Parashat Mishpatim 5766/ February 25, 2006
the weekly Torah reading by the faculty of
The Proscription against Interest in the Light of Modern Credit Economies
Attorney at Law
The severity of the prohibition to charge interest comes across in the numerous warnings in the Torah.  Standing opposite these prohibitions are various financial instruments that sanction the use of credit, notwithstanding the prohibition.  In this paper, we will not deal with the problematics of the ways around the prohibition to lend for interest– implementing an action whose object is to make something forbidden by the Torah permissible (ha’aramah);  rather, the heart of our discussion is to investigate whether between the proscription and the reality of life, we can build a bridge across the gap. Specifically, can one deduce from the idea of forbidding interest, as it was understood by the Sages, the possibility of credit transactions as is the norm in a modern economy?
It should be noted that the Sages discussed the idea of forbidding interest both from the theoretical point of view, in terms of the reasons for the commandment, and from a practical point of view, coping with real questions such as the possibility of charging a gentile interest,  heter iska (“transaction permit,” allowing a lender to take interest by regarding him as a partner of the borrower) and other mechanisms for circumventing the prohibition. The common denominator among the commentaries is that they see the prohibition against interest as lying outside the rubric of fiscal law. There remains, however, a wide variety of views on the matter.
Why Not to Take Interest
The view of interest as a certain return for the lender, known in advance, is voiced by Kli Yakar: 
“Do not deduct interest from loans to your countrymen” (Deut.23:20) – even though the lender profits thereby, there is another reason for the commandment. The main reason for proscribing interest is that it removes a measure of faith, for every person in business casts his eyes toward Heaven, since he is uncertain whether or not he will profit. But a person who lends for interest knows exactly what his profit will be and trusts in the guarantee which he holds in his hands, thereby turning his heart away from G-d.
In other words, the heart of the matter in the prohibition against interest is to prevent a weakening of one’s faith in the Lord.
The author of Sefer Ha-Hinukh views the root of this commandment as follows:
For the good Lord desires the welfare of His people, whom He has chosen, and therefore commanded to remove a stumbling block from their way, lest one person swallow up the wealth of his fellow without noticing it himself, until he finds the borrower’s house devoid of all goods, for such is the way of interest. 
In this view, the prohibition against interest serves to guarantee proper community life. A similar view, that emphasizes the hesed aspect of the prohibition, is found in Abarbanel’s commentary to Deut. 23:16:
Interest itself is not something improper . . . it is neither vile nor despicable, and it is part of commerce and business dealings, and is decent in and of itself . . . Therefore the Holy One, blessed be He, associated this matter with charity (hesed) that a person shows his fellow, to lend him money without any profit or benefit to himself.
The source of Abarbanel seems to be, as is often the case, Nahmanides (Deut. ):
Interest which is freely agreed between two parties is not forbidden, save from the standpoint of brotherhood and charity, as He commanded us, “Love your fellow as yourself” . . . Therefore it is written, “so that the Lord your G-d may bless you,” for a person does his fellow an act of loving kindness when he makes him a loan without interest, and it is considered as an act of charity on his behalf. 
What Sort of Mitzvah Is It?
A distinction can be drawn between the approach taken by Kli Yakar, who considers that interest does not belong to fiscal law but rather concerns relations “between a person and G-d,” (bein adam la-Maqom) and the approach taken by Sefer Ha-Hinukh, Abarbanel and Nahmanides. For the latter three, as well, the prohibition against interest is not a fiscal regulation. Instead, it is a matter of proper “relations between a person and his fellow” (bein adam la-havero). Their approach helps us understand the idea of mutual consent that underlies loan agreements, and the discrepancy between forbidding interest on loans between Jews and the Torah ruling that “you may deduct interest from loans to foreigners”(Deut.23:21). 
A further distinction between them is that Kli Yakar does not see the prohibition against interest from the point of view of the commandment to give charity (hesed or tzedaka), in contrast to the other commentators. Indeed, from the plain sense of the text (in Exodus 22 and Leviticus 25) the charity in giving loans to the poor appears to be the reason to forbid taking interest. That, as we have pointed out, was the view of the above-mentioned commentators. However, according to them, why should one not be able to take interest on a commercial loan, as opposed to a loan given in the context of charity? What Kli Yakar says provides an answer to this argument, since he sees taking interest on any loan as expressing a lack of trust in the Lord and therefore forbidden. 
Another point of view is expressed in the commentary, Akedat Yitzhak, on this week’s reading: 
What the Torah says here, is that should you not be moved to give an outright gift to the poor, but you wish to help him with a loan, you should at least not act towards him as a creditor, and needless to say you should not exact interest from him, for if he lacks the principal, which is why he borrowed, how is he to repay both principal and interest?
In other words, the intention is to give charity, and logic demands that this intention preclude charging interest, for that would undo the purpose of the loan.
An unusual view, which in principle entails a difficult problem, is found in the remarks of the author of Torah Temimah in his commentary “Tosefet Berakhah” (on Lev. 25:36). He sees the proscription against interest through the eyes of the Biblical period, when the Israelite people were engaged in agriculture and it was appropriate to forbid any loans whose objective was not charity and philanthropy. With the changing times, it was no longer practical to forbid taking interest. These socio-economic developments, he believes, provided the foundation for the Rabbis to allow the use of the heter iska.
Thus we learn that explanations of the prohibition against interest rest on several ideas: the extent of trust in the Lord, the commandment to give charity, hesed as a halakhic value, and a regulation stemming from the economic circumstances of the times.
Between Prohibition and Practice
All these explanations make it even more difficult to reconcile the commandment and its rationale with actual practice, which in effect neutralize the prohibition against charging interest. Therefore we shall try to tackle the question from the opposite direction, beginning with the view of economics, looking at the various mechanisms (heterim) to allow taking interest, and finally back to try and understand the Torah rulings.
Time and Risk
First we should consider the definition of interest: “An expression of the price of money in a given period, this price stemming from the ability to exchange money for capital goods for purposes of production. Hence the price of money is set by the value of its alternative uses for purposes of investment.”  We learn from this definition that, as is customary with financial instruments, so with interest, the two main dimensions in the economist’s view are time and risk. It follows from this that in order to enable circumvention of the prohibition of interest one must find suitable alternatives that answer to all these components. Indeed, if we consider the financial instruments used to make interest permissible, we see that this is just what was done. The Sages took various transactions in which there was an element of time – by definition the dimension of interest was inherent in the transaction – and added special terms so that in the resultant arrangement, even though there were economic characteristics similar to lending for interest, the specific transaction stood on its own. This applies to heter iska, by which a partnership is created which in effect neutralizes the loss of the investor, so that there is a partnership without the risk of fluctuations. The same applies to a rental agreement, in which with suitable guarantees one could remove responsibility for the asset from the owner and turn the transaction into a regular loan. Likewise purchasing on installment (Brit. hire-purchase) or selling at a discount.  In other words, the Sages found practical ways of licit compensation for credit through alternative transactions that had a dimension of time, combined with specific additions that spanned the gap between these and regular loans.
R.S.R. Hirsch on Interest
Now let us return to the Torah’s commandment, as understood by Rabbi Samson Raphael Hirsch, and we shall see how the problem is resolved. In Hirsch’s commentary on this week’s reading (ch. 24) he enumerates several basic concepts about our subject:
It is not the idea of abstract justice that
is embodied here, rather the idea that the entire society of the children of
Further on, the theoretical basis for the prohibition against interest is laid:
The more we see that exacting interest does not contradict the demands of natural justice and accords with the usual concepts of law and justice by which charging interest does no wrong, the more clear it becomes that the prohibition against interest belongs to the category of commandments – like the Sabbath, sabbatical and jubilee years – whose purpose is to serve as a testament reminding us of the Lord’s sovereignty over the world and over Israel... This is also the reason for the prohibition against interest, that the Lord commanded us to waive the lender’s right to receive interest from the borrower in order that we acknowledge and proclaim that He is lord and ruler over all our assets and belongings.
From here we move on to the practical implications:
The prohibition against interest does away with the destructive influence of money, the principal factor causing social inequality, and breaks the might and power of capital. If, however, this prohibition were to be upheld in all its strictness, all capital would lie dormant like a stone ... The owner of capital himself would have to engage in a craft and only thus would he be able to reap the fruits of his money, which otherwise would lay as if it were dead. Or, he would have to take as partners laborers who do not possess capital, and be forced to share his profits and losses with them.
Further on he tackles head-on the need for credit:
As we have said, the Torah does not deny the natural justification for taking interest in and of itself, but only forbids it out of the Jewish principle of uniting the people from the social standpoint. In contrast, in the modern view money is considered an object of consumption, and interest is considered like the rental fee one must pay for temporary use of money, just as one pays rent for a house...
So what difference is there between rent, which is permitted even by the Torah, and interest? Those who ask this question ignore the fact that the rented object remains in the ownership of the lessor, and the lessee essentially makes use of something that belongs to the lessor, paying for the wear and tear that he causes; whereas money that is lent to a borrower immediately becomes the possession of the borrower, and he owes only the value of the money to the lender, while the borrower is deriving benefit for something that is in his sole possession.
Therefore Rabbi Hirsch thinks that payment of interest is a loss to the borrower, and constitutes unfair enrichment to the lender. The basis for Rabbi Hirsch’s view lies in the notion of divine ownership, commanding us to make proper use of His money which is in our hands (this is paralleled by the laws of shemittah and jubilee years as regards real-estate). In view of this one can understand the logic of permitting various types of credit transactions: these must assure recognition of G-d’s supreme ownership of all capital. That is to say, one must prevent obligation and indebtedness, on this or that level, of one person to another. Indeed, the financial instruments that permit taking interest are all characterized by the creation of a partnership: heter iska, deflecting the aspect of ownership from the person to the object, renting, purchasing in installments (hire-purchase), discounting promissory notes, etc. These instruments essentially set up an relation of equality between the sides (landlord/renter, businessperson/investor, purchaser/seller) with respect to the loan. This being so, one can now collect the credit fees using these instruments, for there is no longer a forbidden aspect to the interest as per the view of Rabbi Hirsch.
Thus we see that as long as relations of equality are preserved between one person and another in commercial and financial dealings, these transactions do not fall into the realm of prohibited interest. Thus we find ourselves traversing the bridge that we set out to find at the beginning of our discussion, and its origin indeed lies in the reason for the prohibition. This bridge now leads dialectically to the idea that the laws were given so that “man shall live” (Lev. 18:5).
 Cf. Maimonides, Mishne Torah, Malveh ve-Loveh 4.2, who lists six negative commandments that are violated by a person who lends for interest, and two negative commandments that are violated by the borrower. Also cf. Maharal, Netiv ha-Tzedakah, ch. 6: “We have found no sin and transgression that has been dwelled upon by the Sages as much as this sin.”
 The familiar and well-known heter iska, as well as renting, selling promissory notes, leasing, etc. See Nathan Dreyfus, Dinei Ribit be-Re’i ha-Kalkalah ha-Modernit, Tehumin 14, 207.
 This must be discussed from two angles: is circumvention permitted and is circumvention helpful. See David Mish’an, “Hebetim Hilkhatiyim u-Misphatiyim shel Heter Iska,” Keter – Mehkarim be-Khalkalah u-Mishpat al-Pi ha-Halakhah, 2, p. 434; Moshe Silberg, Kakh Darko shel Talmud, Jerusalem 1962, pp. 26-44.
 On this
question in medieval Europe cf. H. Soloveitchik, Halakhah, Kalkalah
ve-Dimui Atzmi – ha-Mashkanta’ot be-Yemei ha-Beinayim,
 Lev. 25:36, also cf. note 2, above.
 Sefer Ha-Hinukh, commandment 68.
 Maimonides’ words regarding charity as a value of central importance are quite apt (Mishneh Torah, Hilkhot Shabbat 2): “Thus you learn that the laws of the Torah are not to bring vengeance to the world, rather to bring mercy, charity and peace to the world.”
 Cf. Leib Moskovitz, “Le-Ta’amo u-Mashma’uto shel Issur Ribit,” Mi-Perot ha-Ilan, Bar Ilan 1998, p. 562.
 For a
survey of the position taken by the Sages in various generations, cf.:
“Megamot Datiot ve-Hevratiot be-Torat
ha-Tzedakah shel Hazal,” in Ephraim E. Urbach, Me-Olamam shel
 Exodus, Mishpatim, ch. 46.
 Eitan Avnion, Lexicon le-Kalkalah, Tel Aviv 2004.
 For further elaboration see notes 2 and 3.
 Cf. J.
B. Soloveitchik, Ha-Adam ve-Olamo,