I can see many reasons why lending money at interest is a really bad thing, the main one being that over time it concentrates wealth into the hands of a very few, very wealthy individuals who have no democratic accountability.

Charging interest doesn't automatically do that. In fact since inflation is a typical feature of economies, if you don't charge interest you lose money. So you need to refine your question.
Also, if nobody makes money from loan interest, how would they pay interest on your savings?

Biblically, lending with interest is supposed to be prohibited.

Strictly, they shouldn't charge interest to other believers.

It was recently announced that the average UK household has £77,000 of personal debt. Anyone got figures for the US or unhappy Japan?

Do you have a source on that number? This kind of number seems unlikely to me, as most people could in no way afford to have so much debt. Perhaps UK households hold a lot of mortgages? This is pretty much the only way in which an average private person could regularly accumulate that much debt, but in that case, the number is misleading. After all, it's net wealth that counts, which includes the value of the house that the mortgage is on.

Or it is from one of those propaganda pieces where they divide government debt by number of households and pretend that the debt of the government is the debt of the households (hint: it's not).

Inquiring minds want to know!

As for your original question, the existence of debt with interest has nothing to do with ethics. Money is equal to debt: money is not a thing, but a representation of mutual contractual obligations, and so there will always be debt. Adding interest on top of it is a pragmatic thing to do, as others have pointed out, since it simply factors in the possibility of using the loan to buy stuff which makes you more productive.

If you really want to talk ethics in relation to debt, you could talk about whether being in debt should be the norm for private people in a society. Taken to the extreme, having the majority of the population in private debt enables a modern form of slavery, which I personally do not condone. In that context, things like tuition fees are a problem. But that doesn't really have anything to do whether the debt comes with interest or not, it's the debt itself that is the problem.

While more money doesn't magically enter into circulation ...

While there is certainly no magic involved, that statement is not exactly true, depending on what precisely you are talking about.

From a financial accounting perspective, money and debt are different sides of the same coin. So from that perspective, the total net amount of money in the world is always precisely equal to zero. Whenever a loan is made, it is like the creation of a particle and an anti-particle - when the debt is retired, the particle and anti-particle come back together and annihilate. It is the same when a monetarily sovereign government spends money: they credit your bank account (or give you a piece of paper), this is the money-particle. At the same time, the government now has a debt to you (in an accounting sense; there need not be any government bonds involved, or you could say that paper money and high-powered money is effectively a government bond, at zero interest and maturity), this debt being the money-anti-particle. When you pay your taxes, the particle and anti-particle annihilate and "the money is destroyed". The total net amount of money was zero at all times throughout the entire sequence of transactions.

Of course, when economists talk about the "money supply" or things like that, then they do not actually sum up all the financial assets and liabilities in existence - those always sum to zero - but they only look at part of the equation. Usually, the "money supply" is something like the sum of all physical money and all bank accounts.

The "money supply" in this sense becomes larger whenever somebody gets a loan from a bank, because in that transaction, the bank deposits money into his bank account without subtracting the money anywhere. The "money supply" shrinks again when the person pays back his debt.

There are other notions of "money supply", which then behave differently depending on their definition. They do change all the time, but as you said, there is no magic involved

Well, we could just stop incurring high interest debt... especially for stupid stuff.

It is interesting that some communities view banks as the last people to borrow money from. If they really need to they will first borrow money from all the friends, family and neighbours they know of. A specific example of this would be the Chinese communities in Spain. I think this is a wise attitude.

I like that that these kinds of questions are being asked though. European countries and the USA need to think about this kind of thing if they want to escape things like boom and bust and financial crisis.

Bottom line is this though imo, sustainable development is the only ethical and sensible way to do things.

Surely, in the circumstances, foregoing (at least) the interest is the ethical choice? (Who do we owe it all to anyway?)
Is it ethical to lend money for interest at all?

Required reading. And the alternative.But in short, inflation is prerequisite for economic growth and loans are a form of investment - banks invest into you but in turn take the risk of you not paying back. The more stable the economy and the better situated you are, the lower the risk, the lower the interest.

if economy is unstable, if people are unreliable, interest gets higher (see loan sharks).

It's obviously ethical to lend people money and charging interest - you'd have to take a really hard to defend extremist position to argue otherwise.

In my ethics class, the first port of call was always the mum test.

If your mum needed money, would you charge her interest? Would it be exploitative to do so?
If a friend visits you for a coffee, do you expect to receive a bigger coffee in return next time you visit them?
If you buy the first round of beers when you go out with friends, should the person who buys the second round have to more beers than you did?

If you purge your mind of modern economic theory and jargon for a moment, then the obvious position is that the above behavior is absurd and asocial. It only becomes an extreme position when viewed within the inhuman context of modern economics (where these kinds of social interactions are completely irrelevant).

So in this sense it's kind of like asking "is economics ethical", which isn't really worth the effort of answering, as they're usually orthogonal.

[quote name='kindjie' timestamp='1301901405' post='4794092']
It's obviously ethical to lend people money and charging interest - you'd have to take a really hard to defend extremist position to argue otherwise.

In my ethics class, the first port of call was always the mum test.

If your mum needed money, would you charge her interest? Would it be exploitative to do so?
If a friend visits you for a coffee, do you expect to receive a bigger coffee in return next time you visit them?
If you buy the first round of beers when you go out with friends, should the person who buys the second round have to more beers than you did?
If you purge your mind of modern economic theory and jargon for a moment, then the obvious position is that the above behavior is absurd and asocial. It only becomes an extreme position when viewed within the inhuman context of modern economics (where this kind of ethics is frankly irrelevant).
[/quote]

EDIT:

Nice ethics test

But the last paragraph in the above quote begs the question, should modern economics be inhuman and devoid of ethics? I certainly don't think so for the following reasons:

1 - I think that leads to a nightmare dystopia

2 - Economics is by definition a social science and should therefore include humanity and ethics

If your mum needed money, would you charge her interest? Would it be exploitative to do so?

If it were a large sum of money and I knew she could pay it back I probably would in some way or another. Probably summing to significantly less than a bank, but I probably would. Maybe I'd charge her interest in brownies or other goodies. If she couldn't pay it back, it wouldn't be a loan; it would be a gift, so I wouldn't charge her interest?

If a friend visits you for a coffee, do you expect to receive a bigger coffee in return next time you visit them?[/quote]
That again is a gift, not a loan.

If you buy the first round of beers when you go out with friends, should the person who buys the second round have to more beers than you did?[/quote]
If you charge a reasonable interest rate, for the 20 minutes you charge interest, if you get an extra drop of beer you are overcharging by a ludicrous amount.

edit: and if you are like me and my friends then you are gambling using the beer as currency while you drink, which usually balances out to a lot more than any reasonable interest rate unless you lose.

Loans are not charity and they are not gifts. Both parties know what they are getting into. The point of a loan is that you take it out with the expectation that you will use it to get more utility than the utility of the money you will owe could be used for later. If you are taking out a loan because you expect to get an even amount of utility for the amount you take out, then you are doing it wrong.

Is it ethical to use something that someone else owns without compensating them?

Is it ethical for me, a complete stranger, to come over to your house and stay the night. I won't eat anything and you'll get exactly what you had before back, but I'll just make use of your house for the night, (And you can't be there and use it too.) and return everything in exactly the same shape it was when you left.

Does that sound fair or ethical to you? If it does, and you are still against reasonable levels of interest on loans given and received in good faith, then I would like your name and address, as it will make planning my next trip so much easier!

(Oh, and I might 'default' on the loan of your place, and some how run off with it/burn it down, so you never see it again.)

Is it ethical to use something that someone else owns without compensating them?

Is it ethical for me, a complete stranger, to come over to your house and stay the night. I won't eat anything and you'll get exactly what you had before back, but I'll just make use of your house for the night, (And you can't be there and use it too.) and return everything in exactly the same shape it was when you left.

Does that sound fair or ethical to you? If it does, and you are still against reasonable levels of interest on loans given and received in good faith, then I would like your name and address, as it will make planning my next trip so much easier!

(Oh, and I might 'default' on the loan of your place, and some how run off with it/burn it down, so you never see it again.)

I wanted to ask this.

Anyhoo: ever heard of couch surfing?