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Usury and Just Compensation: Religious and Financial Ethics in Historical Perspective

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  • Constant Mews
  • Ibrahim Abraham

Abstract

Usury is a concept often associated more with religiously based financial ethics, whether Christian or Islamic, than with the secular world of contemporary finance. The problem is compounded by a tendency to interpret riba, prohibited within Islam, as both usury and interest, without adequately distinguishing these concepts. This paper argues that in Christian tradition usury has always evoked the notion of money demanded in excess of what is owed on a loan, disrupting a relationship of equality between people, whereas interest was seen as referring to just compensation to the lender. Although it is often claimed that hostility towards ‘usury’ has been in retreat in the West since the protestant Reformation, we would argue that the crucial break came not with Calvin, but with Jeremy Bentham, whose critique of the arguments of Adam Smith, upholding the reasonableness of the laws against usury, led to the abolition of the usury laws in England in 1854. There has to be a role for law, whether Islamic or secular, in regulating financial relationships. We argue that by retrieving the necessary distinction between demanding usury as illegitimate predatory lending and interest as legitimate compensation, we can discover common ground behind the driving principles of financial ethics within both Islamic and Christian tradition that may still be of relevance today. By re-examining past ethical discussions of the distinction between usury and just compensation, we argue that the world’s religious traditions can make significant contributions to contemporary debate. Copyright Springer Science+Business Media, Inc. 2007

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  • Constant Mews & Ibrahim Abraham, 2007. "Usury and Just Compensation: Religious and Financial Ethics in Historical Perspective," Journal of Business Ethics, Springer, vol. 72(1), pages 1-15, April.
    • Handle: RePEc:kap:jbuset:v:72:y:2007:i:1:p:1-15
    DOI: 10.1007/s10551-006-9151-0
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    References listed on IDEAS

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    1. Langholm,Odd, 1998. "The Legacy of Scholasticism in Economic Thought," Cambridge Books, Cambridge University Press, number 9780521621595, October.
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    Cited by:

    1. Stefan Behringer, 2016. "The Development of the Net Present Value (NPV) Rule ¨C Religious Prohibitions and Its Evolution," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 74-87, August.
    2. Domènec Melé, 2016. "Re-thinking Capitalism: What We can Learn from Scholasticism?," Journal of Business Ethics, Springer, vol. 133(2), pages 293-304, January.
    3. Jackson, William A., 2024. "The Ethics of Price Variation," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 53(2), pages 201-215.
    4. Ibrahim Abraham, 2011. "Tensions in Christian Financial Ethics: An Historical Overview," Chapters, in: Mohamed Ariff & Munawar Iqbal (ed.), The Foundations of Islamic Banking, chapter 13, Edward Elgar Publishing.
    5. Arvind Ashta & Surender Mor, 2022. "Is Microcredit a Reverse Innovation?," FIIB Business Review, , vol. 11(2), pages 225-234, June.
    6. Arvind Ashta & Laurence Attuel-Mendès & Zaka Ratsimalahelo, 2015. "Another “French paradox”: explaining why interest rates to microenterprises did not increase with the change in French usury legislation," European Journal of Law and Economics, Springer, vol. 40(3), pages 479-509, December.
    7. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2011. "The Inhibition of Usury (Riba An-Nasi'ah) and the Economic Underdevelopment of the Muslim World," Working Papers 11002, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    8. Constant Mews & Adrian Walsh, 2011. "Usury and its Critics: From the Middle Ages to Modernity," Chapters, in: Mohamed Ariff & Munawar Iqbal (ed.), The Foundations of Islamic Banking, chapter 11, Edward Elgar Publishing.
    9. Arvind Ashta & Marek Hudon, 2009. "To whom should we be fair? Ethical issues in Balancing Stakeholder Interests from Banco Compartamos Case Study," Working Papers CEB 09-036.RS, ULB -- Universite Libre de Bruxelles.
    10. Ryszard Kowalski & Grzegorz Wałęga, 2022. "Regulation of Usury: Justification, Consequences, and Some Lessons from Polish Experience," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 2, pages 57-73.
    11. Francesc Relano, 2023. "Ethical and Islamic Banking Compared from a Time-Based Perspective," Journal of Business Ethics, Springer, vol. 188(4), pages 795-805, December.
    12. Alessandro Lanteri, 2010. "The Economic Ethics of Ezra Pound," ICER Working Papers 25-2010, ICER - International Centre for Economic Research.

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