Dossier, Volume 14 #5

Churches Came to Terms with Moneylending

by Curtis Fahey

This is that that we call usury: It is filthy gains, and a work of darkness. It is a monster in nature, the overthrow of mighty kingdoms, the destruction of flourishing states, the decay of wealthy cities, the plagues of the world, and the misery of the people. It is theft, it is the murdering of our brethren, it is the curse of God and the curse of the people.

So thundered Church of England bishop John Jewell in a sermon preached in the 1560s. His views reflected the orthodox thinking of the time on the subject of usury--an old-fashioned word for the interest charged on loans. In the end, however, a more pragmatic vision was to prevail.

The story of usury is a complex one. In the ancient world both Plato and Aristotle condemned the levying of interest on loans as against the law of nature, but their strictures were not incorporated into public policy: Greek laws, and afterwards Roman ones, allowed a moderate rate of interest on the lending of money.

Similarly, among the early Jews, there was no absolute prohibition of interest. From passages such as Exodus 22:25 ("If you lend money to any of my people with you who is poor, you shall not be to him as a creditor, and you shall not exact interest from him"), it can be seen that while the Old Testament condemned the practice of charging interest on loans, it focused partly on the sin of exploiting the poor through lending them money at interest and, more generally, on the sin of one Jew levying interest on another.[FN 1] One modern commentator, Rabbi Gunther Plaut, argues that the Old Testament's distinction between loans to foreigners and loans to other Jews derived from the fact that loans within the Jewish community were for charitable purposes only while loans to foreigners were for purposes of trade.

The New Testament was silent on the subject of interest and, likely for this reason, the early church was too; until the fourth century the Church Fathers condemned the taking of interest from the poor, but that was all. Subsequently, while church councils in the fourth and eighth centuries determined that the charging of interest was immoral, only clerics were positively forbidden to engage in the practice. The turning point was the period from the twelfth to the fourteenth centuries, when three separate church councils condemned anyone who charged interest, regardless of the amount; one of these councils, in 1311, even threatened such evildoers with punishment as heretics.

For a while, Jews were exempted from the ban on interest, the Fourth Lateran Council of 1215 insisting only that the interest they charge not be excessive. That exemption, and similar ones enacted by the states of western Europe, gave Jews an economic opportunity but also paved the way for the emergence of the stereotype of the Jew as avaricious moneylender. Christians despised Jewish lenders like Shakespeare's Shylock for doing exactly what Christians needed them to do--and had specifically allowed them to do--in the first place.

In fashioning its condemnation of interest, the medieval church relied on the Old Testament passages cited above, and to them it added the vague injunction in Luke 6:35 that good Christians should "lend, expecting nothing in return." Alongside this scriptural evidence was a new philosophical critique devised by scholastic theologians, chief among whom was Aquinas. Drawing on Aristotle, Aquinas saw goods as either "fungible" or "nonfungible": the former (like food) are consumed by use and hence cannot be returned; the latter (like a house) can be returned after use. In this context, money is a fungible. To pay interest on money lent is to pay for something that no longer exists, and so the practice is nothing short of theft--which is, of course, a sin. Aquinas further argued, again relying on Aristotle, that money's only purpose is as a medium of exchange. It cannot be used to make money, because that would be foreign to its nature. Interest was thus a violation of both natural and divine law.

The argument was neat, perhaps too neat. Even in the Middle Ages, the lending of money was essential to economic activity. Banning it completely would have had disastrous economic consequences. As well, there was an ethical consideration: since lending money often entails risk, is it fair to have only the lender bear this risk? Recognizing both these issues, Aquinas noted two exceptions to his rule, of which the more important, labelled lucrum cessans, gave a lender the right to claim compensation for the potential profit that was forfeited when the loan was made. While this exception was gradually qualified, lucrum cessans and a variety of dodges under secular law gave moneylenders the opportunities they needed. Throughout the Middle Ages moneylending thrived, even though the scholastic position on usury remained unchallenged and those who violated its terms--a mixed group that included many of humble station, including widows--often found themselves punished by state or ecclesiastical courts.

The unravelling of the scholastic prohibition on usury began in the sixteenth century and was triggered by a mixture of economic and religious factors. Economically, Europe's increasing hunger for capital led many in church and state to turn a blind eye to moneylending. It also led to a rethinking of the theological basis of the prohibition on interest. Some argued that only excessive interest was a sin, and in support of their position they pointed out that the Hebrew word for interest in the Old Testament was neshech or "bite"--hence only "biting" interest was contrary to God's will. Others, Calvin among them, pointed out that not all the rules set out for Jews in the Old Testament were to be applied to Christians; in this instance, the Old Testament offered moral guidance only, not positive prescriptions for conduct.

Still others, in Protestant Europe, directed a more fundamental challenge to the orthodox position. Inspired by the doctrine of justification by faith, a number of Protestant thinkers asserted that the question of intent was vital to any consideration of sin. In the case of moneylending, if one lent money in good conscience--without any intention to profit from misfortune--no sin was committed. Motives, of course, were known only to the individual concerned and to God; neither church nor state could read a person's heart. From this it flowed that interest on loans should not be a matter of church policy; the state could regulate interest rates, but the criteria for doing so should be economic rather than religious.

Among the states of western Europe, blanket prohibitions on usury were gradually abandoned from the early seventeenth century onwards. The Catholic Church lagged behind, and indeed in 1745 an encyclical issued by Pope Benedict XIV reaffirmed the scholastic position. Gradually, however, Catholic theologians also began to show more flexibility on the issue and by 1830 the Vatican had admitted the lawfulness of interest--an admission that was soon followed by the church itself investing its funds at interest. As for Bishop John Jewell, with whom this story opened, his uncompromising opposition to usury was embodied in a statute passed by the English Parliament in 1571. But as Norman Jones demonstrates in God and the Moneylenders, this law had the inadvertent effect of legitimizing interest rates at 10 per cent, and in 1624 Parliament reversed itself completely, explicitly recognizing the legality of moderate interest by lowering the legal interest rate to below the 10 per cent threshold.

Both in England and on the continent, and both in the Catholic Church and in Protestant ones, the story was the same. Prohibitions of interest slowly but inexorably were cast aside under the pressure exerted by economic reality and changing theology, and the word usury itself, once applied to all interest, came to be associated only with interest levels that were clearly excessive and exploitative. (Under current Canadian law, only interest rates of 60 per cent and higher are considered usurious.) In the area of moneylending as in so many others, religion gradually made its peace with the modern world.

[FN1] Other Old Testament passages dealing with the subject are Leviticus 25:35-37, Deuteronomy 23:19-20, Psalms 15:5 and Ezekiel 18:13.

Curtis Fahey is an associate editor of Compass in Toronto.

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