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Dan wrote:

Hi, guys —

This question is being posed to me:

If the Church's teaching has been protected from error throughout the centuries, why did the Church's stance significantly change regarding the issue of usury (charging interest on a loan)?

I can explain to him what the development of doctrine is, but I can't explain how it applies in this particular case.


  { If the Church's teaching is protected from error, why was there a significant change on usury? }

Steve Kellmeyer replied:

Hi, Dan —

The Church's doctrine didn't change. Charging interest on a loan in order to make a profit is still forbidden. However, money may be "rented". That is legitimate.

The principle revolves around the intent of the person lending. If I have money, I have several things I can do with it.

  • I can use it to directly take care of the needs of my family and myself
  • I can use it to start a business and generate a living income for my family and myself, or
  • I can lend it to someone, but if I lend it to someone, I am denied the use of the money itself.

Just as I might ask you to recompense me, in some manner, for the privilege of borrowing my car (for when you use my car, I cannot use it), I can legitimately ask you to recompense me, in some manner, for borrowing my money. Usury is charging interest on a loan for the purpose of profit.

The difference here is analogous to the difference between paying someone slave wages and a just wage. The Church says you can't force someone to work for you and if they choose to work for you, you can't exploit them by paying them less than their work is worth.

Simply paying them a pittance does not satisfy justice. Similarly, you can't exploit someone by asking them to recompense you for the use of your money to a degree that outweighs what you would have derived from your own use of that money in other circumstances.

In Him,

Steve Kellmeyer

Alexander R. Pruss replied:

Hi, Dan —

In the early Church, charging interest on loans was forbidden to clerics. By implication, it was not absolutely forbidden to others.

Now, in the patristic era, I think the following argument can be made. Charging interest on loans was condemned on the following grounds:

  1. Charging interest on loans harms borrowers in need;
  2. It is wrong to harm borrowers in need.

Now, the "harm" talked about in #1 and #2 was simple material harm. The doctrine thus consisted of two parts: #1 and #2.

Now, #2 concerned morals. The Church was inerrant with respect to #2. However, #1 is not a moral or dogmatic proposition: it concerns an empirical question of economics. Unless Scripture affirms #1 in full generality, which I think it does not, #1 does not pertain to faith or morals. (Note: The inerrancy of Scripture might go beyond matters of faith or morals; the infallibility of Tradition does not.)

However, in the scholastic period, the teaching developed. The charging of interest on loans was no longer seen as contrary to charity, as above, but as contrary to justice. Thus, the teaching was no longer based on #1. An injustice is wrong even if it does not materially harm anybody.

Throughout the Middle Ages, the doctrine was in a state of flux and was not an absolute prohibition on interest. At various times, various "exceptions" were accepted. For instance, it was seen (at least in some periods) as acceptable for the lender to ask for compensation for material losses that he suffered because of the lack of the money. By this principle, I suppose, if I lent you money and meanwhile, because of the lack of that money I couldn't do routine repairs on my house and the house eventually collapsed because of this, then I would be entitled to compensation for the destruction of the house. Or, if I sent the loan to you by courier, I had a right to ask from you a fee that would cover the costs of the courier. Moreover, limited financial penalties for late payment of debt were permitted during some periods — (the teaching was, remember, all the time in a state of flux), provided that the penalties weren't so high that the lender would prefer the repayment to be late.

Eventually, some interesting practices developed in the late Middle Ages to the beginning of renaissance. For instance, it was, albeit grudgingly, accepted that one could do the following thing: One could buy from a farmer his fields, and let him continue to live on his fields while paying you a portion of the proceeds of the fields. This is not too different from an investment loan, except that title to the fields passed to the "lender". Also, institutions were set up, designed to lend to the poor. These institutions charged the costs of the running of the institution, including the costs of staff time, to the borrower.

The heart of the medieval teaching was the doctrine of "fair price". It is morally wrong to sell something to someone for a price higher than its fair price. It was taken by the medievals to be irrelevant whether the buyer had a special need for the thing or not. The value of an item was taken to be something objective, and to sell for more was a sin. If the buyer had a special need, then to take advantage of this special need was taken to be a coercion. The fair price was supposed to coincide with the price that an un-coerced buyer would be willing to pay. However, "un-coerced" means not "un-coerced by the seller" but also "un-coerced by circumstances".
St. Thomas thought, following Aristotle, that the fair price of $10 was, well, $10. Thus, it would be morally wrong to sell someone $10 and demand more than $10 back. Money, St. Thomas and Aristotle thought, did not multiply.

There was an economic error here, caused by the fact that the medievals thought of money, not as an abstract medium of exchange existing through social construction, but as coin. Coins, unlike cows, don't multiply. Thus, while it would be reasonable that if I lend you a cow and a bull for a year, that I should ask for a cow, bull and calf back, it would be unreasonable and unjust that I should ask for $10.50 back, if I've lent you $10.00 for a year. But this is a misunderstanding of the nature of money. Money is defined by social construction. It is not the same as coin.
While coins do not multiply, money does.

Now, Thomas Aquinas was not entirely blind to this. He considered the question of whether a lender who could have invested the money (e.g. by buying himself a cow and a bull!) can ask the borrower to pay back the amount which the lender could have expected to earn had he invested the money instead of lending it. St. Thomas's answer is in the negative, on the grounds that potential future gain is not real, but uncertain and contingent. I think that here a calculus of probability computing the expected gain would have been acceptable.

If we put together all of the ideas above, I think we can get an idea of money lending which lets the lender charge for costs of lending. This was always accepted, but what could count as a
"cost of lending" varied over the Middle Ages, including the cost of the lender's time (fair salaries of bank staff, etc.) and including the gain that the lender could have expected to make, had he invested the money in some non-lending way (e.g. by buying shares in someone's field or company, or by buying a bull and cow); inflation being factored in. Since money, being socially constructed, is not the same as coin; if I lend you a $10 bill and get back the same $10 bill in an inflationary economy, I have received less money than I gave. Likewise, loans that are equivalent to investments are acceptable. Now, this does not justify all lending at interest. The sin of usury is still on the books. Charging 20% interest like some credit card companies do is usury, and wrong. However, lending money to someone so he might buy a house seems quite acceptable because, in effect, the lender is buying the house and renting it back to the borrower. The medievals would not have accepted this, but it seems quite legitimate.

So my answer is a little complicated. The patristic teaching had two parts, one of which was moral and the other empirical. Only the moral part was the Church inerrant about. The medieval teaching was in flux throughout the Middle Ages. It didn't go back to the Fathers fully, but there was a shift from a focus on charity to a focus on justice. The center of the teaching was that it was unjust to charge an unfair price. This is still Church teaching. However, the difficult, partly economic, question of what constitutes a fair price was in flux throughout the Middle Ages. Different kinds of things that we could call "interest" were permitted at different times. This flux suggests that we weren't dealing an immutable teaching, but with one that was developing. It is true that throughout the Middle Ages people would have been willing to say:

"It is always wrong to charge interest."

However, what exactly would count as interest changed with time. Costs to the lender were always permitted to be charged.

I think that the teaching on usury has not received enough emphasis in the past century or two. The teaching is still there. Charging unfair interest is wrong. What counts as "unfair" is a difficult question, but it seems clear that there are many cases of it around. Developing countries staggering under an enormous debt load, despite having paid back well over the principal, might well be victims of usury.

Alexander R. Pruss

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