Economist Warns Against Interest Rate Prohibition, Citing Economic Devastation

Financial analyst Hunter Ash recently issued a stark warning regarding proposals to ban interest on money lending, asserting that such a move would be as economically destructive as "banning electricity." Ash emphasized that the true definition of usury pertains to "excessive" interest, a condition inherently dependent on the level of risk involved in a loan.

Interest rates are a fundamental mechanism in modern economies, acting as a primary tool for central banks to manage monetary policy and influence economic activity. They incentivize lending and borrowing, directing capital towards investment and consumption, which are crucial drivers of growth. Removing interest would dismantle the very foundation of credit markets, impacting everything from consumer loans and mortgages to business investments and government financing.

Historically, the concept of usury has evolved significantly. Across various ancient civilizations and religious doctrines, usury initially condemned the charging of any interest on loans, often rooted in moral or charitable principles. However, over centuries, particularly with the rise of commercial economies, the understanding shifted to define usury as the imposition of unreasonably high or exploitative interest rates.

In contemporary financial systems, usury laws are designed to protect consumers from predatory lending by setting legal limits on interest. Crucially, what constitutes "excessive" interest often accounts for the risk associated with a loan; higher-risk borrowers typically face higher interest rates to compensate lenders for potential default. Overly restrictive usury laws that fail to consider risk can inadvertently limit access to legitimate credit for high-risk individuals and businesses, sometimes pushing them toward unregulated or illicit lending markets.

Ash's commentary underscores the complex interplay between interest, risk, and economic stability. A blanket prohibition on interest would not only stifle economic dynamism by impeding capital flow but also misinterpret the nuanced role of interest in a functioning market, where it serves as a price for risk and time. The debate surrounding usury, therefore, requires a careful balance between consumer protection and the preservation of a healthy, accessible credit market.