical framework 19
5.0 The practical implementation of usury-free financial systems 27
6.0 Conclusions and Recommendations 28
7.0 Bibliography 30
7.1 Internet References 30

1.0 INTRODUCTION
The question of whether usury is ethical is not often considered in today’s

western society, where the payment of interest on loans is accepted
unquestioningly as a necessary part of our modern financial system.
However, the practice of usury is not inevitable - a number of banks in Islamic
states are functioning successfully without charging interest on loans. Indeed
the payment of interest may not even be desirable. It is a contributing factor
to increasing stratification of our western societies, and the enormous third
world debt which causes unnecessary hardship, suffering and premature
death for millions of people.
Ecologically sustainable development implies not only conservation of diverse

ecosystems, it also implies intragenerational equity. If sustainable
development is to be achieved, it is necessary to re-examine our economic
practices from an ethical viewpoint.
Our economic systems are not “value-free” or amoral, they are based on
assumptions about the behaviour of human beings in the marketplace, they
are anthropocentric, and they promote the consumer’s freedom to choose as
the highest human value. However, to most people, selfish consumerism is
not the highest ideal which a human being can attain. Religious thinkers of all
denominations tend to believe that God has made us for something more
than shopping, and accumulating money and wealth, through usury.
Are human beings “born to shop” and to accumulate paper banknotes by

competing with each other, or have we been created for some higher
purpose? Is the soulless consumer the ultimate goal of Darwinian evolution?
If not, then it must be questioned whether interest and usury has any place in
a civilised society.
2.0 DEFINITION OF USURY
Fenton (1612) defines usury as any increase on a loan of money or goods,

over and above the principal or original item loaned. While some would argue
that interest is ethical provided that the amount is small, for the purposes of
this paper usury will not refer to the payment of high interest only but to the
payment of any interest at all.
Fenton distinguishes between a loan and a gift, and also between a loan and
letting or hiring a piece of equipment. In letting or hiring an asset, the use of
the asset only is passed over, the asset itself is not loaned to the hirer, but
remains always the property of the lessor. In a loan the asset itself is handed
over as well as its use. A further point to be made is that in many cases the
purpose of a loan is for the asset to be used up and consumed entirely, to be
replaced with another of equal value. If a neighbour loans me a cup of flour
when the shops are closed, it is not expected that I will return the exact same

cup of flour the next day. I will consume the flour entirely, and purchase an
equivalent quantity of the same class of flour.
An asset such as a car wears out or decreases in value the more it is used. It
has a finite life, it’s life is shortened and it requires more maintenance the
more it is used. Money, on the other hand, being only a medium of exchange
and having no intrinsic value, does not become devalued in any way, or incur
any maintenance costs, by being used. Thus it is important to make a
distinction between a loan and letting an asset.
Fenton makes a distinction between lending and selling, because selling is

the perpetual loss of an asset, whereas lending is a temporary absence. The
purpose of selling is to exchange an asset which is no longer needed, for
something else. The purpose a loan is to allow another to make use of an
asset while it is temporarily surplus to requirements, however ownership of
the asset (or its equivalent) is retained by the lender.
A distinction is made between exchange and a loan, as when an exchange is

made it is different items which are transferred, whereas when a loan is
made, an item of the same kind, class or type must be returned. Fenton also
distinguishes between the loan of the use of an asset and the loan of an
asset itself. If an asset such as a car is loaned (similar to the case of letting)
then it is the use of the car which is loaned, the same car must be returned,
not another Honda of a different colour. In this case the concept of usury
does not apply. However, the case of usury applies to the loan of goods
which are consumed and later replaced, such as money, food, petrol or other
consumables.
If a loan of money, food, or other consumables is made and the borrower, of

his/her own free will and generosity, decides to reward the lender or thank
him/her by returning the loan with something extra as a gift, then this is not
usury. Usury arises when the borrower is forced or coerced into paying
interest against his/her wishes, or feels obliged to do so by custom, or when
the payment of interest is adopted by society as a whole, as a structural
injustice.
It is necessary to make a distinction between profits and interest. Profits are

legitimately earned as a reward for one’s labour. If a shopkeeper makes a
profit for selling foodstuffs this profit is a compensation for the shopkeeper’s
efforts in setting up the store, working in the shop serving customers, keeping
the accounts, travelling to purchase stocks etc. Loaning money involves no
labour, skill or effort, and in this respect is fundamentally different from
profitable business enterprises.
Fenton’s definition of usury (1612), and the differences between loans

(involving usury) and other types of transactions, still apply in today’s modern
world and will be adopted for the purposes of this paper.
3.0 DISCUSSION OF THE ETHICS OF USURY FROM THE VIEWPOINT

OF DIFFERENT PHILOSOPHICAL FRAMEWORKS

Vardy and Grosch (1994) describe several different types of ethical

frameworks. These can be examined in turn to determine whether they shed
any light on the issue of usury.
In a constructivist relative framework, there can be no absolute prohibition of

usury for all people at all times. Thus theologians of the sixteenth century who
argued that usury was only wrong for brothers, not foreigners, and only in
ancient times, are operating in a constructivist relative framework. Using this
framework, the question about usury becomes whether it is ethical for our
society right now. This is independent of whether it was ethical in the past, for
the ancient Jewish community.
To a moral realist, the prohibition of usury (or otherwise) would not

necessarily have any exceptions. Moral realists may base their ethical views
on a belief in God, or they will follow the Platonic tradition: that actions which
are morally correct are correct regardless of whether God commands them.
For a constructivist non-relativist, usury may be wrong only if this is coherent

with other true moral statements. This implies that there is only one complete
set of true moral statements. However, this complete set has not been
identified yet. Thus it is extremely difficult to prohibit usury from a
constructivist non-relativist framework, except perhaps to note that it is
internally consistent with other moral statements such as
• “It is wrong to steal” and
• “The rich/strong should help the poor/weak” and
• “Wealth should be amassed by hard work rather than idleness” (“He who
does not work does not eat”).
Those who believe in the divine command theory of ethics will probably not
practice usury if they are Christians, Muslims or Jews, as the God of the
Christians, Muslims and Jews has prohibited usury, in the Bible, the Q’uran
and the Torah respectively. (The only difficulty will arise if these believers do
not see these writings as the literal word of God). People of other faiths who
believe in the divine command theory of ethics will also refuse to practise
usury , if they believe that it is specifically prohibited by their God or gods.
Taking Protagoras’ approach that an individual human being is the measure

of all things, (with morality determined by social custom), usury is not immoral
in modern western society because our social customs include the charging
of interest as a fundamental component of our economic system.
One would expect Plato’s philosophy to give very little guidance on the topic
of usury. To Plato, a just action arises from a person who is wise, courageous
and self-controlled. He is more concerned with a person’s mental attitude
than the results of their actions. However, Plato does specifically condemn
usury. (Fenton, 1612)
Aristotle concerned himself with distributional justice. He believed that the

good of the individual was subordinate to the well-being of the community. It

is not surprising that Aristotle explicitly condemned usury in his Politics as

unlawful and unnatural. (Fenton,1612). Of the other ancient philosophers,
Cato, Pliny, Seneca and Plutarch also condemn usury.
Fenton (1612) reports that Plato has forbidden usury in his Laws, and that
Cato claims that usury is twice as bad as theft, and on a par with murder.
Pliny comments that usury makes idleness itself fruitful ie. people no longer
have to work to earn a living, they exploit the labours of others. Plutarch
claims that usurers mock the philosophers by trying to make something of
nothing.
Aristotle has condemned usury in his Politics as unlawful and unnatural.

Seneca agrees that it is unnatural, but finds a place for it in human affairs.
They are both justified in noting that interest has no basis in the natural order
- the bee does not charge the flowers for its pollination services, nor does the
flower charge the bee for the loss of its nectar. There is no such thing as
either profit or interest in the economy of nature - ecosystems tend towards a
symbiotic relationship for the benefit of all their members.
Many ancient governors of state tried to legislate against usury. Tiberius

Casar was so opposed to usury that he relieved borrowers of interest by
paying it from his own funds, in a vain attempt to stamp out the practice. The
Egyptians were so plagued with usury that they tried to stamp out borrowing
altogether by pronouncing a law that none shall borrow unless he pawns his
father’s corpse. (Fenton, 1612)
Twisden (1652) notes that the Romans, typified by Horace, believed that
usury was justified, but that the interest should be no more than 1% of the
principal per month (called the centesima), or 12% per year.
Stoicism is a system of morality based on physics1, which relies heavily on

the use of logic. It advocates an ascetic life lived in harmony with nature, and
advises its followers to be equally indifferent to both wealth and poverty, as
indeed to any other circumstances of life. Since poverty is not considered to
be evil, and human beings are not believed to have any free will to make
moral choices, it is not surprising that the Stoics did not concern themselves
with questions such as the moral correctness of usury.
Stoics believe that truth is based not on reason but on feeling, and that the
world is deterministic. In this sense they have little to say in deciding how an
individual should behave, believing that the individual has no free will or
choice.
While Stoicism does not comment on the moral value or otherwise of usury, it
could be argued that the payment of interest solely for the transfer of money
violates the physical law of conservation of mass-energy, and this would be
anathema to the Stoics with their emphasis on nature and physics.
1
URL: http://www.utm.edu/research/iep/s/stoicism.htm The Internet Encyclopaedia of Philosophy: Stoicism

Thomas Aquinas takes the natural law approach to morality, following a

tradition estabished by Cicero and built upon by Aristotle. To Aquinas, a life
lived according to reason is a viruous life lived in accordance with God’s
commandments. A good act has good ends but also involves good intentions.
Aquinas does not consider good actions as merely means to an end: both the
means and the end are inseparable.
Aquinas considers that natural law can be deduced by examining human

nature and the purposes of human existence (which he believes is to achieve
communion with God). The equality of all men before God is a key feature of
Aquinas’ philosophy. The need to preserve the human race figures in
Aquinas’ thinking, and he concedes that some moral actions apply to the
community as a whole rather than the individual.
A system of usury whereby people in the third world starve to death while
their government cuts back on social services following “structural
adjustment” for loan repayments would be expected to be condemned by
Aquinas. It certainly does not help the survival and well-being of the human
race as a whole and it is inconsistent with his views on the equality of all men.
However, Aquinas did not make absolute rigid rules on most issues. He
believed in general principles, fixed by natural law, which were inflexible and
unchanging. These give rise to a number of secondary, more specific rules
which were not so rigid, admitted exceptions and could be interpreted
depending on the situation. It is possible that Aquinas may have allowed
usury given a certain set of circumstances (though this seems unlikely).
The American sociologist Lester Ward was one of the earliest proponents of a
planned human economy (Worster, 1994). He claimed that human society
should not mimic the natural world with its competition and survival of the
fittest. Society should be organised by experts as a welfare state, in which the
weak are protected from the strong and all citizens receive equal benefit.
Ward’s approach differs from that of the natural law proponents such as
Aquinas and the Stoics. However, Aquinas would probably agree with him on
the need for all citizens to receive equal benefit and the weak to be protected
from the strong. Hence they would probably both agree that usury is wrong,
albeit from vastly differing frameworks.
Unlike Aquinas, Kant is concerned with following fundamental principles of

morality, rather than with the survival and well-being of human beings. He is
definitely concerned with means rather than ends. His philosophy stresses
categorical imperatives, ie. actions which are enacted because it is one’s duty
to do so, and any logical person would do the same. Kant is opposed to self-
interest: it is one’s duty to be unselfish. Human beings are always ends, not
to be treated as means to an end. Those who charge interest are acting
purely from self-interest, thus Kant would not be expected to approve of this.
Kant would see usury as not being in accordance with one’s duty, regardless
of the results of usury for society or for the individuals involved.
Kant believes that the highest aspiration of a human being is the development
of a good will and that such a good will is developed by acting rationally. He

certainly does not believe that the highest aspiration of a human being is to
become a selfish consumer in the marketplace, as our modern economists
advocate.
Utilitarian philosophy emphasises the greatest good for the greatest number.
Whether an action is good or bad depends entirely on the ends or outcomes
of this action. Bentham and Mill, the founders of utilitarianism propose that
every action requires a hedonic calculus to determine whether it is a good
action or a bad one. The hedonic calculus for pleasure and pain involves the
consideration of
• intensity
• duration
• certainty
• extent
• remoteness
• richness and
• purity.
Given that the vast majority of the world’s population is poor and very few are
rich, most of the world’s population is in the position of being borrowers rather
than lenders. There are few who are experiencing the “pleasure” that derives
from earning an income without having done any work, simply from having
excess wealth to be loaned. Those who experience the pain of going without
food or other goods so that they can pay back usurious loans are many in
number, and perhaps the pain they experience is of greater intensity, duration
and extent than the pleasure afforded to the rich moneylenders. Certainly
those who die of hunger, or the bonded labourers who slave their whole lives
to repay a debt that they did not incur, experience a greatly diminished ‘utility’.
How then could a utilitarian sanction usury?
Unlike Bentham , for whom all pleasures were equal, Mill made a disctinction
between the higher pleasures, afforded to the mind, and the lower pleasures
afforded to the body. Would this then make usury acceptable, if the rich
moneylenders used their interest payments to finance visits to the opera, the
purchase of great literary works and piano lessons, whereas the poor bonded
labourers are primarily denied bodily pleasures such as having enough to eat,
being free from cholera, and having a shelter from the rain?
Sidgwick, a post-utilitarian philosopher, espouses the principle of prudence:

that one should prefer a future good to a present lesser good. Many
arguments in favour of interest claim that the lender should be compensated
for the reduced utility of having to wait till later to spend their money. In a
sense, interest is a reward for acting against the lender’s tendency towards
impatience. However, Sidgwick espouses the virtue of patience. A usurious
system rewards impatience, the antithesis of Sidgwick’s principle of prudence.
Sidgewick’s principles of justice and benevolence would also appear to make
it wrong to profit at someone else’s expense, by taking advantage of their
poverty through usury.

Emotivists or logical positivists, claim that all morality is subjective. Thus they
have nothing to say regarding the question of usury: some people will find it
right and some people will believe it to be wrong. Perhaps this will depend on
their religion, their culture and their economic circumstances.
McIntyre calls for a return to the practice of the virtues. He advocates both
retributive and distributive justice. A human being’s purpose in life is to
become a good person by practising the virtues. McIntyre’s concern for
distributive justice may lead him to condemn usury, as the abolition of usury
would help to improve the distribution of wealth in society.
What does Buddhism have to say about usury? Although Buddhism does not
specifically condemn usury, it places an emphasis on “right livelihood” as one
element of the noble eightfold path. The Islamic model of interest-free
banking, where the banks are in partnership with investors and work in co-
operation with them (rather than the traditional cut-throat adversarial
relationship) could be seen as an example of “right relationship”, another
important aspect of Buddhism.
Buddhists see selfish desire as the source of suffering, and they aim to
eradicate the ego and avoid the formation of attachments to anything in the
material world. However, Buddhism does not specify specific acts which
should be either practised or avoided. Thus while it is not in favour of greed or
excessive selfish desire for personal wealth, it makes no specific comments
on usury. Nevertheless, one of the five basic rules or precepts of Buddhism is
to “refrain from taking what is not given”. (Vardy and Grosch, 1994). If interest
on a loan is not given freely, as a gift, by someone who can afford to pay it,
then taking interest (ie. usury) violates this basic precept of Buddhism.
Buddhists consider that it is all right for a person to seek wealth provided that
this is done legally without any greed.
Situation ethics does not advocate following a rigid set or rules. Each situation
is judged on its merits, considering the consequences of each action.
Situation ethics relies on pragmatism (an ethical solution must work),
relativism (one action is more ethical than another, there are no absolutes),
positivism (religious faith cannot be derived by reason), and personalism
(people come first, not laws). Thus situation ethicists will not advocated a rigid
prohibition of usury for all people, for all time. Interest-free banking, as
practiced by the Islamic banks, certainly works, and an interest-free system
appears to be more ethical relative to other alternatives. The abolition of
usury promotes people before profits. Hence some situational ethicists may
argue in favour of prohibiting the payment of interest, depending on the
circumstances of each case.
A variation of situational ethics is proportionalism which is part-way between

the natural law approach and true situational ethics. It holds that there are
certain moral rules which should always be followed unless there is a
proportionate reason to go against them. A system of ethics where usury was
generally prohibited, except for the admission of a few exceptions under
certain circumstances, would be an example of proportionalist ethics.

Feminist ethicists argue that traditional male-centred morality is based on

rigid systems of rules, rights and duties.2 They advocate a morality based on
spontaneous creative action, caring for others by responding to each situation
depending on its circumstances.
While feminist ethics may not specifically prohibit or allow usury, the flexible
spontaneous feminist approach (a type of situational ethics) lends itself to the
Islamic economic system of profit-sharing rather than interest. In the Islamic
system, a rigid fixed interest rate is replaced by a more flexible arrangement
involving business partnerships, risk and profit-sharing. The shares of the
profit which each party obtains as a result of doing business together are
negotiated between these parties rather than being rigidly fixed. There is
scope for flexibility and caring in such an arrangement, as the wealth or
poverty of the borrower can be considered, as well as just the profitability of
the business undertaking. Each case can be considered on its merits, rather
than complying with a fixed rate of interest.
Rawls’ communitarian theory says that not only do we have a duty not to
harm others, we must also actively seek to help those less fortunate than
ourselves. If we should be helping those who are less fortunate than
ourselves how then can we practise usury by charging them interest on
loans? We would not expect Rawls to be in favour of usury.
Nozick’s theory of justice states that a person is entitled to their wealth,

provided that they have acquired it legally, and that we have no moral
obligation to anyone except ourselves. Nozick is undoubtedly in favour of
usury.
Rawls’ theory of justice advocates an economic distribution pattern that

favours the least well off. He argues that we have a moral obligation to help
those less well off than ourselves, because one day we might find ourselves
in need of assistance. Rawls’ theory is consistent with the abolition of usury,
because usury tends to create wealth for some at the expense of others.
What (if anything) does environmental ethics have to say about urury? The
libertarian extension approach is that the interests of non-human life forms
needs to be considered and responded to. Conservation ethics stresses the
preservation of biodiversity because it is useful to humans. Neither of these
approaches is really relevant to the question of usury.
The ecologic extension approach, rather than affirming the individual human
or the individual plant, stresses the fundamental interconnectedness of all
things, and the importance of diversity in the ecological system. This
approach does have something to say about usury.
If all things, (living and non-living) in the ecosystem are interconnected then
this implies that all human beings are interconnected. For one human being
2
URL: http://www.utm.edu/research/iep/f/femethic.htm The Internet Encyclopaedia of Philosophy: Feminist Ethics

to take advantage of another by charging interest on a loan and becoming

rich at another’s expense is like cutting your nose off to spite your face. The
hand does not seek to make a profit from the mouth by charging for its
services of supplying it with food. Being interconnected, the two are mutually
supportive. This is how our relationships with one another should be also:
mutually supportive. Usury has no place in a system of mutual aid.
In the United States the indigenous Iroquois Indians base their ethical
framework on the effects of their actions on the seventh generation. They
have a strong commitment to intergerational equity. In such a system is usury
permissible? One would expect that their strong commitment to sharing and
care for other people would not allow the charging of interest.
The modern-day philosopher Bill Mollison (1988), founder of Permaculture,

bases his ethics on the need to take reponsibility for our own existence and
that of our children. He opposes economic growth and states that
to accumulate wealth, power or land beyond one’s needs in a limited world is to be

truly immoral, be it as an individual, an institution, or a nation-state.
Mollison believes that we must base our economic systems on natural

ecosystems, relying on collaboration rather than competition to make our
society function. He cites Lewis Thomas (1974) who comments that even
the bacteria ... live by collaboration, accomodation, exchange and barter
Permaculture is based on care of the earth, care of people and setting limits
to population and consumption (setting limits to growth, returning surpluses).
Mollison’s philosophy is that, rather than asking “What can I get from this
land, or person”, we should ask “What does this person, or land have to give
if I co-operate with them?”
Applying this second question to the issue of usury, seeking to gain interest at
another’s expense is clearly wrong, whereas a business partnership based on
co-operation, profit-sharing and risk-sharing (as practised by Islamic banks) is
to be encouraged. If we are to base our own economic system on the natural
system (exchange and barter) then there is no place for usury in an ideal
economic system.
In Mollison’s philosophical framework, the investment of idle assets for

productive purposes is encouraged, not because of the thought of financial
gain for the lender, but because of Mollison’s nature-based philosophy of
returning all surpluses to the system for recycling. He states his viewpoint
thus:
The accumulation of unused wealth, or wealth that does not lead to the proliferation of
life, is a pollution of the same nature as any unused resource. Manure and money
have much in common.

This is similar in some ways to the Islamic idea of the payment of a tax on
unproductive assets, because surpluses should be invested, not in the hope
of making a huge profit, but rather because it is one’s duty to do so.
3.1 ISLAM
Trade and commerce are very important in Islam. The prophet Mohammad
was a trader by profession. Islam promotes the values of tolerance,
brotherhood and social justice. A muslim businessperson considers all
resources as gifts from Allah, who has entrusted him/her to deploy these
resources in the most efficient manner to fulfil Allah’s plan for prosperity, not
just for him/herself, but for all others at the same time (Metwally, 1997).
Most Islamic scholars (eg Mannan, 1988) are unanimous in believing that
usury or interest is condemned by Islam. The Qur’an and the Sunnah
(fundamental sources of Islamic law) prohibit interest.
Some of these verses from The Holy Qur’an which prohibit usury are
documented below:
Those who devour usury will not stand except as stands one whom The Evil One by
his touch hath driven to madness. That is because they say: ‘Trade is like usury’. But
Allah hath permitted trade and forbidden usury. (2:275)
Allah will deprive usury of all blessing, but wil give increase for Deeds of Charity: For
He loveth not creatures ungrateful and wicked. (2: 76)
O ye who believe! Fear Allah and give up what remains of your demand for usury, if
ye are indeed believers. If Ye do it not, take notice of war from Allah and his Apostle:
But if Ye turn back , Ye shall have your capital sums: Deal not unjustly and Ye shall
not be dealt with unjustly. (2: 278-279). (quoted in Metwally, 1997)
There has been some controversy among the ranks of Islamic scholars, with
some claiming that the prohibition of Riba refers only to usury on non-
productive loans which prevailed in pre-Islamic times when people were not
familiar with productive loans and their influence on economic development.
Mehmet(1990) comments that Islamic rationality is not pure self-interest: it is

a balance of economic self interest and ethical responsibility. Islam obliges
human beings to act with justice and moderation in social relationships and in
the marketplace. Islam allows normal profits but does not permit monopoly or
oligopoly profits, hoarding or speculation. Islam prohibits riba, literally
translated as ‘increase’. While some Islamic scholars (Chapra, 1985) claim
that riba refers to an extra value in excess of a reasonable opportunity cost
for capital, it is usually understood to refer to any interest rate (opportunity
cost of capital). In practice riba has been interpreted on a total ban on all
interest: this is the policy adopted by the modern Islamic banks. Another
Islamic obligation is to save for the future, and to pay zakat: to spend a
portion of one’s wealth and income in a way that maximises total social
welfare of the entire community.

Mannan believes that there are sound economic arguments to back up the
Islamic viewpoint. He asserts that the rate of interest has nothing to do with
the volume of saving. In this Mannan disagrees with the classical economist
Alfred Marshall, however he draws on arguments put forward by Keynes to
back him up. Keynes believes that the volume of savings depends on the
volume of investment, and that a properly-run community ought to bring the
marginal efficiency of capital to zero. Keynes sees this as a means of getting
rid of the many unpleasant aspects of capitalism (which Muslims also seek to
get rid of).
Crowther (1958) also comments that
a gradual and imperceptible fall in the value of money is necessary to enable the
world to slip out of its self-imposed claims of usury.
Mehmet (1990) claims that the Islamic economic system approximates the
capitalist ideal of perfect competition and is supposed to reconcile efficiency
and equity conditions. Islamic economics contains two important mechanisms
for promoting equity, which other economic systems are lacking: zakat
(almsgiving or wealth tax) and riba (the prohibition of usury). Mehmet argues
that the existing Islamic economic framework cannot work in practice in
today’s society, without additional economic intervention. He states that it is
based on a theory of perfect competition whereas today’s world is marked by
imperfect competition and it is this which necessitates appropriate
government intervention in the economy.
The problem of what rate of interest is an exorbitant rate of interest is neatly

solved in Islam by banning all interest altogether. Even if there was some
basis for establishing what is a “reasonable” rate of interest today, this may
be different tomorrow, or in another town or country.
Some skeptics would argue that if no interest is paid on deposits, then the
rich may be tempted to hoard their wealth as unproductive assets. However,
the payment of Zakat conveniently avoids this problem for the devout Muslim.
Unproductive assets are taxed in the Islamic system, thus encouraging
investment. (Profits from productive assets are also taxed in Islam, through
Zakat, but at a different rate). (Metwally, 1997)
In Islam, a debtor has to clear all debts before his/her death, otherwise
he/she is a sinner. Sometimes a lender may take pity on a borrower and give
him/her a special loan, Quard-i-Hasanah, which it is not imperative to repay.
The borrower repays if he/she can. If he/she dies before he/she has repaid
the loan, he/she has not technically committed any sin.
In Islam money does not in itself produce interest or profit and is not viewed
as a commodity. It is solely a medium of exchange. The relationship of the
Islamic bank to its clients is that of a partner, rather than a creditor or debtor.
Riba, or interest, is not allowed in Islam, however, Mudarabah, or profit-
sharing joint ventures, is permissible.

In a typical Mudarabah contract, a financier provides funds and a Mudareb

(labour partner) provides knowledge and skill, and the profits from the
undertaking is shared between the partners in an agreed proportion. This
system does not apply to consumption loans, which are more or less
unproductive in nature (though their influence on the productivity of the
community has indirect bearing in so far as it stimulates production and
supply.) Consumption loans are financed by other means such as hire-
purchase arrangements or rent-to-buy schemes (with an Islamic bank being
allowed to cover its administration costs but not make a profit).
Some opponents of usury say that the solution to the problem of unequal
economic distribution is to abolish money altogether and return to a barter
system. Muslims would not, however, agree with this. In an Islamic society the
role of money is to provide the best measure for channelling purchasing
power in the form of transfer payments to the poor. (Mannan, 1986) Thus in
an Islamic society it is not desirable to dispense with money altogether and
reinvent a cashless barter system. Moslems have a compulsory obligation to
pay Zakat (alms) to the poor. The use of money facilitates the calculation of
the exact amount of this Zakat. Mannan believes that money performs
another important social function in containing or resisting the open
exploitation which can result from any system where haggling is employed.
Without money, Mannan notes that we would have to show all the relative
values of goods and services available. For example if we had only 100
commodities available for purchase in the supermarket, this would
necessitate the publishing of 4950 rates of exchange (how many eggs for a
10kg bag of rice, how many for a spade etc.) In today’s supermarkets there
are far more than 100 commodities, thus it would be extremely difficult for
modern supermarkets to function without money of some description.
3.2 CHRISTIANITY
Many Christian theologians, such as St. Ambrose, St Basil and St Augustine,

have condemned the practice of usury over the ages. Writing in 1612, a
devout Christian, Roger Fenton, cites Bible verses from Ezekial, the Psalms,
Luke and Exodus to back up his arguments that usury is incompatible with
Christianity.
3
Thou shalt not take usurie of him, no more then thou guest. (Ezekial 18:8)
The just is merciful and lendeth (Psalm 37)
Lend looking for nothing again (Luke 6:34)
If thou lend money to my people, to the poore with thee, thou shalt not be as a Usurer
unto him, thou shalt not oppresse with usurie. (Exodus 22: 25)
3
The texts have been reproduced here exactly as written by Fenton, in “Olde English” although more modern
translations may have slightly different wording.

If thy brother be impoverished or fallen into decay with thee, thou shalt release him,
and as a stranger or a sojourner, so shall he live with thee; thou shalt take no usurie
of him nor vantage, or more than thou gavest. Thou shalt not give him thy money for
usurie, nor lend him thy victuals for increase. (Leviticus 25:35)
Thou shalt not give to usurie to thy brother, as usurie of money, usurie of meate,
usurie of any thing that is given to usurie. Unto a stranger thou maist lend upon
usurie, but thou shalt not lend upon usurie to thy brother, that the Lord thy God may
blesse thee. (Deuteronomy 23:29)
This last quote is particularly interesting, and may shed some light on why the
early Christian theologians considered usury to be wrong, while in some
cases Jewish theologians do not. The Jews interpret this passage to mean
that it is quite acceptable to loan to a gentile or non-Jew, who is a “stranger”
rather than a “brother”. However Christians believe that Christ came to
abolish these distinctions between Jew and Greek, slave and free, man and
woman, consequently there is no one in the human family who is not a
“brother” (or a sister) of the Christian. Hence in the early days of the Christian
church, usury was considered to be always wrong, under any and all
circumstances.
Some proponents of the ethical neutrality of usury propose that if the

borrower is wealthy enough to repay the money with interest, then the
payment of interest is not wrong because it does not cause poverty for the
borrower. Fenton strongly refutes this argument by saying that not only the
welfare of the borrower must be considered, but also the welfare of society as
a whole. He claims that if the borrower achieves a high enough return from
his investment to repay the loan with interest, then the prices he is charging
are too high, unjustly so. The borrower is committing a sin against society by
setting his prices so high and making so much of a profit.
Fenton claims that if someone is sufficiently rich that repaying the principal
and interest cause no financial hardship, then such a person has no right to
be seeking a loan. The rich should reserve the funds or goods for those who
truly need them. The rich man has been given his wealth as a steward of
God, to be used responsibly to benefit the whole community, not for narrow
personal gain. Fenton also claims that we must not harm or take advantage
of anyone (by usury) regardless of whether that person is rich or poor.
It is Fenton’s claim that the primitive life was most natural when people lived
upon the increase which God gave by the yield of the earth and living
creatures. This increase was a gift from God, with human labour a
contributing factor, and was not gained by exploiting other human beings. As
money is solely a medium of exchange, and has no real or intrinsic value, it
cannot provide an increase in the same way that a block of land provides an
increase when human labour is applied to it for agriculture.
In the words of St Ambrose
Be it meate or apparell, or any overplus above the principall, what ever you call it, it is
Usurie.

and in Fenton’s own words
The Spirit of God in Scripture hath branded all increase and overplus, whatsoever
above the principall, by the name of a biter or a gnawer.
Fenton also quotes the commandment “thou shalt not steal” as further
condemnation of usury. St Basil claimed that usury was among the greatest
abominations, on a par with bloodshed and murder, idolatry, bribery and
oppression of the poor.
St Chrysostome lamented the fact that usury was prevalent in his day,
although the usurers justified their actions by claiming that they had given the
interest as alms to the poor. Chrysostome believes that it would be better not
to cause poverty in the first place, by not charging interest.
The famous theologian St Augustine cautions that it is odious and detestable

to give money upon usury. Augustine refutes the arguments of those who
claim that they have no means of supporting themselves and earning an
income other than from the interest they charge. He notes that robbers claim
that they need to steal in order to make a living, and those involved in
prostitution claim economic necessity, but this does not make either robbery
or prostitution morally justified. Fenton (1612) also argues that often when
people claim that they need the interest to live on, they are in fact quite rich (if
they are rich enough to have surplus funds available for loan) and that they
should be content with what they have.
Apart from individual theologians, the church councils of Nice, Carthage and
Vienna condemned usury. The Elibertin council even went so far as to
threaten excommunication from the church for all who practised usury.
In about 787, Edward the Confessor attempted to banish all usurers from his
kingdom.
The prime objection to usury in the early days of the church was that an
equitable bargain is one from which both parties gain equal advantage.
Luther published a long sermon on usury in 1520, and another tract on trade
and usury in 1524 (Wilson, 1925) Bucer, denouncing usury, wrote that
neither the church of Christ, nor a Christian commonwealth, ought to tolerate such as
prefer private gain to the public weal or seek it to the hurt of their neighbours.
In spite of the many examples of theologians opposed to usury, there were a

few dissenting voices also. Calvin believed that under some circumstances
usury could be justified, stating that a general Biblically-mandated rule of
equity should be followed, rather than the more specific prohibitions
mentioned in Deuteronomy and Leviticus. He still insisted that usury must not
be charged to the poor, and that in all cases the return earned by the
borrower from the productive use of the loan must be greater than the interest
that was being charged.

Zanchie claimed that usury was permissible, provided that if the borrower
gained little or nothing, then the interest was to be little or nothing, and that if
the borrower could not return the principal, then the lender was to accept the
loss as much as he would accept any gain. Fenton claims that this
arrangement is not in fact usury at all, that it is a business partnership,
provided that the risks are shared equally be both parties. (Zanchie’s system
is similar to that used by Islamic banks, where profit-sharing is permissible but
interest is not).
Twisden (1652) notes that at the time of the council of Nice, usury was
particularly rife among the clergy, who used it to amass enormous wealth.
Twisden concludes from the historical evidence that usury was not evil in
itself, but only because it violated the church’s decrees. Twisden claims that
the earlier councils only prohibited usury among the clergy, and that it was not
until after 800 that usury was prohibited among the lay also.
Twisden’s analysis leads him to conclude that he can find nothing, either by
literal wording or necessary inference from scripture, or the practice of the
primitive church, to lead him to conclude that usury was inherently sinful, nor
could he claim that it was absolutely lawful. Twisden believes that whether
usury is sinful or not depends on the circumstances.
There was great controversy among theologians of goodwill in Twisden’s day.

While Cardinal Cajetan was of the opinion that paying money for loan to
banks called “Mountains of Piety” was unlawfully usurious, Cardinal Tollet
saw no problem with them.
Writing in 1653, Filmer claims that nowhere in scripture is usury forbidden to

Christians, but it is as lawful as any other contract or bargain, unless the laws
of the land state otherwise. He claims that the Biblical proclamations against
usury were a secular law for the Jews only, and that is why they were allowed
to charge interest to strangers but not to fellow Jews. Filmer draws an
analogy with the situation where the ruler of England may decide to prohibit
usury among men in London, where there is the greatest poverty, but allow
Londoners to charge interest to men from Middlesex.
Fenton’s opinion is that in the days when Moses prohibited usury, the items
borrowed were small in value, and where a garment was left as security, this
indicated that the loan was to be quickly repaid, as clothing is almost as
necessary as food. For such insignificant loans he claims that usury cannot
be justified. He claims that the Mosaic prohibition of usury no longer applies in
a society where loans are much larger in value and are borrowed for greatly
extended periods of time.
Twisden (1652) claims that the old testament prohibitions on usury may be
only applicable to the Jewish society, in the same way as the Jubilee
(Leviticus 15:8) the cities of refuge (Numbers 35:11) and the release to be
made every seventh year. (Deuteronomy 15: 1,2). Twisden notes that
although usury was condemned by early Christian theologians, it was widely

practiced among them, and was sanctioned by civil laws if not by religious
mores. He also notes that not one writer has condemned usury if the interest
or increase is freely given by the borrower or is offered to the lender as a gift.
Filmer (1653) quotes three texts from the law of Moses relating to usury, as
quoted by Fenton, and comments that these texts relate specifically to the
poor (only) and thus do not prohibit usury against anyone who is not so poor.
According to Filmer, all contracts for gain are not prohibited as usurious as
Luke 19:23 mentions a bank of usury in the Jewish commonwealth, out of
which, a man, by depositing his money, might at length receive his own
money returned with usury added. It is unlikely that Jesus would tolerate such
a bank if it were not moral, claims Filmer.
It is Fenton’s claim that there are no New Testament quotes which specifically
prohibit usury, though he cites Matthew 5:42
Give to him that asketh, and to him that would borrow of thee turn not away.
and he also cites Luke 6: 35
Lend, looking for nothing thence.
Fenton claims that as these verses are not taken literally but each case is
judged on its merits, neither should the prohibitions on usury be taken literally,
it depends on the circumstances. The decision whether to loan depends to
some extent on the borrower’s necessity, his/her honesty and capacity to
repay the loan, and on the lender’s capacity to make the loan without
suffering unduly from the loss of the principal. Jesus also forbade his
disciples to carry gold, or silver or any manner of coin in their purses. Which
of us today would follow the letter of this law?
These examples show that while the practice of usury was widely condemned
by many, there were a significant number of dissenting voices.
The teaching that all usury was reprehensible continued to be the official
teaching of the Church of England right up until well into the seventeenth
century. (Wilson, 1925). After that time, it started to cave in under vigorous
attacks from the world of business. A “compromise” was reached whereby
interest was permitted provided it was modest in amount and did not exceed
a ceiling set by the state.
Wilson comments that due to the changing economic circumstances, any

minister of a city church who was indiscreet enough to criticise what had
become the chief occupation of his wealthy parishioners found himself
obliged to find another parish.
Calvin’s opinion was that interest was lawful
provided that it did not exceed an official maximum, that even when a maximum was
fixed, loans must be made gratis to the poor, that the borrower must reap as much

advantage as the lender, that excessive security must not be exacted, that what is
venial as an occasional expedient is reprehensible when carried on as a regular
occupation, that no man may snatch economic gain for himself to the injury of his
neighbour (Wilson, 1925)
The basis of Calvin’s arguments, which were widely adopted, was that the
Mosaic law on usury applied only to the special circumstances of the Jews of
Moses’ time. He also refused to make a distinction between land and capital,
saying that in practice they were interchangeable investments.
Unfortunately Calvin’s beliefs on usury were widely quoted out of context,

without any of his qualifications, and came to be used to justify usury under
any and all circumstances, when this was hardly Calvin’s intention. A
significant reason for the uptake of Calvin’s ideas was that the prohibition on
usury had been framed in an age when the borrower was poor, and the
lender rich, and this no longer applied.
While the usury debate in the Catholic church has died down, there are still
some present-day Christians who advocate the prohibition of usury.
A present-day theologian, Fonseca (1988), considers the question of

whether high interest rates are ethical, from a modern Christian viewpoint. He
considers the views of the Catholic church and also those of John Maynard
Keynes.
Fonseca cites the Pontifical Commission “Justitia et Pax” (1986) who discuss
the issue of international debt, calling for lower interest rates and fewer erratic
fluctuations in the exchange rates. Their opinion is that if loans are granted at
excessively high interest rates then the creditors forfeit their right to
reimbursement. However, they are not opposed to the idea of interest per se.
They comment that “creditors have rights, acknowledged by debtors, relative
to interest rates, the conditions and schedule of reimbursement”.
The Pontifical Commission appears to acknowledge that the current system

encourages greed. They call on the commercial banks to finance projects on
the basis of their impact on growth in preference to safer projects with more
immediate returns of investment and of questionable value to society (such as
armaments manufacture). Human solidarity and care for the poorer members
of society are the values underlying the Commission’s stance. However, in
more materialistic terms they also state their concern for avoiding the collapse
of the international financial system.
No indication is given of the numerical value of the interest rate which the
Pontifical Commission considers to be “usurious”.
Consideration of the weight of evidence regarding the Christian position on

usury leads to the conclusion that the official Church has moved from its
original position of a complete prohibition of usury to approving of interest
provided that the rate is not too high. Whether the individual Christian agrees
with usury is largely determined by his/her conscience, however few modern
Christians would dispute the official church’s position that interest is now
acceptable.

Related to the issue of usury is the question of whether those with surplus
funds can be persuaded to invest their surplus if there is no economic
incentive (in the form of interest) to do so.
Lending is seen as a work of mercy to the poor. Fenton quotes several Bible
verses which emphasise the Christian’s duty to lend surplus funds to those in
need.
Thou shalt not shut up thy compassion, but shalt lend. (Deuteronomy 23:8)
A good man is merciful and lendeth (Psalm 112:5)
Do good and lend (Luke 6:35)

Many Christians believe that it is morally reprehensible not to invest
surpluses. The Parable of the Talents (St. Matthew, 25:14-29) illustrates this
point. The person who buried their talent in the ground rather than investing it
in the community for productive purposes is reprimanded and punished by
having this talent removed. With regard to this issue of productive investment,
there appears to be no controversy or dissent within the church community.
4.0 A CRITIQUE OF USURY FROM A MODERN PHILOSOPHICAL

FRAMEWORK
The condemnation of usury may have been appropriate in the days of the
ancient Greek philosophers, before Adam Smith invented the invisible hand
and Malthus started to fret about the increasing human population. However,
is usury still wrong in today’s culture of electronic banking, globalisation, Wall
Street, the proposed Multilateral Agreement on Investment and golden arches
scattered around the globe?
When the abolition of usury was recommended in 1612, Fenton claimed that
a loan to the poor is an act of kindness, similar to doing someone a favour,
and that no interest should be charged on loans in the same way that no price
is charged for other acts of kindness. Does this still apply in today’s society
where it is necessary to have a bank account whether you want one or not,
for your salary or social ecurity payments to be paid into? Loaning the money
in your savings account to the bank, to be used for housing and consumption
loans, and productive loans, can hardly be considered an act of kindness
when you have no choice in the matter. This is just one of the relevant
features of our modern economic and financial system, which must be
considered.
Firstly, the changes which took place in the economic system in the sixteenth
century need to be discussed, because some of these changes have
persisted to the present day. What exactly was it that all of a sudden made
usury appear to be an attractive proposition?
Tawney (1925) comments that in the early sixteenth century when usury was
considered unlawful, the capital required to set up a business was usually not

entirely out of the reach of the ordinary merchant. This is no longer the case
in today’s society. Later in the sixteenth century, with increasing expansion in
industries such as the extractive and woollen industries, the need for loans
increased. These loans were usually granted in the form of credit for goods,
and interest was not necessarily charged. The industrial revolution brought
about the need for ever increasing sums of money, and usury became
commonplace. The industrialists and business owners saw control of their
businesses transferred to the industrialists who provided finance. The
merchant or craftsman became more like an employee than a self-employed
businessman. This caused some of the opponents of usury to redouble their
efforts. However Tawney claims that
the movement which provoked their denunciations itself made it impossible that they
should have any practical effect.
While previously the opponents of usury had sought to protect the peasant or
the craftsman from the unscrupulous pawnbroker, following the industrial
revolution those who paid interest were the clothiers, mine owners and
ironworkers, who most believed weren’t so poor and could defend
themselves.
If the rich should not borrow because they already have enough, how then
can we finance the large-scale production of goods which have become a
necessary part of modern life? Firstly, the large-scale production of goods is
not always entirely necessary. Increased self-sufficiency and small-scale
decentralised local production of goods will help us to ensure sustainable
development. Secondly, it is possible for the state to finance necessary large-
scale items such as national telecommunications and transport infrastructure,
through taxes, without necessarily borrowing at interest. Thirdly, worker co-
operatives, such as the Mondragon co-operatives which have become prolific
in the Basque country in Spain, provide an alternative means of financing
large projects without interest and without all the wealth and benefits of the
project accumulating in the hands of one person only.
So while usury proliferated following the industrial revolution, it does not have
to still be practised today, provided that the issue of providing sufficient
capital for large developments is addressed.
The abolition of usury would be much harder to practise in today’s society, as

not only has the economy changed since the 1600’s, but society’s values
have substantially changed also. For all our technical sophistication, in
modern times we have come to worship money as if it had intrinsic value,
losing sight of the fact that it is solely a medium of exchange.
The modern economy tends to be regarded as a morally neutral sphere in

which money is made or lost through the action of market forces. Ethics is
largely excluded from consideration in our current economic system. The
system is based on “rational” individuals or firms operating purely out of self-
interest. Reilly and Kyj (1990) comment that in a typical firm, welfare of the
employees, health of the community and loyalty to suppliers, customers and
the nation itself are taken into consideration only as a means for maximising

the corporation’s wealth. The core values of American business are wealth
maximisation and individual self-interest.
The corporation contributes to society only to the extent that it maximises its own
efficiency and wealth. ... Modern apologists...believe the only social responsibility of
business is to use its resources efficiently and engage in activities that increase profits
while staying within the explicit rules of the law. Their article of faith is that open and
free markets without deception or fraud will best bring this about.
Reilly and Kyj argue that the ethical context of classical economics may have
been appropriate in the past in an environment characterised by large
undeveloped land masses, small businesses, low population density and an
early stage of technological development, it is not relevant in today’s society
with its advanced technology and complexity, as society no longer has the
ability to easily absorb “externalities” and these become a significant source
of inefficiency.
The question of whether it is ethical to charge and pay interest is one which is
not even considered in today’s society, as the economic system is based on
the moral philosophies of Smith and Ricardo. Most businessmen would agree
with the philosophy of Milton Friedman: that business has no responsibility to
anyone or anything beyond itself.
For the most part, corporate ethics is confined to the principles of business,
defined by Reilly and Kyj (1990) as follows:
1. Internal efficiency of the resources used must be maximised.

2. Internal profitability must be maximised
3. Corporate decision-makers are agents of the owners
Considerations of equity, social responsibility, environmental preservation etc.

are not part of the basic corporate ethics. Corporate ethics deals exclusively
with the concepts of value, and has no place for the concepts of rights, truth,
justice etc. There is no place for altruism in the standard corporate ethics.
According to the principles of modern business ethics, it is perfectly

acceptable to earn a living by killing people (through the sale of tobacco
products, inadequate worker health and safety, selling Nestle infant formula in
the third world, manufacturing carcinogenic pesticides), provided you make
the highest possible return for the shareholders. The “invisible hand” of the
market is expected to somehow compensate for this loss of life.
With its emphasis on individualism to the detriment of all other ethical

considerations, there is no place for questioning usury in our modern system
of ethics. However, in recent years, some dissenting voices have been heard,
especially in the light of the ecological crisis which calls into question our
relationships to each other and to the earth.
One example of a dissenting voice is Korten’s (1996). He questions the ethics

of extractive investment, such as buying a corporation, stripping it of its
assets and closing it down. While the individual investor profits from such

actions, society as a whole is impoverished. To Korten, when an investment

simply creates money or buying power, such as through the inflation of land
or stock values, without creating anything of value, this is another form of
extractive investment. The investor has created nothing, however their share
of society’s buying power is increased. This situation of “extractive
investment” seems little different to loaning money for interest, and increasing
one’s buying power without having created anything of value to society.
Therefore in Korten’s framework, usury must also be considered to be wrong.
Hardin (1991) is an example of an environmentalist who disagrees with

utilitarianism. He states,
“The greatest good of the greatest number” is nonsense. The theory of partial
differential equations tells us that we cannot maximise for more than one variable at a
time. Since the time-honored utilitarian ideal is mathematical nonsense it must be
practical nonsense also. We need to find other approaches to the problem of the
optimum. We must, in a word, decide whether we want to maximise the number of
human beings on Earth, or to maximise their average - not their total - well-being.
Individualism is under attack from a number of different quarters. Page (1991)

comments that the concept of an individual human being is being challenged
not only but philosophy but by evolutionary biology also. The notion of utility
relies on the concept of the individual. Concepts such as rights, duty,
obligation, autonomy and justice also rely on the concept of separate
individuals.
How does the interest rate affect the natural environment? How does it affect
the distribution of wealth in our society?
The current interest rate may have implications not only for the distribution of
wealth in the present generation, but also for the distribution of wealth
between present and future generations, “intergenerational equity”. There is
not universal agreement between economists, however, that the interest rate
and wealth distribution are interrelated. Norgarrd and Howarth (1991)
consider the question of whether altering the interest rate can promote
intergenerational equity or increased well-being of future generations.
Their conclusions however, do not in fact shed much light on the issue of
usury. They conclude that to ensure intergenerational equity wealth should
be transferred, rather than making inappropriate investments. They claim that
alterations of the interest rate in the hope of benefitting future generations are
simply variations of the “trickle down” theory which has failed to alleviate
poverty in the present generation. Norgarrd and Howarth give examples of
wealth transfer such as setting aside natural resources and protecting
environments, educating the young and developing technologies for the
sustainable management of renewable resources.
Daly (1991) also discusses whether high or low discount rates are beneficial
for the environment. He notes that a high discount rate is worse for the
environment because it speeds the rate of depletion of nonrenewable
resources and shortens the turnover and fallow periods in the exploitation of

renewables. However, a low discount rate will permit more projects to be

undertaken even though resource use for each project is less intensive. It
would appear that further investigation is required to determine the effects on
the environment of interests rates, and thus determine whether usury is
ethical from a viewpoint of environmental ethics. However, it is extremely
encouraging that economists are beginning to consider such questions,
which, before the ecological crisis, were not on the agenda.
As stated previously, there are a few examples of dissenting voices who seek
to change the prevailing concept of business ethics, to consider a wider range
of issues than just honesty in accounting and compliance with the Trade
Practices Act. Nevertheless, issues such as the question of usury in the
context of our modern economic system, need to be examined in much more
detail.
The question of whether usury is ethical can be examined, using utilitarianism

as the theoretical starting point, (as the lesser of many evils).4 While
utilitarianism is not a perfect system of ethics, (as discussed earlier in this
paper) it can be used by both religious thinkers and atheists alike, and can be
adopted to some extent within different cultures. (However it does conflict with
western society’s dominant ethic of individualism). Utilitarianism considers not
only the interests of the individual, but society as a whole.
Utilitarianism is a form of consequentialism. It considers ends or goals and

then considers the actions necessary to achieve those goals. In a utilitarian
framework, the ends justifies the means. This contrasts with the more
dogmatic approach which exists in some religious ethics where moral rules
are formulated which must never be broken. Within a utilitarian framework,
self-interested actions can only be justified insofar as they promote the well-
being of society as a whole or at the very least cause no harm to society as a
whole.
Rather than considering whether an action causes ‘pain’ or ‘pleasure’ to

another, utilitarianism will be used here to discuss whether an action is in the
“interests” of another. Some actions considered from a utilitarian framework
will be right or wrong depending on the circumstances, while others will be
universally applicable under all conditions. In Bentham’s traditional utilitarian
framework, the interests of the community are considered as being the sum
total of the interests of the individuals who make up that community. The
interests of the individual cannot be considered in isolation, but in relation to
others.
Some take the point of view that an individual should be free to do as they
please with what is their own. However this is essentially a selfish point of
view, and will not be considered here.
4
A similar approach is used by Cathy Challinor URL: http://www.pcug.org.au/~gchallin/gundaroo/ethics1.htm How
can different values and conflicting ideas be managed in terms of deciding future directions for a community?

The essence of the utilitarian argument is this: if a lender who is already rich
loans a sum of money which they do not need, their utility is increased by the
interest they charge on the loan. The borrower, who may in some cases be
already poor, has to pay back not only the principal but also a sum of interest,
If the borrower is poor and has to go without basic necessities to pay back
their loan, then their utility is greatly decreased. Does the borrower’s loss of
utility outweigh the lender’s gain in utility? In our society there poor greatly
outnumber the rich. The world’s 358 billionaires have a combined wealth
which exceeds that of the world’w poorest 2.5 billion people. (Ellwood, 1996).
Thus it is logical to assume that borrowers greatly outnumber lenders. So the
interests of the borrowers assume a greater priority than those of the lenders,
due to the sheer weight of numbers.
What about the situation where someone who is not poor takes out a loan?
Most middle class people in western countries take out a loan to purchase a
house, not because they are destitute, malnourished, and struggling to make
ends meet, but simply because houses are so expensive, in comparison with
a middle class person’s salary. These consumers are not so greatly
inconvenienced by having to pay interest on their housing loan. (Some of
them are, but not the majority). Should interest be payable on these loans,
seeing as the borrower can afford it? This then begs the question: if usury can
theoretically be justified in some cases and not others, why not abolish
interest altogether (for the protection of the poor) and introduce the Islamic
alternative of profit-sharing.
In the Islamic system of profit-sharing, the borrower and the lender enter into
a partnership where they undergo some business undertaking together and
divide up the profits between them. This allows a wealthy lender to take into
account a poorer borrower’s economic status and not take an undue
propoportion of the profits. The Islamic system allows a more equitable
distribution of “utility” between borrower and lender ie. it safeguards the
interests of both parties, to a greater extent than our current system of usury.
It could be argued that the Islamic economic system does not pay enough
attention to the lender’s utility, because it does not adequately compensate
them for the risk involved in loaning funds. However, rather than charging a
fixed interest rate to cover the risk incurred by the lender, an item could be
offered as security in the case of non-payment of the loan. Or an alternative
system could be used, such as the system used by the Grameen Bank,
loaning only to individuals who are organised into groups, thus ensuring
repayment because other members of the group also want a loan. Indeed this
method is a way of spreading the financial risk over a large number of
individuals, thus it is in a sense egalitarian or equitable, because the
alleviation of poverty is a community responsibility, not just a burden placed
on the individual.
Fenton comments on the connection that is often made between greater risk
and greater returns. This argument is often used to justify usury as
compensation to the lender for the risk of losing their principal. However,
Fenton argues that when usury becomes regarded as legitimate, the gain

always goes to the usurer, who always makes a gain from then onwards, no
matter what the cost to the borrower, who may have failed to make any profit
at all. Wherein then is the risk, if the usurer is virtually assured of getting his
money back with interest. The practice of usury has led to such outrageous
situations as the bonded labours in India, where generations are bound to
labour for their entire lives to pay back a debt they did not even incur. The risk
should not be borne entirely by the borrower and their descendents. No, the
risk should be shared between the borrower, the lender, and maybe even the
wider society. In fact, the best option is to avoid risky business ventures in the
first place.
How can the argument against usury respond to the economists’ contention
that interest is simply the price of money? Firstly, money cannot have a price
because it is solely a medium of exchange or a unit of measure. Putting a
price on money is like putting a price on litres and millimetres. It is an absurd
and meaningless concept. Changing the definition of interest to the “price for
the use of money” is equally illogical. How much is the price for the use of
units of length or time?
Secondly, when we allow money to have a price, this price steadily increases
until it becomes, as Shakespeare so aptly put it, “a pound of flesh”. The
practice of charging a pound of flesh unfortunately did not end in the days of
Shakespeare, we are seeing it continue, mainly in the developing countries.
How many peasant farmers have died of starvation because their
governments have cut back social services, as a result of “structural
adjustment “ following usurious loans? If even one person dies as a result of
usurious loans, then the price of money is too high! No sum of money can
buy back the life of someone who has departed from this earth.
None of the foregoing arguments appear to be altered in any way by the

context of our modern financial system. If anything, the gap between the rich
and the poor has greatly widened since the seventeenth century. Thus the
utilitarian argument is far more relevant now than it was then. Admittedly, the
sums of money required now to finance modern day infrastructure projects
such as wastewater treatment plants and electrification projects and road
bridges run into the millions, whereas in the days of Aristotle loans were of
the order of a bag of flour to be repaid after the wheat harvest. However, this
does not, of itself, justify usury. It merely necessitates the acquisition of large
amounts of capital. Funds can be raised from those who have excess capital
without paying a fixed rate of interest, using the Islamic model of business
partnerships and profit-sharing. Alternatively, funds can be raised,as stated
previously, using government funds or through worker-funded co-operatives.
In the Islamic system investment in such large infrastructure projects (or any
other projects) is encouraged by zakat, a tax payable on unproductive assets.
Rather than giving people an economic incentive to invest, in Islamic
economics they are given an economic disincentive not to invest. This could
be regarded as the “stick” approach rather than the “carrot” approach. It is
usually argued that human beings are more motivated by positive means
than by negative means. The prospect of reward is greater than the fear of

punishment. However, how can this apply when a person is already rich, and
already has more than enough of everything they need? What incentive can
possibly be offered to such a person to persuade them to loan their excess to
someone in need? Only the thought of even greater wealth?
This cannot work in practice, because it only serves to create more poverty.
We live in a finite world, and with our current population we cannot increase
the wealth of the rich without transferring resources from those who are
already poor. Hence a better incentive to offer the rich is the spiritual
satisfaction to be gained from a simpler lifestyle, sharing with others and
making a positive contribution to humanity.
Those in favour of usury claim that it cannot be abolished because our

modern economic system is heavily dependent on interest to function.
However, this argument does not hold water. Formerly, our economy
depended on the cheap labour of human slaves from Africa, but nowadays
no-one of sound mental health would call for the reinstatement of slavery to
sustain our economy! Thus just because usury has become common, and
part of the system, doesn’t make it right. Slavery was once part of the system
too.
What about the argument that the lender should receive compensation for the
temporary loss of their money, while it is being loaned out? They believe that
they have worked hard to earn that money.
It’s true that wealth is the result of hard work, but it’s not always true that
wealth is the result of the hard work of the wealthy themselves. More
commonly, wealth is the result of the exploitation of the hard work of others.
The managing director of a large company who commands a huge salary
does so, not as a result of his/her own seventy hours of work alone, but as a
result of the hundreds of labourers on the assembly line churning out widgets
to be sold at a profit. Without the efforts of the shop floor staff, the company
would become bankrupt and the managing director would not earn any
money at all no matter how hard he or she him/herself worked.
Even assuming that the lender genuinely has worked their fingers to the bone
to acquire surplus wealth in excess of their immediate needs, they have
already been paid for their hours of toil, and seeking to earn interest on the
money again, is like being paid for the same job twice, ie. it is double dipping.
What does the modern day argument for the abolition of usury have to say
about the enviornmental crisis, and how does our increased knowledge and
awareness of ecology impact on the issue of usury?
Costanza (1991)claims that

Ecological systems are currently our best models of sustainable systems.
To build an ecologically sustainable financial system, we should model our

system on the economy of nature. In the natural environment if one
component malfunctions the entire system becomes unbalanced. These

systems are interdependent. Does poverty exist in nature? If one species of

tree was to consume and leach all of the nutrients out of the soil the tree itself
would die out prematurely, along with the entire ecosystem which would be
forced to evolve into something new and different. The epiphyte does not pay
rent to the tree on which it lives. The bird does not accumulate more insects
than it needs for survival and health, leaving them to rot in its nest. The
mother bird does not demand that her babies repay her with interest when
they are grown to maturity, as payment for the opportunity cost of not
consuming the extra insects she has collected for them. Each component
which is part of the economy of nature is subordinate to the health of the
entire ecosystem in which it is found. In a certain sense then, in a healthy
stable ecosystem nature has its own just distribution of wealth.
If we wish to create an ecologically sustainable society, with a just distribution

of wealth, we should model our economic system on the economy of nature
in which usury is non-existent.
5.0 THE PRACTICAL IMPLEMENTATION OF USURY-FREE FINANCIAL

SYSTEMS
The abolition of interest sounds like a brilliant idea, but can it be achieved in
practice?
While traditional sources of finance such as borrowing from relatives, friends

or informal moneylenders may be adequate for small businesses or
individuals, modern banks are necessary for the financing of large scale
projects. In modern western society there are very few banks which are
usury-free. However, in the Islamic world there are a number of banks which
work on the principle of profit-sharing rather than interest.
The first interest-free Islamic bank was the Dubai Islamic Bank, which was
established in the United Arab Emirates in 1973 with a start-up capital of
US$14 million. In 1975, the Islamic Development Bank opened in Jeddah,
Saudi Arabia. From these humble beginnings, there are now more than 100
interest-free banks in 45 countries.
What options exist outside the Islamic world for people who want to make the
radical change to an interest-free financial system? Don’t all banks, credit
unions and even ethical investment funds pay interest?
There are a few alternatives. For example, Community Aid Abroad has an
Ethical Investment Fund where depositors can elect to earn 0% return on
their investment. Investors in the Fair Trade fund are also helping to further
the work of Community Aid Abroad in creating employment for third world
artisans.
Here in Brisbane the Catholic Church’s Archdiocesan Development Fund

allows the operation of an at-call savings bank account where, if the depositor
so chooses, no interest is paid. The depositor’s funds are used for the
construction of schools, churches and homes for the aged.

The LETS system and the Ithaca Alternative Trading System are examples of
advanced barter systems where interest is strictly prohibited. There are a
number of LETS groups operating in South-East Queensland.
Usury is an issue not only for individuals but also for governments. Patricia
Knox comments that while conventional governments delegate the task of
money creation to a central bank, in the Channel Islands the government
5
itself controls this function. Whereas money is loaned to the British
government at interest by the Central Bank, the Channel Islands issues its
own money at no interest. In Britain increasing amounts of tax revenue are
being used to service the debt which accumulated over the last 300 years,
and social services must be cut back to repay the Bank of England. However,
the Channel Islands have no debt, and thus income tax there is only 20%.
There is no inheritance tax, capital gains tax or VAT in the Channel Islands.
Knox recommends that other governments reclaim their power to create

interest-free money, and that extortionist debts should be classed as
unenforceable.
6.0 CONCLUSIONS AND RECOMMENDATIONS
Seeing as usury has so little to recommend it, why do we persist with it in a

supposedly civilised society? Perhaps it is because economics has assumed
profound importance in our society, at the expense of ethics. Modern
economics is viewed as being amoral and divorced from ethics, when in fact
the two are fundamentally interrelated. The widespread practice of usury is
just one symptom of an economic system that promotes the freedom of the
individual in the marketplace to the detriment of all other freedoms, rights and
duties.
In the days of Plato and Aristotle, when usury was widely condemned, Plato
advocated that only philosophers, of the highest standards of virtue, were fit
to govern. These were people (actually they were men) who had achieved
some form of enlightenment, and could thus contribute to the moral
advancement of the republic.
Today’s politicians tend to be economists rather than philosophers. They aim

to promote the economic advancement (ie. growth in the GDP) of a country
rather than its growth as a culture, or its growth towards a more advanced
civilization. Even when today’s politicians discuss economic advancement,
they tend to be preoccupied with “baking a bigger cake” rather than worrying
about how this cake is divided up between the rich and the poor.
Imagine the public ridicule that would be ensue in Australia if a group of

bearded academics from the Universities’ Philosophy Departments,
announced the formation of the New Acropolis political party, running on a
platform of the abolition of usury, the end of racism, a guaranteed minimum
5
URL: http://www.globalideasbank.org/BOV/BV-101.html Channel Islands model of debt free money

wage for everyone, giving a sum of 10% of GDP to our neighbouring Asian
countries as compensation for ripping them off, reinstating land rights (ie.
right to negotiate) and buying large areas of land to return to its indigenous
owners, increasing taxes to fund public services, ie. generally advocating the
moral advancement of society. They may also advocate abolishing the
Department of Defence, to be replaced by a Department of Nonviolent
Resistance, with the military being redeployed for civilian projects such as the
construction of schools. Just the mere suggestion of an increase in taxes
would guarantee that the philosophers would not be taken seriously. Who
would be crazy enough to vote for a politician who dared to suggest that there
is more to life than making money?
What a sad indictment of our society than individual selfishness is considered

an economic virtue, and that rampant individualism is the only ethic permitted
for the leaders of our nation!
If usury is to be abolished, it is not enough for isolated individuals to withdraw

their funds from commercial banks and invest them in interest-free alternative
financial institutions. It is also necessary for us to elect representatives in
government who will promote more human values, and more humane
economic policies, as alternatives to the obsessive individualism which rules
today’s society.
In conclusion, while members of the church and the state may have bowed to
public pressure from the newly emerging merchant classes in the
seventeenth century, and pronounced usury legally and morally acceptable, it
is not ethical and never has been. The primary problem with usury is that it
can cause hardship to those who have to pay it (who are often already poor),
while increasing the wealth of the already wealthy who have spare capital
available to be loaned. Thus in most ethical frameworks, from Aristotelian and
Platonic ethics to utilitarianism to feminist ethics to Islam, the abolition of
usury can be defended.
It is recommended, therefore, that usury be abolished, and that this change is

brought about by a grass roots movement of concerned citizens investing in
interest-free banks and participating in financial alternatives such as LETS
and the Ithaca Alternative Trading System. It is also necessary to lobby
governments, not only for the abolition of usury, but to help create a saner
society that is not dominated by rampant individualism.
7.0 BIBLIOGRAPHY
Daly, Herman E. (1991) Elements of Environmental Macroeconomics, Ecological Economics. The Science and
Management of Sustainability, Columbia University Press, New York.
Ellwood, Wayne (1996) Building a Green Economy, New Internationalist, April 1996.
Fenton, Roger (1612) A Treatise of Usurie, Divided into Three Bookes, London, reprinted in Silk, 1972.
[Filmer, Robert] (1653) Quaestio Quodlibetica: or a Discourse, whether it may be lawfull to take Use for Money ,
reprinted in Silk, 1972.

Fonseca, Aloysius (1988) Are High Interest Rates Justifiable? Gregorianum 69, 2 ,pp 225-259.
Mannan, Muhammad Abdul (1986) Islamic Economics: Theory and Practice, Hodder and Stoughton, Cambridge.
Mehmet, Ozay (1990), Islamic Identity and Development. Studies of the Islamic Periphery, Routledge, London.
Metwally, M.M. (1997) Economic Consequences of Applying Islamic Principles in Muslim Societies, International
Journal of Social Economics, Vol 24, No. 7/8/9, 1997.
Mollison, Bill (1988) Permaculture A Designers Manual, Tagari, Tyalgum.
Norgaard, Richard B. and Howarth, Richard B. (1991) Sustainability and Discounting the Future, Ecological
Economics. The Science and Management of Sustainability, Columbia University Press, New York.
Pontifical Commission “Justitia et Pax” (1986) At the Service of the Human Community: An Ethical Approach to the
International Debt Question, Citta del Vaticano, p.19.
Reilly, B.J. and Kyj, M.J. (1990) Economics and Ethics, Journal of Business Ethics, 9: 691-698, 1990, Kluwer
Academic Publishers, Netherlands.
Silk, Leonard (ed) (1972) The Usury Debate in the Seventeenth Century: Three Arguments, The Evolution of
Capitalism series, Arno Press, New York.
Sparkes, Russell (1995), The Ethical Investor, Harper Collins, London.
Tawney, R.H. (1925) Introduction to reprinted version of Wilson, Thomas (1572) A Discourse Upon Usury, G.Bell
and Sons, London.
Thomas, Lewis (1974) The Lives of a Cell, The Viking Press Inc.
Trainer, Ted (1998) Can Permaculture Save the World?, Permaculture International Journal, Issue 68, Sep-Nov
1998.
Twisden, Roger (1652) Introduction to Quaestio Quodlibetica: or a Discourse, whether it may be lawfull to take Use
for Money , reprinted in Silk, 1972.
Unknown author (1625) Usurie Araigned and Condemned, or, A discoverie of the infinite Injuries this kingdome
endureth by the unlawfull trade of usury, London, reprinted in Silk, 1972.
Vardy, Peter and Grosch, Paul (1994) The Puzzle of Ethics, HarperCollins, Glasgow.
Worster, Donald (1994), Nature’s Economy, Cambridge University Press, Cambridge.
Wilson, Thomas (1572) A Discourse Upon Usury, reprinted in Tawney, 1925.
7.1 INTERNET REFERENCES

URL: http://www.utm.edu/research/iep/f/femethic.htm The Internet Encyclopaedia of Philosophy: Feminist Ethics
URL: http://www.utm.edu/research/iep/s/stoicism.htm The Internet Encyclopaedia of Philosophy: Stoicism
URL: http://www.pcug.org.au/~gchallin/gundaroo/ethics1.htm How can different values and conflicting ideas be

managed in terms of deciding future directions for a community?
URL: http://www.globalideasbank.org/BOV/BV-101.html Channel Islands model of debt free money

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E9846 ASSIGNMENT 3

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The question of usury is examined here from a number of different philosophical

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2.0 Definition of Usury 1

3.0 Discussion of the ethics of usury

4.0 A critique of usury froma modern philosophical framework 19

5.0 The practical implementation of usury-free financial systems 27

6.0 Conclusions and Recommendations 28

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The question of whether usury is ethical is not often considered in today’s

Ecologically sustainable development implies not only conservation of diverse

Are human beings “born to shop” and to accumulate paper banknotes by

2.0 DEFINITION OF USURY

Fenton (1612) defines usury as any increase on a loan of money or goods,

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Fenton makes a distinction between lending and selling, because selling is

A distinction is made between exchange and a loan, as when an exchange is

If a loan of money, food, or other consumables is made and the borrower, of

It is necessary to make a distinction between profits and interest. Profits are

Fenton’s definition of usury (1612), and the differences between loans

3.0 DISCUSSION OF THE ETHICS OF USURY FROM THE VIEWPOINT

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Vardy and Grosch (1994) describe several different types of ethical

In a constructivist relative framework, there can be no absolute prohibition of

To a moral realist, the prohibition of usury (or otherwise) would not

For a constructivist non-relativist, usury may be wrong only if this is coherent

Taking Protagoras’ approach that an individual human being is the measure

Aristotle concerned himself with distributional justice. He believed that the

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is not surprising that Aristotle explicitly condemned usury in his Politics as

Aristotle has condemned usury in his Politics as unlawful and unnatural.

Many ancient governors of state tried to legislate against usury. Tiberius

Stoicism is a system of morality based on physics1, which relies heavily on

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Thomas Aquinas takes the natural law approach to morality, following a

Aquinas considers that natural law can be deduced by examining human

Unlike Aquinas, Kant is concerned with following fundamental principles of

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Sidgwick, a post-utilitarian philosopher, espouses the principle of prudence:

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A variation of situational ethics is proportionalism which is part-way between

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Feminist ethicists argue that traditional male-centred morality is based on

Nozick’s theory of justice states that a person is entitled to their wealth,

Rawls’ theory of justice advocates an economic distribution pattern that

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to take advantage of another by charging interest on a loan and becoming

The modern-day philosopher Bill Mollison (1988), founder of Permaculture,

to accumulate wealth, power or land beyond one’s needs in a limited world is to be

Mollison believes that we must base our economic systems on natural

In Mollison’s philosophical framework, the investment of idle assets for

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Mehmet(1990) comments that Islamic rationality is not pure self-interest: it is

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Crowther (1958) also comments that

The problem of what rate of interest is an exorbitant rate of interest is neatly

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In a typical Mudarabah contract, a financier provides funds and a Mudareb

Many Christian theologians, such as St. Ambrose, St Basil and St Augustine,

The just is merciful and lendeth (Psalm 37)

Lend looking for nothing again (Luke 6:34)

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