Right from the ancient days when money lending was practiced among the traders in Rome and Greece, there has been a debate going on till date about the morality of charging extra money in the form of interest or usury from people to whom a sum money is lent out by another person.
However, serious economists today do not ignore the usefulness of money lending and uniformly recognize the significant role played by the money lending industry for the economy of the country. Even then and unfortunately, there are several critics within the industry who rarely, if ever, try a moral or philosophical of this position of the money lenders. The economists today do either of the two:
- Reject this philosophy completely or
- Adopt the moral-practical split.
Though they accept the fact that charging interest on loans is a very practical approach followed by the money lenders, they still. As before in the ancient days, consider this practice to be either immoral orunethical.
Perspective of the modern philosophers
The modern philosophers however for most of the part seem to have no interest in such matters at all. This is because the modern philosophers:
- Are more interested in the philosophy
- Have to deal with the reality
- Believe in self-interest
- Are more concerned about capitalism and everything that entails modern money lending principles and policies.
The philosophers of today unlike those of the ancient times accept self-sacrifice as the standard of morality as well as consider physical labor as the most important source of wealth. Therefore, they go beyond the obvious and to the extent of referring to moneylending at allquestionably unjust. They position themselves and the subject matter as well unworthy of a debate, much to the contrary of the ancient philosophers.
Relating morality with productiveness
With so much conflict in opinion and interests, it is time to set the records straight. It is required to unite productiveness with morality so that usury and its effects is not condemned or considered to be immoral. It is a mistaken belief and a wrong approach to sever productiveness from morality which in turn gives rise to the condemnation of usury on humane as well as biblical grounds.
- Once again, what is required now is a view that will unify productiveness and morality both but that will also see usury as a productive resource and morality on the other hand as a means to practical success.
- It is also needed that the economic knowledge of the people in the last millennium is combined with the new theory of morality.
It is only this approach that will uphold the morality of self-interest and in turn the virtue of individual profit.
Condensing the economic points
At this juncture, it is required to condense the economic points as that will help you further in understanding the indication of morality of self-interest.
The most crucial parts of the economic knowledge that is necessary to understand and needs a proper defense of usury are:
- The understanding of the reason as to why the money lenders charge interest on the money offered as a loan to a borrower and
- The reason why the money lenders would do so even working in a noninflationary and a risk-free environment.
Whether you get a loan from a traditional commercial bank, a private money lender or any other online source such as liberty lending US, all will charge you a specific amount as interest on the money offered to you as a loan.
- The primary reason behind this is the sacrifice from their part as they could have put that particular amount of money for other use, personal or business. It is this opportunity for alternative uses that they temporarily forego by lending the money to you sort of makes them ‘eligible’ to ask for something in return for the ‘favor’ that they do to you by allowing to to use ‘their’ money.
- Another aspect of the economic point to understand is that the variance in the rate of interest on different types of loans. This is because different types of loans have different types of risks associated, some may be minimal some may be huge. Moreover, the longer the term of the loan, longer will be the time the lenders forego their interest for you. Hence the variance in rates of interests.
In short, lenders think that loaning out money on interest for a specific period of time is a better and more profitable venture and use of money as compared to putting the same amount of money on alternative uses for the same period without getting any additional income in return. To a money lender, the benefits of loaning is main reason that make it the best use of excess capital.
Calculating the risk
However, in order to earn the benefits of lending money to others, the lenders have to calculate the risks involved in it well before hand. As said earlier, the risks involved in a lon will vary according to:
- The type of the loan
- The amount lent out
- The credit of the borrower
- The ability of the borrower to repay it back
- The chances and means of recovering the loaned amount from the borrower in case of defaulting payments and
- The time for which the money is lent out.
The risk is calculated and higher the risk, higher will be the rate of interest. Remember, repayment of a loan involves paying back the amount actually borrowed initially from the lender, called the principal amount, as well as the total amount of interest accrued on that specific amount of principal.
Wrapping it up
The practice of charging interest on loan is therefore a reward expected by the money lenders for the sacrifice they make by not putting their extra money to alternative uses but lending it to the borrowers to use it instead. It is also an expression of human ability to project the future, to analyze, to plan, to calculate risk involved and to act accordingly to avoid facing the uncertainty. In other words, it is an expression of human ability to reason.