Usury

I’ve been thinking about the sin of usury lately, and decided to read Pope Benedict XIV’s encyclical, Vix Pervenit, dealing with usury (I recommend reading it, it’s short, easy, and, best of all, authoritative).

Very basically, usury is when a lender demands in repayment for the loan, more than they themselves gave in the loan. That is, giving a loan should not be an occasion for profit.

The reason usury is a sin, is that it consists of gaining the money of others, not from any real exchange, but only from possessing the ability to refuse them use of the object of the loan, regardless of the common good. It is demanding more than you are justly owed, and so is stealing. It is using the dependency of others on a good, to extort profit from them. It is giving, only in order to claim the good belonging to another as your own. The Natural Law, Scriptures, Church Fathers, Church Councils, and Bishops of Rome have all condemned this sin.

And it is arguably the foundation of modern economies… Think of the billions of pounds of profit, made by the banks and financial institutions. Think of the levels of the debts of nations and their governments. The UK is spending about 7% of its annual budget paying interest on the national debt. I don’t need to elaborate, everyone knows the finances are abysmal.

I should mention, of course, that not all charges on a loan are usury. There are various legitimate costs, such as administration costs, the cost of inflation, or the loss of the personal use of the object loaned (arguably including likely profits from investment, if that was actually prevented by the loan).

I think we would be short-sighted to limit ourselves to focusing on monetary loans. What about rent, the loaning of a property? It’s not difficult to see, that some compensation is due insofar as the owner gives up living in or using a property desirable to their purposes, and allows the property to be worn down by use. But honestly, the use of a second (and for that matter, third, fourth, fifth, and so on…) home cannot be so valuable to an individual, and even less to a corporation. The more properties owned, the less valuable the use of each one is to the owner. Rent today is generally unjust and exploitative, making a profit from exploiting a basic human right.

Since usury is based upon refusing another the use of a good, and claiming what rightly belongs to another, it is inherently inefficient. How could a system based upon refusing a good’s use be more productive? How could the widespread demanding and living off of another’s goods improve the economy? It is inherently unproductive and unjust. And, as I suggested a while back, I believe that usury actually lowers wages (within the indebted classes) and raises house prices.

Could you imagine, how much more egalitarian society would be? Not only would costs of many products decrease (most businesses are subject to usury also, and their suppliers too), wages rise, and house prices fall (which is only really a problem to owners who wish to downgrade their houses), but it would no longer be profitable to own so many properties, and so many properties would enter the market, allowing more people to own their home, or to start their own business (nicely helping employment also). Owning your means of living and being independent and free: isn’t that the American dream? Yet look at America today… Further, this would enable significant decreases in government spending, from debt interest to welfare to police to healthcare to education (it’s long been established that it’s easier to look after/watch over people who don’t feel oppressed), and so significant decreases in taxation. And don’t forget the benefits to family life, of removing the stress and pressure of debts and mortgages, giving parents more free time to spend with their children. In short: usury is a terrible plague on all of society.

What would happen to business investment without usurious loans? It’s a good question. Perhaps investment would more commonly take the form of joint ownership (perhaps with agreements of when the investor’s share might be sold back). The important thing here, is that rather than the relationship of debtor-creditor (a slave-master relationship), there would be a partnership (however unequal it might be).

What about businesses, renting their places of business? There is a possibility that owners will hire businessmen to manage their properties on their behalf, kicking out previous tenants. That said, I don’t expect this option would be popular, because it isn’t as efficient. E.g. for a rich man owning much land, hiring and managing many farmers in many places would prove a nightmare, and, including management costs, would be more costly than for farmers to manage themselves. It would therefore be more profitable, for the farmer’s to own the land, and so a good deal could be struck, selling the fields. If the owners could use a property more profitably than its tenants, this would also be more profitable than renting it to them, and so they already would be.

At this point, I should admit that I’m no economist or expert, and what I’ve said might well be wrong, or profoundly incomplete. So, as always, I invite your correction. These ideas need discussion. The usual solutions being offered (generally more spending vs less tax, fiddling interest rates, etc) haven’t worked, and won’t work. The gap between rich and poor is still increasing. The economy is rotten at its roots, and we require a radical solution. I believe this is part of it.

God bless you.

P.S. Please make sure to read Vix Pervenit. Don’t let the Latin name scare you off, it’s extremely clear and helpful. And if you want more here’s a link to an article in The Distributist Review on whether or not usury is still a sin.