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The composition of interest: the Judaic prohibition

Lister, RJ 2006, 'The composition of interest: the Judaic prohibition' , Accounting Business and Financial History, 16 (1) , pp. 121-127.

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Abstract

An interest charge is made up of an award for waiting known as the real rate of interest, a premium for risk and compensation for transaction costs. Where inflation exists the lender seeks further compensation. In order to understand the composition and evolution of different versions of the usury prohibition it is necessary to ask which components of an interest charge are prohibited by each version. The Judaic prohibition has two aspects which are of particular interest to business historians and students of usury. First, the general rule is that a reward for waiting is prohibited. This focuses on the time-based part of interest charge. Second, interest is prohibited because it amounts to placing a stumbling block before the blind. This focuses on the typical gullibility of the borrower confronted by a more expert, better funded lender. Economics confirms and enriches our understanding of these important aspects of the prohibition. They achieve this by increasing our understanding of two facts: first, that the borrower is a gullible individual subject to irrational and inconsistent behaviour; and, second, that this behaviour relates to the waiting aspect of interest which is proscribed in the prohibition. How far these insights apply to other civilisations' prohibition, particularly those which derive from the Judaic prohibition, merits further study; so also do the ethical lessons of the Mosaic rules for a globalised society based on capitalism.

Item Type: Article
Themes: Subjects / Themes > B Philosophy. Psychology. Religion > BM Judaism
Subjects / Themes > H Social Sciences > HF Commerce > HF5001 Business > HF5601 Accounting. Bookkeeping
Subjects outside of the University Themes
Schools: ?? sch_sbs ??
Journal or Publication Title: Accounting Business and Financial History
Publisher: Taylor & Francis
Refereed: Yes
ISSN: 1466-4275
Depositing User: H Kenna
Date Deposited: 16 Oct 2007 11:42
Last Modified: 20 Aug 2013 16:50
URI: http://usir.salford.ac.uk/id/eprint/785

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