Search Not Just Numbers

Tuesday 3 February 2009

Could the economy run without interest?

I caught part of an item on the Today Programme this morning with representatives of the Christian and Muslim faiths discussing an economy where usury was banned.

It got me thinking about the pros and cons and wondered what everyone else thought.

Most consumers I speak to, particularly recently, do not feel that their lives have been enriched by being able to borrow at interest rates.

You could argue that businesses need access to borrowing, and also that savers need to earn a return on their savings. However, if savers could not earn interest there may well be a great deal more equity funding available for businesses.

Just a few thoughts, but I'd love to hear what everyone else thinks. Please comment.


  1. If there was no interest there would be no interest! There are many situations where equity is unsuitable and debt finance is appropriate. However there is a risk in lending and that requires a return - call it whatever you wish but it is interest. The problem is not interest the problem is gearing and the credit crunch started with crazy levels of gearing that were dependent upon rising asset values and business volumes. Banks fed the frenzy like pub landlords selling more drinks to an inebriated alcoholic (except on that case it is a criminal act!). Interest is healthy, overly high gearing isn't.

  2. Just the kind of comment I was hoping to provoke.