Saturday, 27 February 2016

Theses on Usury Then and Now

These theses were developed in 2007 in conversation with Chad Degenhart and Scott C. Mooney who argued fiercely against the view presented here on a website which is no longer accessible. My theses are reprinted unchanged from
Note: Usury is today understood to refer to "exorbitant interest" but in the past the word was used to refer to usage charges on loans, that is to any form of interest payment, whether interest was 20-25% or 60% or just one percent.

(1) Commercial loans were known in antiquity. See M. Silver, Economic Structures of the Ancient Near East (London and Sydney: Croom Helm, 1985), esp. pp. 85-89 on the credit and investment market, and his Prophets and Markets: The Political Economy of Ancient Israel, Social Dimensions of Economics; Boston: Kluwer Academic Publishers, 1982), pp. 65-68, for an argument in favour of the existence of commercial loans in ancient Israel.

There was a custom for Mesopotamian kings to proclaim the remission of debts etc. at the beginning of their reigns and at intervals of seven or more years. Such a release was good news for impoverished people but it would have been bad for business, if commercial loans were included in the remission.

We are in the fortunate position of having one such edict preserved in fairly complete form, namely the Edict of Ammisaduqa from the 17th century BC. It explicitly excludes goods which have been loaned "either as merchandise for a commercial journey, or as a joint enterprise for the production of profit." It even includes a paragraph which specifies what happens to people who pretend that a loan was a commercial loan, when it was not.

It is worth bearing in mind, however, that a neat distinction between consumer loans and producer loans is not always feasible. Barry Gordon, Lending at Interest: Some Jewish, Greek, and Christian Approaches, 800 BC-AD 100, History of Political Economy, 14:3 (Duke University Press, 1982) p. 41, observes the following:
The predominant microeconomic institution in antiquity was the household, this was not merely the modern organization coexisting of a group of consumers. At the same time it was “the firm,” a group of producers. Hence, there was the most intimate relationship in institutional terms between production possibilities, consumption potential, and household capital. When a householder borrowed he was necessarily borrowing as consumer-producer. It is not surprising that it is difficult to discover unambiguous differentiation of business and consumption loans in the literature of antiquity. Certainly, one finds lending to the poor distinguished from lending to others. However, “poor loan” does not necessarily equate with “consumer loan.”
(2) Interest-bearing loans were prohibited within Israel’s polity. The prohibition of interest-bearing loans specifically applied to full members of the covenant (brother) but in this context the resident alien (Heb. ger) is to be treated like a brother. Not only must the same judicial standard applied to the stranger and to the native citizen (cf. Exod. 12:49Lev. 24:22Num. 15:18), but charity must be extended to the poor regardless of their ethnicity.

The loans in question are specifically loans to people who are not economically self-sufficient in Exod. 22:25 and Lev. 25:23-38 but the prohibition is not restricted to charitable loans, even if it is likely that the need for loans in ancient Israel was much more often related to crop failure than business opportunities. It deserves to be noted that Lev. 25 implies an obligation to charity towards the poor.

While the boundaries between the two were sometimes fluid (see above), it seems possible to distinguish between "charitable" loans for (the production of) necessities and "commercial" loans for expanding production. Only the former is explicitly in view in Exodus and Leviticus but in Deut. 23:19 all interest-bearing loans within Israel's polity are prohibited.

Such a complete prohibition of interest-bearing loans could have several reasons: (a) Opportunities for investment in an expanding business were likely rare in ancient Israel; a complete prohibition would not have a major effect on the economy, while protecting the weak from any attempts to dress up what should be interest-free charitable loans as commercial loans. The wide availability of interest-bearing commercial loans would likely reduce willingness to lend without interest to the poor. Thus a complete prohibition serves charity.

(b) It fits with the general ethos of the covenant community envisaged in the Torah that investment at a distance without partnership would be discouraged. Associates who share risks as well as opportunities  form a closer-knit community than  business "partners" whose only link is the actual loan - see the next two theses.

(c) It is possible that interest-bearing loans are considered wrong in itself. But this seems to me ruled out by the permission of such loans to a nokri, see further thesis four.

(3) Loans to a foreigner (Heb. nokri) were commercial loans. Non-resident foreigners need not be traders; a nokri is distinct from a ger by living outside the socio-economic structures of Israel’s polity, that is outside the covenant people in possession of the land allotted to them. Deut.14:21 implies a distinction between the ger and the nokri.

The ger is regularly mentioned in Deuteronoy alongside the orphan and the widow, e.g. in 24:19 in another context of benefits given free of charge. (The orphan and the widow are not mentioned in 14:21 because an impoverished member of the covenant community must still abide by the food laws; the ger is not a full member of the covenant community and therefore not bound by the food laws, cf. 24:1429:11.) There is an obligation to be generous and charitably to the ger (the foreigner who lives among you), but no obligation to be generous to the nokri (the foreigner who does not live among you).

A nokri might be, e.g., a Philistine from Ekron in the olive oil business who goes to a neighboring Israelite town to borrow silver with which to buy an additional mill in the expectation of a bumper harvest. Cf. E. Stern, Archaeology of the Land of the Bible, vol. 2: The Assrian, Babylonian, and Persian Periods (732-332 B.C.E.)  (New York: Doubleday, 2001), pp. 111-12, for Ekron.

(4) The permission of usage charges on loans to the foreigner (nokri) in Deut. 23:20 implies that usage charges on loans are not intrinsically immoral. The unqualified condemnation of usury in Ps. 15 and Ezek. 18 should not be pressed to invalidate this exception clause (cf. Kimchi). There is nothing to suggest that those in ancient Israel who availed themselves of the permission in Deut. 23:20 were excluded from going up to the holy hill (Ps. 15) and under God’s death sentence (Ezek. 18). It is worth remembering that the opportunity for loans to a nokri would only arise in prosperous times, after the needs of one's own household were covered and charity was extended to the poor.

There have been several attempts to read Deut. 23:20 in a way which allows for the view that usury is intrinsically wicked. Traditionally, the permissions seems to have been understood as a concession to evil disposition (e.g., Aquinas, Grotius), similar to the divorce regulations. But this fails to deal with the command to treat the stranger as a brother (see above) and merely shifts greed or injustice outside the community rather than limiting it.

The proposal (Calvin; B. Gordon, Lending at Interest, 1982) that the permission applies the lex talionis principle (given that Israelites would be charged interest, if they borrowed from foreigners, it is only right and proper that they should charge interest when lending to foreigners) faces similar problems and fails to take into account that charitable loans were to be a matter for the community in which the need arose.
Ambrose suggested in his Expositions on the Book of Tobit that the permission related to Israel's warfare against the nations of Canaan (Patrologia Latina, vol. 14, chap. 15; cf. Luther and, e.g., Richard Capel [1586-1656]). This view is today argued by S. C. Mooney: "Usury was part of the violence that Israel inflicted upon the wicked people whom God was driving out before them." But (a) there is no hint in Deut. 23:20 of warfare, (b) the term nokri cannot be restricted to "Canaanite under the ban", the very next occurrence of the term in Deut. 29.22 relates to someone who comes from a distant country, (c) there is a difference between subjugating by usury and putting under the ban, see Deut. 7:1-220:16-17; cf. Num. 21:2 -- the Gibeonites knew this and Saul should have known this in his treatment of the Amalekites.

The most plausible explanation in my view is that the permission relates to the fact that the nokri is a non-resident foreigner whose desire for a loan is both commercial and outside the economic structures of Israel's polity. This explanation is not traditional but it is at least 300 years old (cf. Matthew Henry). It is the most satisfying explanation because it takes into account that the legal material uses different terms for non-Israelites who have become resident in Israel (Heb. ger, toshab). It is thus eminently plausible that Deuteronomy’s distinction between a ger and a nokri is between resident (semi-assimilated ) and non-resident (non-assimilated).

Echoing Exodus and Leviticus, a primary concern in Deuteronomy is preventing rich people from taking advantage of people who have fallen on hard times. In my reading, the nokri is not the exception to the rule, as if one may take advantage of a nokri --whether as a concession to greed or as part of a campaign to subjugate and eradicate "detestable Canaanites". The nokri has not fallen on hard times. While a strict distinction between consumer credit and producer credit is untenable for the ancient world (see above), there is a difference between people and families trying to make ends meet and people and families seeking to expand economically. The nokri would fall in the latter category.

(5) The Gospel compels us to be just and generous, equitable and charitable. This includes the admonition to “lend freely, expecting nothing in return” (Luke 6:35). Christians are not under the Law which governed Israel’s polity but they are to form a community whose fellowship includes generosity in sharing material possessions. Jesus challenges us to love our enemies and to do good without expecting dividends in this whole section (Luke 6:27-38). But if, as many of us believe, "to one who strikes you on the cheek, offer the other also" does not prohibit  every exercise of force, and if " from one who takes away your cloak do not withhold your tunic either" does not abolish the legitimacy of policing, then "Give to everyone who begs from you, and from one who takes away your goods do not demand them back" need not prevent trade and "lend, expecting nothing in return" does not rule out banking. This is emphatically not to say that these injunctions have no role in politics and economics but that the statements must be read in context -- "as you wish that others would do to you, do so to them" will preclude many forms of interest-taking but arguably not all.

(6) The church fathers categorically condemned usury. They did so in a context, in which “the main business of usurers was not so much earning interest on their capital as it was expropriating lands and other property that had been offered as security against loans that could not possibly be paid.” (J. L. González, Faith & Wealth: A History of Early Christian Ideas on the Origin, Significance, and Use of Money [San Francisco: HarperCollins, 1990], p. 175). Their sermons make it abundantly clear that they do not have business loans in view, neither condemning them nor commending them. Cf. my comments on Basil's second homily on Ps 15.

While usury may refer to any (fixed?) “usage charge on a loan,” it needs to be taken into account that the church fathers, whenever they elaborate on it, seem to have “making profit from misfortune” in view, which was probably by far the most common setting for loans. Cf. The Sacred History of Sulpitius SeverusBook 1chap. 18, and
Ambrose, On the Duty of ClergyBook 3chap. 3, par. 20

It is a mark of kindly feeling to help him who has nothing, but it is a sign of a hard nature to extort more than one has given. If a man has need of thy assistance because he has not enough of his own wherewith to repay a debt, is it not a wicked thing to demand under the guise of kindly feeling a larger sum from him who has not the means to pay off a less amount? Thou dost but free him from debt to another, to bring him under thy own hand; and thou callest that human kindliness which is but a further wickedness.

Lactantius, The Epitome of the Divine Instituteschap. 64:

He will not steal, nor will he covet anything at all belonging to another. He will not give his money to usury, for that is to seek after gain from the evils of others; nor, however, will he refuse to lend, if necessity shall compel any one to borrow.”
Chrysostom, Homilies on the Gospel of Saint Matthew, fifth homily (on Matth. 1:22-23):
For nothing, nothing is baser than the usury of this world, nothing more cruel. Why, other persons’ calamities are such a man’s traffic; he makes himself gain of the distress of another, and demands wages for kindness, as though he were afraid to seem merciful, and under the cloak of kindness he digs the pitfall deeper.”
(7) The condemnation of usury in the early church is closely related to the call to invest available money with God by giving it to the poor. The notion that Christians ought to use every possession they do not actually need to alleviate poverty is widely attested in the patristic literature. See GonzálezFaith & Wealth for an overview. The immense importance of almsgiving and the power attributed to it can be seen in Cyprian’s Treatise on Works and Alms summarized by Gonzales on pp. 124-28. I found Gonzales' chapter on The Cappadocians (pp. 173-86) particularly illuminating.

(8) Scholastic theologians developed the idea that usury is intrinsically wrong (making no distinction between consumption and production loans) but they sought to be just in taking into account risk and opportunity costs.Some may have done so because they wanted to avoid the plain prohibition of usage charge on loans but no doubt some were keen to be accurate, logical and fair in their understanding of what is at issue. In either case, we need to evaluate their arguments and leave evaluating their motives to Almighty God to whom all our hearts are open.

It is worth bearing in mind that attitudes to usury were not entirely stable in the medieval period. The Church and Christian rulers often allowed usury -- to be practised by Jews, not least when a pope or king needed money, one suspects. At other times strong condemnations of usury came in handy as an encouragement to participate in the the Crusades (as a form of penance). For discussion see E. S. Tan, “Origins and Evolution of the Medieval Church's Usury Laws: Economic Self-Interest,” The Journal of European Economic History(March 2005), also available online.
The same shifts and disagreements can be observed on the Jewish side, see S. Stein, “Interest Taken by Jews from Gentiles: An Evaluation of Source Material,” J Semitic Studies 1 (1956) 141-64. There is a traditional equation of “Christian” with “Edomite” in Jewish thinking which would prohibit Jews from taking interest from Christians, because an Edomite must be treated like a brother. Those in favour of exacting usury from Christians (the only business in town!) had to argue that Christians are not in fact “Edomites.”

The classic discussion is in Thomas Aquinas, Summa Theologica, 2.ii, question 78, but the encyclical Vix Pervenit (On Usury and Other Dishonest Profit) promulgated on 1 November 1745 by Pope Benedict XIV may be considered the apex of scholastic thinking on the matter.
One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully, either to increase one’s fortune, to purchase new estates, or to engage in business transactions. The law governing loans consists necessarily in the equality of what is given and returned; once the equality has been established, whoever demands more than that violates the terms of the loan. Therefore if one receives interest, he must make restitution according to the commutative bond of justice; its function in human contracts is to assure equality for each one. This law is to be observed in a holy manner. If not observed exactly, reparation must be made.
This is about as full a condemnation of usury as one might get, small or large profit, commercial or not… But then it continues
By these remarks, however, We do not deny that at times together with the loan contract certain other titles-which are not at all intrinsic to the contract-may run parallel with it. From these other titles, entirely just and legitimate reasons arise to demand something over and above the amount due on the contract. Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from loans, to spend and invest money legitimately either to provide oneself with an annual income or to engage in legitimate trade and business. From these types of contracts honest gain may be made.
Such complexity (and confusion?) is the basis for those Roman Catholic scholars who argue that the position of the church on usury has not in fact changed like Gary L. Coulter who defines usury as "the prohibition of gain from a loan sought directly by a lender without a just title" and claims that "this is the definition of the usury prohibition as it was taught, understood and interpreted by the Church for thousands of years, just as it is today.” See also Austin Fagothey, Right and Reason: Ethics in Theory and Practice, 2nd ed. (St Louis: Mosby, 1959), pp. 471-74.

(9) The Reformers struggled to discern what faithfulness to Scripture meant in the area of financial interest, given the economic developments of their time. None of the Reformers were thrilled about the commercial practices of their time but while Luther stressed the traditional distaste for usury, Calvin was concerned to uphold the principle that the Church must not bind consciences beyond what is written in Scripture. For Calvin, see, e.g., the essay by Andrew Goddard on  Calvin, Usury and Evangelical Moral Theology.

Luther spoke often against usury. His 1519 sermon must have caused something of a stir and was published in a revised form in 1520. The 1520 Sermon was re-published unchanged in 1524 with further material added elaborating on commercial practices. B. Nelson observes that in private correspondence Luther moved from 1525 onwards to a view of interest-taking, in which “the economic situation and the consideration of public utility were of paramount importance” (in M. L. Stackhouse et al. [eds], On Moral Business: Classical and Contemporary Resources for Ethics in Economic Life [Grand Rapids: Eerdmans, 1995], p. 269). In his The Idea of Usury: From Tribal Brotherhood to Universal Otherhood, 2nd ed. (Chicago: The University of Chicago Press, 1969), he distinguishes three phases in Luther's thinking. Unfortunately, Luther’s 1540 “Admonition to the Clergy that they Preach against Usury” (Weimarer Ausgabe 51.367) does not seem to be available online.

In England, Hugh Latimer condemned usury as "wicked before God, be it small or great; like as theft is wicked" in hisFifth Sermon upon the Lord’s Prayer and Bishop Jewel explicitly rejected the rich lending to the rich and the merchant lending to the merchant in his Exposition upon the Epistles to the Thessalonians (published 1583, but written some time before 1571), see W. J. Ashley, An Introduction to English Economic History and Theory, Part 2: The End of the Middle Ages, 4th ed. (1906), p. 223.

(10) A proper understanding of the concept of time preference demolishes the claim that usage charge on (non-productive) loans is intrinsically immoral. The concept of time preference realizes that people value $100 now more than $100 in a year's time, even without inflation or deflation (von Mises, cf. G. Stolyarov). This insight may be added to the acknowledgment of the right to compensation for the expenses of the transaction (damnum emergens), the loss of the opportunity to seize good bargains (lucrum cessans), and the risk of not recovering the principal (periculum sortis). This is of course not to say that a Christian must make use of such rights, or even that Christians are always allowed to make use of them.

(11) Contemporary economic arrangements are deeply problematic. High interest rates and irresponsible lending and borrowing, both on personal and international levels, are part of the problem but the mere existence of interest rates is not the problem. We should not underestimate the role of fiat money and its impact on the issue of interest. A sack of corn is valued differently just before the time to sow seed and just after harvest time but such fluctuations are different from steady inflation of money in our economy. An interest-free loan in which the same entity is returned as was borrowed (a sack of corn for a sack of corn, ten grams of silver for ten grams of silver) is different from an interest-free loan in which the same value is returned. The latter rises the question how to measure real value.

(12) The Scriptures traditionally used to condemn all usury have not always been properly understood and applied but they remain relevant for us today. The Gospel obliges us to charity and generosity and the regulations in the Torah should still inform our thinking about socio-economic arrangements which please or do not please God. The lifestyle of many Christians today would have been abhorrent to many Christians in the past. But I very much doubt that the church fathers would have put their finger on interest-bearing bank accounts. They would be horrified about the luxurious lifestyle of many of us, while people starve in other places of the world, and about debts being incurred to finance such a lifestyle. (Cf. this illustration, shadowing the argument presented here.)

A fundamental hermeneutical principle to remember in this discussion is this: repeating the same words in a different context is not saying the same thing. The condemnation of usage charges on loans in the past was most often connected with concern for the poor. The montes pietatis, non-profit making Christian credit institutions established in the fifteenth century for charitable loans, either went bankrupt once the bequest was used up (if they provided interest-free loans) or charged a small sum of interest to cover running costs and actually helped the poor. Those who condemned these latter institutions on the basis that they were charging interest, and without providing money for all the poor who made use of these loans, drove the poor into the hands of those who charged much, much higher interest rates. Such condemnation was very different from that in the early church.

Let us imagine people who at present own more than they need but who can anticipate a need in the not to distant future -- maybe they will need a car to get to work in a year's time or maybe there will be educational expenses for their children. Are Christians permitted, in principle, to put aside resources for future use? Yes, I should think so. Jesus does not demand that we live hand-to-mouth from day to day. How should they save? Are those who buy for themselves precious metals and hid them under their bed more righteous, because untainted by usury, than those who invest the resources in a microcredit initiative which seeks to help the poor? Just asking.