Mark Hannam
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The Morality of Money Lending

Printable version

The Financial Crisis
of 2007-2009:
A Sketch of a Credible Explanation


Money Market Funds, Bank Runs and the First-Mover Advantage

The Morality of Money Lending

The Case for Central Bank Liquidity Facilities for Institutional Money Market Funds in the Offshore Market

Creating Sustainable Micro-lending in London

Darwin and Philosophy

Financial Inclusion
and Equality


David Hume's "Of Suicide"

Is God a democrat?

The Risk Premium
for Commodities


Despite repeated efforts to restrict, regulate or eradicate money-lending, the demand for credit remains one of the great constants of human social life. Questions about the ethics of money-lending date back to the beginning of recorded human history. Money-lenders have always been accused of exploiting the poor by charging too much for loans, but what can - or should - be done about this? There have been three sorts of answer to the question, what is the fair price to pay for the use of someone else's money? First, a political answer, to regulate strictly the price of loans; second a religious answer, to condemn and prohibit money lending for interest; and third, an economic answer, to allow individuals decide for themselves if they want to borrow and, if so, how much they are willing to pay.

This paper describes each of these three approaches in turn. In Section One I introduce the mainstream political view about money-lending, namely, that it should be tolerated but carefully regulated. In Section Two I describe an alternative, religious tradition - also with ancient roots - in which money-lending at interest is prohibited. Finally, in Section Three, I describe a modern and very different challenge to the mainstream view, namely the rise of liberal economic theory, which argues that prices, including the prices of money loans, should be set by supply and demand.

My interest in these questions was first aroused by my involvement in decisions about price-setting for loans at a microfinance company. (I am Chair of the Board of Fair Finance, a London based micro lender: www.fairfinance.org.uk.) Consequently, at the end of each section, as well as offering some commentary about each of these three approaches to the morality of money-lending, I have also included some thoughts about what microfinance companies might learn from this debate, with regard to the fairness of the prices they charge for loans.

I

What is the fair price to pay for the use of someone else's money? For much of recorded human history the mainstream answer to this question has been that the price should be set and regulated by the political authorities. Money-lending for interest was permitted but the terms of the loan, in particular the rate of interest, were strictly regulated. Policies were also enacted to ameliorate the conditions of those who had become heavily indebted, including the regular cancellation of debts.

Sumerian clay tablets from the twenty-fourth century BCE describe loans of silver and grain. Interest was chargeable on these loans and from the Code of Hammurabi, which dates from the mid eighteenth century BCE, it appears that the standard rates were 33.3% for barley and 20% for silver.1   The Sumerian word for interest - máš - also meant lamb, suggesting that the increment owed by the borrower was viewed analogously to the increase in the size of a flock of sheep that grazed on rented land. Just as the herdsman would give some of the new-born lambs as a rental payment to the landlord, so the borrower would give a "financial lamb" to the lender as a rental payment for his money.2

As well as paying interest in cash, borrowers could offer use of their land or use of their labour as the form of interest payment. If labour was offered as interest and the capital element of the loan was not repaid, the borrower ran the risk of falling into debt-servitude. The Code of Hammurabi set a limit of three-years during which debt-service may be given by the borrower to the lender, after which time the debt was discharged.

Interest rates were set by the political authorities and were stable over long periods, many centuries in some cases. This suggests that they were not determined by economic factors, such as the success or failure of the harvest, the amount of precious metals in circulation, or the expansion or contraction of the royal empire. Some historians have suggested that in a society without calculation machines and without widespread formal education , the need for easy and regular calculation was the principal determinant of the level at which legal interest rates were set.3   The Sumerian rate for borrowing silver was fixed at 20% for close to a thousand years.4   This standard rate - derived from one small currency unit per month for each large currency unit borrowed - was entirely conventional. It was a by-product of the structure of the currency, in which sixty small units equalled one large unit, and the division of the calendar, a year being comprised of twelve months.

Ancient Greek attitudes to money-lending were closely bound up with their attitudes to property, which in turn derived from their beliefs about the importance of family, clan, and religion.5   Land ownership was widespread, but those who did not own sufficient land to cultivate food for their family could rent from those that did and these rental contracts formed the model for loan agreements. Interest pledged was often repaid at harvest time and therefore dependent upon a successful harvest. Those who could not pay their rent or their debts might be forced to sell family members into slavery, or to offer their own labour as payment for the loan, leading to widespread debt-servitude and debt-bondage.6   Conflicts between wealthy landowners and poor farmers were commonplace.

In Athens these conflicts led to Solon's election as archon in 594 BCE, with a mandate to settle the long-standing disputes between the wealthy elite and the poor majority. Solon's principal reform was a general cancelation of debts and the abolition of enslavement for debt.7   In Athens at that time loans were frequently collateralised by the person of the borrower (or one of his family). If the debt was not paid the borrower (of his family member) became the slave of the lender, thereby losing his liberty and his citizenship. Slaves were the permanent property of the owner and could be treated harshly, sold overseas, or even put to death.

While there remains some dispute as to the precise meaning of Solon's economic reforms, it seems clear that the pledging of the person as security for a loan was abolished although the pledging of one's labour remained legal and became more common. The borrower paid off his debt by giving his (or one of his family member's) labour to the lender, until work of equivalent value to the debt and the interest had been paid back. A man in debt-bondage was not a slave but, in the words of Varro, "a free man who gives his labour into servitude for money which he owes until he pays it off".8   Solon's reforms, while unpopular, were ingenious: debtors were protected from the threat of slavery if the loan were not repaid, while creditors were offered the security of the debtor's labour in lieu of interest payments, which made credit more accessible to the poor.

Indebtedness often led to enslavement and debt-bondage, but in some (rare) cases money-lending allowed slaves to achieve freedom, wealth and citizenship. A slave called Pasion, who worked in a banking firm, was made a freedman and subsequently acquired ownership of the bank. He became, by repute, the wealthiest banker in the Athens of his day and was granted citizenship. He made one of his own slaves - Phormion - a freedman; in due course Phormion leased the bank from him and later married Pasion's widow. Phormion was also made an Athenian citizen.9  

The Romans made a significant contribution to the codification of law, including the regulation of lending money at interest. They distinguished between a loan for a specified time that would be repaid in kind (the mutuum) and a loan in which the lender did not share the business risk taken by the borrower, but nevertheless asked for interest to be paid (the foenus). These latter loans were generally held to be illegal, except in those cases where the lender underwrote a sea-voyage with the vessel pledged as security (foenus nauticum, or bottomry in modern legal parlance).10   Not only were types of interest codified, so too rates of interest were set by law: for example, the Twelve Tables of 443BCE allowed for the payment of interest at a rate of 8.33%, while the lex Genucia of 342 BCE banned the payment of any interest, only for the lex Unicaria of 88 BCE to re-introduce interest at a ceiling rate of 12%.11   These legal changes reflected changing economic circumstances and fluctuations in the relative power and influence of the poor, compared with the rich landowners.

Like the Sumerians, the Romans drew on a pastoral analogy to describe money and its functions: pecunia, meaning 'money', derived from pecus meaning a 'flock' of animals. Unlike the Sumerians, the Romans were unable to keep interest rates stable over time, not least because the size and scale of their empire was so much larger and the role of trade and the transfer of precious metals more significant. Suetonius, for example, describes the consequences of the Emperor Augustus' repatriation of Egyptian gold:

....when he brought the treasures of the Ptolemies to Rome at his Alexandrian triumph, so much cash passed into private hands that the interest rate on loans dropped sharply, while real estate values soared.12

This connection between artificially low interest rates, significant inflows of foreign wealth, and real estate price bubbles, remains a problem up to the present day.

At other times, attempts to enforce the laws on lending for interest led to serious economic consequences. Tacitus describes the actions of Tiberius to stave off the consequences of an attempt by the praetor to investigate illegal lending, in around 33CE:

The result was a shortage of money. For all debts were called in simultaneously .... Then Tiberius came to the rescue. He distributed a hundred million sesterces among specially established banks, for interest-free three-year state loans, against the security of double the value in landed property. Credit was thus restored; and gradually private lenders, too, reappeared.13

Following the enforcement of highly restrictive money-lending laws the state was forced to nationalise the credit system for a period, until private sector lending was able to re-establish itself.

In the more recent period, the political regulatory approach to the problem of money-lending found articulate expression in Francis Bacon's essay "Of Usury", published in 1625. Bacon lists the arguments against usury and those in its favour. The conclusion he draws is that money-lending is necessary and should not be abolished, but should be regulated:

It appears by the balance of commodities and discommodities of usury, two things are to be reconciled. The one, that the tooth of usury be grinded, that it bite not too much; the other, that there be left open a means to invite monied men to lend to the merchants, for the continuing and quickening of trade.14

Bacon's policy recommendation involved a two-tier interest rate cap: a five percent ceiling on retail lending, with no tax or restraint on trade, and a rate of nine per cent for commercial lending, to be conducted only by licensed lenders, who would pay a small tax to the state.

Bacon advanced his pragmatic solution because "it is better to mitigate usury by declaration, than to suffer it to rage by connivance".15   A contemporary version of Bacon's argument is provided by Adrian Walsh and Tony Lynch, who suggest that money-lending for interest is useful in some circumstances, but that the conditions under which money bargains are made, together with the subsequent relationship that pertains between the lender and the borrower, must be taken into account. They conclude that,

Interest, then, is morally permissible, in so far as it gives rise to great public benefits, so long as it does not exploit the desperation of the needy or ignorant in such a way that they pay exorbitant rates of interest of find themselves caught in a net of debt-bondage. These moral concerns are of sufficient weight to warrant both the exercise of individual conscience and intervention by government in the way lending institutions function.16

For Walsh and Lynch the economic benefits of money-lending for interest are acknowledged to be substantial but, given the dangers or exploitation and immiserization, the need for state regulation is reaffirmed.

State-regulation of money-lending might take the form of restrictions on who is able to lend and who is able to borrow (credit rationing) or it might take the form of restrictions on the price that may be charged for loans (credit ceilings). Credit rationing and credit ceilings are quite commonplace today: a recent report detailing interest rate restrictions within the European Union ran to well over 400 pages.17   In nearly all cases the aim of such regulations is to protect the interests of borrowers from unscrupulous lenders. In addition credit ceilings might provide a rudimentary form of social insurance where the opportunity for savings is weak and the vulnerability to shocks is high. Interest rate caps help to limit the extent to which individuals become over-indebted due to exogenous economic events, thereby preserving broad economic equality within the community by socialising losses.18

Notwithstanding the good intentions of the regulators, in many cases credit ceilings tend to cause harm to those they are supposed to protect. Rudolf Blitz and Millard Long describe the disjunction between the stated goals of most usury legislation - which generally include protecting small borrowers, curbing the monopoly power of creditors, and the attempt by government to influence the distribution of credit within the economy - and the actual consequences:

While the oft stated purpose of usury legislation is to help that class of debtors which includes the landless peasants, poor urbanites and the very small businessman, maximum rates are likely to affect them adversely by excluding them from the market. .... It is the less risky borrowers with some collateral - the landed gentry, land speculators, the middle sized business firms and so forth - who are most likely to derive the greatest benefits from usury control.19

If lenders cannot charge interest rates commensurate with the real costs involved in lending to the poor, then they will not lend to them at all.

An example of the unintended consequences of usury legislation concerns the imposition of credit ceilings in poorer countries in Latin America in the 1960s and 1970s. Low interest rates, imposed by governments and central banks, led to a concentration of credit supply to larger borrowers. Banks were not able to lend to smaller firms or poorer borrowers because the costs of serving these marginal clients were higher than the levels of interest that could legally be charged for the loans. In addition, nominal interest rate ceilings were maintained during periods of high inflation which meant that the real return on savings was negative. This led to a reduction in the volume of savings mobilised by the financial system, restricting the supply of new credit and lowering levels of economic activity.20   In short, laws aimed at protecting the interests of the poor have, in some cases, led to a worsening of their predicament. The road to penury is paved with good intentions.

This very brief summary of the history of the mainstream approach to the political regulation of money-lending at interest suggests a number of beneficial consequences for the poor, a number of unintended, malefic consequences and some lessons for the modern microfinance movement. First, by permitting money to be lent at interest the state allowed credit to flow from those who controlled it to those who needed it most. In an economy dominated by seasonal agriculture, the poor were better able to smooth their incomes, providing protection against bad harvests or other unexpected events. They were also able to borrow to invest, by renting extra land, buying better tools and more seed, to improve their productivity. Money-lending also financed long-distance trade, which was risky and expensive. By imposing strict limits on how much interest could be charged the state protected the poor from exploitation by the rich; rules against debt-servitude and decrees proclaiming debt-forgiveness also provided greater security for the poor and their families.

However, state-regulation of money-lending was not an unmitigated good. Solon discovered that reforming the laws concerning debt did not resolve the wider problems caused by class division, problems which poisoned the politics of Athens for many decades. The situation of poor Athenian borrowers was improved, but economic injustices remained. Likewise, in many countries today the political regulation of money lending has, in the absence of wider economic reforms, simply reduced the amount of credit available to those without a credit history or who lack access to collateral to pledge against the loan. Protecting the poor from exploitation by lenders often has the effect of excluding the poor from the legal market for credit: lending, if it takes place at all, takes place outside the law and poverty is thereby criminalised.21  

What conclusions might be drawn for the contemporary microfinance industry? Many micro-lenders operate in countries where there is notional political regulation of lending, including strict laws on credit ceilings. Perhaps the first point to note is that the maximum level at which interest may legally be charged - the price of money - is often not the most important issue. For the Sumerians and the Romans, one factor that influenced the legal rate of interest was the need for ease of calculation. In the modern world, where calculating machines are cheap and widely available, this is no longer of primary concern. The calculation of interest due might now be straightforward, but the wider conditions under which the loan is made are not always clear and understandable. Transparency around the full cost of a loan - not just the interest rate but also any administrative charges due, the cost of late or overdue payments, and the terms and conditions under which the loan may be pre-paid - is of great value to the borrower. Regulation that requires full disclosure, in simple language, of the terms of the loan would be at least as beneficial to the poor as regulation of the price of the loan.

One of the most successful ancient reforms of debt law was Solon's abolition of debt slavery but retention of debt servitude. Creditors could no longer take the life of a debtor (or one of his family members) in lieu of payment for a loan; but debtors could pledge the value of their labour in the place of cash payments for interest. Slavery remains a significant problem in many parts or the world, and political will - both better regulation and the proper enforcement of existing regulation - is needed to remedy the problem.22   Protecting borrowers from the risk of violence, incarceration or abduction, in the event of a default on a loan, is clearly the responsibility of the political authorities, and one that is not taken sufficiently seriously in many countries. However, the ability to pledge a future income stream, whether this be wages or welfare benefits, as the effective collateral for a loan allows access to credit for those without assets to pledge. In addition, uncollateralised loans are cheaper for the borrower, who does not suffer the financial loss of an asset during the course of the loan.23   Once again, better regulation of the contract attached to a loan, in particular regulation that protects the borrower in the event of a default, are of more value than the regulation of the price at which the loan is made.

Proponents of stronger political regulation of microfinance might argue that, in addition to greater transparency around the cost of the loan and better protection for borrowers in the event of default, there are still grounds for thinking that a ceiling on interest rates would benefit the poor. It would, so the argument goes, lower the cost of credit leaving the borrower with more money and the lender with less. Since one of the stated aims of the microfinance industry is to help the poorest, an interest rate cap seems to be an obvious mechanism to achieve this goal. Unfortunately, obviousness lies in the eye of the beholder.

The evidence of a number of studies that were reviewed by Blitz and Long, suggested that interest rate ceilings lead to a reduction in the amount of credit available for the poor. This is not because the poor are more risky, from a creditor perspective; rather, it is because they are more expensive to service. Small loans over short time periods are much more expensive to administer than large loans over a long time period. If the rate of interest is capped than smaller, shorter loans become relatively unattractive to lenders, who are more likely to secure a reliable and sustainable return on their capital if they make larger, longer loans. In addition, an interest rate ceiling limits the spread between the rate paid for savings and the rate charged for credit, which tends to reduce the rates offered to savers. Not only does this lower the overall savings rate, it makes it more difficult for micro-lenders to diversity into savings products where, once again, the costs are high when dealing with large numbers or very small savings accounts.

These arguments against the political regulation of money lending by setting interest rate ceilings might best be summed up by saying that the provision of cheap credit to the poor is less important than the development of a range of sustainable financial services to which poor people have access. Microfinance institutions are committed not just to providing credit to the poor but also a wide range of other services including savings, insurance and financial education.24   It is this range of services taken together that provide the poor with new and better opportunities for development.25   If financial inclusion matters for the expansion of freedom and the progress of development, then it also matters that microfinance institutions are self-sustainable. It follows that interest rates for micro-loans should be set at sustainable levels, whatever they might be, rather than levels arbitrarily chosen by regulators.

To conclude this section, it is worth noting that any legal limit on interest rates would tend to suffer from what behavioural economists describe as an endowment effect;26   that is, once the legal rate has been set it becomes hard to change. Although the Babylonians managed to keep interest rates stable for a thousand years, by Roman times changes in the supply and demand for money, combined with greater trading activity, made nominal interest rate stability a practical impossibility. If the political authorities set a maximum price level for interest rates and then the economic conditions change significantly, it is difficult for the authorities to adjust the price level appropriately. A range of destabilising economic consequences might follow, not least the flow of surplus savings into real estate, or other asset classes, where the upside of investment returns has not been capped. Since asset price rises tend to benefit the rich more than the poor, interest rate caps might have the perverse effect of increasing the wealth disparity between rich and poor. Even if it were possible to know the optimal level for an interest rate ceiling at any given time, this level would cease to be optimal as economic conditions changed. Given the endowment effect, it is likely that the interest rate ceiling would remain fixed and, thereby, cease to be optimal. In the long run this benefits neither rich nor poor; but in many places in the world the poor do not have 'a long run' to worry about. The growth of the microfinance industry over the past forty years is clear testament to the strong demand for credit among the poor. Since access to credit is more important than the price paid for credit, the regulation of access by credit ceilings turns out to be a hindrance, not a help, to the poor.

II

What is the fair price to pay for the use of someone else's money? A second answer, which also dates back to early recorded history, is to say that the payment of money to borrow money is wrong; that is, the fair price for money is zero. This answer is closely associated with the three major monotheistic religions - Judaism, Christianity and Islam - and can be traced back to early Hebrew laws, documented in the first five Books of the Old Testament. Jewish law did not prohibit the borrowing or lending of money, only the payment of interest. Providing emergency credit to a neighbour when animals died or crops failed was highly commended. Moreover, Jewish priests were frequently involved in the provision of financial services to their communities. As with other ancient religions, the temple served as a depository as well as a place of worship.27   By controlling the supply of credit the religious authorities were better able to enforce the prohibition on money-lending for interest.

The Old Testament records the prophet Elisha being petitioned by a widow, whose two sons were about to be taken into slavery by a creditor for the non-payment of debts (2 Kings IV:1-7); and the prophet Nehemiah denouncing nobles and officials for taking interest on loans and acceding to the enslavement of children for the payment of debts (Nehemiah V:1-13). Another prophet denounced usury as one of several abominable sins, whose perpetrators deserved to die (Ezekiel XVIII:10-13), while the psalmist suggested that the attributes of the righteous man include a refusal to take interest on a loan (Psalm XV). Jewish law was clear that lending money for interest - neshek, meaning 'a bite' - was forbidden within the Hebrew community, that is, when both lender and borrower were Jews (Exodus XXII:25 and Leviticus XXV:35-37). However, Jews were permitted to lend at interest to foreigners (Deuteronomy XXIII:19-20), facilitating the development of a money lending tradition within the Jewish community.28  

Jewish Law was important for the development of Christian doctrine concerning money lending, although precedence was given to Jesus' teaching, as recorded in the New Testament. Unfortunately, some of the key texts are ambiguous in their meaning or have been mistranslated. For example, Jesus is reported in the Vulgate translation as saying, "lend, expecting nothing in return" (Luke VI:35) which suggested that Christians should anticipate neither the payment of interest nor the return of capital. The better translation of this phrase, however, is "lend, despairing of no-one", that is, be willing to lend to all and not just those in good standing for credit.29   Rather than a condemnation of usury, this phrase is a strong contender for the mission statement of the gobal microfinance movement.

Jesus' other actions and pronouncements - driving the money-changers out of the Temple (Matthew XXI:12-13) and saying, in answer to a question about paying tax, "Render to Caesar the things that are Caesar's, and to God the things that are God's" (Matthew XXII:15-22) - suggest a desire to establish a strict separation between the life of business of the life of faith. Jesus' enigmatic pronouncements about money would, in time, provide grounds for Christians to evade the prescriptive laws of the Old Testament.

In addition to Hebrew law and the sayings of Jesus, the Christian church was greatly influenced by the writings of Aristotle, who argued that interest paid on loans was unnatural and dishonourable and therefore to be hated with good reason.30   Aristotle suggested that retail trade - or business for the accumulation of profit - encouraged us to seek the gratification of our desires rather than to attend to the more important goal of living well. Money-lending is an extreme example of business that exists solely for profit and is therefore the ultimate form of accumulation solely for gratification. As such money lending is the antithesis of virtue, that is, living the good life. In addition, Aristotle thought that the essential function of money was to be consumed in the process of exchange. If interest is charged on a loan, then new money is created for the lender - the breeding of money, as Aristotle puts it - which is a perversion of its natural function.31  

These arguments influenced the development of the scholastic theory of the just price. In part this theory was based on a moral principle, namely that we should be honest in our transactions. Augustine tells admiringly of a man known to him who, when offered a rare book at a price far below its 'just price', paid the seller the full price even though it was much greater than what had been asked.32   In part the theory also defended the existing social order: the exchange of goods should leave the buyers and the sellers in their traditional social positions, able to continue to perform their traditional social and economic functions.33   The ideal of economic exchange was for ex post social relationships to mirror ex ante social relationships: goods and services changed hands but everything else remained the same.

The theory proposed that from many individual judgements about value, a settled, collective view about the just price would emerge. This price was the objective measure against which individual bargains should be compared. The value of any good or service rested on an estimate of the whole community over time, and not just the immediate opinions of the buyer and seller.34   The theory imposed a moral discipline upon economic activity, restraining the actions and ambitions of individuals for the sake of the common good: the weaker and more vulnerable members of society were protected at the expense of the acquisitiveness of the stronger and more able.

Thomas Aquinas argued that the just price was that which assured the equivalence of commutative justice. The payment of interest on a money loan was contrary to justice, he wrote, because money - like wine - is consumed in its use.35   To pay money for the use of money is to pay twice: once for the money and then again for something that no longer exists, which is unjust.36   Other scholastic arguments against the payment of interest included the claim that it breached the prohibition against working on the Sabbath, as interest was earned seven days a week.37   According to John Wycliffe, the charging of interest for a loan of money was equivalent to the theft of time, since the lender is charging the borrower for the time he has the money, but we have no right to sell time to each other.38

The prohibition set out in Deuteronomy was problematic for scholastic thinkers because of its double standard: Jews were not allowed to charge interest when they lent to each other, but were permitted to charge interest when they lent to non-Jews.39   In other words, Hebrew law placed great emphasis on promoting the solidarity of the immediate clan or tribe at the expense of the foreigner. It was not clear whether the Christian church should maintain the double standard - lend to fellow Christians without interest, but charge interest on loans to infidels - or should transcend it, by prohibiting usury regardless of the faith of the borrower.

Over time the scholastics abandoned the idea of the double standard, arguing instead that the laws of the Old Testament had been replaced by the New Testament requirement to treat everyone as our brother: the tribalism of the Hebrews was supplanted by the universalism of the Gospels. Usury was forbidden tout court. However, the church's prohibition against usury did not amount to a comprehensive ban either on money-lending or interest payments. True interest (verum interesse) was distinguished from usury (or fenory) and was accepted in certain circumstances.40   For example, when the re-payment of principal was delayed beyond the agreed date an additional payment might be made; or when the lender faced losses because the loaned money was no longer immediately available to him; or when the lender shared in the business risk of the enterprise and was therefore entitled to a share of the profits.

Church leaders argued that true interest was acceptable but that usury was a sin. The onus was upon the lender to demonstrate, in each case where interest was charged, that he was entitled to receive it. This would depend, primarily, on the level of risk or uncertainty borne by the lender and whether the interest rate reflected the true opportunity (rather than a being a purely opportunistic fee that exploited the desperation of the borrower). Lenders often devised complex strategies to allow them to charge interest without appearing to do so, thus circumventing the prohibition.41

The settled position of the late medieval church - to outlaw usury, but to tolerate fees for money-lending under carefully defined instances, as set out by religious leaders - has enjoyed a recent renaissance under the banner of "Islamic Finance".42   One of the features of Islamic Finance is the creation of Shariah-compliant products, that is, financial products that mimic the behaviour of interest bearing loans, but which receive the blessing of a competent expert in religious law. These products provide comfort to their users that their financial activities are in line with orthodox religious teaching; behind their legal form, however, the economic substance is often identical to a loan with interest that a non-believer might give or receive, albeit that the interest payment is disguised in the form of a fee or service charge.43

During the sixteenth century there was a decisive move within Christian teaching towards the acceptance of money-lending at interest. The initial impetus towards this accommodation was the radical fervour unleashed by the reformation in Germany. Recoiling from the utopian demands of the radicals, the more conservative reformers - such as Luther, Melanchthon and Zwingli - emphasised the need for order and stability. Preachers may preach against usury within the family of church members; but those who borrow money with interest should pay back their loans in full if commanded to do so by the magistrates. It is for the law-makers to determine whether lending at interest is legal, and it the duty of Christians to respect and obey the law.44

Calvin argued that Old Testament laws must be interpreted to the benefit of Christians and not to advantage Jews in their dealings with Christians. Lending money at interest, he wrote, was no longer forbidden, so long as it did not contravene the goal of brotherly union. Calvin's congregation in Geneva included many Protestant exiles for whom the need to generate income from their portable wealth was necessitated by their loss of land, their trade and other sources of income.45

This new pragmatism was not limited to Protestant theology. The Jesuits were also flexible in their attitude to trade and commerce. Money was the "merchant's tool", according to Luis de Molina: command of money was a condition of embarking upon business and thus, while coin might be sterile (as Aristotle thought), capital was not.46   The reason why interest can be charged on loans is that well-capitalised business is more likely to be profitable. This embrace of commercial wisdom represented the end of organised Christian opposition to usury, although, periodically, outbursts of righteous condemnation of usury have occurred.47

The simplicity of the religious prohibition turned out to be its principal weakness. A dogma that took no account of the variety of circumstances and motivations brought the law and the church into disrepute. Those in religious authority were sometimes tempted to use their position to exploit those in need of credit: one witness called to a usury trial in Canterbury in 1292 observed that the defendant "took less than the archbishop takes from his debtors".48   For all the purity and simplicity of the idea that credit should be available without cost, it has proved a difficult rule to enforce consistently and impartially. In the 1690s John Locke remarked that, "the skilful, I say, will always so manage it, as to avoid the prohibition of your law, and keep out of its penalty, do what you can".49  

In the mid-nineteenth century the American theologian Orville Dewey wrote:

[I]t is only from the habit of considering money not as a commodity, but as a possession of some peculiar and magical value, that any prejudice can exist against what is called usurious interest; saving and excepting when that interest goes beyond all bounds of reason and humanity. The practice of usury has acquired a bad name from former and still occasional abuses of it. But the principle must still be a just one, that money, in common with everything else, is worth what it will fetch.50

The theologians had finally made peace with the money-changers.

As in the previous section, this summary provides no more than a brief overview of hundreds of years of historical change and hundreds of pages of systematic argument. The longevity of the religious laws that prohibited money-lending at interest is testament to the strength of this tradition and the support these laws enjoyed, among church leaders who enforced the laws and communities who thought themselves to benefit by their enforcement. Nevertheless, times change and so too laws change. In the eighteenth century, the philosopher Francis Hutcheson remarked,

....the prohibition of all loans for interest would be destructive to any trading nation, though in a democracy of farmers, such as that of the Hebrews was, it might have been a very proper prohibition.51

The many social, economic and demographic changes that have taken place over the centuries - and the pace of these changes has increased markedly since Hutcheson's time - should caution us from thinking that religious laws from the distant past remain relevant to our present circumstances. The recent growth of Islamic Finance has shown the enduring appeal of the prohibition on usury, but has yet to provide an economically-efficient alternative mechanism for pricing the cost of capital within a modern economy.

The economic theories of Aristotle and Aquinas presumed price stability and social stability over time. Both regarded the life of commerce as a distraction from the life of virtue or faith; and both thought that justice in commerce was achieved by transactions which preserved the status quo. They defended a conception of economics which encouraged minimal distraction and minimal disruption. While this stable, well-ordered and well-regulated society might provide some protection to the poor, by preventing unscrupulous money-lending, it also provided little hope for the poor: there was no opportunity for the poor to escape their poverty through economic advancement.

The prohibition on money-lending at interest was supported by philosophical arguments about what was natural, which do not stand up to serious scrutiny. Aristotle argued that charging interest on money loans was wrong because it was "unnatural". (In passing, we might note that he also thought slavery was natural,52   something we now regard as a mere convention, and one that we are rightly proud to have abandoned). The equation of the nominal value of money with its natural value ignored the fact that the value of money is itself subject to fluctuation, based on variations of the supply and demand for coinage or credit.

In a period during which the value of money (as measured against a basket of non financial goods) falls for some reason, then lending money for no interest but requiring the full repayment of capital is the economic equivalent of lending money at interest during a period in which the value of money is stable . If the real, inflation-adjusted value of the final repayment is higher than the real, inflation-adjusted value of the original loan, then even in cases when the nominal amounts are the same, it is still the case that "interest" has been paid. This problem was noted by a seventeenth century author, who observed that it made good sense to lend when the value of money was falling:

I do fear the fall of money, and therefore, do deliver my money to another man, to have as much in six months after according as the money was then current when I paid it. It is usury, for that there is more to be paid than was received.53

Since we now know that neither society nor economy are stable, but change constantly through time, so the theory of the just price has far less appeal today than it once did. What conclusions might be drawn for the contemporary microfinance industry? First, it is important to note that the religious prohibition on the payment of interest for loans, arose at a time when religious communities were relatively small, homogeneous and economically unsophisticated. Community members shared tribal ties with their co-religionists, hence lending money was regarded as sharing scarce resources within an extended family. Charity, not commerce, was the ideal economic relationship within the tribe. It is far from evident that this ideal can be transported into a large, diverse, economically sophisticated modern states.

Although Islamic Finance has attracted much attention and interest for its commitment to developing a banking system based on the absence of interest payments, it is not clear that it has been successful. First, the imposition of Shariah-law on large populations, not all of whom are followers of Islam, has often proved unpopular and in some cases has required high levels of coercion. Second, as Timur Kuran has argued, many financial institutions continue to practice traditional (that is, non-Islamic) finance because the strict implementation of Shariah-laws makes it impossible to accommodate the whole range of modern financial transactions. Third, in many cases Islamic financial practices are purely symbolic: they allow participants to affirm that they have followed Shariah-laws, but the real economic substance of the transaction is no different from an interest bearing loan in a non Islamic financial system.

The history of religious prohibitions on money-lending at interest provides many examples where the power to intervene in commercial life has had a corrupting influence on religious leaders. Often religious and political authorities have competed for power and control over economic resources: the imposition of religious laws on money-lending was in many cases motivated less by a desire to help the poor and more by a desire to aggrandize and enrich religious leaders.54   Since the mission of the microfinance industry is make financial services more easily available to the poor, rather than to proselytize on behalf of the major religions, it would seem better for micro-lenders to focus on serving the needs of their clients than following ancient rules about usury.

It is noteworthy that the progenitors of modern microfinance - the Irish Loan Funds of the eighteenth century and the German co-operative movement of the nineteenth century - both developed in countries with strong Christian traditions. The modern microfinance movement first took root in Bangladesh, a predominantly Islamic country, and has spread successfully to many other countries where Islam is the dominant religion, for example, Pakistan, Indonesia and Malaysia. Perhaps those who understand the genuine religious insight behind the ancient usury prohibition - that it was designed to help protect the poor - now recognise that microfinance institutions provide a better mechanism for achieving that goal. Although most micro-lenders charge interest for their loans, thus breaching the letter of the usury law, nevertheless they are best place to fulfil the spirit of that law.

The religious ideal of giving or lending capital without payment of interest also finds expression in modern acts of charity and philanthropy. Many microfinance institutions were established by, and some still rely upon, gift and donation to provide capital for lending. Modern technology now allows for capital to be loaned not just within communities but between communities separated by thousands of miles. The peer-to-peer lender Kiva is a high profile and highly successful example of an organisation that allows those with spare capital to lend to those who otherwise have no access to capital, mediated by web-based technology.55   The providers of capital receive no interest on their loans, although the borrowers pay to access capital from their local micro-lenders. For microfinance institutions, Kiva provides them with a large and cheap source of capital to lend, helping them to reduce the cost of providing financial services to the poor.

To conclude this section, whereas the religious prohibition against money lending at interest might appear wholly antithetical to the microfinance industry, in fact the relationship is more complex. Theoretical arguments about the unnaturalness of interest payments, or the best method for determining just prices, no longer convince. Islamic Finance has yet to demonstrate the ability to provide the range and quality of financial products and services that are available in the mainstream. However the original religious motive - to protect the poor - lives on in microfinance institutions, many of which also benefit from modern, secular versions of piety such as philanthropic giving.

III

What is the fair price to pay for the use of someone else's money? A third answer is that the question is confused, since there is no such thing as a fair price. Instead there is the actual price, namely, what is agreed between the borrower and the lender when they assent to the transaction. Money has a value, which varies from time to time and place to place, from which it follows that the interest rate for money-loans will also vary. The principal determinant of the clearing price of loans will be the changing balance between supply and demand: this price is an economic fact, not a matter of justice. Interference in the price mechanism, by political or religious authorities, is unjustified since these authorities do not have good reason to favour one party over the other in a freely made agreement.

The shift from medieval to modern thinking about economic activity was not dramatic. John Locke, to take one example, emphasized the rights of man rather than his duties, but he framed his arguments in terms of the Natural Law just as Aquinas had done before him.56   During the eighteenth century economists started to argue against the economic constraints imposed by church and state, and in favour of the self-interest of individuals who take decisions in differing circumstances. In the writings of Bernoulli, Mandeville, Turgot and Adam Smith, a new economic model emerged in which the price of a good was determined by its scarcity and by the level of disposable income available to prospective purchasers.

A good illustration of the new economics can be found in David Hume's essay 'On Interest', published in 1754. Hume's criticized the view that the level of interest rates was primarily determined by the quantity of precious metal, arguing instead that low interest rates reflect the growth of commercial activity, which increases the amount of money available for loan. In passing he commented on the role of merchants in promoting commercial activity, calling them "one of the most useful races of men".57   This view contrasts starkly with Aristotle's antipathy to trade and retail activity, which had survived for two thousand years in the church's teachings on economics. Hume celebrated the disruptive effects of commercial activity, concentrating wealth into the hands of merchants who used it to promote their own - and society's - greater prosperity, thereby lowering interest rates to the benefit of all.

Following Hume, Bentham argued that utility - or human happiness - was the most appropriate basis for both economic and social policy. Recognizing the variety of sources of human happiness he argued that individuals should be left to make their own choices in pursuit of their own happiness: the idea that economic activity should be centrally controlled, whether by church of by state, to achieve a wider social or religious conception of justice was rejected in favour of individualism and laissez-faire. (It is for this reason that Marx, the nineteenth century's leading proponent of the social control of economic activity, is sometimes referred to as the 'Last Schoolman'.58   Marxist economic theory shares much in common with Aquinas and the theory of the just price, although in Marx's case the just price is based on the labour theory of value rather than the Aristotelian theory of equal exchange.)

In his Defence of Usury, written in 1787, Bentham claimed that:

[N]o man of ripe years and of sound mind, acting freely, and with his eyes open, ought to be hindered, with a view to his advantage, from making such bargain, in the way of obtaining money, as he thinks fit; nor, (what is a necessary consequence) anybody hindered from supplying him, upon any terms he thinks proper to accede to.59

He accepted that those of tender age and those of unsound mind should be excluded from the market-place for their own protection. His argument was not against all forms of government regulation, but against the regulation of prices. Bentham believed that each individual was the best judge of their own interests and therefore should be free to choose whether or not to borrow or lend, and at what price. To make his point as forcefully as possible he took aim at the writings of Adam Smith.

Although he was well known for his advocacy of laissez-faire economic policies, in The Wealth of Nations Smith had argued that an interest rate ceiling should be imposed, at a rate not much higher than the current market rate of interest for low-risk loans.60   Smith assumed that there was a limited amount of capital available to be loaned and that those who were most likely to invest wisely and productively would be those of good credit standing, who could secure loans at the lowest interest rates. Setting the legal ceiling just above this rate would exclude the 'prodigals and projectors', as Smith called them. There were people who were willing to pay high rates of interest to borrow, but who were likely, he thought, to waste capital on risky investments or on short-term consumption. For Smith, the aim of the interest rate ceiling was to direct scarce capital towards the most productive investments and away from speculative investments.

There are two problems with Smith's argument. First, Smith himself acknowledged that a reason not to prohibit all lending at interest is that some people will find a way around the law, but in these cases the borrowers will have to pay a very high rate of interest because their payment includes an 'insurance fee' to cover the lender for the risks associated with breaking the law. However, Smith's argument applies equally to interest rate ceilings: in the legal market (below the ceiling rate) the market rate applies, but in the illegal market (above the ceiling rate) the market rate is supplemented by an 'insurance premium', paid by the borrower to the lender. There is evidence that this is what happens when interest ceilings are introduced: the situation of the risky borrower is made worse because they face higher interest rates and they risk the consequences of illegality.61

The second problem with Smith's argument is that it relies upon a distinction between those worthy to borrow money, who will make productive use of their loans, and those unworthy to borrow money, who will take excessive risks or squander the money in unproductive consumption. However it is not clear who could make such a distinction in practice. We know that many business ventures that are high risk also turn out to be highly profitable, so it is not clear why the law should prevent the borrower from embarking upon them.

These criticisms were made forcefully by Jeremy Bentham in his 'Letter to Dr Smith', which forms the final section of his Defence of Usury. Bentham notes that in his other writings Smith has championed,

....the superior fitness of individuals for managing their own pecuniary concerns, of which they know the particulars and the circumstances, in comparison of the legislator, who can have no such knowledge.

Bentham also notes that were it not for the activities of 'projectors' - or, as we would say, entrepreneurs - there would have been far less economic progress in human societies and, perhaps, none at all. The consequences of the regulation of credit, Bentham says, would have confined us, "to mud for our habitations, to skins for our clothing, and to acorns for our food".62

In the second half of the nineteenth century, work by a varied group of economists - W S Jevons, Carl Menger, Léon Walras, John Bates Clark, Alfred Marshall, Vilfredo Pareto and Eugen von Böhm-Bawerk, to mention the best known - led to what became known as 'the marginal revolution' in economics. The central insights of these economists were that the prices of goods and services will tend to be determined by the cost of supplying incremental additions to the existing stock of such goods and services; and that the extra utility derived from incremental additions of any good or service reduces as the volume of the existing stock increases. Prices, according to the marginalists, reflect a shifting balance between changes in human desires and changes in production costs.63

The marginalists accepted the utilitarian idea that individuals seek to maximize their own happiness and that their appetite for happiness is generally never satisfied; that is, they will always prefer more happiness if more is available. This contrasts sharply with the medieval (and Aristotelian) view that the general level of satisfaction in society could be improved by lowering the appetite for goods and services. However, the marginalists understood that incremental increases in the supply of goods and services were not matched in a linear fashion by incremental increases in happiness. More and better goods and services make us happier for a while, but they do so at an ever reducing rate.

The foundations of modern economic theory are built upon these marginalist ideas (which are not without their critics64).   The price that a good or service has at any given time and place is determined by the balance of buyers and sellers who seek to make the exchange. The factors that influence the buyers and sellers, and thereby determine the price, are numerous and might include all kinds of sentimental (or other non-economic) factors. Nevertheless, these factors become relevant solely because of their expected contribution to our utility and therefore our propensity to agree to a purchase or a sale at a given price.

The idea that the value of a good or service is in some way determined by the quantity of labour involved in its production65   is rejected by marginalist economists in favour of the view that the value of a good or a service reflects the supply and demand of that good or service, in particular the cost of marginal supply and the strength of marginal demand. Any attempt to set the price outside of this equation results in goods that might have been supplied not being supplied, and to demands that might have been met not being met. It is a presumption of modern economics that the suppression of supply and demand by such price-setting leads to a reduction of happiness in society, and is therefore to be avoided. It is also a presumption of modern economics that what applies to prices in general also applies to the price of money. There is nothing special about money that implies that we should treat lending money at interest differently from any other form of economic exchange.

Marginalist economic theory suggests that incremental increases in access to credit should provide opportunities for the economically-active poor to improve their income and, thereby, the quality and quantity of their consumption of food, education and healthcare. Greater access to credit should lead to improvements in well-being. Further, the poor should be willing to pay more than the rich for credit because the marginal benefits are worth more to them. Marginalist economic theory therefore provides a strong theoretical basis for the claim that microfinance will provide a valuable service to poor customers, and that the poor will use and value this service even though the cost is relatively high.

An important feature of the economic approach to price-setting is the analytical separation of the ethical and the economic realms. The price of money is said to be a purely economic matter and no amount of moralizing can change this fact. Whether or not something should be available for sale might be an ethical matter, but this question is entirely independent of any consideration of the likely price that would be charged. For example, we might think that prostitution is morally wrong and should be outlawed; but that thought is very different from thinking that paying for sex is only wrong when the price charged is too low. As R G Collingwood wrote, in his paper 'Economics as a Philosophical Science', published in 1926:

[T]he question what a person ought to get in return for his goods and labour is a question absolutely devoid of meaning. The only valid questions are what he can get in return for his goods or labour, and whether he ought to sell them at all.66

From which it follows that economic questions should be settled on economic not ethical grounds.

In the same essay, Collingwood argued that, "when any moral motive is imported into an economic question the question ceases to be an economic one ...". There is, in his view, no morality around pricing. This is not because economics trumps morality, but because economic ideas and moral ideas occupy distinct and exclusive spheres of human though:

[T]he economic life is not everything; and it is right to protest against the assumption that buying cheap and selling dear make up the whole duty of man. Indeed, a renunciation of purely economic aims is the essence, negatively defined, of the moral life. 67

Ethics and economics are not, for Collingwood, competing answers to the same question; they are complementary approaches to different questions.

This dichotomy between economic and ethical reasoning suggests caution in the way in which we approach the issue of the morality of lending money for interest. There is an evident danger of applying moral concepts to some parts of the economic argument but not to the whole; for example, questioning the motives of the lender but not of the borrower, or questioning the legitimacy of a market price for money but not questioning the legitimacy of a market price for the things that money buys.68   Modern economics assumes that prices are set by the balance of supply and demand and that the price of money is no exception to this general rule. Money is a commodity, just like any other commodity, whose trading price varies for the same reasons that any commodity's trading price varies. We have abandoned the theory of the just price as our model for price setting for most goods: why would we retain it for setting the price of money?

This is not to say that the foundations of modern economics have been wholly emptied of ethical content. The case against usury laws - as set out by Locke and Bentham - was fundamentally a moral case, albeit a case that stressed the practical limits of moral interventions in the economy.69   The marginalist economists drew upon the work of the philosophers such as Bentham to support their view that individuals were entitled to pursue their own happiness through economic activity. The capitalist system itself depends upon ethical assumptions about the value of freedom and equality. As Elizabeth Anderson writes:

Capitalism enabled the mass of people to see themselves as entitled to respect and dignity in their commercial relations.... Once people see themselves as so entitled, they make use of the law to secure and extend these entitlements. The legal constraints on contract ensure that the workings of the market do not backslide into feudalism, that capitalism does not undermine its own cultural achievements. 70

Economic and ethical issues might be distinct but they are not wholly disconnected.

The rise of modern economic thought has coincided with an enormous expansion in the provision of credit. Loans are now available to many more people, including women (whom, historically, were almost always excluded from borrowing without their fathers' or husbands' permission) and including those whose only collateral is the expectation of future wages or state benefits. The poor now have far more opportunities to access credit than they did in earlier times. Those who live at the margins of economic and social life are likely to understand full-well that credit will cost them more than mainstream borrowers; and they are best placed to determine whether those extra costs are worth paying or not. The price paid for credit is determined by the borrower's marginal utility for extra cash: as John Locke remarked, three hundred years ago, it is "... the want of money being that alone which regulates its price".71

What conclusions might be drawn for the contemporary microfinance industry? First, modern economics has helped to cultivate a more positive attitude to commercial activity, reflected in Hume's comments about merchants, which is supportive of the expansion of financial services to all sectors in society. The microfinance industry can be seen as part of a long-term economic process in which the benefits of more productive economic activity become accessible to all. For some poor people this might mean finding a job in a factory or with a service industry employer; for others it might mean starting their own business. In both cases access to credit - for investment in training, for capital investment or stock-building, or simply for consumption smoothing - allows the poor to benefit from the wider economic opportunities available to them. The static economy associated with the theory of the just price offered little hope to the poor, merely consolation; the more dynamic economy associated with the revolution in modern economic thinking offers the prospect (although not the certainty) of an escape from poverty.

Liberal economics also places great emphasis on the individual as the best just of their own interests. It is anti-paternalist: it asserts that kings and priests are not the best judges of our political, social or economic interests so we should not allow them to tell us how to live (nor, for that matter, to tell us at what level our interest rates should be fixed). What is true of kings and priests is also true of microfinance employees. One regular criticism of microfinance institutions is that they are unduly coercive in the way they treat their borrowers, both with regard to what they are able to do with the money borrowed, and with regard to the inflexibility of repayment schedules.72   Learning to trust the judgement of the borrower is in important principle for micro-lenders. If the lender does not believe the borrower to be creditworthy then they should not lend; but if they do lend, they should not also presume to tell the borrower how best to organise their lives. Individuals are not always right about the best way to pursue their interests, but they should be allowed to take responsibility for this decision themselves.

Despite the marginal revolution in economics, the belief that the price of money is an ethical question, to be determined by religious doctrine or legal regulation, has not yet wholly gone away. The long traditions of political or religious influence on price-setting, sketched in the previous two sections, continue to influence beliefs and attitudes. For many commentators on the microfinance industry, when the issue of ethics is raised their first response is to talk about interest rates. Since microfinance institutions claim to be helping the poor, there is a presumption that they, more than other financial companies, should be seen to be acting fairly in the way they conduct their business. Consequently they are under pressure to keep operating costs and interest rates as low as possible, as if this is the only important test of fairness. However compelling the liberal economic arguments about the need to separate economic and ethical questions, the tendency to blur them remains commonplace.

To conclude this section, setting interest rates, for micro-lenders as for any other provider of credit, should be a pragmatic business task. If rates are set too high, demand will tend to be too low; if rates are set too low, income from lending will be unprofitable; in both cases the business model rapidly becomes unsustainable. The answer to the question of how best to set interest rates is, that they should be both high enough and low enough for the lender to remain solvent. Microfinance institutions should be free to make this decision without interference from political or religious authorities. This does not mean that there are no aspects of micro-lending that require regulatory scrutiny. Ensuring transparency of information regarding charges and costs, and protection for consumers from unfair dealing or coercive practices, are important elements of all well-functioning markets. It is the process of making a loan rather than the price for taking a loan, that is a matter of justice.


References

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56 Taylor, Overton: 1927, 'Tawney's Religion and Capitalism, and Eighteenth-Century Liberalism', Quarterly Journal of Economics 41(4), pp.718-731.

57 Hume, David: 1985, 'Of Interest', in Essays: Moral, Political and Literary {ed.} Eugene Miller (Liberty Classics, Indianapolis), pp.295-307.

58 Blitz, Rudolph and Millard Long: 1965, op.cit., pp.608-619. Blitz and Long argue that this accolade is better deserved by J M Keynes; pp.615-619. See also, Buchan, James: 1997, Frozen Desire: An Inquiry into the Meaning of Money (Picador, London) pp.272-276.

59 Bentham, Jeremy: 2010, In Defence of Usury, (Dodo Press, UK), p.1. (Originally published in 1787).

60 Jadlow, Joseph: 1977, 'Adam Smith on Usury Laws', Journal of Finance 32:4, pp. 1195-1200. See also, Sen, A: 1999, op.cit., Ch.5.

61 Nugent, Rolf: 1941, 'The Loan Shark Problem', Law and Contemporary Problems 8:1, pp.3-13.

62 Bentham, Jeremy: 2010,op.cit., pp.50-71. Quoted from p.56 and p.63. According to Keynes, this letter revealed Bentham to be "the voice of the nineteenth century speaking to the eighteenth".

63 Blaug, Mark: 1997, Economic Theory in Retrospect, 5th edition (Cambridge University Press, Cambridge), Chapter 8, pp.277-310. See also, Blaug, Mark: 1972, 'Was there a marginal revolution?', Journal of Political Economy 4, pp.269-280.

64 Veblen, Thorstein: 1909, 'The Limitations of Marginal Utility', Journal of Political Economy, 17, pp.620-636, provides some early criticisms of the theory. A more recent critique, which considers the impact of the theory of diminishing marginal utility on policies for poverty alleviation, see Karelis, Charles: 2007, The Persistence of Poverty (Yale University Press, Yale).

65 Le Goff, Jacques: 1998, op.cit., pp.42-45. Le Goff suggests that the labour theory of value was sometimes used as an argument against usury.

66 Collingwood, R.G.: 1926, 'Economics as Philosophical Science', International Journal of Ethics, 36, pp.162-185.

67 Collingwood, R.G.: 1926, op.cit., p.178.

68 Flew, Antony: 1976, 'The Profit Motive', Ethics 86, pp.312-322.

69 Rockoff, Hugh: 2003, 'Prodigals and Projectors: An Economic History of Usury Laws in the United States from Colonial Times to 1900', National Bureau of Economic Research, found at: http://www.nber.org/papers/w9742.

70 Anderson, Elizabeth: 2004, 'Ethical Assumptions in Economic Theory: Some Lessons from the History of Credit and Bankruptcy', Ethical Theory and Moral Practice 7, pp.347-360. Quoted from p.355.

71 Locke, John: 1696, op.cit., p.6.

72 Roodman, David: 2012, op.cit. provides a number of examples of coercive practices.

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