Why the Torah Forbids Interest: A Jewish Perspective on Wealth, Power, and Social Justice

In our parasha, chapter 22 verse 24, the Torah states: “If you lend money to My people, to the poor among you, you shall not act toward him as a creditor; you shall not impose interest upon him.”

This verse contains three distinct elements:

1. The mitzvah of lending to the poor.

2. The prohibition against acting as a demanding creditor toward a borrower who lacks the means to repay.

3. The prohibition of charging interest, which applies to all borrowers, as stated explicitly in Devarim chapter 23 verse 20: “You shall not charge your brother interest, interest of money, interest of food, interest of anything that is lent for interest,” as codified in halacha.

The prohibition of interest is extremely severe, and its punishment is great. The numerical value of the word “ribit” equals 612, implying that one who transgresses this prohibition is considered as if he violated all 612 commandments in addition to the prohibition of interest itself. Moreover, when a person lends or borrows with interest, the transgression continues every single moment the interest accrues.

Why Is Interest Forbidden?

What is the rationale behind this prohibition? At first glance, one might argue that a person is merely renting out his money, just as he rents out his home. Even a poor person is not obligated to provide something for free, all the more so when the borrower is using the money for business and generating profit.

Is this a decree without explanation? Or does this prohibition come to restrain the sense of power of the wealthy individual, reminding him that God is the true owner of his wealth? Perhaps this explains the extraordinary severity of the prohibition.

Let us examine several possible explanations, including a novel approach that reflects issues of social justice.

A Basic Explanation: Protecting the Vulnerable

One straightforward explanation is that the Torah placed the prohibition of interest in this context, alongside the mitzvah of lending and the prohibition of acting as a creditor, to teach that fundamentally, interest free loans were intended as a form of support for those in financial distress.

However, such situations are not always easy to define. Sometimes even a person of means may find himself in financial difficulty, where a loan becomes a matter of survival and falls under the principle of “your brother shall live with you.” Conversely, a person who is not considered wealthy may take a loan in order to invest and earn his livelihood.

As with many Torah laws, there may be cases where, based on the underlying rationale, interest could seem permissible. Nevertheless, “the Torah speaks in general terms” and establishes boundaries of prohibition and permission suitable for the majority of cases.

This explanation, however, is not entirely satisfying in the modern economic reality, where most investments, even those of the wealthy, are financed through loans. Still, without a valid heter iska (business permit) that defines the lender as a partner in profits under halachic conditions, the prohibition remains fully in force.

Interest as a Subtle Form of Harm

Rashi explains the term “neshech” (interest) as follows: “Interest is like the bite of a snake. The snake bites a small wound in the foot, which is barely felt, but suddenly the swelling spreads to the head. So too with interest, it is not felt or noticed at first, until it accumulates and causes great financial loss.”

Building on this idea, the great Talmudic thinker Rabbi Shimon Shkop, at the conclusion of his work Shaarei Yosher, offers a profound insight. Even though the borrower formally commits himself and the agreement has full legal validity, interest contains an element akin to theft, due to the borrower’s lack of full awareness and inner acceptance of its consequences.

Although the obligation is legally binding, since it is often undertaken without full clarity, wholehearted consent, or under pressure, it carries the scent of injustice. Therefore, the Torah forbade it.

According to this view, the borrower does not fully grasp the “bite” of interest, the way the debt can grow into massive proportions over time, as implied by Rashi’s metaphor.

One may still ask why this applies even to fixed interest, where calculations seem clear. This explanation appears more compelling in cases of compound interest, as practiced today.

Socialism Versus Capitalism

From the dawn of history, humanity has struggled with the question of equality. A natural sense of justice protests against the inequality between rich and poor and against the exploitation of the labor of the masses for the rapid enrichment of the elite.

On the other hand, systems based entirely on equality and collectivism have repeatedly failed. From communism to the kibbutz, history has shown that without incentives for competition and achievement, societies stagnate.

This tension is reflected in the well known Talmudic account of Alexander the Great and the king of Ketziah. When Alexander observed two litigants arguing over a buried treasure, the king ruled that the son of one should marry the daughter of the other and the treasure be given to the young couple. Alexander responded that had the case come before him, he would have executed both men and confiscated the treasure for the royal treasury.

Why would a man as intelligent as Alexander, a student of Aristotle, propose such brutality? It appears that he viewed their rejection of ownership and personal gain as destructive to economic life. Without competition and property, prosperity collapses.

And yet, extreme inequality, especially when achieved through exploitation of the weak, is equally disturbing.

The Torah’s Balanced Economic Vision

What, then, is the Torah’s position? At first glance, the Torah does not promote collectivism. It mandates charity and support for the needy before collapse, but it preserves private ownership and economic independence.

A remarkable insight emerges from the Maharal in Netiv HaTzedakah. The prohibition of interest introduces a subtle but powerful element of economic partnership.

On the one hand, each individual is free to accumulate wealth and retain ownership of his property, fully protected by law. This is why there is no obligation to lend to the wealthy, as such an obligation would undermine ownership and competition.

On the other hand, in one crucial dimension of economic life, the Torah commands the wealthy to allow others access to opportunity by sharing their surplus capacity. This is not charity. Even loans to the wealthy may not carry interest. Interest free lending does not violate legal justice, yet the Torah requires it in order to educate a person to share his success and resources with others.

If this analysis is correct, the mitzvah of interest free lending introduces a cooperative element that promotes social balance, without abolishing market forces, competition, or individual economic independence.