Stephen Zarlenga's Talk on Usury
Stephen Zarlenga gave this talk on usury to Lord Sudeley's "Monday Club" discussion group at London's Carlton House on May 5th, 2004:
Stephen Zarlenga is the Director of the American Monetary Institute, P. O. Box 601, Valatie, NY 12184
THE USURY PROBLEM REMAINS
"We’ve been to the moon; were on the verge of artificially creating life, yet we have made almost no progress on a question which most societies considered a great danger – a destroyer of nations - the question of usury. Even bringing up the matter invites pre-judgement. What should civilized society’s attitude be toward usury?
Lets start today with Solon's Reform In Athens about 600 BC shortly after the introduction of coinage. The class of free small farmers was vanishing, with land becoming concentrated into the hands of the Oligarchy. Professor Clahoun identified the problem:
"Before the introduction of coined money the peasant farmer borrowed commodities and repaid the loan in kind, and … was probably able to meet the obligation without great difficulty; but after the introduction of coined money the situation became decidedly more difficult…he must take a loan of money to purchase his necessary supplies at a time when money was cheap and commodities dear. When a year of plenty came and he undertook to repay the loan, commodities were cheap and money was dear."
Unable to get out of debt, eventually bad weather or a poor harvest would bring foreclosure on their land and even bind them into slavery. This enslavement grew to crisis proportions, when Solon came to Athens rescue with his "Seisachtheia" or "shaking off" of burdens. Personal slavery was no longer allowed as security for debts. He canceled such existing debt contracts; and gave back land which had been seized. Farmers who had been sold into slavery abroad by those to whom they owed money were "bought" back and returned to Athens.
SOLON ALSO DECLARED A MINIMUM MONETARY VALUE FOR EACH AGRICULTURAL PRODUCT SETTING FLOOR PRICES FOR THEM (Heichelheim presents the ancient source for this). He switched from the "Aeginatic" to the lighter weight "Attic" monetary standard reducing coinage weights and increased the amount of coinage in circulation.
Several Hundred Years Later Aristotle (384-322 Bc) Formulated The Classical View Against Usury. Aristotle understood that money is sterile; it doesn’t beget more money the way cows beget more cows. He knew that "Money exists not by nature but by law":
"The most hated sort (of wealth getting) and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural object of it. For money was intended to be used in exchange but not to increase at interest. And this term interest (tokos), which means the birth of money from money is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth, this is the most unnatural." (1258b, POLITICS)
And Aristotle really disliked usurers:
"...those who ply sordid trades, pimps and all such people, and those who lend small sums at high rates. For all these take more than they ought, and from the wrong sources. What is common to them is evidently a sordid love of gain..." (1122a, ETHICS)
THE CHRISTIAN SCHOLASTICS DIFFERENTIATED BETWEEN USURY AND INTEREST
The Scholastics (1100 -1500 AD), the Church scholars familiar with the available writings in existence, echoed Aristotle. Acquinas argued that money is a measure, and usury "diversifys the measure" placing extra demands on the money mechanism which harmed its function as a measure. Henry of Ghent wrote: "Money is medium in exchange, and not terminus." Alexander Lombard noted: "Money should not be able to be bought and sold for it is not extremum in selling or buying, but medium."
The Scholastics made the first attempt at a science of economics and their main concern was usury; but this was not the same as just charging interest. It was generally not forbidden to earn interest if the lender was actually taking some risk, without a guaranteed gain. Interest could also be charged when the lender suffered some loss or passed up some opportunity by extending the loan. Venice used advanced financial forms for centuries without violating the Scholastic usury bans.
TWO TYPES OF LOANS WERE ALWAYS EXEMPT FROM BANS ON INTEREST: the "Societas", where the lender assumed some portion of the risk of the enterprise. Also exempt was the "Census" - an obligation to pay an annual return based on some "fruitful" property. At first it was paid in real produce, later in money.
The Census was normally capitalized at 8 times the annual return, but the risk of the "fruitful" base was on the lender not the borrower, for if the crop were destroyed by weather, the borrower had no obligation that year. Later cities issued "census" obligations based an tax revenues, which came to be called "rents".
Usury was much more than charging interest - it was taking unfair advantage; USURY WAS AN ANTI-SOCIAL MISUSE OF THE MONEY MECHANISM. Similar to the term Riba in the Islamic world."
Read Stephen Zarlenga's complete Talk on Usury at this website:
AND readers are invited to read "The Usury Problem Remains"