Usury: Has the Church changed the Moral Law?

Question: In the middle ages loaning money at interest was forbidden to Catholics, but today even the Vatican invests its money at interest. If the moral law is unchanging, why has the Church’s teaching on usury changed over the centuries?

Answer: The moral law is unchangeable, but economic systems vary greatly with time and place. Over the years since Moses received the injunction against usury from God, western civilization has seen economies based on everything from gathering, to barter, to precious metals, to trust in the prosperity of society. Loans and interest payments take on different moral character depending upon the type of economic system in place.

But even before considering the different types of economies, it is worth knowing just what God asked of Moses and the people of the Old Testament.

It is clear that the prohibition of usury is intended to protect the poor, who might otherwise be forced to pay interest on loans just to stay alive. It is also to be a demonstration of the solidarity of the Jewish people. God expects them to treat one another as brothers, with a loan to an impoverished brother to be made on the basis of strict charity.

The nations of the ancient world generally employed coins of precious metal; chiefly silver and gold. When the Jews fled Egypt at the Exodus, they took with them a supply of the Egyptian’s silver and gold as spoil.[i] Some of this metal was used to make the idolatrous golden calf, but some was used for the decoration and furnishing of the tabernacle—no doubt some was used to trade with the foreign tribes encountered on the journey. But the main feature of the Jewish economy was gathering. God saw to their food supply by raining down manna (a bread-like substance) and quail from heaven. If a Jewish family found itself unable to gather—say, due to illness—it might call on another family for help. The second family certainly did not expect to receive anything extra in repayment for the manna and quail they brought to the first—at most they would expect the return of a like amount, and, most likely, would not seek repayment at all. The food, after all, came from God with hardly any human effort, and they might find themselves in need of similar help when they faced misfortune. Even after the Exodus, the Jewish people possessed a “we are all in this together” mentality, which conferred on every Jew the right to expect help when in difficulty.

That God allowed the taking of interest from the Gentiles suggests that there was no intrinsic immorality in the practice. Business agreements with non-Jews might include either the charging or the paying of interest. In later years, partnership agreements, with one partner supplying money and the other supplying labor were accepted as a means of finance between Jews. Medieval Christian prohibitions of interest taking did not apply to Jewish lenders, just about the only lenders of the early middle ages.[ii]

After the Exodus, the agricultural economy of Israel depended both on barter and precious metals. The coins of the ancient world—Greek, Phoenician, and later Roman—circulated in Israel. King Solomon seems to have exploited gold mines in a forgotten place known as Ophir. The “shekel” of the Bible was not a coin, but rather a weight of gold or (usually) silver. Simon Maccabee and his successors made copper coins. By the time of Christ, most of the coin in circulation was Roman—specially minted for the Jews with no human or animal images, although we know the “coin of tribute” carried Cæsar’s image.[iii]

With the legalization of Christianity in the Empire in the early fourth century, Christians lived in a society with a high degree of monetary commerce. Rome alone had a population of well over a million people, and a lot of the civilized population of the known world lived in cities, so that a money economy was a necessity (in a city you can’t very well barter your goats and chickens for a furnished room, a haircut, or a meal).

But Christianity was not legal for very long before the barbarian invasions decimated European society. Attacked by Germanic tribes from the north, Moslems from the south, and Asiatic tribes from the east, the cities and monasteries were quickly reduced in population as people scattered to the countryside and returned to an agrarian feudal economy largely based on barter and in-kind payments. At least some of the “we are all in this together” mentality returned to people in fear for their very lives at the hands of famine, invasion, or sickness. There was virtually no money to borrow or lend, and in-kind loans tended to be repaid without a premium (e.g. a dozen eggs were repaid with a dozen eggs). Whatever money or gold there was stayed locked up in the castles of the nobility, intended mostly for war expenses or “aids” to the king. Indeed, at this point (say, between 500 and 1000 AD) storing value in precious metals represented a liability that had to be guarded against loss.

Around 800 Charlemagne attempted to revive the old Roman monetary system, but simply could not acquire enough gold or silver to mint an adequate coinage. A largely barter economy remained in force until the discovery of silver deposits in Saxony in the 1040s, and the even greater discoveries in Eastern Germany, Austria, and Tuscany around 1150. The newly re-discovered mining skills also brought base metals into greater industrial use.[iv] In the eleventh century, the mint at Milan boasted striking twenty thousand silver pennies annually. But money took time to permeate the European economy. In describing conditions in 1250 (while Saint Thomas Aquinas flourished) historians Joseph and Frances Gies relate:

Christendom, therefore, existed generally with a barter economy until the twelfth or thirteenth century. In that economy demanding interest went beyond the immoral to the almost impossible. Gold sitting in a vault was in no way productive—apart from miracle or theft, there were very few ways in which an eleventh bar of gold might materialize to pay back a ten bar loan. Very likely, the loan was sought to finance troops to defend the realm, an extreme necessity on which no one ought to profit. Even through the thirteenth century, money lenders like the Jews and the Knights Templar were sometimes paid back by the king with death, or at least confiscation of their assets.

It is with this background that Saint Thomas and a number of Catholic authorities wrote about the morality of demanding interest payments. To Saint Thomas, to “take usury for money lent is unjust in itself, because this is to sell what does not exist ... the proper and principal use of money is its consumption or alienation whereby it is sunk in exchange.” Saint Thomas did, however, allow the charging of rents and late payments on loans; practices which differ from interest charging mostly in name. [vi]

Had Saint Thomas lived a century or two later, he would have witnessed and understood the nature of the “commercial revolution” which was only beginning in his time. Money and the loaning of money were beginning to make it possible for new wealth to be added to society through increased trade—instead of sitting in a vault, money would become productive, giving rise to something that actually “did exist,” and might legitimately be “sold.” The rise of economics as a research discipline would also contribute to the theologians’ understanding of economic affairs. It should be remembered that the competence of the Magisterium is in morality, not economics—the Church may demand good treatment for the poor, but it cannot demand that such treatment flow from ways which violate good economic sense.

By the late middle ages, a trader might borrow money (florins) from a bank in Florence to purchase local goods and transport them to London. Having sold the goods, the trader could pay off the loan in pounds at a branch in London, and arrange to finance an new venture with British goods or the transfer of his profits back to Florence.[vii] Needless to say, people were employed in production never before possible. The services of the bankers cost something, but the net growth of the economy was positive. Rather than being victimized, the poor were able work productively.

Of course, few things are ever perfect, and not all men are honest. Bankers felt comfortable in lending the same gold several times over—the gold stayed in their vaults, and the receipts for the gold circulated as money—this practice of “fractional reserve banking” immediately raised questions of honesty and fairness, and often culminated in bank failures. (Fractional reserve banking is still in use in our Federal Reserve system, albeit with some safeguards against failure. The morality of the Federal Reserve must be treated as a separate subject.)

Modern theological thought holds interest to be legitimate to the degree that it protects the investor from risk of loss, as well as to reimburse him for his “opportunity costs,” a recognition that he could have done other productive things with his money during the period he is without it.

Q&A NOTES:

[i] Exodus iii: 22.

[ii] Philip Birnbaum, Book of Jewish Concepts, (NY: Hebrew Publishing, 1964) s.v. “Usury” (p.427-428).

[iii] E. Power, SJ, Catholic Commentary on the Scripture (NY: Thos. Nelson, 1954) “Measures, Weights, Money and Time,” p. 111.

[iv] Norman Cantor, Encyclopedia of the Middle Ages (NY: Viking, 1999) s.v. “Money and Currency in the Middle Ages” p. 312-313.

[v] Joseph and Frances Gies, Life in a Medieval City (NY: Harper & Row, 1981) p. 99-100.

[vi] Summa Theologica II-II, q 78, a. 1.

[vii] Cf. Cantor, op. cit., s.v. “Banking,” p. 61-63.