The Time Value of Money: Corporate Finance in Biblical Perspective

The Bible contains an abundance of references to finance-related topics, and in many of these cases, it provides overt instruction. The books of the Bible were written over the course of about one and a half millennia, a period of time that witnessed significant civilization-wide developments in the area of finance. Many books and articles have expounded biblical teachings pertaining to personal finance. However, Liang (2012) has noted that Christian thinkers have been slow to develop systematic integration of biblical teaching with the field of corporate finance.

This essay seeks to shed a biblical perspective on the time value of money—a foundational concept of corporate finance, worthy of a full chapter presented toward the beginning of a standard textbook (Brealey, Myers, & Marcus, 2012). As one seeks to develop a Christian perspective on corporate finance, it is startling to observe that the Bible speaks negatively about taking on debt and lending at interest.

The Law of Moses flatly forbade Israelites from charging their countrymen interest on loans (Exod. 22:25; Lev. 25:35-38; Deut. 23:19). Old Testament poetry, wisdom, and prophecy associated lending at interest with ungodliness (Ps. 15:1-2, 5; Prov. 28:8; Ezek. 18:10-13; 22:12), and discouraged borrowing money and pledging to secure other people’s debts (Prov. 22:7; 22:26-27). Furthermore, at least one historical narrative condemned the Israelite community for injustices that included abusive credit (Neh. 5:1-13).

Taken on the surface, these biblical references could lead conscientious Christians to conclude that corporations have no business borrowing or investing money. Indeed Schluter (2004) maintains that “the Bible bans interest-based finance” and observes that “until about 1550, the Christian Church prohibited interests on all loans” (p. 69). However, this is an unwarranted conclusion. While biblical teachings do constrain the use of debt and the collection of interest, there does not appear to be a basis for an enduring, blanket prohibition of either sort of financial activity.

A more balanced view, which seeks to take the seriously the Bible’s authority without tending toward legalism, takes account of the following facts and arguments. First, the Scriptures speak approvingly of lending (Deut. 28:12; Ps. 37:25-26; 112:5), and this naturally presumes that borrowing is not an absolute moral wrong. Of course, by itself this does not legitimize interest-based lending. Second, prohibitions against charging interest appear in the Old Testament, are directed at relationships between Israelites, and do not appear to retain their force in the New Testament. Schluter (2004) argues against this by quoting Luke 6:34-35, but the thrust of this text is enjoining generous lending, not precluding the collection of interest in an absolute sense. Third, the Old Testament’s opposition to interest may have arisen in response to the exorbitant rates that are known to have prevailed in ancient Near Eastern societies (De Vaux, 1961/1997; Wyatt, 1982).

Fourth, Old Testament prohibitions of interest arguably related only to loans for use and consumption, not commerce (Derrett, 1993). Silver (1982) argues at some length that all of the factors necessary to support a market for commercial lending were present in ancient Israel. Therefore, bans on interest-based loans may have aimed to protect poor citizens who were most vulnerable to abuse by creditors, not commercial borrowers. Finally, Jesus’ parable of the talents refers, without a hint of condemnation, to capturing interest on an investment (Matt. 25:14-30; Luke 19:11-27).

Taken as a whole, the Bible does not present an absolute or perpetual ban on either assuming debt or collecting interest. Rather, the voice of divine revelation is concerned with protecting God’s people—and indeed all members of society—from undertaking financial activities that will enslave them or others. The Scriptures speak to every age and cry against its injustices, including those that are perpetrated in the financial realm. In summary, the Bible does not disavow the time value of money.

References

Brealey, R. A., Myers, S. C., & Marcus, A. J. (2012). Fundamentals of corporate finance (7th ed.). New York: McGraw-Hill/Irwin.

De Vaux, R. (1997). Ancient Israel: Its life and institutions. Grand Rapids, MI: William B. Eerdmans. (Original work published 1961)

Derrett, J. D. M. (1993). Loans and interest. In B. M. Metzger, M. D. Coogan, & J. D. M. Derrett (Eds.), The Oxford companion to the Bible (p. 463). New York: Oxford University Press. Retrieved from Oxford Biblical Studies Online database.

Liang. E. P. (2012). Modern finance through the eye of faith: Application of financial economics to the Scripture. Christian Business Academy Review, 7, 69-75. Retrieved from http://www.cbfa.org/CBAR-2012.pdf

Schluter, M. (2004). Risk, reward and responsibility: A biblical critique of global capital markets. In P. Heslam (Ed.), Globalization and the good (pp. 66-77). Grand Rapids, MI: William B. Eerdmans.

Silver, M. (1983). Prophets and markets: The political economy of ancient Israel. Boston: Kluwer-Nijhoff.

Wyatt, R. J. (1982). Interest. In G. W. Bromiley (Ed.), The international standard Bible encyclopedia (rev. ed., vol. 2, pp. 860-861). Grand Rapids, MI: William B. Eerdmans.

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