Usury

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In the articleINTEREST 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) andAristotle (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 tohomicide, as also did Seneca (De beneficiis, VII, x) and Plutarch in his treatise against incurringdebts. So much for Greek and Roman writers, who, it istrue,knew little ofeconomicscience.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 Greeklaws while considering themutuum, 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 onlyunciarium 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, theRoman 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 ofHammurabi, 48 sqq.). No absolute prohibition can be found in theOld Testament; at most,Exodus 22:25, andDeuteronomy 23:19-20, forbid the taking of interest by oneJew from another.

In theChristian era, theNew Testament is silent on the subject; the passage in St. Luke (vi, 34, 35), which somepersons interpret as a condemnation of interest, is only an exhortation to general and disinterested benevolence. A certain number of authors, among themBenedict XIV (De synodo diocesana, X., iv, n. 6), believed in the existence of a Patristic tradition which regarded the prohibitory passages ofHoly 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 andecclesiastical 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 andavarice of the time, and we cannot find in them any expression of a generaldoctrine 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 placeclerics who lent money at interest. This is the purpose of the 44th of theApostolic Canons; of theCouncil of Arles (314), and of the 17th canon theFirst Council of Nicæa (325). It istrue that a text of the Council of Elvira (305 or 306) is quoted which, while ordering the degradation ofclerics, would also have punishment inflicted onlaymen, who obstinately persisted in usurious practices; but the mention oflayman is of extremelydoubtful authenticity. It may then be said that until the ninth century canonical decrees forbade this profit, shameful as it was considered, only toclerics.

Nevertheless, the 12th canon of the FirstCouncil of Carthage (345) and the 36th canon of the Council ofAix (789) have declared it to be reprehensible even forlaymen to make money by lending at interest. The canonicallaws of theMiddle Ages absolutely forbade the practice. This prohibition is contained in theDecree of Gratian, q. 3, C. IV, at the beginning, and c. 4, q. 4, C. IV; and in 1. 5, t. 19 of theDecretals, for example in chapters 2, 5, 7, 9, 10, and 13. These chapters order the profit so obtained to be restored; andAlexander III (c. 4, "Super eo", eodem) declares that he has no power to dispense from theobligation. Chapters 1, 2, and 6, eodem, condemns the strategems to which evenclerics resorted to evade thelaw of thegeneral councils, and the Third of the Lateran (1179) and the Second ofLyons (1274) condemn usurers. In the Council of Vienne (1311) it was declared that if anyperson obstinately maintained that there was nosin in the practice of demanding interest, he should be punished as aheretic (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 toJews. 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 theJews. 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 tojustice.

Theologians and canonists of theMiddle Ages constructed a rational theory of the loan for consumption, which contains this fundamental statement: Themutuum, 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 beenunjustly claimed. This was thedoctrine ofSt. Thomas andScotus; of Molina,Lessius, and de Lugo. Canonists adopted it as well as thetheologians; andBenedict XIV made it his own in his famousEncyclical"Vix pervenit" of 1 November, 1745, which waspromulgated after thorough examination, but addressed only to thebishops ofItaly, and therefore not aninfallibleDecree. On 29, July, 1836, the Holy Office incidentally declared that thisEncyclical applied to the whole Church; but such a declaration could not give to a document aninfallible character which it did not otherwise possess. Theschismatic Greeks, at least since the sixteenth century, do not consider the taking of interest on loans as intrinsically bad.

WhileLuther,Melanchthon, andZwingli condemned loaning for interest,Calvin permitted interest on money advanced to richpersons; his disciple Salmasius gave effect to this opinion by a systematic code of rules. By degrees a certain number ofCatholic writers relaxed their severity.Scipio Maffei, a friend ofBenedict XIV, wrote a celebrated treatise, "Dell' impiego del danaro", to justify an opinion which in this matter resembles that ofCalvin. Economists generally uphold the theoretical lawfulness of interest on loans. For a long timecivil law was in agreement with canon law; but as early as the sixteenth century,Germany allowed interest at 5 percent; inFrance, on the contrary, interest on loans was forbidden until theDecree of 2 and 3 October, 1789. Contemporarylaws 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:

TheHoly See admits practically the lawfulness of interest on loans, even forecclesiastical property, though it has notpromulgated anydoctrinaldecree on the subject. See the replies of the Holy Officedated 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 ofPondicherry; and in the "Enchiridion" of Father Bucceroni.

Everyone admits that aduty of charity may command us to lend gratuitously, just as it commands us to give freely. The point in question is one ofjustice: 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 thecivil 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 extrinsicrights see: Funk, "Geschichte des kirchlichen Zinsverbotes"; Lehmkuhl, "Theologia moralis", I, n. 1306 sqq., 11th ed.)

The precise question then is this: if we considerjustice 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 somepersons, namely the economists of the classicschool, and someCatholic writers, answer "yes, and always"; others, namely Socialists and someCatholic writers, answer, "no, never"; and lastly someCatholics give a less unconditional answer, "sometimes, but not always"; and they explain the different attitudes of the 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 ofsociety.

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-producingproperty were comparatively rare, a loan made to a solventperson, 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 thejustice orinjustice 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, theChurch was opposed to all claim of interest. However, as the use of money has its value, like the use of anything else, theChurch 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. InRoman Law, gratuitousness was not essential to themutuum, but only presumed in the absence of any stipulation to the contrary. Persons who openly or secretly demanded interestproved conclusively that they were not actuated by motives of benevolence; and theChurch, 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 theperson lending money and so depriving himself of profit may claim a compensation for that privation; but this is a question of extrinsic circumstances, not ofjustice 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 oftruth, 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 theEncyclical "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 somepersons, by the permission of thecivil 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 ofjustice. And what is there to show that modern legislators passlaws merely to quiet men's consciences?

But we may correct this last opinion by the aid of the general principles ofcontractualjustice; and we shall then more fully understand the strictness of thelaws 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 atrue 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 newcontractual associations, such as insurance companies, which give a reasonable hope of gain without risk. The action of theChurch has found distinguished defenders, even outside her own pale, among the representatives of contemporaryeconomicscience. We may mention three English authors: Marshall, professor of political economy at theUniversity of Cambridge (Principles of Economics, I, I, ii, secs. 8 etc.); Ashley, professor at the newUniversity ofBirmingham (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 intérêt, dernière forme de l'esclavage") see in the attitude of theChurch only a tolerance justified by the fear of greater evils. This is not so. The change in the attitude of theChurch is due entirely to a change ineconomic matters that require the present system. TheHoly See itself puts its funds out at interest, and requiresecclesiastical administrators to do the same. One writer, Father Belliot of thefriars 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 asunjust 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 theFathers 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 thesin of usury, rather than the formal malice of thesin itself. It is in itselfunjust extortion, orrobbery. Thesin is frequently committed. In some countries are found the exaction of interest at 30, 50, 100 percent and more. Theevil is so great inIndia 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, ofpersons selling goods to be paid for by installments, are also instances of usury disguised under another name. As a remedy for theevil, 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.

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