Osman Şenkul
According to economic historians, The Secret of the Sphinx provided a foundation for explaining the origins of interest-bearing loans and why interest rates varied from society to society. In three major civilisations—Sumer during the Bronze Age, Classical Greece and Rome—as trade began, interest rates were established and remained stable for as long as these civilisations endured. In these three civilisations, interest rates were set lower than in the previous one; for instance, 20 per cent in Mesopotamia, 10 per cent in Greece and 8 1⁄3 per cent in Rome.
The reason why economic historians, when examining examples from Sumer, Greece and Rome, observe that interest was given names such as ‘child’ or ‘calf’ was to reflect the growth of the herd. Conversely, the question was raised as to why this perception of interest as being based on the “growth of the herd” lost its influence as it passed from the Sumerians to Greek civilisation and subsequently to Rome. Building on this, the economic historian Böhm-Bawerk (Capital and Interest – Eugen von Böhm-Bawerk), some 100 years ago, fundamentally rejected these “naive notions of productivity” regarding interest.
According to Böhm-Bawerk, when we consider the repayment capacity of many farmers, it is impossible to view interest as having an “economic” basis. Consequently, the conditions forcing a farmer to take on debt were considered highly “humiliating” from their perspective. One of the significant financial dynamics of ancient civilisations was the accumulation of debt balances—including interest—that exceeded the repayment capacity of many debtors. For this reason, the rulers of Mesopotamia (royal amargi, andurarum and misharum) wiped out all agricultural debts (loans) on numerous occasions between 2400 and 1700 BC to ‘start afresh’.
Piotr Steinkeller, who has conducted research on the trade and general economy of the period (Trade Routes and Commercial Networks in the Persian Gulf during the Third Millennium BC), notes that very few trade contracts from the pre-Ur III period have been found. Johannes Renger, who has produced numerous studies on the social and economic relations of Mesopotamian civilisations (The Role and the Place of Money and Credit in the Economy of Ancient Mesopotamia), supports Steinkeller’s argument by noting that “despite the existence of numerous important articles and monographic studies focusing on specific periods and issues related to credit problems, no comprehensive research has been found on the vast number of debt documents in the royal archives that cover almost the entire society.”
Renger also questions why the interest rate, which was 20 per cent for silver-based loans, was set at 33.3 per cent for barley-based loans during this period, and suggests that finding an answer to this question “would be difficult under present-day conditions”; yet, despite this somewhat contradicting his own view, he points out that, given the agrarian nature of early societies, interest practices likely originated in agriculture.
Renger also recalls that in Mesopotamian civilisations, interest on agricultural loans was not at a fixed rate; by contrast, he emphasises that for commercial loans calculated on a silver basis, there was a fixed debt amounting to 1/60 per month, or 12/60 per year, equivalent to 20 per cent. Renger stresses that whilst commercial profitability involves uncertainty, and there was no fixed interest in agriculture, interest in trade was clear-cut, and he points out that even today, no clear explanation has been put forward regarding this difference.
In the early periods of ancient Sumer, barley served as the primary medium of exchange for many products and goods. Mesopotamia, the cradle of many known ‘firsts’ on Earth, was also quite rich agriculturally; consequently, in this region, cereals were used for many years as a medium of exchange and as the fundamental standard in payment and repayment transactions. Indeed, even before 3000 BC, certain metal ingots were also used as a medium of exchange within this vast civilisational region.
There were two primary value standards: grain and silver. Silver was generally the primary value standard in urban economies, whilst grain served this purpose in rural areas. The values of these commodities were often highly volatile; consequently, the state frequently intervened in the market to stabilise these fluctuations and establish new regulations. As there was no minted currency until the first millennium BC, metal ingots were used in payments alongside weight measurements.
Numerous texts dating from the Sumerians to the present day contain a wealth of information regarding property transactions and credit operations. Many financial practices and traditions in Early Sumer were based on the Babylonian-origin Hammurabi Code.
In Sumer, property ownership could be of a social nature, based on individuals or temple groups. Payments or loans were recorded in detail in the presence of the temple or other groups. Although rules governing the sale of houses and fields were introduced before 2800 BC, information regarding their application is more commonly found in texts dating from after this period. These rules were based on the interests and needs of the family owning the house and land. Uncultivated land was also transferred to families, but only on condition that the land was cultivated and crops were grown.
The Code of Hammurabi contained numerous rules and regulations governing the ownership, cultivation and employment of agricultural labourers, as well as land rent and lending practices. One such regulation concerned the rules regarding the repayment of loans.
Particularly in the case of agricultural loans, production and harvest were prioritised. Priority was always given to the needs and interests of the producer as the borrower; no creditor could demand repayment of the loan before harvest time. More importantly, in the event of a decline in production due to natural disasters such as drought or flooding, the interest on the debt was automatically waived.
Land could be leased in exchange for a specific quantity of produce, or for a period of three years in exchange for a share of the produce harvested during that time. In such cases, depending on the agreement, a specific portion of the annual harvest was paid to the landowner. The landowner could be an individual or a community representing a temple; in such cases, payments were made to a fund covering the temple’s expenses.
An interesting aspect of the Hammurabi Code, which regulated loans, is that whilst loans for consumer goods were interest-free, and although penalties were imposed for late repayment, no sanctions were applied to those unable to pay such penalties.
As in many other laws, the Code of Hammurabi established and enforced a ‘maximum interest rate’ for interest charges. Regulations limiting interest rates were established around 2000 BC and remained in force for hundreds of years. These rates were higher for grain than for silver.
Approximately 1,200 years later, in the 6th century BC, the maximum interest rates applied to loans of silver and grain were equalised. The law stipulated that all lending transactions, whether involving grain or silver, must be conducted in the presence of at least one witness. Loan contracts concluded without a witness were deemed invalid, and the borrower was not obliged to repay the loan if they so chose. Furthermore, if the agreed-upon interest rate exceeded the maximum limit, the contracts were again deemed invalid. In these agreements, the absence of a witness and the exceeding of the upper interest limit rendered the contracts null and void.
In these loan contracts, if the borrower was married (which was almost a requirement), a provision mandating the consent of the borrower’s spouse was invariably applied; for the laws protected the rights of spouses with clear provisions. Whether land or property, half of the assets belonged to the spouses. For this reason, such a condition was applied in loans.
According to the Code of Hammurabi, regardless of the security provided, if interest on an unpaid loan could not be repaid—and if there were insufficient property or goods to cover the debt—the debtor was required to perform compulsory labour; however, the duration of such labour could not exceed three years. This period was later extended.
Many recorded contracts show that the interest (and in some cases the principal as well) was paid through labour by a slave or the debtor’s children, as stipulated.
Temples possessed vast wealth and were directly involved in financial affairs; they lent money at interest to farmers and merchants. Temples did not charge interest on the grain- or silver-based loans they granted to poor farmers. Historical records show that temples provided loans at interest rates lower than the legal maximum—sometimes half, sometimes a third of the standard rate.
For example, the Temple of Marduk in Babylon provided interest-free loans to slaves who had lost their freedom due to debt, enabling them to regain their freedom. The Sun God of the Sippon Temple was also regarded as the ‘chief banker’ of the era and region. Temples served as centres of law whilst also engaging in pawnbroking in exchange for interest.
In the early periods, banking operations centred on lending, deposits and payments, which were in the hands of the temples, later passed into the hands of companies/partnerships during the Assyrian and Neo-Babylonian periods. Initially, the owners of these companies were temple-origin royal families or leading members of the temple community.
During this period, money transfer transactions also began to take place. To make a transfer to another person, a document was drawn up in the name of the intended recipient at the relevant temple department, enabling the transfer to be made. In this regard, either the equivalent amount of the requested transfer (silver or grain) was deposited immediately, or a promissory note was prepared to be paid within a specified term. During the same period, deposits were accepted to be withdrawn at a specified time; in other words, a term deposit system was in operation.
Centuries after all these events, interest—which is even said to be ‘nas’—yet which has intruded recklessly into every aspect of our lives, been permitted to do so, and extinguished millions of hearths, has emerged as one of the most significant elements in the economic policies of virtually the entire world today. In virtually every country, from the world’s largest economies to the smallest, central banks meet once a month or every six weeks to make interest rate decisions, particularly in light of developments in inflation and investment.
One of the countries we are referring to is, of course, Turkey; the CBRT Monetary Policy Committee, which for many years met monthly, has recently extended this interval to six weeks, thereby aligning itself with the US Federal Reserve (Fed), considered the world’s largest central bank.
However, after the CBRT raised the policy rate from 8.5 percent to 50 percent in March 2024 to curb runaway inflation, whilst this created a significant dampening effect on investment, inflation has simply failed to fall even close to the “5 percent” target set for many years.
Not only did inflation fail to fall to these levels, but due to the impact of the slowdown in investment, unemployment rose at an incredible rate. Meanwhile, the ‘supply-demand’ balance—the fundamental driver of inflation—saw production, representing ‘supply’, collapse as a result of investment virtually grinding to a halt, despite efforts to suppress wages and salaries; consequently, inflation could not be curbed.
Turkey’s interest payments for the first four months of the year alone reached 1 trillion 115.7 billion lira, marking the highest level of interest payments for any four-month period in history. Whilst non-interest expenditure remained stagnant in real terms during the first four months, the rise in interest payments doubled the annual inflation rate.
Although budget revenues recorded a strong increase in the first four months, non-interest expenditure remained virtually unchanged in real terms, whilst interest payments, which reached a record level of 1.11 trillion lira, led to a significant cash deficit. The highest interest payment on record for the first four-month period of any year was recorded this year.
According to data released by the Ministry of Treasury and Finance, the Treasury’s cash-based revenues rose by 53.2 per cent year-on-year to 5 trillion 281.2 billion lira in the January–April period, whilst expenditure increased by 35.1 per cent to 6 trillion 139 billion lira. With an additional inflow of 1.6 billion lira from privatisation and fund revenues during this period, the Treasury’s cash balance closed with a deficit of 856.1 billion lira. The cash deficit was 21.1 per cent lower than that of the same period last year. The Treasury’s cash deficit, which stood at just 66.8 billion lira in the first four months of 2022, rose to 417 billion in 2023, 807.5 billion in 2024, and reached its highest level of 1 trillion 85.2 billion lira in 2025. Accordingly, although the growth rate slowed down on a four-month basis, the deficit still remained at a high level.
Interest payments, which reached record levels, were a key factor in the high cash deficit recorded in the first four months. Non-interest expenditures, which accounted for 5 trillion 23.3 billion lira of the Treasury’s cash outlays during this period, increased by 30.2 per cent compared to the previous year—roughly in line with inflation—meaning they remained effectively flat in real terms. In contrast, interest payments rose by 63 per cent—double the annual inflation rate—to 1 trillion 115.7 billion lira. It was determined that this represented the highest interest payment for the first four-month period on record.
Although the cash balance of the state’s main revenues and expenditures was lower in the first four months of this year compared to the previous year, it still resulted in a substantial deficit. Furthermore, as a legacy of the intensive borrowing undertaken at high interest rates in previous years due to budget deficits and the need to roll over debt, the Treasury also faced a record-level repayment burden accumulated over this period. Due to both the cash deficit and these repayments, the Treasury’s gross borrowing nearly doubled compared to last year.
In the first four months, the Treasury made total debt repayments of 1 trillion 454.1 billion lira, comprising 1 trillion 206.6 billion lira for domestic debt and 247.6 billion lira for external debt. Whilst external debt repayments rose by just 6.7 per cent compared to the first four months of last year, domestic debt repayments saw a massive surge of 593.2 per cent. Consequently, the total repayment amount increased by 258.1 per cent compared to the same period last year.
To finance a cash deficit exceeding 856 billion lira in the first four months and to roll over 1.5 trillion lira in maturing debt, the Treasury undertook new borrowing totalling 2 trillion 142.6 billion lira gross. The vast majority of this was again in the form of domestic borrowing. The total gross borrowing amount increased by 83.7 per cent compared to the same period last year. Of the gross borrowing during the January–April period, 1 trillion 800 billion 100 million lira was raised through domestic borrowing via the issuance of government domestic debt securities. Four-month domestic borrowing increased by 67.7 per cent compared to the same period last year. Following redemptions during the same period, the Treasury’s four-month net domestic borrowing stood at 593.5 billion lira, 34 per cent below the figure for the same period last year.
The first step that the high-interest rate regime—which has halted investment, undermined production, and caused millions of people to become unemployed and forced to survive on incomes below the poverty line—must take is, just as was the case in our neighbour Mesopotamia between 2400 and 1700 BC, the immediate cancellation of all agricultural loans, including their interest.
Furthermore, just as was done many times hundreds of years ago in this very region, it has become imperative to provide interest-free loans for food, clothing and other essential necessities, and whilst penalties may be imposed for late repayment, no sanctions should be applied to those unable to pay such penalties.
In other words, it would not be wrong to state that putting an immediate end to high interest rates—which cause the wealth of the wealthy to skyrocket whilst making life unbearable for those with no money—takes precedence over many other priorities, and to emphasise that the necessary steps must be taken without delay.