The Evolution of Interest and Debt: From Middle Ages to Modern Times 1003041248, 9781003041245

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The Evolution of Interest and Debt: From Middle Ages to Modern Times
 1003041248, 9781003041245

Table of contents :
Half Title
Series Information
Title Page
Copyright Page
Table of contents
Editors and contributors
Chapter 1 Introduction to evolution of the interest and debt
Brief story of mainstream religions’ failure of sustaining prohibition of interest
Chapter 2 Debt and interest in the early period of Judaism
Importance of economic life and money in Holy Scriptures
Interest-bearing debt and etymological analysis
Chapter 3 Major theological arguments in Judaism on debt and interest
Major principles in theological sources on debt–credit relationship
Needy brothers and the law of brotherhood
Chapter 4 Trade, finance and Jewish usurers in medieval Europe
Interest-bearing debt in medieval Europe
Main arguments on the state of the Jewish usurers
Chapter 5 Basic education and usury in Jewish history
Importance attached to education in Jewish communities
Relationship between education and interest-bearing debt
Chapter 6 Debates on the notion of usury in St. Thomas Aquinas’ thought
St. Thomas Aquinas’ economic views
Medieval era Christianity and notion of interest
St. Thomas Aquinas’ approach vis-à-vis the notion of interest
Chapter 7 Martin Luther’s approach on interest and debt
Precursors of reformist thinking: Practices of indulgence
Luther’s economic views
Luther’s approach to interest-based debt transactions
Chapter 8 Interest-bearing debt in the John Calvin school of thought
A perspective on interest in medieval era Christianity
Calvin’s view on the matter of extreme interest
Modern approaches after Calvin
Chapter 9 Monte di Pietà
Finance in medieval Italy
Franciscan order and Monte di Pietà
Monte di Pietàs and interest rates
Chapter 10 Origins of financial instruments in Islamic civilizations
Initial economic arrangements in Muslim world
Origins of modern banking: Commenda and mudaraba as partnership models
Debates on some financial instruments in the Muslim world
Chapter 11 An analytical inquiry into the views of late Islamic jurists on the roots and sustainability of an interest ban
How did the classical era sources define interest?
Approaches in sources of Islamic jurisprudence toward the reasons of interest
Review of approaches in Islamic jurisprudence on the definition of interest
Chapter 12 Pursuit of interest-free financing in Ottoman society
Debt in Ottoman society: Sarrafs and usurers
Institutional structures of debt in the Ottoman state: Money foundations
Financial tools of money foundations: Qarz, bidaa and mudaraba
Chapter 13 Concept of interest in orthodox economics
Neoclassical economics as orthodoxy and interest
Chapter 14 Notion of interest in modern capitalism within the context of heterodox schools of economics
Distinction between orthodox and heterodox economics
Theoretical approach by heterodox economics to interest
Marxist economics and interest
Institutional economics and interest
Post-Keynesians and interest
Chapter 15 The evolution of interest and debt
Debt in ancient civilizations and society
Debt in far eastern civilizations
Debt in Abrahamic religions

Citation preview

The Evolution of Interest and Debt

It would be difficult to examine interest-​free alternative financial systems without reviewing the evolution of debt; thus, this book offers a chronological account of the development of interest-​bearing debt and contributors offer their take on how the issue of interest has been addressed throughout medieval and modern civilizations. The Evolution of Interest and Debt provides a review of the impact of these interest-​ bearing debt and practices upon social relations and institutions, throughout the history of modern economics, observing the relative conditions of the time and, as such, will shed light on the ongoing problems as well. The authors assert that the development of the concept of interest can be traced through three historical periods. The first period covers measures from a more radical stance, as introduced by the Abrahamic religions, with the same foundations and principles at their core. The second period examines the arguments that justify interest-​bearing debt, particularly how the stance of major religions has been translated into a basis of support for these transactions. The third and final part offers a chronological account of the development of interest-​bearing debt transactions and their disruptive impacts throughout the history of modern economics from the medieval to the modern era. Initially, the book presents a conceptual framework of terms applicable to the discussions and then examines the consistency and reliability of the theological and philosophical arguments on the restrictions imposed upon the practice of interest and debt, including rigid prohibition. Each period presents its own dynamics and helps analysts better understand the history and roots of interest-​bearing debt. While the book is grounded on research that relies heavily on historical sources, it offers a contribution to the literature on economics as well, since the historical findings are analyzed in the context of economic terms and theories. An interdisciplinary effort, the book will attract the attention of those who have an interest in finance, economics, history, religion and sociology. Murat Ustaoğlu is an associate professor of economics at Istanbul University, Istanbul, Turkey. Ahmet İncekara is a professor of economics at Istanbul University, Istanbul, Turkey.

Islamic Business and Finance Series Series Editor: Ishaq Bhatti

There is an increasing need for western politicians, financiers, bankers, and indeed the western business community in general to have access to high quality and authoritative texts on Islamic financial and business practices. Drawing on expertise from across the Islamic world, this new series will provide carefully chosen and focused monographs and collections, each authored/​edited by an expert in their respective field all over the world. The series will be pitched at a level to appeal to middle and senior management in both the western and the Islamic business communities. For the manager with a western background the series will provide detailed and up-​to-​date briefings on important topics; for the academics, postgraduates, business communities, manager with western and an Islamic background the series will provide a guide to best practice in business in Islamic communities around the world, including Muslim minorities in the west and majorities in the rest of the world.

Methodology of Islamic Economics Problems and Solutions Edited by Necmettin Kizilkaya Halal Logistics and Supply Chain Management in Southeast Asia Edited by Nor Aida Abdul Rahman, Azizul Hassan and Mohammad Fakhrulnizam Mohammad A History of Interest and Debt Ancient Civilizations Edited by Murat Ustaoğlu and Ahmet İncekara Awqaf-​led Islamic Social Finance Innovative Solutions to Modern Applications Edited by Mohd Ma’Sum Billah The Evolution of Interest and Debt From Middle Ages to Modern Times Edited by Murat Ustaoğlu and Ahmet İncekara For more information about this series, please visit:​Islamic-​ Business-​and-​Finance-​Series/​book-​series/​ISLAMICFINANCE

The Evolution of Interest and Debt

From Middle Ages to Modern Times

Edited by Murat Ustaoğ l u and Ahmet İncekara

First published 2021 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 52 Vanderbilt Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2021 selection and editorial matter, Murat Ustaoğlu and Ahmet İncekara; individual chapters, the contributors The right of Murat Ustaoğlu and Ahmet İncekara to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing-​in-​Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-​in-​Publication Data Names: Ustaoğlu, Murat, 1976– editor. | ˙I ncekara, Ahmet, editor. Title: The evolution of interest and debt: from Middle Ages to modern times / edited by Murat Ustaoğlu and Ahmet ˙I ncekara. Description: Milton Park, Abingdon, Oxon; New York, NY: Routledge, 2021. | Includes bibliographical references and index. Identifiers: LCCN 2020026543 (print) | LCCN 2020026544 (ebook) Subjects: LCSH: Interest. | Debt. Classification: LCC HB75 .E87 2021 (print) | LCC HB75 (ebook) | DDC 332.809–dc23 LC record available at LC ebook record available at ISBN: 978-​0-​367-​48490-​3  (hbk) ISBN: 978-​1-​003-​04124-​5  (ebk) Typeset in Sabon by Newgen Publishing UK

Dedicated to my father, Ahmet Dindaroğl u



Preface  Acknowledgments  Editors and contributors 

1 Introduction to evolution of the interest and debt 


xi xiv xv



2 Debt and interest in the early period of Judaism 



3 Major theological arguments in Judaism on debt and interest 



4 Trade, finance and Jewish usurers in medieval Europe 



5 Basic education and usury in Jewish history 



6 Debates on the notion of usury in St. Thomas Aquinas’ thought 



7 Martin Luther’s approach on interest and debt 



8 Interest-​bearing debt in the John Calvin school of thought  75 DILEK DEMIRBAŞ AND SAFA DEMIRBAŞ

viii Contents

9 Monte di Pietà 



10 Origins of financial instruments in Islamic civilizations 



11 An analytical inquiry into the views of late Islamic jurists on the roots and sustainability of an interest ban  110 SERVET BAYINDIR AND HALIL ŞIMŞEK

12 Pursuit of interest-​free financing in Ottoman society 



13 Concept of interest in orthodox economics 



14 Notion of interest in modern capitalism within the context of heterodox schools of economics 



15 The evolution of interest and debt 






In cities dominated by Islamic civilizations, it is possible to run into historical artifacts that reflect the different forms of social solidarity. The charity stones on the streets of Istanbul from the Ottoman era, inspired by the teachings of this religion, are such examples. The main difference between other charity systems and the charity stones that ensure transmission of the charity to those in need in a way that the receivers would not have to reveal their identities is that the charity activity takes place among the people with the same social status in the same neighborhood. Ziya Kazıcı investigated the traces of these stones in different parts of the city and noted that the number of these stones reached 170 in Istanbul. These works, which reflect the humility and warmth of the moral norms of Islamic thought that give direction to the economic life, are symbols of philanthropy and benevolence. Sadly, as the number of these stones declined, moral values started to fade away and the society fell victim to the cultural values promoted by immoral values that were imposed by the modern economic thought. However, if the spirit of social solidarity, revived by the charity stones, had been able to survive until our times, the cultural fabric that fosters the intellectual life would have been preserved and the thinkers in the Islamic world who would be raised in this atmosphere would have offered an alternative model to the global economic order that disrupts the social and economic balances. The Islamic world preferred a different direction rather than staying focused on the ultimate goal and served as enabler of the integration with the global economic system. The new paradigms for generating values were reconfigured accordingly. This preference had some positive and negative implications. Some Islamic states built industries using the production functions of the modern age for greater competition whereas some others decided to generate wealth by reliance on their own natural resources. This dilemma was accompanied by the shortcomings due to the superficial economic intellectuality of the modern age, leading up to a number of chronic social and economic problems. As the whole world adapted itself to the interest-​ based global financial system and allowed this system to penetrate the domains of economic life, peoples in different parts of the world

x Foreword

experienced recurrent global economic and financial crises. The issues were not limited to economic crises; a number of other social and political issues, including income inequality, distorted economic order, economic crises, migration movements and environmental issues still remain unresolved and unattended. Researchers will investigate as to why the Islamic civilizations relied on different directions rather than accumulating wealth through generation of values by focusing on its own cultural codes. However, the bill associated with the erosion of the moral values that revived the spirit of social solidarity is becoming costlier for the entire humanity. Some thinkers who have come to the awareness of this bill have attempted since the early 20th century to offer an alternative economic system based on spiritual values. These efforts culminated in the institutionalization of a new financial model in the 1970s. The new model that appeared as the interest-​free alternative to the conventional financing has been successfully implemented in different parts of the world. The model proved its strength and functionality since it survived the 2008 global economic crisis and showed its ability to offer all services that the modern financial sector provides on an interest-​free basis. The interest-​ free financing model has become one of the fastest-​growing sectors in the world and is still improving its standards and services by renewing its portfolio of instruments for the end-​users. One of the tasks to be assigned to the lead figures in this sector, inherited from the Islamic civilization, is to extend support for the scientific inquiries and research focused on the alternative economic ideas and thoughts. Being aware of this task, we decided to support this effort, hoping that it would contribute to the literature; I  further confirm our desire of continually supporting similar endeavors. Murat Çiftçi Chairman, BİREVİM


The moral norms formulated by the philosopher Immanuel Kant, who argued that moral acts have to comply with universal principles as categorical imperatives, serve as the basis of a universal objective to create a more sustainable society and a profile of a better human being since the ancient civilizations. The roadmap of the religious teachings involves the identification and internationalization of these norms and their promotion as widely applicable and enforceable acts. What makes this mechanism of values generated through commitment to these principles is a set of notions including charity, benevolence, donation and selfless deed which are all performed in return for God’s favor. This code of conduct, expressed in different terms in three Abrahamic religions, can be simply denoted by a common notion of charity which will effectively serve as a panacea for the deteriorating social relationships and disruption to social harmony caused by the consequences of interest-​based borrowing. However, when it comes to economic affairs, a fairly distinct discourse has been adopted. The change in the theological sources of Judaism which upholds that the divine rules and orders first address the society is one example to prove this point. The barriers before the interest ban have been gradually removed with reference to some economic and social reasons and circumstances. In a typical agricultural economy, money would be needed only in case of distress and urgency; thus, there would be no pressing need for it in such an economy. In that society, interest ban appears to be effectively enforceable. While the initial agricultural societies upheld the ban, the economic climate started to change as a result of the flood of people into urban areas in connection with cases of migration and exile. The clerics, unable to resist the dynamics of the new situation, had to bend the ban; additionally, interest would be rather seen as a barrier against economic development. Consequently, universal recommendations in Babylonian Talmud (i.e. what is hateful to you, do not to your neighbor:  that is the whole Torah [Shabbath 31a]) were ignored. Eventually, the interest ban has been lifted altogether and universal moral principles including charity and benevolence were replaced by motivations of fulfilling instant desires and of

xii Preface

seeking instant gratifications, fostered by practices of interest. This process disrupted the interconnectivity between the different civilizations. Similar expressions and statements can be found in the scripts of the religion founded to reinstate the connection and to reform the principles applicable to the conducts of the human beings. The verse in the Bible, so whatever you wish that others would do to you, do also to them, for this is the Law and the Prophets (Matthew 7: 12), is nothing but a rephrasing of the same universal norm. The Christian scripts view economics as a means of service to fulfil the needs of the people and urge the economic actors to adopt moral standards in their dealings with others. Jesus, in addition to his sermons on the Oneness of God and on the requirement that He has to be loved by heart, further suggests that helping the neighbors is not an individual deed but rather a collective responsibility to earn His blessing. Similarly, the church also initially warned against extreme behaviors towards luxury and greed as well as extravaganza and promoted noble acts of charity and altruism. While there is no clear prohibition against the practice of interest in the New Testament, the Council of Nicaea agreed on an interest ban that would last almost a thousand years. Heavy sanctions were accordingly prescribed for those who violated the ban. However, the ban has over the time generated tension between the church and the business circles; the clerics once again took part in bending the strict nature of the ban; with the advent of Protestantism, the right of the capital holders to interest was recognized as legitimate, leading up to the lifting of the interest ban. Likewise, the Qur’an also describes bribery, perjury and cheating in trade and social affairs as immoral acts and praises all good deeds including benevolence and charity. Noting that the proper wealth should be sought in morality, the Qur’an further suggests that greed to have more is source of immoral acts. An etymological analysis of the terms used to refer to alms and charity gives the impression that such acts also serve towards spiritual purification. A verse in the Qur’an, the example of those who spend their wealth in the Way of Allah is like that of a grain of corn that sprouts seven ears, and in every ear there are a hundred grains, thus Allah multiplies the action of whomsoever He wills, Allah is munificent, all-​knowing (surah al-​Baqarah, 261), helps to establish a balance between economic welfare and moral attitude. Those who avoid interest revenue and perform acts of charity are promised welfare in the world and spiritual rewards in the afterworld. Attributing the moral coding of this behavior to the prophet of Islam, Ira Lapidus upholds that the prophet and his followers were the sustainers of an economic order fostered by the vision in the Qur’an and the founders of a moral reform. Even though the Muslim communities failed to serve as exemplary models for the rest of the world, there is no obstacle before adapting the norms offered by the prophet of Islam to the social and economic environment of the modern world. Because every human being is

Preface xiii

born on a purified nature, moral values such as charity can be made an integrated part of the economic life. However, it is not that easy to live up this ideal within the modern economic system which seeks to produce social common good out of the individual ambitions. Zygmunt Bauman, on this matter, arguing that the idea of altruism lost its legitimacy, further noted that people are not encouraged to achieve moral ideals and protect the moral values and that they are not willing to push their limits because politicians destroyed all utopias as a result of which the past idealists have become pragmatists. Another economist Schumacher agrees with these arguments and concerns, stressing that the value-​generating modes of actions and behaviors were abandoned and replaced by a vicious cycle of greed, jealousy, ambition and conflict and that the theories of economics in most situations seek to make progress by provoking the evil sides of the people. This approach which contradicts with the theological teachings of the monotheist religions now fails to offer solutions for pressing problems including poverty, income inequality and migration. The theory of modern economics, built upon the premise of interest, is more focused on the palliative measures in face of the growing chronic issues. It will not be easy to develop lasting solutions for these social and economic problems as a long as this approach remains in place. In face of the growing global problems, it is now apparent that the economic thought should be based on noble ideas and values referring to preservation of moral norms. I hope that this work will serve as a small step towards this objective. Dr. Murat Ustaogˇlu I˙stanbul, 2020


The authors would like to thank Murat Çiftçi, Mahir Orak, Mucahid Karabalık, Muharrem Balcı, Musa Çataloğlu, Fatmanur Peçe, Semih Boybay, Dr. Yusuf Tuna and Dr. Bilgehan Yıldız for their contributions to this research. The authors also offer special thanks to Dr.  Cenap Çakmak, who has spent great deal of time and effort on this research; the process would not have been completed without his valuable assistance. Additionally, the authors appreciate and recognize BİREVİM and the Scientific and Technological Research Council of Turkey for their financial support.

Editors and contributors

Editors Murat Ustaoğlu received a BA degree in International Business from Ramapo College of New Jersey (2006), MA from the City of University of New York in the field of Economics (2008) and his PhD degree from Istanbul University in the field of Economics (2013). Ustaoğlu worked as a research assistant at Istanbul University (2010–​ 2016) where he still teaches Islamic Finance and introductory economics courses as an associate professor. During his stay in the United States, he held various positions at Bank of New York and JP Morgan Chase Bank. Dr. Ustaoğlu published articles in the fields of international economics, Islamic finance and macroeconomics in international journals and authored/​ edited books, Islamic Finance Alternative for Emerging Economies (2014), Post Conflict Syrian State and Nation Building (2015), Balancing Islamic and Conventional Banking for Economic Growth (2017), A History of Interest and Debt:  Ancient Civilizations (2020) and, in Turkish, Faiz Meselesi (2019). Affiliated with the Research Center for Islamic Economics and Finance, Ustaoğlu delivers graduate lectures and seminars and serves as member at American Economic Association, Eastern Economics Association, Harvard University Islamic Finance Project, as well as Economic Research Foundation and Research Association for Halal Finance. Dr. Ustaoğlu currently conducts research at the City University of New York as a visiting scholar. Ahmet İncekara graduated from the Department of Economics at Istanbul University in 1978 where he also started to work as a research assistant; he received both MA and PhD degrees at the same department in 1980 and 1985, respectively. İncekara worked as associate professor in the period between 1989 and 1996 at the same department where he teaches courses on different subjects of economics as full professor since then. İncekara conducted research at Cornell University in 1994 as a visiting researcher; chair of the Department of Economics at Istanbul University, and published articles and book chapters in the field of economics, as well

xvi  Editors and contributors

as books Islamic Finance Alternatives for Emerging Economies (2014), Balancing Islamic and Conventional Banking for Economic Growth Empirical Evidence from Emerging Economies (2017), A History of Interest and Debt:  Ancient Civilizations (2020) and, in Turkish, Faiz Meselesi (2019). Dr. İncekara has also been serving as chairman of the Economic Research Foundation since 2009.

Contributors Akmyrat Amanov holds MA degree from Istanbul University where he currently continues his doctoral research. Servet Bayındır received PhD in the field of Islamic Theology from Marmara University in 2004; currently works at Istanbul University’s Divinity School as full professor where he teaches courses on Islamic banking and finance. Muhammet Sait Bozik holds MA degree in Islamic Economics and Finance from Istanbul University, currently conducts doctoral research at the same university. Dilek Demirbaş holds a PhD from University of Leicester in 2000; worked at Newcastle Business School; currently does research and teaches at Istanbul University Safa Demirbaş completed PhD studies at University of Leicester in 1999, taught at Sunderland University as visiting faculty; currently works at the Istanbul Sabahattin Zaim University. Elif Haykır Hobikoğlu received PhD in the field of Economics from Istanbul University in 2009; currently works at same school as full professor where he teaches courses on economics and finance. Murat İstekli holds MA in economics from Gaziosmanpaşa University, currently works on doctoral dissertation at Department of Economics, Istanbul University. Adem Levent holds PhD from Istanbul University in Economics, currently works as assistant professor at Uludağ University where he teaches courses on political economy, economic thought and institutional economics. Gülden Poyraz holds PhD from Istanbul University in Economics, currently works as assistant professor at Bandirma 17 Eylül University where he teaches courses on political economy, financial economics and macroeconomics. Abdüsselam Sağın holds a PhD in Economic History from Istanbul University (2017), works at Kırklareli University where he teaches


Editors and contributors  xvii

courses on macroeconomics, international economics, economic growth and Islamic economics. Halil Şimşek holds BA in Islamic Studies from al Azhar University, Egypt, and in Political Studies from New York Hunter College, as well as PhD from University of Toronto in Quranic exegesis. Zehra Betül Ustaoğlu holds a BA in the field of theology from Marmara University, a BS degree in the field of Computer Engineering from Newport University, as well as an MA degree from the School of Oriental and African Studies in 2013, and currently continues doctoral research at Marmara University and works as a research assistant at the RTE University’s Faculty of Theology. Sena Yağmur Yıldız enrolled at the department of econometrics at Istanbul University, currently continues her studies in the United States.

Chapter 1

Introduction to evolution of the interest and debt Murat Ustaoğ l u

Introduction Interest-​bearing debt is one of the most controversial subjects of the history of economic thought because it has been directly influenced by the changing economic circumstances (Akdiş, 2015). The financial markets, relying on their abilities to respond to the changing demands, generated new financial instruments to add new norms to the debt. The most striking aspect of these new norms is that they enable the evolution and transformation of the instruments of exchange, including money. A  number of items have been used throughout history to serve as money (Ferguson, 2008; Ildız, 2013). It is hard to argue that the initial items used in place of money and the electrical currency used in contemporary transactions are the same. It is similarly hard to predict the trajectory of the transformation in the concept of the money, which constantly continues to renew itself. This is one of the reasons for the existing controversy surrounding the practices and theoretical deliberations on money. To this end, one major problem that stands is to offer a plausible definition for the concept of interest. It is not an easy task to offer an answer to this question without analyzing the historical evolution of this issue and relying on the religious scripts of the monotheist religions to identify their approach vis-​à-​vis interest-​bearing debt properly. Thus, the scripts of monotheist religions serve as a rich source for such an analysis. These scripts strongly prohibit interest-​bearing debt practices. The Old Testament, New Testament and Qur’an contain explicit statements against such practices that they find immoral. These statements promote charity as an antidote to interest (Baron, 1958). The monotheist religions encourage the rich to take care of the poor and expect the reward for these goods deeds from God in the afterlife (Akalın, 2015). This spiritual responsibility takes concrete forms in connection with such strong notions as charity, donation and alms (Ekin, 2002; Öztürk, 2005). These selfless deeds are promoted in all monotheist religions and constitute the very core of the discourse against the practice of interest; however, despite this discourse, monotheist religions failed to offer alternatives for the growing need for financing in trade activities.

2  Murat Ustaoğ l u

In order to offer alternatives, the arguments serving as the basis of interest-​bearing debt should be examined from a historical perspective. To better understand the concept of the interest, the evolution of the concept should be analyzed with references to the primary sources of mainstream religions and the dynamics and premises of relevant disciplines. Without such an examination, it is hard to offer satisfactory answers to the questions as to why monotheist religions were against the practice of interest, why hardships in the implementation of interest bans were not overcome and what factors contributed to the failure of preserving interest bans. It appears that every civilization developed its own unique response to these core questions. For this reason, it is necessary to examine the historical evolution of interest-​bearing debt regarding monotheist religions.

Brief story of mainstream religions’ failure of sustaining prohibition of interest Controversies surrounding the concept of interest go centuries back, as far as the pre-​Islamic era; for instance, Torah explicitly prohibits the practice of interest and usury.1 Judaic scripts forbid interest-​bearing debt transactions between fellow Jews who, however, have attempted to bend this strict rule. Despite these attempts, traces of the prohibition have remained in the Torah; additional attempts were thus made to make changes to the meaning of the term. To this end, it was argued that interest-​bearing debt was prohibited by the Torah between Jews, but it was a permissible act with non-​Jews.2 In contemporary times, even this bent rule is amended to allow intra-​Jews. The Qur’an, on the other hand, preserves its original position and disapproves the Judaic approach.3 Judaic scripts refer to usury as neshek, which literally means snake bite, suggesting that usury does not have much of impact at first but eventually, when the whole body is infected, there is no survival (Farsi, 2004). Similarly, usury reigns over the entire system and leads it to total collapse. Despite this strong depiction, however, the practice has followed a different trajectory in the Judaic tradition under which the practice has been permitted when it yields a positive outcome for fellow Jews. In other words, the act is justified by the ends, which is visibly contrary to the original stance of the Judaic scripts. The most important factor that contributed to the legitimization and justification of the interest in Judaism is the intense and active relationship with the practice of usury which has become a major line of work as a leading economic and financial method in Jewish history. This creates an environment where usury was viewed as an inevitable business activity even though it was prohibited by Edward I to ensure that Jews became more involved in trade. Jews in fact became involved in the trade of wool and corn, which, however, turned into a shield to hide the acts of usury. Many Jews, despite

Introduction to evolution of interest  3

being prohibited, continued to practice usury and made sizeable fortunes (Judaica, 2006). The relationship between Jews and the practice of usury was further solidified in the centuries to come and backed by concrete initiatives as well. For instance, Musa Ha-​Levi, a student of Talmud, who published a medieval dictionary of philosophy attributed to Maimonidean Jacob Anatoli in 1744, also excelled in what could be regarded as contemporary disciplines (Ruderman, 1995). In addition, courses of algebra and calculus incorporated in the curriculum drafted to understand Old Statement and Torah also contributed to the accumulation of the literature for further legitimization of usury as a profession. What also made the practice of usury widespread and almost inevitable among Jews was the isolated lifestyle to which they had been subjected for centuries. Particularly in Western Europe, Jews were forced to live in isolation (Ruderman, 1995). Even though this was a notorious act of discrimination, the Jews developed a sense of solidarity; and eventually the practice of usury came to be seen as a way of financing which narrowed down the scope of prohibition of interest. In the medieval age, the authorities levied heavy taxes upon Jewish money lenders; when they migrated to Great Britain, they were only allowed to lend small amounts, resulting in the growth of their capital stock. To better monitor the growth tendency, the authorities also banned their involvement in a sector to which they lent money. Additionally, the tax base was preserved to keep the source of income for the Jews under control. Administrative measures that lifted the interest ban because of the investors’ need for alternative financial resources and the additional revenue associated with the taxes levied upon interest-​bearing debt transactions further contributed to the legitimization of interest (Barzel, 1992). Further justifications were also cited; for instance, the return of the loan becomes very costly when the debtor goes bankrupt or moves to another city or region without paying his debt (Kirschenbaum, 1985). The main arguments raised to bend the strict rule on the prohibition of usury mainly focused on the possible risk that the lender would be deprived of the current in return for a future income. In 1270, the 4th Lateral Council announced that the amount of interest should be limited to four dinars a week. Subsequently, James Aragon allowed up to 20 percent as interest rate; however, Gregory Palencia IX, in a letter of complaint to the archbishop, criticizes permission to the Jews for the practice of usury, arguing that despite a decree known as quanto amplius, they continued to impose interest rate upon Christians. But despite these objections, interim solutions were offered to justify the violation of the prohibition of interest by the introduction of a rule that the moderate interest should be paid in accordance with a contract (Stow, 1981). The justification of moderate interest in extraordinary situations has eventually led to the emergence of broader interest systems as well.

4  Murat Ustaoğ l u

In the medieval era, unlimited use of the soil ensures survival for the peasants and their families. To reveal the productive potential of the soil, a bipartite agreement was concluded. A major characteristic of the financial setting of the time was the pursuit for mechanisms associated with the international traders in West Europe that would lower the costs of transportation of the goods. Such financial solutions enabled the traders specialized in certain fields such as textiles to engage in one-​way commercial activities. Mid-​level income bonds made it possible for a party to make a purchase at a certain rate in one place and to make the payment for it at a different rate in another place. The whole process involves four stages; the difference between the dates was called usury. For instance, 60  days between Venice and Brugge or 90  days between Venice and London led to different time intervals for usurers. But the bills themselves moved more quickly. The vulnerability of the lender against the currency rate fluctuations served as justification for lifting the interest ban (Hunt & Murray, 1999). Additionally, basic training in the field of law of contracts also led the Jewish community to lend capital to those who were in need of interest-​ bearing debt funding. For instance, the special lending markets and the content of the public financing in Toscany confirm the efficiency of the Jewish capital. The loans offered by the Jewish capital holders were used for household consumption, initial capital for business and even dowry for newly-​weds. But these loans were also offered for the wealthy traders, recognized notaries and even medical doctors (Botticini & Eckstein, 2001). In other words, the size of interest-​bearing debt transactions grew quickly to include large amounts of lending for people and enterprises in different walks of life. Theories of financial administration and usury have been repeatedly reviewed to offer moderate justifications for the practice of usury, making the efforts of agreeing on a mainstream approach more specific. To this end, first it was stipulated that the parties may not ask for any excessive payment that is greater than they asked for in the first place. In addition, the fact that the debtor may pay the excessive amount as a gift to the lender is considered a creative solution toward justifying the practice of usury (Hunt & Murray, 1999). In other words, the interest, or the excessive amount in relation to the original amount, is redefined as a gift, which is a general justification for the interest. The Christian world and the Church also made attempts to justify the practice of usury and make it look acceptable. The Bible explicitly prohibits the practice and expresses its discontent with it.4 In fact, this is a reaffirmation of the prohibition spelled out in the Old Testament that has been honored for a long time in the Christian world where canonic laws banned interest-​bearing debt transactions and contracts. However, attempts were made in the 16th century to legitimize the practice of usury with a major

Introduction to evolution of interest  5

argument that the prohibition in the script was in pursuit of preventing the exploitation of the people through excessive amounts of interest. Subsequently, the ban was eased by making a distinction between usury (price paid for the use of the money) and interest (additional revenue attached to the period of time during which the lender has been deprived of money), completely ignoring the action dimension of the practice. Officially, interest was first legitimized in Geneva in 1574 (el-​Diwani, 2011). This indicates that the main purpose of the ban has been ignored in Christianity to justify the use of interest-​bearing debt approaches in transactions. The approaches that pay attention to the notion rather than the act are also included in the literature. Almost all works focused on a capitalist approach view the interest as a result, reward or return of the economic attitude of the capital holder. There have also been several other ways of justification as well. What is common in these justifications is that all those works pay attention to the excessive amount rather than the interest as an act. Jean-​Baptiste Say likens the interest that he refers to as price for participation of the capital in production to the fee paid in return for labor, rent demanded in return for the use of a durable commodity or the use of land. Economists like Adam Smith and David Ricardo, on the other hand, view the interest as a way of payback that the borrower should be paid to the lender for the profit or revenue he/​she would make out of it. J. Maynard Keynes and Alfred Marshall take interest as the reward for giving up on saving and the satisfaction that the money generates, which is referred to in the literature as liquidity preference. Another view offered for justification of the interest is the productivity of capital, often referred to as the productivity theory of capital which argues that capital is like labor and that interest is the price for the additional value in the loaned capital. Therefore, the reason the interest is paid is the productivity of the capital (Özsoy, 1991). In sum, some theories developed in the West to justify the practice of interest are based on the argument of productivity. In other words, because the loaned capital is utilized for productive ends, the lender is entitled to receiving a certain amount in the form of interest. This approach suggests that interest is a reward for a certain form of sacrifice. A final approach is liquidity value argument which states that interest is paid in return for sacrificing the liquidity (Seyrek & Mızırak, 2009). A review of the arguments that originated in the West reveals that interest has been rationalized and justified as an indispensable instrument of economic activities because interest-​bearing debt attitudes and acts are not to be criticized in principle. In other words, making savings, lending part of this saving to others for use in productive projects is morally and economically justifiable. But still, what needs to be underlined is whether lending part of the saved funds and asking an excess amount in return is really legitimate. To put it differently, is interest asked because capital is used in productive

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areas or is it demanded because the parties rely on a special type of economic and legal relations among them? To clarify this matter is crucial for a better understanding of the entire discussion. Is it called interest if someone makes savings by reducing the expenses or enters into partnerships to make large amount of profits? The answer to this question is clear and obvious. No, it is not. However, all the arguments cited above also apply to these acts and persons. It is obvious that interest is required when the capital holder enters a debt-​oriented relationship with someone else. Therefore, attention is diverted to a separate field by these arguments, and the use of a loan for profit-​making, the actual act that generates the interest, is often ignored. However, regardless of the motive for accumulating capital, where the capital has been used or whether the capital holders make or lose profit is of secondary importance. In reality, as a result of the debt contract, the lender and the debtors establish an economic relationship and the debtor assumes the liability of paying a certain amount. The questions that begs an answer is this: is it morally and legally justifiable to turn an economic and legal action that human beings invented for solidarity purposes and that the religions approve because of the altruistic nature into a source of income? If it is redefined as such, will it create good or evil for the entire humanity? This research will try to provide satisfying answers to these questions in the following sections.

Conclusion In general, it is possible to argue that all monotheist religions adopt a strict position on the prohibition of interest. Although this position has been maintained for a long time in the past, some leniency has been introduced at a certain point. Obviously, the economic circumstances played a role in this state of change, along with sociological and demographical conditions as well. Changes in social and economic environment inevitably affected the realm of religion and, as a result, religious institutions had to respond to the changing circumstances. Particularly in the Christian world, the reflex of the clerics and religious institutions was to respond to the emerging needs dictated by the contemporary developments. In the case of Judaism, the trajectory was somehow different; thanks to their expertise in money-​based debt relations and usury, the Jewish merchants reinforced their position in the market and accumulated wealth. In other words, the practice of usury has become almost an indispensable part of the business identity of Jewish merchants. To summarize, it is possible to argue that the pressure generated by the economic actors led the Christian religious institutions to change their position vis-​à-​vis the interest ban, whereas the real factor for a more lenient approach toward the ban in the Judaic world was the high level of adaptation with interest-​bearing debt transactions in the first place. A  review of the developments in the history of Islam

Introduction to evolution of interest  7

reveals that both state actors and scholars have remained engaged in the debate. Islamic teaching, despite strong prohibitions in the original scripts, has offered some novel ideas to mitigate the effects of the changing circumstances and to respond to the needs of the economic actors. But the ban is, at least in theory, still preserved in mainstream Islamic schools of jurisprudence and thought.

Notes 1 Jeremiah 15/​10, “Woe is me, my mother, that thou hast borne me a man of strife and a man of contention to the whole earth! I have neither lent on usury, nor men have lent to me on usury; yet every one of them doth curse me.” Exodus 22/​25, “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury”; Deuteronomy 23/​ 19, “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury”; Leviticus 25/​35–​37, “And if thy brother be waxen poor, and fallen in decay with thee; then thou shalt relieve him:  yea, though he be a stranger, or a sojourner; that he may live with thee. Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.” 2 Deuteronomy 23/​20, “Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the Lord thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.” 3 Quran 4: 161, “And [for] their taking of usury while they had been forbidden from it, and their consuming of the people’s wealth unjustly. And we have prepared for the disbelievers among them a painful punishment.” 4 Luke 6/​34 “And if ye lend to them of whom ye hope to receive, what thank have ye? for sinners also lend to sinners, to receive as much again.”

References Akalın, K. H. (2015). Orta çağ iktisat zihniyeti sınırlarında Martin Luther ve J. Calvin’in tefecilik yorumları. Çukurova Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 10(1),  1–​12. Akdiş, M. (2015). Faiz ve Faiz Teorileri. In O. Altay (Ed.), Para İktisadı:  Teori ve Politika (p. 85). Ankara: Palme Yayıncılık. Baron, S. W. (1958). A Social and Religious History of the Jews: High Middle Ages, 500–​1200 (Vol. 6). New York: Columbia University Press. Barzel, Y. (1992). The rise of fall of Jewish lending in the Middle Ages. The Journal of Law & Economics, 35(1),  1–​13. Botticini, M., & Eckstein, Z. (2001). A human capital interpretation of the economic history of the Jews. Paper presented at the annual meeting of the European Society for Population Economics, Athens, June, 1–​24. Ekin, Y. (2002). Dünyevileşmeye çözüm olarak infak anlayışı. Sakarya Üniversitesi İlahiyat Fakültesi Dergisi, 6(1), 77–​103.

8  Murat Ustaoğ l u el-​Diwani, T. (2011). Faiz Sorunu (M. Saraç, Trans.). İstanbul: İz Yayınclılık. Farsi, M. (2004). Türkçe Çeviri ve Açıklamalarıyla TORA ve AFTARA:  ŞEMOT İstanbul: Gözlem. Ferguson, N. (2008). Paranın Yükselişi –​ Dünyanın Finansal Tarihi. İstanbul: Yapı Kredi Yayınları. Hunt, E. S., & Murray, J. M. (1999). A History of Business in Medieval Europe, 1200–​1500. Cambridge: Cambridge University Press. Ildız, E. (2013). Eski Çağ’da Bankacılık ve Bankerlik. İstanbul:  Türkiye Bankalar Birliği. Kirschenbaum, A. (1985). Jewish and Christian Theories of Usury in the Middle Ages. The Jewish Quarterly Review, 75(3), 270–​289. Lipman, V. D., & Cesarani, D. (2006). England. In F. Skolnik and M. Berenbaum (Eds.), Encyclopedia Judaica (Vol. VI, pp. 410–​32). New York: Macmillan. Özsoy, İ. (1991). İslam İktisadında Faiz ve Ortaya Çıkan Problemler. (Doctorate). İstanbul: İstanbul Üniversitesi. Öztürk, N. (2005). İslam ve Türk Kültüründe Vakıflar. Vakıflar Dergisi, 29(1),  7–​20. Ruderman, D. (1995). Physico-​ Theology and Jewish Thought at the End of the Eighteenth Century:  Mordechai Schnaber Levisom and Some of His Contemporaries. New Haven: Yale University Press. Seyrek, İ., & Mızırak, Z. (2009). Faiz teorileri üzerine bir inceleme:  Finansal istikrarsizlik hipotezinin temel dayanaği. Selçuk Üniversitesi S.B.E. Dergisi, 22(1), 383–​394. Stow, K. R. (1981). Papal and royal attitudes toward Jewish lending in the thirteenth century. AJS Review, 6(1), 161–​184.

Chapter 2

Debt and interest in the early period of Judaism Murat Ustaoğ l u

Introduction Economist Alfred Marshall (1920) refers to two major institutions that determined the course of world history: economy and religion. The contribution of religions and their theological teachings upon the development of economic life is greater than many would think because despite secularized structure of the modern world, it is generally the religious scriptures that served as the source of inspiration for the main factors that generated the principles governing social life. Moral principles that contribute to the balance of social life are promoted by theological literature and clergy. Despite its contributions to society, religion also becomes subject to strong criticism. Tokarev (2006), a renowned scholar of the history of religions, refers to the Holy Scriptures of Judaism as instruments of exploitation. He even argues that the rich literature on the Bible,1 as a defender of the capitalist order and the feudality, is composed of the contributions by progressive forces and the agents of backwardness. In a similar fashion, German scholar Sombart (2005) argues that the dominant capitalist order in the global world has been generated mostly by the Jewish capital. He upholds that one of the sources that feeds the mental background of economy-​politics is the system of values attributable to the theological sources of Judaism which places utmost importance upon wealth and prosperity. Attali (2014) notes, referring to the holy narratives in Holy Scriptures, that man made an economic decision in his interaction with God by which he entered a world where nothing can be secured without hard labor. One of the areas where this venture is designed is economic life. The process of generating material wealth is also another area that constitutes the core of economic activities. For this reason, according to the theological teachings of the monotheist religions, God has repeatedly warned the people through prophets and apostles on the possibility of clashes and inequality. Such recommendations and principles have made religion one of the main elements that create the fundamentals of economic life. Thanks to the role and functions attributed to the clergy, religions have remained influential in

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this field throughout the history. From a historical perspective, Judaism is the first ring in the chain of religions. The material success in life is considered a religious achievement as well under Judaic theology (Akalın, 2016). For this reason, pious people place emphasis on material/​ monetary issues. According to Talmud, the first question a Jew will have to respond to after this life is whether he performed trade activities in a decent manner (Jafri & Margolis, 1999; Klein, 1995). An answer to this question will provide insights on how the individuals shape their afterlife but also serve as an indication for the role of material needs attributed to this life. Therefore, special emphasis is placed upon efforts to remove barriers before economic achievements in solidarity among fellow Jews. Such efforts primarily include monetary transactions often characterized as the core of the economic activities (Schiffman, 2010). This approach makes interest-​bearing debt a determinative element in a number of matters. Historical experience reveals that securing economic achievement is impossible without properly dealing with debt transactions or monetary issues. Aware of this fact, the Jewish community tends to specialize in financial matters. Because of their specialty and capabilities in these matters, the Jews have often been associated with usury and other similar practices in different societies (Foxman, 2010; Le Golf, 1988). Huge social problems associated with interest-​bearing debt practices up to recent centuries where modern economic thinking started to evolve were a reference point for calling interest an evil practice (Lewison, 1999). For this reason, theological bans have been frequently employed to deal with this problem that generated devastating impacts within the society (Abou-​ Zaid & Leonce, 2014). While this preference remains controversial, it is obviously one of the radical choices to address the core of the issue. The Old Testament, the oldest of the monotheist religion scriptures, contains a number of orders and prescriptions that promote charity and social solidarity and prohibit interest-​ bearing debt (Barzel, 1992; Lewison, 1999; Resnicoff, 1989). The moral and legal principles established in reference to these provisions have regulated the economic relations throughout centuries. To better grasp this order, it is necessary to define the notions of money and interest as they constitute the basis of these principles. For this reason, before covering the provisions and rules in theological sources on debts on interest, it is better to analyze the notions of money and interest in reference to the religious literature.

Importance of economic life and money in Holy Scriptures The persecution and dislocation of the Jews on a number of occasions in history has affected their economic decisions and behaviors.2 Most probably, for this reason, they have specialized in professions that make them mobilized rather than established parts of the society (Baron, 1958; Sombart, 2005).

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Their abilities in such professions have earned them fame and recognition in the societies they lived in. It is possible to argue that their economic success is attributable to the importance they attach to economic wealth in daily life (Don, 2000). According to Talmud scriptures, the Jews have lived in seclusion and in solidarity.3 For this reason, social solidarity among fellow Jews is strongly promoted. As a sign of this solidarity, a Jew prays not only for his own wellbeing but also for the prosperity of the entire Judaic community (Gürkan, 2013). With the decline of the feudal order in importance, the significance attributed to land also declines. The rise of money as an instrument of accumulating wealth changes the approach vis-​à-​vis interest-​bearing debt.4 Particularly through the end of the medieval era, those who focus on monetary transactions accumulate greater wealth. This adds a whole new dimension to the nature of interest-​bearing debt. One of the main elements that make it controversial is the long evolution period of the functions and qualities of money in modern time.5 Money has gone through a process of transformation, from coin to the form of a note, which is undoubtedly one of the most important inventions in the history of mankind. The optimal stage in the evolution process enables the identification of a conceptual framework for the historians of economics. Money over time gained a less vague form, with certain functions and features. To offer theological principles applicable to interest-​bearing debt now becomes much easier thanks to this advantage. However, there is still no theological agreement on the financial matters that concern the markets. Despite this, it is possible to argue that the religions which place emphasis upon moral principles rely on similar approaches to address this issue (Calder, 2016). Even Islam, the only religion that imposes the strictest norm of interest ban, features diverse views on interest-​bearing debt that lead to serious discussions (Glaser & Scheinkman, 1998). Achieving a concrete solution in the near future does not seem to be a possibility. On the other hand, it should be noted that compared to other monotheist religions, Judaism developed some pragmatic solutions. Before focusing on these solutions, it is necessary to examine the notion of money from the perspective of theological literature for a better understanding of the paradigmatic shift that made the Jews leaders of the world financial sector. New findings from archeological works in different parts of the world present new evidence on the historical evolution of money and thus update the literature of financial history. But findings from works in the Canaan area show that money was used in a primitive form among the Jews (Işık, 2006). The first mention of money, referred to as kessef in nearly 350 places in Holy Scriptures, is the narrative cited in the Book of Judges. It is a means of payment needed for the setup against Shimson, son of Manoah, born of a barren wife. However, it is generally agreed that this narrative, covering an incident that took place 500 years before the invention of money, suffers from an anachronism. Other examples include payment of 400 shekels by

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Abraham to Efron, the sale of Joseph by his brothers for 20 shekels and payment of 300 shekels by Joseph to buy his brother Binyamin (Rabinovich, 2010).6 According to the theological sources of Judaism, one of the phases in the evolution process of money is the use of precious gems in the exchange transactions by their weights. The unit of money in scriptures actually refers to a unit of weight. The shekel, used currently as the main currency in Israel, which literally means weighing in Yiddish and local Assyrian languages is in fact a unit of weight which refers to 11.5 grams. Over time, it transforms into a unit of exchange and is widely used in the economic activities in the entire Mediterranean region up to the time of Jesus. The first currency used in the Palestinian region is darik, which bears the image of Persian King Darius and refers to a weight of 8.5 grams. Additionally, concepts such as talant, gera, beka and mina in the scriptures which refer to unit of weights have been transformed into meanings referring to concept of money over the time. Gera, cited in the Old Testament as money, refers to 0.6 gram and serves as a subunit of a shekel; mina, cited in the same sources and widely used in Ancient Greece, refers to 757 grams; beka is 5–​6 grams; and a talant is 34.5 grams of weight (Işık, 2006). According to the Old Testament, these concepts mostly refer to unit of weight, whereas these concepts have gained additional functions in the New Testament to mean money. The concept of money in theological sources is also associated with human needs including demand, desire, love, passion and aspiration. Perhaps the most important aspect of money is its function as a peaceful instrument that ensures the satisfaction of these desires. It alleviates the possibility of conflict and activates the civil communication means. As long as these channels remain open, the likelihood for a conflict decline. Leshalem, which literally means payment in Yiddish, refers to the association between money and peace. The concept gives the impression that it is a combination of shlemut, which means integrity, and shalom, which means peace. Thus, it could be assumed that as long as money serves as a means of exchange, it will remain the most appropriate instrument to generate peaceful settlements (Attali, 2014). It is a practical solution that ensures the exchange of goods and services. Use of money reduces transaction costs of economic activities. It should be noted that the approach upheld by clerics focusing on the Judaic scriptures vis-​à-​vis the concept of money is visionary and innovative. Akalın (2016) stresses that Talmud scripts go beyond the general approach held at the time in dealing with the valuation of money. This method of valuation added a new dimension to interest-​bearing debt.

Interest-​b earing debt and etymological analysis Money is mostly needed in the realm of interest-​bearing debt. Monotheist religions often promote good deeds including charity and disallow the practice of loans on interest (Bleich, 2010; Domb, 2010). Interestingly, the Holy

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Scriptures of Judaism uphold a fairly clear and strict stance on this matter. Early-​ period scriptures even prohibit basic trade activities that generate profit (Akalın, 2016). However, everyday practices have created a different type of prohibition over the time. The interest ban has been redefined in a way to mean that it applies to transactions between fellow Jews, excluding transactions involving non-​Jews.7 Despite moral emphases in Holy Scriptures, interest remains a determinative element in debt (Lewison, 1999). The initial encounter between Jews and the interest takes place when they interact with the Babylonian, Assyrian and Egyptian civilizations which are deeply involved in the practice of usury. Due to close interactions, the Jews often have to deal with debt on interest (Işık, 2006). But it should be noted that this alone cannot be taken as the main basis of legitimization of interest in debt and that the feature and function of money also plays a huge role in this process. Talmud contains sections that give the impression that real interest calculations are analyzed. No clear distinction has been made between commodity monies in circulation that represent a certain value and the prices defined by the supply and demand equilibrium. In a way, this indicates mutual interaction between money and commodities. Monies used as means of exchange can also be used as commodities when necessary. Likewise, any goods have a certain monetary value and can be transformed into money when sold. Talmud scribers who realize this relationship note that every monetary unit has its own metallic value and inter-​currency ration as well as holding a purchasing power in terms of the goods it can buy at the market; this indicates that the relationship between money and commodity during the transaction is not detached. Unlike some views, money and commodities are integrated and generate a permanent interaction (Akalın, 2016). This approach takes the relationship between money and interest to different dimensions. For various reasons, it could be argued that the Jewish clerics have offered different views on the interest ban. The method that is frequently used features a pretty simple operation. First, the loans on interest are banned as sinful acts; then, mechanisms that effectively lift the ban are created; in doing so, new methods are developed to reinterpret the religious verdicts through financial contracts drafted by the clergy for those who are in need of debt. Next, the method is to develop theories that redraw the boundaries of interest-​bearing debt even though they undermine the credibility of the clergy. These innovative theories enable those who seek revenue out of interest-​bearing debt to create domains of legitimacy. In fact, it is not possible to argue that the interest ban has been effectively practiced in the history of Judaism (Calder, 2016; Çizakça, 1999). Whether legal and theological prohibitions have generated solutions remains controversial because, despite restrictions and prohibitions, people never give up on efforts to acquire the financing they need. Perhaps for this reason, the clerics have been unable to be persistent on moral principles spelled out in revelations.

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Because the concept of interest has gained different connotations throughout history, its meaning also varies by culture and beliefs. For this reason, before reaching an agreement on the concept, its etymological analysis should be made. In Hebrew, several concepts hold connotations referring to interest or interest-​bearing debt. The most popular of these concepts is nesheh, which literally means bite or snake bite, and neshiha, derived from the same concept (Ahmad, 1981). The concept suggests that just like human health is undermined by the bite of a poisonous snake, the practice of usury will undermine the social fabric and dynamics. The poison may not be acutely influential at the beginning, but as it spreads through the body, it may cause serious harms, including paralysis. The spread of interest-​bearing debt can be explained by this metaphor, and it may lead to serious problems in the society and harm the social and economic relations. Marbit/​tarbit, synonymous with nesheh, refers to revenue made out of interest-​bearing debt. Even though they have similar meanings, these concepts are two distinctive terms in practice. The collection of interest revenue beforehand refers to nesheh,8 whereas tarbit suggests that interest is added to the original amount of the loan. No extra payment is asked for up to the due date but when due date passes, interest is added to the original amount. From the perspective of biting metaphor, instead of multiple bites, one major bite takes place. In fact, the snake bite metaphor is brief summary of historical evolution of interest-​bearing debt. The harm that the practice of interest generates over social and economic life is similar to this; a small economic activity becomes widespread and contaminates the entire system causing major harms within the society. The inevitable consequence is the spread of injustice and inequality. To address this, rabbis who comment on the provisions on interest bans in the Torah do not hesitate to take measures by which all transactions generating revenue without labor are completely prohibited.9 The scope of the measures is expansive and details so that it covers social affairs. For instance, the lender is not allowed to make use of a property held by the debtor. The unnatural greeting of the debtor by the lender when they encounter is also condemned (Klein, 1995). Mishna contains similar provisions. For instance, gifts delivered beforehand to facilitate the debt or gifts delivered after the payment of the debt are considered to be interest (Dembitz & Jacobs, 1906). Clerics do not have a hard time in explaining and justifying these strict practices and commentaries in the eyes of the people because the gist of the provisions of Halakha Law on commercial matters is an interest ban. The notion of Halakha, which literally means path to travel, is also known as Hebrew Law, which is comprised of private and criminal legal rules of 613 orders and stipulations adopted from the Babylonian and Jerusalem Talmud. Even if the founders of contemporary Israel discussed the possibility of implementing Halakha in the legal system, they shelved the idea on the premise that the people may not favor it (Goodman, Goodman &

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Hofman, 2011; Salihoğlu, 2011).10 The sections on clear provisions contain precise statements on the moral and social aspects of interest-​bearing debt (Morris, 1988). In modern Hebrew, ribbit connotes interest. Despite its precise meaning, the notion causes serious confusion due to the different practices because of the historical baggage associated with the concept. High revenues made without hard labor makes the usury one of the most popular professions. Due to the high costs associated with this practice, political authorities take multidimensional measures to address the problems it caused. A  number of arguments have been offered to overcome these restrictions. The most popular of these include approaches seeking to make a distinction between interest and usury. Usury is generally defined as the practice of the loaners who charge a high interest rate. However, it is not easy to make a precise and universal definition of interest. Different connotations can be associated with this concept depending on different factors, including time, place, society, culture, legal system, political tendency, political system and economic circumstances. For this reason, instead of focusing on a simple technical definition, it is better to make a distinction by the nature of the transactions. The notion of ribbit holds a special place in religious texts. Based on its function, it is divided into four types: (i) ribbit deoraita, (ii) ribbit d’rabonon, (iii) mehze k’ribbit and (iv) ribbit dvarim. Ribbit deoraita, also known as ribbit ktzutza, is defined as a type of interest that is subject to a predefined theological ban. Two conditions have to be met for a debt transaction in order to be classified in this category:  the first condition, known as derekh halvah, is that the interest has to be identified as a prerequisite. Ribbit d’rabonon is referred to in scriptures as the dust of interest. It mainly includes elements in commercial transactions that are prohibited by rabbinic laws. Mehze k’ribbit means the image of interest, referring to a case where the slave or service of the debtor is taken hostage. Ribbit dvarim refers to provision of titles or privileged positions by the debtor to the lender in place of interest (Feldman, 2010; Shurin, 1980). The interest ban is based on several theological arguments in Judaism. First, in the Torah, the ban is addressed in the same section of the Shemita cycle.11 The fact that the concept is associated with this cycle which bears a notorious connotation in the Judaic faith. Some thinkers hold that the poverty caused by drought and scarcity in the lands of Israel may be taken as justification to forfeit the orders of God. In the end, drought is a huge disaster for people who make a living out of agriculture and farming. For this reason, people who are responsible for feeding their family members need to be assisted; in doing so, they should feel comfortable; thus, it is not fair to charge an additional amount of interest in case of lending loans to the people in need. Apparently, the issue of poverty holds a special place in prohibition of interest. Poverty, referred to by the Torah verse, “there shall be no poor

16  Murat Ustaoğ l u

amongst you,” is a problem that should be effectively fought.12 The methods of fighting usury include interest-​free loans to the poor, expecting nothing in return. Even those loans are subject to certain rules and provisions. For instance, when payment is due, in the case when a borrower faces financial problems or commercial difficulties, or suffers from serious health issues, a new payment plan is devised to restructure the whole payment process. Interest-​ free loans are considered charities from a religious perspective (Feldman, 2010). Holy Scriptures clearly require this as it is a collective responsibility for the entire society to look out the poor and the follow Jews (Şeker, 2014). Individuals are expected to act responsibly in order to address the issue of poverty. Loans provided unconditionally as part of this responsibility are called hesed (Feldman, 2010). Hesed refers to not only monetary assets but also arable lands or similar properties. Tsedakah, derived from the root notion tsadek, which literally means truth, is also another type of material aid reserved for the poor (Şeker, 2014).

Conclusion Considering that Judaism is the religion that places the greatest emphasis upon economic matters, it becomes easier to understand why economic matters are addressed in detail in its theological sources. Jewish communities had to deal with a number of issues in the societies where they lived throughout history, and they had to lead a nomadic life for a long time due to persecution, dislocations and injustices. Due to the hardships that they had to endure, the Jews became more interested in financial matters and similar professions rather than agricultural activities which depend on use of land. They used the revenues out of these practices in interest-​bearing debt transactions; as a result, they became specialized in such practices. For this reason, the Holy Scriptures often feature narratives on economic matters. Clerics have analyzed notions and concepts referred to in the Holy Scriptures in the context of connoting money, including shekel, talant, gera, beka, mina and darik. Given that these concepts are used to imply means of payment, it becomes clear that Judaism places emphasis upon the regulation of the monetary relations. There are several notions in Hebrew which literally mean interest or interest-​bearing debt. Nesheh, which literally means snake bite, is the most popular one. The common metaphor which stresses the negative impact of the notion upon social life refers to the deterioration of the general health of a body contaminated by snake bite. An insignificant snake bite does not generate much pain in the beginning, but as the poison spread through the body, the impact becomes graver leading to paralysis or even death. According to the metaphor, interest-​bearing debt also disrupt social harmony and economic system just like that. In a conceptual context, the word nesheh is synonymous to marbit/​tarbit which means revenues out of interest-​bearing

Interest in early period of Judaism  17

debt. The notions hold similar meanings but refer to different implementation in practice. In nesheh, the interest revenue is paid before the original amount of the debt. In a sense, the debt increases bite by bite. Tarbit is added to the original amount at the due date. Interest-​bearing debt strictly prohibited in the religious scriptures have become justified and common through the commentaries of the clerics. It should be noted that the clerics have developed fairly progressive and visionary approaches in interpreting interest-​bearing debt practices. Instead of focusing on interest-​bearing debt from one perspective, they relied on different points of view and dimensions. This approach adds a new dimension to interest-​bearing debt. In the end, it is divided into different types by their durations and features.

Notes 1 Bible refers to a huge collection that combines the narratives and scriptures of the Old Testament and New Testament. Old Testament consists of 39 books. See (Harman, 2013) The New Testament, not endorsed in the Judaic tradition, on the other hand, contains 27 books. 2 Before the fourth century, a large number of Jews were engaged in agricultural activities in the rural areas of Palestine, Babylonian and Egypt. But those who lived in urban areas were mainly traders and artisans. According to historical sources, their great economic leap took place in Babylonian lands where they made a shift from agriculture to trade and artisanship. The Babylonian Talmud contains many narratives and debates on artisanship and trade. 3 The Jews in Palestinian lands scribed some important sources including Jerusalem Talmud and Mishna. Talmud is a collection of oral narratives by Moses. (Stainsaltz, 1987) It consists of 63 books and is divided into Mishna and Gemara. Mishna refers to sayings of Moses and Gemara to commentaries by chief rabbis on Mishna. Mishna was completed in the early second century. The Jerusalem Talmud which contains commentaries on Mishna was compiled around the fourth century. A comprehensive text, the Talmud is a text featuring debates among different clerics. Along with the Old Testament, the Talmud assumes a guiding role on the principles of daily lives and philosophical debates (Brenner, 2003). 4 There is general agreement that Jews have strong inherent abilities on financial matters (Gerber, 1981). Europe, in general, gets stronger when the central kingdoms need funds for new conquests. Responding to this need, the Jews lend money to the states and enterprises (Karahöyük, 2013). This leads to growing need for financing and expansion of markets. However, the institutionalization of interest-​bearing debt was not easy due to some theological obstacles. 5 Concepts of social sciences have been coined by people. A number of definitions are offered for a concept during the process of its evolution. Some notions acquire different meanings and functions over the time. For this reason, it is proper to define a notion through functions and features. One such concept is money, which has been defined multiple times in the economics literature: (1) it has to be standard, (2) it has to enjoy general recognition and acceptance, (3) it should

18  Murat Ustaoğ l u be durable, (4) it should not be imitated easily, (5) it should not be divided easily, and (6) the cost for its transport should be low. Additionally, money fulfills four functions:  mode of payment, means of saving, instrument of economic policy and unit of value (Emiroğlu, Danışoğlu, & Berberoğlu, 2006). 6 Relevant verses: Genesis 23:14–​16, “Ephron answered Abraham, ‘Listen to me, my lord; the land is worth four hundred shekels of silver, but what is that between you and me? Bury your dead.’ Abraham agreed to Ephron’s terms and weighed out for him the price he had named in the hearing of the Hittites: four hundred shekels of silver, according to the weight current among the merchants”; Genesis 37:28, “So when the Midianite merchants came by, his brothers pulled Joseph up out of the cistern and sold him for twenty shekels of silver to the Ishmaelites, who took him to Egypt”; Genesis 42:25–​26, “Joseph gave orders to fill their bags with grain, to put each man’s silver back in his sack, and to give them provisions for their journey. After this was done for them, they loaded their grain on their donkeys and left”; Genesis 43:12, “Take double the amount of silver with you, for you must return the silver that was put back into the mouths of your sacks. Perhaps it was a mistake”; Genesis 44:1, “Now Joseph gave these instructions to the steward of his house: ‘Fill the men’s sacks with as much food as they can carry, and put each man’s silver in the mouth of his sack.’ ” 7 Abrahamic religions, in general, place emphasis upon the concept of brotherhood and fellowship. As such, members of the same religion are considered brothers. This approach manifests itself in the case of Judaism as a clear distinction between brothers and aliens, referring to those who are subscribers to the Judaic faith and those who are not, respectively. 8 For instance, it is stipulated that 10 grams of gold shall be repaid for each month of nonpayment of 1000 grams of gold; and this goes on until the debt is totally paid out. In a sense, the amount of debt increases “bite by bite.” 9 The scope of prohibition is expanded to cover future transactions as well. 10 For details, see Herzog (1948). 11 The shemita cycle refers to a period of drought and abundance that takes place in cycles (every seven years) in Judaism. 12 Relevant section: Deuteronomy 15:4–​5, “However, there need be no poor people among you, for in the land the Lord your God is giving you to possess as your inheritance, he will richly bless you, 5 if only you fully obey the Lord your God and are careful to follow all these commands I am giving you today.”

References Abou-​Zaid, A. S., & Leonce, T. (2014). Religious pluralism, yet a homogenous stance on interest rate:  The case of Judaism, Christianity, and Islam. Contemporary Economics, 8(2), 219–​228. Ahmad, S. M. (1981). Judaism and interest. Islamic Studies, 20(1),  47–​82. Akalın, K. H. (2016). Talmud’un para ve faiz açısından yorumu. Kafkas Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 13(1), 363–​395. Attali, J. (2014). Yahudiler, Dünya ve Para (B. Günen, Trans.). İstanbul: Kırmızı Kedi Yayınları. Baron, S. W. (1958). A Social and Religious History of the Jews: High Middle Ages, 500–​1200 (Vol. 6). New York: Columbia University Press.

Interest in early period of Judaism  19 Barzel, Y. (1992). The rise and fall of Jewish lending in the Middle Ages. The Journal of Law & Economics, 35(1),  1–​13. Bleich, J. D. (2010). Hetter iska, the permissible venture: A device to avoid the prohibition aganist interest-​bearing loans. In A. Levine (Ed.), The Oxford Handbook of Judaism and Economics (pp. 197–​224). Oxford: Oxford Univesity Press. Brenner, M. (2003). Zionism: A Brief History. Princeton: Markus Wiener Publishers. Calder, R. (2016). God’s technicians: Religious jurist and the usury ban in Judaism, Christianity, and Islam. European Journal of Sociology, 57(2), 207–​257. Çizakça, M. (1999). İslam Dünyasında ve Batı’da İş Ortaklıkları Tarihi (Ş. Layıkal, Trans.). İstanbul: Tarih Vakfı Yurt Yayınları. Dembitz, L. N., & Jacobs, J. (1906). Usury. In I. Singer (Ed.), The Jewish Encyclopedia (Vol. 12, pp. 388–​391). New York and London: Funk and Wagnall. Domb, Y. (2010). Ethical demands on creditors in Jewish tradition. In A. Levine (Ed.), The Oxford Handbook of Judaism and Economics (pp. 221–​ 240). London: Oxford University Press. Don, Y. (2000). Economics, Judaism and. In J. Neusner, A. J. Avery-​Peck, & W. S. Green (Eds.), The Encyclopaedia of Judaism (pp. 224–​240). Leiden: Brill. Emiroğlu, K., Danışoğlu, B., & Berberoğlu, B. (Eds.). (2006) Para. Ankara: Bili Sanat Yayınları. Feldman, D. Z. (2010). The Jewish Prohibition of Interest:  Themes, Scopes, and Contemporary Applications. In A. Levine (Ed.), The Oxford Handbook of Judaism and Economics (pp. 239–​254). Oxford: Oxford University Press. Foxman, A. H. (2010). Jews and Money: The Story of a Stereotype. New York: Palgrave Macmillan. Gerber, H. (1981). Jews and money lending in Ottoman Empire. The Jewish Quarterly Review, 72(2), 100–​118. Glaser, E., & Scheinkman, J. (1998). Neither a borrower nor a lender be: An economic analysis of interest restrictions and usury laws. The Journal of Law & Economics, 41(1),  1–​36. Goodman, N. R., Goodman, J. L., & Hofman, W. I. (2011). Autopsy:  Traditional Jewish laws and customs “Halacha.” The American Journal of Forensic Medicine and Pathology, 32, 300–​303. Gürkan, S. L. (2013). Yahudilik. In Türkiye Diyanet Vakfı İslam Ansiklopedisi (Vol. 43, pp. 187–​197). İstanbul: Türkiye Diyanet Vakfı. Harman, Ö. F. (2013). Yahudilik. In Türkiye Diyanet Vakfi islam Ansiklopedisi (Vol. 43, pp. 197–​207). İstanbul: Türkiye Diyanet Vakfı. Herzog, Y. (1948). On the Torah law in Israel. Torah and State, 7(8),  9–​12. Işık, H. (2006). Eski ve Yeni Ahit’te para ve faiz. Marife, 6(1),  51–​76. Jafri, S. H. A., & Margolis, L. S. (1999). The treatment of usury in the holy scriptures. Thunderbird International Business Review, 41(4/​5), 371–​379. Karahöyük, M. (2013). Din ve ekonomi ilişkisi. Felsefe ve Sosyal Bilimler Dergisi, 16(1), 193–​220. Klein, D. (1995). The Islamic and Jewish laws of usury:  A bridge to commercial growth and peace in the Middle East. Denver Journal of International Law and Policy, 23(3), 535–​554. Le Golf, J. (1988). Your Money or Your Life. New York: Zone Books. Lewison, M. (1999). Conflict of interest? The ethics of usury. Journal of Business Ethics, 22(1), 327–​339.

20  Murat Ustaoğ l u Marshall, A. (1920). Principles of Economics. London: Macmillan. Morris, R. A. (1988). Consumer debt and usury: A new rationale for usury. Peperdine Law Review, 15(1), 151–​179. Rabinovich, L. J. (2010). Coins and money in Jewish law literature: A basic introduction and selective survey. In A. Levine (Ed.), The Oxford Handbook of Judaism and Economics. Oxford: Oxford University Press. Resnicoff, S. H. (1989). A commercial conundrum: Does prudence permit the Jewish permissible venture. Seton Hall Law Review, 20, 78–​123. Salihoğlu, M. (2011). Yahudi hukukunda mamzer. Ekev Akademi Dergisi, 15(47), 269–​275. Schiffman, H. L. (2010). Talmudic monetary theory:  Currency in Rabbinic Halakhah. In A. Levine (Ed.), The Oxford Handbook of Judaism and Economics (Vol. Economics and Finance, Macroeconomics and Monetary Economics, pp. 605–​623). Oxford: Oxford University Press. Şeker, C. (2014). Yahudilikte sadaka. Marife, Winter(1), 83–​104. Shurin, J. (1980). Hetter Iska. A Journal of Orthodox Jewish Thought, 18(4), 357–​364. Sombart, W. (2005). Kapitalizm ve Yahudiler. İstanbul: İleri Yayınları. Stainsaltz, A. (1987). Introduction au Talmud. Paris: N. Hansson. Tokarev, S. A. (2006). Dünya Halklarının Dinler Tarihi (R. Aksungur, Trans.). İstanbul: Ozan Yayıncılık.

Chapter 3

Major theological arguments in Judaism on debt and interest Murat Ustaoğ l u

Introduction Considering the deep impact of religious beliefs upon individual lives, it is no surprise that religious matters become part of debates in subdisciplines of social sciences. Religion has constructed principles and rules in observation of the common good of the society in a number of fields relevant to social life prior to the enlightenment. However, to what extent these principles are adapted to real life practices remains a controversy. Norms promoting social solidarity and placing emphasis upon moral principles have met strong resistance in practice because they often contradicted with the interests and privileges of the leading figures of the society and of the ruling class. The main motivation of the political administration which placed little emphasis upon the needs and expectations of the society was to accumulate power by using the material sources and to consolidate this power. Such an attitude inevitably led to clashes between different layers of the society. Interestingly, religion has been one of the most influential means of controlling the society by reducing number of conflict areas. The social mechanism established by reliance on the ethical and moral arguments spelled out in primary teachings of religions has been detached from its original context by the clergy to meet the expectations of the political rulers. The clergy and political authority have almost never hesitated to abuse religious beliefs for their own interests. The moral principles of religion have thus become means of accumulating economic and political power and influence. Instead of offering solutions to the social problems, this power has become the problem itself. However, it should also be noted that one of the major sources cited to address the social issues that this state of economic and political imbalance and inequality is set of main teachings inspired by the moral principles of the monotheist religions. Religious scripts often contain rules and recommendations on economic transactions (Feldman, 2010). One of the major subjects these scripts has covered throughout the history is condemnation of usurers who assume lending money in return for large amount of interest as a profession (Domb,

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2010; Jafri & Margolis, 1999; Lewison, 1999; Lister, 1998). Those who have done this business were often condemned; this attitude, not limited to the theological literature, was also adopted in the leading cultural and artistic works of the time as well. Medieval literature covered this issue extensively. Usurers have been depicted as evil protagonists who were destined to ultimate damnation in a number of literary works including those by Shakespeare, Italian poet Dante Alighieri (2011) who, in his depiction of inferno, mentioned them as the one group of the inhabitants in the seventh layer. Interestingly, his own father was also a usurer (Le Golf, 1988). Dante who, in his famous work, strongly criticized and condemned the usurers in fact represented the overall approach of the society toward the practice of usury. The same approach has been also upheld by the religions which viewed it as an evil practice.

Major principles in theological sources on debt–​c redit relationship According to narrations in Torah, only a small portion of the sons of Israel were practicing usury before exodus from Egypt which, however, changed their perception of economic life dramatically. While they were mostly engaged in agricultural practices and farming, the sons of Israel developed interest in usury and trade, professions not dependent upon land property. This gradually changed the attitude in the scripts against interest (Laudman, 1948). Işık (2006) argues that the Judaic tradition has become associated with the practice of usury after encounter with the Babylonians, Assyrians and Egyptians (Neufeld, 1954). In these civilizations, interest-​bearing debt were pretty common in the economy; and the Jews were charged with high interest rates when they received loans. The clergy, taking this into consideration, revisited the interest-​bearing transactions. Revised views were offered on the prohibition of interest-​bearing debt with reference to a distinction between brothers and aliens/​foreigners for the sake of justice and fairness in economic relations. Lister (1998) reviews the approach upheld by the theological sources in the Judaic community in this era by making a threefold classification: justification of interest-​bearing debt transactions in certain cases, legitimization of large number of transactions that seem to be involving practice of interest and prohibition of many transactions that cannot be regarded as part of the category of interest. Every category has its own rationale based on technical details. Economic circumstances, social status, the legal structure as well as political situation all play role in this classification, making the whole debate even more complicated. For this reason, a certain type of transaction that was prohibited at a certain period of time may become legitimate some years later due to the changing circumstances. Before reviewing this process

Theological arguments in Judaism on debt  23

of transformation, it is useful to evaluate how theological sources handle this matter. Initial references to the issue of interest are found in the book of Nehemya (5.11).1 This section deals with the interest-​bearing debt in general, with special emphasis upon debt instruments similar to modern investment means, particularly bonds. Interest-​ bearing transactions were officially allowed in cases of economic problems that led to shortage of food. The stories narrated in the book offer details on such transactions. For instance, payments are made in monthly installments; additionally, interest is charged on precious metals such as silver, as well as wheat, wine and olive oil. The clergy held that such practices were inherently interest-​bearing. Neufeld (1954) draws attention to some nuances suggesting that there might be some discrepancies between translations of this section (particularly Greek and Arabic translations), adding that these nuances can be fixed when the text in Hebrew and the ancient translations are compared. He/​she further holds that terms that literally mean percentage in the Greek translation were offered by Hieronymus and his followers and that no such expressions referring to this meaning are found in other translations. Despite precise statements in Holy Scripts, the part on Solomon’s Proverbs of the apocryphal literature contains initial arguments justifying interest-​ bearing transactions (Ahmad, 1981).2 Vague expressions in the text suggest that a linkage was maintained between usury and poverty; but it is hard to say that there is a solid view on a precise ruling on this matter.3 The text gives the impression that profit in the form of interest is only allowed when the excessive amount is transferred to the poor; but it should be noted that this is a fairly optimistic comment. It is not easy to believe that usurers are benevolent enough to have mercy for the poor. It is also interesting to see that Talmud is often consulted to offer comments justifying interest-​ bearing transactions. There is visible difference between the attitude upheld by revelations such as Torah and commentaries such as Talmud that offer explanations and comments to understand these revelations (Domb, 2010). The original scripts prohibited practice of interest and promoted charity whereas sources like Talmud, open to human interpretation, offered arguments legitimizing it. Mishnah, the largest part of Talmud, asks a simple question to inquire into the problem: what is usury? Even though this is a simple question, the answer which lies in the details is fairly complicated (Dembitz & Jacobs, 1906). In general terms, the interest-​ bearing transactions are classified into two categories: consumption-​individual and production-​commercial.4 Except some special circumstances, interest is not allowed in transactions between fellow Jews. Additionally, the honor of the debtor is strictly preserved in these transactions. For instance, in case the creditor stays in the house of the debtor for free, this is considered interest and is not allowed.

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The same also applies to reduction in rent or provision of any useful information by the debtor to the creditor as a favor (Jafri & Margolis, 1999).5 The parties to such an agreement are even advised to watch the tone in time of greeting each other. On the other hand, the matter becomes complicated in the field of trade and economy because the dynamic nature of the trade relations often was taken as justification for violation of the prohibitions set by the clergy. It was not easy to offer simplistic solutions for the problem within the dynamism of the economic life. For instance, the sellers in the market frequently offered reductions in early payments whereas they tended to ask for higher price in case of long term payments (Shurin, 1980). Such frequent practices have led to new problems and questions on the time value of the means of payment and pricing, like, how the price difference resulting from the mode of payment should be interpreted or should the difference be reflected in the debts? If the answer is a yes, then this leads to many other questions including as to what constitutes difference between lease and interest. Additionally, the need for financing due to the price fluctuations made the usurers more demanding. As briefly noted before, the overall conviction on the interest-​ bearing debt suggests that use of this means of financing in the production activities carries greater benefits for the economy because little problems are experienced in the repayment of the debts in this field; however, use of financing in the consumption activities bears more harms because the consumers will have less resources for repayment of the loans (Calder, 2016). For this reason, Talmud does not justify interest-​bearing debt for consumption. A review of the texts focusing on the debt for consumption reveals the presence of an interesting practice and views surrounded by the intricacy of technical details. For instance, legally different meanings are attributed to even daily expressions spelled out when buying bread on debt. Normally, bread is an autonomous consumption article and it cannot be subjected to interest-​bearing debt. When the payment is due, the amount equal to the price of the bread in time of sale. However, if a request suggesting that the bread is being borrowed in time of buying is made, the due amount will be equal to the price of the time of payment (Sears, 1998). Taking note of these details, Akalın (2016) notes that Talmud considers the time value of the money and makes a distinction between the real and nominal interest on the price differences. Interest is not accrued for the needy and the brothers; the price differences in the debt relations with foreigners are taken into considerations. Despite some technical details, it is possible to argue that the Judaic scripts do not allow interest revenue out of debt transactions for the autonomous consumption between fellow Jews. However, in commercial transactions, a different practice is employed. There is an overall agreement that use of interest-​bearing financing for the production activities carries benefits for the economy. Particularly the development of production and commercial sectors attract the attention of

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money suppliers seeking to meet the growing need for financing. The usurers become more powerful through their revenues out of the interest-​bearing debt. Relying on different arguments, they further employ means of pressure upon the religious and political authorities (Calder, 2016). It is useful to take a look at the main arguments that justify the interest-​bearing debt.

Needy brothers and the law of brotherhood It is possible to argue that the theological sources seek to unite the Jews and create a culture of solidarity among them.6 In fact, this approach should be viewed as an attempt to meet a pressing need rather than an advice. Because they were mostly a minority, the Jews had no choice but acting united to address waves of persecution. Some accounts attribute their success in their respective societies to the existence of a culture of solidarity (Klein, 1995). On the other hand, some historians, referring to the history of the tight social bonds, argue that the Jews are the first community that can be regarded as a nation. The strong solidarity fostered by the cultural dynamics leads to a distinction between the Jews and the members of other religions. Parts of scripts suggesting that the sons of Israel are the favored race of god further reinforce this schism. Strong emphasis is placed upon maintenance of brotherhood among the Jews.7 Only Jews are considered fellow brothers and everybody else is alien/​foreigner. In the definition of brotherhood, various arguments have been offered. Neufeld (1955), relying on an approach similar to other Abrahamic religions, bases the boundaries of the conceptual framework on the theocratic fellowship associated with subscription to the same religion. On the other hand, Nelson (1969), adopting a different approach, refers to the kinship among the Israelites as basis of this fellowship.8 Further elaboration should be made on this distinction as it bears great importance in the interest-​bearing debt. The first three books of Torah present rules and norms on interest-​bearing debt, showing the importance attached to this issue.9 The verses contain lucid expressions on the prohibition of interest-​ bearing debt (Jafri & Margolis, 1999). Those who are involved in these types of transactions, particularly fellow Jews, are strongly condemned (Klein, 1995). While precise expressions are used in the initial verses focusing on brothers, no statement is made on the foreigners. The notion of foreigner which bears great importance as a means of distinction in the Judaic scripts literally means an individual who is a member of another nation or subject of another state. The notion further refers to a person who is unrecognized, unknown and not part of the same class or genre. The notion which carries a special meaning in the theological literature of Judaism covers everybody who is not part of the Judaic nation or does not recognize the Judaic religious rulings (Köylü, 2010).10 Particularly in economic issues, distinction between foreigner and neighbor is determinative. Subsequent sections and Talmud contain rulings

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keeping the foreigners out of the scope of prohibition of interest (Işık, 2006). The subject matter is extensively covered in Talmud in a way to include all relevant stakeholders. In addition to direct parts to the debt, those who have witnessed the transaction are also considered responsible for the sinful act. However, it is not possible to argue that all segments of the society approach the issue delicately. Like many other theological debates, this issue has been relevant to the attitude of the clergy. Their attitude has been determinative on the fate of the prohibition of interest. However, some oppose attitudes supporting the prohibition. Silver (1975) stresses that early period thinkers and clergymen, instead of seeking ways to bend the orthodox sanctions in an attempt to pave the way for economic development, have effectively blocked the areas of flexibility. He adds that the clergy failed to consider the economic realities. Calder (2016), on the other hand, argues that the interest ban, the backbone of the economic norms of three Abrahamic religions, has been revoked by the clergy. Because the Jewish and Christian clergymen failed to show resistance, the prohibition expressed in the theological scripts has been removed in practice.11 Law of brotherhood is not just about discourse and wishful thinking; it creates obligations for subscribers of the religion; rulings on economic affairs constitute a good segment of these responsibilities and obligations. The basis of these rulings refers to a principle that god holds control over welfare and prosperity. Affluence requires individual success and abilities; but in the end, it is generated by the will of the creator. Therefore, the emergence of a class of wealthy people is possible if god favors certain portion of the society. For this reason, the class of the wealthy is responsible to take care of the poor and the needy. It is only inevitable that there are poor people among the Jews as well (Göregen, 2013). The issue of poverty should be resolved without employing interest-​bearing transactions, referred to three times in Tanah as a crime against god. The poor will not be able to become prosper by reliance on the interest-​bearing debt. What is interesting to note is that only the fellow subscribers of the religion, rather than the entire community, are responsible. In generating law on economic matters, a distinction is made between brothers and foreigners in reference to Torah (Akalın, 2016). Fellow Jews hold priority; even though this seems to be indiscrimination, it is possible to offer justifications for this. For instance, the Jews who used to be engaged in farming in early periods paid 20–​25 percent of interest in repayment of their debts to the Babylonian bankers even though they were a minority. The Babylonians who mastered usury never lent interest-​ free money to the Jews (Birnbaum, 1979; Neufeld, 1954). Where Jewish farmers were required to pay a high amount of interest, the Jews should not be expected to lend interest-​free debts to the Babylonians (Jafri & Margolis, 1999). The clergy takes this into consideration and offers new interpretation by which interest-​bearing transactions are allowed when it covers the

Theological arguments in Judaism on debt  27

foreigners (Ahmad, 1981; Akalın, 2016).12 Principle of justice serves as the basis of justification in this approach. Two characteristics of the debt relations between brothers in the early period Judaic history that are affected by the economic circumstances appear to be important. First is to lend support for the social solidarity through charity that will be used to address the needs and poverty of the people in need. The wealthy Jews are obligated to financially and materially support the people in need, and they should expect their reward only from god. Second characteristics that promote interest-​free debt is the economic circumstances where the alternative cost of money is almost zero. Because there is little chance of using the saved money in other alternatives due to the economic conditions, in case when the needy is not supported, the money remains idle and useless (Don, 2000). However, it should be noted that this could be the case in relatively closed societies where foreign trade, capital accumulation and corporatization is not dominant features. Development of global trade changes the role of the money in economic activities. In this new era, money becomes a means of investment and revenue; as a result, the clergy offers new interpretations in line with these new circumstances.

Conclusion The prohibition of interest is generally based on several theological arguments. First argument recalls that the prohibition is addressed in Torah in the chapter where the Shemitah cycle is also addressed. This is considered important because the notion holds a notorious connotation in the Judaic faith. Some scholars argue that poverty created drought and scarcity in the year of Shemitah is a major reason for the failure of complying with the rulings of god. In the end, drought is a huge disaster for a society living on farming activities. For this reason, it will not be fair to force the poor to bear the consequences of interest-​bearing debt. It appears that the issue of poverty is one of the justifications for the prohibition of interest. Poverty is seen a major social problem that has to be dealt with. The first justification of the interest despite clear rulings in religious scripts is to be found in The Proverbs of Solomon, part of the apocryphal literature. The vague statements in the text give the impression that there is a correlation between usury and poverty; but it is hard to argue that a certain conclusion is drawn. Statements in the text makes one think that making revenue out of interest is only allowed when the poor is supported; but it should be noted that this is a fairly optimistic interpretation. It is interesting to see that Talmud is consulted to justify the interest; there is a clear difference between the approach upheld by Torah and Talmud which contains human interpretations and commentaries. Statements in Torah rigidly prohibits interest-​bearing transactions whereas Talmud adopts a more flexible approach that considers the change in time and the circumstances that

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apply to the Jews in their respective societies. Talmud seems to be preferring new interpretations relying on conceptual disagreements. A certain distinction is made between brothers and foreigners; this leads to justification of interest in case money is lent to foreigners. The wealthy people, on the other hand, are considered responsible to take care of the needy and the poor.

Notes 1 Nehemiah 5:11:  “Give back to them immediately their fields, vineyards, olive groves and houses, and also the interest you are charging them –​one percent of the money, grain, new wine and olive oil.” 2 Apocryphal literature can be briefly defined as follows: scripts not regarded as authoritative in theological studies because they are not considered product of inspiration by religious authorities even though being accepted as sacred before by way of being attributed to a divine source. For further details, see (Harman, 2013). 3 The expression in Solomon’s Proverbs 28:8 reads as follows: “Whoever increases wealth by taking interest or profit from the poor amasses it for another, who will be kind to the poor.” 4 This has been studied thoroughly later by the Christian thinkers who agreed on a similar classification. 5 But, interestingly, in sections where this subject is covered (B. Metz 5.1; 5.2; 5.5), an offer by the tenant to increase the rent in order to receive loan from the leaser is not considered usury. 6 Of course, these attempts cannot be isolated from the tragedies experienced throughout the history. 7 Other Abrahamic religions also employ similar principles and teachings. 8 Despite conceptual disagreement, Judaism does not allow interest-​bearing debt between who are considered as brothers (Shein, 2003). 9 Verses focusing on interest-​bearing debt: Exodus 22:25, “If you lend money to one of my people among you who is needy, do not treat it like a business deal; charge no interest”; Liviticus 25:35–​37, “If any of your fellow Israelites become poor and are unable to support themselves among you, help them as you would a foreigner and stranger, so they can continue to live among you. Do not take interest or any profit from them, but fear your God, so that they may continue to live among you. You must not lend them money at interest or sell them food at a profit”; Deuteronomy 23:20, “You may charge a foreigner interest, but not a fellow Israelite, so that the LORD your God may bless you in everything you put your hand to in the land you are entering to possess.” 10 To refer to the non-​Judaic nations, the Torah employs the term “ger” (protected foreigner or resident foreigner) and nokhri (foreigner). “Ger” is mostly preferred to express a guest status. The term is used to refer to the people who lived in the Palestinians lands before the arrival of the Jews and to the state of affairs of the Jews in Egypt (Köylü, 2010). 11 Only Islam, at least theoretically, sustains the prohibition of interest. However, because of lack of a clear definition of what is considered as interest in the Qur’an

Theological arguments in Judaism on debt  29 led to the emergence of various views on the subject, which will be covered in coming chapters. 12 At this point, it should be noted that some parts of the Holy Scriptures were transcribed in Babylon.

References Ahmad, S. M. (1981). Judaism and interest. Islamic Studies, 20(1),  47–​82. Akalın, K. H. (2016). Talmud’un para ve faiz açısından yorumu. Kafkas Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 13(1), 363–​395. Alighieri, D. (2011). İlahi Komedya (12. Baskı ed.). İstanbul: Oğlak Yayıncılık. Birnbaum, P. (1979). Usury. In P. Birnbaum (Ed.), Encyclopedia of Jewish Concepts (pp. 427–​428). New York: Hebrew Publishing Company. Calder, R. (2016). God’s technicians: Religious jurist and the usury ban in Judaism, Christianity, and Islam. European Journal of Sociology, 57(2), 207–​257. Dembitz, L. N., & Jacobs, J. (1906). Usury. In I. Singer (Ed.), The Jewish Encyclopedia (Vol. 12, pp. 388–​391). New York and London: Funk and Wagnall. Domb, Y. (2010). Ethical demands on creditors in Jewish tradition. In A. Levine (Ed.), The Oxford Handbook of Judaism and Economics (pp. 221–​ 240). London: Oxford University Press. Don, Y. (2000). Economics, Judaism and. In J. Neusner, A. J. Avery-​Peck, & W. S. Green (Eds.), The Encyclopaedia of Judaism (pp. 224–​240). Leiden: Brill. Feldman, D. Z. (2010). The Jewish Prohibition of Interest:  Themes, Scopes, and Contemporary Applications. In A. Levine (Ed.), The Oxford Handbook of Judaism and Economics (pp. 239–​254). Oxford: Oxford University Press. Göregen, M. (2013). Dinlerde dünyadan feragat etme (fakirlik) düşüncesi. Erzincan Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, VI(2), 371–​397. Harman, Ö. F. (2013). Yahudilik. In B. Topaloğlu (Ed.), Türkiye Diyanet Vakfi islam Ansiklopedisi (Vol. 43, pp. 197–​207). İstanbul: Türkiye Diyanet Vakfı. Işık, H. (2006). Eski ve Yeni Ahit’te para ve faiz. Marife, 6(1),  51–​76. Jafri, S. H. A., & Margolis, L. S. (1999). The treatment of usury in the holy scriptures. Thunderbird International Business Review, 41(4/​5), 371–​379. Klein, D. (1995). The Islamic and Jewish laws of usury:  A bridge to commercial growth and peace in the Middle East. Denver Journal of International Law and Policy, 23(3), 535–​554. Köylü, B. (2010). Tevrat’ta Yabancılarla ilgili İnançlar ve Kurallar (Master Yüksek Lisans). Kayseri: Erciyes Üniversitesi. Laudman, I. (1948). Finance. In I. Laudman (Ed.), The Universal Jewish Encyclopedia (Vol. IV, p. 289). New York: Universal Jewish Encyclopedia. Le Golf, J. (1988). Your Money or Your Life. New York: Zone Books. Lewison, M. (1999). Conflicts of interest? The ethics of usury. Journal of Business Ethics, 22(4), 327–​339. Lister, R. J. (1998). Business ethics:  A 3000-​year-​old orthodox perspective which impinges on contemporary business decisions. Accounting, Business & Financial History, 8(1),  1–​11. Nelson, B. (1969). The Idea of Usury:  From Tribal Brotherhood to Universal Otherhood (2nd ed.). Chicago: The University of Chicago Press.

30  Murat Ustaoğ l u Neufeld, E. (1954). The rate of interest and the text of Nehemiah 5.11. The Jewish Quarterly Review, 44(3), 194–​204. Neufeld, E. (1955). The prohibition against loans at interest in ancient Hebrew laws. Hebrew Union College Annual, 26(1), 355–​412. Schein, A. (2003). Of biblical interest, brotherhood and charity. International Journal of Social Economics, 30(7), 788–​797. Sears, D. (1998). Compassion for Humanity in the Jewish Tradition. Northvale, NJ: Jason Aronson. Shurin, J. (1980). Hetter Iska. A Journal of Orthodox Jewish Thought, 18(4), 357–​364. Silver, A. (1975). Prohibition against interest today. A Journal of Orthodox Jewish Thought, 15(3), 97–​109.

Chapter 4

Trade, finance and Jewish usurers in medieval Europe Akmyrat Amanov, Murat Ustaoğ l u and Elif Haykır Hobikoğ l u

Introduction The predominant monotheist and polytheist belief systems since ancient times in the Middle East did not bring a total ban on interest-​bearing debt. Things that could replace money and had an exchange value, such as seeds, oat, dates and animals, were used in debt. In ancient civilizations such as those of the Egyptians, Phoenicians, Sumerians and Hittites, there was no ban on interest-​bearing debt; however, it was not totally unregulated. Interest rates in these civilizations were closely monitored and regulated by public officials or the government (Johnson, 2009). On the other hand, the common opinion about interest started shifting as divine religions started spread through the area. Since early times, the Jewish community had always been at the frontier in terms of matters regarding money and debt. They had successfully executed occupations such as usurers and moneychangers for a long time. The role of religion in this is quite massive. The Babylon Talmud is among the first sources that contain information related to interest rates. Several advice and rules in it implying that economic matters were thoroughly investigated in the scripture (Brailean, Madalina, Sorina & Aurelian-​ Pterus, 2012). Considering the effects of these sources on the society, it is no surprise that the communities at hand were successful at economic occupations (Kirschenbaum, 1985). To this day, most of financial capital institutions are still under the control of the Jewish community. When comparing members of other belief systems and followers of social customs and Jews, there are a few striking differences. There is no other community that specialized at one occupation to the level that they have specialized in financial transactions. Then, it is imperative to investigate the underlying reasons that led to this end result. A quick overview of the literature seems to suggest that choosing financial transactions as the line of employment is mostly out of necessity. The main arguments that support this claim about financial employment and its relation to necessity can be summed up as (i) being excluded from occupational guilds, (ii) the fact that their land ownership rights have been limited

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or completely taken away, and, lastly, (iii) being forced to live in the ghettos. Roth, who is a defender of the mainstream arguments, claims that Jews who lived as a minority in medieval Europe, turned to usury out of necessity because of their limited land ownership rights and exclusion from certain lines of employment (C. Roth, 1940). Jewish minorities that could not own land and struggled to survive in a chosen geographical area tried to specialize in certain lines of employment to maintain their unity (Kuznets, 1972). Similarly, Brenner and Kiefer (1981), agrees with the claim that Jews turned to trade and usury because of the constant risk that they could lose all their property at any moment. However, some academics, claiming that historical findings do not support this argument, disagree with the mainstream opinion. As will be mentioned in later parts, those who share this opinion turning to usury is not out of necessity, but rather a conscious and informed preference due to its high revenue potential. However, when the conditions of the time are taken into consideration, there is certain features you have to possess to make revenue out of interest-​bearing debt. Rudimentary arithmetic skills to be able to calculate interest rates, and proficiency in legal institutions and contract law are prerequisites for making revenue out of interest-​bearing debt. People who know these areas, however, are very little in quantity. In this context, the higher literacy rate among Jewish people compared to other communities helps explain part of why Jews excel at financial occupations. Sombart, who approaches the phenomenon with a more theological explanation, claims that the roots of usury and trade are more so in the scripture (Sombart, 2017). He bases his claims on some of the implications in the scripture that wealth is a metric of how successful one is in God’s eyes. Attali (2017) claims the focus on financial transactions and usury to be the result of God’s commands. The value of education in the Jewish community is what caused this level of specialization. One of the commandments in the scripture demands people make use of land by expanding it. God has asked Abraham to become wealthy to be able to serve him. This has created a perception that everything that was done to gather wealth was permissible because one of the best ways of fighting with other communities’ persecution is hurting their financial prosperity. To test the validity of the aforementioned claims, it is necessary to look at historical findings. In terms of cultural productivity, Judaism most probably has the most culturally productive past among the divine religions. To try to deeply investigate such a history in one or two lines is impossible. Thus, the subject of this chapter, is limited to the medieval era where the most amount of useful data and information regarding interest-​bearing debt transactions is present. Undoubtedly, the conditions that the Jewish community lived in have drastically affected their perspectives on life (Le Goff, 1988). A closer look into this situation will reveal valuable information for an accurate evaluation of the mainstream arguments.

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Interest-​b earing debt in medieval Europe There is a historical anecdote about the relationship between the Jewish communities that mainly resided in Christian European civilizations and lived as minorities. The Christian theology which accuses Jews of being greedy materialists, takes the matter back to when Jesus lived. According to theological sources, Judas, who stood against Jesus when he commanded that Jewish moneychangers be taken out of the temple, betrayed Jesus for only 30 silver coins (Penslar, 2001). Interestingly, Christian theology manages to showcase the earliest Jewish-​Christian transactions. This trend has pretty much stayed the same and gotten any better until secular states in Europe emerged. The economic history of the Jewish people starts to take its latest shape with the last portion of the Roman empire’s existence. Jews who mainly took part in agriculture and farming before the dominant era of Christianity, first observed the concept of city and urbanization in areas where Islam was accepted. Immigration to urban areas is the first step toward nonagricultural occupations. While farming and agriculture became less and less popular, specialization in trade and certain artisanship began. At first, these occupations were mostly not profit-​seeking (Botticini & Eckstein, 2001). Education, immigration and specialization in new lines of employment were the milestones of Jewish economic history. The success in trade and business was unignorable, even though usury was the most striking. For example, the intense economic activity in Andalusian Spain brought a considerable amount of financial power to the community. The other Jewish groups initiated the emergence of a trade route by taking advantage of their coreligionists’ economic power. Toward the end of the tenth century, they even started to conduct slavery. The investments that were made in land, vineyards and mills with the revenue that came from trading slaves caused a serious backlash from the Christian world. Especially the mysticism belief system that came into being after the first Crusades triggered these kinds of reactions to turn into hate and played a major role in the repeated occurrences of massacres and exiles (Baer, 1992; O’Callaghan, 2013). England, France, Italy, Portugal and Germany repeatedly –​and with short breaks –​exiled Jews that were involved in slave trading (Elukin, 2007; Koyama, 2010). The executive forces of these countries allowed usurers to come back when a financial disturbance began to surface, which usually took about one or two years. While troubles in Europe were becoming graver for the Jews, it is possible to say that in areas where Islam was accepted, they lived under better conditions. As a natural result of this situation, they put more emphasis on trading activities that took place in Islamic areas and usually made themselves accepted among the merchants in Islamic cities. Among all financial occupations, they especially value usury which is an occupation where

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interest-​bearing debt transactions are the norm. During this time, the few already existing usurers mostly loaned money for a hypothec, especially, the advantages that being exempt from the interest ban on Christians were crucial. The increasing power of Jewish usurers against their Christian counterparts led to the spread of a contentious perception about interest-​ bearing debt. The gradually forming hatred in European communities as a result of this perception brought about a great deal of problems. Those that needed loans began to seek new ways of getting it and the number of people that took loans from Jewish usurers decrease dramatically. Jewish usurers, observing that the decreasing number of people that came to them made this choice out of despair, made the conditions for taking a loan even harsher. They began to act more like a salesman that was already wealthy. This attitude was closely related to the financial situation of their coreligionists’ in Islamic cities. Jewish usurers that resided in Islamic areas had enough money in store to satisfy their counterparts in Europe. European usurers who abused this situation way too much started to turn negotiation terms to their unfair advantage, especially considering the urgency of people’s needs. They began to make a habit of abusing their comfortable position and making credit expenses higher. The proliferation of these kinds of acts aggravated the already existing backlash from society. It became the illegitimate ground for many grave events. However, it should be mentioned that this reaction from the society gave the usurers a chance to continue their transactions in a hidden manner. This extra privacy could have provided some net profit in the end. The interesting thing is one of the biggest winners of this situation was the religious institutions of the medieval era that often took loans from Jewish usurers. Despite bringing high revenue and profit, it is difficult to say that the Jewish people’s success in financial matters brought peace to them. In European countries, Jewish usurers mostly encountered exiles, most of which ended tragically. Despite all of these tragic events, they did not quit usury which provided high revenue with very little effort (Pirenne, 2013). During early times in England, it was allowed for Jews to conduct usury under certain conditions. One of those conditions was the limitation that they could only conduct interest-​bearing debt transactions within their community. While it was allowed for Jews to conduct interest-​bearing credit with Christian communities, it was inappropriate for them to trade with them (Barzel, 1992; Koyama, 2010). The Jewish community that lived quite comfortably until Henry III began his reign in 1216, encountered some troubles when the new king removed protective policies. The king even brought certain financial limitations. The most important of which are tax regulations (Elman, 1937). C. Roth (1964) indicates that the tax rates for Jewish people were very high and nearly one-​seventh of public revenue came from their taxes. For that reason, executives became especially sensitive about tax-​ related matters. The executive forces did not take their mass conversion to Christianity light-​heartedly because the loss of a usurer license meant a

Trade, finance and Jewish usurers in Europe  35

great loss in tax revenue (Barzel, 1992). The problems were not limited to only tax obligations. Jews had been even more damaged financially with many additional obligatory payments. Usurers of the era gave loans on interest rates between 21.6 and 43.2 percent. It should be mentioned that these rates were not constant. There were some extreme cases where interest could climb up to between 60 and 87 percent. Interest rates in England were higher than it was in other European countries. Interest rates of the same era were between 23 and 37 percent in Italy, and about 20 percent in Spain. That the Jews have alternative economic sources does not always produce good results. The rulers are often tempted by this and thus tend to confiscate their assets. A new group of usurers in Europe exploits the negative stance vis-​à-​vis the Jewry in Britain. Italian bankers will then dominate the sector of interest-​bearing debt along the 13th century in Britain and cause some serious troubles for the Jews (Barzel, 1992). The emergence of these bankers alleviates the degree of dependence upon the Jews as usurers and allows the British kings to expand their portfolio of debt (Chazan, 2010). Italians have become the new point of attraction mostly because of some privileges attached to them, including the absence of a requirement for registration. Additionally, some records further show that they have no obligations with respect to paying taxes, which then creates a competitive advantage for them. Eventually, the emergence of Italian bankers reduces the degree of need for Jewish bankers and usurers (C. Roth, 1964). The British rulers further introduce measures that undermine the advantages of the Jewish usurers who then fall victim to poverty; in the end, they lose their political influence as well and are expelled from the country. Not everyone joins this view. For instance, Pirenne (2013) argues that the Jewish usurers are not as successful as the Italian bankers and underlines that the role of the Jews in financial matters in medieval Europe is hugely exaggerated. A similar trajectory is observed in France as well. A number of exodus incidents take place in France mostly due to usury and rise of nationalism. Schwarzfuchs (1967), however, argues that nationalism cannot be cited as a reason because, as a political and social movement, it emerges two centuries later, thus cannot be regarded as the basis of justification for the expulsion of the Jews from France. Instead, he pays attention to the monetary policies of the time. Many theoretical accounts suggest that incidents of exodus have taken place as a result of the money depreciation by 66 percent. Even though some argue that popular objection to the Jewish usury practices is the trigger of the process of expulsion, it is not possible to honor this argument (Chazan, 2010). According to Schwarzfuchs (1967), the real excuse is to confiscate the lands and the financial assets of the Jews. Hatred against the Jewry in the medieval age attracts the attention of the historians. One of the questions that the researchers are seeking and answer for is whether or not it is relevant to the high interest usury practices generally performed by the Jews. It should be noted that there are some works

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to test the assumption that interest-​bearing debt are the root cause of this hatred. One such study focuses on a review of complaints about usurers and debtors in Franconia province in the Roman empire. The findings in this study offer some interesting insights. The study results show that people from almost all segments of the society borrowed money from the Jewish usurers. But historians hold that the reason for hatred against the Jews should be associated with the upper class of the society which seeks ways to avoid paying the debts. The same also applies to the case in Britain. The barons who did not want to repay their debts to the Jewish usurers instigate the people against them by reference to religious arguments and initiate a pogrom. In the aftermath, they destroy the bills and bonds, showing their debts (Cohen, 2013).

Main arguments on the state of the Jewish usurers Why did the Jews choose trade and finance as the main line of making a living? To answer the question as to whether this is a choice or a necessity, it is necessary to review the arguments in the literature and the justifications provided for these arguments. In short, it is possible to argue that the literature accounts pay attention to the social and political positions of the Jews, the attitudes of the communities and the rulers in their respective countries, the different impacts of the social stereotypes, the teachings of the holy scriptures and the differences when compared to other religions as main basis of their approach vis-​à-​vis the questions cited earlier. Abrahams (1896) and C. Roth (1940) note that the Jews were subjected to some restrictions in their respective homes, and because of this, they had to stay away from professions related to agriculture and farming. Kuznets (1960) also joins this view, arguing that as a result of them being displaced from agricultural areas, they maintained commercial networks in urban areas and started to specialize in certain professions. Reich (1960), however, suggests that out of a deliberate choice, they just did not pay attention to agricultural professions in Europe and North America in the early twentieth century and rather showed interest in trade and finance in urban regions. Similarly, Botticini and Eckstein (2003) argue that the transition of the Jews from agricultural engagement to trade and finance took place in the eighth century, where there were no restrictions against them in Muslim lands or Western Europe. But Kuznets (1960) argues that before this transition, they lived in Roman and Persian territories as farmers and as a minority. Theory suggests that a society of farmers need to stay in agricultural engagement in order to preserve the group identity. However, despite their minority status, they did not perform farming which contradicts with the theoretical suggestions (Botticini & Eckstein, 2003). Similarly, Baron (1958) and Gil (1997) also argue that the assumption that the Jews were subjected to severe restrictions is not realistic. For instance,

Trade, finance and Jewish usurers in Europe  37

they were allowed to own land in the eighth and ninth centuries in Islamic territories. This means that there was no obstacle to farming activities as well. Another approach supporting this argument refers to the records that some of the rulers in Europe actually invited qualified them to their countries so that they would contribute to the development and improvement of the economy. In case they migrate to Europe, they would be allowed to own lands, perform trade activities and move freely. But despite these offers, they still continue to perform practices of usury mostly because of the high profits involved (Botticini & Eckstein, 2005). Another argument, proposed by Galassi (1992) and Lewison (1999), suggests that the Jews became prone to the practice of usury due to obligations generated by other religions. The argument elaborates further, stating that due to strict restrictions and prohibitions against the practice of usury in Islam and Christianity, Muslims and Christians in lands where these two religions were influential stayed indifferent to this profession. This allows the Jews to provide service in the field of interest-​bearing debt. But it should be noted that the argument in this theory suffers from a problem of anachronism. Attempting to seek an answer to the question as to how the Jews developed an interest in the practice of usury, the theory fails to offer a satisfactory assumption. It should be noted that the interest-​bearing debt transactions were banned in the 14th century in Christianity and that before that, the Jews were performing the practices of the usury. In other words, there was no restriction on the practice of usury by the Jews even before the prohibition of interest; thus, the argument falls short to explain why the they became involved in usury practices (Botticini & Eckstein, 2005). There are other views that attempt to explain the interest of the Jews in usury by referring to the political circumstances of the time. The Crusades in the medieval era are particularly cited as major political developments. In this period, where hatred against the Jews came to a peak, those who were discriminated against converted to Christianity to avoid persecution, but the Christians did not welcome these moves. The start of inquisition practices in Spain is the spread of these incidents among the public. The Jewish usurers, realizing the economic difficulties in Europe in the 12th century, attempt to overcome the tax obligations they are subjected to through bribing. For this purpose, they create a fund whose source of revenue is interest sums collected from Christians. Cohen (2013), building his theory on this argument, claims that to overcome their economic obligations and responsibilities, the Jews start to perform practices of usury. Abelard (1979) quotes a Jew speaking on how and why the Jews become involved in interest-​bearing debt. The Jew he cites basically argues that the only way of their survival is to lend loans on interest even if it means that it will attract the hatred of others. One other theory regarding the tendency to choose usury as the line of occupation is the fact Jews preferred to turn to manpower rather than

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immovable property because of the risk of confiscation. The endpoints of this tendency are lines of employment that prioritize manpower and economic trains of thought that glamourize usury. Manpower is usually valued more due to the risks that the Jewish society face and lines of occupation, including manpower, which meant that the capital could be mobilized, were preferred (Brenner & Kiefer, 1981). However, it is useful to note that this theory has some loopholes due to anachronism. When viewed regionally, the theory has some truth, but it is not generalizable to the whole Jewish community. The fact that they began usury in a period of time when they lived under good conditions in areas under Islamic rule during the ninth and tenth centuries contradicts the main theory (Botticini & Eckstein, 2005). Sombart’s claim that the Jewish community’s attachment to usury is related to holy commandments is important in the sense that it brings another perspective to the matter (Sombart, 2017). He stresses the existence of crucial information about accounting and trade and notes that they aim to be wealthier earn God’s appreciation and love. The belief that people that are loved by God are people who are successful in this world, is one of the main motivations of the religion because accumulating wealth and being prosperous are among the actions that glorify God. A community’s success cannot be reduced to the sole effect of religious motivations. One of the factors that can explain their worldly excellence is the fact they were spread to wide areas as a nomadic group. They managed to make use of the social and economic conditions of the lands they resided in. One other reason is the self-​lecturing that happened after they had been exiled many times due to one reason or the other. The reactions they developed to these happenings improved some of their skills and created a mission that turned crises into opportunities. This mission that directly affected their lifestyles led to them exploring new ways to circumvent the economic disadvantages of the environment they lived in. It is possible to say that they still maintain most of their skills to this day. Sombart even thinks they have greatly contributed to the development of capitalism (Sombart, 2017). It is an undeniable fact that they have provided greatly to modern day science and Protestantism. All these aside, they also played a major role in the expansionist and colonialist policies of the dominant European forces following the exploration of America. Marks of Jewish influence can be seen at every stage of expansionist and colonialist policies because these policies meant the creation of new opportunities for them. Their active and decisive position in the development of what will later be called the land of opportunity, America, supports these claims. Attali (2017), who has a similar claim to Sombart, also relates the Jewish prevalence in usury and trade to holy commandments. There is no doubt that the main source of motivation for worldly activities is the commands of God. The Holy Book, besides its religious content, reveal messages that are

Trade, finance and Jewish usurers in Europe  39

closely tied to economic matters. Expanding and making use of one’s lands is amongst the first commandments. Achieving this would obviously mean becoming wealthier. According to God, who asked Abraham the prophet to become wealthy to serve himself, the metric for wealth is the exchange tools of time, namely, animals, silver and gold. There are some principles that need to be followed in the search for wealth. The first of which is never to cheat or conduct interest-​bearing debt with coreligionists. Poverty and misery in the Jewish community was not to be allowed. The improvement of the poor is under the wealthy people’s responsibility. Taking into consideration contemporary conditions, these protective and moral principles are very ahead of their time. It is important to note, however, that they only apply to fellow Jews. When religious distinction is present, all social and moral obligations remove themselves and every way to wealth, including cheating and interest, becomes acceptable. These principles could somehow be understood when the tragic exiles, massacres, and most other persecutions are taken into consideration. It was believed one way to fight the persecutor was to damage their wealth and prosperity. When viewed from this angle, usury, which is greatly damaged the social stability and the source of most problems, could be thought of as a non-​violent method of retribution. Attali (2017) also underlines that the Jewish people were seen as nomads that built fortunes for themselves. This perception sometimes became a basis for protecting them and sometimes became a threat. Making an interesting remark, he claims that they were not as successful at usury as people thought of them and that they were involved in farming, trade and craftsmanship, and because of the limited revenue potentials of these occupations, they did not have incredible fortunes. The effort to scapegoat Jews for the occurrence of the Crusades suggests that the Jewish community developed a way of self-​defense. The ever-​increasing usury activities brought the Jewish community to the peak levels of their cultural and economic wealth. There is benefit in trying to investigate the less popular opinion that Jews had chosen usury for their own interests and according to their respective skills rather than falling into that line of occupation out of necessity or despair. It would be very enlightening in many ways to understand a community’s specialization in a line of occupation that is amongst the frontiers of economic development and could produce problems reaching much further beyond the scope of its own limits.

Conclusion The Jewish community has been known for its success and active involvement in the economic and financial affairs since the ancient times. They, thanks to their financial skills, have acquired huge economic power almost everywhere they lived, ranging from the deserts of Mesopotamia to the urban cities of Europe. Different circumstances dictated by some historical

40  Akmyrat Amanov et al.

incidents played a role in this historical success. The Jews have adopted a unique approach vis-​à-​vis the economic life due to the cases of forced migration or mass expulsion they had to endure. Because of the fear of expulsion and forced migration, therefore, they refrained from investing in established goods and properties and, instead, they paid much attention to trade and craftsmanship. As such, when they were forced to leave their homes, they were able to sustain their lives, relying on their trade or finance-​related aptitudes and skills. As a corollary, they were also able to perform finance-​ related professions with dramatic success, usury being a prime example. They used the surplus monies from trade activities in usury practices which often involved interest-​based lending. Interestingly, however, one major reason for this success should be associated with the religious factors that introduced prohibitive measures against the usury practices in the Judaic scripts. Interest-​based loans were condemned and referred to as an act of indecency in the theological sources, whereas, because of religious culture, the Jews have become extremely successful in similar professions. The Jewish community, mostly minorities in the society they lived in, paid utmost attention to fundamental education which enabled them to use finance-​related skills they acquired through education in the economic activities. Of course, this success cannot be solely attributed to basic education. One of the arguments that was raised by the researchers focusing on the history of Judaism suggests that the Jews had to profess in trade-​related activities and usury practices due to the economic circumstances. Particularly in Europe, the Jews were not allowed to have slaves, to buy large plantations or arable lands and to engage in extensive trade activities. However, some historians oppose this argument and instead suggest that the Jews deliberately practiced usury mostly because of its profitability. As proof, they further note that the Jews in Muslim lands and parts in Europe where they were not subjected to such restrictions still relied on usury-​related practices in an attempt to make use of the surplus funds and monies. Regardless of which approach better explains it, it is evident that the success of the Jewish community in financial affairs has been determined by historical circumstances.

References Abelard, P. (1979). A Dialogue of a Philosopher with a Jew, and a Christian. Toronto: Pontifical Institute of Mediaeval Studies. Abrahams, I. (1896). Jewish Life in the Middle Ages. London: Macmillan. Attali, J. (2017). Yahudiler, dünya ve para  –​Yahudi halkının ekonomik tarihi. İstanbul: Kırmızı Kedi Yayınevi. Baer, Y. (1992). A History of the Jews in Christian Spain (Vol. 2: From the Fourteenth Century to the Expulsion.). Philadelphia: Jewish Publication Society.

Trade, finance and Jewish usurers in Europe  41 Baron, S. W. (1958). A Social and Religious History of the Jews: High Middle Ages, 500–​1200 (Vol. 6). New York: Columbia University Press. Barzel, Y. (1992). Confiscation by the ruler: The rise and fall of Jewish lending in the Middle Ages. The Journal of Law and Economics, 35(1),  1–​13. Botticini, M., & Eckstein, Z. (2001). A human capital interpretation of the economic history of the Jews. Paper presented at the annual meeting of the European Society for Population Economics, Athens, June, 1–​24. Botticini, M., & Eckstein, Z. (2003). From farmers to merchants: a human capital interpretation of Jewish economic history. CEPR Discussion Paper, 3718,  1–​40. Botticini, M., & Eckstein, Z. (2005). Jewish occupational selection:  Education, restrictions or minorities? The Journal of Economic History, 65(4), 922–​948. Brailean, T., Madalina, C., Sorina, C., & Aurelian-​Pterus, P. (2012). The Jews, God and economics. European Journal of Science and Technology, 8(4), 107–​117. Brenner, R., & Kiefer, N. M. (1981). The economics of the diaspora: Discrimination and occupational structure. Economic Development and Cultural Change, 29(3), 517–​534. Chazan, R. (2010). Reassessing Jewish Life in Medieval Europe. Cambridge: Cambridge University Press. Cohen, M. R. (2013). Haç ve hilal altında –​ Ortaçağda Yahudiler. İstanbul: Köprü Kitapları. Elman, P. (1937). The economic causes of the expulsion of the Jews in 1290. The Economic History Review, 7(2), 145–​154. Elukin, J. (2007). Living Together Living Apart:  Rethinking Jewish-​ Christian Relations in the Middle Ages. Princeton: Princeton University Press. Galassi, F. L. (1992). Buying a passport to heaven:  usury, restitution, and the merchants of medieval Genoa. Religion, 22(4), 313–​326. Gil, M. (1997). A History of Palestine, 634–​ 1099. Cambridge:  Cambridge University Press. Johnson, P. P. (2009). A History of the Jews. London: Harper Perennial. Kirschenbaum, A. (1985). Jewish and Christian theories of usury in the Middle Ages. The Jewish Quarterly Review, 75(3), 270–​289. doi:10.2307/​1454076. Koyama, M. (2010). The political economy of expulsion: The regulation of Jewish moneylending in medieval England. Constitutional Political Economy, 21(1), 374–​406. Kuznets, S. (1960). Economic Structure and Life of the Jews. In L. Finkelstein (Ed.), The Jews:  Their History, Culture, and Religion (pp. 1597–​1666). Philadelphia: The Jewish Publication Society of America. Kuznets, S. (1972). Economic Structure of US Jewry: Recent Trends. Jerusalem: The Hebrew University of Jerusalem. Le Goff, J. (1988). Your Money Your Life. New York: Zone Books. Lewison, M. (1999). Conflicts of interest? The ethics of usury. Journal of Business Ethics, 22(4), 327–​339. O’Callaghan, J. F. (2013). A History of Medieval Spain. Ithaca, NY:  Cornell University Press. Penslar, D. (2001). Shylock’s Children:  Economics and Jewish Identity in Modern Europe. Los Angeles: Univerity of California. Pirenne, H. (2013). Ortaçağ Avrupa’sının Ekonomik ve Sosyal Tarihi (U. Kocabaşoğlu, Trans.). İstanbul: İletişim Yayınları.

42  Akmyrat Amanov et al. Reich, N. (1960). The economic structure of modern Jewry. In L. Finkelstein (Ed.), The Jews: Their History, Culture and Religion. Philadelphia: Jewish Publication Society of America. Roth, C. (1940). The Jewish Contribution to Civilization. London:  Harper & Brothers Publishers. Roth, C. (1964). A History of the Jews in England. Oxford: Clarendon Press. Schwarzfuchs, S. R. (1967). The expulsion of the Jews from France (1306). The Jewish Quarterly Review, 57, 482–​489. Sombart, W. (2017). The Jews and Modern Capitalism. London: Routledge.

Chapter 5

Basic education and usury in Jewish history Sena Yağ m ur Yıldız, Muhammet Sait Bozik and Murat İstekli

The Judaic community shall remain safe and immune to alien attacks as long as voices coalescing into one of the children who are trained for law at temples and education centers. (Talmud, Bavli)

Introduction The Jewish communities have become so masterful of usury practices in Europe that in medieval Europe, usury has been closely associated with Judaism (Muller, 2010). Some of the Judaic scriptures present a fairly negative view in respect to usury, noting that those who are engaged in interest-​ bearing debt have done something more terrible than selling their own kids as slaves. Interestingly, despite this firm stance in the scriptures, usury has been a widespread line of business among the Jews (Maloni, 1971). It is hard to argue that any other civilization can compete with them in terms of specialization in usury practices (R. Chazan, 2010). It is not that easy to do this particularly in the conservative environment of medieval Europe. Because they lived as minority, the expertise of the Jews in economic activities varied depending on the areas they lived in. Those who were in the Western areas were mostly engaged in interest-​bearing debt transactions like usury whereas those in the East were experts in trade and commerce as well. That the Jews who lived in Eastern parts of Europe practiced usury despite that there were no obstacles before their involvement in commercial activities led to some controversies. Some scholars are of the opinion that the they showed greater interest in professions associated with interest-​bearing debt transactions deliberately, rather than out of necessity (Leon, 1950). It is not particularly realistic to argue that the Jews in Muslim lands were completely banned from economic activities. Quite the contrary, there is evidence suggesting that they were encouraged to perform artisan professions. Contracts, letters and wills stored in the Cairo Geniza present strong evidence that Jews in Islam lands were recognized the rights to acquire real

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estates and that some of them actually owned vast lands (Gil, 1997).1 On the other hand, the arguments that certain restrictions were imposed upon trade activities to be performed by the Jews holds some accuracy. They experienced serious restrictions and obstacles in commercial and business life in Western Europe particularly until the 13th century (Pascali, 2016). In the aftermath of the 13th century, some of the obstacles and restrictions were removed; in 1360, the King of France allowed the employment of them in wine production facilities and their return from exile to their homeland where they would be able to perform professions on stockbreeding and agriculture. But despite these improvements, the Jews in Spain were accused of unjust wealth accumulation through heavy involvement in the practice of usury (Assis, 1996). The negative connotation associated with the perception of usury in historical sources also shows that the Jewish communities were able to perform this complicated profession for a long time. Given that it was not easy to practice usury; it is essential to analyze the reasons for the successful performance of this profession. From a historical perspective, Botticini and Eckstein (2011) attribute this success to three main arguments: i

That they are skilled in arithmetic calculations and contracting as a result of advanced training ii That based on the legal system provided by Talmud, a promoting and improving social network is created iii That those who live in Muslim lands conduct high-​profit businesses and that they use the accumulated capital for the interest-​bearing debt lending when they migrate to Europe These arguments are at the same time the minimum requirements for a successful administration of the interest-​bearing debt. Particularly the first argument refers to the significance of education and proves the importance of the sustainability of the interest-​bearing debt. In the performance of financial professions, talents to be acquired from different disciplines including law and arithmetic are needed, in the pre-​modern era, there are not many options to acquire these skills. Thanks to the importance they placed upon education in early ages, the Jewish communities have been successful in conducting professions that require intellectual abilities.

Importance attached to education in Jewish communities The Jews have placed great importance upon basic education so that their siblings have better understanding of the holy scriptures, this importance has eventually improved the quality of human capital. It is also possible to argue that they owe this vision to the fact that Judaism is the first link in the chain of monotheist religions. This is based on the belief that prophets,

Basic education and usury in Jewish history  45

the cornerstone of a monotheist religion, are individuals who serve as the perfect role model for the members of the society. A number of statements in theological sources confirm this approach (B. Chazan, Chazan & Jacobs, 2017). Prophets are considered the first and foremost link of the chains of educators. The next link includes clerics who transmit their teachings to the society. These are the initial steps toward generation of a broad and comprehensive culture. The internalization of this teaching offer benefits for the years to come. Even in the present modern economic circumstances, the education process provides the greatest cumulative contribution to the knowledge formation of the individuals and their decision-​making abilities. The contribution by the formal education to the nature and quality of human capital is somehow limited (C. U. Chiswick, 2005). This also applies to the circumstances in the medieval era as well. The accumulated intellectual portfolio provides significant advantages in the conduct of professions relevant to the interest-​bearing debt transactions including usury. Skills on the legal framework of contract-​ making and basic arithmetic knowledge needed for a successful performance of lending transactions are acquired this way. In most cases, the Jews who live in minorities are more educated compared to the local people (Botticini & Eckstein, 2005). According to Attali (2017), they have introduced the concept of basic education and modern society to the world. Owing to the importance that they attach to education, they are able to transform a number of economic initiatives into profitable endeavors. It would be unfair to compare the concept of education which significantly standardized the process of knowledge production to the norms that were applicable centuries ago. It should be noted that these concepts vary by the time and the place. Understanding education as transmission of technical knowledge by teachers to the students will lead to a narrow interpretation. As Dewey (1916) notes, particularly the mass education notion should not be viewed as a whole of fixed values and norms. Physical education, common experiences, lifestyles and other cultural values such as traditions, as well as a number of behavioral patterns generated within the natural habitat of these values are transmitted to the individuals; this is also part of the education process. That formal education was provided in religious institutions proves that the theological teaching in synagogues made enormous contribution to the institutionalization of basic education.2 Iannaccone (1990) and C.  U. Chiswick (1999) who analyzed the positive impact of knowledge, skills and experience upon religious activities in reference to the religious human capital concept oppose this view and argue that the investment in this field has no significant impact upon the establishment of sources or the total outcome in other fields. Investment in human capital is more influential in the conduct of religious rituals. The results of the quantitative works that analyze the modern societies confirm these arguments. But according to the findings

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of some empirical works, investment upon religious education have positive impact upon secular education as well (Lehrer & Chiswick, 1993). In the medieval era, clerics were the providers of basic education; they were also the main agents of spreading the elements of this education to different segments of the society. Some historians refer to this as an indirect contract between the clerics and the society. For instance, unlike Christian clerics, Tosafists, the clerics of the 12th and 14th centuries, view educating the kids as a mission and assume positions in the education institutions without asking for any material favor (Botticini & Eckstein, 2013). In recognition of this service, the society take measures to make sure that the clerics have a better life and introduce steps that facilitate the commercial activities of the clerics. The Jews take basic education as a crucial matter. Wirth (2019), describing education as one of the most important elements of the dynamic factors that keep civilizations alive and effective, notes that the survival of them despite many occasions of persecutions should be attributed to education. He attributes their ability to survive most ferocious atrocities and persecutions mostly because they were minority to their achievement in education. Of course, the main utility should not be limited to the removal of the existential threat. The intellectual accumulation acquired through education contributes a great deal to the acquisition of many other qualities in other fields as well. Particularly the acquisitions in economic matters are more obvious.3 It is necessary to analyze some of these opportunities that enabled them to gain respect within their societies and secure some advantages. The most important benefit of intellectual improvement and accumulation is its ability to facilitate connections with the rulers and to create a privileged status within the society. These connections are transformed into a material utility through a respected network of commercial activities and financing the financial gap of the state through interest-​bearing debt. In this way, huge amounts of profits are made in the field of commerce and finance. Owing to their awareness of the importance of the subject since early times, the Jews have made themselves very familiar with education (Botticini & Eckstein, 2003). They have realized the importance of the collective education very early, way earlier than other civilizations, and its contribution to the society in many fields; as a result, they made a cardinal principle out of education; this explains their huge success in the field of trade and finance. It should be noted that it was not an easy task to manage this process under the difficult conditions of the time. Even today, it is not easy to administer and manage the process of mass education. Despite all opportunities that the modern age provides, education is an area where most countries have trouble with. So it was even more problematic centuries ago. In ancient times, only a small portion of the society were able to receive basic education whereas the majority had to work in agricultural production. In 515–​200 bce, academies offering

Basic education and usury in Jewish history  47

higher education to train priests in a temple in Jerusalem were set up. But only a small portion of the society was admitted due to the limited capacity (Drazin, 1941). In the first century bce, Simeon ben Shetah opened a second institution offering education free of charge in Palestine to serve the general society. But before education, the students were required to be trained by their parents first. In years to come, high priest Joshua ben Gamla develops a fairly significant theological premise suggesting that teachers have to be appointed to every city and town and that boys at age six to seven should be admitted to the schools. This judgment is considered to be one of the most important decisions that determined the history of Jewish community. In the Second Temple period, several sects have made significant contributions to education reform. In particular, Farisis have gained reputation for the importance they attached to education. The high priests in Jerusalem, landowning aristocrats and rich merchants were members of Saduqi sect which adopted Hellenistic culture and viewed the written Torah as the legitimate scripture. The Farisis who were able to remain immune to the effects of Hellenistic culture place emphasis upon both the written text and the verbal version of Torah (Cohen, 2010). They introduced education reforms in an attempt to prevent the spread and popularization of Hellenistic culture and language. Owing to these reforms, they have evolved into the status of natural religious leaders. After deliberations upon the foundations of religion, they concluded that the foundation has to be education. Special efforts have been made to ensure that all Jewish boys and adults acquire the necessary intellectual level and capacity to recite Torah in the synagogues in Yiddish language (Baron, 1958). Departing from the premise that prayers are not sufficient to attract God’s love and that hard work is also necessary for this, efforts are made in the aftermath of Second Temple era for the institutionalization of education rather than religious rituals and ceremonies. The religious institutions where debates and brainstorming activities on religion, economy and social issues were performed serve in this period as academies, assemblies and courts for thinkers and philosophers. Theological verbal laws are also made in these institutions. In the second century, these compilations drafted by Judah ha-​Nassi are named Mishna. In this period, synagogues serve as centers of learning and reciting Torah. In the third and fifth centuries, greater efforts are spent for education. Three norms in Talmud in respect to education take attention (Safrai, 1987): i Collecting public tax for teachers of Torah and Mishna ii Both unmarried and childless persons need to pay the tax as well iii Teachers may be expelled from schools when they reject to comply with instructions of parents In the Babylonian era where a number of synagogues were built, these structures started to attain a special important. The Babylonian Talmud was

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completed in 500. Unlike the Palestinian Talmud, it contains more materialistic issues such as art, craftsmanship and trade and specifies more responsibilities for the parents on the education of the children. For instance, a father is responsible as the chief of the family to assume the expenses of his son or teach him a certain art or profession (Goitein, 1962). In this period, it is possible to argue that the majority of people under the leadership of clerics have received basic education (Botticini & Eckstein, 2005). Every parent is held responsible to prepare the boys for this process (Goitein, 1967). Responsibilities are not limited to the social dimension alone and involve material dimensions as well. For instance, a Jew who reside in a certain area for more than two months has to pay tax for the education of orphans and the poor in that area. In the years between 638 and 1170, almost all Jewish boys have received basic education. In medieval Europe, no significant change has been observed in the positive behaviors that have become a certain culture. The first phase of the basic education since childhood is called primary education which is pretty common among the Jewish societies in different parts of Europe. Proper methods appropriate for the conditions of every region are identified. For instance, there is no teacher appointed for education or building that will serve as a school for institutional education in France or Germany. But even the lack of such physical or material requirements and assets is not taken as an excuse to provide education service. In such cases, basic education is provided mostly by parents and teachers. R. Chazan (2010) notes that a good segment of the people living in the hinterland of France and Germany does not view the Jewish schools as a center of work or wisdom alone. He holds that the Jewish schools also offer great contributions to the society through institutional structures such as courts where legal order is designed and serve as the assurance of social order. It is even argued that the first advanced schooling system of France belongs to the Jews. Unlike other religions, special attention is paid to make sure that the bond between the kids and the parents remains strong. In the end, the weakening of the concept of family will have grave consequences for the entire society. The importance attached to social values also manifests itself in the education of poor kids as well. The rich people are held responsible for the education of the children in need. Particularly the parents who live in a certain area for a long time have to pay an exclusive tax to provide education for orphans and children in need (Botticini & Eckstein, 2007). Additionally, efforts are made to offer regional solutions for local problems. It should be noted that there are some sexist discriminations in schools which, however, can be understood given the circumstances of the time. Boys rather than girls are allowed to benefit from the education provided by religious groups. But despite some differences, it is possible to argue that the education boys and girls receive enjoy certain similarities. Girls are provided

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education at their homes without having to attend formal schools; their education is mostly focused on professional training.

Relationship between education and interest-​b earing  debt In the early ninth century, a number of Jewish merchants migrated to Western Europe for different reasons. At the end of the century, they started living mostly in metropolitan cities. The waves of migration also paved the way for commercial opportunities that raise the living standards. The intellectual accumulation acquired through basic education made it easier for the Jews to find jobs. This decreased the social costs of migration movements. On the other hand, it is estimated that in the period of 650–​900, three-​fourths of the entire Jewish population in the world lived in Iran and Mesopotamia. In the early tenth century, people living in these areas practiced such professions as craftsmanship, banking, medical service and teaching. Professional distinction changed the life perspective and the priority attached to values. Price, interest rate and exchange rates which were insignificant for farmers became important for those who lived in big cities because the importance of basic education is visible for the performance of professions such as trade and usury. The role of basic education in the provision of skills and talents that held great importance for success in commercial activities including product and service sale, process and purchase of raw material, contract drafting and knowledge on the markets. Lists of professional competence can be extended to include reading and drafting contracts in respect to finding the necessary financing and business partnership for craftsmen, merchants and usurers, ensuring communication through letters and assessing information on accounting, inventory, price list and exchange rate. In recognition that craftsmanship, trade and usury are profitable pursuits and professions and that basic education is needed to conduct these professions, Roy (1951) relies on a profession selection model to explain why Jews prefer these professions. In essence, the theory argues that the investments made in education can only be made up by performance of such profitable and attractive professions. People with those talents will not experience restrictions; for this reason, those who live in different parts of the world are encouraged to perform such professions. In the eighth and ninth centuries, urbanization has become widespread particularly because of the expansion of the Islamic empire; this raises demand for qualified labor which offers great opportunities for educated people. Owing to the intellectual qualities acquired through education, the Jews enjoy great advantages in these cities (Botticini & Eckstein, 2005). Given that literacy rate is pretty low in the medieval civilizations, it becomes evident that talents on keeping accounting books and writing a business letter as well as drafting a commercial or loaning contract are extremely

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important (Greif, 1989). Botticini and Eckstein (2005), inspired by the detailed structure of the education system in that time, note that the Jewish community acquire great advantages in the conduct of professions such as trade and usury. In a sense, they draw attention to the role of education in the acquisition of professional competence and further question the arguments in the literature that interest in the professions covering interest-​bearing debt is a compulsory preference because they are subject to restrictive economic sanctions. In addition, they argue that usury is in most cases is not a compulsory choice and that often times, it is picked voluntarily because of its profitability. Education improves the business capacity of not only the traders and usurers, but also of the craftsmen who are able to draft commercial contracts. Mishna and Talmud education which involves texts on all walks of life provide analytical thinking abilities as well. The education process keeps the communication channels of the society open and help them remain in contact with each other all the time. Additionally, it makes the migration less costly for a community that has been subjected to enforced displacement and massacres. Those who are engaged in remote trade have better education and human capital. One of the qualities of these traders is that they have advanced level of training and education that make them qualify to serve leaders of their community (Goitein, 1967). Urbanization became even more widespread in predominantly Muslim areas through the medieval era. New cities are built in a number of centers including Baghdad. The populations of some cities give insight to better understand the pace of progress. In 1170, nearly one million people lived in Baghdad whereas only 110,000 people resided in Paris. This data alone is sufficient to prove the speed of urbanization in Islamic lands. In this period, about two-​thirds of the Jews in the whole world lived in these cities where trade activities are intense (Lewis, 2002). The development of new cities and administrative centers increased demand for qualified labor which provide opportunities for them. In this way, the society, moving away from agricultural activities, became more engaged in craftsmanship and trade. The Jews who were free to pick any profession showed a greater interest in trade, goldsmith, ship construction and usury. Researchers are of the view that they were engaged in agricultural activities in early times whereas only a small portion of them remained in this industry after several centuries.

Conclusion From a historical perspective, the success of the Jews in conducting interest-​ bearing debt activities has been explained in reference to several arguments. These arguments are the main standards required to perform interest-​bearing debt transactions. Education appears to be the most important element in these arguments. Basic education is the most important minimum standard

Basic education and usury in Jewish history  51

needed to conduct interest-​bearing debt transactions. Interdisciplinary skills are needed in the performance of financial professions. The only mechanism that would generate these skills is basic education. Owing to the importance they attached to the reciting and the interpretation of the holy scriptures, the Jews have acquired a wealthy human capital. Adopting a planned education system, they have produced high quality outputs in a wide range of fields. This does not change by place, time or circumstances. Living in a minority, they have always been more educated and more qualified compared to the rest of the community. This made them acquire respected positions and privileged statuses in their societies. Some of them, however, misused these opportunities and attempted to secure additional advantages by reliance on this privilege and respect. The migrations of the Jews have turned into opportunities of commerce that elevated their life quality. The intellectual accumulation generated by interdisciplinary education facilitated their employment in the regions where they sought refuge. This minimized the dire consequences of the migration or cases of exodus for them. Education made contributions to the artisans who were able to draft trade contracts as well as the usurers. Given that literacy rate is pretty low in the medieval era, it became evident that ability to draft commercial contract, to keep books or write a commercial letter is a very important asset in business relations. As a whole, the Jewish community has been involved in practices of usury and interest-​bearing debt activities. Additionally, their specialization in finance and usury has always been visible; and for this reason, usury has been frequently associated with the notion of Judaism. That the Jews have been experts of financial issues can be cited as a reason for this sort of association. Despite problems encountered, they have been successful in their financial activities; and this success is even more significant given that the concept of usury usually holds a negative connotation.

Notes 1 According to travelers in the 18th century, the Jews were employed in predominantly Muslim lands as physicians, civil officers, merchants, artisans, glass mnufacturer, goldsmith and men of science. 2 The notions of synagogue and temple hold special place in the history of Judaism. In the first temple era, they function as the temple of a monotheist religion; in the second temple era, the prophets have become more influential over the religious rituals, as a result, the theological structure gained additional norms. Afterward, the temples started to assume political missions as well (Kurt, 2006). Subsequent to the demolition of second temple by the Roman empire, synagogues are built as a replacement. There are other theories arguing that he history of synagogues can be traced back to earlier times. Even though some of these theories have weak arguments, many argue that the synagogues perform major functions including performance of rituals and convention of the mass (Hachlili, 1997).

52  Sena Yag˘ mur Yıldız et al. The temple in downtown Jerusalem is located in the area where the Jews perform pilgrimage. Synagogues offer service for the Jews to perform and practice their rituals in masses; for this reason, number of synagogues has increased significantly. The synagogues have particularly become a sanctuary for the Jews who were prosecuted in the medieval era. For this reason, they have become an important and integral part of social life. For instance, the Jewish employers who were aware of this since the beginning 3 paid attention to the literacy of the employees even at times when there was no systematic education (Kanarfogel, 1992).

References Assis, Y. T. (1996). Jewish Economy in the Medieval Crown of Aragon, 1213–​ 1327: Money and Power. Leiden: Brill Series. Attali, J. (2017). Yahudiler, dünya ve para  –​Yahudi halkının ekonomik tarihi. İstanbul: Kırmızı Kedi Yayınevi. Baron, S. W. (1958). A Social and Religious History of the Jews: High Middle Ages, 500–​1200 (Vol. 6). New York: Columbia University Press. Botticini, M., & Eckstein, Z. (2003). From farmers to merchants: A human capital interpretation of Jewish economic history. CEPR Discussion Paper, 3718,  1–​40. Botticini, M., & Eckstein, Z. (2005). Jewish occupational selection:  Education, restrictions or minorities? The Journal of Economic History, 65(4), 922–​948. Botticini, M., & Eckstein, Z. (2007). A human capital interpretation of Jewish economic history. The European Economic Association, 5, 885–​926. Botticini, M., & Eckstein, Z. (2011). Religious norms, human capital, and money lending in Jewish European history. In R. M. McCleary (Ed.), The Oxford Handbook of the Economics of Religion (pp. 57–​ 80). New  York:  Oxford University Press. Botticini, M., & Eckstein, Z. (2013). The Chosen Few:  How Education Shaped Jewish History, 70–​1492. Princeton: Princeton University Press. Chazan, B., Chazan, R., & Jacobs, B. M. (2017). Cultures and Context of Jewish Education. New York: Palgrave Macmillan. Chazan, R. (2010). Reassessing Jewish Life in Medieval Europe. Cambridge: Cambridge University Press. Chiswick, C. U. (1999). The economics of Jewish continuity. Contemporary Jewry, 20(1),  30–​56. Chiswick, C. U. (2005). An Economic Perspective on Religious Education: Complements and Substitutes in a Human Capital Portfolio. IZA Discussion Papers, No. 1456, Institute for the Study of Labor (IZA), Bonn. Cohen, G. D. (2010). Rabbinic Judaism. In Encyclopædia Britannica: Encyclopædia Britannica, inc. Dewey, J. (1916). Democracy and Education. New York: Macmillan. Drazin, N. (1941). History of Jewish Education from 515 BCE to 220 CE (Vol. 29). Baltimore: Johns Hopkins University Press. Gil, M. (1997). A History of Palestine, 634–​ 1099. Cambridge:  Cambridge University Press. Goitein, S. D. (1962). Ben-​Zvi Institute (Vol. 27). Jerusalem: The Hebrew University.

Basic education and usury in Jewish history  53 Goitein, S. D. (1967). A Mediterranean Society:  The Jewish Communities of the Arab World as Portrayed in the Documents of the Cairo Geniza (Vol. 6). Berkeley: University of California Press. Greif, A. (1989). Reputation and coalitions in medieval trade:  Evidence on the Maghribi traders. The Journal of Economic History, 49(4), 857–​882. Hachlili, R. (1997). The origin of the synagogue:  A re-​assessment Journal for the Study of Judaism in the Persian, Hellenistic, and Roman Period, 28(1),  34–​47. Iannaccone, L. R. (1990). Religious practice: A human capital approach. Journal for the Scientific Study of Religion, 29(3), 297–​314. Kanarfogel, E. (1992). Jewish Education and Society in the High Middle Ages. Detroit: Wayne State University Press, 15–​99. Kurt, A. O. (2006). İkinci mabed dönemi Yahudiliğine genel bir bakış. C.Ü. İlahiyat Fakültesi Dergisi, X(2), 437–​454. Lehrer, E. L., & Chiswick, C. U. (1993). Religion as a determinant of marital stability. Demography, 30(3), 385–​404. Leon, A. (1950). The Jewish Question:  A Marxist Interpretation. Mexico City: Ediciones Pioneras. Lewis, B. (2002). Arabs in History. Oxford: Oxford University Press. Maloni, R. P. (1971). Usury in Greek, Roman and Rabbinic thought. Traditio, 27(1), 79–​109. Muller, J. Z. (2010). Capitalism and the Jews. Princeton: Princeton University Press. Pascali, L. (2016). Banks and development:  Jewish communities in the Italian Renaissance and current economic performance. Review of Economics and Statistics, 98(1), 140–​158. Roy, A. D. (1951). Some thoughts on the distribution of earnings. Oxford Economic Papers, 3(2), 135–​146. Safrai, Z. (Ed.) (1987). Financing Synagogue Construction in the Period of the Mishna and the Talmud (Vols. IV–​V). Jerusalem: Hebrew. Wirth, L. (2019). Education for survival: The Jews. American Journal of Sociology, 48(6), 682–​691.

Chapter 6

Debates on the notion of usury in St. Thomas Aquinas’ thought Abdüsselam Sağ ı n

Introduction Thomas Aquinas is one of the great names in the history of Christian thought, who ended the era of intellectual drought after the collapse of the western Roman empire (476).1 He is credited for ending what Schumpeter (2006) calls “Great Gap,” referring to the period of intellectual inefficiency that lasted for eight centuries. It should be noted, however, that there are objections to this critical analysis Schumpeter makes with respect to the medieval era. Some argue that this attitude, which ignores the intellectual debates and vibrancy in that period, is controversial. But they still admit that it is at least a period of intellectual stagnation in terms of the intellectual evolution of Christianity (Roll, 1947). St. Thomas Aquinas’ Summa Theologica where he elaborates on this discussion is one of the seminal works that end the intellectual stagnation of the Western Christian world. It is often argued that the intellectual evolution in Christian world started when the Latin translations of works by some leading Muslim thinkers and philosophers including Ghazali, Avicenna, Ibn Rushd and Fahr al-​Din Razi reached the West and when Aristoteles’ works on morality and politics were translated into Western languages. Some compare these efforts to scientific Renaissance that adds dynamism to Christianity. In fact, this process can be traced back to developments in the Muslim world in the ninth century. Special emphasis was placed upon scholarly efforts in the Abbasid era, when leading works of philosophy and natural sciences were translated into Arabic language. In this way, the Muslim world was able to benefit from the fundamental works and accounts of the Western thinkers and philosophers. Some even argue that the translated works have a profound impact upon the Muslim world that Westerners who observed this impact were pretty impressed and as a result, they become unbiased vis-​à-​vis works produced by Muslim thinkers (Margoliouth, 1914; Ülken, 1961). This process led in the Western world to greater scholarly production. St. Thomas Aquinas was born as a child of a noble and aristocratic family which invested much in his intellectual development and improvement. Subsequent to training in different fields including science, history and

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philosophy, he joined the Dominican Order and took courses from Albertus Magnus, who was impressed by views of Aristoteles. Magnus was, most probably, the lead person to influence the intellectual evolution. The dominant philosophical tendency in the Christian world shifts from Plato to Aristoteles through St. Thomas Aquinas’s contributions (Langholm, 2009). He wrote a number of books, pamphlets, treatises and articles in different fields including theology, religion, politics, morality and economy, and he also gave his views on interest-​bearing debt.

St. Thomas Aquinas’ economic views In the Christian world, patristic views including those of Augustin have dominated the intellectual environment up to the medieval era.2 The scholastic period which follows the patristic period influences the Christian world and its theology up to the 16th century. However, most of these views are replaced by the views of St. Thomas Aquinas starting from the 13th century (Taylan, 1991). Aquinas is the lead name in the scholastic period. Philosophers who divide this period into several sub-​eras consider Aquinas to be at the peak of this time. Influenced by Aristoteles, he synthesized philosophy and theology, intellect and faith and the Christian thought and the priorities of the modern era (Cevizci, 1999). St. Thomas Aquinas’ views on economic matters and issues show the influence of Aristoteles and Christian theology. In his works, he makes frequent references to Aristoteles as “the philosopher.” In general, he considers the notions of money and trade as the main arguments of economic life, but discourages extreme interest in money because it holds a potential of disrupting the bond between the individual and God (İskenderoğlu, 2005). He views desire of making money and accumulating wealth as a moral issue because such a desire could become source of evil (Doğruyol & Kıvanç, 2014). Therefore, desire for wealth is a disaster for human beings and it is wise to address the negative impacts of such sentiments. Aquinas notes that the sustenance of material being depends on fulfilment of certain needs for a human being; but these needs are instruments because when a person accumulates wealth, his sentiments such as fidelity and love for God as well as other divine features may be negatively affected (Langholm, 2009). It is easier for the poor to get caught by the temptation of wealth; on the other hand, Aquinas is aware that it is not possible to perform religious rituals in an environment of poverty which is good as long as it liberates man and protects him from immoral acts associated with wealth. For this reason, he does not agree with extreme views that the poorer a person becomes, the perfect level of humanity he achieves. He even argues that poverty might be a disaster if it deprives man of performing potential good deeds such as giving charity (Aquinas, 1948a). It should be noted that his message on the relationship established with money and wealth is directed against

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the priests who exaggerated the notion of extreme poverty and who live on charities and donations made to the church. In other words, he does not approve the lifestyle by which the priests lead a mystic life and rely on donations from the public for a living. His warnings on desire for wealth are for ordinary people. Aquinas believes that material wealth has no significant meaning as there is another life after the one on this earth. In short, it becomes clear from his writings that he addresses the issue of wealth and accumulation of money from the perspective of relationship between man and God. Thus, if material wealth takes man closer to God, it is good; otherwise, it is undesired. In his views on wealth accumulation, Aquinas also addresses the issue of inaction and laziness. He places emphasis upon the significance of being industrious and hardworking and notes that a person must be alert toward whoever begs instead of working. However, he further suggests that those who are unable to work due to certain barriers and absence of proper jobs should be able to have access to a certain amount for a decent living. In labor markets, he particularly stresses that the salaries of the workers should be paid in time (Aquinas, 1948b). His views on economic issues and matters are based on principles of equality, justice and morality, Aquinas pays utmost attention to these three concepts. His views on morality in regard to the economic issues are not distinct from the primary teachings of Christianity. For instance, any surplus affixed to the sale price by the seller in a transaction is considered a violation of justice and equality. The same also applies to labor markets. Excessive work of a laborer bears problems in two respects: it reduces the purchasing power of the money the worker makes, and it breaches the notion of justice. Aquinas (1948b) defines the price determined on the basis of justice and morality as fair price. But this definition does not refer to anything specific or precise. His approach towards vague price determination is criticized for not being objective (Bentmann & Lickes, 1979).

Medieval era Christianity and notion of interest It is possible to argue that views raised by Plato and Aristoteles on money that money cannot generate more money are valid in medieval Europe. However, the idea that money is an instrument of exchange is also widespread (Piketty, 2014). Galbraith (2004) formulated this approach and defined interest as a type of undesired revenue that wealthy people make out of people who could be considered unlucky in monetary terms. This negative depiction that is also prevalent in the established perspective leads to the prohibition of interest and usury in the entire German Empire in the eighth century. Likewise, the Lateran Council also clearly defends the prohibition of interest in its memorandums in the 12th century (Savaş, 2007). Similar views are subsequently upheld by the church and councils as well.

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The people extend huge support to the interest ban because tax rates are very high in Europe and production efficiency is poor. However, because the Christianization of Europe was not yet complete, the interest ban does not exhibit uniform impact all over the continent. Because the church’s arguments in support of the interest ban remain relatively weak, interest-​ bearing debt became popular and widespread. Eventually, facing pressures from the economic actors, the church has to make compromises on the interest ban (Eskicioğlu, 1999). Up to the 16th century when commercial capitalism starts to evolve, the churches adopt a pretty strict position in terms of prohibiting interest-​ bearing debt transactions; however, the churches in the Eastern part of Europe prefer a more lenient approach (Birdal, 2011). The course of economic developments obviously affects the church’s approach on this matter. Particularly in the aftermath of the emergence of mercantilism in the Western world, prohibitionist views start to lose impact due to the growing demand for financial capital. The revenue generated by capitalist trade also increases the amount of risked capital which therefore increase the cost of capital. This naturally leads to emergence of diverse thoughts on the interest ban. As a result of this, Luther and Calvin developed innovative ideas that the interest-​bearing debt should be assessed within their own context; over the time, such views that defy the stance of the Catholic church become widespread and popular.

St. Thomas Aquinas’ approach vis-​à -​v is the notion of interest St. Thomas Aquinas’ views on interest are under the influence of Greek philosophy and Christian faith because being a theologian, he is particularly impressed by Greek philosophy and Aristoteles. In his works, he makes references to description of money and its functions raised by Aristoteles as well as his classifications. He generally agrees with Aristoteles who views money as an instrument of exchange and unit of assessment. But unlike Aristoteles, he is of the view that the value of money may depend on market conditions and that its purchasing power might be in fluctuation (Roll, 1947). According to him, as an instrument of exchange in consumption, money is not a commodity of consumption (Braun, 1994). For this reason, it is compulsory to transfer the property and ownership of the goods and commodities in transactions where money is used. In other words, in goods whose utility disappears after consumption, no additional price can be claimed for its use because its property has been transferred in a transaction or deal. Otherwise, such a claim violates the principle of justice and equality to which Aristoteles makes frequent references. In his seminal work, Politics, Aristoteles refers to usury as something that should be despised because the revenue made out of loans on interest is

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against the nature of money which serves as an instrument of exchange (Akalın, 2013; Aristo, 2002). For this reason, money should not be utilized in a way to disrupt social harmony. Christian theology prohibits interest regarded as an evil source of income. Like other Abrahamic religions, Christianity also promotes charity and other similar virtuous deeds. In his sermons delivered on the mountains, Jesus places emphasis upon unconditional giving; as such, Christianity expands the scope of interest ban to include the entire humanity. St. Thomas Aquinas addresses the issue of interest and the interest ban in four articles incorporated in his theology collection. The first of these four articles seeks an answer to the question as to whether taking interest on loans is a sinful act. He explains his views by responding to seven objections on this matter.3 He, responding to the question in the article on what the men should proliferate in the world, notes that any addition to material wealth is not of our best interest because men have a spiritual aspect. This approach offers insights on what to focus in an individual and social life. He holds that people should improve their spiritual features and characteristics and should not focus on material wealth. In respect to the second objection, he offers a general perspective on the Christianity’s approach towards the interest with reference to the Judaic approach suggesting that taking interest from fellow Jews is not allowed. He expands the scope of the Judaic perspective. According to Aquinas, Christians are neighbors to all and the ties and bonds of brotherhood or fellowship will be ascertained in the afterlife. For this reason, the Judaic approach toward the interest is not applicable to Christians (Aquinas, 1948b). By this approach, Aquinas rules out the exception in the Judaic practices to the interest ban. Likewise, he offers a striking response to the third objection in the first article. He stands against the argument that loans on interest might be justified in case the secular legal system allows such transactions and underlines that this is in violation of fairness, adding that Aristoteles also does not approach revenues out of usury. In his response to another question in the same article, he stresses that the real goal of the lender in a debt should not be focused on securing any interest or benefit, noting that the natural thing to do is to comply with the will of God and to lend money without expecting any additional interest in return (Aquinas, 1948b). This response is compatible with his reply to the first question; in both explanations, he stresses that no material return should be expected in a borrowing transaction. In the fifth, sixth and seventh questions of the first article, Aquinas explains his views on the possible change in the status of the making revenues out of the goods by their features. He classifies the goods and commodities as goods that need to be consumed (res fungibles) and goods that do not need to be consumed (non–​res fungibles) (Savaş, 2007). According to him, in a transaction, no additional price is asked just because the ownership of the

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commodities in the first category has been transferred. For instance, in the trade of products such as wheat or wine, the right to use these products is transferred to the buyer. In other words, the ownership as well as the right to use is handed to the buyer who now has the relevant discretion over the product. For this reason, it will not be fair to ask any additional price other than the amount paid for the sale of such a product. But the case is different in non–​res fungible goods and commodities. Aquinas relies on an analogy referring to the use of silver when explaining his views on this matter: the original goal for the use of a silver boat is not its consumption. For this reason, a person may hold the ownership of such a boat and transfers the right to use it to another person; in such a transaction, he may ask a price which cannot be considered as usury. On the other hand, the original role and function of silver is its service in commercial activities as means of exchange. For this reason, it is not proper to transfer both the ownership and right to use of silver at the same time. In light of this approach, Aquinas, considering the possibility that a silver boat might be used for the purpose of barter in a transaction, stresses that the right to use of a silver boat cannot be sold (Aquinas, 1948b). A review of the responses to these three questions reveals that in case something is used as a means of exchange, it is not possible to sell the right to use and make revenue out of it. Aquinas relies on the same method in the second article where he addresses the notion of usury; similarly, he offers a framework based on responses to seven questions. In this article, he reviews the debt and discusses whether the lender may ask for any additional amount other than the original amount he lends as loan. The first question in this section is in fact considered as the basis of the arguments that he actually justifies interest. Aquinas (1948b) expresses his views on whether a lender may be able to ask for any additional amount in case he experiences any problem or loss: the lender may ask a certain amount of reimbursement from the borrower in case he suffers from a loss in connection with this borrowing transaction. This reimbursement is not the price for the use of the loan but is about making up the losses of the lender. In case no such loss is experienced, then the lender may not ask any additional amount. But what he means by losses that a lender experiences is not precise. Whether this loss is because of inflation or it is a missing investment opportunity is not clarified in Aquinas’ explanation. O’Brien (1920) attempts to elaborate on this subject via a discussion on the concepts of damnus emergens (loss at birth) and lucrum cessans (missed profit), noting that the types of interests referring to reimbursement of the losses the lender suffers from and of the amount of profit that the lender is deprived of have been recognized and justified by Aquinas and subsequent thinkers. Damnum emergens can be defined as follows: if the lenders may need money before the repayment and thus have to borrow money on interest, they may ask payment of interest from their borrower in an attempt to

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reimburse their loss. In such cases, St. Thomas Aquinas and many other thinkers agree that this is a legitimate type of interest (Akalın, 2011; Meiners, 2009; Noonan, 1957; Parks, 2005; Steuer, 1936). Scholars like Savaş (2007) argue that his views on lucrum cessans are not clear and well-​framed, that there are much debates on how such losses may appear and that in the 15th century trade environment, the big merchants concur with the lucrum cessans type of interest because it is more likely for them to make larger amount of profit when they have cash in hand. In fact, when his views are examined as a whole, two conclusions may be drawn in respect to these two types of interest. The first refers to the type where Aquinas justifies interest. The second type is actually relevant to the trade environment associated with the changing economic circumstances after him. The second question of the second article seeks an answer to the inquiry as to whether anything in return could be expected when money is loaned to do a good deed. If the debtor seeks the loan for consumption, no additional amount can be asked. But in time of repayment, the debtor may want to make extra payment out of gratitude or bond of friendship; it is just natural. The fourth question addresses the problem as to whether interest can be asked from the debtor after the performance of the debt transaction. Aquinas states that if any additional amount is to be asked for the loaning process, the demand should be raised during the fulfilment of the borrowing transaction, otherwise, laws are violated (Aquinas, 1948b). That he does not explicitly rule out payment of an interest in such cases shows that he does not uphold a very strict position vis-​à-​vis the practice of interest. His response to the fifth question in the second article explains another case which justifies additional payment to the lender. This refers to a loaning relationship involving a lender who loans money to a person who performs trade and business. Aquinas (1948b) states that a person who lends money to a merchant for the purpose of partnership does not transfer the ownership of his money and instead reserves this right; in such a case, the lender waits for the trader to use his money by taking risk. Thus, he may ask for his share in this business transaction. This argument corresponding to business transactions offers some descriptive information on the status of partnerships. The response suggests that a lender who takes part in the business transaction should be allowed to take part of the profit at the end. But this does not necessarily mean that Aquinas justifies the contemporary practices of interest. It should be noted that his stance in this context is compatible with the realities of the economic situation at his time. Trade capitalism enables merchants to perform large business activities, leading to accumulation of larger amount of wealth and profits. Naturally, in such an environment, number of fund-​seekers increases in the markets. His approach allows the holders of capitals to lend their monies for those fund-​seekers. Otherwise, only the holders of labor will be

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the winning party in the partnership of labor and capital and the holders of capital will have to consider the risk of repayment of his capital alone. The final part of the article deals with the practices of interest that may apply to long term sales. St. Thomas Aquinas criticizes a seller who performs a sale with a fixed term and intends to increase the price of his product before the due time, and argues that this is a plain practice of usury. According to him, sales with a fixed term are borrowing transactions and it is not possible to change the price set at the beginning before the date of repayment. In addition, in transactions with a fixed term, any demand by the buyer for a reduction from the seller to make payment before the due date is also considered interest. However, in case the seller makes reduction in the price upon early payment by the buyer, this is not defined as usury. This approach is consistent with his view that any additional amount should be asked before the conclusion of the debt. Aquinas (1948b) focuses on the philosophy of the subject in remaining parts rather than offering rulings that produce practical solutions on the debt. As a theological argument, he notes that those who borrows from a usurer actually do not take part in this sinful act. Those who make a profession out of it are the actual sinners; so, holding those who need to borrow from them responsible is not fair because according to Aquinas, Christianity requires aid to those in need. For this reason, a person who is in need and is unable to get help borrows money from a usurer and he cannot be condemned for this. Likewise, performance of a borrowing transaction only entails lending of money; this does not justify extra interest, which is a reflection of using an opportunity associated with the neediness of this person. In other words, the practice of usury is the responsibility of the usurer who exploits the situation and deprivation of the person who suffers from lack of necessary funds. Finally, he talks about the problems associated with deposition of money by those who save some money with those who practice usury out of safety concerns. In this regard, he makes a distinction between usurers; he argues that it is not proper to deposit such savings with those who practice usury as a profession but there is no problem in doing so if those who take the deposits perform other professions and tasks.

Conclusion St. Thomas Aquinas, an important figure for the Christian world, has been a major actor in dealing with the intellectual stagnation and drought in the Western world. His views spanning a number of fields including religion, politics, morality and economy have served as source of inspiration for many scholars and writers in the ages to come. Luther who follows the footsteps of Aquinas questions the dogmas of the Catholic Church by reference to divine passion and conscience and criticizes the wrongdoings of

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the church; in this regard, Luther addresses a number of issues that bear relevance in his time including trade, interest, faith and morality. The reform movement he leads has groundbreaking impacts in the Christian world and offers new perspectives and insights for Christianity. This perspective also earns him a huge number of supporters. Aquinas addressed pertinent issues in the second part of his theology collection and elaborated his views on the different subjects in four articles under heading number 78. St. Thomas Aquinas who pays particular attention to the interest-​bearing debt in dealings and transactions makes a distinction between goods whose use require consumption and goods whose use do not require consumption. He argues that in the goods that are consumed when they are used, any revenue made out of transactions is considered a revenue of usury which is strictly prohibited. However, in the case of goods whose consumption is not required when they are used, revenue can be made through the transfer of the right to use with the condition that the ownership remains with the original holder of the goods. In the lending transactions involving cash funds, he adopts a firm stance as a general principle vis-​à-​vis the practice of interest; with the exception of a few special cases, he stresses that under the principle of justice and equality, the lender of the funds cannot claim any additional payment from the borrower other than the original amount of the loan. The cases he refers to as exceptional cases are situations where the lender suffers from a loss in connection with the loaning transaction and where he experiences a loss due to the acts of the borrowers. In such cases, according to St. Thomas Aquinas, the lender may legitimately ask for payment of additional amount. With respect to the risk factor in loaning transactions, he argues that a person who lends money to a person who performs a certain business activity may claim his share in the revenue generated by this activity because he initially takes a risk of becoming part in this whole business activity. Even though it is criticized at the beginning, this view then becomes popular starting from the 16th century after the advancement of trade activities.

Notes 1 Born in 1225, Thomas Aquinas (d. 1274) is one of the most important clerics of the Christian world. In Western literature, he is often referred to as Saint (St.) Thomas Aquinas. 2 Patristic period is a movement which maintains a balance between philosophy and religion, dominated by the views of Plato. In a sense, it is the preliminary stage of the times where the theological dogmas are being reinterpreted. In this period, Christianity is not yet the official religion of the Roman Empire and there is still visible influence of polytheist religions. The foundation of the Patristic period is based on the construction of the basis of Christianity on ancient philosophy. To this end, grasp is required to believe and faith is needed to grasp and understand. See Topdemir (2012).

Notion of usury in Aquinas’ thought  63 3 It should be noted that the Q&A method has been frequently employed in the works of the thinkers of the time.

References Akalın, K. H. (2011). Reform çağı öncesi Avrupasında ussal ekonomik etkinliğin belirtileri. Dokuz Eylül Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 13(2),  7–​29. Akalın, K. H. (2013). Ortaçağ Avrupası’nın iktisat tarihinde faiz yasağının kökenler. Dokuz Eylül Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 15(2), 187–​208. Aquinas, T. (1948a). Summa Contra Gentiles (Vol. II). New York: Liberty Fund Inc. Aquinas, T. (1948b). Summa Theologica. New York: Liberty Fund Inc. Aristo. (2002). Politika. İstanbul: Remzi Kitapevi. Bentmann, R., & Lickes, H. (1979). Churches of the Middle Ages. London: Cassell. Birdal, M. (2011). Dinlerde Faizin Yeri ve Bankacılıkta İslami Alternatif Arayışları. Retrieved from​arsiv/​234-​sayi-​178/​503​dinlerde-​faizin-​yeri-​ve-​bankacilikta-​islami-​alternatif-​arayislari. Braun, C. (1994). Vom Wucherverbot zur Zinsanalyse 1150–​ 1700. Winterthur: Schellenberg. Cevizci, A. (1999). Ortaçağ Felsefesi Tarihi. İstanbul: Asa Kitabevi. Doğruyol, A., & Kıvanç, A. (2014). İktisatta gizemini koruyan bir bilinmeyen: “Değer” felsefenin mutlak değerinden iktisadın nisbi değerine. Abant İzzet Baysal Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 30(30), 129–​152. Eskicioğlu, O. (1999). İslam ve Ekonomi. İzmir: Anadolu Yayınları. Galbraith, J. K. (2004). İktisat Tarihi (M. Günay, Trans.). Ankara: Dost Yayınları. İskenderoğlu, M. (2005). Thomas Aquinas’ ta mutluluk. İslam Felsefesi, Sakarya Üniversitesi İlahiyat Fakültesi Dergisi 11(1), 97–​120. Langholm, O. (2009). Thomas Aquinas. London: Edward Elgar. Margoliouth, D. S. (1914). Islamic Philosophy. London: Williams and Nortgate. Meiners, P. (2009). Das Zinsverbot und extrinsische Zinstitel bei Thomas von Aquin. Münster: Universität Münster. Noonan, J. T. (1957). The scholastic analysis of usury. Boston: Harvard University Press. O’Brien, G. A.  T. (1920). An Essay on Medieval Economic Teaching. New  York: Longmans. Parks, T. (2005). Medici Money: Banking, Metaphysics, and Art in Fifteenth-​Century Florence. New York: W. W. Norton & Company. Piketty, T. (2014). 21. Yüzyılda Kapital (H. Koçak, Trans.). İstanbul:  İş Bankası Kültür Yayınları. Roll, E. (1947). A History of Economic Thought. New York: Prentice-​Hall. Savaş, V. F. (2007). İktisatın Tarihi. Ankara: Siyasal Kitabevi. Schumpeter, J. (2006). History of Economic Analysis. London: Routledge. Steuer, G. (1936). Studien über die theoretischen Grundlagen der Zinslehre bei Thomas v. Stuttgart: Aquin. Taylan, N. (1991). Anahatlariyla Islâm Felsefesi. İstanbul: Ensar Neşriyat. Topdemir, H. G. (2012). Ortaçağ uygarlıklarında bilgi ve bilim. Bilim ve Teknik, 51(1),  72–​75. Ülken, H. Z. (1961). The influence of Islamic thought on Western philosophy. Şarkiyat Mecmuası, 4(1),  1–​21.

Chapter 7

Martin Luther’s approach on interest and debt Muhammet Sait Bozik and Murat Ustaoğ l u

Introduction Martin Luther (1483–​1546), a lead theologian of the Protestant Reform that Max Weber defines as the engine of capitalism, is educated in different fields including law, philosophy and theology (Singleton, 2010). Because of his interest in religious matters, he decides to further his knowledge and understanding in this field. However, what he noticed during his travel to Rome in 1511 makes him change his views on the church and its role (Tanyu, 1981). Even at times when he served as a cleric in a Catholic church, he raised objections to established practices that represent the institutionalization of rituals. Luther, who was of the view that the church’s manipulation of the true religious precepts undermines the beliefs of the people, argues in particular that clerics have no power to absolve the sinful acts and that their virtuous deeds do not lead to the forgiveness of others’ wrongful acts. He claims that this is not what the Holy Scriptures suggest and adds that only Holy Scriptures of the New Testament are binding. Luther further notes that participation in masses held in churches will not save the soul because they promote an institutional authority rather than a commitment to the teachings of the Old Testament. According to him, an individual becomes absolved of his sinful acts only with the help of God, and faith is the only thing needed for this (Akalın, 2010b; Watson, 2000). In a sense, he encouraged the people to seek their own inner liberation rather than asking help from the Pope (Tanyu, 1981). The growing interest in his views inevitably starts to undermine the church’s authority over the people. Despite a strong reaction by the church to his views and himself, Luther was able to build a reformist agenda and spread his teachings among the public. His main reference to the reformist innovations was the updated versions of some tenets in the Old Testament. According to him, the people no longer have to consider the validity of teachings in the Old Testament (Lull, 1989; Oberman, 1980).1 He even takes this argument further, noting that public law should be independent of the theological provisions in the New Testament as well. In other words, civil laws rather than religious laws should be implemented in social life (Lewison, 1999).

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In his sermons, Luther also deals with economic problems of the time, particularly those that have an effect upon social life, including loans on interest and usury. According to some historians, his views which deeply affected the early phase of capitalism contribute to the radical transformation in the history of Christianity. Brand (2015) compare Calvin and Luther to two important characters who connect different periods of time and argues that Calvin’s innovative ideas belong to the 16th century and Luther’s conservatism to the 15th century. Rothbard (2006), on the other hand, argues that Luther’s views on interest lack far behind the church itself since he tries to reestablish the interest ban. However, Luther has never placed priority upon economic issues in his teachings and sermons and he had no intention of offering an economic theory. Some historians, on the other hand, uphold that he has served as one of the inspirations for Marx in his views on the monetary economy. This view is based on the fact that Luther has been extremely critical of some practices of financial capital way before Marx. Luther suggests that monetary economics and the interest-​bearing debt system that he considers as anti-​Christian are sinful acts and institutions that disrupt the social cohesion and integrity. For this reason, the usurers are even more threatening than the military, the repressors and Turks.2 According to him, the usurers commit a moral crime and disrupt the society (Fergus, 2018). He upholds that usurers are responsible for price manipulation and that their harm is not limited to the areas where they practice their heinous profession, suggesting that they are culprits of hunger in every home of the poor people across the country (McKim, 2003). Christianity has been on extremes in terms of how to approach material life; up to the rise of Protestantism which offers reconciliation with material aspects of life, Christianity imposed extreme piety and indifference to the world through the practices of the Catholic Church. But capitalism has ended this orthodox attitude of the church and the Christian clergy (Tatar, 2012). Interestingly, views of Luther, while being a pioneer of the reformist movement, are not much different from the church’s approach when it comes to interest and finance. In his works Short Sermon on Usury (1519), Long Sermon on Usury (1520) and On Trade and Usury (1524), he elaborates on interest and the practice of usury (Schilling, 2017; Wiersma, 2010). Some historians contend that his approach and views are shaped by the social realities of the time (Jones, 2004). Leading a modest life, Luther develops his views mostly based on his observations regarding the type of lives that people live.

Precursors of reformist thinking: Practices of indulgence Saxony, where Luther was born and raised, was one of the areas experiencing economic hardships in medieval Europe. Prices of grain doubled in

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the period between 1519 and 1540. The price increase was not limited to agricultural products; dramatic price increases were also observed in other economic commodities as well. The people had to borrow money for sustenance; eventually they even sold what they already had to repay their debts (Doherty, 2014). The tax officers controlled by the papacy did not consider these hardships; the need for borrowing among the public became even more visible; however, this increased the interest rates which ironically made economic conditions even harder for the poor (Watson, 2000). One thing that attracted attention in Luther’s works is that he places greater emphasis upon the troubles that ordinary people experience in daily lives rather than the practices of the church. For this reason, he often has clashes with the church in matters of principle. He strongly criticizes the church for spending too much money on religious practices and symbols as well as religious buildings instead of attending the people’s problems (Fergus, 2018). The church expands the scope of spending; when there is no sufficient amount for symbolic structures and buildings, the church borrows on interest and sales of indulgence. A typical example is to secure the funds needed to complete the construction of Saint Petrus Cathedral in 1517 through indulgences. The Pope borrows the necessary financing from Albrecht von Brandenburg; despite its strong opposition to the practice of usury, the church borrows on interest from Fugger Banking enterprise. The repayment of the loans on interest is performed through the sales of indulgences, one of the major points of contention by the reformist movement.3 Luther compares the issuance and sales of indulgences to the practice of usury which he considers a great sin. He further accuses the clerics who make revenue out of the indulgence sales of defying the teachings of Jesus and argues that in case this practice is not terminated, there will be serious economic and social consequences for the country (Rupp, 1968).4 In a sense, objection to indulgences serves as the start of the reform movement. Luther himself tears the paper involving an offer of indulgence into pieces (Aytaç, 2012). Luther expresses his objections in his work Disputation on the Power and Efficacy of Indulgences, also known as the 95 Theses. This work that he distributes to churches is considered as the birth of Protestantism (Canveren, 2014). In this work, he argues that the sale of indulgences is against the holy scriptures and that it has no binding impact. The foundations of this argument are laid out in his criticism vis-​à-​vis the Pope, noting in thesis 27 that certain rituals are made up by human beings rather than God, in thesis 28 that only God has the power and authority of intercession or mediation, in thesis 50 and 66 that sale of indulgences is nothing but deceiving the people and in thesis 86 that the Pope constructs the Saint Petrus Basilica by using the people’s money even though he is extremely rich and controls a large amount of wealth (Luther, 2018). Luther, leading a modest life himself, is particularly bothered by the exploitation of the people through the use of

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religious arguments and justifications. The people become more disgruntled with the economic demands of the church; his views on the economy and interest are shaped in such a climate and atmosphere.

Luther’s economic views Luther, who thought economic relations should revolve around Jesus’ advice, argues that there are mostly hidden interests and the desire for fortune behind most economic decisions. According to him, the intentional ambiguity and the perception that financial transactions are transparent, is nothing but a mask to the mentioned fact. For this reason, economic arguments must be taken with a grain of salt and should not be accepted before a thorough critical thinking (Luther, 2018). Despite the fact that he was a leading thinker in the reformist actions, he took a very rigid approach to interest-​bearing debt, which Singleton considered a contradiction bases this view on the belief that money is sterile (Singleton, 2010). His opinions about money entailed the view that money was a gift sent by God to help the poor and one’s neighbor’s led to the belief that money is a non-​productive tool and no money can be made out of money, which was a prevalent belief during the medieval era (McKim, 2003). His negative opinion of international trade should also be noted. Luther believes that the development of international trade with the rise of sailing led to an overall increase prices and aggravated the inequality of income. Even though he believes that trade is necessary to satisfy certain needs, he doesn’t believe that international trade serves a beneficial purpose (Luther, 2015). It is important to indicate that Rome’s looting in international trade played a major role in these views. Because he thought that the system created by certain goods such as luxury items, exported spices, and fancy clothes emulated a colony system, he believed these kinds of expenses should be banned (Kolb, 2009). A  Christian can be involved in trade under three circumstances: (i) giving them away, (ii) lending them without charge and (iii) calmly letting them go when they are taken by force (Wiersma, 2010). As a person who views economic activities from the perspective of concepts such as trade, usury, and interest rather than at the macro level, he explains his opinions about interest and usury, mostly referring to trade. He has a negative opinion of the desire for high revenue because this kind of motivation has the possibility to trigger all sorts of greed and ambition in the merchant and leave the buyer in a desperate position. This means stealing people’s wealth by abusing their needs with excessive charges. This is why, according to Luther, the fair profit margin in trade should be calculated taking all expenses which the efforts made, as well as the risks taken (Luther, 1962). He sees selling one price one in advance and one in due unfair and objects to unions of salesman who try to control the prices. He

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rejects all sorts of monopoly structures. According to Luther, the reason for all these disturbances is the fact people try to increase their personal share in life despite the advice that God has given to maintain peace and justice. Interestingly, without putting forth a definitive opinion on these matters he views negatively, he advises that Christians avoid occupations related to trade because of the burden it would put on their conscience. It is clear that Luther especially values the state. The most striking evidence in this direction is the fact he asked the church to participate in the state’s regulation and his claims that the German church needs to leave Rome and be tied to the German state (Tanyu, 1981). This approach reflects itself in his economic views, and he defends the economic model in which the state is intrusive. He deems it necessary that the government needs to intervene to make sure the principles of justice are followed. He puts the responsibility of protecting the people’s interest in political authorities (Eaton, 2013). Because emperors, princes, kings and other political authorities are responsible for the people occupying their lands. The correction and regulation of economic practices is not the duty of a Christian on his own but rather the political authorities’. According to him, the domain of power belonging to the state is not limited to these matters. He holds the state accountable for enforcing fair and ideal financial policies for all classes of the society (McKim, 2003; Schilling, 2017).

Luther’s approach to interest-​b ased debt transactions Interestingly, there is no other doctrine in Christian theology like interest that was valued greatly but lost all its importance in later years (Sutherland, 1986). The ban on interest has no application in today’s world whatsoever. Schilling (2017) claims that his opinions are unfairly critiqued by political economists. He justifies this opinion by indicating that Luther had no intention to create an economic theory and that he tried to interpret these concepts according to specific events of his time prioritizing Christian theology. Even though he expressed his concerns about the church abused the people financially, he has no intention of interpreting economic issues. It is hard to say that he contributed to the removal of the ban on interest, despite some opinions to the contrary (Lewison, 1999). He always argued for the ban on usury. Luther’s economic opinions are usually critiqued for being too far from the reality. These critiques are not completely invalid. His anti-​church attitude, as in most subjects, has affected his views on interest-​bearing debt. In an era where his contemporary Calvin made more progressive comments about finance capital, he argued against interest-​bearing debt because the church used the money taken from the people together with usurers (Akalın, 2010a). Of course, it wouldn’t be accurate to base all of his views on interest on this alone. Wiersma (2010) indicates as a non-​economist, Luther

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struggled to comprehend more technical concepts such as trade, usury, banking and capital. It could be said these critiques have some truth value and that Luther himself is aware of the unrealistic nature of his opinions. His views that Christians give out loans without expecting repayment are obviously not in conjunction with the circumstance of the time (Fergus, 2018). The interesting thing is that the opinions he formed based on the theological principles he wildly defended are consistent with the main theses of the reformist movement. A  negative of Jews is prominent even in the process of diverting from a common tradition which was based on the Old Testament. It is hard to say that Luther had a positive opinion of Jews. He is concerned that they will gain economic power by being involved in usury (Mullet, 2004). It is partly due to this that he objects Jewish clergymen’s arguments legitimizing interest. He objects most violently to the brother-​ foreigner distinction. According to Luther who appeals to theological reasons, applications such as divorce, sacrifice, circumcision, Sabbath day, an eye for an eye are not followed in Christian Europe, thus the approach that discriminates between people should be ignored (Noth, 1981). One of the most important theses of the reformist movement is the fact the principles of Old Testament are far from satisfying the needs of the time, thus it is necessary for Christian live religion according to the New Testament, and furthermore discards the definition made by the Old Testament that Jews are one nation, which is what is referred to in the brother-​foreigner distinction (Akalın, 2010b). If it is not fair God to discriminate between people, then it is unacceptable that people who are members of religions that have the same source discriminate against each other. This train of thought removes the reasoning behind the legitimization of interest-​bearing debt between equals (Kooiman, 1954). Luther’s skepticism about interest is consistent with reformist thoughts. One area where he holds similar views with the church is the type of the loan. Even though he is not against commercial loans, he is against usury which applies interest to the poor. However, it is not possible to say that his views on interest-​bearing debt suit the expectations of the poor. For example, to the question about whether or not a poor person needs to take a loan to start a business, he answered, “he shouldn’t, he should continue living a poor life and feed himself with the honor of God, not with sinful and wrong acts because money is temporary” (Schilling, 2017). After all, interest is a result of greed. It is inappropriate to allow new attempts at becoming wealthy by taking interest-​bearing debt while there is the opportunity to work hard and earn what one deserves. If a loan is meant to be given, it should be unconditional. True followers of Jesus should give loans with no expectation of repayment or with the intention of charity (Eaton, 2013). Stressing that all Christians are brothers bound by the holy word, he violently objects to interest-​bearing debt among brothers.

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The negative economic landscape of his time forces him to bend his principles in certain situations. Even though he is not as optimistic as Calvin regarding, he allows for reasonable amounts of interest under certain circumstances. Even though he rejects extreme amounts of interest caused by the conditions of the monopoly market, he allows fair amounts to be applied. He is of the opinion that under these extraordinary conditions, 4–​6 percent is a fair amount. Another activity he allowed was for debtor businessmen to pay around 8  percent interest in commercial contracts demanding profit share, a business transaction that princes frequently preferred (Akalın, 2010b). Severe need is another exclusive case where interest is allowed. In that case, an interest rate between 2 and 6 percent is acceptable with the provisions of canonical law in mind. But he also adds that the lower the interest rate applying to such a transaction, the closer the parties become to God (Ertürk, 2019). According to Luther, risk factors may be taken as an exceptional justification in loans on interest. The risk factor, one of the theological foundations of the interest ban, is elaborated in the teachings of the Abrahamic religions by the principle that God requires a party joining the share of profit also takes the risk of loss as well. In this theological approach, the lack of foreseeability of profit and loss is essential in the risk discipline because death, flood, fire and other similar disasters are controlled by God alone. For this reason, it is not possible to assess the magnitude of acts of God which transcends the power of man in a commercial enterprise and initiative. This creates uncertainty over profitability. Therefore, setting a limit on the interest which God does not approve insinuates that man has some knowledge of the future (Doherty, 2014). But Luther takes a different approach vis-​à-​vis the concept of risk factor. In such cases, he justifies reasonable rates of interest and considers an interest rate up to 6 percent as permissible; the creditor, taking the risk of non-​payment by the debtor, is allowed to set such a rate which is accepted as reasonable. But this does not mean that he supports the practice of usury and interest by civilian bankers. He only favors a limited range of interest rates and correspondence between this rate and the risk factor involved. If particularly a pious individual tends to charge a high interest rate, then this means he defies the divine order. In the end, anything beyond a reasonable level of interest rate should be considered usury. Despite the spread of views that condemn the practice of usury in holy scriptures, it is not possible to argue that fight with interest has been successful. The prohibition of loans on interest through strict principles does not decrease the popular interest in such transactions. Because it was not possible to secure a loan in line with the religious suggestions as prescribed by Jesus, people often relied on other options. The poor people who were barely able to survive lost all of their assets to the usurers because they

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often failed to repay the loans they received (Akalın, 2015). The attitude of the church which kept selling indulgences in face of impoverishment of the people serves as the reference point of Luther’s objections.

Conclusion Loans on interest were one of the main sources of income for the Roman Empire in the time of Luther. Money collected through the sale of indulgences were loaned to the bankers for the regular inflow of interest revenue. Luther, strongly opposing such practices, has been particularly affected by the attitude of the papacy which led him to develop reformist views. In medieval Europe, the stance on interest was pretty clear. The definition of interest and usury which he also adopts is simple: any addition to the original amount of the loan is considered interest. Despite that he has been a staunch opponent of the church in his life in many areas, he seems to be in line with the established views of the Roman Catholic Church when it comes to economy, trade and interest. Even though he did not pay direct attention to the issue of interest, Luther takes an unchristian stance and argues that with the exception of rapid increases in the price levels, risk factor and trade shares, the loans should be provided in line with the teachings of Jesus who clearly stated that loans should call for no additional return. For this reason, some historians accuse him of lagging even behind the church with respect to financial matters. According to Luther, the creditor, considering the risk that the debtor may not repay, may charge an interest rate of 4–​6 percent, is not seen as usury. But this does not mean that he justifies the activities of civilian bankers who mostly provide loans on interest. He states that the interest rates should be kept at a certain level in the markets and that the line should be drawn between the magnitude of the risk and what really constitutes usury. Luther, arguing that provisions of the Old Testament are not enforceable, rejects discrimination against the servants of God who are spoken by the same revelation. Describing Christians as brothers and fellows of revelation, he objects the distinction between fellows and aliens as proposed by the Judaic clergy based on the precepts of the Old Testament to justify the practice of interest. In fact, he does not pay much attention to the economy and interest. But he feels compelled to express his views on these matters due to the questions he receives and the incidents he encounters in daily life. Even though he is strongly opposed to the practice, Luther is aware that people are reluctant to lend money without asking any addition to the original amount. On the other hand, it is possible to argue that Luther attributes certain obligations to the state in some issues. For instance, he believes that the church should be under the control of the state. The same approach is also

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visible in his views on the economy. He argues that the state should take interventions in the economic domain. When necessary, the state should be able to ban monopolistic practices, maintain justice and equality and supervise the markets as well as implementing monetary policies that require monitoring of the prices. It should be noted that Luther’s approach vis-​à-​vis the debt on interest is different from the approach upheld by Calvin, a leading theologian of the same era. The different economic circumstances in areas where they lived are cited as a reason for this distinction. Calvin lived in Genoa where trade was advanced whereas Luther lived in relatively poorer areas where economic affairs were less important. The environmental dynamics that placed different emphasis upon economic needs affected directly the views of these thinkers. Luther who defines interest rate above the reasonable rate as usury did not, however, succeed in his fights against the practice.

Notes 1 In one of his sermons, Luther says: “Now if anyone confronts you with Moses and his commandments, and wants to compel you to keep them, simply answer, ‘Go to the Jews with your Moses; I am no Jew. Do not entangle me with Moses. If I accept Moses in one respect (Paul tells the Galatians in ­chapter 5[:3]), then I am obligated to keep the entire law.’ For not one little period in Moses pertains to us.” 2 Luther claims that the doctrine offered by Muhammad, prophet of Islam, does not affect him much but insists that the Ottoman Turks whom he views as representatives of Islam are a great danger. For detailed information on his views on Turks, see his works (Vom Kriege wider die Türken, 1529; Eine Heerpedigt wider den Türken, 1529; Libellus de Ritu et Moribus Turcorum, 1530; Vermannung zum Gebet wider den Türken, 1541; and Refutation of the Quran, 1542). 3 Derived from the Latin word indulgentia, indulgence refers to alleviation of tax burden. In particular, the Roman Catholic Church defines indulgence as absolution of sinful acts upon return of a favor by the sinner including donation or direct payment. It was first practices in the third century (Luther, 2018). 4 As a religion, Christianity has reached out to large masses in Rome, becoming popular among the slaves and the persecuted segments of the society. The source of the wealth of the aristocrats in Rome who were initially opposed to this new religion was the order that enabled them to control the people through slavery and the various forms of usury. Christianity presented itself as a beacon of hope for the oppressed and the disadvantaged groups of the society; however, it has also evolved into a form to prioritize the interests of the aristocrats over the time. Interestingly, in the final times of the Roman empire, the clerics were almost as wealthy as the nobles and the aristocrats and owned huge magnificent buildings that borne signs of the feudal order. Many clerics who lent money and loans on interest have become wealthy individuals (Diakov & Kovalev, 2015).

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References Akalın, K. H. (2010a). Alman reformistlerin tefecilik yorumu. Dokuz Eylül Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 12(1),  07–​28. Akalın, K. H. (2010b). Eski Ahdin Kardeş-​Yabancı Ayrımına Dayanan Tefecilik İzni Karşısında Martin Luther. KMÜ Sosyal ve Ekonomik Araştırmalar Dergisi, 12(18), 1–​13. Akalın, K. H. (2015). Orta çağ iktisat zihniyeti sınırlarında Martin Luther ve J. Calvin’in tefecilik yorumları. Çukurova Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 10(1),  1–​12. Aytaç, G. (2012). Yeniçağ Alman edebiyatı. Istanbul: Doğu Batı Yayınları. Brand, C. (2015). Usury in scripture. Institute for Faith, Work & Economics 1(1), 1–​15. Canveren, Ö. (2014). Martin Luther’in İslam ve Türkler hakkındaki değerlendirmeleri. Dumlupınar Üniversitesi Sosyal Bilimler Dergisi, 42(Ekim), 151–​165. Diakov, V., & Kovalev, S. (2015). İlkçağ Tarihi –​ Roma (Vol. 2). İstanbul: Yordam Kitap Basın ve Yayın. Doherty, S. (2014). Theology and Economic Ethics –​Martin Luther and Arthur Rich in Dialogue. New York: Oxford University Press. Eaton, D. H. (2013). The economists of the reformation: An overview of reformation teaching concerning work, wealth, and interest. SAGE Open, 3(3),  1–​9. Ertürk, E. (2019). Kilise, faiz, kapitalizm:  Günahtan mesruiyete sancılı bir geçişin anatomisi. Emek ve Toplum, 8(20), 108–​135. Fergus, P. (2018). Martin Luther’s treatise on usury:  The effect of materialism on spirituality. The Hanover Historical Review, 12(1), 123–​128. Jones, W. D. (2004). Reforming the Morality of Usury: A Study of Difference that Separated the Protestant Reformers. Dallas: University Press of America. Kolb, R. (2009). Martin Luther: Confessor of the Faith. Oxford: Oxford Univeristy Press. Kooiman, W. J. (1954). By Faith Alone, The Life of Martin Luther. London: Lutterworth Press. Lewison, M. (1999). Conflicts of interest? The ethics of usury. Journal of Business Ethics, 22(4), 327–​339. Lull, T. M. (1989). Martin Luther’s Basic Theologial Writings. Minneapolis: Fortress Press. Luther, M. (1962). Luther’s Work –​Christian in Society II. (Vol. 45). (H. T. Lehmann & J. Atkinson, Eds.). Minneapolis: Fortress Press. Luther, M. (2015). On Commerce and Usury (1524) (P. R. Rössner, Ed.). London and New York: Anthem Press Publication. Luther, M. (2018). Doksan Beş Tez (C. C. Çevik, Trans.). İstanbul: Türkiye İş Bankası Kültür Yayınları. McKim, D. K. (2003). The Cambridge Companion to Martin Luther. Cambridge: Cambridge University Press. Mullet, M. A. (2004). Martin Luther. London and New York: Routledge. Noth, M. (1981). The Deutoronomistic History. New York: Sheffield Press. Oberman, H. A. (1980). Luther: Man between God and the Devil. New York: Yale University Press.

74  Muhammet Sait Bozik and Murat Ustaoğ l u Rothbard, M. N. (2006). Economic Thought Before Adam Smith. Auburn, AL: CreateSpace Independent Publishing. Rupp, E. G. (1968). The Righteousness of God:  Luther Studies. London:  Hodder and Stoughton. Schilling, H. (2017). Martin Luther:  Rebel in an Age of Upheaval (R. Johnston, Trans.). Oxford: Oxford University Press. Singleton, J. D. (2010). “Money is a sterile thing”: Martin Luther on the immorality of usury reconsidered. SSRN Electronic Journal, 43(4),  1–​21. Sutherland, J. R. (1986). The debate conserning usury in christian church. Crux, 22(2),  3–​9. Tanyu, H. (1981). Martin Luther’in Türkler hakkındaki sözleri. Ankara Üniversitesi İlahiyat Fakültesi Dergisi, 24(1), 151–​162. Tatar, H. C. (2012). Din ve kapitalizm. Sosyoloji Konfersansları, 45(1), 149–​168. Watson, P. S. (2000). Let God be God! An Interpretation of the Theology of Martin Luther. Philadelphia: Wipf & Stock. Wiersma, H. (2010). Luther on lending: A pastoral response regarding the subject of usury. World & World, 30(2), 191–​200.

Chapter 8

Interest-​b earing debt in the John Calvin school of thought Dilek Demirbas and Safa Demirbas

Introduction In Shakespeare’s famous work The Merchant of Venice, the Jewish usurer Shylock speaks to the Christian merchant as follows: The fact that he is Christian is enough reason for me to hate him. But him lending money without interest with his stupid modesty and hurting our business as usurers aggravates my hatred. He hates our holy nation. He says whatever is on his mind about my rightful revenue he calls interest wherever he sees a large group of merchants. Damned be my nation if I forgive him! What Shylock said is like a summary of the approaches taken by two divine religions until the medieval era in Europe. On the one hand, there is a minority which has made usury into an occupation; on the other hand, the merchants of a religion that has successfully enforced the ban on interest for a long time, desperately in need of financing. The interesting points of this story are, one, the fact that Jews are the most successful community in the usury business even though it was clearly banned in their scripture. The second interesting point is that Christians have enforced the ban on interest for a long time and taken loans on interest from Jewish usurers even though there was no direct ban in the Bible. In Christian scriptures, there are certain expressions implying that interest is unacceptable. However, in these parts, rather than banning interest, righteous behaviors such as aiding the poor were mentioned. Commandments regarding the ban on interest first occurred in religious institutions and practices. In the Nicaea Council, which was first held in the year 325, clergymen were banned from taking loans on interest. Later, in the fifth century, father Great Leo describes usury as a shameful revenue. It is indicated that there will be some punitive ramifications to those that do not follow the ban. It is announced that clergymen who were involved in usury would be excommunicated and would lose their to a Christian burial (Pıçak, 2012).

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The church, which has taken a strict approach, continues its condemning attitude towards interest until the medieval era. However, at that time, some theologists brought new opinions to the table. These opinions are the first steps that changed Christians’ opinions on interest-​bearing debt transactions irreversibly. The strictly enforced ban on interest gets erased shortly thereafter. Martin Luther (1483–​1546) and John Calvin (1509–​1564) meet the eye as the two frontrunners of the reformist school of thought in Christianity. They cause great changes with their opinions, especially in economic matters. Calvin’s new opinions on interest become the impetus for revolutionary changes in the future of the European civilization. The institutionalization of financial capital with the removal of theological obstacles accelerates the Industrial Revolution (Nymeyer, 1957). Economists think that one of the barriers to the accumulation of capital is the ban on interest. The ban enforced by clergymen prevented financial capital from becoming institutionalized for a long time. R. Tawney (1923) and Noonan (1969) claim that Calvin is very strict about extreme interest and sees it as the source of moral degeneration. A person who takes extreme interest cannot be described as honest and thus needs to be thrown out of the church. Calvin focuses on technical detail and focuses on the distinction between interest/​extreme interest. Stressing that the church rejects extreme interest, he defends legal restrictions that bring a percentage limit to investment-​related loans (Bainton, 1952; Harkness, 2014; J. Munro, 2003; J. H. Munro, 2011). On the other hand, the Protestant reformists and especially Calvinists of the 16th century continue to harshly critique extreme interest. Calvinists claim that extreme interest is a harmful act for the soul and thus should be banned despite the fact that it was accepted in Holland and England. According to the needs of the time, following Luther and Calvin, the interest/​extreme interest distinction was stressed more heavily, and efforts to differentiate interest that enslaves and interest that encourages investment were made. Some philosophers such as Max Weber emphasize the role this distinction played in the development of today’s capitalism.

A perspective on interest in medieval era Christianity Until the 13th century, the church is strong in regard to religious punishments. The church, which argued for the ban on interest and the removal of usury, bases its opinions on interest mainly on the fact it produces revenue without effort and on the incapability of money as a production tool (K. H. Akalın, 2012; Gide & Charles, 1915). It can be said that this attitude had support in Europe. The German Emperor Sarlken banned interest-​bearing transactions with a very comprehensive regulation, including strictures placed upon clergymen. In a commandment he published in 806, he describes interest as taking more than what is given just like robbery. In the following years, the

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Lateran Council, a religious council, expressed decisively that interest was an incorrect economic practice (Savaş, 1999). The attitude of the church starts to shift with the struggles experienced in the Crusades. Interest-​bearing debt was allowed after the emergence of huge needs for loans and increased wealth and authority gained by the war spoils. Strict bans started to end one by one (Eskicioğlu, 1999; Gide & Charles, 1915). Meanwhile, the damage to the belief systems in defense of the ban and the failure to start organizational mechanisms for satisfying the prescribed needs, accelerate the removal of the ban in the lead of secularism (Elbir, 1952). Even St. Thomas Aquinas, who was greatly influenced by the Aristotelian way of thinking, triggered this evolution with his secular opinions on interest (Aristoteles, 2008). Aquinas made a clear distinction between loans for the purpose of production and for the purpose of consumption, and found that the interest paid on loans for consumption unacceptable, whereas for loans with the purpose of production, the opposite was the case. His opinions made way for 15th-​and 16th-​century clergymen like Martin Luther and John Calvin, both of whom labeled interest acceptable (Ergin, 1983). The church began the discussion on extreme interest and interest, and later used extreme interest and interest as interchangeable concepts (Gide & Charles, 1915). The church banned interest in theory and ignored the exchanges done with interest and displayed a hypocritical attitude. Especially in risk financing, loan transactions that required consent by two sides to meet urgent financial needs led to the popularization of interest-​ based transactions which, however, were not identified in reference to the terms interest or usury. The loaning system which resulted from these relations was named Montes Profini and the institution that regulated the loan status of poor people was called Montes Pietaties (Savaş, 1999). While all types of interest were banned in the early medieval era, the need for financing the Crusades and other non-​commercial and consumption-​related causes led to the ban becoming more flexible. In historical accounts, it is common to observe landowners that could not obtain crop they expected due to bad weather conditions and failed to pay their high interest loans and went bankrupt. The pressures on the church removed the ban due to increased international trade relations with the new geographical discoveries and technological advancements, ignoring the worsening condition of the poor (Dinler, 1994). The economic relations that revolved around new needs affected the church’s reformist actions and the perception of the ban on interest started to change fundamentally (Unay, 2000). Calvin, who influenced the Catholic Church’s teachings regarding interest, succeeded in making the ban a matter of debate by leading this train of reformist thought. Luther, despite often mentioning his belief that interest would harm humanity, allows for a minimal amount of interest claiming that the people involved with trade will be able to set a fair standard for it or that the political forces will set upper

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limits for interest and profit in the absence of this sort of autoregulation (Luther, 1960; Oberman, 1985). Calvin, who was a reformist just like Luther, is skeptical of the businessmen involved with trade. He sees them as opportunists that wait for an opening to increase prices (North, 1975). However, he claims that businessmen that have the correct business ethics will be able to enrich business in all sorts of ways (Calvin, 1925; McGrath, 1990; Terrell, 2004). Calvin, who made a mark on history as the first clergyman to critique the church’s strict opinions on interest, rejects Aristoteles’ opinion that money is useless and nonproductive. According to Calvin, if merchants and producers make profit with the money they loaned, it is natural for them to pay the creditors some of the profit as a reward for the risk they have taken. Calvin makes a distinction between production and consumption loans and interest/​ extreme interest (Pıçak, 2012). Defending that money loaned for the purpose of production and consumption and interest/​extreme interest should not be confused with each other, he tries to prove that religious sources do not ban fair and reasonable interest. However, he does not refrain from supporting commandments that ban extreme interest (K. H. Akalın, 2009; Calvin, 2006; Unay, 2000; Wendel, 1963). Opinions that came into existence in the modern ages about interest and the fact that the church was influenced greatly by these opinions played a major role in the removal of the ban on interest. In the year1545, King Henry VIII legalizes loan interest (Zeytinoğlu, 1992). With the beginning of Mercantilism’s rise in Europe, many countries advocate for low interest. Later in the modern ages, French statesman Turgot (1727–​ 1781) who explained interest with the Theory of Fructification, defends that the money used for the acquisition of land that provides income deserves interest at least as much as the amount of income it provides. He claims, however, that interest should be set by the state and not in the free market. With the active status of a control mechanism like this, the regulations banning interest in France get removed in 1789 (Ramsay, 2010).

Calvin’s view on the matter of extreme interest The dictionary definition of interest has vague expressions in it. Oxford’s more concise Principles Dictionary defines interest as (i)  true or practical loans on interest and (ii) the practice of illegal interest rates or excessive pricing for the money loaned (Principles, 1992). On the other hand, the Marquarie Dictionary (1997) defines it as an excessive amount or interest rate, especially loaning with illegal interest rates and loaning real or on interest and differentiates these two definitions and additionally makes a more general definition as the interest for the usage of money. Starting from the 16th century, the meaning of this concept becomes more and more like its current meaning. The church started to debate the distinction between

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interest and extreme interest in the 13th century, following the influence of St. Thomas Aquinas; the word usury was replaced by the word interest (Kuran, 1997; Kureşi, 1966; Pıçak, 2012). Calvin is the first of the people that played with the notion of interest and the ban on it (Wykes, 2003). Biéler (1959) claims that to be able to discuss Calvin’s social and economic opinions it is necessary to understand the theological basis for them. Some historical details make it easier to understand these connections. For example, Calvin was the president for the committee that investigated interest rates and recommended to the Small Council in 1543 that the upper limit for interest should be 5 percent. Calvin mentions his comments about interest four different connected documents (Cleary, 1914). Toward the end of 1545, it becomes necessary for him to find answers to Claude de Sachins’ questions about usury. It is observed that he attempted to maintain a balance between the changing economic circumstances and the religious judgments and positions (McGrath, 1990). In the past he favored the legal restrictions upon the maximum allowable interest rate and argued that this ceiling rate of 5 percent should also be acknowledged in religious terms, subsequently he abandoned this position and supported the idea that the upper limit should be flexible. His changing views can be traced by reference to the documents where he discussed the matter. The first document is the directive the Geneva government sent to the district churches in 1547. Calvin suggests that the interest rate should be set at 5  percent maximum and adds that in case of violation of these limits, the original amount of the debt should be confiscated as a form of punishment for the violator (K. H. Akalın, 2009; Schmidt, 1960). The directive generates a lot of problems in practice. In a letter addressed to Calvin in 1549, Fleming Utenhove refers to these problems and adds that a new arrangement should be implemented to revise the allowable interest rates, also sharing his views on the legitimacy of Henry VIII’s decree by which 10  percent interest is allowed in debt transactions (K. H.  Akalın, 2009; McNeill, 1967). Utenhove further adds that the rulers, considering the changing circumstances, should have discretion of determining the interest rates freely (Biéler, 1959). In latter he wrote in 1556, Calvin stresses that the poor and the needy should be protected against exploitation and unfair confiscation of their assets (Wendel, 1963). In another letter he penned in Latin, he concurs that the interest rate applied to the loans for corporations can be proportionate to the revenues it generates (K. H. Akalın, 2009; Dempsey, 1948). In a letter of 1556, Calvin notes that the poor and the needy should be protected against unfair seizure of their properties. In his letter to priest Francis Morel in 1560, he asked granting of a permission for his disciples to receive loans on a restricted interest rate (Wendel, 1963). In another letter penned in Latin, Calvin argues that in the loans for the corporate entities, balance between the interest rate and the revenue the main capital generates is allowable in religious terms (K. H. Akalın, 2009; Dempsey, 1948).

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Calvin opposes the argument raised by Aristoteles that money does not have a function of production and claims that interest used in production activities is legitimate (Akdiş, 2015). He contends that nobody takes loans on interest to deposit it and for this reason, he rejects Aristoteles’ views that consider money unproductive; as a result, Calvin stresses that unless it is charged against the poor, interest is allowed and justified (Ersoy, 2012; Rothbard, 1995). Recalling that the arguments suggesting that interest is against tenets of Christianity are baseless, he underlines that the rulers are responsible for taking measures to ensure that interest shall not be used for exploitation. After publication of his letters where he declared that interest is not a sinful act, legal arrangements allowing interest were made in some parts of the continent.1 But it is interesting to note that despite that he justifies debts on interest, Calvin does not approve practice of usury as a profession (Neumark, 1943). Calvin discusses the virtues of working to make a living and the need for transforming the revenues into capital commodities. According to Calvin, people should avoid unnecessary spending and make revenues which can be channeled into investment, in which case interest is also justified (Ersoy, 2012; Mai, 1975; Spiegel, 1991). His views played a major role in overcoming the Medieval thought shaped by the views of Plato, Aristoteles and teachings of Christianity since before Calvin, almost all Christians and philosophers objected the notion and practice of interest (Rothbard, 1995). Scholars generally agree that Calvin made a huge contribution to the lifting of the interest ban in Europe; for instance, Wykes (2003) notes that Calvin is the first prominent figure to play a role in the liberalization of interest.2 Gide and Charles (1915), recalling that the Catholic church has always been against the practice of interest, state that Calvinists are the first to approve generating revenue out of loans on interest (K. H. Akalın, 2009; McGrath, 1990; Schmidt, 1960).3 Calvin’s views are based on a simple argument: if interest is completely banned, man will not be able to fulfil his obligations prescribed by God. He upholds that scriptures prohibit taking interest from the poor, the orphans and the widowed who are unable to make a decent living (Schmidt, 1960; Wendel, 1963). Because terms applicable to the interest ban are specified in the scriptures, practice of interest should not be condemned unless it amounts to an act of unfairness (McGrath, 1990). To this end, traders who borrow money may willingly pay interest to the lender as long as they are not hurt by the overall practice. Additionally, the principles of equality, solidarity and brotherhood should not be affected. And when all these conditions are met, the interest rate may not exceed 10 percent (K. H. Akalın, 2009; McNeill, 1967; Wendel, 1963).4 Calvin justifies interest-​bearing debt only if the entire transaction does not generate absolute utility for one party. Fairness and justice are two key notions in a transaction; he places emphasis upon ethical norms in trade

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relations. Wykes (2003), however, draws attention to Calvin’s hesitation, noting that he allows interest but never trusts its role. For this reason, Calvin sets an upper limit even if the terms and conditions are met in a transaction. Roger Fenton, an ardent supporter of the interest ban, says Calvin’s argumentation is flawed and takes attention to his controversial stance, suggesting that he stresses a balance in the debt transactions but also questions the legitimacy of acts that hurt others (Codr, 2016). Luther and Calvin have made huge contributions to the end of dogmatic environment of the Medieval age including their role in laying the ground for discussing different views and thoughts (Ersoy, 2012). This environment, which gives rise for the Protestant faith, as noted by Bayindir and Ustaoglu (2018), makes the notion of interest a debatable issue.

Modern approaches after Calvin After Calvin, thinkers like Jacops, Hyma and Fanfani who examine the evolution of capitalism have published their works where they tested his views in practice. Some of these works criticized Calvin whereas some others supported his innovative views. R.  H. Tawney (1954) argues that Protestant reform influenced by Calvin’s views encouraged the capitalist work ethics and notes that the economic transformation led to significant changes in early Protestant reform (North, 1975). Scholars like Mews and Abraham (2007), on the other hand, suggest that Calvin’s critical stance vis-​ à-​vis excessive interest was previously upheld by (Bentham, 1952). Wallace (1998) who investigates Calvin’s life and views argues that his approach vis-​à-​vis the excessive interest rate suffers from serious limitations and that the approval for interest-​bearing debt is valid for only a narrow framework. Beadreau (2017), on the other hand, maintains a linkage between the roots and origins of industrial revolution in the 17th century and Protestant reform and Calvinism. Kauder (1965) examines the role of Calvinism in the differences between Great Britain and Catholic nations in continental Europe in the 16th century. Unlike the Calvinistic approach that praises labor as a remedy for a decent life, he places Aristoteles’ approach which advises pursuit of happiness by abstention from extremes at the center of the economic behaviors. Calvin’s views still hold relevance in contemporary practices of the financial sectors. There are now views suggesting that those who administer the banking sector and monetary policies should consider Calvin’s approach vis-​à-​vis the interest ban when devising policies and strategies (Graafland, 2009).

Conclusion Up to the mid-​16th century, Calvin viewed the traders as robbers who seek opportunities to increase the prices of goods and services. He argues that the

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businessmen who are motivated by generation of profit will achieve some sort of morality in the long term but for this, they need to adopt some ethical values. To this end, Calvin becomes the first religious figure who strongly criticizes the church’s ban on interest and the views and approaches of Aristoteles and the Scholastics on the strict prohibition of interest. According to Calvin, if the trader and the manufacturers make revenue out of the money they borrow from other sources, it is only normal for them to reserve portion of their revenue to the lenders of the money as a token of recognizing the risk they have taken in the first place. But in such cases, the interest rate should not be extreme. Thus, it is not proper to criticize interest-​taking in cases fulfilling the conditions referred to above. Calvin further suggests that there should be a distinction between extreme interest and the interest applied to the loan received for production and consumption and attempts to prove that a reasonable interest rate does not violate the divine prohibition. With the exception of the loans given to the poor, he notes that fair and reasonable interest is legitimate, and it can be justified by legal regulations. From this perspective, it is not an exaggerated argument that Calvin is a leading justifier and pioneer of the modern capitalist assumptions and arguments. Calvin’s argumentation basically suggests that loans on interest for the purpose of financing production and manufacturing should be promoted and encouraged whereas the practice of interest should only be prohibited in case it causes poverty and misery. The key point in the point of view that legitimizes the practice of interest is the idea that the party which receives loans on interest for the purpose of production will make profit in the entire transaction. However, it is obvious that Calvin does not take the destructive consequences of such interest-​bearing debt into considerations. Bankruptcy and financial devastation, as well as other similar problems often encountered in the modern capitalist order are not addressed in Calvin’s approach. It appears that the only solution he offers to deal with any problems is prescription of certain limitations for interest rates.

Notes 1 Switzerland is the first to lift the interest ban by incorporating a clause in the civil code: see page 44 in Akdiş (2015). 2 Calvin does not concur with the loaning on interest for consumption goods. 3 Germany sociologist Max Weber argues that the modern capitalist system owes a great deal to Reformation and particularly the Calvinist ethics (Weber, 1930, p.  50). He argues that Calvinist ethics played an impressive role in the emergence of Protestant movement, see Parsons (1948). Some scholars even argue that Calvinism is one of the foundations of Protestantism, see Weber (1949, 1968) and Zafirovski (2015). Weber argues that Calvinism is a strong and refined organization in the making of capitalist individuals, see Weber (1950). Weber examines

Interest in the John Calvin school of thought  83 economic affairs in three groups:  institutions, economically conditioned social phenomena, and economically relevant social phenomena. Weber assesses religion in this group and calls it socio-​economic phenomenon; see Weber (1949, 1968). Calvinism and spiritual Protestantism is a good example that represents the social phenomena connected with modern capitalism (Weber, 1949). Some argue that he offers revolutionary commentaries to the relevant sections 4 in the scriptures and that he is of the view that the prohibited interest referred to in the holy scripts is the interest charged against the poor and the needy who borrows money from lenders; see Schmidt (1960). Calvin considers borrowing in trade activities as a regular loaning activity: see K. H. Akalın (2009) and Wendel (1963).

References Akalın, K. H. (2009). Eski Ahit metinlerinde J.  Calvin’in faiz yorumu. Atatürk Üniversitesi Sosyal Bilimler Enstitütüsü Dergisi, 13(1), 237–​252. Akalın, K. H. (2012). Paranın değersizliğine dayanan tefecilik yasağına karşı kazançtan ayrılan pay olarak faizin yasallığı. Kafkas Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 3(1), 215–​248. Akdiş, M. (2015). Faiz ve Faiz Teorileri. In O. Altay (Ed.), Para İktisadı:  Teori ve Politika (p. 85). Ankara: Palme Yayıncılık. Aristoteles. (2008). Politika (M. Tunçay, Trans.). İstanbul: Remzi Kitapevi. Bainton, R. (1952). The Reformation of the Sixteenth Century. Boston: Beacon Press. Bayindir, S., & Ustaoglu, M. (2018). The issue of interest in the Abrahamic religions. International Journal of Ethics and Sytems, 34(3), 282–​303. Beadreau, B. C. (2017). Calvinism, Huguenots and the Industrial Revolution. 1–​44. Retrieved from https://​​1e37/​091d509999ef7fbece32261 38c462cac26c5.pdf. Bentham, J. (1952). Defence of usury shewing the impolicy of the present legal restraints on the terms of pecuniary bargains. In W. Stark (Ed.), Jeremy Bentham’s Economic Writings (Vol. 1, pp. 167–​187). London: Allen & Unwin. Biéler, A. (1959). La Pensee Economique a Sociale de Calvin. Genova: University of Genova. Calvin, J. (1925). The Institutes of the Christian Religion (H. Beveridge, Trans.). Grand Rapids, MI: Christian Classics Etheral Library. Calvin, J. (2006). Commentary upon the Acts of the Apostles (Vol. 1). Edinburgh: Henry Beveridge. Cleary, P. (1914). The Church and Usury: An Essay on Some Historical Theological Aspects of Money Lending. Dublin: M. H. Gill. Codr, D. (2016). Raving at Usurers:  Anti-​Finance and Ethics of Uncertainty in England, 1690–​1750. Charlottesville: University of Virginia Press. Dempsey, B. W. (1948). Interest and Usury. London: D. Dobson. Dictionary, T. M. (Ed.) (1997) Usury (3rd ed.). Sydney: Pan Macmillan. Dinler, Z. (1994). Mikro Ekonomi. Bursa: Ekin Kitapevi. Elbir, H. K. (1952). Fahiş Faiz Meselesi. İstanbul Üniversitesi Hukuk Fakültesi Mecmuası, 18(3–​4),  3–​21. Ergin, F. (1983). Para Faiz ve Teorileri. İstanbul: Beta Yayınları.

84  Dilek Demirbas and Safa Demirbas Ersoy, A. (2012). İktisadi Düşünceler Tarihi. Ankara: Nobel Yayınları. Eskicioğlu, O. (1999). İslam ve Ekonomi. İzmir: Çağlayan Matbaası. Gide, C., & Charles, R. (1915). A History of Economic Doctrines. Boston: D.C.  Heath. Graafland, J. J. (2009). Calvin’s restrictions on interest:  Guidelines for the credit crisis. Journal of Business Ethics, 96(2), 233–​248. Harkness, G. (2014). John Calvin: The Man and His Ethics. New York: Henry Holt. Kauder, E. (1965). A History of Marginal Utility Theory. Princeton:  Princeton University Press. Kuran, T. (1997). Islam and underdevelopment: An old puzzle revisited. Journal of Institutional and Theoretical Economics, 153(1),  25–​41. Kureşi, E. I. (1966). Faiz Nazariyesi ve İslam (S. Tuğ, Trans.). İstanbul: Ahmet Sait Matbaası. Luther, M. (1960). How Christians should regard Moses. In M. H. Bertram (Ed.), Luther’s Works (Vol. 35, pp. 161–​172). Philadelphia: Fortress Press. Mai, L. H. (1975). Men and Ideas in Economics. Hoboken, NJ: Adams and Co. McGrath, A. E. (1990). A Life of Calvin: A Study of the Shaping of Western Culture. Cambridge: Basil Blackwell. McNeill, J. T. (1967). The History and Character of Calvinism. New York: Oxford University Press. Mews, C. J., & Abraham, I. (2007). Usury and just compensation:  Religious and financial ethics in historical perspective. Journal of Business Ethics, 72(1),  1–​15. Munro, J. (2003). The medieval origins of the “Financial Revolution”: Usury, rentes, and negotiablity. The International History Review, 25(3), 505–​562. Munro, J. H. (2011). Usury, Calvinism, and credit in Protestant England:  From the sixteenth century to the Industrial Revolution. Working Papers tecipa-​439, University of Toronto, Department of Economics . Neumark, F. (1943). İktisadi Düşünceler Tarihi (A. A. Özeken, Trans.). İstanbul: İstanbul Üniversitesi yayınları. Noonan, J. T. (Ed.). (1969). The Amendment of Papal Teaching by Theologians. New York: Herder and Herder. North, G. (1975). The economic thought of the Luther and Calvin. The Journal of Christian Reconstruction, 2(1), 98–​100. Nymeyer, F. (1957). John Calvin on interest. Progressive Calvinism 3, 55. Oberman, H. A. (1985). Luther: Man between God and the Devil. New Haven: Yale University Press. Parsons, T. (1948). Max Weber’s Sociological Analysis of Capitalism and Modern Institutions. In H. E. Barnes (Ed.), An Introduction to the History Sociology (p. 295). Chicago: University of Chicago Press. Pıçak, M. (2012). Faiz olgusunun iktisadi düşünce tarihindeki gelişimi. Manas Sosyal Araştırmalar Dergisi, 1(4),  61–​92. Principles, O. S. D. o. H. (1992). Interest. Oxford: Oxford University Press. Ramsay, I. (2010). A tale of two countries:  Responding to over-​indebtedness in France and the UK, 1985–​2010: The role of interest rate ceilings. University of Toronto Law Journal, 60(1),  9–​25. Rothbard, M. N. (1995). Classical Economics:  An Austrian Perspective on the History of Economic Thought. London: Edward Elgar. Savaş, V. F. (1999). İktisadın Tarihi (3rd ed.). Ankara: Siyasal Kitabevi.

Interest in the John Calvin school of thought  85 Schmidt, A. M. (1960). Calvin and the Calvinistic Tradition. New  York:  Harper Publishing. Spiegel, H. W. (1991). The Growth of Economic Thought (3rd ed.). London: Duke University Press. Tawney, R. (1923). Religious thought on social and economic questions in the sixteenth and seventeenth Centuries II. The Journal of Political Economy, 31(4), 804–​825. Tawney, R. H. (1954). Religion and the Rise of Capitalism New York: New American Library. Terrell, T. D. (2004). What Calvinism did for Economics. Resources. Retrieved from https://​​magazine/​what-​calvinism-​did-​for-​economics. Unay, C. (2000). Genel İktisat. Bursa: Ekin Kitapevi. Wallace, R. (1998). Calvin, Geneva, and the Reformation. Eugene: Wipe and Stock Publishers. Weber, M. (1930). The Protestant Ethic and the Spirit of Capitalism. New  York: Charles Scribner. Weber, M. (1949). The Methodology of the Social Sciences. New York: The Free  Press. Weber, M. (1950). General Economic History. Glencoe: The Free Press. Weber, M. (1968). Economy and Society. New York: Bedminster Press. Wendel, F. (1963). Calvin: The Origins and Development of His Religious Thought New York: Harper & Row. Wykes, M. (2003). Devaluing the scholastics:  Calvin’s ethics of usury. Calvin Theological Journal, 38(1),  27–​51. Zafirovski, M. (2015). Any proofs for the Calvinism-​capitalism thesis? The exemplars of the rule reexamined. Politics, Religion & Ideology, 16(4), 339–​369. Zeytinoğlu, E. (1992). İslam’da ve Diğer Sistemlerde Faiz Para. İstanbul:  İlmi Neşriyat.

Chapter 9

Monte di Pietà Murat İstekli and Murat Ustaoğ l u

It seems to me that there are three ways in which profit may be made from money, without laying it out for its natural purpose; one is the art of the money-​changer, banking or exchange, another is usury, a third alteration of the coinage. The first way is contemptible, the second bad and the third worse. ​Nicole  Oresme

Introduction The interest-​bearing debt or the concept of usury have been attached different meanings in different parts of history due to changing circumstances.1 In particular, theological arguments paid attention to the principles of justice and fairness. With the greater use of money in economic activities, interest-​ bearing debt has also become widespread, leading to ethical issues as well. Interestingly, the practice of interest has gained further recognition over time and fully legitimized. In some instances, temporary measures were taken to address the problems associated with the uncontrolled spread of the practice, including the introduction of restrictions to the interest rates. Theologians who spent time determining the reasonable interest rate relied on the concept of justice in their arguments they offered as a solution. In the medieval era, determining a price for money was seen as a moral issue that hurt the sense of justice (Ekelund et al., 1989). For this reason, arguments were raised to suggest that interest added to the loans used for consuming purposes was not fair as it was considered exploitation. To address this problem, short-​term loans should be introduced so that the people would meet their consumption needs (Geisst, 2013). In order to save the debtors who were poor and helpless from the usurers, sustainable solutions should be developed; the church appears to be an institution with the necessary funds to perform this role. The church, however, has been criticized for manipulating the interest doctrine in order to sustain its monopolistic position in the markets (Ekelund et al., 1989; Orielli et al., 2013).

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When lending money, the church charged interest rate at the market level (in some cases, above the market level), but when asking for loans, it relied on arguments to reduce the borrowing cost. Even though this attitude has been criticized for the inconsistency, the church took steps toward the elimination of usury because it was aware that unless something was done, there would be no sustainable peace within the society. It was a fact that the demand for interest-​bearing debt would not disappear without offering a viable alternative. Monte di Pietà was one of the steps in offering one of these alternatives.

Finance in medieval Italy In Lombardia, Northern Italy, interest-​bearing debt was overseen by Jews, who controlled this particular field on the tables known as banco in front of a building named Banco Rosso. Banco, which means table in Italian, is the word from which the term bank was derived (Sümer, 2016). The majority of the people in this particular area were the Jews who escaped the war fought with the Union of Cambria in 1509. Their request for refuge was accepted because the city administrators agreed that they would contribute to efforts for meeting financing needs. The Jews who took refuge in the city were granted a large area of land outside the city where they experience real hardships including tight restrictions and controls applicable to their ghetto life. Despite these hardships, the number of people migrating to the area reached 2,500 by 1590. Based on an agreement between the local Jews and the city administration, the inhabitants were allowed to perform usury activities, referred to as “condotte” (Barile, 2012). As a direct outcome of these agreements, the Jews acquired control over the usury activities in the Italian city-​states. Interest-​bearing debt generated financing for trade and tax revenues for the state administration. According to the agreements, interest rates were determined by the usurers; the rates changed by the cities and the eras. For instance, the annual ceiling rate in Umbria was 60 percent in 1402, it was 42 percent in Spoleto in 1416, 30 percent in Tuscany in the mid-​15th century, 15–​20 percent in towns around Venice in 1312 (Botticini, 2000). But despite the privileges given to the Jews under the agreements concluded with the city administrations, the Jews did not have a monopoly over interest-​bearing debt. Historical records indicate that some leading families were also interested in such businesses because of lucrative outcomes, including the Bardi, Peruzzi and Acciaiuoli families who, however, were not as successful as the Jews. These families also made a huge mistake when they lent monies to the British and French kings who did not pay back, causing them to go bankrupt. The Medicis were referred to as visionaries of the time because of their interest in science and art, and they replaced bankrupt families and became currency traders. The secret behind the Medicis’ success was their skills in accounting, their decision to reduce the risk by lending

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monies to different borrowers from different backgrounds, their strong emphasis upon the content of the agreements, their allocation of premiums for the principals of their banks and their use of fiorino d’oro coins in their branches.2 Interestingly, the Medicis were still able to make a profit while charging 5–​10 percent of interest rate for the deposits they collected while the average market rate was 2.66–​6.6 (Ekelund et  al., 1989). Some historians argue that the Medicis have become the most significant banking actor in Europe because a Monte was not allowed in Venice. The city administrators, upon considering the lack of a Monte in the city, made an agreement with Jewish usurers, who were asked to charge lower interest rates (Barile, 2012). The Medici family, however, was still very successful, raising its profitability rate to 30  percent on an annual basis (Conaghan & Smith, 2014; Ferguson, 2017). The economic power was soon transformed into political power as well, making the Medicis one of the most significant political actors that would determine the future of the city. With the discovery of new maritime routes and expansion of international trade, interest-​bearing debt also became widespread in Florence, Venice and Genoa. The Jewish usurers, the bankers and the monasteries were the only options available to provide funds and financing for the growing trade activities. The large segment of the mortgage transactions in the 11th and 12th centuries was performed by the Jewish traders with significant experience, referred to in the legal documents as pestilans (Menning, 1989). However, the monopolistic stance of the Jews was eroded by the emergence of new financing alternatives, including the banking system that started to evolve in the 14th century (Chazan, 2010; Öçal & Çolak, 1999).3 The diversification and multiplication of the alternative financing sources have made Italy a center of attraction in terms of banking activities (Cosci & Meliciani, 2002). Monte di Pietà is one of these alternatives, offering financing for those in need, seeking to maximize the common good and performing both collective and individual transactions. The number of Montes has increased from 120 in 1515 to 500 in 1650 in different parts of Italy (Montanari, 1999). The growing influence of the Montes in the market had a determinative impact upon the average interest rates and the value of the money (Orielli et al., 2013). An analysis of the Montes contributes to a better understanding of the historical evolution of the interest-​bearing debt.

Franciscan order and Monte di Pietà Some historians argue that the theological arguments raised by the clerics and the endless warfare in medieval times prevented the emergence of a banking system. The prohibitive nature of the theological arguments did not erase the demand for loans and, instead, trade relied on interest-​bearing debt instruments (Ekelund et  al., 1989). Different solutions were offered

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to meet the need for financing; the interest ban has been implicitly overcome in agreements through irregularities enshrined in contractual terms and stipulations (Tan, 2002). While the merchants somehow secured financing for their activities, the local people had no option other than usurers who charged high interest rates. The clerics, in the presence of this problem, worked on different options. A small Christian group decided to rely on a unique solution. The Franciscan Order, founded by Italian priest Assisili Francesco and recognized by the Pope Innocentius III in 1210, is a small community of followers who vowed to live on a small amount of sustenance in light of the teachings by Jesus (Orielli et al., 2013). Monte di Pietà, founded to facilitate access by the local people to financing, is considered by some authorities as a certain form of banking; but there is no agreement on the nature of its activities. For instance, according to some historians such as Conaghan and Smith (2014), this structure, created by the followers of the Franciscan Order, is the first bank in history. The main function of this alternative model is to provide consumer loans to mitigate the impacts of the interest-​bearing debt by the Jewish usurers.4 Their service of offering loans under reasonable terms was considered a great contribution to the economic and social life of the time (Geisst, 2013). The unpleasant sentiments vis-​à-​vis the Jewish usurers was another motivation for the founders of Monte di Pietà. Bernardino da Feltre (1439–​1494), one of the founders, referred to the Jews living in the ghettos as devils who worked all the time without going to sleep and eating or drinking something (Varischi, 1964). The founders thus upheld that some steps should be taken to address the monopoly of the Jews in the domain of financial affairs so that the common interests of the Christians are protected. Marco di Matteo Strozzi, another founding member of the Monte in Florence, referred to the Jewish usurers as the enemies of Jesus and placed emphasis upon the Montes in order to protect poor Christians (Menning, 1989). In consideration of the growing influence of the Jewish usurers, Bernardino da Feltre took the lead toward founding the first Monte di pietà in Perugia in 1462; this new institution was aimed at providing alternative channels of financing for the poor and serving as a charity institution (Puglisi & Barcham, 2008).5 The goal of the founders is to save the poor from the Jewish usurers. But some historical anecdotes argue that the Montes failed in this competition because, in fact, they in some ways complemented the activities of the usurers (Botticini, 2000). Still, the interest in the first Montes in Perugia and the exile of some Jews and confiscation of their properties led to the proliferation of these institutions in other parts of Italy as well (Koyama, 2010; Menning, 1993). Monte di Pietà, performing material services, also symbolizes the bonds of compassion and religious companionship. One of the indicators for these bonds is the use of the emblem Man of Sorrows engraved on the Monte

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buildings (Puglisi & Barcham, 2008).6 The reference point of the welfare is the theological teachings of Jesus and the church which merge the heaven and the worldly life (Orielli et al., 2013).7 To this end, the Montes provided attractive loans for the low-​income groups of the society with a spiritual mission in mind (Muzzarelli, 2001). The idea was that once this is done, the Christian world would be united and bonds of brotherhood would be strengthened within the Christian community. Initially, the Montes collected donations from philanthropists to distribute to the people in need (Ekelund et al., 1989; Menning, 1992). However, this was unsustainable since it was impossible to offer lasting solutions to the chronic issues in financial markets by reliance on the altruistic sentiments of the people. The Montes experienced problems in terms of securing funds for distribution when the donors had to take care of themselves due to the deteriorating economic circumstances. Additionally, the problem was further deepened by the growing demand for their funds in association with the abject economic situation and the declining supply (Botticini, 2000). The government emerged as the biggest donor in a way to address this problem in 1498.

Monte di Pietàs and interest rates In addition to funding individual commercial initiatives as well as providing finance for the municipalities and provinces, many Montes also performed a wide variety of services, including sending gifts to the poor girls and assuming the treasury administration of the charity institutions. Historians paid particular attention to the regulations and constitutions of the Montes, focusing on the framework of their activities (Muzzarelli, 2001). Research on the history, organization and function of the Montes provides insight and information on the historical survey of the interest-​bearing debt and enables us to better understanding the historical evolution of the bank-​like institutions in the medieval age into modern banking entities (Barile, 2012). In the end, Montes are referred to as the most important cornerstones of the financial history of Europe (Todeschini, 2001). The secular authorities placed pressure upon the church, urging for the lifting of the interest ban. As a result, the church agreed that the Montes could receive loans on small interest rates so that it could continue to perform its charity works (Geisst, 2013). Some historians even argue that the permission granted to the Monte di Pietà in 1515 to admit loans on interest was a milestone in lifting the interest ban in the entire European continent. The debt contracts offered by the Montes usually featured short-​term loans payable in 3, 6 or 12 months; the amount of loan was determined by what the borrower could offer as collateral. Because the amount of loans was practically low, the Montes never became attractive options for commercial enterprises. In an attempt to meet their demands for trade activities,

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the enterprises relied on other alternatives, primarily the Jewish usurers. The operating costs of the Montes were generally lower, compared to other alternatives. Initially, the running costs were around 5–​6  percent, rising to 8  percent and then 10  percent. The highest operating cost for Montes recorded was 15 percent, according to Botticini (2000). Loans on low interest rate is not the only advantage of the Montes; specific terms in the debt contracts prevented the recall of the debts before their due dates in an attempt to protect the interests of the poor. The Monte founded in Verona concluded more than 200,000 debt contracts on 6 percent of interest rate in its first year. One reason for their growing popularity, according to some historians, was ongoing wars and the devastating poverty in association with the heavy tax burden the people had to endure (Schofield, 1997; Tan, 2002). The Montes, in addition to providing funds for the poor, also contributed a great deal to the economic growth in areas where they were active, this indicates the significance of financial resources in terms of the overall betterment and welfare of the society (Previts, Parker & Coffman, 1990). Without investigating the interest-​bearing debt dynamics, it is not easy to explain the factors that contributed to the growth of the European economy (Briggs, 2009). Monte di Pietà is an innovative structure and instrument that rationalizes the access of the consumers to the financial resources in an institutional context (Cipolla, 1993). Archives of a branch in Bologna reveals the close interaction of the Montes with the people and institutions of the city (Orielli et al., 2013). None of the other alternatives implemented in that time was as successful as the Montes (Whitwell, 1903). Particularly in the early stages of their emergence, the Montes served as an institutional symbol of benevolence and philanthropy (Fontaine, 2008).8 This model has become widespread and attracted a great deal of attention outside Italy as well, including France, Spain, Holland and Portugal. The contribution of the Monte di Pietà to the outlook of the city and the civil identity inspired other institutional structures as well (Avallone, 2007). The only exception is Venice, where Bernardino da Feltre was unsuccessful in making it acceptable to the local people and came out in favor of the usurers. With the adoption of laws that ended initiatives of creating foundations by the Council of Ten,9 the agreements previously concluded with the Jewish bankers remained in force (Pullan, 1971). Even in modern times, Monte-​like structures and organizations operate in different parts of the world, albeit relying on more contemporary methods and instruments to perform their services. The figure of the Man of Sorrows, the symbol of the legitimacy and recognition of Montes, still decorates a number of renowned buildings. First developed in the 13th century, these figures are still alive and popular, reflecting the recognition of the legacy left by the Montes. There are now a number of institutions that would replace the Montes; however, they are far from being able to garner the kind of

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support and recognition that Montes once did in areas where they operated. Bernardino da Feltre is to be praised for this success (Puglisi & Barcham, 2008). Da Feltre served as a beacon of hope for the people in despair due to perpetual poverty and as a light at the end of the tunnel. In doing his service, he related to the compassion of Jesus and contributed to the sense of solidarity within the society, enabling the poor to become more active and operative in the process of production.

Conclusion Monte di Pietà, first founded in Italy, attracted a great deal of attention and thus became popular both domestically and internationally. The theoretical foundations of the initiative borrowed from the tenets of benevolent aspects in Christianity, which raised hopes for social unity and harmony through the elimination of poverty and solidarity among fellow Christians. The Montes emerged as alternatives to the Jewish usurers who charged high interest rates on the loans; the first Monte was founded in Perugia in 1462, and then idea spread all over Italy, effectively eroding the domination of the Jewish usurers in financial matters. Owing to the Montes, the poor had easy access to loans; likened to banks, the Montes performed functions similar to those of the banks, offering loans to individuals, municipalities and the provinces, the Montes particularly targeted the poor segments of the society. Over time, their activities were emulated by similar initiatives which, however, were unable to last long.

Notes 1 Depending on the growing trade activities in the Christian world in the medieval era, a number of interest/​usury definitions were developed in line with the evolving economic conditions and the changing methods of exchange. In one type of practice, a certain interest rate was applied to the original amount of debt; a second type included agreements with terms requiring payment of a certain amount of fee in case of failure to repay the debt in due time. A third type of practice often established a fixed legal interest rate (between 5 and 8 percent). Some agreements, on the other hand, pledged to generate profits for the lenders. Additionally, manipulation of foreign currencies in a way to ensure profits was also practiced widely as a form of interest (Orielli, Sordo & Fornasari, 2013; Valeri, 2011). In this period, the terms interest and usury were used almost interchangeably (Wayne, Visser & Macintosh, 1998). Orielli et al. (2013) note that the terms “interesse” or “merito,” which literally mean interest rate in Italian are not used in the accounting records because they remind of usury and that terms such as costo di danaro (cost of money) or even dono (donation, grant) are preferred instead. The term usury is derived from usura, used to mean payment to the lender. On the other hand, interest is initially used to mean the repayment of the loss or expenses recognized in the civil and church law. The modern

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2 3






economics, on the other hand, refers to the interest as the price or fee that lender asks from the borrower because he gives up on the opportunity of using the fund in his own commercial activities (Ekelund, Hebert & Tollison, 1989). Relating the plethora of meanings attached to the concept of usury to the economic climate, Adamo, Alexander and Fasiello (2018), argue that the change in the debt is a direct and natural result of the transition from subsistence economy to the profit-​oriented commercial economy. The new economic conditions in this profit-​ oriented economy, which generated strong needs for financing created pressure upon the church to soften the interest ban (Orielli et al., 2013). Named after the city of Florence, the fiorino d’oro coins, equal to 3.5 grams of gold, are worth approximately $150. Despite the assumption that modern banking has emerged in Italy, banking-​ like activities were also observed in the ancient civilizations. Particularly in the Mesopotamian region, private and legal persons assumed roles of lending raw materials or equipment in return for a certain amount of interest payable at the time of harvest by the farmers (Sümer, 2016). However, it is not proper to compare the institutional nature of these structures by the Medieval standards. Without a system bringing together the lenders and borrowers, monetary relations and transactions would not have emerged. In the absence of money, economic affairs would depend on exchange of goods. This causality suggests that the modern banking can be traced back thousands of years. Recognizing the supremacy of the Jews in financial matters, the order paid close attention to the matter of loaning and usury. One reason for this interest is the Jewish control over the monetary affairs in the Italian economy of the time and the consideration that such a control would be translated into political influence as well (Derks, 2008). In 1430s, trusts providing loans at reasonable terms were founded; although they did not last, these trusts paved the way for the foundation of Monte di Pietà (Tan, 2002). While some researchers argue that the first Monte was founded in 1458 by Franciscan priest Domenico da Leonassa in Ascoli Piceno, the historical records supporting this argument are not substantiated (Barile, 2012). The symbol of Man of Sorrows bears importance for the Christians as a description of Jesus. The bruises and injuries, as depicted in this symbol, on different parts of his body reflect the magnitude of the sorrow he was enduring. The impression on his face also confirms his compassion and dedication. The figure is one of the strongest visual expressions of piety in the medieval era (Puglisi & Barcham, 2008). The teaching is particularly focused on the material life and is considered as the indicator of the economic stance of the church. Ekelund et al. (1989) explains the pursuit of the church to become a monopoly in the medieval era by referring to its monetary and non-​monetary objectives. Generation of sources financing the benevolent acts is the source of monetary objectives whereas the nonmonetary objectives also serve this particular objective as well. Monte di Pietà also inspired similar initiatives in the modern times. A  project implemented by Bangladeshi professor of economics Muhammad Yunus made resources available for the social and economic development of the poor. Yunus, a Nobel Laureate in 2006, founded Grameen Bank (literally means the bank of the poor), which provided microcredits for the end-​users in order to make sure

94  Murat ˙I stekli and Murat Ustaoğ l u that the underprivileged and disadvantaged groups who were denied access to mainstream financing opportunities will have a choice of funding their economic initiatives. The goal of the project was to devise policies and programs that would ensure that low-​income people would have effective access to financial resources and that would eventually generate a sustainable scheme involving the poor as well (Ledgerwood, 1998). The microcredit approach reduces the costs and red-​ tape practices, thus enabling the poor to be encouraged to receive loans (Şengür & Taban, 2012). As a project to reduce poverty, microcredit scheme also improves employment (Özmen, 2012). Yunus first developed this idea in early 1970s while he was teaching at Chitagong University; taking note of the despair and poverty the local people in a village where he held observations had to endure, Yunus concluded that the real problem was lack of financing rather than lack of education or illiteracy. In 1974, he started to grant loans for the local people in the village; he was further encouraged when he realized that the vast majority of the loans he granted were repaid, finally deciding to found the Grameen Bank (Şengür & Taban, 2012). Arguing that there is visible gap between the real poverty of the people and the theoretical assumptions in different schools of economic thought, Yunus attempted to find a solution to the state of perpetual poverty. His solution, Grameen Bank, has been offering small amounts of financing for millions of the poor people in Asia since 1976 with an impressive 98  percent of success rate. The strategies this project and the Monte di Pietà employed are pretty similar. Bernardino da Feltre, believing that Jesus’ teachings provide the necessary motivation for the foundation of eradicating poverty, referred to the significance of solidarity and altruism; Yunus, relying on a similar premise, attempted to address the state of poverty in his country (Puglisi & Barcham, 2008). Founded by Doge Pietro Gradenio in 1310, the Council of Ten has become one of 9 the vital branches of government in the time of the Venice Republic. A relatively secretive group, the Council attracted both praises and criticisms (Chambers, Pullan & Fletcher, 2001). The Council was charged with maintaining security and combating corruption in the Republic. In the late 16th century, however, the council acquired the most complicated espionage network owing to its authorities and flexible structure (Iordanou, 2018).

References Adamo, S., Alexander, D., & Fasiello, R. (2018). Usury and credit practices in Italy in the middle ages. Accounting and Cultures Review, Special Issue:  Banks and Financial Institutions in Historical Perspective (1), 37–​69. Avallone, P. (2007). Prestare ai poveri:  Il credito su pegno e i Monti di Pietà in area mediterranea (secoli XV–​XIX). Napoli: Consiglio Nazionale delle Ricerche, Istituto di Studi sulle Società del Mediterraneo. Barile, N. L. (2012). Renaissance Monti di Pietà in modern scholarship:  Themes, studies, and historiographic trends. Renaissance and Reformation/​Renaissance et Réforme, 35(3 Special Issue), 85–​114. Botticini, M. (2000). A tale of “benevolent” governments:  Private credit markets, public finance, and the role of Jewish lenders in medieval and Renaissance Italy. The Journal of Economic History, 60(1), 164–​189.

Monte di Pietà  95 Briggs, C. (2009). Credit and village society in fourteenth-​century England. Oxford: Oxford University Press. Chambers, D. S., Pullan, B. S., & Fletcher, J. (2001). Venice: A Documentary History, 1450–​1630. Toronto: University of Toronto Press. Chazan, R. (2010). Reassessing Jewish Life in Medieval Europe. Cambridge: Cambridge University Press. Cipolla, C. M. (1993). Before the Industrial Revolution:  European Society and Economy, 1000–​1700. London: Routledge. Conaghan, D., & Smith, D. (2014). Para Kitabı: Finans Dünyasının Nasıl Çalıştığıyla İlgili Bilmeniz Gerekenler (C. Duran, Trans. O. Kaya Ed.). Istanbul: NTV Yayınları. Cosci, S., & Meliciani, V. (2002). Multiple banking relationships: Evidence from the Italian experience. The Manchester School Supplement, 70(S1),  37–​54. Derks, H.  (2008). Religion, capitalism and the rise of double-​entry bookkeeping. Accounting, Business & Financial History, 18(2): 187–​213. Ekelund, R. B., Hebert, R. F., & Tollison, R. D. (1989). An economic model of the medieval church: Usury as a form of rent seeking. Journal of Law, Economics, & Organization, 5(2), 307–​331. Ferguson, N. (2017). Paranın Yükselişi. İstanbul: Yapı Kredi Yayınları. Fontaine, L. (2008). L’économie morale, Pauvreté, crédit et confiance dans l’Europe préindustrielle. Paris: Gallimard. Geisst, C. R. (2013). Beggar Thy Neighbor:  A History of Usury and Debt. Philadelphia: University of Pennsylvania Press. Iordanou, I. (2018). The Spy Chiefs of Renaissance Venice: Intelligence Leadership in the Early Modern World. In P. Maddrell, C. Moran, I. Iordanou, & M. Stout (Eds.), Spy Chiefs: Volume 2: Intelligence Leaders in Europe, the Middle East, and Asia. Washington, DC: Georgetown University Press, 43–​66. Koyama, M. (2010). Evading the “taint of usury”: The usury prohibition as a barrier to entry. Explorations in Economic History, 1–​23. doi:10.1016/​j.eeh.2009.08.007. Ledgerwood, J. (1998). Microfinance Handbook:  An Institutional and Financial Perspective. Washington, DC: World Bank. Menning, C. B. (1989). Loans and favors, kin and clients: Cosimo de’ Medici and the Monte di Pietà. The Journal of Modern History, 61(3), 487–​511. Menning, C. B. (1992). The Monte’s “Monte”: The early supporters of Florence’s Monte di Pietà. The Sixteenth Century Journal, 23(4), 661–​676. Menning, C. B. (1993). Charity and State in Late Renaissance Italy: The Monte di Pietà of Florence. Ithaca, NY, and London: Cornell University Press. Montanari, D. (1999). Monti di pietà e presenza ebraica in Italia: (secoli XV–​XVIII). Roma. pp. 9–​15. Available at http://​​10807/​24063 Muzzarelli, M. G. (2001). Il denaro e la salvezza: L’invenzione del Monte di Pietà. Bologna: Pubblicazioni degli archivi di Stato. Öçal, T., & Çolak, Ö. F. (1999). Finansal sistem ve bankalar. İstanbul:  Nobel Yayınları. Orielli, R. L., Sordo, C. d., & Fornasari, M. (2013). Credit and accounting in early modern Italy: the case of the Monte di Pietà in Bologna. Routledge Taylor Francis Group-​Accounting History Review, 23(3), 273–​293. Özmen, F. (2012). Türkiye’de Kadın İstihdamı ve Mikro Kredi. Suleyman Demirel University The Journal of Visionary, 3(6), 109–​130.

96  Murat ˙I stekli and Murat Ustaoğ l u Previts, G. J., Parker, L. D., & Coffman, E. N. (1990). Accounting history: Definition and relevance. Abacus, 26(1),  1–​16. Puglisi, C. R., & Barcham, W. L. (2008). Bernardino da Feltre, the Monte di Pietà and the Man of Sorrows:  Activist, microcredit and logo. Artibus et Historiae, 29(58),  35–​63. Pullan, B. S. (1971). Rich and Poor in Renaissance Venice: The Social Institutions of a Catholic State, to 1620. Cambridge, MA: Harvard University Press. Schofield, P. R. (1997). Dearth, debt and the local land market in a late thirteenth-​ century village community. The Agricultural History Review, 45(1),  1–​17. Şengür, M., & Taban, S. (2012). Yoksullukla Mücadele Stratejisi Olarak Mikro Kredi Uygulaması: Eskişehir İli Örneği. Eskişehir Osmangazi Üniversitesi Sosyal Bilimler Dergisi, 13(1),  59–​89. Sümer, G. (2016). Türk bankacılık sektörünün tarihsel gelişimi ve AB bankacılık sektörü ile karşılaştırılması. Gazi Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 18(2), 485–​508. Tan, E. S. (2002). An empty shell? Rethinking the usury laws in medieval Europe. The Journal of Legal History, 23(3), 177–​196. Todeschini, G. (2001). Credibilità, fiducia, ricchezza:  Il credito caritativo come forma della modernizzazione economica europea. Napoli:  Consiglio Nazionale delle Ricerche, Istituto di Studi sulle Società del Mediterraneo. Valeri, M. (2011). The Christianization of usury in early modern Europe. Interpretation, 65(2), 142–​152. Varischi, C. (1964). Sermoni del Beato Bernardino Tamitano da Feltre:  Nella redazione di fra Bernardino Bulgarino da Brescia Minore osservante (Vol. 2). Milano: Cassa di risparmio delle provincie lombarde e Banca del Monte. Wayne, A., Visser, M., & Macintosh, A. (1998). A short review of the historical critique of usury. Accounting, Business & Financial History, 8(2), 175–​189. Whitwell, R. J. (1903). Italian bankers and the English crown. Transactions of the Royal Historical Society, New Series, 17, 175–​233.

Chapter 10

Origins of financial instruments in Islamic civilizations Gülden Poyraz

The sudden eruption of the Arab (Muslim) people in the 7th Century is something unique in history. In three generations a collection of scattered tribes, some settled, some nomadic, living by trade and subsistence farming, had transformed itself into a rich and powerful empire dominating the whole of southern Mediterranean and the Near-​East from Afghanistan to Spain. … They had succeeded in welding together peoples of diverse beliefs and languages into a unified society based on a common religion, a common language and common institutions. P. R. Wilson

Introduction The Arabian Peninsula, the region where Islam began, is mostly desert and arid lands unsuitable for agricultural production and animal breeding. People living in these lands do not have many options to produce wealth other than trade, which is the most important source of income in the pre-​ Islamic Arabian Peninsula (Komisyon, 2014). Trade and business have been acknowledged as a legitimate means of making a living in Muslim world also because the prophet of Islam has been involved in business activities his whole life. In the early stages of Islamic civilization, bazaars are the main centers of business and trade. The Prophet of Islam places special emphasis upon trade activities in these venues and promotes policies of incentives with respect to economic affairs. A set of legislations provides a firm framework for trade activities in this period; the right to ownership and property is recognized as a basic legal protection, and principles governing commercial contracts are further introduced. The scope is not limited to Muslims alone; some additional measures are drafted to promote trade involving non-​Muslims as well. These norms have been institutionalized and applied in all markets after the conquest of Mecca and the remaining parts of the Arab Peninsula (Mirakhor & Wang, 2013). Orman (2015) who comparatively analyzes the achievements of Islamic civilization in the field of trade stresses that in medieval era, unlike

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the stagnation in European markets, Islamic nations have created large and effective economic markets. Thanks to the mobilization of goods and services, as well as of the labor force, economic wealth has been generated for the entire region. Interestingly, research indicates that despite fertile ground, debt activities are not popular and prevalent at that time. This could be attributed to the prohibition of interest by Islam. However, scholars like Pamuk (2012) disagrees and argues that interest-​bearing debt have always been existent in the Muslim lands throughout the history. Muslim scholars often offered solutions that legitimize the practices of loans on interest through technical interpretations. Despite such a solution, an institutional financial structure has never emerged in the Muslim territories for a long time. The funds for trade activities are generated through commercial partnerships and borrowing transactions. The practice of partnership is prevalent even before the arrival of Islam. This method frequently employed to finance the trade caravans may be formulated as a labor-​capital partnership. Simply put, profit is shared in accordance with the terms of the partnership deal. Borrowing is another method of financing. However, because Islam strictly prohibits interest, this method is rarely employed; in the absence of interest, there remains little motivation for lenders. Theological scriptures have a deep impact upon the socio-​cultural fabric of the Islamic civilizations. This impact is more visible in the early stages of Islam, also known as a period of construction, where some steps are taken to place emphasis upon the economic activities. The Prophet of Islam maintains a market after immigration to Medina. Muslims remain adhered to this trend and open new markets, creating some sort of a vibrant market economy. Activities and transactions performed in this market economy contribute to the welfare of the Muslim nation; however, due to a series of negative developments including wars, invasions, the collapse of science, moral and institutional corruption and growing tax load, economic regression is experienced (Erbaş & Mirakhor, 2013).

Initial economic arrangements in Muslim world Debt transactions are one of the primary subjects that Islam deals with. An interest ban is one of the most orthodox principles that apply to such a transaction.1 Thanks to interest-​free debt transactions, social cost remains low; Muslim scholars agree that in case interest would be allowed in debt transactions, people would have greater motivation to avoid trade-​related activities and become tempted by debt on interest (Komisyon, 2014). This argument can be confirmed by the practices in the economic climate of the early stages of the Islamic civilization. On the other hand, some economic historians argue that there is a correlation between the underdevelopment of the Muslim world and the lack of advanced financial markets. The argument

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simply suggests that due to the interest ban, financial instruments have not been institutionalized in the Muslim world and this creates a shortage of financing and funds required for extensive investments. However, it is not realistic to attribute the underdevelopment issue to one single reason. Yet a number of Muslim scholars now take this argument seriously; a growing number of scholars offer a diverse set of views on the characteristics of the loan, the commodities subject to loan, the etymological distinction between the notions of interest and usury, the religious status of simple/​compound interest and the type of interest prohibited in the scriptures. It should be noted that similar attempts can be cited in the history of the other two monotheistic religions as well. To better understand what is different with the case of Islam, it is necessary to examine the economic climate and the status of financial transactions in the Islamic civilizations. In principle, Islam addresses the borrowing transactions from a transparent and humane perspective and set norms accordingly. A review of the verses in Quran reveals that human is at the epicenter of all worldly activities. For this reason, the personality and honor of the borrower is well-​protected (Özdemir, 2015). Right to property is also exclusively emphasized; legal arrangements protecting this right place great emphasis upon the individual utility because without social justice, it is not possible to elevate the welfare of a nation. One way to protect the social peace and harmony is to establish a firm and fair ground for the debt. History is full of examples suggesting that when problems creating economic inequality are solved, it becomes easier to maintain social harmony. Interest-​bearing debt is one reason for such problems. For this reason, it is essential to examine the norms that the religious scriptures seek to establish applicable to the interest-​bearing debt transactions. Primarily, Islamic law protects the right to life and property which are considered indispensable and inalienable. The property and life are regarded as sacred possessions; for this reason, borrowing transactions and other similar economic activities are placed under contractual protection which generates certain norms and behavioral patterns. Islamic scripts reserve room for these norms; when elevated to the status of a religious and political leader in Medina, the Prophet of Islam spends efforts to create a mechanism whereby economic activities are promoted and certain assurances are recognized for those who perform trade activities (Mirakhor & Wang, 2013). Quran also prescribes certain rules and provisions applicable to the borrowing transactions (Koehler, 2016). Verse 282 of Chapter Baqarah, the longest verse in the script, identifies the principles and methods applicable to such transactions that constitute the backbone of economic activities. The first principle in this verse refers to the recording of the commercial contracts and borrowing transactions with fixed terms. The first part of the verse focuses on the transactions to be performed in a future date, whereas the second part elaborates on the transactions entailing advance payment

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and immediate delivery. The terms should be transparently determined in the presence of witnesses; the verse also identifies details on how a contract should be concluded. Given the low literacy rate, that the Quran requires contractual commitments being done in writing is a good sign of the importance attached to the whole process.2 As a result of the internationalization of these norms, economic activities have become institutionalized and foundations of a number of economic structures have been laid down in Islamic civilizations. It is now time to review the arguments on the history of modern banking that constitutes the backbone of financial mediation.

Origins of modern banking: Commenda and mudaraba as partnership models Banking, one of the most specialized branches of the economic sectors, follows the trajectory of social and economic development. Orsingher (1967) argues that it is impossible to spot evidence on when the banking activities first started and how they remained uninterrupted. However, according to the majority of scholars, the foundations of modern banking were first laid out in Italy (Bergier, 1979). Commenda contracts are considered to be the initial attempts toward setting a more developed framework for borrowing transactions (Hobson, 2018). These contracts served as some sort of financial instruments and are a simple form of trade enterprise which then became popular in European civilizations. One of the partners provides commodities or cash as capital, whereas the other party contributes with his labor. The model, mostly used in naval trade, has however turned to be a popular mode of business in land trade as well. According to historians, the model was first invented in Italy in the 10th century (Köse, 2001). The established theory suggests that the roots of modern banking are to be found in these contracts that emerged in the European civilizations. However, some economists who look for the roots of commenda deals in the advanced financial structures and commercial partnership models in the history of Islam argue against this approach. Hobson (2018) refers to the similarities between these instruments and the partnership agreements in Islamic civilizations and stresses that many of their features show resemblance with type of partnerships called mudaraba, frequently employed by the traders in early times of Islam. Even scholars like Goldschmidt who attributes the origins of modern banking to Hellenistic and Roman civilizations acknowledge the relevance of the practices in Islamic history. Udovitch (1970) notes that this commercial deal, the first of its kind in economic and legal sense, emerges first in the Muslim world as kirad and mudaraba and then are reformulated as commenda in European civilizations. Additionally, Çizakça (1999) recalls that French economic historian Abraham E.  Savous, noting that Muslims had far more advanced trade methods than the Europeans did and that the type of contract they used in

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their transactions exhibited pretty similar features to those of commenda, which was invented in Europe centuries later, is the first to notice this resemblance in the early 20th century. Mudaraba is a commercial partnership contract that has been used extensively since the early times of Islam. In a simplistic form, it refers to a type of partnership which brings together holders of capital and successful entrepreneurs who lack sufficient amount to carry out a business venture. The expertise of the Arabic community in trade, specialization of the Jews in goldsmith and the Babylonian experience in coin and deposition of money contribute to the emergence of a sector similar to banking in Baghdad (Koehler, 2016). Even though the lines between fields of activities are blurred, money and gold exchangers perform functions pretty similar to services that a conventional bank offers, justifying the arguments that such entities are actually considered proper banks (Özdal, 2015). This naturally makes the arguments on the birth of banking controversial. Hobson (2018), analyzing the economic activities in Islamic civilizations, states that the banking activities are first performed in the Muslim lands. On the other hand, Chachi (2005) also notes that the modern banking system has evolved from a specialized banking system in the Medieval Islamic lands, stressing that an institution called divan el jahbaz first emerged in huge trade centers and that this institution actually performed all functions of a regular bank without relying on interest-​bearing debt transactions.3 Similarly, Chapra and Khan (2000) holds that Muslims have managed to create an interest-​free financial system in early stages of Islamic history to finance the production activities. Labib (1969), noting that the developmental gap between Muslim world and the West became visible in the medieval era, offers an interesting argument as to why a bank-​like institution has never emerged in the Muslim world. Even though most of the contemporary banking services have been offered in large cities of the Islamic civilizations, he argues that no step has been taken to institutionalize this mechanism. According to Labib, the rulers and the traders, out of fear that such an institution becomes a political point of attraction, did not support the idea.4

Debates on some financial instruments in the Muslim world Bayt al Mal, referred to as the state treasury, which was set by prophet of Islam, is the first source of financing for the Muslim traders. The original function of this institution is to carry out the financial affairs of the state; however, it gains its independence during the reign of Caliph Omar and starts to provide loans for Muslim traders (Kızılkaya, 2012). In addition, the state’s support for the traders is not limited to interest-​free loans. In some instances, the state enters partnership with the traders and entrepreneurs through mudaraba financing (Bayındır, 2001).

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But subsequent to the expansion of the Muslim territories and of the trade, the need for additional financial instruments emerges. It does not take a long time to invent such financial instruments that facilitate the money-​based transactions (Çizakça, 2013). The initial creditors of Islamic civilizations include gold and money exchangers who perform activities of mediation involving the trade of precious coins and exchange of gold, silver or money (Bayındır, 2001). During the reign of the Prophet, it is the Jews who perform the practice of money exchange; Caliph Omar, however, in a memorandum circulated to the governors, prohibits the Jews and Christians from this practice because their transactions involve interest (Bozkurt, 2009). The argument that money exchangers (or sarrafs) are the first institutional structures of modern banking is further reinforced by the fact that they, in the Abbasids’ office term, served as mediators in a wide range of transactions including lending, accepting deposits and channeling the flow of money between the public and the mint (Özdal, 2015). The sarrafs also introduce innovative financial instruments including suftece (bill of exchange) used in remote parts and money order in the market. The suftece, a fairly advanced form of a financial instrument at the time, refers to a bill or the payment itself within a mechanism where the borrower is able to pay his debt in a place different from the venue where the deal was concluded to a person or institution designated by the lender as authorized representative (Kallek, 2010). In this way, a trader may buy a commodity anywhere by presenting this instrument as assurance which serves some sort of bill of exchange or letter of credit facilitating trans-​border or intercity trade activities (Koyuncu, 2014). For the suftece system to operate properly, certain payment representatives should be designated in different cities who would transform the bills into cash. This system of payment, pretty advanced given the conditions of the time, allows the integration of a vast trade area (Çizakça, 1999).5 The utility of suftece is not limited to the facilitation of payments. Thanks to these instruments, traders who travel a lot and have to cross borders rely on these instruments which absolve them of carrying cash money.6 Considering the conditions and circumstances of the time, this instrument makes huge contribution to addressing the security problem. However, it should be noted that the status of suftece is controversial among the Muslim jurists and scholars. Some of the scholars and jurists consider this instrument as a type of interest-​bearing debt initiative whereas others oppose this view. The main argument of the first group of scholars and jurists promotes the suggestion that this instrument generates unilateral utility in the displacement of money. The roots of this argument go back to the early times of Islam. During the reign of Caliph Omar, a man seeks to borrow a date by offering performance of payment in another city. However, reports indicate that the caliph disapproves of this transaction because the suftece transactions performed in

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different cities generate unilateral utility. A weak hadith stating that suftece is disallowed in Islam is also cited by the first group of scholars as the basis of the argument. Uludağ (2010) strongly opposes this approach, noting that it is not a proper stance to declare such an instrument unacceptable by citing a fabricated hadith report. On the other hand, the main argument that those who favor the use of suftece as a legitimate financial instrument stresses that such transactions are actually in form of qarz (lending without expecting any return) (Kallek, 2010). The cases experienced in the history of Islam suggest that suftece has been considered a legitimate instrument. Jahbazs who collect deposits and provide loans to different persons and institutions including the state are often confused with the sarrafs (Tabakoğlu, 2013). Jahbaz literally means in Persian language master, headmaster and a person who makes a distinction between good and bad (Yeniçeri, 1993). They generally perform monetary and borrowing transactions that sarrafs are also involved in. Their original mission is to analyze the purity of the gold; but they also perform banking-​related tasks thanks to their abilities of analyzing the markets. Through a wide range of services and activities including determining the currency rates of gold and silver, exchanging, analyzing, printing and issuing the monies and coins in circulation, working in cooperation with the government in relation to fiscal and financial matters, lending loans on interest, insurance transactions, barter and mediation in the purchase of real estates, as well as investments, money transfer and deposition, issuance of valuable bills, cashing out these bills, and providing financing for large-​scale commercial ventures, the jahbazs have made enormous contributions to the development of international trade. Unlike the sarrafs, jahbazs are mostly traders. Because they risk a huge amount of capital to carry out their business activities, they generate a sense of trust and confidence among the public which allows them to collect large amounts of money (Özdal, 2015). They charge a certain amount of commission or fee in return for the services they offer. Additionally, they lend loans on interest to traders who are in need of financing. They make huge amounts of revenues out of loans on interest. In Muslim territories, generally, Jews and Christians (but also Muslims in rare cases) perform this profession (Tabakoğlu, 2013). The field of activity of the jahbazs is not limited to private entrepreneurs and traders; they maintain close ties with the state rulers and members of influential families. Particularly during the office term of Muawiya, they assume active roles and functions in the state administration which enable them to strengthen their ties with the bureaucracy (Tabakoğlu, 2013). These bonds and ties generate extensive advantages for the jahbazs who then assume revenue-​generating roles including the collection of taxes, making prepayment to the government in return for the recognition of the right to collect levies, payment of salaries, provision of loans on interest for the government in cases of an emergency including financing of the war, using the monies and wealth of influential emirs and rulers (Yeniçeri, 1993).

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Those who lend to the government acquire prestige and become influential in the financial affairs of the state as well. In the case of loans provided for the state, the tax revenues are officially reserved for the repayment and the lenders acquire control over collecting the taxes. Even though the state administration dislikes this arrangement, they have to go by this mechanism in order to finance the war and other cases that require an extensive amount of money. The jahbazs’ relations with the government are also important to show confidence for the markets as well (Tabakoğlu, 2013). The majority of the transactions between jahbazs and the state are interest-​bearing debt; despite these practices, the public does not approve those who are involved in interest-​bearing debt. It should be noted that some initiatives have been taken to address the interest-​bearing debt practices in different parts of Muslim lands. The above analysis suggests that different practices and instruments have been developed in Islamic civilizations; some of these instruments have played roles pretty similar to those of the contemporary banking institutions; however, it is not possible to speak of strong evidence that these instruments have been translated into a comprehensive institutional setting like a proper bank (Bitar, 2014). Roover (1954), noting that it is not possible to talk about banking where there is no bank, argues that Europe is the venue that gave birth to modern banking. Udovitch (1970) begs differently and notes that Roover’s arguments cannot be extended to cover the Medieval Muslim world. Despite similar objections and a record of prevalent and complicated banking activities performed in Muslim lands since the medieval age, it should be noted that there is no trace of institutional banking in this vast period.

Conclusion The strict prohibition of interest in Islam has been a major factor in determining the framework and boundaries of the borrowing transactions. In other words, regardless of the market conditions and the dynamics of the developing economic relations, nobody would not attempt to lift the prohibition of interest as set out in the theory of Islamic jurisprudence. However, there have been different views on the scope of the ban and the instances where this ban applies to. Regardless of the diversity in such views, interest has never been justified or legitimized. The unchanging nature of the interest ban is an important advantage for the theology of Islam because it is a confirmation that Islam has remained intact and the same without being subjected to acts of corruption. However, the changing circumstances over time and the consequences of these changes and their impacts upon society have brought about serious challenges as well. In the face of these challenges, Islam had to sustain its firm stance vis-​à-​ vis the prohibition of interest but also was compelled to offer innovative and

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lasting solutions in response to the problems that might have been caused by the inability to exercise the interest as an important instrument. The preservation of interest ban seems to be a disadvantage in responding to such challenges; however, Islamic thought has actually become more motivated to respond. The motivation of responding to the market conditions and the innovations of contemporary developments without changing or lifting the interest ban has led to a process of dynamic and vibrant reasoning. Islamic scholars and schools of Islamic thought and jurisprudence have contributed to the development of different interest-​free instruments to resolve the problems and address the challenges. This, in the end, generated a fairly comprehensive financial and economic perspective.

Notes 1 The type of debt Islam recommends is qarz al hasan, loaning for philanthropic purposes (Ubiyatullah & Mirakhor, 2013). Qarz al hasan refers to money or goods in the Quran lent for benevolence, the act basically is considered a good deed simply because the Quran underlines that in such a case, the lender actually lends his money to Allah Who would thus return the favor Himself. Therefore, the lender should expect nothing (other than the original amount) from the debtor who is responsible for paying back the original; but the lender would not exert any pressure in this transaction (İkbal & Mirakhor, 2013). In the literature of Islamic jurisprudence, qarz means handing a certain amount of goods to someone on the condition of its return and constitutes part of the jurisprudential debates. The act takes place with the involvement of tangible goods and commodities as well as liquid assets including money. Qarz al hasan, on the other hand, means interest-​free lending as any qarz action that entails any sort of benefit is considered interest. The term qarz is mentioned in six verses in the Quran, along with the affix hasan, which means “good” and “commendable.” Such an act is recommended and praised and is believed to be rewarded by Allah in a divine manner (Eskicioğlu, 1999). Part of the discussion is also focused on the so-​called riba/​interest distinction; some argue that what is prohibited in the Quran is riba which refers to usury whereas others suggest that riba is a simple synonym of interest-​taking. The proponents of the first approach note that the Quran prohibits excessive amount of interest, so excessive that it exceeds the original amount (Özsoy, 1995). Contemporary scholar Rashid Rıza, on the other hand, argues, referring to the al-​article attached to the term riba in the Quran, that the term refers to the riba as practiced in the time of the prophet, and further concludes that what is prohibited is the type of riba as practiced before the arrival of Islam. Rıza is also of the view that the reason for the prohibition of riba is its detrimental impact upon the sense of justice and argues that the Quran prohibits this practice in an attempt to protect the Muslims from exploitation (Subhani, 2006). Focusing on the background of the interest ban, Abdullah Saeed bases his argument on the moral dimension of the practice of riba; Saeed suggests that the riba as practice in the pre-​Islamic era was exploitative in nature and that this is

106  Gülden Poyraz why Islam prohibits it. According to Saeed (1996), the contemporary practice of interest cannot be associated with the type of riba that Islam prohibits unless it causes similar damages. On the other hand, even in cases not involving explicit form of interest, if one party to a commercial transaction or deal faces an act of unfairness, from an Islamic point of view, this can also be considered riba. From this approach, it can be concluded that Saeed is more concerned with the moral aspect than the legal side of the discussion. The argument that riba is different from interest and that only riba that amounts to the level of usury is prohibited in Islam can be summarized as follows: interest, an entirely economic concept, is defined as the price of the capital. Unlike interest, riba is an instrument of exploitation and it is prohibited on social and moral grounds. In the pre-​Islamic society, wealthy people used the instrument of riba to oppress the poor and exploit them; however, the modern interest is an outcome of labor-​capital partnership. The interest that emerges out of a transaction involving a party that offers its labor and another one that offers its capital cannot be considered riba. Abdurrazaq Sanhuri, noting that modern interest rates are determined by the states, notes that those who need capital may receive loans on interest until he is able to secure an interest-​free option. A  group of more liberal Islamic scholars, on the other hand, argue that the underlying cause of the prohibition should be examined. According to this approach, the main reason for the prohibition is the use of the riba as an instrument of exploitation in the pre-​Islamic era. In other words, the holders of this view suggest that the riba as practiced in this era is not the simple interest as performed in the present time. The contemporary debates are based on two main arguments. The first argument refers to riba as compound interest; it is possible to argue that this approach would not consider the interest rates applicable to the contemporary banking transactions as riba. The second argument takes note of the underdevelopment in the Muslim world, suggesting that loans on interest for production activities should be allowed at least until Muslim nations achieve the same level of development as in the Western world. However, the majority of Muslim scholars believe that any type of interest, regardless of whether being referred to as usury or interest, is strictly prohibited under Islam. They further note that any attempts to justify riba are interpretations seeking to undermine the main precepts and messages that Islam is trying to deliver. American Islamic finance expert Thomas (2006), opposing the views justifying the practice of interest, defines interest as a certain surplus value of the money after the passing of a certain amount of time and adds that this surplus is not created by Allah. Thomas further suggests that this alters the nature of money as a means of exchange and that this cannot be done when the theological references are taken into consideration. In addition, in his Farewell Sermon, Prophet Muhammad explicitly prohibited all kinds of interest and usury (Bozbaş, 2013). Kutub (2002), an Egyptian thinker and scholar who contributed a great deal to the Islamic thinking of the 20th century, defines the interest as an instrument of a brutal and repressive system that goes against the Islamic principles of alms, charity and benevolence. He further suggests that the interest-​based order is a system that prevents the mobilization of money and goods and centralizes the accumulation of all goods. Mawdudi, on the other hand, comparing interest with the commercial profit, notes that commerce is constructive for the society whereas interest is destructive

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2 3 4



for the economy and adds that the practice of interest leads to the sanctification of money and to the elimination of solidarity among the people. Mawdudi suggests that the surplus money the individuals hold should be channeled to commercial activities and industrial endeavors (Mevdudi, 2012). Considering the emphasis Islam places upon social and economic justice, it could be argued that Islamic instruments such as alms, foundations and qarz al hasan seeking to maintain justice may pay significant roles. For this reason, these distribution mechanisms designated to empower the disadvantaged groups of the society should be institutionalized (İkbal & Mirakhor, 2013) For details on the nature of trade and borrowing transactions in Islamic law, see (Özdemir, 2015). This institution was set up to monitor and control the accounts and activities of money and gold exchangers; see Yeniçeri (1993) But some scholars also discuss the evolution of a financial system in Muslim lands called mauna, which can be seen by the contemporary standards as a private bank offering loans. Evolution of maunas in Islamic nations is different from the evolution of European counterparts that were set up to finance wars and mining activities whereas Islamic maunas were confined to provision of financial support for enterprises. See Labib (1969). In this period, economic vibrancy based on the use of monetary resources through trade has been observed, and Muslims have transformed the local trading systems into monetary economies in areas which they conquered. See Özdal (2015) and Swynford (2016). Aware of the obstacles before developing a new monetary system, Muslims preferred other currencies due to their acknowledged popularity, including Byzantine dinar or Persian dirhem. See el-​Omer (2017). At this point, it is helpful to remember another institutional structure that perform similar functions. The reason that trade is very advanced in medieval Islamic world is the use of fondacos, assigned for trade institutions and markets and developed for the exchange of goods and products. The fondacos, initially set up along rural areas nearby borders, serve as depots or storages where the traders are able to stay and keep their commercial products safe during their travels (Yiğit, 2015). American writer/​ scholar Olivia Remie Constable views fondacos as integral part of the trade centers in Muslim world (Koehler, 2016). Particularly during the reign of Mamluks, traders were able to have access to a number of markets including Europe where they offered a wide variety of products (Koyuncu, 2014).

References Bayındır, S. (2001). Sermaye ve tarihsel süreçte mali aracı kurumların sermayeye yaklaşım tarzı. İstanbul Üniversitesi İlahiyat Fakültesi Dergisi, 4(1), 175–​190. Bergier, J. F. (1979). From the fifteenth century in Italy to the sixteenth century in Germany: A new banking concept. Paper presented at the Dawn of Modern Banking, Los Angeles, University of California. Bitar, M. (2014). Banking regulation, stability and efficiency of Islamic banks: what works best? A comparison with conventional banks. Doctoral diss., Université de Grenoble.

108  Gülden Poyraz Bozbaş, F. (2013). İslam hukukunda Daru’l Harb’de faiz tartışmaları. İstanbul: Marmara Üniversitesi. Bozkurt, N. (2009). Sarraflık. In TDV İslam Ansiklopedisi (Vol. 36, pp. 162–​163). İstanbul: Türkiye Diyanet Vakfı. Chachi, A. (2005). Origin and development of commercial and Islamic Banking operations. Islamic Economic Research Centre, King Abdul Aziz Unıversity, 18(2),  3–​25. Chapra, U., & Khan, T. (2000). Regulation and supervision of Islamic banks. Jeddah: IRTI. Çizakca, M. (2013). Finance and development in Islam: A historical perspective and a brief look forward. In Z. Iqbal & A. Mirakhor (Eds.), Economic Development and Islamic Finance (p. 140). Washington, DC: World Bank. Çizakça, M. (1999). İslam Dünyasında ve Batı’da İş Ortaklıkları Tarihi. İstanbul: Tarih Vakfı Yurt Yayınları. el-​Omer, F. A. (2017). İslam iktisat tarihine giriş (A. Esen, Trans. 1 ed.). İstanbul: İstanbul Üniversitesi İslam İktisadı ve Finansı Uygulama ve Araştırma Merkezi. Erbaş, S. N., & Mirakhor, A. (2013). The foundational market principles of Islam, knightian uncertainty and economic justice. In Z. İkbal & A. Mirakhor (Eds.), Economic Development and Islamic Finance (p. 97). Washington, DC: World  Bank. Eskicioğlu, O. (1999). İslam ve ekonomi. İzmir: Çağlayan Matbaası. Hobson, J. M. (2018). Batı medeniyetlerinin doğulu kökenleri (E. Ermert, Trans. 5 ed.). İstanbul: Yapı Kredi Yayınları. İkbal, Z., & Mirakhor, A. (2013). Islam’s perspective on financial inclusion. In Z. İkbal & A. Mirakhor (Eds.), Economic Development and Islamic Finance (p. 190). Washington, DC: World Bank. Kallek, C. (2010). Süftece. In TDV İslam Ansiklopedisi (Vol. 38, pp. 19–​21). İstanbul: Türkiye Diyanet Vakfı. Kızılkaya, N. (2012). Modern dönemde faizsiz bankacılık ve fıkhi işleyişi. İslam Hukuku Araştırmaları Dergisi, 20(1), 135–​150. Koehler, B. (2016). İslam’ın erken dönemlerinde kapitalizmin doğuşu (İ. Kurun, Trans. 1 ed.). Ankara: Liberte Yayınları. Komisyon (Ed.) (2014). Faiz (1. Baskı ed.). İstanbul: el-​Mustafa Yayınları. Köse, M. (2001). Ticaret hukuku tarihi açısından mudarabe ve commenda ortaklıklarının etkileşimi hakkında bir deneme. Atatürk Üniversitesi İlahiyat Fakültesi Dergisi 17(1), 145–​171. Koyuncu, N. (2014). Osmanlı Devletinde sarrafların mültezimlere kefilliği. İnönü Üniversitesi Hukuk Fakültesi Dergisi 5(1), 295–​326. Kutub, S. (2002). Fi zılal’il Kur’an. İstanbul: Birleşik Yayınları. Labib, S. Y. (1969). Capitalism in Medieval Islam. The Journal of Economic History, 29(1),  79–​96. Mevdudi, E. A. (2012). Tefhimu’l Kur’an. İstanbul: İnsan Yayınları. Mirakhor, A., & Wang, Y. B. (2013). Epistemological foundation of finance: Islamic and conventional. In Z. İkbal & A. Mirakhor (Eds.), Economic Development and Islamic Finance (p. 40). Washington, DC: World Bank. Orman, S. (2015). Modern iktisat literatüründe para, kredi ve faiz. In S.  Orman (Ed.), Para, Faiz ve İslam (pp. 11–​84). İstanbul: Ensar Vakfı. Orsingher, R. (1967). Banks of the world. London: Macmillan.

Origins of financial instruments in Islamic civilizations  109 Özdal, A. N. (2015). Ortaçağ İslam dünyasında bankacılık faaliyetleri. Atatürk Üniversitesi Edebiyat Fakültesi Sosyal Bilimler Dergisi, 55, 190. Özdemir, R. (2015). İslam hukukunda ticaret ve borç ilişkilerinin genel yapısı. Din Bilimleri Akademik Araştırma Dergisi, 15(1), 243–​273. Özsoy, İ. (1995). Faiz. In İslam Ansiklopedisi (Vol. 12, pp. 110–​126). Istanbul: Türkiye Diyanet Vakfı Pamuk, Ş. (2012). Osmanlı İmparatorluğunda Paranın Tarihi. İstanbul: Türk Tarih Vakfı Yayınları. Roover, R. A. (1954). New interpretation of the history of banking. Journal of World History, 2,  38–​76. Saeed, A. (1996). Islamic banking and interest: a study of prohibition of interest an its contemporary interpretation. Journal of King Abdul Aziz University: Islamic Econ, 17(2),  35–​38. Subhani, A. (2006). Divine Law of Riba and Bay: New Critical Theory. (PhD diss.), McGill University, Montreal. Swynford, A. K. (2016). İkta üzerine düşünceler. Uludağ Üniversitesi İlahiyat Fakültesi Dergisi, 25(2), 171. Tabakoğlu, A. (2013). İslam İktisat Tarihine Giriş (3. Baskı ed.). İstanbul: Dergah Yayınları. Thomas, A. (2006). Interest in Islamic Economics: Understanding Riba. Abingdon: Routledge. Ubiyatullah, İ. B., & Mirakhor, A. (2013). Islamic capital market and development. In Z. İkbal & A. Mirakhor (Eds.), Economic Development and Islamic Finance (p. 266). Washington, DC: World Bank. Udovitch, A. L. (1970). Commercial techniques in early Medieval Islamic trade. In D. S. Richards (Ed.), Islam and the Trade of Asia (p. 48). Oxford: Bruno Cassier. Uludağ, S. (2010). İslamda Faiz Meselesine Yeni Bir Bakış (3. Baskı ed.). İstanbul: Dergah Yayınları. Wilson, P. R. (1950). The empire of the Prophet: Islam and the tide of Arab conquest. In D. Talbot (Ed.), The Dark Ages. London: Thomas and Hudson. Yeniçeri, C. (1993). Cehbez. In TDV İslam Ansiklopedisi (Vol. 7, pp. 222–​223). İstanbul: Türkiye Diyanet Vakfı. Yiğit, F. A. (2015). İskenderiye’de Venedik Ticareti, Konsolosları ve Fondaco’su. Ege ve Balkan Araştırmaları Dergisi, 2(1),  19–​36.

Chapter 11

An analytical inquiry into the views of late Islamic jurists on the roots and sustainability of an interest ban Servet Bayındır and Halil S i ms e k Introduction It is not an exaggeration to argue that Islam is the only mainstream faith which sustains interest bans. Even though it has been condemned and prohibited/​limited in almost every civilization in the past, interest has made its way as a legitimate act and transaction in the contemporary setting. Islam seems to be the only exception. Although it is fair to argue that most Muslims are not keenly observant of the ban, there is no objection whatsoever regarding the premise that interest is in fact a prohibited act in Islam. Additionally, the majority of Muslims have internalized the ban. However, there are certain differences in terms of how the ban is defined in the Qur’an and the Sunnah, two main sources of Islam, and how the scope of this ban is determined between the original scripts and the views of the classical jurists. In other words, there is no broad agreement between the interest defined in the Qur’an and the interest defined by the classical scholars. This does not necessarily mean that these scholars justify the use of interest; however, the difference between their views and the narrative of the original sources is also worth noting. Verses in The Qur’an focusing on the interest specifically emphasize upon an act, suggesting that any kind of exchange other than a legitimate exchange of goods is deemed invalid. This indicates that the Qur’an deals with the interest as an act and that the prohibition of interest is broadly defined. The sayings and practices of the Prophet also support this stance. The early scholars confirmed this position, keeping the scope of the interest ban very broad and comprehensive. However, the mainstream schools of jurisprudence in the classical era adopted a static approach and referred to interest as mere surplus. This approach eventually led to a narrower scope and definition of the concept. The main factor that changed the scope and definition is the use of six-​goods hadith by classical thinkers and scholars when dealing with the issue of interest ban. The scholars and jurists who built the whole issue on the scope of this hadith limited the ban to the six goods; even the schools that expanded the scope of the ban by analogy were unable to truly interpret the broad conception of the Qur’an with regard to interest.

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This approach held by the classical era thinkers should be criticized because it has survived through our time and affected even the modern interpretations. As a result, the financial markets feature tools and mechanisms that should have been prohibited under the Qur’an verses. In that case, the argument that Islam strongly prohibits interest is compromised. Even though the argument still holds true, it should also be noted that the Qur’an’s stance on the prohibition of interest has been compromised. However, the reasons that the classical jurists adopted a stance that narrowed the scope of interest ban should be analytically evaluated. Obviously, the principles and dynamics which dominated the nature of economic relations have been influential in this changed attitude. In other words, most probably the classical era thinkers have been influenced by the conditions of their time and as a result, they developed their stance.

How did the classical era sources define interest? Traditional sources of Islamic jurisprudence cover the issue of interest under the heading of dealings and transactions (kitab’ul buyu’). Maliki sources, in general, do not offer a definition of interest (or riba) and instead attempts to explain the subject by referring to cases. Adevi, a classical Maliki jurist, notes on the definition of interest as follows: “Any ascertained or assumed surplus and deferment for counted or weighed goods is considered a type of interest” (es-​Saidi). In Hanbali sources, on the other hand, riba is defined as surplus in some exclusive goods that can be weighed or measured like wheat and barley (İbn-​Kudame, 1986).1 Hanafi sources also place emphasis upon the surplus as a main determinant of interest. In this line, a few definitions are offered: “riba is an unreturned surplus conditioned in a transaction,”2 “riba is an unreturned surplus conditioned in reference to legal benchmarks for the same goods in a sale contract,” “riba is a surplus agreed as the right of a party in a contract of exchange and conditioned during the conclusion of the contract” (el-​ Kasani; es-​ Semerkandî, 1993; ibnü’l-​Hümâm; Serahsi). A Hanafi scholar, Badraddin al Ayni, notes that riba is an invalid contract, placing emphasis upon the fact that the Shafiis also adopt this line of argument (el-​Aynî, 1980). Some Hanafi scholars refer to interest as an act, whereas Shafii sources rely on an approach that views it as a contract. One definition a classical Shafii account offers expressly refers to interest as a contract that involves repayment after the passage of a certain amount of time (Zekeriyyâ el-​Ensârî, 2001).3 However, there are also Hanafi scholars who place emphasis upon the nature of interest as an act. Ibn Nujaim, one of these scholars, argues that riba spelled out in verse 275 of Surah Baqara means surplus which, on the other hand, refers to an increase in the form of an action.4 In an effort to provide evidence for his view, Ibn Nujaim notes that in order for the notion “harrame” in this verse to point out to the action of the subject, “riba” has

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to mean an increase that connotes an action (İbni Nüceym).5 Likewise, Ibn Humam also refers to riba as a noun expressing a form of surplus.6 But in some cases, the same notion is being used to mean an increase as an act.7 In this case, this view suggests that the verse indicates Muslims should not increase the amount of their goods and assets through the act of lending (İbnü’l-​Hümâm). In short, almost all Maliki, Hanbali and Hanafi scholars view riba as a surplus. But Shafiis and some Hanafi jurists refer to riba as a contract that involves unreturned surplus. Such definitions obviously overlook the interest as an act in the verses and the hadiths. Some Hanafi scholars, noticing this flaw, attempt to consider the act to be an aspect of the subject. However, a review of the accounts attempting to do this reveals that the act dimension is only briefly covered, and, instead, the surplus aspect is underlined. This means that the majority of the classical scholars view the interest as surplus rather than an act or a contract that involves that surplus.

Approaches in sources of Islamic jurisprudence toward the reasons of interest The ambiguity in the definition of the interest in the accounts of Islamic jurisprudence is also evident in how to define the reason for interest and how to determine the goods and commodities that are subject to the ban. It should be noted that the Qur’an makes direct mention of the concept of riba in eight verses.8 These verses do not offer any clue on the goods subject to the ban, other than referring to the requirement that the banned goods should be part of a contract of interest or a transaction of interest. The verses even imply that a good that could be subject to zakat, charity or dealings could also be in principle subject to riba as well. The theory of riba in classical Islamic jurisprudence relies on a famous hadith referring to six goods rather than these verses that interpret the interest ban very broadly, without specifying any goods and commodities subject to the ban.9 Thus, most jurists have focused on the six goods referred to in this hadith: gold, silver, wheat, barley, date and salt. Some of the jurists in the classical era argued that interest ban is only effective in those goods, adding that practice of interest is not prohibited in Islam in case of transactions and dealings involving others (el-​Cevziyye & Muhammed, 1998; İbnü’l-​Hümâm). The jurists who adopt this narrower interpretation argue that Prophet would have specified all other goods subject to the ban. The Malikis and the Shafiis offer a relatively broader concept of the ban, but still relying on the same hadith. They note, however, that the goods referred to in the hadith are mere examples, adding that the ban is much broader than implied in the text. According to the Malikis, the hadith refers to two types of goods: goods of exchange like gold and silver that hold monetary value and character, and goods of

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consumption like wheat, barley, date and salt that can be stored for a long time (İbn Rüşd). Thus, the Malikis, while relying on the hadith, did not confine to the six goods referred to in the hadith, noting that these goods constitute the two main groups of foundation for the interest ban. It is possible to argue that the Maliki view suggests that the interest ban is based on two types of goods, monetary goods and durable assets. The Shafiis expanded the scope of the ban even more and held that in addition to gold and silver, all foods, regardless of whether they can be stored for future use, are subject to the interest ban (Serahsi). The approach that the Malikis and the Shafiis adopt in regard to the interest ban with reference to the six-​goods hadith is very similar. Both schools argue that the two out of the six goods in the hadith refer to monetary assets, whereas the remaining four to foods. As noted above, the Shafiis expand the scope of the interest ban and add the non-​storable foods to the list of goods subject to the interest ban. Hanafis adopt a view that offers the broadest scope of the interest ban. Like Malikis and Shafiis, the Hanafi scholars base their theory on the six-​goods hadith. However, the Hanafis pay attention to the measures by which the amount of these goods is determined, rather than the goods themselves. In other words, unlike the Malikis and the Shafiis who classify the goods in the hadith into two categories, the Hanafis argue that vazn, a weight measurement in that period used for gold and silver, and keyl, a volume measurement in that period for wheat, barley, date and salt are the basis of the interest ban. The Hanafis hold that the reason Prophet Muhammad makes mention of these goods is to place emphasis upon the units of measurement rather than these goods themselves. From this perspective, it could be concluded that the hadith in fact suggests that goods whose weight can be measured and goods whose volume can be measured are subject to the interest ban on the scales inferred from the hadith (Kasani). Hanbali jurists, on the other hand, are of the same view as the Hanafis (İbn-​Kudame, 1986). Thus, there is no need for further elaboration on the stance of the Hanbalis toward the interest ban. This brief summary suggests that almost all mainstream schools of jurisprudence pay attention to the six-​goods hadith rather than the verses in the Qur’an which place emphasis upon the act dimension of the subject when identifying the scope of the interest ban. As a result, unlike what the verses indicate, the mainstream schools of jurisprudence have narrowed down the scope of the interest ban. The Zahiris are of the view that only the six goods in the hadith are subject to the interest ban whereas the Shafiis and Malikis argue that it is possible to make an interest-​bearing contract for goods other than silver and gold, and the agricultural products referred to in the hadith. Therefore, for the Zahiris and the latter two, there is no obstacle to concluding an interest-​bearing deal for notes, lentils, rice, beans, iron, copper and cement etc. According to the Hanafis as well, who prescribe the broadest interest ban among the mainstream schools, the practice of interest is allowed for some goods. For instance, there is no obstacle to charging

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interest for goods measured in numbers or length rather than weight and volume. However, verses on the interest ban and the other hadiths reported from Prophet Muhammad all combined suggest that there is no exception to the interest ban.

Review of approaches in Islamic jurisprudence on the definition of interest First, we need to underline that dealing and riba are two separate transactions exhibiting different features. Dealing refers to the exchange of goods whose ownership also changes. The classical sources refer to dealing as an exchange of a commodity with another one in a way that the exchanged goods become the property of the parties permanently (el-​Mevsılî).10 Because riba is placed under the heading of dealings in the scholarly works of Islamic jurisprudence, its definition bears traces from it. Riba is prohibited in Islam; therefore, a contract of dealing involving some elements of the ban is perceived as riba and, as a result, riba is presented as a type of dealing and troubled contract of dealing. However, the Qur’an states that riba is different from dealings: Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, “Trade is [just] like interest.” But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] –​ those are the companions of the Fire; they will abide eternally therein.11 In essence, dealing is a trade transaction whereas riba is a credit transaction. The sources indicate that verse 39 of Surah Rum is the first one revealed with regard to the interest: And whatever you give for interest to increase within the wealth of people will not increase with Allah. But what you give in zakah, desiring the countenance of Allah –​those are the multipliers.12 This verse makes a comparison between giving away the money and lending it in return for interest and recommends the first option. The structure of this verse indicates that the act of charity and the act of interest are two separate realms, referring to two different types of economic activities. The act of riba does not generate added value, whereas charity multiplies the outcome. Thus, the Qur’an suggests that riba is above all an act and that it refers to a method of transferring an asset. Verse 275 of Surah Baqara, which strictly prohibits interest, compares riba with dealings and trade twice. In the first,

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in reference to objections by usurers, the verse indicates dealing is like the transaction of interest.13 It becomes evident that the objectors view riba as a method of transfer which is confirmed in the second part of the verse. In the second, in response to the objection above, the verse stresses that Allah prohibits the transaction of interest, whereas He allows trade.14 The rest of the verse, “So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury]  –​those are the companions of the Fire; they will abide eternally therein,” suggests that the interest is a practice that involves action. Therefore, both the Qur’an and the objectors view riba as an act. Yet it should be noted that riba is also used in the meaning of surplus as well. “Those who consume interest” in 2:  275, “do not consume interest” in 3: 130 and “for the reason they received interest” in 4: 161 all refer to a surplus out of a transaction rather than a mere act.15 Therefore, it becomes evident that riba holds different meanings in the Arabic language, referring both to an act of transfer of assets and a surplus generated by this act at the same time. The same also applies to the sayings of Prophet Muhammad. Riba as spelled out in a hadith noting, Sell gold in exchange of equivalent gold, sell silver in exchange of equivalent silver, sell dates in exchange of equivalent dates, sell wheat in exchange of equivalent wheat, sell salt in exchange of equivalent salt, sell barley in exchange of equivalent barley, but if a person transacts in excess, it will be usury (riba). However, sell gold for silver anyway you please on the condition it is hand-​to-​hand (spot) and sell barley for date anyway you please on the condition it is hand-​to-​hand (spot) first refers to a type of act and then a surplus.16 The hadith refers to the exchange of the commodities in the equivalent amount as a legitimate method of trade and notes that there is usury in case of any excess or surplus in the exchanged amounts. Therefore, the emphasis is upon the exchange of goods; in other words, the surplus is of secondary importance. The hadith noting that every lending that generates utility for the lender involves interest, and the report indicating that interest occurs in transactions envisioning a payment period suggest that interest is an act. On the other hand, the hadith on those who received and gave interest and the one in the farewell sermon that lifted all types of riba refer to the interest as a surplus. In conclusion, the notion riba, in both Qur’an and the hadiths, refers to a method of exchange of commodities and a surplus and excess amount generated by the riba transaction (Davud, 2009).17 For this reason, we believe that this detail should be considered very carefully for a proper definition of the notion of riba. Because it is not possible to speak of the surplus, a result of

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the act, unless there is an activity, greater emphasis should be placed upon the act itself that leads to the outcome. In the cases of theft, gambling and bribery, emphasis is placed upon the act rather than the outcome generated by this act. In other words, these acts are prohibited because of the act itself. Adoption of a similar approach in the case of the prohibition of interest is more appropriate for the logic and the precepts of Islam. However, it is evident that neither the classical schools of jurisprudence nor the modern literature pays adequate attention to this and instead focus on the surplus in the discussion of the interest ban. This leads to complications in the contemporary debates on the interest ban. The verse “You who have believed, do not consume one another’s wealth unjustly but only [in lawful] business by mutual consent. And do not kill yourselves [or one another]. Indeed, Allah is to you ever Merciful” (4: 29) refers to two types of methods for transfer of assets:  consensual trade and invalid methods. Trade is the legitimate method for transfer of assets by which profit is sought. For this reason, it is important to determine in what category interest falls. The legitimate and illegitimate options are determined by reference to this classification. Does interest fall into the category of legitimate method or the illegitimate method? As noted earlier, trade is a transaction of exchange for different types of goods and services. Therefore, in order for a transaction to be called a trade transaction, there should be at least two different commodities subject to exchange and these goods should be transferred to the relevant parties permanently. Any transaction that is not based on the transfer of goods or services and is performed through the return of the goods to the original owner cannot be properly called trade. Every type of transfer in the Qur’an has different economic, legal and moral characteristics and functions. The exchange of goods and commodities is called trade, the transfer of goods and commodities to others with no return is called charity; in case a commodity is used for the utility it generates without being consumed and then returned to the original owner, the transaction is called lease; the use and return of a commodity to the original owner is called qarz hasane (interest-​free loan); and if this is performed with an additional surplus, it is called riba or interest. The revenue generated through this transaction is properly called riba, which is prohibited in Islam. Association of riba with trade and its definition in reference to this association has changed the way it is perceived in the minds. While riba is referred to as a revolt against Allah and His Prophet, this approach made the concept very innocent. As a result, classical thinkers and scholars have offered views and interpretations that legitimized what could be seen from a truly Islamic perspective as riba. This approach is even being upheld by contemporary scholars as well. Many interest-​bearing transactions in financial markets are being presented in different forms. For instance, a number of transactions which are in fact interest-​bearing dealings are reframed and redefined as if

Late Islamic jurists and interest ban  117

they are part of legitimate and legitimized processes. Bonds, repo, sale, lease and buy-​back are only a few examples to make this point. Additionally, a number of transactions in secondary markets are legitimized and renamed as factoring transactions, mortgaged transferrable asset transactions, wakala investment, and so on, while they are inherently interest-​bearing transactions. In short, the language of finance has been contaminated and disrupted. Sadly, it is also possible to observe traces of this contamination in some accounts of early Islamic jurisprudence. Attempts by the politheists in Mecca to associate interest-​bearing transactions with the legitimate trade have been copied by even some contemporary Muslim scholars. For instance, during the deliberations for the foundation of Egyptian National Bank in 1911, it has been argued that riba in the Qur’an refers to excessive usury and that interest at a normal rate is in fact allowed in Islam and the twisted fatwas on monetary foundations in the Ottoman era were referred to as justification (Abduh, 1977). This approach survived for a long time; more recently, at a meeting held on October 31, 2002, The Egyptian Higher Council for Religious Affairs, convened under the chairmanship of Egyptian Chief Mufti M. Tantavi, released a fatwa that bank interest is allowed. Some academics have also concurred with this view. As a result, while Allah explicitly prohibits riba, people focus on details rather than the riba as an activity, leading to justification of this banned act. As noted earlier, the same approach has also been employed in respect to the commodities subject to interest ban. The historical debates on this matter have focused on certain types of commodities rather than the act itself, thus ignoring the destructive impacts of the act. However, many scholars have argued that not the type of the commodity, but the unfair act should be taken into consideration in the early years of Islam. For instance, according to Saîd b. Jubair (94/​713), Hasan al-​Basrî (110/​728), Abû Bekr al-​Esamm (200/​816), interest applies to all commodities featuring unification and proximity of utility (el-​Maverdi, 1994; Nevevi). According to Muhammed b. Sîrîn (110/​729), what matters is the unity in the type, not the type of the commodity (el-​Maverdi, 1994). Rebîa b. Abî Abdirrahmân (136/​753) underlines that any commodity subject to zakat is also subject to interest ban (Nevevi). He holds that when exchanged by their equivalents, commodities subject to zakat may also become subject to interest ban if any surplus is demanded in the exchange. A Maliki jurist, Ibn al Majishun (212/​827), prescribes a very broad scope on that matter. He believes that interest ban applies to any violation of rule in all commodities with a certain economic value (İbn Rüşd). Therefore, these early scholars, unlike the classical era jurists and schools of jurisprudence, did not limit the interest ban to certain goods; instead, they have focused on the act rather than the commodities that could be part of the practice of interest in the transactions.

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Conclusion In conclusion, interest should be defined in terms of act and outcome. The definition in the accounts of classical Islamic jurisprudence, suggesting that riba is an excess amount conditioned in the transaction is goal and outcome-​oriented and refers to exchange and transactions (Serahsi). This definition could have been a proper one if it had indicated that riba is unreturned surplus conditioned in an economic activity. However, as noted earlier, the foundation of the interest ban is the act itself rather than the surplus. From this perspective, we believe that riba should be defined as an act where unreturned surplus is conditioned and stipulated. But we also uphold that this definition should be further expanded or stated as follows: “riba is a transaction of exchange for two commodities in different amounts as an act.” Based on this, we can define riba as an outcome: “The difference generated by the exchange of two commodities in the same qualities in different amounts.” In this definition, both the scope of the transaction and of the outcome is kept broad. Considering that interest is practiced in different acts and methods, it becomes evident that such a definition covers the gist of the notion properly. Reports from Prophet Muhammad refer to different types of riba, all, however, indicating outlawed acts in excessive amounts. However, it should be noted that loan is an act that involves the practice of riba most frequently and commonly. The hadiths refer to loan transactions. In that case, riba can be defined as a transaction of loan that provides revenue or utility or revenue generated by the loan transaction. Such a definition refers to an act itself as well as revenue generated by this act. When interest is defined as such, the debates on the interest ban will become conclusive and the communities will realize by which methods they have been exploited for centuries. We believe that discussions on the reasons for the commodities subject to interest ban have been futile and waste of time. This debate could have been ended by adhering to the view upheld by early jurists that interest ban applies to all commodities that are suitable for riba transactions. Such an approach would have prevented most of the abuses and interpretations that justified many transactions that actually involve practice of interest. Therefore, we conclude that debates on the reasons of riba are unnecessary. It is obvious that the view suggesting that interest occurs in every commodity upon which riba transaction is performed is the most appropriate approach.

Notes For similar definitions, see el-​Behuti (2000) and Behuti (2006). 1 2 (‫)هو الفضل الخالي عن العوض المشروط في البيع‬ َّ ‫ار ال‬ َ ‫وص‬ 3 (‫ير فِي ْالبَدَلَي ِْن أ َ ْو أ َ َح ِده َِم‬ ٍ ‫ص‬ ٍ ‫علَى ع َِو‬ ُ ‫ض َم ْخ‬ َ ٌ‫ع ْقد‬ َ ) ِ ُ‫غي ِْر َم ْعل‬ ٍ ِ‫ش ْرعِ َحالَةَ ْالعَ ْق ِد أ َ ْو َم َع ت َأْخ‬ ِ َ‫وم الت َّ َماث ُ ِل فِي مِ ْعي‬

Late Islamic jurists and interest ban  119 4 “‫”الزيادة‬ 5 ; “‫”حرم الربا”; “الربا‬ 6 “‫”ال تأكلو الربا‬ 7 ”‫”حرم الربا‬ 8 Rum, 39/​30; Nisa, 4/​161; Al-​i Imran, 3/​130; Bakara, 2/​275, 276, 278–​280. 9 Muslim, “Musâkât,” 81, 83. 10 “‫”مبادلة مال بمال تمليكا وتملكا‬ 11 Baqara,  2/​275. 12 Ibn Taymiyya is also reported to have expressed a view that interest has been banned in the initial years of Islam; we believe this view holds some accuracy. See Rıza (1998). 13 “‫الربَا‬ ّ ِ ‫”إِنَّ َما ْالبَ ْي ُع مِ ثْ ُل‬ 14 “‫الربَا‬ ّ ِ ‫”أ َ َح َّل َُّالل ْالبَ ْي َع َو َح َّر َم‬ َ ;”‫الربَا‬ 15 “‫الربَا‬ ّ ِ ‫“وأ َ ْخ ِذ ِه ُم‬ ّ ِ ‫“ل ت َأ ْ ُكلُوا‬ ّ ِ َ‫”يَأ ْ ُكلُون‬ َ ;”‫الربَا‬ 16 Muslim, Sahîh, III, 1211. 17 “‫ ;”كل قرض جر منفعة فهو ربا‬Buhârî, “Büyu’,” 79; Müslim “Müsâkât,” 102, 104; Ahmed b. Hanbel, Müsned, V, 209.; “‫”لعن آكل الربا وموكله‬, Abû Dâvud et-​Tayâlisî, Müsned, s.  45.; “‫”أال إن كل ربا من ربا الجاهلية موضوع لكم رؤوس أموالكم‬, Abû Dâvud, Sünen, III, 244.

References Abduh, İ. (1977). Bünûk bila fevâyid. Mısır: Daru’l i’tisâm. Behuti, e.-​. (2006). Er-​Ravzu’l-​murbi Şerhu Zâdi’l-​Müstakni. Riyad: Dâru’l-​vatani. Davud, E. (2009). Sünen: Risale nşr. el-​Aynî, E. M.  B. M.  b. A.  b. M.  H. (1980). el-​Binaye fî şerhi’l-​Hidaye (Vol. VII). Beyrut: Dârü’l-​Fikr. el-​Behuti. (2000). Şerhu Müntehâ’l-​iradât Dekâiku uli’n-​nühâ li Şerhi’l-​Müntehâ (Vol. III): Risale yay. el-​Cevziyye, İ. K., & Muhammed, E. A.  Ş. (1998). İ’lâmü’l-​muvakkiin an rabbi’l-​ alemin (Vol. II). Beyrut: Dârü’l-​Kütübi’l-​Arabi. el-​ Kasani, E. B.  b. M. Bedâ’i’u’s-​sanâ’î’ fî tertîbi’ş-​şerâ’i (Vol. V). Beyrut: Dâru’l-​kitabi’l-​ilmiyye. el-​Maverdi, E. H.  A.  b.  M.  b.  H. (1994). el-​Havi’l-​kebir hüve Şerhu Muhtasari’l-​ Müzeni (Vol. VI). Beyrut: Dârü’l-​Kütübi’l-​İlmiyye. el-​Mevsılî. el-​İhtiyâr li ta’lîli’l-​Muhtâr: Daru’l-​Erkam. es-​Saidi, A. b. A. A. Hâşiyetü’l-​Adevî alâ Şerhi’l-​Hıraşî (Vol. V): Daru’lfikr. es-​ Semerkandî, E. B.  A. M.  b. A. (1993). Tuhfetü’l-​fukahâ (Vol. II). Beyrût: Dâru’l-​kütübü’l-​ılmiyye. İbn Rüşd, E. M. b. A. b. M. Bidâyetü’l-​müctehid ve nihayetü’l-​muktesıd (Vol. II–​IV). Kahire: el-​Mektebetü’t-​Ticareti’l-​Kübra. İbn-​Kudame, M. E. M. (1986). el-​Muğnî (nşr. Abdullah b. Abdulmuhsin et-​Türkî-​ Abdulfettâh Muhammed el-​Hulv ed. (Vol. IV–​VI). Kahire: Kahire. İbni Nüceym, Z. Z. b. İ. b. M. M. H. el-​Bahrü’r-​raik şerhu Kenzi’d-​dekâik (Vol. VI). ibnu’l-​Hümâm, K. M. Şerhu Fethi’l-​kadîr (2nd ed. Vol. VII). Beyrut: Dârü’l-​fikr. İbnü’l-​Hümâm, K. M. Fethu’l-​Kadîr (Vol. VII). Kasani, e.-​. Bedayi (Vol. V).

120  Servet Bay ı nd ı r and Halil Şimşek Nevevi, E. Z.  M. Y.  b. Ş. b.  N. el-​Mecmu’ şerhi’l-​mühezzeb li’ş-​Şîrâzî (Vol. IX). Beyrut: Dârü’l-​Fikr. Rıza, H. T. (1998). Rabevâtü’l-​karz ve rabevatü’l-​bey (Vol. I). İstanbul. Serahsi. el-​Mebsut (Vol. XII). Zekeriyyâ el-​Ensârî, E. Y. Z. Z. b. M. b. A. (2001). Esna’l-​metâlib şerhu Ravzi’t-​tâlib (nşr. Muhammed Muhammed Tamir ed. Vol. VII). Beyrut: Dârü’l-​Kütübi’l-​İlmiyye.

Chapter 12

Pursuit of interest-​f ree financing in Ottoman society Zehra Betül Ustaoğ l u

His Excellency! Let’s expound the gist of the matter:  the reason for the initial judgment is the overall agreement and consensus among the scholars over a certain issue that it is of use and utility for the religion of Islam; upon this consideration, the scholars upheld that only the original amount of the debt shall be paid. In reaching this conclusion, they expressed subscription to the opinion of Imam Abu Hanifa. This verdict shall remain solid and invincible; any scholar or jurist that attempts to undermine it shall face damnation. Bali Efendi

Introduction Muslim scholars have opposed the practice of usury and interest simply because it does not provide any balanced value between the lender and the borrower and described it as an unfair transaction for its negative impact upon one party. In the loss-​and-​profit sharing, an alternative developed to the practice of interest, the risk is shared between the parties; and when one of the parties is unable to make a payment, consensus should be sought in forfeit of the right. Otherwise, the transaction will lead to unfair profit for one party and unfair loss for the other. These practices, seen in medieval churches, reminds one of the fact that Allah dislikes anything that is not just. Allah strongly condemns and prohibits the practice of interest (Kuran, 2013). In recognition of this condemnation and prohibition, Muslim communities have pursued alternatives. The fact that Islam describes the lenders of interest-​bearing funds as people seized by the Satan and that it promotes infaq (charity) and qarz hasan (good lending, interest-​free loan) raises a question as to whether there is a financial structure in the Muslim lands operating on interest-​bearing principles.1 But it should be noted that scholars and thinkers have offered different definitions of interest, leading to a diversity of interpretations instead of a strong common agreement; additionally, considering the social needs and requirements, Muslim societies have developed some financial structures to ensure compliance with the Islamic precepts and teachings.

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The Ottoman financial structures can be examined within a dualistic approach. The first includes sarrafs (money and gold exchangers) and murabahcis (a unique type of usurer) which offer no tangible assurances in terms of interest-​ ban sensitivity. The second group involves money foundations, an alternative to the first group, which does not offer any justification for interest-​bearing debt. A  variety of debt practices have been employed in the money foundations, including bidaa, mudaraba, murabaha and muamala-​i shar’iyya and bay’ bil-​istighlal. Even though they have been criticized for legitimizing the practice of interest, the money foundations have played important roles in the provision of financing in the Ottoman society. This study examines the sarrafs and murabahcis who have no strong objection to the interest-​bearing debt transactions and basically rely on the practices of a typical usurer and analyzes the nature and practices of the money foundations as well.

Debt in Ottoman society: Sarrafs and usurers According to Pamuk (2014), despite prohibition of interest in Islam, debt and financial institutions in the Eastern Mediterranean in the 12th and 13th centuries were far more developed than those in Western and Southern Europe. The Ottoman financial institutions have without being influenced by the developments in Europe continued to operate within the framework of traditional methods through the end of the 13th century. There were two main actors in this period active in this field in the Ottoman state: sarrafs who performed money and gold exchange and murabahcis who performed a role similar to activities of a typical usurer. In addition to other activities, the sarrafs also performed roles to generate funds in the form of debts for the state which sought to maintain a balance between the land and military systems; to this end, it was given a special status and promoted by the state authorities; on the other hand, the murabahcis had no organic connection with the state and they established interaction with the general public for whom they provided interest-​bearing funding. Sarrafs initially exchanged valuable mines and minerals as well as money; but the word acquired a different meaning over time (Bozkurt, 2009). For instance, money traders who were involved in usury activities were also called sarrafs. In a sense, sarraf means an expert in money. This study examines the activities of sarrafs in the field of interest-​bearing debt in Ottoman society. But it should be noted that they also play other roles in the Ottoman state system. Additionally, when serving as special exchangers of some persons in the army, sarrafs played roles relevant to trade, exchange of money, money transmission and storage. The relationship between sarrafs and the state is also important in Ottoman society. Particularly in internal credit, the state generally considers sarrafs to be the primary option (S. Köse, 1998).

Interest-free financing in Ottoman society  123

The title sarraf was first observed in the Ottoman society in the 15th century. It should be noted that the majority of them were non-​Muslims, particularly Jews, Greeks, Venetians and Genoese. While usually Greeks and Jews were in this line of business from the reign of Mehmed II up to the 18th century, in the 19th century 85 percent of sarrafs were of Armenian origin (Jennings, 1993; M. Z. Köse, 2016). İnalcık (1969) holds that those were the closest to the capitalist approach in the Ottoman trade in terms of capital accumulation were the sarrafs, who were engaged in money exchange transactions and lent interest-​bearing funds. This was even promoted by the state. Sarrafs were allowed to charge an interest 15 percent above market rates because they financed the state treasury (Akyıldız, 2009). Sarrafs were mostly active in Eminönü and Galata; the sarrafs of Galata started to be called Galata bankers in the 19th century (Akyıldız, 2009). A  number of Muslim merchants have done business with sarrafs and borrowed money from them. In fact, compared to usurers, sarrafs were considered more of an elite group of traders (Cezar, 1998). Receiving strong support from the state, sarrafs were regarded as reliable financial actors (Çiçek, 2001; Jamgoçyan, 2017; Pamuk, 2017). Until the 17th century, the Ottoman state used the tax farming system to collect tax and for domestic credit. However, because budget deficits continued to increase, the tax farming system has become a main tool of domestic credit going beyond the traditional goal.2 In this system, the revenue of a state-​owned land is sold to rich persons known as mültezim (tax farmers). The mültezims in most cases paid the amount needed to buy the land by the loan they receive from the sarrafs (Akyıldız, 2009). The mültezim paid huge amounts of interest rate whose cost is mostly reflected in the general public. Thus, the public takes the greatest hit in this whole transaction. The scope of activities of the sarrafs was further expanded in the 19th century, particularly after the introduction of new financial tools, including esham and bonds, when the banknote was first introduced in 1840.3 The sarrafs become richer because they assume roles in the internal credit process of the state and lend high interest rate loans to the state owing to long term and low interest rate funds they receive from Europe. The state that declares its inability to pay out the debts in 1875 and faces a huge economic burden in the aftermath of the Ottoman-​Russian War of 1877–​1878 prefers receiving high-​interest debts from the Galata bankers to address the problem (Pamuk, 2017). In a sign of referring to the influence of the sarrafs in this period, Time magazine’s correspondent offers to change the name of Istanbul to Sarrafopolis in 1877. Historical records show that some diplomats also performed sarraf activities in the Ottoman state. The bond between the Ottoman state and Europe has always been strong since the beginning. To protect this bond, the Ottoman state and the European states have concluded deals and signed

124  Zehra Betül Ustaoğ l u

trade agreements. Some of these deals and agreements were particularly focused on fostering trade and are called capitulation agreements. The first of these agreements was concluded with Venice, followed by other similar deals with France, Holland and Britain. The deals suggest that the parties are allowed to open consulates in Ottoman territories which play not only diplomatic but also commercial roles as well. As part of these privileges, the consulates were able to offer interest-​bearing credit and enter trade relations; eventually, the state parties to these agreements have acquired an elevated status within the lands of the Ottoman empire, expanding their sphere of influence (Çiçek, 2001). Some consuls and some merchants enjoying their tutelage make more money and increase their wealth through mudaraba and muamala transactions with the Ottoman bureaucrats and local merchants. Even though the legal status for the trade activities of the consulates has not been clarified and they have been warned not to perform banking activities, these activities have not been totally banned; more importantly, the consuls have even resorted to legal action in order to ensure repayment of the loans they delivered before. The Ottoman registry records show that the consuls lent money to both Muslims and non-​Muslim subjects at high interest rate and acted like sarrafs. To show the magnitude of the role of consuls as sarraf, Çiçek (2001) narrates the observations of a Dutch traveler, Jan Heyman. These observations suggest that the British consul in Cyprus charge 20 percent of interest when he lends money to the public and that he makes a huge amount of profit. When repayment is not made, the consul even seizes the properties as well as crops of the debtors. The French were impressed by the profitability of this line of business that the British relied on to expand their sphere of influence; but they were unable to do the same due to lack of sufficient amount of capital. The influence of the consults is further evidenced by their role under which they loaned not only individuals but also groups and communities. Historical records indicate that 30 percent of interest has been charged for the loan lent to the general public and that despite legal complaints, the courts did not take any action. A specific registry record even shows that the Ottoman governor in Cyprus Mustafa Pasha and British Consul Turner were business associates and that they resorted to legal action due to a legal dispute they had over debt transactions. These records prove that the consuls mercilessly exploited the general public and that the bureaucratic connections they established facilitated their business. Aside from sarrafs who, under an official authorization, were allowed to provide credit, there were also other individuals who had no official standing in the Ottoman society. This transaction, known as murabaha, evolved from a mere profitable business into a usury-​ like practice and become associated with interest over time. Murabaha came to be known as interest-​bearing debt; those who practiced this transaction were called murabahci (Dönmez, 2006).

Interest-free financing in Ottoman society  125

It is a known fact that land barons, merchants and tax farmers performed usury in the Ottoman society. Studies also show that particularly those who were in agricultural activities received huge amounts of loans from usurers (Demirkol, 2018). For instance, even though Muslim civil servants and officers performed their official service, receiving debt oftentimes meant being cornered by an Armenian usurer in Anatolia (Güran, 1998; Pamuk, 1994). Thus, it is possible to argue that people from different races and religions were doing this type of business. The chief reasons for the local farmers to receive high-​interest rate loans include the unstable climate and environmental conditions for agricultural products in the Ottoman lands, problems with the taxation system and lack of inspection and monitoring (Berber, 2017). The harassment the farmers and peasants in such cases suffered has become so extensive and unbearable that they had to leave their homes just to avoid further suffering caused by the lenders and usurers. This eventually led to serious social problems within the society. In response, the state authorities asked help from scholars and people of influence to address the situation. Demirkol (2018), who studied the usury transactions and practices based on murabaha in Kütahya and Van, cites an example where a usurer charges 30 percent of interest for a loan even though it is not settled before the conclusion of the contract. The debtor asks for the repayment of his debt in installments without raising any objections to the interest rate. Even though such claims are taken to legal institutions, civil officers often take sides with the usurers. Reports by inspectors appointed to address the repercussions of usury in the Tanzimat era note that the interest rate for the loans in Van even exceeded 40 percent (Berber, 2017). Peasants who performed farming take loans from usurers, in return, they sell the crop even before the harvest. In some cases which involve loans for farming activities, the amount of interest is added to the original capital or amount; and sometimes, it is added to the crop through a method called selem, which eventually increases the amount of overall debt (Aybakan, 2009).4 Some measures were taken to address this situation; the first of these measures was introduced in Kütahya in 1848. The new rules suggested that the annual interest rate of 8 percent would be added to the main debt and the total amount would be divided into one to five installments. In this period, no additional interest would be charged. In addition, the parties would take a record of the debt agreement considering the market price of the commodities subject to the terms of the agreement (Demirkol, 2018). By a regulation introduced in 1851, the annual rate was raised to 12 percent. This means instead of lifting the practice of usury, the state introduced some restrictions to usurers’ activities. This can be taken as a mild approach by which the state seeks to control the practice of usury rather than completely eliminating and prohibiting it (Berber, 2017).

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Institutional structures of debt in the Ottoman state: Money foundations It is argued that interest ban in Islam is a serious obstacle to the establishment of debt relations and transactions. Lack of saving banking activities in Muslim lands is taken as a sign that the financial mechanisms and institutions have not fully developed in Muslim countries (Pamuk, 2014). However, it has also been observed that the interest ban has been overcome through legal tricks in some instances. These tricks generated solutions that seemingly was not contradictory to the established interest ban; but, in practice, these mechanisms and structures were by some referred to as elements of interest transactions; for this reason, some scholars and researchers have criticized these alternatives. From an economic standpoint, the legal arguments of the financial structures at the micro-​level continued to be subject of criticism, whereas at the macro-​level, the financing needs of the society remain. A  comprehensive organization is needed to finance the idle portion of the society in need of fluid funds to address the inherent motivation of the producers and manufacturers to change the equalitarian outlook in the community. Large irrigation initiatives in the field of agriculture, the intensive use of forestry for agricultural activities and other similar practices such as increasing agricultural productivity require an extensive amount of financing. The rural community has no funds to handle such large and comprehensive initiatives. Similarly, in relatively urban areas, the entrepreneurs and merchants are also in need of large amounts of funds to start or sustain a business; the artisans, craftsmen or merchants are unable to take initiative on their own, due to lack of adequate financing. In most cases, small business entrepreneurs in urban areas are in pursuit of a 10 percent of profit; for this reason, the associations or guilds they create for the purpose of solidarity are also unable to address this problem (see Table  12.1). As a result, the markets sense a strong need for alternative financial institutions other than sarrafs and usurers to meet the financing needs at both micro- and macrolevels in the Ottoman society (Genç, 2014). Table 12.1 Evolution of money foundations in the Ottoman state Date

1456–​1494 1495–​1519 1520–​1546

Money foundations

Ratio among all foundations


Total amount of cash

41 244 653

728.600 3594.125 13253.736

3% 19% 56%

Source: Döndüren (2008), Osmanlı tarihinde bazı faizsiz kredi uygulamaları ve modern interest-​free banking experience in Turkey.

Interest-free financing in Ottoman society  127

Money foundations were created to address this problem and have made enormous progress since their inception. The rise of money foundations and their popularization shows the magnitude of the need for financing in the Ottoman society and for an alternative solution. It is possible to argue from an economic point of view that the money foundations have been a real solution to the lack of financing. However, the money foundations have been subjected to criticisms due to the controversies as to whether they are compatible with the Islamic precepts. Some argued that it is a manifestation of interest-​bearing religiosity, but the majority welcomed the arrival of this alternative which was further justified by the decrees of sheik al Islam of the time (Pamuk, 2014). Most probably, the most important reason for the legitimization of money foundations in terms of interest ban is the dire need of the society for financing. The vulnerability of the general public toward the merciless practices of the sarrafs and the usurers necessitated the emergence of an alternative mechanism for the provision of funds. In other words, this was a case distress; and according to a cardinal principle in Majalla, in times of distress, what is prohibited may be legitimized.5 In this sense, the money foundations that emerged in the Ottoman state can be viewed as tools and elements of financing that saved the society. Another reason is to provide sources in a variety of fields ranging from development and reconstruction projects to expenses relevant to general education and training where state involvement is obviously needed. Some argue that the main reason for the delayed introduction of municipal services in the Ottoman state is that the foundations have actually played the roles a municipality is expected to play. The money foundations have also been legitimized by the general utility it produces. In a regular interest-​bearing debt transaction, the lending party becomes richer, whereas the other party is deprived of its assets. In other words, such a transaction makes no contribution to the receiving party. In the case of money foundations, monies donated for a religious motivation are used by those who are in need of finance, and the revenue generated through this loaning process is spent for general charity rather than the benefits of an individual. If we define interest as repayment of the original amount with an added surplus, it could be said that the money foundations operated on the same principle. However, instead of directly calling it interest, the money foundations have offered new financial instruments relying on contracts of debt, sale, grant and lease and attempted to develop a legal framework. This section briefly summarizes the debates the Islamic scholars held in respect to compatibility with Islamic rules and precepts and analyzes the circumstances under which they emerged. Additionally, the section also covers the financial tools and practices the foundations employed. There is no precise information on when the money foundations were created. However, there is a vast literature on their activities, nature and orientations. Seen as a mode of

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financing specific to the Ottoman state, the money foundations raise controversies particularly in respect to compatibility with the Islamic law; but it is also possible to argue that they made significant contributions to the Muslim world (Mandaville, 2009). The compatibility of money foundations with the tenets of Islamic law has not been limited to the issue of interest. Islamic scholars have also discussed the matter in reference to the argument that money violates the idea of foundation and the perpetuity of a foundation. In the 16th century, the discussions have mostly focused on the relationship between the money used in the foundations and the practice of interest. It is interesting to note that this discussion has emerged in a relatively late period. This raises the possibility that the discussion is relevant to the practices of sarrafs and usurers. It is noted that the first money foundations were set up during the reigns of Murad II (d. 1451)  and Mehmed II (d. 1481)  (Şimşek, 1986). Historians recall that the money foundations were mostly set up in the 15th century and that most Ottoman sultans have their own foundations (Önder, 2006). Chronologically, Molla Hüsrev is the first scholar to justify the activities of money foundations in religious terms; Ahi Çelebi offers a more detailed account with reference to customs (Mandaville, 2009; Okur, 2005). Subsequently, Ibn-​I Kamal published a pamphlet where he defended the legitimacy of the money foundations, arguing that the Hanafi scholars would have done the same in legitimizing these institutions (Özcan, 2003). In the 16th century, Çivizade and Abu’l Suud Efendi had fierce discussions on the matter. Çivizade argued against the money foundations, whereas Abu’l Suud Efendi defended the legitimacy of these institutions.6 Çivizade responded to this defense via another pamphlet.7 Money foundations were banned for a brief period of time, causing distress among the people. It is possible to observe these concerns in letters addressed by Bali Efendi to the Sultan, where he presented the money foundations as a real solution to the economic problems and a true means of social solidarity (Okur, 2005). The leading scholars became involved in the debate, and Abu’l Suud Efendi took a firm stance, leading to the annulment of Çivizade’s decree on the prohibition of the money foundations (Özcan, 2003).

Financial tools of money foundations: Qarz, bidaa and mudaraba Scholars are almost in full agreement on the legitimacy of the way the money foundations are operated; the financial instruments the money foundations employed include qarz, mudaraba and bidaa which present no dispute in terms of compatibility with Islamic law; the controversial instruments the foundations use include muamala-​i shar’iyya and bay’lil istighlal.

Interest-free financing in Ottoman society  129

The practice of qarz or qarz al hasana, referred to and promoted in the Quran and the hadith, takes place when the borrower returns the loan to the lender after the passage of a certain amount of time in the exact same amount without the addition of any sort of interest.8 Avariz foundations and guilds funds are types of qar al hasan the Ottoman society has employed (Döndüren, 1992; Önder, 2006). However, even though this method is strongly recommended by the Quran and the hadith, qarz al hasan has not become popular because it does not involve any profit (Özcan, 2003). This is the reason for interest in murabaha and leasing in modern Islamic banking. In the bidaa method, the debtor uses the money he received for the sake of Allah and reserves a certain share of the profit to the foundation. In this way, the debtor increases his revenues and also provides additional income for the foundation (Önder, 2006). Mudaraba refers to a silent partnership where one party provides capital and the other offers his labor. Simply put, it can be described as loss-​and-​profit sharing based on labor and capital partnership; the profit is divided between the parties under the terms previously agreed upon. In the case of loss, the capital holder bears the responsibility, whereas the party that offers labor loses time and effort (Vogel & Hayes, 1998). Even though it is presented as a significant method for modern Islamic banking system, mudaraba cannot be practically promoted for the money foundations due to unforeseeable risk because, in the case of loss, the main capital held by the foundation remains and only the profit is delivered to the foundation. This is not in compliance with the nature of the mudaraba agreement. Döndüren (1992) argues that mudaraba is one of the most important financial instruments for money foundations, Kurt (1996) also supports this argument. On the other hand, Özcan (2003) recalls that mudaraba has not been a popular option whereas money foundations mostly employed the instrument of muamala-​i shar’iyya.

Conclusion In conclusion, the motivation to comply with the main principles and rules of Islamic law as well as observing what the practical circumstances dictate in the economic environment led to the emergence of the solutions and alternatives briefly discussed above in the Ottoman society. However, the benefits of these solutions are controversial. More importantly, the legitimacy of these options offered with the assumption that the interest ban has not been violated has not been ascertained. Both the transactions involving the purchase of a commodity from the lender and then its resale to the original owner at a lower price and the transactions involving a third party are by nature two separate contracts. From this perspective, they do not violate any legal principle or rule. However, it should be noted that it is an option

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that generates benefits for the lender and that it is done for this purpose. Those who argue that the legal trick used in these options are not legitimate refer to some practices by the Jews. In an attempt to overcome the ban on poaching on Saturdays, some Judaic scholars developed a solution according to which the poachers installed their nets before Saturday and picked them up on Sundays, such solutions are condemned in the Islamic sources. The interest-​bearing debt transactions, strictly banned in Islam, have been made part of the social and economic life through different methods briefly summarized above. The primary reason for this is that the complicated economic relations made it necessary to secure fund sources. When the need for financing is met by those who notice the loopholes in the market, the public experiences serious problems; this is why the public authority steps in and becomes part of these transactions. At times when sarrafs and usurers served as important actors of debt transactions, the public had greater troubles. It is possible to argue that with the involvement of the money foundations, the interest rates dropped to a reasonable level which worked better for the general public.

Notes 1 Qur’an:  2:275. The concept infaq is derived from nafq, which literally means exhaustion and completion; but it mainly refers to giving away money or asset. As a religious and moral concept, on the other hand, infaq means donation of cash money or assets to the needy in order to attain the blessing of Allah. 2 The trial of other systems after the tax farming system is also because of finding funds to address the problem of long-​term credit. For a historical survey, see Pamuk (2017). 3 The esham system is the internal credit system used in the period between 1775 and 1870. For details, see Genç (1995). 4 Broadly speaking, selem refers to purchase of goods whose payment is made in advance but whose delivery is scheduled to take place a later time. 5 Majalla article 21. 6 Risale fi Vakfi’l-​Menkul ve’n-​Nukud, Süleymaniye Library, Laleli, 835. 7 Registered at Risale Süleymaniye Library, Laleli, 3720. 8 al-​Hadid 57:11; et-​Taghabun 64:17.

References Akyıldız, A. (2009). Sarraflık (Osmanlı Dönemi). In TDV İslam Ansiklopedisi (Vol. 36, pp. 163–​165). İstanbul: Türkiye Diyanet Vakfı. Aybakan, B. (2009). Selem. In TDV İslam Ansiklopedisi (Vol. 36, pp. 402–​405). İstanbul: Türkiye Diyanet Vakfı. Berber, M. A. (2017). Son Dönem Osmanlı Devleti’nde Tefecilikle Mücadele. In T. Anar (Ed.), Uzman Araştırmacı Yetiştirme Programı Makaleler I (pp. 131–​134). İstanbul: İstanbul Bilimler Akademisi Vakfı.

Interest-free financing in Ottoman society  131 Bozkurt, N. (2009). Sarraflık. In TDV İslam Ansiklopedisi (Vol. 36). İstanbul: Türkiye Diyanet Vakfı. Cezar, Y. (1998). 18.yüzyılda Eyüp’te Para ve Kredi Konuları Üzerine Gözlemler. In T. Artan (Ed.), 18. Yüzyıl Kadı Sicilleri Işığında Eyüp’te Sosyal Yaşam (pp. 19). İstanbul: Türk Tarih Vakfı. Çiçek, K. (2001). Diplomat, Banker ve Tüccar:  18. Yüzyıl Başlarında Larnaka’da Para Ticareti ve Yabancı Sermaye. Osmanlı Araştırmaları, 21(21), 269–​283. Demirkol, K. (2018). Toplumsal trajedi: Osmanlı imparatorluğunda tefecilik. Manisa Celal Bayar Üniversitesi Sosyal Bilimler Dergisi, 16(1), 625–​649. Döndüren, H. (1992). İslâm bankacılığı ve risk sermayesi. İslâmi Araştırmalar Dergisi, 6(1),  17–​31. Döndüren, H. (2008). Osmanlı tarihinde bazı faizsiz kredi uygulamaları ve modern Türkiye’de faizsiz bankacılık tecrübesi. Uludağ Üniversitesi İlahiyat Fakültesi Dergisi, 17(1),  1–​24. Dönmez, İ. K. (2006). Murabaha. In TDV İslam Ansiklopedisi (Vol. 31, pp. 148–​ 152). İstanbul: Türkiye Diyanet Vakfı. Genç, M. (1995). Esham. In TDV İslam Ansiklopedisi (Vol. 11, pp. 376–​ 380). İstanbul: Türkiye Diyanet Vakfı. Genç, M. (2014). Klasik Osmanlı sosyal-​iktisadi sistemi ve vakıflar. Vakıflar Dergisi, 42,  9–​18. Güran, T. (1998). Yüzyıl Osmanlı Tarımı Üzerine Araştırmalar. İstanbul:  Eren Yayıncılık. İnalcık, H. (1969). Capital formation in the Ottoman empire. Journal of Economic History, 29, 97–​140. Jamgoçyan, O. (2017). Osmanlı İmparatorluğu’nda Sarraflık Rumlar, Museviler, Frenkler, Ermeniler (1650–​1850). İstanbul: Yapı Kredi Yayınları. Jennings, R. (1993). Christian and Muslims in Ottoman Cyprus and the Mediterreanean World, 1571–​1640. New York: New York University Press. Köse, M. Z. (2016). Galata’da Ermeni sarraflar ve kredi ilişkileri (1700–​1720). Tarih Dergisi, 64(1),  73–​99. Köse, S. (1998). Hiyel. In TDV İslam Ansiklopedisi (Vol. 18, pp. 170–​ 178). İstanbul: Türkiye Diyanet Vakfı. Kuran, T. (2013). Mahkeme kayıtları ışığında 17. Yüzyıl İstanbul’unda sosyo-​ ekonomik yaşam (Vol. 9). İstanbul: Türkiye İş Bankası Kültür Yayınları. Kurt, İ. (1996). Para Vakıfları Nazariyat ve Tatbikat. İstanbul: Ensar Yayınları. Mandaville, J. E. (2009). Usurious piety: The cash waqf controversy in the Ottoman Empire. International Journal of Middle East Studies, 10(3), 289–​308. Okur, K. H. (2005). Para vakıfları bağlamında Osmanlı hukuk düzeni ve Ebussuud Efendinin hukuk anlayışı üzerine bazı değerlendirmeler. Hitit Üniversitesi İlahiyat Fakültesi Dergisi, 4(7–​8),  33–​58. Önder, Ş. (2006). İslam ve Osmanlı hukukunda İmam Birgivi ve Ebussuud Efendinin para vakfı tartışmaları. Konya: Selçuk Üniversitesi Sosyal Bilimler Enstitüsü. Özcan, T. (1999). Sofyalı Bali Efendinin Para Vakıflarıyla İlgili Mektupları. İslam Araştırmaları, 3(1), 125–​155. Özcan, T. (2003). Osmanlı Para Vakıfları:  Kanuni Dönemi Üsküdar Örneği. Ankara: Türk Tarih Kurumu. Pamuk, Ş. (1994). Osmanlı Ekonomisinde Bağımlılık ve Büyüme (1820–​1913). İstanbul: Tarih Vakfı Yurt Yayınları.

132  Zehra Betül Ustaoğ l u Pamuk, Ş. (2014). Osmanlı Ekonomisi ve Kurumları. İstanbul: Türkiye İş Bankası Yayınları. Pamuk, Ş. (2017). Osmanlı İmparatorluğu’nda Paranın Tarihi. İstanbul:  Türkiye İşbankası Kültür Yayınları. Şimşek, M. (1986). Osmanlı cemiyetinde para vakıfları üzerinde münakaşalar. Ankara Üniversitesi İlahiyat Fakültesi Dergisi, 27(1), 207–​220. Vogel, F. E., & Hayes, S. L. (1998). Islamic Law and Finance: Religion, Risk, and Return (Vol. 16). The Hague: Brill.

Chapter 13

Concept of interest in orthodox economics Adem Levent

Introduction Economics has a reputation of diversity in terms of scholarly views. Unlike other disciplines, students of economics hold that conflicting views among the schools of economic thought should be taken normal. It is even common to observe different approaches among leading representatives of the schools of economics on the examination of the basic and fundamental terms and concepts. For this reason, literature of economic features diverse views and opinions. This also applies to concept of interest. Schools of economic thought adopt different approaches when dealing with this notion, reflecting the rich content of the discipline on the one hand, but also the hard and intricate nature of the matter. For instance, according to Albert O. Hirschman, who made significant contributions to modern economic thought, there is a strong correlation between interest in the sense of personal gain and interest in the sense of material addition to the original debt. In the late 16th century, the term interest has been taken as referring to concerns, desires and advantages. Individual satisfaction is not confined to material gains because careful thinking and subtle calculations are needed to attain ultimate contempt and happiness. In fact, initial thoughts on “interest” have emerged through references to abstract notions irrespective of individual and material satisfaction. For instance, concerns over improving quality of state administration led to pursuit of more realistic approaches to examination of human behaviors which are accordingly analyzed within the context of governor-​ governed interest (Hirschman, 2013b). This epistemological transition has taken different forms in Britain and France. In the 17th century, the term is examined in reference to slogans, “interest does not lie” and “what rules the world is interest”; by the end of this century, as the intersection of the British and French historiography, it is taken up in line with the interests of groups and individuals within the context of economic expectations.1 This narrowed the scope of the term interest which as a result gained a meaning of pursuit for material and economic advantage. The shift in the meaning is attributed to its relation to usury from ancient times. The term has first

134  Adem Levent

been used in the sense of financial return only a few centuries back. The propensity of the association of the term interest, epistemologically older, with rational calculations for the nature of the economic transactions explains why such approaches have over the time dominated the content of the concept (Hirschman, 2013a). Subsequent to the domination of rational calculations, “interest” has been analyzed in the discipline of economics as a fairly technical issue.2 As a result of the interest in natural sciences in the study of economics and its impact upon the emergence of capitalism, fundamental concepts of material life have gone through a process of transformation. In the premodern era, because economy is buried in the social affairs, there is no market economy that exists independently from the society. An independent market economy emerges out of the complexities of the economic environment. As a result, interest has been analyzed within the parameters of the market which operates by its own rules as a technical issue. even though the history of the concept is often associated with the Semitic religions and sociological developments, interest has been regarded as a technical issue in the modern age in connection with the general inclinations of the discipline of economics.3 In the premodern era, Aristo upholds that interest-​ bearing debt is unacceptable because money is a means of exchange and conventional measure of material value. For this reason, money should not be reproduced. The Catholic Church, staunchly opposed to usury, has promoted this view for a long time (Carruthers & Ariovich, 2010).4 However, with the secularization of the economic thought, barriers before the legalization of interests have been lifted.5 Even though the premodern era’s simple economic models enable interest to directly affect the economic developments, the modernization and secularization of the economic thought makes the prohibition of interest dysfunctional and futile (Zaman & Zaman, 2001). The isolation of economics from religious, political, social and philosophical impacts paves the way for new methods in the discussion of fundamental concepts in the discipline. The economic thought which gains its autonomy by becoming independent from social affairs has rapidly evolved into a universal and objective science with its own rules and dynamics.6 As a result, like some other concepts, interest has become a technical issue and one of the contemporary discussions of macroeconomics and finance. In the end, interest has turned into an instrument of monetary policy that governments use in their economic policies which they like to base on quantitative parameters. On the other hand, economic thought makes progress owing to interaction with other disciplines including philosophy, history, sociology and politics, rather than a few technical variables because economic thought is in relation to history and is concerned about the economic reflections of thinking in general. For this reason, economic thought, unlike the practical nature of some notions that affect the daily economic policies, is of theoretical nature.

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Because of this theoretical nature, it is essential to employ an interdisciplinary approach in the study of schools of economic thought.7 But this does not seem to be applicable to the discussion on interest. With the domination of rational calculations in the discipline of economics, the interest began to reflect the abstract and technical aspects of the market; and instead of resolving the market relations, the schools of economic thought focused on the nature of the discussion in the economic issues. The way the interest is handled sheds light on the broad background of the discipline. This chapter seeks to analyze the nature of interest within the context of schools of orthodox economic thought.

Neoclassical economics as orthodoxy and interest Neoclassical economics holds a dominant position in contemporary scholarship.8 This domination is so obvious that the Nobel Prize is most often awarded to economists with a neoclassical standpoint. For this reason, in works cited in mass communication venues and popular avenues, economic theory is taken as referring to neoclassical economic theory seeking to explain the economic and social affairs with reference to individual behaviors. Neoclassical economics adopts a methodological individuality that views the society as a mechanism of individuals who serve as decision-​making units. According to neoclassical theory, the market which ensures the socialization of the individuals emerges out of the desire for gathering. Neoclassical economists argue that the market economy, bound by supply-​demand law, works in the interest and benefit of all. In addition, the sustainability of the market order depends on the compliance of the individuals with the rationality principle. Individuals, in consideration of the conditions that restrict them, act in a way to best utilize their opportunities. The superiority of this rationality lies in the idea of maximization and mathematical expressions. In other words, the relevant definition can only be applied to the human behaviors as long as the scarce resources are utilized in the best way possible (Guerrien, 1999). The neoclassical economics is based on three interrelated principles, methodological individuality, market and rationality. Neoclassical economics begins with the marginalist revolution of theoreticians like Stanley Jevons, Carl Menger and Leon Walras who played significant roles in the transformation of political economics into economics. The diminishing marginal utility principle, one of the forms of explanation employed in the static micro-​economics, developed by these thinkers in the 1870s, led to the emergence of economic movement referred to as marginalism. Economics gained its independence from philosophy after the agreement of these three thinkers who were raised in different intellectual circles over the employment of methods of natural sciences in economic studies (Blaug, 1972). The contributions by marginalist thinkers

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in the discipline also came to be called as marginalist revolution in the literature. In essence, its scope of analysis is micro-​economics theory, based on the analysis of supply and demand and confined to the study of sectors of manufacturers, individuals and consumers. Micro-​economics is focused on how the relative prices affecting the distribution of production factors and of income are determined (Savaş, 2000).9 Orthodox scholars uphold that interest is a technical notion that falls within the boundaries of macroeconomics and finance and that it should be analyzed by experts. For this reason, the Austrian School of Economics and Keynesian approach developed some major economic approaches focusing on the notion of interest within the Orthodoxy.10 Additionally, in the second half of the 20th century, neoclassical synthesis or Orthodox Keynesian economics offered some detailed analysis.11 This led to emergence and prevalence of neoclassical loanable funds theory, Keynesian liquidity preference theory, the neoclassical synthesis IS-​LM theory and Basil Moore’s endogenous monetary theory (Wray, 1992). On the other hand, some of the classical economists have developed theories on the interest. Adam Smith, often cited as the founder of modern economics, approaches the issue from the perspective of a value-​capital linkage. According to A. Smith (2014), amount of interest-​bearing debt is determined by the value of the part of capital the holder does not want to utilize, not by the value of the money circulated in the loan transactions. The amount the capital holders did not use is loaned to others. Smith, criticizing mercantilism, views interest as something relevant to amount of product and examines the impact of the increase in the amount of gold and silver in Europe on the decline of interest rate. Because their utility value will decline when the real value of the metals also declines, they will become less valuable. According to Smith, this assumption never reflects the reality because the factors declining the capital value also decline the interest rate in the same amount (Böhm-​Bawerk, 1890). As seen, interest which is part of the revenue out of the loaning of the products that the capital holders do not want to utilize rather than a monetary matter in Smith’s analysis corresponds to the emerging phase of capitalism. For this reason, according to Böhm-​Bawerk (1890), Smith does not offer a certain interest theory. In other words, he paid attention to the issue but did not offer a systematic explanation. Smith’s views may be considered as theories which served as a prelude to the approaching capitalism. Classical economists after Smith view the interest as a profit of saving; for this reason, they approach the issue from the perspective of saving-​investment that determines the interest rate. In short, according to classical economists, interest is the price of saving (Ülgener, 1974). Böhm-​Bawerk, a member of Austrian School of Economics, offers one of the most significant explanations on interest. According to Fisher (1907), Böhm-​Bawerk’s contribution to interest theory is priceless. According to

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Böhm-​Bawerk, capitalists prefer leasing out their monies and goods over producing service and commodities and thereby play a significant role in economic life. For this reason, the interest revenue they make is a legitimate price. This price involves risk and revives the economic life by contributing to production of goods and services. Capitalists only make interest revenue after the expiry of waiting period whereas the workers who join the economic life by leasing out their labor will not have to wait or take any sort of risk (Skousen, 2016). In any case, they are entitled to their wages. Böhm-​ Bawerk’s analysis by which interest and capital are examined together also clarifies some vague points. Interest rate is determined by the interaction of systematic time preference and productivity of time-​phased technology. The theory of interest held by Böhm-​Bawerk, which covers a vast period from Aristo to the late 19th century, has been in fact developed against Marxism because it advocates capitalism with reference to interest and also criticizes the labor-​value theory of Marxism with reference to workers. In addition to capitalists, referred to as risk takers, the theory is also valuable because it adds risk and time elements to the analysis. Interest is justified by comparison of production factors. Böhm-​Bawerk’s interest theory does not include completely technical features; but it still offers an important ground for a neoclassical synthesis (Samuelson, 1994).12 He also raises a defense of capital within the context of capitalist system, thereby offering an important framework of interest for neoclassical economics (Dorfman, 2001). Fisher who criticizes this takes the interest issue to a technical dimension. In the studies done in the aftermath, it is indicated that Böhm-​Bawerk’s interest theory should be modernized by reliance on axiomatic mathemtical models. Knut Wicksell is also another important figure of Orthodox economics who offers an explanation for the interest issue by making a distinction between natural interest rate and market interest rate.13 Wicksell defines natural interest as a ratio that equalizes saving to investment and assumes it as the social ration of the time preference. The natural interest rate that equates saving supply and demand is the marginal revenue of the capital. For instance, if the saving rate in Switzerland is greater than the rate in Sweden, then the natural interest rate is expected to be less in Switzerland. On the other hand, the loan interest rate imposed by the banks against the consumers play a role of regulating the prices (Skousen, 2016; Wicksell, 2001). According to J. Hirshleifer, the interest theories developed by Böhm-​ Bawerk who established a linkage between interest rate in stable state, capital stocks, salary rate and production process and by Wickseel who formulized this are the same. Dorfman, on the other hand, offers a plausible explanation for this system. However, Hirshleifer holds that Böhm-​Bawerk/​ Wicksell system is flawed in some respects. Above all, the error in the capital value formulation of the Böhm-​Bawerk/​Wicksell system is beyond a negligeble point. Secondly, Wicksell’s formulation establishes an incomplete structure and system. Finally, the system lacks an interest theory. Instead

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of determining the interest rates, the equation system is consistent with an optional exogenous interest rate (Hirshleifer, 1967). Unlike classical and neoclassical economists, Keynes argues that interest emerges within the context of money supply and demand rather than the investment and saving equation and that the definition of interest by the classical thinkers is unclear because saving curve occurs at the real income level and the increasing income takes the curve to the right. For this reason, without real income, it is not possible to know the interest rate; likewise, without the interest rate, the real income cannot be identified. As a result, Keynes holds that the classical interest approach does not offer a solution (Hansen, 1951). In the Keynesian theory, money is included in the analysis when explaining the emergence of interest, viewed as the price of giving up on liquidity rather than of saving (Keynes, 1937). Considering the additional amount paid to ensure that individuals give up on the cash, why it depends on money supply and demand becomes clearer.14 According to the theory, the individuals demand money for purposes of caution, reserve and speculation. The increasing function of income level for caution is the function of interest rates for speculative purposes.15 In other words, as the interest rate increases, the amount of money held for speculation purposes declines, and in this way, the idle money is channeled to the capital market. Money demand for speculation purposes is often observed in developed economies (Ülgener, 1974). Interest which plays a salient role in the formation of stability in market economy determines the distribution of resources in terms of saving and consumption. The saved resources are transferred via interest to more productive areas; and when resources are exhausted, the relatively poorer investments disappear in natural ways. As a result of financialization economics, interest plays a role of creating value beyond stability. In short, the Orthodox economics offers two definitions and connotations for the term interest:  (i) revenue in turn for the leasing of money and (ii) revenue of capital offered for use. In a narrow sense, the term also refers to the lease price that is set in accordance with the supply and demand relations in fund markets, applied to the leased funds and is determined by the markets. In a broad sense, on the other hand, interest is related to capital used to make production more efficient through the use of capital since the improved productivity associated with the use of capital is called natural interest, real interest or the revenue of capital (Paya, 2007). Orthodox economics analyzes the interest theory within the framework of two major approaches.16 The first approach is the loanable funds theory, formulated by D. H. Robertson and B. Ohlin in response to Keynes’ interest theory in the 1930s; the theory establishes a linkage between interest movements and the supply and demands of the total funds in the economy (Ohlin, Robertson, & Hawtrey, 1937; Tsiang, 2008). The theory, further developed and refined by Wicksell and Fisher, seeks to explain the interest level by focusing on the developments in the supply and demand of the funds.

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Fisher attributes the formation of real interest to the preferences of the individuals who have to make a choice between the consumption-​saving equation over the consumption opportunities at presence and in the future (a subjective factor) and to productivity (an objective factor).17 According to the loanable funds theory, entrepreneurs’ investments are productive as long as they generate revenues greater than the amount of investment; and as productivity improves, demands for funds will also increase. Second approach is the liquidity preference theory that relies on money supply and demand to explain the dynamics of interest. The theory, developed by the Keynesian economics, holds that money supply and demand are primary elements that determine the interest rate in the market. Both approaches generate similar results and outcomes in a number of situations (Panico, 2008). Keynes laid the foundations of the liquidity preference theory in his seminal book, A Treatise on Money. The investment demand and the functions of saving supply are taken as the natural level of the interest rates and the liquidity preference is integrated into the marginalist theory. Because the average level of the interest rates is assumed in General Theory, the notion of natural interest rate is rejected. The value of the average interest rates level is determined by the present time. But this rate holds importance for money authorities as it will affect the general conviction in the future (Paya, 2007). It should be noted that the formulation of the interest theories of the orthodox economics is affected by the circumstances the economists have to endure. These approaches have been mainly developed under the circumstances of the aftermath of the Great Depression (1929). The Keynesian liquidity preference theory developed in the context of money supply and demand in response to the Great Depression was criticized by the loanable funds theory in the 1930s. The economic circumstances affect the interest theories of the Orthodox economics which have attained a level of perfection in the aftermath of World War II thanks to reliance on mathematical models. Given that monetary economy has not been developed in the classical economics era, it can be said that the replacement of product or saving-​oriented interest approach by the money-​based approach in the Keynesian era should be relevant to the changes in the economic activities and circumstances. The transformation of the supply-​sided economics into demand-​ sided Keynesian economics in the aftermath of the Great Depression affected the analyses on the interest as well. The diversity within the Orthodox economics on the issue of interest should be attributed to the changing circumstances and the effects of the crises, rather than the pluralist nature of this strand. For this reason, the loanable funds theory and the liquidity preference theory can be regarded as two sides of the same coin. Therefore, it should be noted that the differentiation in the theoretical background of these two approaches is in fact a confrontation within the discipline for domination.

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Because attention is paid to which monetary policy will make the markets more effective, the departure of the discipline from real life does not raise any concerns. The debates that emerged in the aftermath of the Great Depression were revived in the 1950s when the Keynesian economics started to dominate the discipline; in this period, economists like Abba Lerner and John Hicks placed emphasis upon the similarities between loanable funds theory and the liquidity preference theory (Patinkin, 1958; Tsiang, 2008). It could be said that growing reliance on mathematical models with the marginalist revolution, and particularly after the end of Second World War, played a role in the transformation of the interest into a technical issue within Orthodox economics. Hicks (1937)’s work where the interest approach of Keynes and the classical thinkers is examined via a mathematical language is an example of this. The work, relying on mathematical models and explanations, shows that Keynes’ theory was greatly affected by the circumstances of the depression (W.  L. Smith, 1958). For this reason, according to Keynesian economist Hansen (1951), the interest theories of Hicks and Keynes should be taken together as they complement each other. In fact, a similar approach is adopted by Paul Samuelson with regards to the interest approaches of Böhm-​ Bawerk and Fisher. Even though Samuelson (1994) does not agree with Fisher, he holds that Fisher made technical and mathematical contributions to interest theory and that Böhm-​Bawerk’s interest theory is complemented by the critical approach of Fisher. Time-​phased technologies and trade should be analyzed with reference to the market equilibrium price and this can only be done by the interest theory of Böhm-​Bawerk and Fisher. For this reason, von Neumann, Gerard Debreu, Kenneth Arrow; scholars of Pre-​ Sraffa era V. Dmitriev, L. von Bortkiewicz, Joan Robinson, Nicholas Kaldor; Sraffa and his followers Luigi Pasinetti, Pierangelo Garegnani, J. S. Metcalfe, Ian Steedman, Bertram Schefold as well as many other figures have followed the footsteps of these two classical theoreticians.

Conclusion As seen, the way orthodox economics handles the issue of interest is nothing more than a set of technical and rather vague expressions, which in essence complement each other. Analyses made in isolation from political and sociological aspects generally exhibit a tendency of scientific superiority in terms of objectivity and universality. The technical explanations focused on the sustenance of the market efficiency rather than analysis over capitalism as a system that directly affects social life accentuate the characteristics of interest in orthodox economics. The stability of the markets, the continuation of consumption and effective use of the production sources are important for interest. The interest theory analyzed in this form within orthodox economics serves as a tool of legitimizing capitalism. The inequalities generated

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by capitalism, social dissidence, contemporary economic issues and the negative effects of interest practices are not considered major problems by orthodox economists. What is important is to ensure the stability or the markets. In this way, despite that it is a matter that directly affects daily life, interest fails to attract attention except the experts in the field. When a crisis breaks out in the economy, market economy, banking system, financial system, indebtedness, consumption, saving and investments and other similar terms become a matter of criticism. For this reason, heterodox economists generally view orthodox economics as “unreal” or “pseudoscience” because orthodox economics, despite its theoretical integrity and wholeness, fails to offer solutions for the economics problems in daily life. Orthodox economics is even a source of disappointment given that it failed to predict the coming of the financial crisis in 2008. It should be noted that the deep financialization of economic activities had a major impact on this failure. According to heterodox economists, the 2008 crisis is a telling proof that orthodox economics is unreal.18

Notes 1 For a detailed examination of interest in reference to personal and group gains in the political environment of the 17th century, see Gunn (1968) 2 Rational calculations do not just transform the content of the concept of interest. Rationality holds a central place in the literature of economics so much so that it gives direction to the discipline itself (Yılmaz, 2009). This rationality has even become rational choice theory in the second half of the 20th century. Economists argue that this theory should be applied not only to economic activities but also all human relations (Becker, 1976). 3 This study focuses on the era where interest has been analyzed and studied in technical terms. 4 Fisher recalls that interest is no longer considered a prohibited act and transaction in the Reform era. In this period, Calvin makes a distinction between just and unjust interest. For further details, see Fisher (1907). 5 Özel (1994) argues that the transition of the discretion of defining the society and humankind from God to individuals is secularization of the economic thought. A  world where economic activity is organized for the need of the capital for uninterrupted growth rather than the needs of the people cannot be justified by conventional worldviews. There was a need for a secular teaching to justify pursuit of material advantages and gains. Political economy, and later economics, is just an intellectual project drafted to address this need in the 18th and 19th centuries. Also, according to F.  Braudel, capitale, a Latin word that literally means interest-​bearing money, has first emerged in the 12th century. The term capitalism has not been strictly defined at the beginning. The initial discussions have been focused on the practice of usury which has been morally justified by the scholastics, moralists and legalists because of the risk borne by the lender. However, the legalization of interest in the discipline of economics has a long history. For a more detailed analysis, see Braudel (1991).

142  Adem Levent 6 According to Polanyi, economics was embedded in noneconomic institutions in the pre-​modern era. For this reason, every society has its own economic laws in this period. However, in the modern era, economics has gained its independence and become a separate discipline. For this reason, modern economics claims that it has universally accepted objective laws (Polanyi, 1957). 7 In the history of economic thought, there are basically two different approaches. The first approach assumes the existence of a linear evolution in the history of economic thought. This approach argues that the current prevalent economic theory represents the economic thought. For this reason, it backs up the dominant theory and the relevant policies. The second approach, on the other hand, seeks to analyze the economic thoughts within their own contexts under the conditions of the time. Because of emphasis upon environment and context, this approach serves the objectives of a series of opposing policies (Özveren, 2017). This chapter, seeking to analyze the interest within the context of economic thought, prefers the second approach because the history of interest, rather than a process and pattern of evolution, reflects a context-​bound progress. 8 Whether neoclassical economics is orthodox economics remains a controversy in recent debates. The involvement of new research programs in economics seems to be a major obstacle for neoclassical economics to quality orthodoxy. But despite all debates, there are efforts of neoclassical economics and new research programs (Akrep, 2017; D. Colander, 2000; D. Colander, Holt, & Rosser, 2004; Davis, 2006). 9 Income refers to relative price is the ratio between the prices of two random goods or commodities. 10 Whether Austrian school of economics can be considered part of orthodox economics is controversial because it does not feature a monolithic outlook in terms of approaches. The school hosts a number of economists who hold different and diverse views, including those who can be regarded as close to heterodox economics. But still the school is often referred to as a strand of neoclassical economics. For a detailed work on the school, see (Boettke, 1994). Like Austrian school, the inclusion of the Keynesian economics in the orthodox economics is also controversial. Even though it somehow opposes the orthodox premises in some instances, Keynesian economics does not exhibit heterodox features. However, post-​Keynesian economics is a heterodox school relying on the views of Keynes (Lavoie, 2010). For a study that analyzes both the Austrian school and Keynesian economics within the context of orthodoxy, heterodoxy and dissident, see Backhouse (2004). 11 Neo-​ classical synthesis refers to the synthesis of neoclassical economics (microeconomics) and Keynesian economics (macroeconomics). The term was coined by Paul Samuelson in 1955. The synthesis of the views of the classical economists and the Keynesian views have dominated the orthodox economics in the period between the end of World War II and the early 1970s. These two economic approaches are twin pillars of orthodox economics (Snowdon & Vane, 2012). With regard to interest, Alvin Hansen proposes the merger of the neoclassical interest theory and the Keynesian interest theory (Hansen, 1951). 12 Böhm-​Bawerk’s criticism over the interest’s pure productivity theory lays the ground for future macroeconomic studies within the discipline. See Murphy (2005).

Concept of interest in orthodox economics  143 13 For an account examining the impact of Wicksell’s interest theory upon Mises from the Austrian school of economics within the context of dynamic price theory, see Festre (2006). 14 According to Keynesian economist Alvin H. Hansen, like the classical economists, Keynes adopts a vague approach toward interest. In other words, the criticism Keynes made against classical thinkers may also be raised against the Keynesian interest theory as well. Without knowing the income level, the money supply and demand does not determine interest rates. The same also applies to the loanable funds theory. However, Hansen argues that in case neoclassical economics and Keynesian formulation are taken together, the interest rates theory will become more understandable. In this way, the IS-​LM approach will be regarded significant in the interest rates theory (Hansen, 1951). This debate is an important example showing that interest is treated as a rather technical matter within orthodox economics. 15 As income level improves, the amount of money saved for cautionary purposes also increases. 16 As noted earlier, it is possible to cite more theories; but loanable funds and liquidity preference theories are to major approaches that enjoy great deal of acceptability and recognition within orthodox economics. Some studies suggest that there are four theories on interest in the orthodoxy: neoclassical loanable funds theory, Keynesian liquidity preference theory, neoclassical synthesis IS-​LM theory and Basil Moore’s endogenous money theory (Wray, 1992). Some argue that monetary interest theory should also be included in this classification (W. L. Smith, 1958). 17 Real interest refers to interest rate purified of the inflation rate. The term was coined by Fisher who argues that real interest rate is identified when the expected inflation is subtracted from nominal interest (Sekmen, 2012). 18 2008 crisis is still being debated. There are a number of arguments referring to different factors as source of the crisis: inadequacy of regulations, failure of corporate governance and risk management, saving glut, high interest rate and excessive borrowing, mortgage fraud, lack of accountability and ethics, growing inequality (Pressman & Scott, 2018). The interest-​oriented nature of modern Orthodox economics is also referred to as a major element in these debates. There is even literature suggesting that interest-​bearing debt proves that modern capitalism exploits all. For a detailed discussion, see Lazzarato (2012).

References Akrep, M. Y. (2017). Sümer Ekonomisinde Tapınak Faktörü. Mavi Atlas, 5(2), 458–​473. Backhouse, R. E. (2004). A suggestion for clarifying the study of dissent in economics. Journal of the History of Economic Thought, 26(2), 261–​271. Becker, G. S. (1976). The Economic Approach to Human Behavior. Chicago and London: University of Chicago Press. Blaug, M. (1972). Was there a marginal revolution? History of Political Economy, 4, 269–​280. Boettke, P. J. (1994). The Elgar Companion to Austrian Economics. London: Edward Elgar Publishing.

144  Adem Levent Böhm-​Bawerk, E. V. (1890). Capital and Interest. London: Macmillan. Braudel, F. (1991). Maddi Medeniyet ve Kapitalizm. İstanbul: Ağaç Yayınları. Carruthers, B. G., & Ariovich, L. (2010). Money and Credit:  A Sociological Approach. Cambridge: Polity Press. Colander, D. (2000). The death of neoclasical economics. Journal of the History of Economic Thought, 22(2), 127–​143. Colander, D., Holt, R. P. F., & Rosser, J. B. (2004). The changing face of mainstream economics. Review of Political Economy, 16(4), 485–​499. Davis, J. B. (2006). The turn in economics: Neoclassical dominance to mainstream pluralism? Journal of Institutional Economics, 2(1),  1–​20. Dorfman, R. (2001). Modernizing Böhm-​Bawerk’s theory of interest. Journal of the History of Economic Thought, 23(1),  37–​54. Festre, A. (2006). Knut Wicksell and Ludwig Von Mises on money, interest, and price dynamics. Journal of the History of Economic Thought, 28(3), 333–​357. Fisher, I. (1907). The Rate of Interest. New York: Macmillan. Guerrien, B. (1999). Neo-​Klasik İktisat (E. Tokdemir, Trans.). İstanbul:  İletişim Yayınları. Gunn, J. A. W. (1968). Interest will not lie: A seventeenth-​century political maxim. Journal of the History of Ideas, 29, 551–​564. Hansen, A. H. (1951). Classical, loanable-​fund, and Keynesian interest theories. The Quarterly Journal of Economics, 65(3), 429–​432. Hicks, J. R. (1937). Mr. Keynes and the “Classics”; A  suggested interpretation. Econometrica, 5(2), 147–​159. Hirschman, A. O. (2013a). The Essential Hirschman. Princeton:  Princeton University Press. Hirschman, A. O. (2013b). The Passions and The Interests Political Arguments for Capitalism before Its Triumph. Princeton: Princeton University Press. Hirshleifer, J. (1967). A note on the Bohm-​Bawerk/​Wicksell theory of interest. The Review of Economic Studies, 34(2), 191–​199. Keynes, J. M. (1937). Alternative theories of the rate of interest. The Economic Journal, 47(186), 241–​252. Lavoie, M. (2010). Are we all Keynesians? Brazilian Journal of Political Economy, 30(2), 189–​200. Lazzarato, M. (2012). The Making of the Indebted Man. London: Cambridge. Murphy, R. P. (2005). Dangers of the one-​good model: Böhm-​Bawerk’s critique of the “Naive Productivity Theory of Interest.” Journal of the History of Economic Thought, 27(4), 375–​382. Ohlin, B., Robertson, D. H., & Hawtrey, R. G. (1937). Alternative theories of the rate of interest: Three rejoinders. The Economic Journal, 47(187), 423–​443. Özel, M. (1994). İktisadi Düşüncenin Laikleşmesi. İstanbul: İz Yayımcılık. Özveren, E. (2017). İster İstemez Karşılaştırmalı ve Dışa Bağımlı İktisadi Düşünce Tarihiniz: Gözlemler ve Sorunlar. İstanbul: İletişim Yayınları. Panico, C. (Ed.) (2008). The New Palgrave A  Dictionary of Economics (Vol. 5). New York: Palgrave Macmillan. Patinkin, D. (1958). Liquidity preference and loanable funds: Stock and flow analysis. Economica-​New Series, 25(100), 300–​318. Paya, M. M. (2007). Para Teorisi ve Para Politikası. İstanbul: Filiz Kitabevi.

Concept of interest in orthodox economics  145 Polanyi, K. (1957). Aristotle Discovers The Economy. In K. Polanyi, C. M. Arensberg, & H. W. Pearson (Eds.), Trade and Market Early Empires: The Falcon’s Wing  Press. Pressman, S., & Scott, R. (2018). Ten years after the crisis:  A lost decade? Real-​ World Economics Review, 83,  2–​19. Samuelson, P. A. (1994). Two classics: Böhm-​Bawerk’s positive theory and Fisher’s rate of interest through modern prisms. Journal of the History of Economic Thought, 16, 202–​228. Savaş, V. (2000). İktisatın Tarihi. Ankara: Siyasal Kitapevi. Sekmen, F. (2012). Para Teorisi-​ Kavram, Kurallar ve Modeller. Ankara:  Seçkin Yayıncılık. Skousen, M. (2016). The Making of Modern Economics. New York: Routledge. Smith, A. (2014). Milletlerin Zenginliği (H. Derin, Trans.). İstanbul:  İş Bankası Yayınları. Smith, W. L. (1958). Monetary theories of the rate of interest: A dynamic analysis. The Review of Economics and Statistics, 40(1),  15–​21. Snowdon, B., & Vane, H. R. (2012). Modern Makroekonomi Temelleri, Gelişimi ve Bugünü (B. Kablamacı, Trans.). Ankara: Efil Yayınevi. Tsiang, S. C. (Ed.) (2008). The New Palgrave A Dictionary of Economics (Vol. 5). New York: Palgrave Macmillan. Ülgener, S. F. (1974). Milli Gelir, İstihdam ve İktisadi Büyüme. İstanbul:  Sermet Matbaası. Wicksell, K. (2001). Bank rate of interest as the regulator of prices. History of Political Economy, 33(3), 509–​516. Wray, L. R. (1992). Alternative theories of the rate of interest. Cambridge Journal of Economics, 16(1),  69–​89. Yılmaz, F. (2009). Rasyonalite İktisat Özelinde Bir Tartışma. İstanbul:  Paradigma Yayınları. Zaman, A., & Zaman, A. (2001). Interest and the modern economy. Islamic Economic Studies, 8(2),  61–​74.

Chapter 14

Notion of interest in modern capitalism within the context of heterodox schools of economics Adem Levent

Introduction The discipline of economics, named as the science of wealth because as political economy it sought to offer an answer to the question as to why some nations are wealthier than others, has gone through a process of transformation via a marginalist revolution in the aftermath of the Second World War. This era is marked with attempts of excluding the notions of history, institutions and class and of relying on technical analyses for scientific inquiry (Clarke, 1991). Those who did not adapt themselves to this tendency were not viewed as economists and driven out of the discipline. For this reason, economics has become a social science discipline that exhibits the strongest signs of orthodoxy. Heterodox economics, on the other hand, strongly opposes this trajectory of the discipline. Heterodox economics serves both as a critic of, and an alternative to, orthodox economics. Heterodox economics shows a dual characteristic and denotes a group of certain economists and contemporary theories seeking to explain the policy proposals and social supply process. For this reason, the intellectual roots of the heterodox economics can be found among the Keynesian-​Sraffaian, Marxist-​radical, institutional-​ evolutionary, social, feminist and ecological views and thoughts. Its theoretical emphases include the wealth of nations, accumulation of capital, justice, social relations in terms of class, gender and race, full employment and economic and social reproduction. Heterodox economics seeks to explain the historical process of social provision within the context of capitalist economy (Lee, 2012). Heterodox economics also opposes the approach of orthodox economics to interest, noting that interest cannot be analyzed in a technical manner. Heterodox economics argues that interest should be analyzed with reference to the capitalist power relations because it sees itself as the science of capitalism. According to heterodox schools, economics is the science of capitalism and that interest emerged within this science to make capitalism work. In other words, “technical” issues like interest emerged after economics gained its independence from politics and sociology. For this reason,

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heterodox economics adopts a wholesale opposition against the orthodox tradition. This chapter analyzes the notion of interest within the context of heterodox schools of economics. To this end, it is essential to make a distinction between the concepts of orthodox and heterodox economics in order to better explain the background of the theoretical debates that draw lines between these schools. Such a distinction will open windows for a better understanding of the notion of interest and identification of the discipline of economics. The chapter does not claim to cover all aspects of the notion. Instead, it focuses on the approaches upheld by heterodox schools of economic thought.

Distinction between orthodox and heterodox economics Of social sciences, economics is the one with the strongest degree of orthodoxy. Orthodoxy is so strong in the textbooks of economics that the term “neoclassical,” reflecting its orthodox nature, is often omitted. However, the orthodoxy-​heterodoxy distinction forms the basis of arguments that the discipline of economics is not homogenous. Orthodoxy, a combination of orthos that literally means the truth in a conventional sense that complies with the general beliefs and established doctrines, and doxa, which literally means approach, represents the power and rule, whereas heterodoxy, a combination of hetero that literally means the other and different and doxa represents the opposition. Orthodoxy features a homogenous outlook in general, whereas heterodoxy displays plurality. In short, there are more than one heterodoxy surrounding one orthodoxy. The school that constitutes orthodoxy is neoclassical economics which enjoys homogeneity and internal coherence (Yılmaz, 2000). On the contrary, heterodoxy is more than one school. Leading heterodox schools of economics including Marxist economics, institutional economics, German historical school, post-​ Keynesian economics and feminist economics all agree on their opposition to orthodox economics even if they lack homogeneity and internal coherence. Opposition to orthodoxy and neoclassical economics is a common ground in defining heterodox economics. From this perspective, it is an umbrella concept combining separate and distinct projects and traditions (T. Lawson, 2006). Despite consensus, it should be noted that the discipline of economics is in a process of transition. Particularly the involvement of new research programs since 1980 has changed the overall outlook of orthodox economics which has evolved into a more eclectic position (D. Colander, Holt, & Rosser, 2004). Game theory, behavioral economics, experimental economics, evolutionary economics, neuroeconomics, complexity economics are all considered newly emerging research programs. The merger of the orthodox economics with these

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new research programs is now regarded as an obstacle to the sole domination of neoclassical economics in the discipline (Davis, 2006, 2008). For this reason, D. Colander (2000) argues that neoclassical economics is dead because it is no longer the dominant element in the discipline and its terminology is no longer acceptable. Naturally, the criterion that determines the orthodoxy of economics is studies by leading economists from most prestigious universities. Works by economists including David Romer, Buz Brock, Richard Thaler, William Baumol, George Akerlof, Joe Stiglitz, David Card, Alan Krueger, Paul Krugman, Ken Arrow, Amartya Sen who give direction to the discipline are not considered part of neoclassical economics. But those scholars do not regard themselves as heterodox economists, almost all are orthodox economists. It could be said that Dequech (2008) provides an overall definition of economics with reference of these elements.1 S. C. Dow (2008) holds that orthodox economics is still monist and mathematical formalism serves as the basis of its methodology.2 In methodological terms, the change associated with the new research programs brought about the concept of “reverse imperialism”3 (Frey & Benz, 2004). Davis (2008), approaching the debate from a different perspective, divides the evolution of pluralism in the discipline of economics in five stages: (i) Transition from classical economics to neoclassical economics in Britain in the 19th century, (ii) the Methodenstreit (debate over method)4 between the German historical school and the Austrian school of economics, (iii) monetary economics and labor approaches in the Cambridge era after Marshall, (iv) competition between institutional economics and neoclassical economics in the interwar era in the United States and (v) the debate between fiscal policy and monetarism within the context of IS-​LM5 in the 1970s. Pluralist approaches in this period have been replaced by a dominant one. Therefore, there is a state of cyclicality in economics between pluralism and domination. It is true that the developments in the aftermath of the 1980s made economics seemingly pluralistic. However, domination of an approach in the discipline is also inevitable because the status of economics as a science requires the evolution of pluralism into domination of a singular approach. In short, as a sociological concept, the orthodoxy-​heterodoxy distinction represents a relationship of domination within the discipline. However, this distinction also has epistemological basis that can be traced back to the period of methodenstreit in the last quarter of the 19th century. The side that would then form the orthodoxy in the methodology debate argues that imitation of natural science is a reliable scientific criterion and promotes methodologica individuality and universal rules in scholarly studies. The other side, on the other hand, underlines the unique nature of social sciences and argues that economics should rely on specific methods focusing on historical knowledge and the whole rather than pieces. The first group won the argument at least from the perspective of its sociological outcomes and became the orthodoxy of the discipline of economics. Compared to other

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social sciences, the orthodoxy of economics has become extremely strong and attained the status of the sole determinant of the discipline. The heterodox schools of economics, on the other hand, criticize the orthodox economics arguing that it is focused on individuality, deviates from reality, is extremely abstract and mechanical (Yılmaz, 2012). Interest is inherently a matter of discussion that perfectly fits the content of economics, particularly macroeconomics and finance. On the other hand, heterodox schools of economics, instead of focusing on the issue of interest directly, rely on financial analyses within the operation of capitalism. According to heterodox schools, economics is the science of capitalism and interest has evolved in the science of economics to make capitalism work. For this reason, technical issues such as interest should be examined together with capitalism. According to orthodox economics, however, this issue is a technical one that emerged out of the operation of the economic relations by their own rules, therefore, only experts may shed light on this rather technical debate.

Theoretical approach by heterodox economics to interest In this section, I analyze approaches held by some of the heterodox schools of economics to the issue of interest. To this end, main tenets and premises of the heterodoxy will be examined with reference to Marxist economics, institutional economics and post-​Keynesian economics and their arguments over the notion of interest and its practice. The first two schools analyze the issue within the context of capitalism whereas the post-​Keynesian school, like orthodox economics, remains within the boundaries of the discipline and treats interest as if it is a technical matter. Marxist economics and institutional economics examine interest via an interdisciplinary method within the context of capitalism whereas post-​Keynesian economics refers to monetary policy in the examination of the issue. This indicates that unlike orthodoxy; heterodoxy fails to achieve an internal consistency. It should be noted that this lack of consistency and diversity also applies to other economic examinations and matters as well. Orthodoxy represents an assertive style of domination that achieves coherence and consistency whereas heterodoxy stays in the periphery performing a task of dissidence and opposition. For this reason, the approaches offered by the heterodox schools in the analysis of the interest are of diverse in nature which becomes a source of criticism for orthodox economists.

Marxist economics and interest It was Karl Marx who offered the foundational methodology and systematic worldview of Marxist economics. Essentially, he made an analysis of

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capitalism; the methodology of Marxist economics is embedded in the analysis of capitalism. For this reason, the main concepts of Marxist economics are class, labor, workforce, surplus value, social capital cycle, exploitation and mode of production (O’Hara, 2008). Those notions were adapted to the intellectual atmosphere of the 19th century within the German, French and British traditions of thought by Marx and a new economic system was generated. A  systematic synthesis has been made by debt dialectics from Hegel and German tradition, materialism doctrine from Feuerbach, socialism from the French tradition and political economy approach from the British tradition. Marx merged Hegel’s historical dialectics with Feuerbach’s materialism and created dialectical materialism which pays attention to the economic part of life and represents the economic interpretation of history. Production is an historical as well as an economic act. For Marx, economics is a science of production. Dialectical materialism is where history meets economics (Ekelund & Hebert, 1975). According to this dialectic, there is irreconcilable contradiction between labor and capital which is accumulated labor. Capital is also seizure of what the workers have produced and transfer of the property of what they produced to someone else (Marx, 2000). For this reason, Marx believes that history is all about a class struggle. Marxist economics is concerned about macroeconomic relations and particularly distribution of income between capitalists and workers. To attain justice in the distribution of income, this approach pays greater emphasis upon the society rather than the individual because it is the social aspect of labor that generates surplus value, aka workers. For this reason, the approach opposes ownership and property and offers the idea of public ownership for a fair distribution of income (Blaug, 1999). Marxist economics approaches the issue from a capitalist perspective. In essence, the discussion is all about the excessive money/​interest paid by the enterprises to the capital holders who offer their capitals to business owners without being involved in the process. In his analyses of virtual capital and usury, Marx makes mention of two types of capitalists or capital groups:  active capitalist who perform functions of capitalist, a role today defined as enterprise and lender or para-​capitalist who is more concerned about provision of capitals for the active capitalist. Active capitalist is engaged in purchase of production tools and devices (buildings, raw materials, machines and labor), sale of the goods, organization of the production and accounting. Even though debt is a primary mode of fund supply, Marx examines the shares held by these capitalists under the heading of debt capital. The debt is paid out by interest, corporate shareholders receive their shares; all these are part of the surplus value. According to Marx who holds that there is no law that determines interest rate, the whole issue is all about the law of distribution between the active capitalist and the lender (Dumenil, Löwy & Renault, 2011). Interest,

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initially viewed as the profit of the usurers, has become nothing more than an exchange of the value between the debtor and the creditor because in a capitalist society, the advance of capital seeks to ensure provision of profit, not the sustenance of the debtor. In case the available amount is utilized in a way to make profit in trade or industrial activities, then the entrepreneurs become willing to bear the cost of interest. Every entrepreneur considers making an average amount of profit; therefore, there is, in reality, an ideological or virtual transaction. Because the issue of profit covers up the exploitation, this practice was welcomed by capitalist economists (Mandel, 2008). Marx believes that the interest rate is in essence a monetary phenomenon. Even though it is a revenue derived from profit, the interest is bound by the income rate of the capital and there is no such thing as natural interest rate.6 Interest rate is a short-​term phenomenon that will not show any tendency of equilibrium in the long run; and, not only for the downward propensity of the profit rate but also for the intensification of the monetary savings of the social layers in the hands of the bankers, it will exhibit a propensity of decline in the long term (Blaug, 1999). As seen, the main approach of the Marxist economics is in parallel to the analysis of capitalism. There is a clear linkage between the emergence and conduct of capitalism and the interest. Werner Sombart, who examines this relationship in detail, explains the emergence of capitalism with more than one factor. For instance, he explains the process of capitalist evolution with economic and non-​economic factors as well. The Jews and their interest-​ based transactions played important roles in the emergence of capitalism because, above all, the Jews were able to lend money. Modern capitalism can be viewed as the child of lending money. Therefore, lending money is the gist of capitalism. The main tenets of capitalism are ultimately based on these lending relations. The idea of making money without actual efforts emerged in the practice of lending money, also leading to the conclusion that the individuals would work without being forced to. In the end, the characteristics of lending transactions constitute the features of all capitalist economic practices. When investment is needed for major spending and when business is performed in corporate enterprises, this is the best option to follow because founding a corporation is nothing but lending for the purpose of immediate profit. For this reason, the Jews’ lending practices and transactions are viewed as objective factors that ensure the emergence, spread and popularity of capitalist spirit (Sombart, 2016). The exclusive Judaic characteristic (lending transactions) led to the emergence of corporate enterprises and also contributed to the rapid spread of capitalism.

Institutional economics and interest Institutional economics, or American institutional economics, is a school of economic thought that emerged in the early 20th century in the United

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States. Thorstein B. Veblen (1857–​1929), John R. Commons (1862–​1945), Vesley C.  Mitchell (1874–​1948) and Clarence Ayres (1891–​1972) are the leading figures of this school (Rutherford, 2001). It is possible to observe the traces of different types of analysis employed in the institutional economics in classical economists such as Adam Smith and John Stuart Mill, German, British and American schools of historicism, Austrian economists such as Karl Marx, Carl Menger, von Wieser and Friendrick von Hayek and neoclassical economists such as Alfred Marshall. Despite all this theoretical richness, it should be noted that the views of Thorstein Veblen are the intellectual source of inspiration of the institutional economics (Rutherford, 1994). Although it has been influenced by German school of historicism and Marxism, the institutional economics borrows much from the pragmatist philosophy. It should also be noted that Darwinism also had a great impact upon Veblen’s institutional approach (Hodgson, 2004). It is not possible to have an agreement on a single definition or to take it as an integrated mode of thinking, methodology or research inquiry because it displays wide variety of views and approaches (Rutherford, 1994). The most distinctive characteristic of this approach is its opposition against orthodox-​neoclassical economics. In the end, institutional economics is a heterodox school of thought. It should also be noted that this approach criticizes the standard equilibrium and maximization of utility assumptions of the neoclassical economics by offering an integrated and evolutionary perspective (Samuels, 1984). Like Marxist economics, institutional economics also examines the interest within the context of capitalist system. According to Dugger (1979), Veblen, founder of the institutional economics, assumes the existence of dualism between institutions and technology, and industry and financial systems and explains the evolution of the institutions by relating to a dialectic process. Technology is also an institution. However, even though it is a dynamic institution thanks to its nature as it refers to the process of mechanization, technology is static because institutions have established habits and practices. Therefore, there is an opposition between technology and institutions in terms of change (Özveren, 2007; Waller, 1982). Another important aspect of Veblen’s formulation in terms of explaining the interest approach of the institutional economics is the distinction made between enterprise and industrial systems which serve as two main concepts of Veblen’s analysis of capitalism. An industrial system is a physical entity of machines, equipment and facilities. Workers, managers and engineers are the good guys of Veblen’s formulation who constitute the industrial system that require expertise and technical knowledge. This instinct of workmanship of the good guys is also a fundamental humane aspect. The enterprise system is, on the other hand, a financial reality focused on prices, profit, loan and capital values and depends on the components of the industrial system. The enterprise system of the businessmen7 excludes production

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managers and engineers. Their main area of activity is interest. Bad guys control the activities of the so-​called good guys. For these guys, production, service and industrial efficiency are of secondary importance. The only goal of the enterprise system that offers a form of profit-​based capitalist organization is profit (Reynolds, 1989). According to Veblen, the modern industrial life is an outcome of the confrontation between making money and manufacturing goods. There is a class clash within the capitalist system; but this clash is between businessmen and engineers, not between capitalists and the workers. The monetary habits and tendencies bring the bankers, commissioners, lawyers and administrators to the same page in terms of defending private profit as a fundamental concept and principle of the enterprise system. On the other hand, the workers and technicians and engineers who inspect them assume the labor in the production process. Veblen analyzes modern industrial civilization and 20th-​century capitalism from this perspective (Blaug, 1999). In his books, The Theory of Business Enterprise (1904) and Absentee Ownership (1923), Veblen examines the characteristics of modern capitalism in details and researches the institutional reasons of the instabilities generated by capitalism. The most distinctive aspect of modern capitalism is the fact that production has become a monetary transaction and that businessmen become engaged in financial transactions rather than industrial affairs. The changing nature of the notion of capital and the spread of credit cards are other aspects to take into consideration. Loans hold a special place in the financial age of capitalism because loan increases the ratio of transformation of the capital and thus serves as the foundation for the continuation of monetary profits. In Veblen’s analysis, loan utility is a major element of the tendency toward expansion in the economy. The expanded use of loan is both the cause and outcome of the increased trade and business activities. In this analysis, loan is the most important catalyst of the speculative period of expansion in the economy as well as one of the main reasons for the economic stagnation (Dinar, 2015).

Post-​Keynesians and interest Post-​ Keynesian economics is interested in problems that emerge in the administration of economic doctrines such as socialism and capitalism, including capital accumulation, imperfect competition, interest and employment (S. C. Dow, 2003). The main distinction of post-​Keynesian economists is their opposition to neoclassical economics. What it does not promote or underline, rather than what it suggests, is the main criterion that defines post-​Keynesian economics (T. Lawson, 1994). The interest approach of post-​Keynesian school of economics, another heterodox school, is relevant to the monetary theory. The monetary theory and interest theory of the school, strongly opposed to orthodox monetary theory,

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complement each other. The post-​Keynesian economists discuss the role and nature of the money in a capitalist economy, financial system and central bank, emergence of inflation and business cycles. An endogenous school of thought, post-​Keynesian school exhibit some areas of disagreements among its members, particularly on the determination of the interest rates and the propensity of money supply. This disagreement leads to emergence of two separate and opposing approaches:  the markup school and the liquidity preference school arguing that interest rates are partially endogenous. The markup school argues that the interest rates are exogenously determined, and that money supply is endogenous. In this formulation, Kalecki’s pricing theory is applied to the financial institutions. The markup school rejects the idea that money supply and demand is realized in equilibrium. Prices are determined by unit costs and price increase is the function of the monopolist firm. Banks are viewed as firms seeking to make profit. Interest rates of loans or prices outcome are determined by the cost of funds or the unit cost. The main element that determines interest rates is loan monies; and because of the role of the banks, the central bank is a very significant institutional structure. For this reason, interest rates are exogenous. The markup school accuses the liquidity preference school of making a synthesis with a neoclassical approach, adding that it moves away from the Keynesian style. In the liquidity preference approach, interest rates are determined by the liquidity preference rather than money demand; this approach argues that liquidity preference interest rates are determined in the long run. Long-​run liquidities are investment projects running on the loans received from the banks. Short-​term interest rates are changing liquidities. The liquidity preference analysis argues that interest is endogenous. On the other hand, it should be noted that the difference between these two approaches is not viewed as a serious clash within the post-​Keynesian school (Hewitson, 1995). Post-​Keynesian economists reject the idea of neutrality of the money as a real phenomenon. Keynes believes that Fisher’s real interest rate concept is a logical confusion. In a monetary economy, there is no such thing as information suggesting that the real interest rate can be identified in the future because the goal of a firm in an entrepreneurial economy is to complete the production process with a greater amount of money. Money affects the real sector both in the short and long term. This approach is the exact opposite of orthodox economics and classical economic teachings. In orthodox macroeconomics, for Friedman and Tobin, money does not affect the current of production at least in the long run where real interest rate is a real factor. The meaning of reversing the importance of money-​interest rate for real and monetary incidents between Keynesian theory and orthodox theory is an outcome of rejection of the monetary neutrality axiom of the neoclassical economics by Keynes (Davidson, 2012). According to post-​Keynesian thinkers, money is formed within the production process and attracted

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to money. It is impossible to separate money from production. Capitalist economy is a monetarized production process as well (Hewitson, 1995). These aspects and characteristics take post-​Keynesian economics closer to orthodoxy more than any other heterodox schools. Its main features include effective demand, liquidity preference, forward product and balance of payments constraints (O’Hara, 2008). This school, like orthodox economics, takes the interest as a technical issue. Despite that Kalecki’s analysis of capitalism is one of the most important aspects of post-​Keynesian economics, because there is no such analysis in the subject of interest, the post-​ Keynesian school, instead of attempting to explain the matter with reference to the capitalist system, seeks to explain it through technical expressions. Even though it regards capitalism as an economic system, no such analysis can be observed within the context of interest in this school. Even though the orthodox approaches of money and interest is rejected, the capitalist system is not included in this rejection.

Conclusion Heterodox schools of economics approach the issue within the context of economic system. Analysis of the interest without analyzing the capitalist system makes it harder to understand the nature of economic crises and financial issues. Marxist economics and institutional economics approach the interest within the context of capitalist system analysis whereas post-​ Keynesian economics rely on an analysis of monetary policy. The first two schools rely on a sociological approach whereas post-​Keynesian school stays within the boundaries of the discipline. In this way, analyzing the notion of interest in modern capitalism within the context of the orthodox-​heterodox economics distinction means that the discipline of economics has a pluralist nature and structure. This is one of the arguments defended in this chapter. In addition, this also proves that the interest, from an economic thought perspective, features a context-​bound aspect. In short, what we have is interest theories shaped by the changing conditions and circumstances rather than an interest theory that has evolved in the discipline of economics.

Notes For a more detailed discussion, see Davis (2006) and D. Colander et al. (2004). 1 2 Mathematical formalism refers to a process where axiomatic mathematics has become language of economics in the aftermath of World War II. In the interwar period, the rivalry between institutional economics and neoclassical economics in the United States resulted in the victory of the latter; as a result, mathematical models have become prevalent. For a more detailed discussion, see Blaug (2003). 3 The expansionist nature of economics in the aftermath of the 1970s led to the emergence of “methodological imperialism.” The term refers to a state of imposing rational choice theory by economics to sociology and political science

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(Hirshleifer, 1985; Lazear, 2000). On the other hand, impact of new research programs (game theory, behavioral economics, experimental economics, evolutionary economics, neuroeconomics, complexity economics) upon economics is called reverse imperialism (Frey & Benz, 2004). Methodenstreit, known as the methodology debate, refers to a confrontation between Gustav von Schmoller, a follower of the German historical school, and Carl Menger, founder of the Austrian school of economics, over the economic methodology in the last quarter of the 19th century. In Germany, scientific studies were mostly historical in the 19th century; according to Schmoller, economic science should also rely on historical methodology. Carl Menger, Leon Walras and Stanley Jevons developed marginal utility theory at the same time; Merger upholds that economics should be based on the marginal utility theory and discard historical approach as method. In this debate, Menger argues that natural science methodology should be incorporated in the studies of economics and places emphasis upon value-​free and universal laws whereas students of the historical approach underline the significance of historical knowledge and values. In this debate, the first approach takes reign and contributes to the development of a more technical tone and language in the study of economics. The debate has lasted from the 1880s through 1910 (Swedberg, 1990; Yılmaz, 2012). IS-​LM is derived from Keynesian models and covers two markets, commodity and monetary markets. LM represents monetary market and IS refers to commodity markets. In this case, IS-​LM models may be properly called “commodity and monetary market models” (Bocutoğlu, 2012). As explained earlier, the natural interest rate emerges where the savings and investments are equalized and where the prices are stable (Wapshott, 2017). According to Wicksell, the marginal revenue of capital is natural interest and it is the social ratio of time preference (Skousen, 2016). Here businessmen refer to individuals who are engaged in financial activities through which they make money out of monetary activities and transactions.

References Blaug, M. (1999). Economic Theory in Retrospect. Cambridge:  Cambridge University Press. Blaug, M. (2003). The formalist revolution of the 1950s. Journal of the History of Economic Thought, 25(2), 145–​156. Bocutoğlu, E. (2012). Makro İktisat Teoriler ve Politikalar. Ankara:  Murathan Yayınevi. Clarke, S. (1991). Marx, Marginalism and Modern Sociology: From Adam Smith to Max Weber. London: Macmillan. Colander, D. (2000). The death of neoclasical economics. Journal of the History of Economic Thought, 22(2), 127–​143. Colander, D., Holt, R. P. F., & Rosser, J. B. (2004). The changing face of mainstream economics. Review of Political Economy, 16(4), 485–​499. Davidson, P. (2012). Post Keynesyen Okul. In B. Snowdon & H. R. Vane (Eds.), Modern Makro Ekonomi Temelleri, Gelişimi ve Bugünü (pp.  401–​420). Ankara: Efil Yayınları.

Notion of interest in modern capitalism  157 Davis, J. B. (2006). The turn in economics: Neoclassical dominance to mainstream pluralism? Journal of Institutional Economics, 2(1),  1–​20. Davis, J. B. (2008). The turn in recent economics and return of ortodoxy. Cambridge Journal of Economics, 32(1), 359–​366. Dequech, D. (2008). Neoclassical, mainstream, orthodox and heterodox economics. Journal of Post Keynesian Economics, 30(2), 279–​303. Dinar, G. B. (2015). Veblen’in Analizinde Endüstriyel ve Finansal Faaliyetler Arasındaki İkilem ve Kapitalizmin İstikrarsızlığı. İstanbul: TMMOB Mühendisler Odası. Dow, S. C. (2003). Post Keynesian economics. In W. J. Samuels, J. E. Biddle, & J. B. Davis (Eds.), A Companion to the History of Economic Thought (pp. 471–​479). Oxford: Blackwell. Dow, S. C. (2008). Plurality in ortodox and heterodox economic. The Journal of Philosophical Economics, 1(2),  73–​96. Dugger, W. M. (1979). The origins of Thorstein Veblen’s thought. Social Science Quarterly, 60(3), 424–​431. Dumenil, G., Löwy, M., & Renault, E. (2011). Marksizmin 100 Kavramı (G. Orhan, Trans.). İstanbul: Yordam Kitap. Ekelund, R. B., & Hebert, R. F. (1975). A History of Economic Theory and Method. New York: McGraw-​Hill. Frey, B., & Benz, M. (2004). From imperialism to inspiration:  A survey of economics and psychology. In J. B. Davis, A. Marciano, & J. Runde (Eds.), The Elgar Companion to Economics and Philosophy. Cheltenham: Edward Elgar. Hewitson, G. (1995). Post-​ Keynesian monetary theory:  Some issues. Journal of Economic Surveys, 9(3), 285–​310. Hirshleifer, J. (1985). The expanding domain of economics. The American Economic Review, 75(6),  53–​68. Hodgson, G. M. (2004). The Evolution of Institutional Economics. London: Routledge. Lawson, T. (1994). The nature of Post-​Keynesianism and its links to other traditions: A realist perspective. Journal of Post Keynesian Economics, 16(4), 503–​538. Lawson, T. (2006). The nature of heterodox economics. Cambridge Journal of Economics, 30(1), 483–​505. Lazear, E. P. (2000). Economic imperialism. The Quarterly Journal of Economics, 115(1), 99–​146. Lee, F. S. (2012). Heterodox economics and its critics. Review of Political Economy, 24(2), 337–​351. Mandel, E. (2008). Marksist Ekonomi El Kitabı (O. Suda, Trans.). Ankara: Özgür Üniversite Kitaplığı. Marx, K. (2000). 1844 El Yazmaları (M. Belge, Trans.). İstanbul: Birikim Yayınları. O’Hara, P. A. (2008). Can the principles of heterodox political economy explain its own re-​emergence and development? On The Horizon, 16(4), 260–​278. Özveren, E. (2007). Kurumsal İktisat:  Aralanan Karakutu. In E. özveren (Ed.), Kurumsal İktisat (pp. 15–​45). Ankara: İmge Kitabevi. Reynolds, L. G. (1989). Dissent a century ago:  The Veblen era. In S. Bowles, R. C. Edwards, & W. G. Shepherd (Eds.), Unconventional Wisdom:  Essays on Economics in Honor of John Kenneth Galbraith (pp. 89–​111). Boston: Houghton Mifflin Company.

158  Adem Levent Rutherford, M. (1994). Institutions in Economics. Cambridge:  Cambridge University Press. Rutherford, M. (2001). Institutional economics:  Then and now. The Journal of Economic Perspectives, 15(3), 173–​194. Samuels, W. J. (1984). Institutional Economics. Journal of Economic Education, 15(3), 211–​216. Skousen, M. (2016). The Making of Modern Economics. New York: Routledge. Sombart, W. (2016). Yahudiler ve Modern Kapitalizm (S. Gürses, Trans.). Küre Yayınları: İstanbul. Swedberg, R. (1990). The New ‘Battle of Methods’. Challenge, 33(1),  33–​37. Waller, W. T. (1982). The evolution of the Veblenian dichotomy: Veblen, Hamilton, Ayres, and Foster. Journal of Economic Issues, 16(3), 757–​771. Wapshott, N. (2017). Keynes ve Hayek-​Modern Ekonomiyi Tanımlayan Çatışma (A. E. Pilgir, Trans.). İstanbul: Koç Üniversitesi Yayınları. Yılmaz, F. (2000). Heterodoks İktisat Okulları İçinde Kurumsalcıların Yeri: Yöntembilimsel Bir Tahlil. (PhD diss.). Uludağ Üniversitesi, Bursa. Yılmaz, F. (2012). İktisat, kurumsal iktisat ve iktisat sosyolojisi. İstanbul Üniversitesi Sosyoloji Konferansları, 45(1),  1–​17.

Chapter 15

The evolution of interest and debt Murat İstekli and Murat Ustaoğ l u

Introduction Some economic historians argue that without debt relations, it would not be possible to speak of economic history as a discipline (Ferguson, 2008). A  review of the history of interest would confirm this argument as these transactions constituted the backbone of the economic life. The resources to meet the financing need have always been limited; because of the limited resources, certain members of society had to face serious repercussions of financial impositions. It is not possible to argue that history has been progressive on this matter. The interest issue, which has been discussed in detail since the transition to permanent settlement, remains one of the most controversial debates.

Debt in ancient civilizations and society The development level of the financial sector is an important factor for the contemporary economies. The banks, serving as pillars of a healthy and developed financial sector, affect the economic climate in many ways. Economic policies not supported by the banks will be unlikely to become successful no matter how hard a government works on them. For this reason, modern financial structures have always produced stories that attracted a great deal of attention, which started as early as the times of the ancient civilizations. The agricultural revolution where water, temple and state played lead roles is one of the social transformation phases in the history of mankind. A new era started when the Sumerians made a transition to a permanent life in the region that would later be called fertile crescent. Most of the social and economic values that this civilization has created are still at the service of humankind. The question as to why Sumerians made a transition to permanent settlement is answered by reliance on two major theories that both rely on the temples as main actors. Childe (2006), a leading theoretician of the first school, argues that the process of transformation

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in the Neolithic Age started when land was irrigated and some animals were domesticated for food production. The use of water and domesticated animals in the production activities dramatically changed the social life and nutrition habits. New needs produced by this new style of social relationship led to new lines of expertise and modes of production. Farmers met the needs for nutrition and, in return, made use of the innovations by the new class of craftsmen. However, new discoveries often fell short of addressing the existing problems, mostly due to physical conditions. The issue of water scarcity remains a huge challenge due to the unfavorable climate conditions, leading to the need for help from a higher authority. Clerics assume a crucial role in this juncture as the people develop greater interest in religious explanations in a society facing despair out of destructive climatic conditions. A number of temples in different shapes and sizes with different missions and statuses have been built in many areas. This is the argument where the mainstream theories on the transition of mankind to permanent settlement start to differ. Some theories note that the agricultural revolution takes place first, followed by the construction of the temples. Schmidt (2012) and Collins (2014), on the other hand, argue against this, recalling that temples were built before the arrival of the agricultural revolution. This approach further suggests that permanent settlement follows to take care of the temples, leading up to the agricultural revolution through a new type of economic climate. Regardless, both approaches are centered around the role of the temples. Initial institutional structures in the history of mankind, the temples served as the main determinants of the new order. People, in most times, consulted with the temples as a higher authority to seek settlement for the problems they encountered, mostly about disputes over water resources. Due to the climatic and geographic circumstances, the people of Mesopotamia had to deal with drought and flooding frequently; unless settled, both problems had a devastating impact upon agricultural production. The temples were focused on the settlement of the water matters in order to improve the productivity of the economic sources they held under control. The priests were the first to propose the idea of taking water to the arable lands. The temples stand out further because of the need for organized labor in massive magnitude to address the two water-​related issues because it is the only way to construct preventive structures against the floods and the channels carrying water to the agricultural areas. However, the process of organizing such massive labor for grand projects generated enormous problems; administrative measures fall short in the face of rising needs of the society. The natural outcome of the web of relations between the temples and the society was the emergence of the mechanism called the state as the new source of authority (Huot, Thalmann, & Valbelle, 2000). The meaning attached to the state at the beginning was simple: to live up the water-​related projects and to maintain security in the area. The temples

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play a huge role in the legitimization of this new source of authority; the theological arguments they relied on contributed to this process of legitimization; in return, the clerics of the temples secured a wide array of favors.1 The priests often resorted to coercive measures against the general public and used the opportunity to expand their sphere of influence for further economic power. Without reviewing the economic circumstances of the time, how this political and material power has been utilized cannot be properly understood. The Mesopotamians who internalized a permanent lifestyle produced a variety of products and goods. But the physical conditions of the area were not appropriate for meeting the rising needs of the settlers. Due to this, they had to develop trade ties with the neighboring communities. Operating on a typical barter economy, this new relationship mostly relied on the weights of the standard materials, including copper, oat and silver as instruments of exchange in the transactions of goods and commodities (Crawford, 2004).2 The temples and the political authorities held most of the lands in their possession; considering that the labor market had not yet emerged, large masses of society did not have many choices in terms of participating in the economic mechanism. The options available for the agricultural sector were limited to slavery or semi-​slavery based on the lease of the arable lands that the temples and political authorities controlled as their properties.3 The general public could only have a small share out of the whole production only sufficient to sustain life. In this vicious cycle, the temples accumulated more power and turned into the most significant economic actors of the time. Temples also had other sources of income, the primary one being the loans on interest which channeled the savings of the general public to their own pools of finance. It is hard to explain the loans on interest by reference to simple norms as there has been no agreement in the past on what constitutes interest. The simple economic circumstances of the ancient times, however, offer a basic explanation. Tablets generally show that loans on interest include the addition of a certain amount to the original debt. Copper and silver were preferred for trade deals, whereas grains were used for the loaning transactions involving the local people.4 The goods and materials such as silver, copper and grains that the temples distributed for interest revenue also served as means of payment. In other words, the temples were also money-​generating institutions as well (Graeber, 2009).5 Loaning transactions were mostly based on the agricultural output; the temples seized most of the income the general public generated through agricultural activities; additionally, they loaned monies on interest to the peasants who tried to make a living in a land they rented. The local people had to receive loans due to economic and climatic hardships; temples appeared to be the first addresses for this purpose. This is why this book is focused on the temples as the first institutions practicing usury. Temples were the most advanced institutions capable of handling such a complicated

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process involving loan disbursement and collection of repayment. Historical evidence shows that they made extensive use of this advantage and generated huge amounts of interest revenues for themselves. The debtors experienced hardships in repaying the loans to the temples due to the excessively high interest rates which caused an outbreak of serious social problems. Given the economic circumstances of the time, such transactions were evidently doomed to a total bankrupt. Under the terms of the loaning agreements, the debtors fell victim as debt-​slaves of the temples, which justified this vicious cycle through theological arguments. However, these arguments failed to restore justice and address social problems; aware of such problems, the public authorities attempted to take some measures dealing with these injustices associated with such loaning agreements (Ildız, 2013). Rather than resorting to absolute ban, the public authorities introduced restrictive measures applicable to the interest rates, assuming that such a ban would further exacerbate the problem of usury practices. The Urukagina texts, inscribed on tablets in the Sumerian language, are the first regulations on the debt on interest, comprising terms and expressions relevant to the nature of the loan, the applicable interest rates, sanctions in case of nonrepayment and dissolution of the debt. Translated into other languages, the texts also served as the basis for the next generations and other civilizations. Esnunna code, on the other hand, contains terms and statements in more detail and handles the issue in reference to the social dimensions. For instance, a text on familial relations refers to the interest rates for 1 shekel (Tosun & Yalvaç, 1989). However, it was the Hammurabi codes that revolutionized the debt on interest, the codes place emphasis upon the protection of the rights of the parties to the transaction. The codes do not contain an explicit ban of loans but feature some restrictions and sanctions in case those restrictions are violated. Debt on interest often caused rifts between the temples and the secular rulers; in most cases, the temples emerged as winners of such confrontations due to the influence of the temples over the general public. The Roman empire was another civilization in which slavery was a widespread practice. The slaves were the sole performers of production in agriculture and stockbreeding. For this reason, the slave trade appeared to be a very lucrative business. The Romans seized most of the wealth in areas they conquered and invaded, leaving no viable option for the local people, most of whom, thus, became slaves. Most of the time, the number of slaves was higher than free people in Rome. The main supplies of slavery included residents of the invaded areas and victims of debt on interest who were unable to repay the interest-​bearing debt. Debt was one of the major sources of revenue for the Roman elites and politicians (Finley, 2007).6 The elites and aristocrats took advantage of this practice to add more to their wealth, whereas the poor experienced greater hardships due to the inability of repaying the debts, creating a fairly costly bill for the entire

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society.7 When the social problems have spun out of control, Roman rulers were compelled to take effective measures. The so-​ called Twelve Tables introduced first regulations to address these problems; the measures included terms and stipulations that the interest rate shall be determined by the amount of original debt, a ceiling rate shall be identified, all citizens shall be allowed to take benefit of the public lands, the loans shall be paid within a three-​year period, the debt slavery shall be lifted, the debt-​slaves shall be freed, the senators shall not be able to receive interest and a moratorium shall be declared for debts. However, most of these measures failed to properly address and resolve the problems. The first method is the introduction of some regulations to keep interest rates under control. The rulers announced certain rates and prohibited any rates that exceed the limits. This practice has been frequently implemented; almost every ruler determined new rates whenever they came to power. Another method to ensure that the people would not riot is to introduce pardons for the debts. However, such acts sometimes exacerbated the whole situation because when such rumors were spread among the public, the usurers rushed to recollect the debts before their due date. The debtors often sold all of their properties to repay their debts in such circumstances. The inevitable outcome most of the time has been debt slavery. The pardons that were introduced to restore social order did not work; instead, they provoked further popular uprisings. One other measure was introduced by Emperor Tiberus, who drove the usurers away from Rome. The emperor decided to send nearly 4,000 usurers who were involved in scandalous acts in exile; but his attempt failed. Every move to address the problem led to new measures; in consideration of the growing problems, Roman emperors spent a significant amount of time pondering over probable solutions. Even the famous Caesar, one of the most powerful figures in the history of the empire, was unable to remain indifferent to the problem. He first took measures to address the needs of the people who lived on the streets as homeless because they lost everything that they had trying to repay their debts. Caesar ordered the distribution of meals for more than 300,000 victims on a daily basis; subsequently, he attempted to address the root cause of the problem and introduced measures to control the money supply in an attempt to prevent speculative moves of the usurers. However, such radical policies also failed, leaving the Roman economy dependent upon transactions.8 Ancient Greece was also another ancient civilization to deal with similar problems for a long time. The income inequality among the local people, consisting of diverse segments and classes including owners of large plantations, merchants, industrialists and peasants, appears to be a permanent economic problem which works against the benefits and interests of the disadvantaged groups. The wealthy people who loaned on interest became richer, whereas those who were unable to repay their debts, like

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the people sharing the same faith in Rome ended up being debt-​slaves. The terms of the contracts on the transactions in Ancient Greece referred to graver sanctions, compared to other civilizations in the same period (Erol, 2007). One major reason is the growing slave trade in the region because there were no obstacles before selling the slaves who were considered economic goods to overseas merchants. In Ancient Greece, there was not much interest in luxury consumption, but the same does not apply to the loaning. Some famous thinkers, including Aristoteles and Plato, stated strong objection against the practice of interest; but these objections did not change much (Maloney, 1971). The courts were all packed with the petitions on disputes over debts on interest. The loaners were mostly wealthy people, the state, foundations and temples. Like other civilizations, the people relying on the theological arguments, deposited their funds with the temples which they considered trustworthy abode of gods (Homer & Sylla, 2005). The temples, using the deposited funds, lent monies on interest to the state, the merchants and the general public. Another common type of borrowing is the financing of maritime trade. Due to the risk involved, assurance provided by private persons was sought in the debts on interest in this type.9 Additionally, the interest rates were usually high because the advanced maritime trade generated pressure over the rates. The inherent risk involved in this type of trade and the high demand for such loans were other reasons to cite. Because of the attractive income, interest in this sector grew visibly. Interest rates varied by the regions, but because the date of payments was scheduled in reference to the time of navigation, the due dates were shorter than a year for loans. The interest rates were particularly high because the lenders had a special interest in external markets where they used to sell their products. Financial incentives for the market actors to expand the share in the new markets had negative impacts upon the interest rates in internal markets. The interest rates grew higher also because of the need for public procurement. The state held the borrowing process through the commissions it set up. In fact, it had greater opportunities and choices because it was able to borrow from both internal and external markets. When the domestic sources were inadequate, the state consulted with the citizens and governments of other states. In domestic markets, on the other hand, the state administration recognized one legitimate source of loaning: the temples which served like a bank; the temples functioned as the largest creditors of the time and set the same interest rates for the government institutions (Ildız, 2013). In the Ancient civilizations, debt slavery appears to have been a major and common problem. People with low incomes had to receive loans due to the geographical and climatic conditions and economic circumstances. But they often failed to repay their debts which were mostly used for consumption purposes due to the high interest rates. Because the terms of loan contracts were severe, the failure of repaying the debts often led to horrible

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sanctions. Those who were unable to repay their debts in time fell victims of debt slavery which led to social upheavals; the state administrations took measures to address the problem but oftentimes these measures failed and even exacerbated the overall situation. Similar problems were also experienced in remote civilizations as well.

Debt in far eastern civilizations The ancient beliefs of the Indian peninsula had an enormous impact upon the lives of the people in the region. A slightly modified version of debt slavery, a prominent problem in ancient civilizations, was also experienced in this culture as well. The cultural habits of the people in the region served as an enabler for this practice. The caste system was the underlying dynamic in the social life, also serving as the root cause of the chronic interest issue in the region. While there have been some reform initiatives to rectify this system, the strict assumptions of the karma faith left these attempts futile (Kaan, 2010). The system, explained in the Manu Smriti scripts in detail, was pretty influential over the economic life, including the borrowing transactions. In fact, worldly desires were condemned in the Indian culture; therefore, the debt transactions were not promoted. But over time, this stance has been modified to justify the debt in theological sources. The conceptual framework of debt in Hinduism is not limited to the material dimension only, also involving spiritual elements such as obligations vis-​à-​vis the gods, the mentors and the ancestors. The obligations vis-​à-​vis gods are fulfilled through sacrifices, whereas work is the means of repaying to ancestors. It is generally believed that the material obligations compromise the purity of religious beliefs. Due to the role of karma faith in the emancipation of the spirits, a special emphasis is placed upon the borrowing transactions in the Indian culture. For this reason, the scripts often involve references to debt transactions. Manu, Yajnavalkya, Gautama, Visnu, Narada, Brihaspati and Katyayana Smritis feature many of such references (Mukerji, 1958). Initially, the Brahmins and the Kshatriyas were not allowed to perform transactions due to the fears of abuse, this ban was lifted in later ages. The hierarchy among the castes is determinative over the transactions. Interest rates and repayment schedules are determined by the castes of the parties. Members of lower castes had to pay more for the interest due to the risks of nonrepayment. This eventually led to greater impoverishment of the poor and to greater destabilization within the society. Only the Vaisyas caste, comprising mostly merchants, was allowed to deliver debts on interest. A review of the Hindu scripts reveals that the texts are mostly focused on the repayment rather than the concept of interest. Nonrepayment is considered a great sin (Erdoğan, 2015). Those who fail to repay the debt are condemned to severe sanctions including expulsion from the caste. The scripts also contain various definitions of transactions; Manu presents four

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and Gautama six different types of debt schemes. These definitions provide insights on the nature of the debt and the potential issues they might have generated. Throughout the history of Hinduism, poverty seems to have been a major obstacle in the inability to repay the original debts. The sanctions attached to the case of nonrepayment include a wide range of measures, including the confiscation of the properties of the debtor and condemnation to physical labor. Buddhism also employs a similar approach to debt transactions. The economic doctrine inspired by Buddha, who referred to the satisfaction of the desires and fulfillment of needs is known for its indifference to material life. Relying on a moralistic approach, the doctrine seeks to preserve the common values of humankind (Aktamov, Badmatsyrenov, Rodionov, Nomogoeva, & Badaraev, 2015; Ritthithit, Leeka, Tongpan, & Srisaard, 2017; Schumacher, 1974). Economic affairs are explained by reference to desires and ambitions. The philosophy suggests that there is nothing wrong to fulfill needs, but it adopts a cautious approach toward consumption for the satisfaction of the excessive desires and ambitions. The theological scripts focusing on transactions contain philosophical arguments which often recommend against interest-​related practices that are seen as the root cause of poverty. Although the texts also stand against material values, they do not praise poverty as well. The functions of money are cited as fulfillment of basic needs, use for various types of spending, charity and saving purposes for the future.10 Unlike Hinduism, Buddhism prescribes responsibilities for the state and the individual in regard to the transactions. The individuals are responsible for charity actions (Elster, 1985), whereas the state is responsible for avoiding luxury spending, keeping the tax rates below 10 percent for agricultural products and lending interest-​free money to merchants. On the other hand, some parts of the scripts present conflicting arguments such as referring to the transactions as fair trade (Rapson, 1922). The religious sources present information on the nature of the transactions and on the conceptual framework on the type of interest. The hair-​growth metaphor is used in the texts to explain the premise that payment of interest should not exceed the original amount. The metaphor states that hair-​ growth will stop only when the person’s head is cut off; similarly, an obligation to pay interest will only cease to exist when the original amount has been fully paid (Bhargava, 1935). The Buddhist sources use the notions of (i) kayaka, (ii) kayak, (iii) chakravridhi, (iv) karita, (v) shikhavridhi and (vi) bhogvallabh to better explain the debt. These notions seek to regulate how the debts shall be repaid.

Debt in Abrahamic religions The emergence of Abrahamic religions dramatically changed the course of history. The impacts of the transition from polytheist religions to monotheist

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faiths were not limited to religious rituals and practices alone. The era of every religion was also a reformist process that deeply affected the social life. The impacts of such a radical transformation process were observed in many fields, including law and economy. According to Marshall (1964), religion and economics are two core institutions that shaped history. The theological doctrines, after the arrival of monotheist religions, deeply affected the economic thoughts and theorization. It is the scripts of the monotheist religions that draw the boundaries of the norms regulating a number of economic matters including commercial activities and borrowing transactions. The scripts were sometimes severely criticized for such heavy involvement. German thinker Sombart (2005) argues that the monotheist religions generated capital, leading to the first dominant economic order in the world. With its historical richness and cultural depth, Judaism is one of the monotheist religions that place a strong emphasis upon material world and gains. The Judaic community faced a danger of expulsion from their lands due to fear of persecution. This concern has evolved into a strong element of a communal culture over time, affecting their judgments over their economic fate. This is why they did not show any interest in investing upon the properties and instead, they preferred trade as a profession (Baron, 1958). The Jews have become specialists and experts in their professions, mostly thanks to the education they received at early ages because of a religious requirement. The Jews further used the surplus amounts to finance those who are in need of money to carry out their business (Don, 2000; Karahöyük, 2013). It is possible to argue that the Jews stood out in the societies they lived in with their skills of using money for usury purposes. Interestingly, the theological sources promote charity activities and strictly prohibited the interest-​bearing debt. Some sources relied on metaphors to justify this ban. The most popular notion used to elaborate on the interest is the term “nesheh,” which literally means snake bite, referring to the slow and gradual spread of the practices throughout the entire economic system just like the snake venom takes control over the entire body. Then the question as to how usury, while being strongly criticized and prohibited in the religious scripts, has become a profession inherently associated with a nation begs for a proper explanation and answer. This question should be properly answered with reference to the economic climate, socio-​cultural environment, desire for making money and the meaning the religious teachings attach to material engagements.11 The views of the clerics on the transactions have sometimes conflicted with each other because the role of the money in the economic activities has gone through a process of transformation due to the changing nature of the trade activities among different communities and civilizations. Money, now an instrument of investment, was wanted to finance business activities; for this reason, clerics had to respond to the emerging needs with religious arguments toward justification of the practices. Interest was in principle considered a prohibited act; but some arguments were also raised to

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implicitly justify what could be in fact viewed as a certain form of usury. The Jews, talented in financial affairs and other relevant activities that proved to be lucrative, actively participated in debt transactions. As a result, further arguments were introduced to justify these acts. The initial judgments on this in the religious scripts were seen in Solomon’s Books of Proverbs. The vague and unclear statements in the scripts give the impression that a connection between usury and poverty has been maintained. It could even be deducted that revenue out of activities was allowed only in case of aiding the poor. However, the primary argument that justifies the practice of interest is the distinction between brother and aliens. Interpreting the interest ban in the religious scripts, the clerics argued that the ban was only relevant among the religious fellows and excluded the transactions between the Jews and the aliens. Also skilled in trade, Jews took advantage of the liberal economic climate in the Muslim world as well. Jews in other parts of Europe also maintained a wide trade network by transporting clothes and jewelry to the northern areas, becoming one of the most significant economic actors of Christian Europe. The Christians were indifferent to trade activities mostly because of the dogmatic principles that discouraged commerce, whereas the Jews have become richer. However, some Christian thinkers introduced new ideas to reverse this process; one of these thinkers was Thomas Aquinas. Aquinas is a revolutionary figure who contributed a great deal to overcoming intellectual stagnation in medieval Europe (Roll, 1947). In his works, he offered a wide range of analyses on a number of social matters; his views on usury, faith and morality have inspired others to follow. He based his economic views on equality, morality and justice to offer answers to economic inquiries (Aquinas, 1948). It is possible to argue that the morality-​ based approach was inspired by the inherent teachings of Christianity which employs mystical characteristics. Referring to the correlation between morality and ambition, Aquinas argued about the danger of excessive sentiments and urges as such tendencies and desires may hurt the connection with God (İskenderoğlu, 2005). Aquinas introduced his views on the practice of usury and transactions in four articles, noting that money is an instrument of exchange rather than a consumption good, he analyzed the interest in transactions (Braun, 1994). Aquinas divided the economic goods in two groups: those that require consumption and those that do not. He argued that the rights of the goods that are consumed when used shall not be sold and that in such cases, the revenue generated should be prohibited; in the case of the goods that are not consumed when used, he argued that the right to use could be sold provided that the property of the good remains with the seller. In debt transactions performed with the use of cash resources, he also objected to the practice of interest, noting that the lender may not ask for any additional payment other than the original amount.12 However, Aquinas agrees with the risk

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factor involved in debt transactions, holding that the lender takes a risk and, for this reason, he would have a share in the revenues the borrower generates by using the loan. These views were initially criticized; however, they attracted attention, particularly since the 16th century, paving the way in the Christian West for a thorough reform in the entire economic environment. Luther was another leading figure to radically influence the way Christianity is interpreted. Referring to any addition to the original amount of debt as interest, Luther argued that such additions were illegitimate. He noted that charity is the essential basis of debt transaction because interest is a manifestation of greed (Eaton, 2013). According to Luther, Christians are fellows by religious bonds and for this reason, there should not be any interest-​bearing transaction between brothers. However, Luther also introduced certain exceptions; under extreme circumstances, the lender may charge an interest rate of 4–​6 percent in case of potential issues during the repayment. Any amount beyond this ceiling, according to Luther, is usury which should be condemned in the strongest terms. Arguing that Germania was exploited by the bankers and wealthy people through practices of usury, Luther objected usury by making a clear distinction between credit and usury (Akalın, 2015). Calvin is another theologian who introduced radical views on the debt in the Christian world. Calvin, who left an indelible mark, contributed a great to the institutionalization of capitalism. Criticizing the interest ban promoted by the church, this reformist thinker was one of the first lead figures to argue that debt was morally legitimate. It is possible to argue that Calvin’s thoughts on interest offered a new approach to debt in the medieval age. In fact, his views are based on a simple argument: that if interest is to be condemned and banned, an obligation that is graver than the one God imposed upon the men would be defined for the individual minds; this would mean that those who dedicate themselves to the path of God would be left with no significant amount of choices. As a result, Calvin argues that the religious scripts prohibit the practice of interest only in cases involving the poor, the orphans and the widowed (Akdiş, 2015; Wykes, 2003). According to him, the type of interest the church is opposed to is excessive usury. To make a distinction between regular interest and excessive usury, a ceiling rate should be identified. Once this rate is determined, all loans within these limits should be allowed. But in no circumstances, Calvin does justify usury as a legitimate profession (Mai, 1975). Also, a lawyer, Calvin approaches the debate from a legalistic point of view which contributed to the lifting of the interest ban. Upon initiative by Henry VIII, the interest ban was lifted in 1545; other European states took similar steps within a short period of time, allowing the practice of interest within certain limits. Calvin’s views still linger in the contemporary financial debates because of the conviction that the banks not playing their inherent roles is seen as the main cause

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of the ongoing economic problems. Some big firms, particularly in times of crisis, introduced measures Calvin offered in reference to the Christian ethics.13 In an attempt to alleviate the impacts of crises, some governments also relied on the same approach; in some instances, they even introduced legal measures to curb the interest rates (Graafland, 2009). Islam is the only monotheist religion that still imposes the interest ban.14 The primary reason for the sustenance of the ban is a strong warning against the practice of interest in the Qur’an, which promotes trade and condemns any activity that generates interest-​related revenue. Muslims, subscribing to this warning and encouragement, avoided non-​ trade activities and accumulated wealth through commercial operations in the early stages of Islam. For a very long time, Muslims maintained control over world trade and introduced innovative methods in financial transactions. The rules and principles governing financial affairs and debt transactions in Islam are implicitly or explicitly relevant to the interest ban. Under these rules and principles, interest is strictly prohibited in financial transactions involving the exchange of money or other similar instruments. Islam stands out as the only monotheist religion that sustains this position. For this reason, it is not an exaggeration to argue that Islam is the only religion that at least theoretically continues to prohibit the interest-​related activities and debt transactions. All mainstream Islamic schools of thought and jurisprudence are in agreement that under no circumstances could the practice of interest be allowed. However, there are certain differences in terms of the definition of interest in the two main sources of Islam, the Qur’an and the hadiths. The Qur’an deals with the interest as an act as evidenced clearly in the relevant verses. This indicates that any act of exchange that stays outside the boundaries of trade is null and void. Islam, placing a strong emphasis upon trade, introduced detailed terms and principles relevant to dealings and transactions, including borrowing affairs. Interest ban appears to be at the epicenter of these principles and rules. This is one of the reasons for the sustenance of the ban even in contemporary times. When the ban has been successfully implemented, the dynamics holding the social life coherent and integrated traveled along a smooth path because of the cost-​ free borrowing transactions done on interest-​ free practices. Islamic scholars refer to one single fact for the validity of this reality which also constitutes one of the rationales for the interest ban: had interest been allowed, the society would avoid trade activities and instead pay greater attention to ineffective professions, particularly usury. The amount of wealth and prosperity generated in the early periods of Islam confirms this argument. However, it should also be noted that due to the changing economic and social circumstances, the interest ban in Islam has gone through some changes, it could be argued that the ban has been softened through these changes, Islamic scholars still reject in the strongest terms the notions

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and practices that remind the interest. On the other hand, scholars also attempted to offer solutions within the scope of Islamic approaches to contemporary problems. Such intellectual endeavors created a dilemma; some commended these attempts, whereas some strongly criticized them because they were seen as justifications for lifting the ban. Obviously, the initiatives contributed to the attainment of Islamic solutions to the modern-​time financial problems, a major solution being the emergence of an alternative sector which is popularly referred to as Islamic finance/​economics. These terms now enjoy currency and acknowledgment all around the world. While being criticized, instruments, institutions, principles and notions that the Islamic finance/​economics has developed appear to be strong alternatives to the practices. The main principles governing the interest ban under Islam still remained vibrant despite some radical changes in the economic and financial realms. Additionally, the Islamic finance, preserving the interest ban, has successfully adapted itself to the contemporary circumstances and integrated with the existing economic system. With its shortcomings and flaws, Islamic economics has been able to maintain a system that operates on the premise of interest ban and that connects to the existing mechanisms of the conventional system. The Ottoman state is a prime example of relying on innovative solutions to the shortage of finance while preserving the interest ban without any change. Lack of institutional structures to meet the need for finance led to initiatives for the pursuit of alternatives. The financial affairs were governed in the Ottoman state through the activities of sarrafs and murabahacis, who performed roles similar to a usurer and money foundations. Sarrafs mainly performed the task of exchanging valuable mines and gems with money. Most sarrafs were either Jewish, Armenian, Greek or Venetians. Over time, sarrafs gained the trust and support of the state administration which allowed them to impose a certain interest rate subject to ceiling restrictions. Murabaha has also been practiced in the Ottoman society as a profession of offering funds for those in need of it, an unofficial profession, murabaha proved to be very lucrative and resembled with regular practice of usury which did not recognize and abide by the ceiling rates that the state imposed. The money foundations, on the other hand, served as advanced institutional agents of offering funds for trade and industrial activities. In practice, these foundations relied on a wide range of methods including but not limited to bidaa, mudarabe, murabaha ve muamele-​i şer’iyye ile bey’ bil-​istiğlal. Some of these methods have been subjected to criticisms because they allegedly justified the practice of interest.15 It should be noted that the Ottoman society was diverse and pluralistic, comprising of people from different backgrounds, ethnic and religious identities, referring to the richness in terms of financial institutions in the society. The diverse types of debt as a result of this pluralistic and diverse outlook also attracted criticisms over the alleged practice of interest.

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These methods and practices have been criticized as they were viewed as attempts to justify practices; despite the criticisms, the Ottoman scholars endorsed the activities of the money foundations because they served as an effective remedy for the shortness of funds. The general public experienced financial hardships due to the excessive interest rates the sarrafs imposed for loans, these hardships generated their own solutions and alternatives.

Conclusion This study, which analyzed the circumstances under which the concept and practice of interest emerged and the arguments used to legitimize this practice, has focused on approaches upheld by different civilizations in history. The study revealed some similarities in these approaches but also discussed the specific situations and factors to lift the interest ban and to justify the practice in different cultures and civilizations. The most important common feature of the different cultures and civilizations on the subject of interest is that, initially, the practice was strictly prohibited in almost every religion. There is no single exception to the prohibition of usury over moral considerations and reasons. Additionally, with the exception of Islam, all other cultures, civilizations and religions have justified the practice of interest which over time turned into a sociological and economic phenomenon. As a concept and practice, interest has become a major instrument of the economic transaction and relations in these cultures. However, the ontological legitimacy of the interest ban has resurfaced in some instances of the history; because of this, some serious restrictions to the practice and rates of interest, instead of an absolute ban, have been introduced to address the repercussions of the debt. In other words, interest has been justified but also been subjected to strong restrictions. This indicates that interest has been inherently viewed as undesirable from a moralistic perspective.

Notes 1 These two institutional structures of the ancient ages maintained strong forms of cooperation in some areas of social and political life. The political authority offers such services as justice, administration and security which needed theological arguments to be offered by the temples. In return for the support they lend to the state, the temples secured economic power (Demirci, 2017). 2 This is how the foundations of the money as an economic phenomenon were laid down. 3 The temples and political authorities were the owners of most of the slaves. 4 The archeological findings reveal the existence of private ownership, leasing and purchases and sales, this gives the impression that the economic climate of the time started to evolve into a form that resembles with the contemporary profit-​ oriented thinking.

The evolution of interest and debt  173 5 Silver, copper and grains, mostly used as in place of money, were included in the economic system by the time they came out of the storages of the temples which thus generate money. 6 As the Roman empire expanded its territories and turned into a true empire with strong state institutions, the transactions have become widespread and popular. Even the literal works of the time addressed this as a social problem, referring to the practice of usury as a heinous illness that sucks the blood out of the human body (Petronius, 2003). 7 Some historians argue that this is one of the reasons for the collapse of the Roman state (Goodson, 2014). 8 The period when Christianity started to blossom was the era when the interest ban was most strictly reinforced in Rome. Mostly because of the church’s adamant opposition, transactions were prohibited. 9 Interestingly, unlike the case in the Roman empire, these debt on interest were mostly used in the production-​oriented economic activities. 10 Anguttara-​Nikaya, III:45. 11 Accounts on the history of Judaism recall that after losing independence, they have become minorities in areas where they had to try to survive and where they were deprived of certain economic privileges and rights (Kuznets, 1960). In these areas, they were either completely isolated from the economic life or they were not allowed to accumulate wealth as their rights to land property and ownership of slaves were severely restricted (Abrahams, 1896; Roth, 1940). For this reason, they had to rely on usury for survival, however, some argue against this argument noting that there is no sufficient evidence to back it up (Reich, 1960). 12 There are two exceptions to this general rule, “damnum emergens” and “lucrum cessans,” both of which will be explained later. 13 For instance, some higher-​up managers gave up on their extras or salaries in times when the profitability of the firms declined. 14 But it should be noted that many Islamic countries allow operation of conventional banks on a scheme. 15 However, they played significant roles in terms of financing the trade activities.

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Abbasid/​s 54, 102 Abî Abdirrahmân, Rebîa b. 117 Abraham/​ic 12, 18n6n7, 25–​26, 28n7 Abu’l Suud Efendi 128 Acciaiuoli 87 Ahi Çelebi 128 Akerlof, George 148 al Ayni, Badraddin 111 al Basrî, Hasan 117 al Esamm, Abû Bekr 117 Alighieri 22 Ancient Greece 12, 163–​164 Aragon, James 3 Aristotles 54–​58, 78, 80–​82, 164 Armenian 123–​125, 171 Assyrian/​s 12–​13, 22 Arrow, Ken 148 Avicenna 54 Ayres, Clarence 152 Babylonian 13–​14, 17n2, 22–​26, 47, 101 Baghdad 50, 101 Bali Efendi 121 Banco 87; Rosso 87 Banker/​s 35, 71, 88, 151–​153, 169; Babylonian 26; civilian 70–​71; Galata 123; Italian 35; Jewish 35, 91 Bardi 87 Baumol, William 148 bay’ bil-​istighlal 122 Bayt al Mal 101 beka 12, 16 Bible 4, 9, 17n1, 75 bidaa 122–​129, 171 Binyamin 12

Böhm-​Bawerk, Eugene v. 136–​137, 140, 142n12 Brandenburg, Albrecht v. 66 Brihaspati 165 Brock, Buz 148 Buddha 166 Cairo Geniza 43 Cambridge 148 Card, David 148 Commenda 100–​101 Commons, John R. 152 Council: Lateran 56; Nicaea 75; Small 79; of Ten 91 Crusade 33–​39, 77 Cyprus 124; Mustafa Pasha 124 Dante 22 Darik 12–​16 Darius 12 Dictionary: Marquarie 78; Principles 78 divan el jahbaz 101 Economics: Austrian 143n13, 156; Austrian school of 136, 142n10, 148, 156; behavioral 147, 156n3; complexity 147, 156n3; evolutionary 147, 156n3; experimental 147, 156n3; heterodox 142n10, 146–​149, 156; institutional 147–​149, 151–​152, 155n2; Marxist 147–​149, 150–​155; neoclassical 135–​137, 142n8n10n11, 143n14, 147–​148, 152–​154, 155n2; orthodox 133–​139, 140–​141, 142n8n10n11, 143n14n18, 146–​149, 154–​155 Efron 12 Egyptian; National Bank 117

178 Index Empire: German 56; Roman 36, 51n2, 54, 62, 71, 72n4, 162, 173n6n9 England 33–​35, 76 Esnunna 162 Europe: Eastern part of 43, 57; Western 3, 36, 44–​49 Fahr al-​Din Razi 54 Feltre, Bernardino d. 89, 91–​94 Fenton, Roger 81 Florence 88–​89, 93n2 France: 33–​35, 48, 78, 91, 124–​133; king of 44 Francesco, Assisili 89 Franciscan Order 88–​89, 93n5 Franconia 36 Galata 123 Gamla, Joshua b. 47 Gautama 165–​166 Geneva 5, 79 Gera 12–​16 Germany 33, 48, 82n3, 156 Ghazali 54; Britain 36, 124–​148; Great 3, 35, 81 Great Depression 139, 140 hadith 47, 103, 110–​115 Hammurabi 162 Hanafi 111–​113, 128 ha-​Nassi, Judah  47 Hanbali 111–​113 Harrame 111 Hayek, Friendrick v. 152 Hebrew 14–​16, 23 Hegel 150 Henry III 34, 78–​79, 169 Hesed 16 Heyman, Jan 124 Hicks, John 140 Hinduism 165–​166 Hirschman, Albert O. 133 Holland 76, 91, 124 Ibn al Majishun 117 Ibn Humam 112 Ibn Nujaim 111 Ibn Rushd 54 Iran 49 Israel 12–​15, 22–​25 Istanbul 123 Italy 33–​35, 87–​89, 91–​92, 93n3, 100

jahbaz 101–​103 Jerusalem 14, 17n3, 47 Jesus 12, 33, 58, 66–​69, 70–​71, 89, 90–​92, 93n6, 94n8 Jevons, Stanley 135, 156n4 Joseph 12, 18n6 Jubair, Saîd b. 117 Judaic 2, 10–​15, 17n1, 18n7, 22–​27, 28n10, 40–​43, 58, 71, 130, 151, 167 Keynes: 138–​139, 140, 142n10, 143n14, 154; John Maynard 5 kirad 100 kitab’ul buyu’ 111 Krueger, Alan 148 Krugman, Paul 148 Kütahya 125 law: Halakha 14; Hebrew 14; supply-​demand  135 Leo, Great 75 Lerner, Abba 140 Leshalem 12 Lombardia 87 Maimonidean Jacob Anatoli 3 Magnus, Albertus 55 Majalla 127, 130n5 Maliki 111–​117 Man of Sorrows 89, 91, 93n6 Manoah 11 Manu 165 Marbit 14–​16 Marshall, Alfred 5, 9, 152 Marx 65, 150–​151; Karl 149, 152 Mecca 97, 117 Medici/​s  88 Medina 98–​99 Mediterranean 12, 97, 122 Mehmed II 123–​128 Menger, Carl 135, 152, 156n4 Mesopotamia 39, 49, 160 Mill, John Stuart 152 mina 12–​16 Mishna/​h 14, 17n3, 47, 50 Mitchell, Vesley C. 152 Molla Hüsrev 128 Morel, Francis 79 muamala 124 muamala-​i shar’iyya 122–​129 Muawiya 103 mudaraba 100–​101, 122–​129

Index 179 Muhammad 72n2, 93n8, 106, 113–​118 murabaha 122–​129, 171 murabahcis 122 Murad II 128 Musa Ha-​Levi  3 Narada 165 Neshek 2 Omar 101 Oresme, Nicole 86 Palencia IX, Gregory 3 Palestinian 12, 17n3, 48 Peninsula: Arabian 97; Indian 165 Persian 103, 107n5; King Darius 12; territories 36 Perugia 89, 92 Peruzzi 87 Phoenicians 31 Plato 55, 56, 62n2, 80, 164 Pope Innocentius III 89 Protestant 82n3; faith 81; Reform 64, 76, 81 qarz 103–​105, 128–​129; al hasan 105n1, 107n1, 116, 121–​129 Religion: Abrahamic 18n7, 25–​26, 28n7, 58, 70, 166; mainstream 2; monotheist 1, 2, 6, 9, 11–​12, 21, 44 167; Semitic 134 Renaissance 54 Ribbit 15 Ricardo, David 5 Romer, David 148 Sachins, Claude d. 79 Saduqi 47 Sarlken 76 sarraf/​s 102–​103, 122–​128, 130, 171–​172 Saxony 65 Say, Jean-​Baptiste  5 Schmoller, Gustav v. 156n4 Sen, Amartya 148 Shafii 111–​113 Shekel 12–​16, 162 Shemita/​h 15, 18n11, 27 Shetah, Simoen b. 47 Shimson 11 Sîrîn, Muhammed b. 117

Smith 5, 89, 136, 152 Sombart 9, 32–​38, 151, 167 Spain 33–​37, 44, 91–​97 Spoleto 87 Stiglitz, Joe 148 Strozzi, Marco di Matteo 89 Suftece 102–​103 Sumerian/​s 31, 159–​162 Talmud 3, 10–​14, 17n2n3, 23–​28, 31, 43–​48, 50 Tantavi 117 Tanzimat 125 tarbit 14–​17 Testament: New 1, 12, 17n1, 64–​69; Old 1, 4, 10–​12, 17n1n3, 64–​69, 71 theory: economic/​s 135, 142n7, 65–​68; game 147–​156; general 139; interest 136–​138, 140, 142n11, 143n13n14n16, 153–​155; Keynesian 138, 154; labor-​value 137; liquidity preference 5, 136–​139, 140, 143n16, 154–​155; loanable funds 136–​140, 143n14n16; marginal utility 135, 156n4; marginalist 135–​146; monetary 136–​153; neoclassical 135; orthodox 154; pricing 154; productivity 5, 142n12; rational choice 141n2, 155n2; of riba 112 Time magazine 123 Torah 2, 3, 14–​15, 22–​27, 28n10, 47 Tosafists 46 Toscany 4 Tsedakah 16 Turgot 78 Turk/​s 65, 72n2 Turner 124 Tuscany 87 Umbria 87 Union of Cambria 87 United States 148–​151 Urukagina 152 Usury: Long Sermon on 65; On Trade and 65; Short Sermon on 65 Van 125 Veblen 152–​153 Venice 75, 87–​88, 91–​94 Verona 91 Visnu 165

180 Index Walras, Leon 135, 156n4 Weber, Max 7, 76, 82n3 Wicksell 137–​138, 156n6 world: Christian 4, 6, 33, 54–​55, 61–​62, 90, 92n1, 169; Judaic 6

Yajnavalkya 165 Yiddish 12, 47 Zahiri/​s 113