Thursday, 18 July 2013

Charging Interest on Loans and Debt: A Socratic Story

When I decided to go to the park for an evening walk and watch the sun slip behind the swaying trees on the horizon, I was not aware that I was to be accosted by a banker straight out of university.
There was a comfortable breeze from the west which tickled lightly at the grass, and gave a comfortable break from the formidable heat of the day. I walked the lane, deep in the recesses of my thoughts, thinking of the book I had read earlier on that day. The book, Plato's "Republic", had stirred in me a doubt. A doubt of my own opinions regarding opinions. Plato had messed up my head.

So there I was, walking in the park when I heard my name being called by a man on a nearby bench. Intrigued (I was sure I was not acquainted with the random Bench Man), I made for the bench and the man stood up to greet me.

"Samir?" he asked.
"Yes," I replied.
"Oh my, you've changed, man!" the man exclaimed.
"Ah," was my response. "I am not sure I know you, sir."
"It's me, mate. Alex. I was your Peer Mentor back in High School!"


After our sojourn down Memory Lane, Alex and I began talking of various issues. Our conversation touched on the economy and banking practices in general.

"You're a Muslim!" Alex suddenly remembered. "Why does your religion condemn interest?"
"It isn't only Islam that condemns interest. Christianity does too. But look now, interest is the motor of our economy," replied I. "But to answer your question, I am no theological economist." 
"You say it like interest is a bad thing!" I could tell that Alex was in love with his job at the bank. Naturally, he was offended when I mildly implied that interest banking was not the way forward. Interest was, after all, a prominent way his bank made their money. He was of an overzealous disposition, by which I mean he suffered from zeal, a certain nervous disorder that affects the young and inexperienced. 

"How else is our economy to survive?!" he pressed on. And on he went about the benefits of an interest based economy. I indulged him, though my thoughts where elsewhere.

"Okay," I interjected. "let us reason. You would agree with the simple statement that interest is the receiving of more money than one has lent, right?"
He acquiesced.
"Well then," I continued, "the person who has money to spare is asking that the person who was in need of money to give back more than he took, correct? So, while the person with spare money watches his pile grow bigger, the person in need in of money must work at double the effort to pay back the interest infected loan, agreed?"
"I wouldn't put it that cynically, but yes, that is its essence," said Alex.
"So by that reasoning, which you have agreed as correct, interest is responsible for the constant growth of inequality, is it not?"
He was inclined to agree with me, though not without reluctance.
"Secondly, let us assume the interest rate on a loan stands at 2.5%. The business that borrowed the money must have grown by 2.5% the following year in order to pay back the loan, yes? Growing requires the use of resources, does it not?"
Again, Alex agreed.
"So, we can say that interest is responsible for the depletion of our global resources, which are already being depleted in other ways at an alarming pace," I said. Still, I continued,
"And these resources cannot always be found within the borders of ones country. So what does one do in this situation?"
"Expand the enterprise abroad," replied Alex.
"Expanding abroad is a euphemism for exploitation and in some cases, invasion. You forget that many locals are unhappy of foreign companies exploiting their country's resources. Interest is, therefore, responsible for minor skirmishes, at best, and at worst, a civil war."
Alex was forced to agree with me.

I took my leave shortly afterwards and walked home as the setting sun showered the sky in delicate oranges and burning reds.