Faith in Britain

From a Christian point of view it is worth recalling that until about the year 1500 the Church had always opposed the use of interest. The early Church saw it as uncharitable and greedy and equated it with theft. The Church in the Middle Ages saw interest as inherently unjust but gradually outright opposition was replaced with qualifications, and Calvin rejected the view that interest was wrong per se. In modern society Mills points out that Christians rarely think twice about lending or borrowing money at interest. Of course, the truth is that for most of us there are few alternatives if we want to buy a house, own a car, or establish a business. A return to a clear biblical view might liberate the millions of people and communities now locked into a cycle of unremitting debt. It would also challenge the whole basis of Western capitalist economic thinking and create an economy which serves the human personality and communities instead of enslaving them.

Mills makes the point that modern society has drawn a distinction between usury and interest. However, usury initially referred to any charge made for the use of property, be it money, land or possessions. Therefore, rent on land or charges for objects could be described as usury as well as any charge made for a loan of money. Interest referred to payments made on a loan of money that acted as compensation to the lender for making the loan and interest payments were designed to ensure that the lender suffered no loss for engaging in the transaction.

Under the euphemism 'interest' in contemporary society such compensatory payments amount to usury in its original sense.

The neo-classical view of interest sees the function of interest rate movements as being to bring saving and investment, and lending and borrowing into line with one another. Interest rates can ration funds but the social usefulness of borrowing is not the determining factor in deciding on priorities for loans. People who can invest most profitably and those who have the greatest time to see a return on their investment are the beneficiaries of this approach.

In his book The General Theory of Employment, Interest and Money,4 Keynes argues that interest should not reward those who simply wait around and see their savings grow as a reward for non-consumption. Instead, interest was needed to stimulate wealth holders to part with their money rather than hoard it. Keynes believed interest rates which were set too high could be the cause of chronic unemployment and depression. He identified with the school of thought which advocated the abolition of financial return without effort, particularly from other people's debts.5 Keynes held that it would take one or two generations to accumulate such capital to the extent that the rate of interest would fall to zero. In 1936 he said this would lead to 'euthanasia of the rentier'. Not since the 1940s has the institution of interest been questioned. The battle lines are now drawn around the issue of whether the government can and should attempt to set the rate of interest and the best means of doing so. Price inflation usually determines its chosen course of action.