This leads to the following question, could a modern economy be run al pi halacha?
IMHO the answer is no. All modern economies run on credit. Interest bearing loans are the lifeblood of modern economies both for consumers, companies and governments.
Consumers take out interest bearing loans in a number of situations:
- Mortgages - Most people who buy a house take out a mortgage
- Credit Cards
- Car loans/leases - Most people either borrow money (with interest) to buy a car or lease a car (which is also financed with interest)
- Home equity loans
- Savings accounts
- ...
Governments also run on borrowed money, government bonds which of course pay interest. Without the ability to borrow money governments could not function today. Companies run on borrowed money as well, corporate bonds which again pay interest. A halachic state would have to outlaw banks.
A Halachic state would prohibit all of these. We can try to work around the prohibitions with things like Heter Iska, however, there are 2 problems with this approach:
- It is against the spirit of the law. The Torah clearly and unequivically prohibits interest bearing loans. Even if we can find a technicality to get around the halacha, it is clearly not what the Torah wanted. The Torah is supposed to be a blueprint for an ideal society, if the laws in the torah don't allow for that then what does that say about the Torah?
- It is not clear that these workarounds actually work in all situations.
There's an obvious reason why interest is absolutely necessary. It's called Time Preference, or the Impatience Theory of Interest. https://en.wikipedia.org/wiki/Time_preference . It's a topic for any year one microeconomics course.
ReplyDeleteThe basic idea is the same amount of money is worth more now than it is at a later date. This is because having the money now allows you to use it over a longer period of time. For example, you could use the money now to buy a chicken, and then the difference of worth of the money is precisely the profit that the chicken produced for you.
What's even more interesting to me is that Christianity adopted this practice and that had a profound impact on Jewish history in medieval Europe.
AK
DeleteInterest is not *absolutely* necessary. The theory explains the *real* rate of interest, which for the past few years (depending on how you measure it) has been below zero in a number of large economies (US, UK, Germany, Japan...). Time Preference does not really make sense with respect to nominal interest rates, but we can see that even these can be zero (or negative) (e.g. Japan).
In theory, even risky debt could occur at zero or sub zero rates of interest, however likely we wold need to see a change in how money works for that to occur with any significant degree of risk attached (e.g. a cashless economy).