Loans and interest in Judaism

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The combination of loans and interest, in Judaism, is a complicated and detailed subject. The biblical Hebrew terms for interest are neshekh (Heb.: נשך), literally meaning a bite, in reference to its painfulness to the debtor, and marbit/tarbit (Heb.: מרבית/תרבית), which specifically refers to the gain by the creditor^[1]; neshekh referred to interest that was charged by deducting it from the loaned money itself, before the loaned money was handed over to the debtor, while marbit/tarbit referred to interest that was charged by adding it to the amount due to be repaid^[2]. The word marbit/tarbit, which referred to the form of interest more familiar in modern times, became ribbit (Heb.: ריבית), in later Hebrew, and hence in modern Hebrew^[3].

The Torah and Talmud encourage the granting of loans, but only if it doesn't involve interest, with certain exceptions. Charging interest is classed in the Book of Ezekiel as being among the worst sins^[4], and is forbidden according to Jewish law. The Talmud dwells particularly on Ezekiel's condemnation of interest^[5], where Ezekiel denounces it as an abomination, and metaphorically portrays usurers as people who have shed blood.

Contents 1 In the Bible 1.1 Historic Context 2 In Classical Rabbinical Literature 2.1 Exemptions and Evasions 3 In rabbinical literature of the Middle Ages 4 In Christianity 5 References

[edit] In the Bible

The Torah expresses regulations against the charging of interest in the Exodus 22:25-27, Leviticus 25:36-37 and Deuteronomy 23:20-21. In Leviticus loans themselves are encouraged, whether of money or food, emphasizing that they enable the poor to regain their independence, but, like the other two places in the Bible, forbids the charging of interest on the loan^[6]. All three places state that the charging of interest is exploitative. In Exodus and Deuteronomy it is clear that it would be acceptable to charge interest on any loan to a non-Israelite^[7].

Evidently the concept of secured loans existed, as the Exodus expressly prohibits using a particular garment as the security. The garment in question was a large cloth square, which the poor used for sleeping within, and hence the garment was needed to survive the cold nights^[8]; had it been offered as security, then this would have put at risk the very life of the debtor. The Deuteronomic verse expresses a similar concern for the security of the debtor's life, but rather than prohibiting a particular garment from becoming the security for a loan, prohibits instead the use of a millstone. The millstone would be used to make flour, and hence was required for the manufacture of bread - a staple food among the poor; had the millstone been offered as security, the debtor would have been at risk of starvation.

[edit] Historic Context

Among the Sumerians, loans were usually given with interest attached, at the rate of 20% per annum^[9]; this interest rate is almost always the one stated in surviving Sumerian contract tablets^[10], and was evidently still well known in first century Judaism, as it is the first interest rate to which the Babylonian Talmud refers^[11]. A more mutually profitable arrangement existed in Sumerian law, by which a lender and a debtor make contractual arrangements to become partners in a business venture, with the lender agreeing to invest in the venture, and the debtor agreeing to manage the venture^[12]; the contract thus has characteristics of both a loan and a trust, as the lender's financial share in the venture is effectively the return on the loan, and the debtor's financial share in the venture is effectively a wage^[13]. The Code of Hammurabi contains regulations attempting to govern the use of these contracts.

[edit] In Classical Rabbinical Literature

The Mishnah carefully tries to prevent evasion of the scriptural injunction against usury, even forbidding moral usury, rather than trying to mitigate the scriptural rules in this area. According to the Talmud, the debtor would be as guilty as the lender, since it interprets one of the biblical verbs referring to usury, namely tashshik^[14], to be in the causative case^[15]; due to the Talmud's figurative interpretation of the lifnei iver regulation, it even regards any witnesses to usury contracts, as well as the scribe writing the contract for the parties, to be as culpable for usury as the lender and debtor themselves^[16].

The Mishnah states that it is not permissible to withhold the whole of something, such as a field, for which part of the selling price has already been paid, because any income arising from possession of the entity would effectively be interest on the outstanding amount^[17]. However, the Mishnah does permit the refusal to hand over something for which only partial payment has been received, if it had been sold on the terms that payment would be made by a certain date, and if that date has passed^[18]; in English Law, the mortgage was invented to take advantage of this exception. If witnesses support a claim that it had been agreed to repay a debt by a certain date, but they are proven to be lying and the correct repayment date to be different, then, according to the Mishnah, the false witnesses must pay the amount accrued due to the inflation between the two dates^[19].

The Mishnah forbids the drawing of interest and dividends from investments, arguing that people should instead buy land and draw income from it^[20]. The Mishnah also counts gifts, which aim to encourage the offering of loans, to be a form of interest, paid in advance^[21]; similarly, gifts given in thanks for a loan, are another form of interest, according to the Mishnah, even if the loan is repaid when the gift is offered^[22]. It even goes so far as to forbid the loaning of things other than money, since by the time the loan had to be repaid, the market value of the loaned thing could have risen, which effectively constituted interest^[23]; likewise, the exchange of labour between two individuals was forbidden by the Mishnah, if the work by one of the individuals would be more laborious than the other^[24].

According to the Mishnah, if a debtor has paid interest to their lender, it can be reclaimed if it is a form of interest explicitly prohibited by the biblical regulations, but not if it is only prohibited by the Mishnah itself; a dissenting view is, however, expressed by the Mishnah, stating that even the biblically prohibited forms of interest cannot be reclaimed legally^[25]. The Mishnaic justification given for the latter view is that the biblical text invokes divine vengeance against usurers, and civil action cannot be launched against someone under the penalty of death^[26]; effectively this meant that rabbinical courts made judgements in cases of usury, but refused to enforce them by anything other than physical attacks against the lender's body^[27].

[edit] Exemptions and Evasions

The Mishnah forbids arrangements where a supplier gives a product to a shopkeeper to sell, in return for a portion of the profit, since it views the supplier as effectively loaning the product to the shopkeeper, while ignoring the fact that the shopkeeper takes on the risk of theft, depreciation, and accidents^[28]. However, the Mishah argues that it wouldn't be counted as usury if the supplier employed the shopkeeper to sell the product, even if the wage was merely nominal, such as a single dry fig^[29]; this mechanism to permit profit being gained by a lender, in a business transaction between lender and debtor, was formalised as the Heter Iska, literally meaning exemption contract, which worked in exactly the same way as the earlier Sumerian business partnership contract between lender and debtor. Like all contracts, there are sometimes disputes, and the parties may resort to secular courts, running the risk of the court imposing interest, or other conditions which are contrary to Halakhic principles.

There were also a number of methods of evading the anti-usury laws completely, identified in the Mishah. One of the simplest methods was for a person to loan something to another, and buy it back from them at a reduced price^[30] (the purchase, of course, is independent of the loan); the Mishnaic regulations do not prevent the lender from requiring the full value of the loaned thing to be returned, and hence allows the lender to make a profit from the difference between the reduced price and the actual worth of the loaned thing^[31]. Another significant loophole in the law was the biblical permission to charge interest on loans to non-Israelites, since this made it possible for an Israelite to charge interest on a loan to another Israelite, by making the loan through a third party who wasn't an Israelite; interest could be charged on the loan to the non-Israelite, who could then loan the money to the other Israelite at a similar rate of interest^[32][33].

[edit] In rabbinical literature of the Middle Ages

In the view of Maimonides, there were certain conditions similar to interest which were permitted; for example, Maimonides states that a person can offer money to a second person attaching a requirement for the second person to give a certain larger amount of money to a third person, or a requirement for the second person to persuade a third person to lend a certain larger amount of money to the first person^[34]. Of course, when a non-Jew was involved, Maimonides argues that interest could be charged; indeed, Maimonides argues that it was compulsory to charge interest on loans to non-Jews, but he also suggests that such loans should be restricted to being within narrow limits, to avoid the lender becoming so keen on usury that they practice it against other Jews^[35]..

The Shulchan Aruch, a 16th century text that was published after the writings of Maimonides, and which is viewed by the majority of Orthodox Judaism as being authoritative, expresses a different view on interest, stating that it is allowable nowadays in all cases^[36]. This text allows money from charities, such as orphans or poor-funds, to be loaned out on terms which the Mishnah forbids, as long as the bible itself doesn't appear to prohibit it; similarly, it allows the borrowing of money on terms involving interest repayments, as long as the money is greatly needed^[37].

In the opinion of the Shulchan Aruch, it is only the return of the capital part of a bond which is enforceable - if it covers the interest separately, then the interest part isn't enforceble, and if it combines the interest and capital into a single sum, then the whole bond is unenforceable^[38][39]; similarly, the Shulchan Aruch argues that if a guardian lends something belonging to their ward, and has charged interest on it, then the ward may keep the interest and isn't obliged to return it. The Shulchan Aruch even states that the courts can only compel the restoration of interest by flogging the lender until they are willing to return the amount^[40], thus if the lender died before the interest was returned, the lender's heirs were allowed to keep the money^[41].

[edit] In Christianity

The early Christian Church, for reasons connected to the New Testament, declared that any usury was against divine law, preventing pious, and outwardly pious, Christians from using capital for mercantile purposes^[42]; in 1179, Pope Alexander III excommunicated usurers, which in that period was seen as an extremely harsh punishment^[43]. However, Canon Law was not regarded by medieval society as having any authority over Jews, and thus Christian monarchs looked to the Jews to supply capital to them^[44]; in many european countries, medieval civil law also allowed the monarchs to automatically inherit any remaining income and property that had been acquired by usury, upon the death of the Jewish usurer involved^[45]. Medieval European monarchs thus supported the Jews, and suppressed any attempts to convert them to Christianity, since it would deprive the monarch of potential income^[46]; in England and France, the monarchs demanded compensation from the church for every Jew that was converted, and, until 1281, the English monarch had the legal right to claim half the property of any Jew that converted to Christianity^[47].

The Jewish usurers had no competition in medieval Christian lands, and could charge very high interest; the legal limitations imposed were particularly generous in many countries:

• in Sicily, under Frederick II in 1231, up to 10% per annum^[48]
• in Aragon, under the Cortes of Tarragona, up to 20% per annum^[49]
• in Navarre, under Philip III in 1330, up to 20% per annum^[50]
• in Castile, under Alfonso X, up to 25% per annum^[51]
• in Portugal, under Alfonso IV in 1350, up to 33.33% per annum^[52]
• in France, under Philip Augustus, up to 43.3% per annum^[53]
• in England, under King John, up to 86.6% per annum^[54]

The loans were generally secured, and nearly anything could be used as security, the main exception being sacred objects belonging to the Christian Church^[55]; the use of such sacred objects for security was punished in law, as early as 814, when the punishment was made to be the confiscation of property^[56]. The huge size of the interest rates that were permitted, together with the effect of compound interest, meant that if the loan wasn't quickly repaid it would soon become unmanageable, and the security would be lost to the usurer^[57]; for example, an abbot in 1173 borrowed 40 marks from Benedict the Jew, and seven years later, the amount to be repaid had grown to £880^[58].

The papacy protested against the usury of the Jews, with Eugenius declaring that all interest charges were null and void if the debtor went on a crusade, and Innocent XIII calling upon all Christian princes to demand that the interest was returned^[59]; Louis IX and Edward I answered the call, in 1254 and 1275 respectively, and tried to influence the Jews within their kingdom away from usury, but without effect^[60]. Then, in the middle of the 13th century, groups of Italian Christians, particularly the Cahorsins and Lombards, invented legal fictions to get around the ban on Christian usury^[61]; for example, one method of effecting a loan with interest was to offer money without interest, but also require that the loan is insured against possible loss or injury, and/or delays in repayment (see contractum trinius)^[62]. The Christians effecting these legal fictions became known as the pope's usurers, and reduced the importance of the Jews to European monarchs^[63]; later, in the Middle Ages, a distinction was drawn between things which were consumable (such as food and fuel) and those which were not, with usury being pemitted on loans involving the latter^[64].

By the later Middle Ages, Christian Merchants who lent money with interest were without opposition, and the Jews lost their privileged position as money-lenders^[65]; from the 15th century, Jews were mainly found as dealers in second-hand clothing^[66], since European society was religiously prejudiced against them, permitting them few other forms of income. Despite this, the Jews' reputation for usury remained well into the 20th century^[67], and the stereotype often had serious consequences for them, particularly in Germany.

[edit] References

1. ^ Jewish Encyclopedia
2. ^ Peake's commentary on the Bible
3. ^ Jewish Encyclopedia
4. ^ Ezekiel 18:13, 18:17
5. ^ Baba Metzia 61b
6. ^ Peake's commentary on the Bible
7. ^ Peake's commentary on the Bible
8. ^ Peake's commentary on the Bible
9. ^ Jewish Encyclopedia
10. ^ Jewish Encyclopedia
11. ^ Baba Batra 60a
12. ^ Jewish Encyclopedia
13. ^ Jewish Encyclopedia
14. ^ Deuteronomy 23:20
15. ^ Jewish Encyclopedia
16. ^ Jewish Encyclopedia
17. ^ Jewish Encyclopedia
18. ^ Baba Metzia 63a
19. ^ Makkot 1:1
20. ^ Jewish Encyclopedia
21. ^ Jewish Encyclopedia
22. ^ Jewish Encyclopedia
23. ^ Baba Metzia 75a
24. ^ Jewish Encyclopedia
25. ^ Jewish Encyclopedia
26. ^ Baba Metzia 61b
27. ^ Shulchan Aruch, Yoreh De'ah : 161:2
28. ^ Jewish Encyclopedia
29. ^ Baba Metzia 68b
30. ^ Jewish Encyclopedia
31. ^ Jewish Encyclopedia
32. ^ Baba Metzia 5:6
33. ^ Baba Metzia 71a
34. ^ Maimonides, Mishneh Torah, Tamid:, Malweh:15
35. ^ Jewish Encyclopedia
36. ^ Shulchan Aruch, Yoreh De'ah : 159
37. ^ Shulchan Aruch, Yoreh De'ah : 160
38. ^ Shulchan Aruch, Yoreh De'ah : 160
39. ^ Shulchan Aruch, Hoshen Mishpat : 52
40. ^ the process of judicially flogging an individual until they agreed to a course of action, was known as contempt
41. ^ Shulchan Aruch, Yoreh De'ah : 161
42. ^ Jewish Encyclopedia
43. ^ Jewish Encyclopedia
44. ^ Jewish Encyclopedia
45. ^ Jewish Encyclopedia
46. ^ Jewish Encyclopedia
47. ^ Jewish Encyclopedia
48. ^ Jewish Encyclopedia
49. ^ Jewish Encyclopedia
50. ^ Jewish Encyclopedia
51. ^ Jewish Encyclopedia
52. ^ Jewish Encyclopedia
53. ^ Jewish Encyclopedia
54. ^ Jewish Encyclopedia
55. ^ Jewish Encyclopedia
56. ^ Jewish Encyclopedia
57. ^ Jewish Encyclopedia
58. ^ Jewish Encyclopedia
59. ^ Jewish Encyclopedia
60. ^ Jewish Encyclopedia
61. ^ Jewish Encyclopedia
62. ^ Jewish Encyclopedia
63. ^ Jewish Encyclopedia
64. ^ Jewish Encyclopedia
65. ^ Jewish Encyclopedia
66. ^ Jewish Encyclopedia
67. ^ Jewish Encyclopedia