The Economics and Ethics of Interest Rates

Guido Hülsmann examines the interest rate through both economic analysis and moral theology—tracing the debate from Aristotle through Aquinas and Heinrich Pesch to the Austrian School. His conclusion overturns the traditional doctrine: interest income from voluntary lending is intrinsically just and good, both for the contracting parties and for society as a whole, because it funds the division of labor in finance, strengthens social bonds between savers and borrowers, fuels economic growth through longer production processes, and creates a natural saturation mechanism that prevents capital accumulation from becoming an end in itself.

However—and this is the essay’s most important turn—the legitimacy of interest income is corrupted when it arises through unjust institutions, particularly the fiat money system. Central banks override the natural saturation of capital accumulation, inflate credit markets beyond any limit that would exist under sound money, and redistribute income from the poor to those closest to money creation. The scholastics were wrong to condemn all interest as usury. But the income generated by today’s monetary system—artificial, coerced, and redistributive—is precisely the institutionalized usury that Bernard Dempsey warned about in 1943.

Read the original article: https://mises.org/articles-interest/economics-and-ethics-interest-rates