The Sin of Usury - Many Legal Ruses Allowed Charging Interest - Reaping What Another Has Sown - Financial Parasitism - Usury in Christendom - The Qur’an Forbids Riba
By Norman Jones, Utah State University
"The question of when and if money can be lent at interest for a guaranteed return is one of the oldest moral and economic problems in Western Civilization. The Greeks argued about usury, Hebrews denounced it, Roman law controlled it, and Christians began pondering it in the late Roman Empire. Medieval canon lawyers adapted Greek and Roman ideas about usury to Christian theology, creating a body of Church law designed to control the sin of usury. By the early modern period, the concept began to be secularized, but the issue of what usury is and when it occurs is still causing disputes in modern legal and theological systems.
The Greek philosophers wrestled with the question of whether money can be lent at interest. Most notably, Aristotle concluded that it could not. Aristotle defined money as a good that was consumed by use. Unlike houses and fields, which are not destroyed by use, money must be spent to be used. Therefore, as we cannot rent food, so we cannot rent money. Moreover, money does not reproduce. A house or a flock can produce new value by use, so it is not unreasonable to ask for a return on their use. Money, being barren, should not, therefore, be expected to produce excess value. Thus, interest is unnatural.
Roman lawyers were more subtle in their treatment of the problem. They recognized the right to lend and borrow for a specified return, the mutuum
– a strict contract in which money, oil, or some other fungible good could be lent on the expectation of an equal return in kind and quality of the substance loaned. Interest was not recognized in this obligation unless it was agreed upon by the parties ahead of time. Foenus
was an illegal contract for interest without risk, with one exception: the foenus nauticum
allowed lenders to contract for certain return on money lent for large projects, such as voyages. It was the Latin foenus
that was used interchangeably with usuram
in Latin biblical translations. Nonetheless, Roman law did, in theLex Unicaria
of 88 B.C., recognize an interest rate of up to 12%. Made the maximum rate in 50 B.C. by a decree of the Senate, the centesima usura
stood until Justinian
lowered the rates in 533 A.D., creating a sliding scale with 12% only applying to the foenus nauticum
, 8% to business loans, 6% to those not in business, and 4% to distinguished persons and farmers.
The Christians of the late Empire were not so flexible. There is a steady condemnation of lending at interest running through the patristic literature. St. Jerome
declared usury to be the same as murder, echoing Cato
, since it consumed the life of the borrower. Christians, however, seemed required by God to condemn it. Exodus 22:25 forbad oppressing one’s neighbor with usury. Deuteronomy 23:20-21 said you could not charge your brother usury. Ezekiel 18:7-8, 13 makes it clear that the righteous do not lend at usury; and that usurers “shall not live.” Leviticus 25:35-36 says if your brother is poor, do not charge him usury. The final Old Testament word on the issue came from the Psalmist, who charged the godly to aid their neighbors, not lending to them at interest. The strongest rejection of loans at interest came from Christ in Luke 6:35, where He says “Lend, hoping for nothing in return.”
Given God’s hostility to usury, it is hardly surprising that Christian theologians from the fourth century on defined lending for gain as a sin. Aquinas and his fellow scholastics amplified authors like St. Jerome on the subject, and Gratian built it into the Code of Canon Law. Aquinas must have been gratified to find that Aristotle shared his hostility toward usury. By the late Middle Ages, there was a consensus that lending at interest for guaranteed return was illegal and damnable. However, they also agreed that if the lender shared in the risk of the venture, the loan was legal. Consequently, laws against usury seldom interfered with merchant capitalism. Businessmen could always get loans if their contracts made them partners in risk. Extrinsic titles of the canon law, for instance, made it legal to charge for damnum emergensand lucrum cessans, losses sustained because someone else was using one’s money. The difference between the amount lent and the profit it might have made was paid as interesse. However, one had to prove the loss to charge interesse. It was also possible to write contracts which specified poena conventionalis, a penalty for late payment that did not demand proof of loss. Merchant bankers like the Medici did not charge interest per se, but they often received gifts from grateful clients.
Canon law and secular law held usury to be malum in se, an evil in itself that must be outlawed because God condemned it. Nonetheless, there were many legal ruses that allowed invisible illegal interest to be charged. A contract for a false sale, in which an inflated price was paid for a good, might be constructed. Or the appearance of risk might be incorporated in a contract, by conditioning the payment on some eventuality such as the length of someone’s life. Only the poor, lacking personal credit, were forced to pledge collateral to get money.
Poor Men’s Banks
The oppression of the poor by usurers offended many good Christians. As an anti-Semitic countermeasure against the Jews who were outside the canon law’s prohibitions, the papal governor of Perugia, Hermolaus Barbarus
, invented the mons pietatis
, “poor men’s bank,” in 1461. Publicly-run pawnshops approved by Paul II
in 1467, these nonprofit banks lent to the deserving poor at very low rates of interest and, by the late fifteenth century, they began to accept deposits. By the sixteenth century, these banks were spread by the Franciscans
all over Europe, though not in England, where Parliament refused to legalize them." snip ...
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