11-25-2003, 04:39 PM
<font size=4> FOLLOWING HAS BEEN SUMMARIZED FORM http//www.lariba.com/financing/HistoricalCritiqueUsury.shtm
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Usury (Riba, Interest) has been known to exist in various parts of the world at least four thousand years back (Jain 1929). The Usury has been subjected to criticism on grounds of social injustice, economic instability, etc. Among its most visible and vocal critics have been the religious institutions of Hinduism, Buddhism, Judaism, Islam and Christianity, ancient Western philosophers and politicians, as well as various modern socio-economic reformers.
<font color=red>HISTORY OF THE CRITIQUE OF USURY</font id=red>
<u>Usury in Hinduism and Buddhism </u>
The Sutra text of Ancient India (700-100 BC) and Buddhist Jatakas (600-400 BC) expresses contempt for usury. Special law was made which forbade the higher class of Brahmanas (Priest) and Kshatriyas (warriors) from being lenders at interest. However up-till recent times concept of usury has been limited to charging interest at rate higher than what is legal.
<u>Usury in Ancient Western Political Philosophy </u>
Ancient Western philosophers who condemned usury can be named Plato, Aristotle, the two Catos, Cicero etc. In Republican Rome (340 BC) interest was outlawed altogether. Under the banner of Julius Caesar, a ceiling on interest rates of 12% was set, and later under Justinian, lowered even further to between 4% and 8% (Birnie, 1958). With Christianity Church also assaulted Usury.
<u>Usury in Islam </u>
The criticism of usury in Islam was well established during the Prophet Mohammed's life and reinforced by various of his teachings in the Holy Quran [Most notable of these is Surah 2 verses 188, 274-280; Surah 3 verse 130; Surah 4 verses 29, 161; Surah 9 verses 34-35, 43; Surah 30 verse 39]DATING back to 600 AD.A school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed, still argues for a interpretative differentiation between usury, which it is claimed refers to consumptional lending, and interest which they say refers to lending for commercial investment (Ahmed, 1958).
<u>Usury in Judaism and Christianity </u>
Criticism of usury in Judaism has its roots in several Biblical passages in which the taking of interest is either forbidden, discouraged or scorned, In the associated Exodus and Leviticus texts, the word almost certainly applies only to lending to the poor and destitute, while in Deuteronomy, the prohibition is extended to include all moneylending, excluding only business dealings with foreigners. Despite the prohibition on taking interest, there is considerable evidence to suggest that this rule was not widely observed in biblical times.
The critique of usury was most ferverently taken up as a cause by the institutions of the Christian Church where the debate prevailed with great intensity for well over a thousand years. In the eighth century Catholic Church declared usury to be a general criminal offence. This anti-usury movement continued to gain momentum during the early Middle Ages and perhaps reached its zenith in 1311 when Pope Clement V made the ban on usury absolute and declared all secular legislation in its favour, null and void (Birnie, 1952).
<u>Usury in Modern Reformist Thinking </u>
Adam Smith, despite of his image as the âFather of the Free-market Capitalismâ and his general advocacy of laissez-fair economics, came out strongly in support of controlling usury. He was in favour of the imposition of an interest rate ceiling. Gesell, as a successful nineteenth century merchant in Germany and Argentina, condemned interest on the basis that his sales were more often related to the âpriceâ of money (i.e. interest) than people's needs or the quality of his products. Margrit Kennedy (1995), a German professor at the University of Hannover, criticized interest, believing that âinterest ... acts like cancer in our social structureâ. She takes up the cause for âinterest and inflation-free moneyâ by suggesting a modification of banking practice to incorporate a circulation fee on money, acting somewhat like a negative interest rate mechanism.
It was premised by a number of socio-economic reformists of the twentieth century that for banks to then charge interest on money which they had created out of nothing, having suffered no opportunity cost or sacrifice, amounted to nothing less than immoral and fraudulent practice.
<font color=red>RATIONALE FOR THE CRITIQUE OF USURY </font id=red>
<u>Usury as Unearned Income </u>
The Lateran council of 1515 clearly expressed âThis is the proper interpretation of usury when gain is sought to be acquired from the use of a thing, not in itself fruitful (such as a flock or a field) without labour, expense or risk on the part of the lender.â Birnie reinforces this point âto live without labour was denounced as unnatural, and so Dante put usurers in the same circle of hell as the inhabitants of Sodom and other practisers of unnatural viceâ (1952 4).
This is also the rationale Ahmad uses to explain why in Islam God [vii] âpermits trade yet forbids usuryâ âThe difference is that profits are the result of initiative, enterprise and efficiency. They result after a definite value-creating process. Not so with interestâ; also âinterest is fixed, profit fluctuates. In the case of interest you know your return and can be sure of it. In the case of profit you have to work to ensure itâ (1958 25). Perhaps Aristotle had similar sentiments in mind when he argued that âa piece of money cannot beget anotherâ.
Keynesâ biographer, Skidelsky, intriguingly comments that âKeynesâs sense that, at some level too deep to be captured by mathematics, âlove of moneyâ as an end, not a means, is at the root of the worldâs economic problemâ (1992 454).
Usury is what marks the distinction between money being simply a socially contracted abstract mechanism to lubricate between supply and demand, and money as an end in itself. The true dignity and full reward of ordinary labour is compromised. Money thus becomes self-perpetuating power in itself rather than just a mediating agent of power.
<u>Usury as Exploitation of the Needy</u>
This reason is self-explanatory, how ever this concept needs to differentiate helping Interest from oppressive according to Sir Sayyedâs school in Islam. This idea can be elaborated to say that rich do nothing to earn their living and still earn this extra income in society results from the fact that the poor have to sweat doubly so that the rich might live on interest.
A parallel modern argument relates to the devastating social impact of the so-called âThird World debt crisisâ, a situation which even Pope John Paul II (1989) acknowledges in his Sollicitude Rei Socialis when he states âCapital needed by the debtor nations to improve their standard of living now has to be used for interest payments on their debtsâ. If the debt to debtor nations was advanced on equity basis in 70âs, the debtor nations would not have wrong footed by compound interest rate established by non-domestic macroeconomics factors.
<u>Usury as a Mechanism of Inequitable Redistribution of Wealth</u>
âInterest in any amount acts in transferring wealth from the asset less section of the populationâ (Choudhury and Malik, 1992 51). Kennedy (Germany) in 1992 show through empirical evidence that while the poorest 2.5 million households paid out net DM 1.8 billion in interested, the richest 2.5 million households received (net) DM 34/2 billion.
From marginal utility theory point of view, the utility gain provided by usury is marginal to the already substantial utility of the principle sum. For poor the loss in utility incurred by having to pay interest is qualitatively much greater than the gain to the rich. Thus permitting usury to operate in economy reduces overall utility in the economy. Any justification of interest as an efficient economic instrument would have to first demonstrate that it functions to increase total utility. In the absence of such demonstration, it can justifiably be condemned as a tool of tyranny.
<u>Usury as an Agent of Economic Instability</u>
Kennedy (1995)shows, for instance, how in Germany, while government income, Gross National Product and the salaries and wages of the average income earner rose by about 400% between 1968 and 1989, the interest payments of the government rose by 1,360% which she claims implies an inflationary effect.
Edited by - amam_786 on Nov 27 2003 111004 AM
Edited by - amam_786 on Nov 27 2003 111350 AM
</font id=size4>
Usury (Riba, Interest) has been known to exist in various parts of the world at least four thousand years back (Jain 1929). The Usury has been subjected to criticism on grounds of social injustice, economic instability, etc. Among its most visible and vocal critics have been the religious institutions of Hinduism, Buddhism, Judaism, Islam and Christianity, ancient Western philosophers and politicians, as well as various modern socio-economic reformers.
<font color=red>HISTORY OF THE CRITIQUE OF USURY</font id=red>
<u>Usury in Hinduism and Buddhism </u>
The Sutra text of Ancient India (700-100 BC) and Buddhist Jatakas (600-400 BC) expresses contempt for usury. Special law was made which forbade the higher class of Brahmanas (Priest) and Kshatriyas (warriors) from being lenders at interest. However up-till recent times concept of usury has been limited to charging interest at rate higher than what is legal.
<u>Usury in Ancient Western Political Philosophy </u>
Ancient Western philosophers who condemned usury can be named Plato, Aristotle, the two Catos, Cicero etc. In Republican Rome (340 BC) interest was outlawed altogether. Under the banner of Julius Caesar, a ceiling on interest rates of 12% was set, and later under Justinian, lowered even further to between 4% and 8% (Birnie, 1958). With Christianity Church also assaulted Usury.
<u>Usury in Islam </u>
The criticism of usury in Islam was well established during the Prophet Mohammed's life and reinforced by various of his teachings in the Holy Quran [Most notable of these is Surah 2 verses 188, 274-280; Surah 3 verse 130; Surah 4 verses 29, 161; Surah 9 verses 34-35, 43; Surah 30 verse 39]DATING back to 600 AD.A school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed, still argues for a interpretative differentiation between usury, which it is claimed refers to consumptional lending, and interest which they say refers to lending for commercial investment (Ahmed, 1958).
<u>Usury in Judaism and Christianity </u>
Criticism of usury in Judaism has its roots in several Biblical passages in which the taking of interest is either forbidden, discouraged or scorned, In the associated Exodus and Leviticus texts, the word almost certainly applies only to lending to the poor and destitute, while in Deuteronomy, the prohibition is extended to include all moneylending, excluding only business dealings with foreigners. Despite the prohibition on taking interest, there is considerable evidence to suggest that this rule was not widely observed in biblical times.
The critique of usury was most ferverently taken up as a cause by the institutions of the Christian Church where the debate prevailed with great intensity for well over a thousand years. In the eighth century Catholic Church declared usury to be a general criminal offence. This anti-usury movement continued to gain momentum during the early Middle Ages and perhaps reached its zenith in 1311 when Pope Clement V made the ban on usury absolute and declared all secular legislation in its favour, null and void (Birnie, 1952).
<u>Usury in Modern Reformist Thinking </u>
Adam Smith, despite of his image as the âFather of the Free-market Capitalismâ and his general advocacy of laissez-fair economics, came out strongly in support of controlling usury. He was in favour of the imposition of an interest rate ceiling. Gesell, as a successful nineteenth century merchant in Germany and Argentina, condemned interest on the basis that his sales were more often related to the âpriceâ of money (i.e. interest) than people's needs or the quality of his products. Margrit Kennedy (1995), a German professor at the University of Hannover, criticized interest, believing that âinterest ... acts like cancer in our social structureâ. She takes up the cause for âinterest and inflation-free moneyâ by suggesting a modification of banking practice to incorporate a circulation fee on money, acting somewhat like a negative interest rate mechanism.
It was premised by a number of socio-economic reformists of the twentieth century that for banks to then charge interest on money which they had created out of nothing, having suffered no opportunity cost or sacrifice, amounted to nothing less than immoral and fraudulent practice.
<font color=red>RATIONALE FOR THE CRITIQUE OF USURY </font id=red>
<u>Usury as Unearned Income </u>
The Lateran council of 1515 clearly expressed âThis is the proper interpretation of usury when gain is sought to be acquired from the use of a thing, not in itself fruitful (such as a flock or a field) without labour, expense or risk on the part of the lender.â Birnie reinforces this point âto live without labour was denounced as unnatural, and so Dante put usurers in the same circle of hell as the inhabitants of Sodom and other practisers of unnatural viceâ (1952 4).
This is also the rationale Ahmad uses to explain why in Islam God [vii] âpermits trade yet forbids usuryâ âThe difference is that profits are the result of initiative, enterprise and efficiency. They result after a definite value-creating process. Not so with interestâ; also âinterest is fixed, profit fluctuates. In the case of interest you know your return and can be sure of it. In the case of profit you have to work to ensure itâ (1958 25). Perhaps Aristotle had similar sentiments in mind when he argued that âa piece of money cannot beget anotherâ.
Keynesâ biographer, Skidelsky, intriguingly comments that âKeynesâs sense that, at some level too deep to be captured by mathematics, âlove of moneyâ as an end, not a means, is at the root of the worldâs economic problemâ (1992 454).
Usury is what marks the distinction between money being simply a socially contracted abstract mechanism to lubricate between supply and demand, and money as an end in itself. The true dignity and full reward of ordinary labour is compromised. Money thus becomes self-perpetuating power in itself rather than just a mediating agent of power.
<u>Usury as Exploitation of the Needy</u>
This reason is self-explanatory, how ever this concept needs to differentiate helping Interest from oppressive according to Sir Sayyedâs school in Islam. This idea can be elaborated to say that rich do nothing to earn their living and still earn this extra income in society results from the fact that the poor have to sweat doubly so that the rich might live on interest.
A parallel modern argument relates to the devastating social impact of the so-called âThird World debt crisisâ, a situation which even Pope John Paul II (1989) acknowledges in his Sollicitude Rei Socialis when he states âCapital needed by the debtor nations to improve their standard of living now has to be used for interest payments on their debtsâ. If the debt to debtor nations was advanced on equity basis in 70âs, the debtor nations would not have wrong footed by compound interest rate established by non-domestic macroeconomics factors.
<u>Usury as a Mechanism of Inequitable Redistribution of Wealth</u>
âInterest in any amount acts in transferring wealth from the asset less section of the populationâ (Choudhury and Malik, 1992 51). Kennedy (Germany) in 1992 show through empirical evidence that while the poorest 2.5 million households paid out net DM 1.8 billion in interested, the richest 2.5 million households received (net) DM 34/2 billion.
From marginal utility theory point of view, the utility gain provided by usury is marginal to the already substantial utility of the principle sum. For poor the loss in utility incurred by having to pay interest is qualitatively much greater than the gain to the rich. Thus permitting usury to operate in economy reduces overall utility in the economy. Any justification of interest as an efficient economic instrument would have to first demonstrate that it functions to increase total utility. In the absence of such demonstration, it can justifiably be condemned as a tool of tyranny.
<u>Usury as an Agent of Economic Instability</u>
Kennedy (1995)shows, for instance, how in Germany, while government income, Gross National Product and the salaries and wages of the average income earner rose by about 400% between 1968 and 1989, the interest payments of the government rose by 1,360% which she claims implies an inflationary effect.
Edited by - amam_786 on Nov 27 2003 111004 AM
Edited by - amam_786 on Nov 27 2003 111350 AM