THE PROBLEM OF USURY

By Martin Hattersley

A plea came to me over the Internet a while back from a Ph.D student in Switzerland, who needed help in preparing his thesis, by providing a translation from the Latin of a commentary by one Father Concina of an encyclical of Pope Benedict XIV on the subject of Usury entitled "Vix Pervenit".

Having had an education in Latin and Greek, degrees and diplomas in Economics, Law and Theology, as well as a lifetime interest in monetary subjects, I felt called to offer my services, and in the light of today's economic difficulties have found the experience, still far from complete, difficult but extremely rewarding.

Usury, as defined by Benedict and Aquinas and many other ancient writers, is not just the charging of excessive interest on a loan. It is the gaining of any reward at all for a loan of money (or other item that is not to be returned in its original form), other than return of an article of amount and value equal to the original advance. This definition is supported by Scripture (for loans within the Jewish community, though not to Gentiles: Deuteronomy 24.19,20) as well as Aristotle, but it was challenged by Calvin. Calvin and his followers maintained that there was no difference between asking payment for a rented house, for instance, and renting the money needed to buy the house, so long as the interest charge was not excessive - a view that is the accepted basis for banking and capitalism in the Western world today.

So what is wrong with Calvin's approach? Three things at least - and there are more:

First: Charging interest on money lent is asking for reward without risk, so doubling the burden on the borrower. The farmer operating on borrowed money, for instance, is still expected to pay interest on his loan even if his crops fail or the market collapses. Countries saddled with National Debts (including Canada, but especially Third World countries) have to tax their citizens heavily, and beyond the amount of any international aid they receive, to pay interest on debts currently beyond their means to repay, causing starvation and distress as the International Monetary Fund and the World Bank insist on their pounds of flesh.
 
Secondly: Making profits using bank created money, for example by buying on margin on the stock market, does nothing to make the world richer in terms of real wealth. Money, contrasted with productive assets, is of itself sterile, but can be highly profitable to the speculators who expect the taxpayer to provide a bail out for them when the bubble bursts.

Thirdly: Usury is a way by which both banker and borrower can rob the public. A loan of new bank credit, say for buying a house or an industrial project, dilutes the value of the monetary unit, making the value of everyone else's dollar that much the less. So we have a persistent erosion of the value of our money, so much so that the school principal who was "passing rich with forty pounds a year" two hundred and fifty years ago would need a salary of a thousand times as much to maintain that standard of living today. Bankers and borrowers print (and charge for) the tickets. We, the public, are expected to put on the show. Then, as we pay the bankers back and the credit is cancelled, we find we don't any longer have the money available to buy products that are waiting for our dollars, and the economy goes into a slump.

Muslims still respect this prohibition on the charging of interest. Financing one's house through a Muslim bank involves the bank using depositors' funds to buy the house for the occupant, who pays rent, and contracts to pay additional monthly payments to build up a savings account by which the house will be paid for and transferred at the agreed price after a period of years. The risk of changes in house value is then borne by the lender, who is in the position of a landlord, and the borrower in financial difficulty has built up a cushion of savings that make it possible to renegotiate payments should he be temporarily unable to meet his obligations. The bank itself has physical assets that it owns, rather than paper promises to pay, to back up its balance sheet. So Muslim banks have been remarkably free from the monetary crisis that has struck the "Christian" world so severely.

In this connection, Pope Benedict XVI's recent encyclical "Caritas in Veritate", along with pleas from our own Anglican Bishops, especially in  England, calling for morality and compassion in the economic sphere, need to be listened to. Salvation is not just a personal matter - it operates at the level of the community as well. We Christians have something to learn - or re-learn - when it comes to looking at the way we do business.