In this article, I will still discuss about work which is related to 4th commandment of Torah. 4th commandment of Torah called us to work on six days and rest on Sabbath day (Exodus 23: 12). Hence, it is related to working and resting. I have discussed both topics for working and resting and you can find it here and here.
I think our discussion about work is still not completed before we get into new phenomena in modern society. If we talk about work, usually it is also related to income. The income earned by putting your own efforts is called active income. But, the money you earn by putting your money into work is called passive income. I have discussed jobs which earn active income in my previous post. In this post, I will talk about passive income.
Typically, passive income is told by your financial advisers as ‘smarter’ way for ‘wise’, ‘smart’ and ‘future-oriented’ investors to put their money to receive more money in the future. Hence, you don’t need to work hard to become rich!
Wait a minute! Is there such a way? How come our ancestors never realize this thing until 20th century? People in old days always said that no pain no gain. For them, the only quick way to become rich is to work very hard or stealing. For most farmers, they understand this. That’s why they wake up very early and diligently work on their land so that they can have abundant food on their tables. Holy Bible also confirmed the importance of diligence in work and warned against laziness in a lot of passages (Proverbs 12: 11; 14: 23; 18: 9; 28: 19; Ephesians 5: 15-17; 2 Thessalonians 3: 10)
Ah, but surely it was the past! We are ‘modern’ people and of course we know better than our ancestors. They are very stupid, isn’t it? If just putting money into certain types of investment scheme can earn interest or more money, what for am I working from 9 to 6? And why do we, modern people, should take financial advice from superstitious religious book in which snake and donkey was able to talk, dead people can back to life and so on? Just forget it, fellow! We will follow our financial advisers rather than your ‘holy’ book! Yey!
But alas, as what I have mentioned before, apparently modern people don’t think greed as a vice but virtue. Financial advisers took advantage the evil desire to get money without working (which is greed mixed with laziness) in people’s heart. Never mind countless problems caused by financial institutions in modern days, whether it is countless frauds by major banks or currency manipulation by Chinese and American central banks. Is it really possible to get money from passive income without putting effort?
Let’s take a look some common investment schemes which are commonly offered by modern financial advisers:
In various investment schemes, we are typically offered to put our money into bonds, whether it is Singapore or United States government bond. In return, we are promised interest rate about 3-4% per-year. Hence, we literally earn our income by charging interest to government that borrow our money.
As I have discussed in my previous article, interest (which is additional charge when you lend money to other people or institutions) is not valid way to generate money if you are an adherent of Abrahamic religions (Jews, Christian, Muslim) or even decent morale religious person. Interest (or usury or riba) is oppressive to workers and productive classes, produces income inequality and various economic injustice.
Probably some people want me to explain why does charging interest for lending money is morally wrong. Well, I would say that because it obliges your debtor to pay for something that is not quantifiable nor transferable. In daily commercial transaction, it is observable that the normal method to pay someone money is if that person either give you some products and/or services. Obviously, you do not give your debtor your money, you just lend him money. You also do not provide him with service by your own effort. Giving hardly requires any specialized effort, unlike policeman, doctor, and driver. If your debtor does not receive neither product nor service, then why should he pay you additional charge?
The argument to justify interest is usually because by lending money, there is an opportunity cost incurred. That means, if the money is not lent to my debtor I can invest my money, for example, to open a business that will generate profits. And my debtor should pay interest to cover for that lost of opportunity.
However, can we really say that kind of thing is real cost? If you think about it, that event (open business that will generate profits) is not real event, it is hypothetical. How can I say that the cost incurred although the event itself never take place? If the event never take place then obviously no cost. You cannot charge someone with virtual cost.
Then, another argument is that by lending money, the lender actually buy your time because you cannot do anything with the money. Presumably, the lender has a plan to put the money into use but he was delayed to do so because of lending money to his debtor.
Unfortunately, it is also not valid argument. Time is neither concrete nor transferable entity. When you borrow the money, you lose your time (and liquidity) but that time is not transferred to your debtor. Hence, it is not right to say that debtor buys your time. What does it mean by debtor buy your time? If debtor really buys your time, then immediately after his loan, you will be transferred instantly to payment date with time machine which is not the case.
So it seems to me there is no good reason to charge interest to debtor other than your own discomfort for loss of liquidity with your money. But how about the debtor? Why should we put more burden on him to satisfy so-called our discomfort? If you don’t trust debtor, you should not lend the money in the first place! By putting additional interest and even compound interest, we are oppressing other people and robbing his fruits of labor by requiring him to pay tangible money just for intangible cost of discomfort.
So, in conclusion, I don’t think any passive income earned by charging interest is morally justifiable.
Rent is income obtained from lending goods or capitals to people. Typically, owner for certain expensive capitals such as land, house, office building, and car can opt to get regular income by renting their goods to their customers.
I used to have discussion with my friend that argue about rent and interest. His argument was essentially if I am against interest, I should be against rent as well. That time I thought rent is just a type of service hence you require to pay it every specified period of time. But after thinking further, actually he was right. There is no substantial difference between rent and interest. Probably, the only difference is that rent is related to good-lending whereas interest is related to money-lending.
Instead of thinking rent is service charge, it should be thought as paying simple interest. Obviously, simple interest is not as bad as compound interest used in current banking system. But, renting is still a type of interest which is form of oppression to your debtor. That’s why in Old Testament, prohibition against rent and interest appear in the same verse (Leviticus 25: 37).
Hence, I consider renting as less evil compared to compound interest. However, it is still unethical with the same reason as interest and I cannot recommend to use this mean as source of passive income.
It does not mean that writing about this is easy. I also used to rent apartment block as an expatriate in Singapore and so do most of my friends. We simply cannot afford to buy property as immigrants. If renting is not allowed, we probably cannot work in Singapore and need to go back to our home countries (or hey, we can also try to set up tent on state empty land =P). Alternatively, you can ask for help to your church friend who has property in country where you stay. This is example of how religious community can provide you with social capital when you need it.
Under this category is passive income which is received from investing your money into corporate stocks. As a shareholder, you get some portions of company profit which will be distributed to you either as more stocks or dividend. Profit can also be obtained by owning means of production (as business owner) such as farm, ranch, mine, factory, office and so on. By running your business, you can possibly earn profit as you sell your product or service to customers (minus employee’s salary and costs).
So, after disqualifying interest and rent as passive income, you would think that profit should be acceptable, right? Otherwise, how should we do with our cash? Its value will be reduced continuously by inflation if we don’t invest!
It seems that profit is acceptable, at least in Bible. We have illustration from Parable of the Talent (Matthews 25: 14-30) where Lord Jesus depicted himself as master who entrust his capitals to his servants so that the money can earn some profits. He also rewarded each servant for earned profits. This parable showed business to earn profit as something positive.
But as usual, the devil is on the details. Can we invest in any stock as long as we make profit? In my previous article about advertisement, I mentioned that not all products are equally beneficial to the society. Can we invest in stocks for porn, tobacco, junk food, bank, insurance and other corporations which are parasitic or whose products cause harm to society in the long run? I believe you know the answer.
But here is the thing. Your financial advisers usually will suggest you to put your money into mutual fund. By putting your money into this type of investment, your money will be managed by fund manager (which is another parasitic job) which will put your money into corporations from different economic sectors. It is good in the sense that it reduces the risk. However, you will not usually know whether your fund manager will put your money into those cursed companies. If you want to maintain clear conscience, you would not probably want to put your money into mutual fund. Instead, you should choose yourself which corporation whose stocks you want to buy.
Muslims have incorporated Shariah-compliant bonds and stocks to prevent their money to fall into those companies. I am waiting for some Christian executives from financial institutions to develop Bible-compliant bonds and stocks..
So, we arrive into the conclusion. Despite not all passive incomes are unethical, but after filtering it based on Biblical and ethical principles, options has become significantly reduced. My suggestion is for those people that still have functioning hands and brain to continue working with your own hands as commanded by God (Ephesians 4: 28), reduce your spending to save (Proverbs 13: 11) because it is the correct way to earn the money.