Timothy J. Cullen’s recent Remnant article on Usury urges the need to consider a critical moral issue of our time, usury. This topic is important for two distinct reasons. First, as Mr. Cullen argues, this sin is pervasive in our finance Capitalist economy. It is a sin that surrounds us yet we hear almost nothing of it from the shepherds and theologians of our day. Those whom I refer to as the “Economic Modernists” (this includes both the Liberation Theology brand and the Capitalist Michael Novak brand) of our century have struck a deal with the Father of Lies. Deny some of the truths which God has revealed in exchange for the promise (illusory) of economic prosperity. The Liberation Theology folk made this deal with a Mephistopholese dressed in the gray garb of Communism. The Capitalist school made it with him dressed in the tweed of Capitalism. The clothes and terminology changed but the deal was the same. Deny Catholic economic teaching in exchange for economic “progress” and prosperity. The deal with Communism has been exposed for what it is and the deal with Capitalism is the latest Great Façade to be showing its cracks (record mortgage foreclosures, “liquidity” problems, the collapse of the once thought to be Wall Street bedrock of Bear Stearns). As Mr. Cullen points out usury permeates the Finance Capitalist system. This fact was evident over eighty years ago to the great theologian and economist Father Bernard W. Dempsey who argued that Capitalism had created a new form of the sin of usury which he called “institutional usury.”1 This new sin was not committed by individual usurers but by a monetary and credit system built on and sustained by a systemically usurious monetary system. Notwithstanding the obvious failure of the promised reward, our shepherds and theologians hold up their end of the bargain and fail to warn and teach the faithful about the dangers of usury. The faithful therefore have a duty to inform themselves about this topic.
The second major reason for a closer review of usury is that it is one of the favorite tools of the moral Modernists. They use the history of usury as a purported example that proves Pascendi and Vatican I wrong. The Church can change moral teaching such as that on contraception and abortion; it happened in the past with usury. The Church prohibited usury, they claim, and now the Church allows it. This infiltration of modernist argumentation is exemplified by examining The Dublin Review, a Catholic journal founded by Cardinal Wiseman and others in the early 19th Century. In 1873 and 1874, the journal published a two-part article which explained the Divine Law on usury and the history of its application by the Church.2 Although experts may dispute some historical details and arguments in these two articles, they solidly defend the Church’s teaching on usury as just, consistent and correct. “It is false to say that … she [the Church] has ever changed her principles of morality; or that she now concedes in practice what she condemns in theory.” Less than a hundred years later, the same Dublin Review (or at least the periodical bearing the same name!) published an article entitled “Authority, Usury and Contraception” by John T. (now US judge) Noonan. The Autumn 1966 article (a copy of which containing what appears to be excellent notes of the late Michael Davies is in my possession and was very useful in composing this article) holds out the hope that the Church will revise the teaching on contraception just as the teaching on usury was changed. The article attempts to argue that despite the usury teaching being supported by more weighty authority than the contraception rule, theologians worked out “modifications, alternatives and changes which effectively sapped the force of the old rule.” Noonan suggested the Church in 1966 “was on a threshold, perhaps, of a development [in the teaching on contraception] analogous to that on usury.” What a radical change in less than a century! So that we are equipped to defeat this false argument claiming the “development” of doctrine we need to understand the teaching on usury accurately.
Our task is not an easy one for several reasons. First, as Dempsey understood, we live in an economic system which has institutionalized usury. We are so inundated with it that our intellect has been darkened in its ability to perceive it. Second, the explanation of the divine prohibition of usury is inextricably linked to Aristotelian and Thomistic philosophy, the teaching of which has been almost completely ignored in our modern educational system. The Church spoke about usury in the language of Aristotle and St. Thomas. To understand the Church’s statements we need to rediscover the language in which the teaching is expressed; we need a Philosophical Rosetta Stone. Third, new forms of economic transactions have arisen over the centuries and Catholics have been faced with the often difficult task of understanding these new transactions so as to properly apply the teaching on usury. In making these applications of the unchanging law to new facts, theologians and members of the hierarchy can make factual errors which later can be corrected. Also, theologians can issue provisional or qualified conclusions about the application of the theory to new situations while they continue to consider the question. This process of applying the law of usury to new facts is further complicated by the fourth difficulty: the language of economics and of our legal system has shifted the meaning of critical terms used by the Church to define and explain the moral law on usury. “Interest” “Loan” “Money” “Usury” have very different definitions in our common language today and we run the risk of not realizing that the Church was using these terms as originally defined in Roman law and Aristotelian philosophy and not as misused today. Finally, we need to distinguish two functions of the teaching authority of the Church which are often conflated. One is the proclamation of the unchanging Divine Moral Law. Second is the application of that law to specific factual situations. An example using contraception is useful. The Church has always taught that “any use whatever of marriage, in the exercise of which the act of human effort is deprived of its natural power of procreating life violates the law of God and nature and those who do such a thing are stained by a grave and mortal flaw.”3 Next the Church needs to guide the faithful in discerning whether particular actions (such as newly discovered techniques for identifying a wife’s fertile period and then restraining from marital acts at such time) are “an act of human effort” which deprives marriage “of its natural power of procreating life.” In explaining that under certain grave conditions such periodic continence does not constitute such an act of human effort, the Church is not “changing” or “modifying” the moral law but merely making a judgment as to whether that law (as always understood) applies to these facts. Another example can be found in the teaching on the Just War. John Paul II declared that the US war in Iraq did not constitute a Just War. If a subsequent Pontiff were to declare that John Paul II did not correctly apply Just War moral principles to this specific war and in fact it was a Just War, the Church would not have “changed” its teaching in any way. One Pope would have corrected the erroneous judgment of a prior Pope about this particular war. (Note I am not suggesting I believe John Paul II was incorrect but merely positing this as an example to illustrate the point.) Putting these difficulties together, we can see how some can reach an erroneous conclusion that the Church modified the moral law of usury when the Church or a particular theologian explains that a type of economic activity (unfortunately now known by the same word that formerly identified a different economic transaction which did constitute usury) does not constitute usury. It would be as if the definition of the word “abortion” transformed into that which we now call “adoption” and then someone found a statement by the Church that “abortion” (as redefined to mean adoption) is permissible by married couples and reached the conclusion that the Church changed the moral law when in reality the world merely changed the meaning of a term.
We will therefore examine what the Church has always taught on usury. We will next examine how economic changes made it necessary for the Church to apply the moral law to new factual scenarios. In a several centuries process of this application we can discern two strands of arguments: one faithful to the unchanging moral law and the other going beyond the mere application to new facts and arguing for a change in the moral law. Our modern confusion on usury stems from secular society effectively embracing this second flawed approach. Finally we will examine some practical applications of the usury teaching to our lives in the 21st century.
To discern what Scripture and Tradition have taught we need to define some terms. This is somewhat tedious but necessary in this complicated area. To begin, we will start with some statements from the last major papal document focused exclusively on usury, Vix Pervenit of Benedict XIV, cited by Mr. Cullen. The Pope says, “The nature of the sin called usury has its proper place and origin in a loan contract.” He continues, “any gain which exceeds the amount he [the lender] gave is illicit and usurious.” The two highlighted terms are critical to this summary of the doctrine. If a particular transaction is not a loan than any gain cannot be usury (although it may be licit or illicit as a result of a moral principle other than usury as when for example a merchant sells a product for more than its just price). Secondly only “gain” is usury. We need to examine carefully what these two terms signify.
In modern law and speech the word “loan” has a very broad meaning. It can be used to describe when a person gives money to another to buy food or medical care and expects repayment of that money at another date. It can refer to an investor who provides capital to a business for a time and expects the return of his capital and a profit. Further, it can describe when a person gives another a piece of property (like a car) to be used for a while and requires the return of that property. The Roman law had distinct terms to identify all of these transactions which are now signified by our word “loan.” Since most of the examples of the infallible teaching of the Church on usury use these Roman law terms, we need to understand that the law of usury only applied to those situations designated by the Roman word for loan and not the modern term.
The Roman word for a loan (the type of transaction in which usury could occur) was mutuum. It involved the transfer of ownership of a fungible good which was consumed in first use and a requirement that the borrower return at a later time property of the same kind and quantity provided to him. This definition only covers the first example we cited above. The other examples were identified by other terms such as societas, census commodatum, conductio locatio re. One could not commit usury when engaging in these other transactions (again other sins were possible but not usury).
Before progressing, we need to understand the concept of “consumed in first use.” The mutuum only applied to the transfer and retransfer of this types of property. It is something that cannot be used without its destruction or loss. Tangible property can be divided into three groups of things: (1) those that can be used without their total loss, (2) those that can only be used by their total loss and (3) those things which have different possible uses, some of which consume the thing and some of which do not. A house can be lived in and not destroyed. Wine cannot be used (drinking or cooking with it) without consuming it. A potato can be used without consuming it (for example by planting it as a seed potato) or by consuming it (eating it). From about 325 through the fourteenth century, money was thought to be exclusively or almost always in the second category of things that are consumed in first use. Due to the expansion of commerce, more opportunities to use money in a productive way (like the seed potato) became common. Many theologians began to consider whether money was actually in the third category of things that can be used in first use or used productively. Money could be used without consuming it completely (like planting a seed potato to grow more potatoes).
The next important concept in the Pope’s statement is “gain.” The sin of usury occurs when a lender of a fungible thing consumed in first use requires that he be put in a better position than he was in before the loan. It is licit to require equality in position. Now we must distinguish gain from compensation for a loss. If a man steals my car and crashes it; he then is obligated to give me a new car of similar quality in restitution, I do not gain; I merely return to my original position. The Roman law called the payment to compensate for loss “quod interest” or the difference. The original meaning of our world “interest” was not payment of gain for a loan but payment in compensation for a loss. For example, Marcus borrows 100 ducats from Linus and promises to pay it back in two months. Linus needs the money back in two months to pay his son’s tuition at the university. Linus pays the money back two months late and as a result Linus has to pay a 10 ducat fine for paying tuition late. Marcus should pay Linus 10 ducats in “interest” to compensate him for that loss. This payment is not usury as it is not a payment for the use (consummation of money) but merely compensation for the harm done by not returning the money when agreed.
Before ending this part I will summarize what I have established so far. Usury is the sin of charging a profit or gain for the loan of something which is consumed in use such as money. In the first millennium of the Church’s teaching in this matter, money was considered something which could only be consumed in use. The sin could only arise in a loan of such a consumable. Usury could not be committed in the rental of a field or plough. Second, the prohibition of usury did not affect the right of a lender to charge a borrower for loss or harm caused by the borrower. In the next part we will consider some more specific applications of this core teaching to the investment in businesses and to the discovery that money may be a thing which has a dual use, consumption and production.