Was the usury prohibition an insurmountable obstacle to the development of commerce?
When undertaking the problem of whether the prohibition of Usury was an obstacle to the development of Commerce few have made comparisons between the two. Certainly not a conclusive consensus among scholars has been drawn, with many disagreeing ultimately as to whether or not prohibition of Usury had any affect upon the economy. Usury in the High Middle ages, was rather different than the Usury we have come to know today, rather than the modern idea of unethically high rates of interest, the prohibition of Usury was a blanket ban on any kind of interest at all, following the Christian ethic that the lending of money is there to help those down on their luck, and to be used in a charitable ethical way, than to make money from purely for the self desire of accumulating wealth. Economic growth before and during the prohibition largely emerged through the acquisition and trade of chattel. However, when Protestantism, and in particular Calvinism, formalised the exception to existing prohibition of usury, the commercial effects of private interest loans allowed, as Aristotle had once disparagingly proclaimed it would, “money to be born from money”. This all but ensured a new commercial landscape in which money became capital, which could be used in order to create more money (and thus more capital). Usurious loans would become a vessel for economic growth, both of individuals, and of public bodies – otherwise known as the Financial Revolution. Max Weber draws reference to the links between the emergence Calvinist Protestantism and the birth of capitalism, an economic system in which those who own capital create wealth, and in theory economic growth. Prohibition was an obstacle as any prohibition is, to the development of commerce but as this essay will explore, perhaps it was not an insurmountable or even a significant one.
The critique of using Usury pre-dates Christianity within Islam and still today, it remains a core part of Islamic laws on morality known as Riba. The main religion however in the Early Middle Ages, the High Middle Ages (the periods of time in which this essay will focus), and indeed the present day, is Christianity, I will therefore draw my sources on why Usury was viewed as a Sin from the main Christian text, the Bible, as well as further Christian Councils and theologians who continued to uphold the idea that Usury was indeed one of the highest forms of sinning.
The most important text for Christianity is the Bible, we can see reference to the sin of Usury in the Bible’s Old Testament;
If thou lend money to any of my people that is poor by thee, thou shall not be to him as an usurer, neither shalt thou lay upon him usury. – Exodus 22:25
Indeed again, the New Testament also has passages in regards to Usury, highlighting the distain of it;
… Love your enemies, do good to them, and lend to them, expecting nothing in return. Then your reward will be great, and you will be sons of the Most High. – LK, 6:34-36
The way in which laws were legislated and interpreted during this period was via Canon Law, taking the majority of it’s governing rules from the Bible, it is no surprise when in
325 AD the Council of Nicaea, delivered the first official prohibition of Usury in regards to Clergy members, those who found guilty of engaging in Usury would find themselves being demoted within their clerical rank. This was the beginning of the Usury prohibition which would ultimately span centuries.
Later the Third Lateran Council, a series of meetings called within the Roman Catholic Church by various Popes, in order to produce responses and discuss debates and controversies that may have arisen within the Church, in 1179 AD stated that Usurers should be condemned, excommunicating those who commit it.
Extremely influential scholars later solidified the Churches views, drawing upon Aristotle previous comments within his book Politics in regards to Usury;
The most hated sort [of money-making], and with the greatest reason, is usury,
Which makes gain out of money itself, and not from the natural use of it. – Politics,
I.10, 1258b
In particular St Thomas Aquinas, a theologian of the Roman Catholic Church, had strong arguments against charging interest, within his work Summa Theologica, as an influential figure during his time, his opinion was highly regarded within the laity and indeed the church. He stated that interest is similar to charging twice, in the respect that it was as if you were “charging for both the repayment of the loan and for the use of the money”. Aquinas drew this likeness between Christian theology and Greek philosophy in order to further the idea that interest is unnatural, as Aristotle had set fourth in his statement within Politics, in regards to interest, i.e. you cannot reproduce money, in and of itself as you would say a crop, and so as a sterile instrument, the idea of reproduction conflicted with God’s Natural Law.
With largely agricultural societies governed by “Manors” pre-prohibition Europe, is one where the desires of it’s inhabits were largely that of survival. Engrained within an agrarian society is the idea of reproduction, and creating crops from crops, etc. naturally and so perhaps the money’s supposed sterility was a reason why there was a apprehensiveness around creating wealth from the “reproduction” of money. Monopolies were none existent during this time and largely society based it’s need around the idea of helping each other out. Accumulating wealth was not something individuals often thought of, those who had wealth remained with wealth and those who were poor, again remained poor. Living with a means to an end within their own small communities. This meant that anti-usury laws weren’t exactly a problem, that was until trade grew. The movement of large amount of goods all over Europe and even beyond opened small societies into the idea of accumulating wealth and the need for borrowing money. The idea of debt, wasn’t really found until the 1100s in Italy. With the majority of people viewing helping of others as a Christian duty. Loans were not a necessity, until that is, there was a need for transporting physical money across continents, and the continuation of trade. When society began to make this change into a much more trade based economy, prohibition was in full swing, being codified within binding Canon Law. Without the ability to be able to charge even a small amount of interest upon large transactions would appear to disadvantage those lending money, when they were taking high risks. However, there was ways in which people began to get around Usury, which leads many Scholars to determine the prohibition wasn’t all that bad for those living in the Medieval society.
The first of which being that it only applied to “consumption loans’. Consumption loans were for example, where a lender would give a loan of 10 pounds of corn to a borrower and in return the borrower is obligated to return the same goods (corn), in the same or equivalent quantity over a reasonable time period. Consumption goods in the first place didn’t really exist for a want for profit, they existed for survival. The loan was not to plant corn, in order to grow more corn to sell on, for a self profit, it was purely for the borrower to consume themselves. Therefore, Usury on these loans, was deemed unjust, a tax on charity if you will. For those trading and contributing significantly to the economy, in terms of those contributing to the capital of the overall wealth weren’t being penalized.
Another way in which to get around Usury prohibition was exceptions known as extrinsic titles. The intrinsic title of something, is a value inherent of itself, therefore an intrinsic title to interest would mean that of itself a loan would allow for the charging of interest, this was viewed as immoral and wrong. Money cannot replicate itself therefore of its own, money carries no way in which to profit. However, the opposite to this, is the idea of extrinsic interest, that means the interest is not coming in and of the money itself, but from the idea its adding to the common good. Extrinsic titles are there to equalise the balance between any risk or loss occurred in regards transaction, evening the playing field. Damnum emergens essentially “direct loss” was perhaps the least controversial of the lots of extrinsic titles, i.e an example put forward by Franciscans was that mons pietatis the owners of a pawnshop which was involved in giving credit to the poor, were able to charge interest if the money was then used for the purpose of continuing the existence, of the pawnshop per say.
Also and probably the largest argument against Usury prohibition being an insurmountable obstacle was John Calvin and his contributions towards the changing of attitudes and the rise of capitalism and indeed the economies growth in connection with his teachings. Max Weber’s Protestant Ethic and the Spirit of Capitalism, goes into great detail about the relationship between Calvin and the foundations of modern capitalism. Calvin is said to have re-interpreted the Usury prohibition in a way that allowed for Usury on commercial lending. Although not painting himself as a total reformer, he did pave the way for the eventual abolishment upon the prohibition of Usury. Having come from a rather wealthy family, money for Calvin was perhaps viewed differently. He felt that money was only sterile if it was not used, however the act of borrowing money was not in order for you to have it remain idle within your home, it was to reinvest and put to good use, hence money for Calvin was indeed fruitful. Calvin stated that as long as you weren’t charging Usury in regards to the poor, a legal maximum was obeyed and that no one should take on the profession of lending money, then there was no reason for the prohibition of Usury to continue.
John Calvin was a French theologian and pastor, instrumental in the second wave of the Protestant Reformation, he developed the theology of Calvinism, which focused largely on the idea of predestination. Predestination for Weber, was one of the main reasons the “spirit of capitalism” was sparked for followers of Calvinism. Predestination is the doctrine that events within an individual’s life have already been willed and decided by God. God makes the choice of who will continue on to Heaven and who will go to Hell separate of the individuals character. Weber argues within this idea of predestination, the idea of having to devote your life to God is lost, if he has already predetermined your life then you are no lesser for working a business than you are as a clergyman. Therefore, this intent to have a strong work ethic should not be hindered by your personal desire to seek out a life of God. Within Calvinism the belief is that God will leave you with hints or clues in regards to whether you have been chosen to make the trip to Heaven, the way in which they done this was through how successful you had been within your life. This desire to be successful, which many began to equate with wealth was developed, from this later, capitalism. For the first time, business transactions were able to fully create profit via the use of interest for the lender. There was no more need for extrinsic titles in order to get around the Prohibition. This meant individuals were able to lend money, at an interest so they were making a profit, which in turn meant the borrower needed to either invest or create using the money they had borrowed as capital in order to then make a profit themselves, which they could then repay the lender. This allowed for more trade by facilitating a new way in which individuals could make profits, by lending money. The more lenders available for the market, meant also the lower transaction costs in regards sourcing the borrowing of money, more capital in circulation, more bi-products of borrowing, resulting in a better economy.
Once capitalism had taken off however, Weber concludes that Protestantism, and in particular Calvinism was no longer needed to maintain it’s growth, as people were able to identify just how good it actually was for the economy.
There were more than a few ways in which during the Prohibition individuals were able to get around it, such as, disguising the transaction as something else, the fact that it applied within consumption loans, and using a balancing act of loss and gain for both creditor and the borrower. However ultimately it probably did hinder the growth of the Economy for Europe as a whole, the fact that there was a need to get around the prohibition suggests that in order for the economy to have begun growth earlier on, easy access to borrowing money, even if that did mean with interest would have allowed for trade to have developed easier. We see that when Calvin does allow for more relaxed rules, more people begin to trade.