Usury in Catholic Tradition

We are discussing the issue of usury over at David Jones' la nouvelle theologie ("Usury & Social Justice" October 13, 2005), in reference to an article by Orthodox Bishop Paul Peter: "Would a Bank Charge Jesus Usury?" (The Social Edge June 2003).

Coincidentally, I had read the following article by David Palm: "The Red Herring of Usury" (Vol. 8, No. 9 Sept. 1997) this past week, which I found to be a very useful clarification of the Church's condemnation of usury and what practices themselves constitute usury. (Apparently there's a catch to this, for on one hand it is apparent that the Church has revised its teaching on this issue in light of the changing world of economics; on the other hand, liberal Christians/Catholics -- like Fr. Richard McBrien, citing an article by John Noonan ("Authority, Usury & Contraception" Cross Currents Winter 1996) -- contend that if the Church has changed on this practice, it can very well change on other issues: contraception, for instance (always a favorite theme of the progressives).

According to David, "Noonan is correct that the Church consistently condemned usury in the most official way." Palm cites Canon 13 of the Second Lateran Council (1139); Canon 25 of the Third Lateran Council (1179), backed by the witness of many popes, including Alexander III, Gregory IX, Urban III, Innocent III, and Clement V. Says Palm:

The teaching of the Church condemning usury is unambiguous, binding, and irrevocable. . . . There have been so many solemn decrees on the matter that to argue, as some have, that the technicalities of an infallible teaching have not been met, or that the prohibitions against usury are only disciplinary and not doctrinal, is an exercise in special pleading.

But this is not the end of the story. Noonan, says Palm, make the erroneous claim that usury is the taking of any interest on any sort of loan. But this is clearly not the case, as "The Holy See admits practically the lawfulness of interest on loans, even for ecclesiastical property" (Catholic Enyclopedia). As David Palm demonstrates, the Church has in all times rightly condemned the practice of usury; however, what constitutes usury has not always been the same:

. . . during the greater portion of antiquity, economies were characterized by a lack of competitive markets and thus few opportunities for investment. Money itself was considered primarily a medium of private and not commercial exchange. . . .

During the Scholastic period of the Middle Ages, many issues, including the question of the morality of interest-taking, were subjected to more detailed analysis. On what specific principles is interest-taking moral or immoral? This was at the heart of the question of usury. Eventually the morality of interest-taking came to be understood as intrinsically bound up in the nature of the thing lent and the impact (or lack thereof) on the person lending it. It is immoral to take interest on the loan of a thing that is completely consumed by its use, for which one has no other use, and for which one incurs no loss by lending it.

The New Catholic Encyclopedia elaborates on the technical definition of usury as it came to be used in the Middle Ages and thus in the formal conciliar texts of the Church: "From the Latin usura, usury originally meant a charge for a loan of a fungible, i.e., perishable, nonspecific good, whose use consisted of its consumption. Such a loan was called a mutuum. Money, considered to be ‘consumed’ in the process of exchange for other goods, was classified as a fungible good. And as a money loan became the most common form of loan of this type, usury came to signify a charge for the use of money. Only after repeal of the laws prohibiting interest (usury in the above sense) and the establishment of legal rates did usury assume its present meaning of a charge for a money loan that is exorbitant or exceeds the legal rate."

In the Middle Ages, Palm explains, money was considered "barren," since one could do but two things with it: spend ("consume") it, or hoard it. The lending of money was considered usurious for this reason: "Apart from risk of non-repayment, to take interest for money that you had no use for but to hoard was getting ‘a breed of barren metal.’ It was taking up what you laid not down; it was making profit out of your neighbor’s need, or your neighbor’s gain, where there was no corresponding need unsatisfied, or gain forfeited, on your part" (Rickaby, Moral Philosophy, 261).

Palm goes on to explain how, as the nature of money progressed over time, so did the criteria for usury:

. . . as civilization progressed, it became clear that money in more modern economies—with competitive markets and almost unlimited opportunities for profitable ("fruitful") investment—did not suffer from the same tendency to be "unfruitful" as it had before. In the face of this change, the Church defined what is meant by usury. Session X of the Fifth Lateran Council (1515) gave its exact meaning: "For that is the real meaning of usury: when, from its use, a thing which produces nothing is applied to the acquiring of gain and profit without any work, any expense or any risk."

So too, Pope Benedict XIV, in his encyclical Vix Pervenit, says: "The nature of the sin called usury has its proper place and origin in a loan contract [mutuum]. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious."

Note again that a mutuum is "a loan of a fungible, i.e., perishable, nonspecific good, whose use consisted of its consumption" (New Catholic Encyclopedia). But at present the choice for one’s money in our world-economy is never simply between spending and hoarding, for money can always been invested in any number of genuinely profitable ("fruitful") enterprises. There is much greater facility nowadays for making profitable investments 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 (which is different from usury) 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." (Catholic Enyclopedia, 1917)

Money is no longer a barren thing in itself, and thus the loan of money at interest is not usurious. Rickaby sums up the correct view of usury nicely: "[I]t is usury to take any interest at all upon the loan of a piece of property, which (a) is of no use except to be used up, spent, consumed; (b) is not wanted for the lender’s own consumption within the period of the load; (c) is lent upon security that obviates risk; (d) is so lent that the lender forgoes no occasion of lawful gain by lending it" (Rickaby, 258).

In addressing the issue of usury it seems to me that one cannot simply quote Aquinas' teaching on the topic (as one commentator has done already), or "proof-text" from this or that council or papal enyclical, but should rather consider the breadth and depth of Catholic tradition and the changing historical circumstances. As the original Catholic Enyclopedia (1917) states:

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. . . .

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. . . .

Finally, I wish to clarify that to recognize the proper meaning of usury should not be construed as a criticism of Orthodox Bishop Paul Peter, who I believe rightly criticizes the usury of some credit card companies charging exhorbitant loans.

Related Links

• God, Man, and Money, or How to Succeed in Business Without Going to Hell, by Michael Novak. Ignatius Insight - Originally appeared in Catholic Dossier May / June 1999. Novak provides an interesting history of the evolution of money and its value over the course of time.
• The Secret History of the Credit Card PBS Frontline Investigation.
• Usury by A. Vermeersch. Transcribed by Brendan Byrne. Catholic Enyclopedia 1917. [NewAdvent.org].
• Response To John T. Noonan, Jr. Concerning The Development Of Catholic Moral Doctrine by Patrick O'Neill. Faith & Reason Spring / Summer 1996.