Usury
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Usury (from the Latin usus meaning "used") was defined originally as charging a fee for the use of money. This usually meant interest on loans, although charging a fee for changing money (as at a bureau de change) is included in the original meaning. After moderate-interest loans became an accepted part of the business world in the early modern age, the word has come to refer to the charging of unreasonable or relatively high rates of interest.
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Historical meaning
Usury (in the original sense of any interest) is scripturally and doctrinally forbidden in many religions. Judaism forbids a Jew to lend at interest to another Jew. It's forbidden in Islam. The most recent Catholic teaching on usury is by Pope Benedict XIV in his Vix Pervenit (http://papal-library.saint-mike.org/BenedictXIV/Encyclicals/Vix_Pervenit.html) from 1745 which strictly forbids the practice, though given the modern day Catholic Church's investments in the banking industry, the prohibition has to be regarded as a dead letter.
While Jewish law forbids the charging of interest to another Jew, Jews are not forbidden to charge interest on transactions to non-Jews. Throughout history, the interest attached to loans by Jews to non-Jews is widely considered to have been a central issue in causing a perception of usury, and contributing to a climate of anti-Semitism. Allegations of usury have been one factor leading to forceful confiscations of property and discrimination against Jews in business practice. Ethnic-based distinctions surrounding the application of interest charges are often perceived as pronounced, discriminatory and unjust, and can inflame existing ethnic divisions.
In the modern world Islamic teachings against Usury probably have the widest influence, and specialized codes of banking have developed to cater for Muslim investors wishing to obey Qur'anic law; see: Islamic banking.
Usury has been denounced by almost every major spiritual leader and philosopher of the past three thousand years. Plato, Aristotle, Cato, Cicero, Seneca, Plutarch, Aquinas, Jesus, Muhammad and Moses are just a few.
Cato in his De Re Rustica said:
"And what do you think of usury?"
"What do you think of murder?"
Biblical injunctions against Usury
The following quotations are from the Bible:
Exodus 22:25 If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.
Leviticus 25:36 Take thou no usury of him, or increase: but fear thy God; that thy brother may live with thee.
Leviticus 25:37 Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.
Deuteronomy 23:19 Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury:
Deuteronomy 23:20 Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.
Nehemiah 5:7 Then I consulted with myself, and I rebuked the nobles, and the rulers, and said unto them, Ye exact usury, every one of his brother. And I set a great assembly against them.
Nehemiah 5:10 I likewise, and my brethren, and my servants, might exact of them money and corn: I pray you, let us leave off this usury.
Psalm 15:5 He that putteth not out his money to usury, nor taketh reward against the innocent. He that doeth these things shall never be moved.
Proverbs 28:8 He that by usury and unjust gain increaseth his substance, he shall gather it for him that will pity the poor.
Isaiah 24:2 And it shall be, as with the people, so with the priest; as with the servant, so with his master; as with the maid, so with her mistress; as with the buyer, so with the seller; as with the lender, so with the borrower; as with the taker of usury, so with the giver of usury to him.
Jeremiah 15:10 Woe is me, my mother, that thou hast borne me a man of strife and a man of contention to the whole earth! I have neither lent on usury, nor men have lent to me on usury; yet every one of them doth curse me.
Ezekiel 18:8 He that hath not given forth upon usury, neither hath taken any increase, that hath withdrawn his hand from iniquity, hath executed true judgment between man and man,
Ezekiel 18:13 Hath given forth upon usury, and hath taken increase: shall he then live? he shall not live: he hath done all these abominations; he shall surely die; his blood shall be upon him.
Ezekiel 18:17 That hath taken off his hand from the poor, that hath not received usury nor increase, hath executed my judgments, hath walked in my statutes; he shall not die for the iniquity of his father, he shall surely live.
Ezekiel 22:12 In thee have they taken gifts to shed blood; thou hast taken usury and increase, and thou hast greedily gained of thy neighbours by extortion, and hast forgotten me, saith the Lord GOD.
Qur'anic injunctions against Usury
The following quotations are from the Qur'an:
Al-Baqarah 2:275 Those who charge usury are in the same position as those controlled by the devil's influence. This is because they claim that usury is the same as commerce. However, God permits commerce, and prohibits usury. Thus, whoever heeds this commandment from his Lord, and refrains from usury, he may keep his past earnings, and his judgment rests with God. As for those who persist in usury, they incur Hell, wherein they abide forever
Al-Baqarah 2:276-280 God condemns usury, and blesses charities. God dislikes every disbeliever, guilty. O you who believe, you shall observe God and refrain from all kinds of usury, if you are believers. If you do not, then expect a war from God and His messenger. But if you repent, you may keep your capitals, without inflicting injustice, or incurring injustice. If the debtor is unable to pay, wait for a better time. If you give up the loan as a charity, it would be better for you, if you only knew.
Al-'Imran 3:130 O you who believe, you shall not take usury, compounded over and over. Observe God, that you may succeed.
Al-Nisa 4:161 And for practicing usury, which was forbidden, and for consuming the people's money illicitly. We have prepared for the disbelievers among them painful retribution.
Ar-Rum 30:39 The usury that is practiced to increase some people's wealth, does not gain anything at God. But if you give to charity, seeking God's pleasure, these are the ones who receive their reward many fold.
Usury in Scholastic Theology
St. Thomas Aquinas, the leading theologian of the Catholic Church, argued charging of interest is wrong because it applies to "double charging", charging for both the thing and the use of the thing; the "Just price" theory said that a lender charges for the loan by requiring the loan to be paid back; in other words, paying back the loan is the charge for the loan. Any further charge is a charge for using the loan. Aquinas said this would morally wrong in the same way as if one sold a bottle of wine, charged for the bottle of wine, and then charged for the person using the wine to actually drink it.
Later, the Protestant John Calvin (father of a Protestant Reformation movement known as Calvinism) defended interest charges, helping to set the stage for the development of capitalism in northern Europe. Such a connection was advanced in influential works by Richard H. Tawney and by Max Weber.
Usury in literature
In The Divine Comedy Dante places the usurers in the inner ring of the seventh circle of hell, below even suicides. (Showing how cultural attitudes have changed since the 14th century, the usurers' ring was shared only by the sodomites.)
In the 16th century it was necessary for Shylock to convert to Christianity and forsake usury before he could be redeemed in the Merchant of Venice's climax. Thomas Lodge's didactic tirade against London moneylenders, An Alarum against Usurers containing tryed experiences against worldly abuses tried to incite the educated class against the harm usurers seemed to induce in their victims.
By the 18th Century Usury was more often treated as a metaphor than a crime in itself, so that Jeremy Bentham's Defense of Usury was not as shocking as it would have appeared two centuries earlier.
In the early 20th century Ezra Pound's anti-usury poetry was not primarily based on the moral injustice of interest but on the fact that excess capital was no longer devoted to artistic patronage, as it could now be used for capitalist business investment. ([1] (http://www.englit.ed.ac.uk/studying/undergrd/american_lit_2/Handouts/cmc_pound.htm)).
Usury and the law
In the United States, usury laws are state laws that specify the maximum legal interest rate at which loans can be made. Congress has opted not to regulate interest rates on purely private transactions, although it probably has the power to do so under the interstate commerce clause of Article I of the Constitution.
It is, however, a federal offense to use violence or threats to collect usurious interest (or any other sort). Such activity is referred to as loansharking, although that term is also applied to non-coercive usurious lending, or even to the practice of making consumer loans without a license in jurisdictions that require licenses.
Ethical arguments defending usury
The primary ethical argument in defense of usury has been the argument of liberty against the “restraint of trade” (since the borrower has voluntarily entered into the usury contract).
A practical argument for usury in welfare economics is that charging interest is essential to guiding the investment process, based on the claim that profits are required to direct investments to their most productive use (solving the economic calculation problem). According to this argument, interest-driven investment is essential to economic growth, and therefore to the very existence of industrial civilization. This practical argument for the utility of usury treats all "unearned" returns to capital as interest; traditionally, guaranteed interest is usurious, whereas dividends from shared ventures are less so. In this tradition, the practical case against usury does not completely apply (although replacing debt market investments with stock market savings may not always be desirable). Officially, this is how capitalist Islamic states solve the calculation problem. An example of the 'moral' difference between dividend income and interest income is found in the Merchant of Venice: Shylock lends Antonio money for trade speculation, demanding repayment in flesh should Antonio's project fail utterly (accepting none of the business risk).
In addition to the defense of interest as such, the practice of charging high interest rates is defended by those who point out that such rates reflect the very fact that the loans are being given to creditors with a high risk of default (in a competitive debt market the interest spread simply covers the credit risk). Austrian economists say that there is no such thing as a “just” interest rate separate from the free market equilibrium determined by the time-preferences of individual lenders and debtors. (Other free market theorists take a similar view on the merit of an unregulated debt market, but may not explain the subjective estimate of a worthwhile interest-rate bargain through time preference.)
Some "loan sharks" have even defended the threat or use of violence (legal or illegal) against non-payers (such as required by Shylock). This (minority) position is based on the idea that without violence there will be a market failure - since very high interest loans will only be taken up by those intending to default. The need for violence in this case is due to the failure of governments to see this fact, or to adequately enforce the loan contracts (such as with overly lax bankruptcy laws), rather than any immorality inherent in moneylenders. See: "The market for lemons".
See also
Further reading
- USURY (http://fax.libs.uga.edu/HB539xE46/), A Scriptural, Ethical and Economic View, by Calvin Elliott, 1902. (a searchable facsimile at the University of Georgia Libraries; DjVu & layered PDF (http://fax.libs.uga.edu/HB539xE46/1f/usury.pdf) format)
- Catholic Encyclopedia article on Usury, 1912 (http://www.newadvent.org/cathen/15235c.htm)