Usury

In the article INTEREST we have reserved the question of the lawfulness of taking interest on money lent; we have here to consider first, usury as condemned by all honest men.

Plato (Laws, v. 742) and Aristotle (Politics, I, x,xi) considered interest as contrary to the nature of things; Aristophanes expressed his disapproval of it, in the "Clouds" (1283 sqq.); Cato condemned it (see Cicero, "De officiis, II, xxv), comparing it to homicide, as also did Seneca (De beneficiis, VII, x) and Plutarch in his treatise against incurring debts. So much for Greek and Roman writers, who, it is true, knew little of economic science. Aristotle disapproved of the money trader's profit; and the ruinous rates at which money was lent explain his severity. On the other hand, the Roman and Greek laws while considering the mutuum , or loan for consumption, as a contract gratuitous in principle, allowed a clause, stipulating for the payment of interest, to be added to the bond. The Law of the Twelve Tables allowed only unciarium fenus , probably one-twelfth of the capital, or 8.33 per cent. A plebiscitum, lex Ganucia , 412 a.u.c. went so far as to forbid all interest whatever, but, at a later period, the Roman law allowed interest at 1 per cent monthly, or 12 per cent per annum. Justinian laid down as a general rule that this maximum should be reduced by half (L. 26, I, c. De usuris, IV, 32). Chaldea allowed interest on loans (cf. Law of Hammurabi, 48 sqq.). No absolute prohibition can be found in the Old Testament ; at most, Exod., xxii, 25, and Deut., xxiii, 19, 20, forbid the taking of interest by one Jew from another.

In the Christian era, the New Testament is silent on the subject; the passage in St. Luke (vi, 34, 35), which some persons interpret as a condemnation of interest, is only an exhortation to general and disinterested benevolence. A certain number of authors, among them Benedict XIV (De synodo diocesana, X., iv, n. 6), believed in the existence of a Patristic tradition which regarded the prohibitory passages of Holy Scripture as of universal application. Examination of the texts, however, leads us to the following conclusions: Until the fourth century all that can be inferred from the Fathers and ecclesiastical writers is that it is contrary to mercy and humanity to demand interest from a poor and needy man. The vehement denunciation of the Fathers of the fourth and fifth centuries were called forth by the moral decadence and avarice of the time, and we cannot find in them any expression of a general doctrine on this point; nor do the Fathers of the following centuries say anything remarkable on usury; they simply protest against the exploitation of misfortune, and such transactions as, under the pretence of rendering service to the borrower, really threw him into great distress. The question of moderate rates of interest seems scarcely to have presented itself to their minds as a matter of discussion. The texts bearing on the question are collected in Vermeersch, "Questiones morales de justitia" II, n. 359. The councils condemned in the first place clerics who lent money at interest. This is the purpose of the 44th of the Apostolic Canons ; of the Council of Arles (314), and of the 17th canon the First Council of Nicæa (325). It is true that a text of the Council of Elvira (305 or 306) is quoted which, while ordering the degradation of clerics, would also have punishment inflicted on laymen, who obstinately persisted in usurious practices; but the mention of layman is of extremely doubtful authenticity. It may then be said that until the ninth century canonical decrees forbade this profit, shameful as it was considered, only to clerics.

Nevertheless, the 12th canon of the First Council of Carthage (345) and the 36th canon of the Council of Aix (789) have declared it to be reprehensible even for laymen to make money by lending at interest. The canonical laws of the Middle Ages absolutely forbade the practice. This prohibition is contained in the Decree of Gratian, q. 3, C. IV, at the beginning, and c. 4, q. 4, C. IV; and in 1. 5, t. 19 of the Decretals, for example in chapters 2, 5, 7, 9, 10, and 13. These chapters order the profit so obtained to be restored; and Alexander III (c. 4, "Super eo", eodem) declares that he has no power to dispense from the obligation. Chapters 1, 2, and 6, eodem, condemns the strategems to which even clerics resorted to evade the law of the general councils, and the Third of the Lateran (1179) and the Second of Lyons (1274) condemn usurers. In the Council of Vienne (1311) it was declared that if any person obstinately maintained that there was no sin in the practice of demanding interest, he should be punished as a heretic (see c. "Ex gravi", unic. Clem., "De usuris", V, 5).

It is a curious fact that for a long time impunity in such matters was granted to Jews. The Fourth Council of the Lateran (1215), c. 27, only forbids them to exact excessive interest. Urban III, c. 12, "De usuris" (V. 19) and St. Louis in twenty-three of his regulations extended the prohibition to the Jews. With the exception of c. 27 of the Fourth Council of the Lateran, we know of no canon law which takes into consideration the question of moderate interest; and canon law nowhere states distinctly that interest is, under any circumstances whatsoever, contrary to justice.

Theologians and canonists of the Middle Ages constructed a rational theory of the loan for consumption, which contains this fundamental statement: The mutuum , or loan of things meant for immediate consumption, does not legalize, as such, any stipulation to pay interest; and interest exacted on such a loan must be returned, as having been unjustly claimed. This was the doctrine of St. Thomas and Scotus ; of Molina, Lessius, and de Lugo. Canonists adopted it as well as the theologians ; and Benedict XIV made it his own in his famous Encyclical "Vix pervenit" of 1 November, 1745, which was promulgated after thorough examination, but addressed only to the bishops of Italy, and therefore not an infallible Decree. On 29, July, 1836, the Holy Office incidentally declared that this Encyclical applied to the whole Church ; but such a declaration could not give to a document an infallible character which it did not otherwise possess. The schismatic Greeks, at least since the sixteenth century, do not consider the taking of interest on loans as intrinsically bad.

While Luther, Melanchthon, and Zwingli condemned loaning for interest, Calvin permitted interest on money advanced to rich persons ; his disciple Salmasius gave effect to this opinion by a systematic code of rules. By degrees a certain number of Catholic writers relaxed their severity. Scipio Maffei , a friend of Benedict XIV , wrote a celebrated treatise, "Dell' impiego del danaro", to justify an opinion which in this matter resembles that of Calvin. Economists generally uphold the theoretical lawfulness of interest on loans. For a long time civil law was in agreement with canon law; but as early as the sixteenth century, Germany allowed interest at 5 percent; in France, on the contrary, interest on loans was forbidden until the Decree of 2 and 3 October, 1789. Contemporary laws always consider the loan for consumption as gratuitous in principle, but allow a stipulation for the payment of interest to be added. In modern legislation two questions remain to be decided:

• whether it is desirable to establish a maximum legal rate; and
• by what means usurious exactions may be prevented.

The Holy See admits practically the lawfulness of interest on loans, even for ecclesiastical property, though it has not promulgated any doctrinal decree on the subject. See the replies of the Holy Office dated 18 August, 1830, 31 August, 1831, 17 January, 1838, 26 March, 1840, and 28 February, 1871; and that of the Sacred Penitentiary of 11 February, 1832. These replies will be found collected in "Collectio Lacensis" (Acta et decreta s. conciliorum recentiorum), VI, col. 677, Appendix to the Council of Pondicherry ; and in the "Enchiridion" of Father Bucceroni.

Everyone admits that a duty of charity may command us to lend gratuitously, just as it commands us to give freely. The point in question is one of justice : Is it contrary to the equity required in mutual contracts to ask from the borrower interest in addition to the money lent? It may be remarked that the best authors have long since recognized the lawfulness of interest to compensate a lender for the risk of losing his capital, or for positive loss, such as the privation of the profit which he might otherwise have made, if he had not advanced the loan. They also admit that the lender is justified in exacting a fine of some kind (a conventional penalty) in case of any delay in payment arising from the fault of the borrower. These are what are called extrinsic grounds, admitted without dispute since the end of the sixteenth century, and justifying the stipulation for reasonable interest, proportionate to the risk involved in the loan. Another discussion, which has not been closed, but only suspended, relates to the question whether the civil law creates a new and real title, whether the State can, in order to extend and promote credit for the good of the community, permit interest on loans. We think it can. But there will scarcely be any need for such a law except in circumstance which already justify the general practice of lending for interest. (On these extrinsic rights see: Funk, "Geschichte des kirchlichen Zinsverbotes"; Lehmkuhl, "Theologia moralis", I, n. 1306 sqq., 11th ed.)

The precise question then is this: if we consider justice only, without reference to extrinsic circumstances, can the loan of money, or any chattel which is not destroyed by use, entitle the lender to a gain or profit which is called interest? To this question some persons, namely the economists of the classic school, and some Catholic writers, answer "yes, and always"; others, namely Socialists and some Catholic writers, answer, "no, never"; and lastly some Catholics give a less unconditional answer, "sometimes, but not always"; and they explain the different attitudes of he Church in condemning at one time, and at another authorizing, the practice of taking interest on loans, by the difference of circumstances and the state of society.

The principal argument in favour of the first opinion is that the lender does the borrower a service which should be paid for. This is, of course, a materialistic view of human service, which when rendered in a spirit of active benevolence is repaid by gratitude: only onerous service, which costs or represents some trouble or privation, is sold or hired for money. Now, at times when opportunities for investing money in commercial undertakings or converting it into revenue-producing property were comparatively rare, a loan made to a solvent person, instead of being onerous to the lender, was rather an advantage, in giving him full security for his money, for the borrower insured him against its accidental loss. And we have just shown that the loan of things for immediate consumption was not, as such, a source of revenue. Father Ballarini, (Opus morale, III, pt. III, ii) thought that the justice or injustice of taking interest depends on one's intention ; thus, we may give credit gratuitously, or we may give the use of our money for a consideration. In the first case the contract is essentially gratuitous; and as formerly this gratuitous contract was the ordinary practice, the Church was opposed to all claim of interest. However, as the use of money has its value, like the use of anything else, the Church on this ground at the present day permits the lending of money for interest. In spite of the assent of many authors to this explanation, we do not approve it. In Roman Law, gratuitousness was not essential to the mutuum , but only presumed in the absence of any stipulation to the contrary. Persons who openly or secretly demanded interest proved conclusively that they were not actuated by motives of benevolence; and the Church, in condemning them, did not raise the question of their intention. The answer to Ballerini is that rent is a price paid for the use of a thing not destroyed by use. The expenditure of money may be productive, and the person lending money and so depriving himself of profit may claim a compensation for that privation; but this is a question of extrinsic circumstances, not of justice itself.

Others with Claudio-Jannet (Le capital, la spéculation et la finance, iii, II and III) distinguish between the loan for consumption and the loan for production: we may ask interest from the borrower who takes money or credit in order to produce or gain money; but not from one who borrows under pressure of necessity, or for some unproductive expenditure. The increased frequency of loans for production considered in the connection with the different extrinsic circumstances would seem to justify the demand for interest on such loans at the present day. In a spirit that is not irreconcilable with the rulings of the Fathers in the matter, this system contains this element of truth, that the lender of a sum of money which is intended for productive use may refuse to lend except on condition of being made a partner in the undertaking, and may claim a fixed interest which represents that share of the profit, which he might reasonably expect to receive. The system, nevertheless, is formally condemned by the Encyclical "Vix pervenit", and contradicts the principle of the just value; it tends in fact to make the borrower pay the special advantage, while the compensation is regulated by the general advantage procured by the possession of a thing, not by the special circumstances of the borrower. Others justify the existing practice by a presumption of extrinsic circumstances, which is confirmed, according to some persons, by the permission of the civil law. This explanation appears to us to be unsatisfactory. The extrinsic circumstances do not always exist, while we can always lend at interest, without any scruple on the score of justice. And what is there to show that modern legislators pass laws merely to quiet men's consciences ?

But we may correct this last opinion by the aid of the general principles of contractual justice ; and we shall then more fully understand the strictness of the laws of earlier times, and the greater liberty allowed at the present day. The just price of a thing is based on the general estimate, which depends not in all cases on universal utility, but on general utility. Since the possession of an object is generally useful, I may require the price of that general utility, even when the object is of no use to me. There is much greater facility nowadays for making profitable investment of savings, and a true value, therefore, is always attached to the possession of money, as also to credit itself. A lender, during the whole time that the loan continues, deprives himself of a valuable thing, for the price of which he is compensated by the interest. It is right at the present day to permit interest on money lent, as it was not wrong to condemn the practice at a time when it was more difficult to find profitable investments for money. So long as no objection was made to the profitable investment of capital in industrial undertakings, discouragement of interest on loans acted as an encouragement of legitimate trade; it also led to the creation of new contractual associations, such as insurance companies, which give a reasonable hope of gain without risk. The action of the Church has found distinguished defenders, even outside her own pale, among the representatives of contemporary economic science. We may mention three English authors: Marshall, professor of political economy at the University of Cambridge (Principles of Economics, I, I, ii, secs. 8 etc.); Ashley, professor at the new University of Birmingham (An Introduction to English Economic History and Theory, I, I, i, sec. 17); and the celebrated historian of political economy , Professor Cunningham (Growth of English Industry and Commerce, I, II, vi, sec. 85, third edition). Even at the present day, a small number of French catholics (Abbé Morel, "Du prêt à intéret"; Modeste, "Le prêt à intérecirc;t, dernière forme de l'esclavage") see in the attitude of the Church only a tolerance justified by the fear of greater evils. This is not so. The change in the attitude of the Church is due entirely to a change in economic matters that require the present system. The Holy See itself puts its funds out at interest, and requires ecclesiastical administrators to do the same. One writer, Father Belliot of the friars minor, denounces in loans for interest "the principal economic scourge of civilization", though the accumulation of wealth in the hands of a few capitalists, which he deplores so much, does not arise so much from lending money at proper interest as from industrial investments, banking operations, and speculations, which have never been condemned as unjust in principle. There has never been at any time any prohibition against the investment of capital in commercial or industrial undertakings or in the public funds.

Lending money at interest gives us the opportunity to exploit the passions or necessities of other men by compelling them to submit to ruinous conditions ; men are robbed and left destitute under the pretext of charity. Such is the usury against which the Fathers of the Church have always protested, and which is universally condemned at the present day. Dr. Funk defined it as the abuse of a certain superiority at the expense of another man's necessity ; but in this description he points to the opportunity and the means which enable a man to commit the sin of usury, rather than the formal malice of the sin itself. It is in itself unjust extortion, or robbery. The sin is frequently committed. In some countries are found the exaction of interest at 30, 50, 100 percent and more. The evil is so great in India that we might expect legal provisions to fight against such ruinous abuse. The exorbitant charges of pawnbrokers for money lent on pledge, and, in some instances, of persons selling goods to be paid for by installments, are also instances of usury disguised under another name. As a remedy for the evil, respectable associations for mutual lending have been instituted, such as the banks known by the name of their founder, Raiffeisen, and help has been sought from legislators; but there is no general agreement as to the form which legislation on this subject should take.