In case you hadn't noticed, our economy is in a bit of a pickle. And our economy is also built around charging interest on loans of money.
The Old Testament included a ban on lending at interest. Instead, a person's capital could be used by others as part of a profit-sharing agreement, or through a rental or hire agreement.
Way back in 1993, economist Paul Mills published a paper on this biblical prohibition of interest. The paper focuses on the bad consequences of an economy based on lending money at interest, as follows:
- It is unjust and destabilising. Unjust, because the lender gets no reward for lending to a successful business and (generally) suffers no harm from lending to an unsuccessful business. And destabilising, because lending at interest encourages further borrowing and investment during a growth period and places high burdens (causing bankruptcies) when profits are low.
- It encourages the allocation of finance to the safest borrowers (e.g., large firms and wealthy individuals) rather than to the most productive borrowers. This is a consequence of the first point.
- It encourages financial speculation in assets and property. "When the price of an asset in relatively fixed supply begins to rise, buyers borrow to purchase more of it," and I think we know what happens next.
- It leads to an inherently unstable banking system. Banks can guarantee the savings they hold only through the possibility of government bailouts.
- It encourages a "short-termist" investment strategy. "[T]he pervasive influence of interest tends to bias business investment towards quick-return, short-term projects even though longer-term, more risky ones may offer greater benefits in the long run."
- It concentrates wealth into fewer and fewer hands. "Interest automatically acts to transfer wealth from net borrowers to net lenders. Not surprisingly, the former tend to be the less well-off and the latter tend to be the richer members of society."
- It leads to a rapid flow of financial capital across regions and countries.
The question now is: how can ordinary members of society support a shift away from an interest-based (and debt-based) economy? Probably there are some answers out there...