Interest Rates Old and New: How High is Too High?
A short history of ancient interest rates, in light of a 10% cap on credit-card interest rates proposed in the US Senate by Bernie Sanders and Josh Hawley
Neither interest nor interest regulation is new. Ancient societies in Mesopotamia, the Middle East, Greece, Rome, and China all seem to have capped interest in some way.
In ancient Babylonia, Greece, and Rome, interest rates declined as the nation or culture developed and thrived, and then sharply rose as each declined and fell.
The Code of Hammurabi from Ancient Mesopotamia (about 3,800 years ago) established1 a cap of 20% interest on silver loans, and 33 1/3% interest on grain loans. Because ancient agriculture was so risky, the grain rates in particular cannot meaningfully be compared directly to modern times; and even commerce back then was more fraught with uncertainty. But these limits do establish the principle of regulating interest.
From Ancient Greece we have lots of detailed information about interest rates. In Athens — the political, cultural, and economic heart of Greece — a wide range of rates were recorded during the second half of the first millennium BCE. In broad strokes: what we would now call investments generally charged under 10% interest; normal and safe loans, 5-20% interest; loans to municipalities, about 10%; and loans to industry, 10-20%. We also have evidence of loan sharking and usury with rates well over 100%, but except for these, the rates seem to have been limited either by custom or by laws that have been lost to history.
Furthermore, the great Greek philosopher Aristotle (about 350 BCE) denounced usury: “Money was brought into existence for the purpose of exchange, but interest increases the amount of the money itself ... so this way of getting wealth is, of all forms, the most contrary to nature.”2
In Rome, the Twelve Tables — the foundation of Roman law from around 450 BCE — establish a maximum interest rate of just over 8%.
And the Roman statesman Cato opens his great work De Agri Cultura with the observation that, “Obtaining money by trading is sometimes more profitable [than farming], and by money lending, if it were honorable.” He adds that even thieves were considered better than usurers.3
The Old Testament in the first millennium BCE variously prohibits charging interest to the poor and to locals.4
Christian tradition in the first millennium CE doubled down on this Old Testament prohibition, repeatedly condemning usury. For instance:
For in truth it is the epitome of inhumanity that one person, lacking the necessities of life, should be compelled to borrow, and another, not satisfied with the principal, devises ways to profit from the misfortunes of the poor and to amass wealth.5
In China, Tang Dynasty regulations from the second half of the first millennium CE limited interest to 6% per month (later adjusted to 7%), but also to no more than 100% of the principal, regardless of the length of the loan.6 (For comparison, this corresponds to an APR of no more than 5.30% on a 30-year fixed mortgage.)
Against these numbers, credit-card interest rates in the US seem very high: The average appears to be over 20%, according to Bankrate and Investopedia (which, however, give different figures), and the high end tops out near 30%. At 30%, the Tang Dynasty cap of not paying more than 100% of the principal will be reached in less than two and a half years. (Even at 10%, the cap will be reached in seven years.)
Much of this information comes from the well-researched A History of Interest Rates (Fourth Edition) by Homer and Sylla, who, in the introduction, offer the following warning:
“The chapters on interest rates in ancient Babylonia, Greece, and Rome show, in each case, a progressive decline in interest rates as the nation or culture developed and throve, and then a sharp rise in rates as each ‘declined and fell.’”
Food for thought.
It remains unclear whether the Code was a statement of principle or actual law.
Politics, 1258b: …εὐλογώτατα μισεῖται ἡ ὀβολοστατικὴ διὰ τὸ ἀπ᾽ αὐτοῦ τοῦ νομίσματος εἶναι τὴν κτῆσιν καὶ οὐκ ἐφ᾽ ὅπερ ἐπορίσθη. μεταβολῆς γὰρ ἐγένετο χάριν, ὁ δὲ τόκος αὐτὸ ποιεῖ πλέον (ὅθεν καὶ τοὔνομα τοῦτ᾽ εἴληφεν: ὅμοια γὰρ τὰ τικτόμενα τοῖς γεννῶσιν αὐτά ἐστιν, ὁ δὲ τόκος γίνεται νόμισμα ἐκ νομίσματος): ὥστε καὶ μάλιστα παρὰ φύσιν οὗτος τῶν χρηματισμῶν ἐστιν.
De Agri Cultura, introduction: Est interdum praestare mercaturis rem quaerere, nisi tam periculosum sit, et item fenerari, si tam honestum sit. Maiores nostri sic habuerunt et ita in legibus posiverunt, furem dupli condemnari, feneratorem quadrupli. Quanto peiorem civem existimarint feneratorem quam furem, hinc licet existimare.
For example:
Exodus 22:25: If you lend money to My people, to the poor among you, do not be a creditor; do not charge him interest. אִם-כֶּסֶף תַּלְוֶה אֶת-עַמִּי אֶת-הֶעָנִי עִמָּךְ לֹא-תִהְיֶה לוֹ כְּנֹשֶׁה לֹא-תְשִׂימוּן עָלָיו נֶשֶׁךְ.
Psalms 15:5: [Do not] offer money for interest or take a bribe against the innocent. כַּסְפּוֹ לֹא-נָתַן בְּנֶשֶׁךְ וְשֹׁחַד עַל-נָקִי לֹא לָקָח: עֹשֵׂה-אֵלֶּה לֹא יִמּוֹט לְעוֹלָם.
Saint Basil of Caesarea’s Homily on Psalm 14 (15): Τῷ ὄντι γὰρ ἀπανθρωπίας ὑπερβολὴν ἔχει τὸν μὲν τῶν ἀναγκαίων ἐνδεῶς ἔχοντα ζητεῖν δάνεισμα εἰς παραμυθίαν τοῦ βίου, τὸν δὲ μὴ ἀρκεῖσθαι τῷ κεφαλαίῳ, ἀλλ’ ἐπινοεῖν ἐκ τῶν συμφορῶν τοῦ πένητος προσόδους ἑαυτῷ καὶ εὐπορίας συνάγειν.
Summarized in Niida, Noboru. Tang Ling Shiyi (唐令拾遗) [Tang Statutes Reconstructed], translated by Li Jin et al. Changchun: Changchun Chubanshe, 1989. Cited in “Contracts as Tools to Promote Morality and Social Order: The Tang Dynasty’s Regulation of Contractual Relationships.”
Interesting! And scary. Even if we fix credit card debt, there's lots of other high interest, right?