Interest rates have been prominent in the news for a while, and rightly so. The question of how high or low they should be, being preceded by the question in some minds of whether interest on loans should exist at all.
There is no doubt that attitudes to interest have changed over the centuries. Changed attitudes are often caused by changed circumstances. What were the circumstances that forged such a distaste for the charging of interest on loans that is was regarded as a sin in Medieval Europe?
It is instructive to look at the time when attitudes to interest began to change, and why that was.
Under the 19th century Gold standard, working people gained access to commercial loans; usually from banks, sometimes from the newly formed building societies (by 1860 there were over 2,750 building societies in the UK). This was the genesis of social mobility. No longer did people have to remain poor simply because they had been born poor. With loans facilitating business investment, they could rise out of their traditional poverty.
That they eagerly took advantage of this has been adequately chronicled elsewhere. It was the beginning of the end of Lords and Serfs. The banks and building societies were flush with funds because working people were not only borrowing, they were now saving – with interest. The latter begat the former. The banks and building societies lent out the deposited money, for a greater rate of interest.
This was a pretty good deal all around and resulted in a burst of widespread prosperity such as the world had never witnessed – before or since. While some moralizers continued to rail against interest, most people had come to see it as a positive social force.
But prior to the Gold standard, there was no such thing as an investment opportunity for anyone but the already rich. Working people were not eligible for commercial loans. When they did borrow, it was from friends and for different, more personal, reasons – a temporary shortage, the loss of the crop with which to feed their family, an unexpected funeral or sickness etc.
It was consideration for the plight of the poor that was the source of the idea that it was morally wrong to charge interest. The sentiment went back at least as far as Aristotle. Under such circumstances, it is easy to see how it could be seen as questionable conduct. Similar circumstances bring similar responses in the 21st century.
Lend a ‘down on his luck’ mate some money for a couple of months at no interest to tide him over? Probably. Lend someone money to fund a commercial venture at no interest? Are you kidding?
No interest means no commercial loans. That’s the path back to Lords and Serfs.