Of interest and the
dangerous habit of suppressing it
The idea that the charging
of interest is unethical and should be banned has a long tradition in the
history of human civilisation. It seems to have played a role at some point in
all the major religions, certainly in Christianity, Judaism and Islam, and it
is today promoted most strongly by advocates of Islamic banking.
As an economist I cannot
(and should not) comment on matters of religion. Religion and economics deal
with completely different aspects of human existence. Religion is about
‘ultimate ends’ and ‘personal values’. Economics does not deal with ends but
with means. Economics does not tell anybody what his or her values should be.
Contrary to what is frequently claimed – usually by those who do not understand
economics – economics does not tell you that you should strive for more
material goods and more services at your disposal.
But it so happens that we
live in a world in which most people have personal aims or goals that involve
having at least a certain material wealth, and in which most people prefer the
possession of more material goods to less material goods; and the science of
economics – for economics is a science, and in fact an objective, wertfreie (value-free) science – can then
explain why people have a better chance of achieving these (material) aims if
they use such social institutions as the division of labor, private property,
trade, money, and many others. Additionally, the science of economics can show
how these social institutions work, demonstrate the laws and regularities
inherent in them, and can develop rules for their most appropriate use.
Economics is purely about the means of social cooperation for the attainment of
material goals. It never concerns itself with ultimate ends.
If most of the population
became Buddhist monks tomorrow and would lose any interest in accumulating
material wealth, would happily withdraw into monasteries and dedicate
themselves to meditation, none of the principles and laws of economics would
have suddenly become less true or invalid. The law of comparative advantage as
articulated by David Ricardo would be as true on that day as on any other. The
laws of economics would still apply just as the laws of gravity would. Of
course, the interest in economic studies would probably diminish rapidly but
that is all. Or, not quite all: Society would also be rapidly impoverished in
material terms – even to the point of mass starvation –, and this the economist
can ascertain with certainty, although nothing can be said about any
compensating gains in spiritual wealth, of course.
If you believe that your
God demands that if you lend money you should not charge interest, than there
is nothing that I, as an economist, can say to you – other than, maybe, give me
a call whenever you have some extra cash. The point at which I can – and should
– comment is when you were to claim in addition that the observance of this
rule would lead to a more stable and better functioning economy, that the
non-charging of interest would not diminish society’s wealth but even increase
it, or that the resulting economic structure would at least conform better to
some generally accepted notion of fairness. Here we have reached a point where
debate has become possible, not because I, as an economist, have intruded onto
the religious ground of values and ultimate ends but because the advocate of
religion has intruded onto the economists’ ground of the study of the laws for
wealth creation.
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