In this week’s portion, Ki Tetzeh, the Torah instructs us about the prohibition of interest (Deuteronomy 23, 20):
"You shall not give interest to your brother, [whether it be] interest on money, interest on food or interest on any [other] item for which interest is [normally] taken."
Why is interest prohibited specifically when giving a loan? Indeed, in the case of a man selling an object to another, he is permitted to raise the price in order to profit from the sale (contingent upon the buyer’s agreement). Why then, as opposed to all other financial transactions, is it prohibited to profit from a loan?
This question is linked to yet another Halacha which differentiates between a loan and other financial agreements:
The Gemara (Erkin 22. And Ketubot 86.) discusses the obligation of returning a loan and deliberates whether this is a fiduciary obligation or, rather, just a Mitzvah, as is written: "the debtor’s payment is a Mitzvah". In any other business situation, it is clear that the debtor must pay his obligation – so why is there such a deliberation only pertaining to a loan? It should be obvious that a borrower must return the money he borrowed!
These questions lead us to one basic principle. The Torah has ruled that a loan equals a grant. On the one hand, the Torah allows us to earn and profit according to our ability (unlike in a socialist economy). On the other hand, it instructs each of us to loan his fellow money when in need. The Torah describes the loan as a type of loan/grant. The reason for this is because the money does not belong absolutely to the person who earned it. It is, in fact, the property of the Creator.
This principle is also expressed in the words of the Gemara, "a loan is given in order to be spent". In other words, when one loans money to his fellow, these funds no longer belong to him. While the borrower can, if he desires, betroth a woman with this loan, the lender may not. The reason, as stated, is that the funds were given to the borrower "to be spent" as a grant, and do not belong to the lender. Therefore, since the loan is now the property of the borrower, the lender, at this time, has no rights to the loan. Hence, if he collects interest, he is stealing from his fellow (as explained by my esteemed teacher, HaRav Blumenzweig shlita).
This principle is also elucidated in Ohr HaChaim (Exodus 22, 24):
"If thou lend money to any of My people" – if you have money beyond your needs, to the point you can even lend, know that "even to the poor with thee" – you are holding that which belongs to the poor.
The prevalent understanding is that man owns his property, and under certain circumstances he should give some of it to others. The principle we learned overturns this picture: the property is not actually owned by he who possesses it – rather, "you are holding that which belongs to the poor." The funds required for his personal needs are rightfully in his possession, however, the remainder is only in his trust, and he must give it to the needy.
It seems this concept is encapsulated in the word "tzedakah". This is generally interpreted to mean "charity for the needy". However, the three letter root (tzadi.dalet.kof.) is the actual source of the word, and it means justice or honesty. In other words, one who gives charity is not giving out of the goodness of his heart; rather, he is doing what is just and honest. As discussed, the laws of providing loans are also under the category of justice.
On the one hand, the Torah does not support a socialist economy. There is no expectation or aspiration for all to be equal. Each individual can earn according to his level of success. There is, however, an aspiration that there will be enough money in the world to help all those lacking their basic needs. Even under the capitalist system, many countries are welfare states. However, the motivation underlying welfare policies is often to sustain capitalism, from fear of mass uprisings. In contrast, the Torah system promotes a welfare policy which is an integral element of the economy. Individuals may strive to earn maximal income, but any profit is a trust, which he must use in order to support those in need. The goal of this economic system and outlook is to ultimately create a better world, a "repaired" world and a happier world.