Religious perspectives on money-lending
January 7, 2014 4 Comments
So, I had an encounter with a rather unreasonable libertarian atheist who insisted the Church held back economic development for centuries by outlawing usury, which he said to be a clear indicator of an anti-capitalist worldview. This position is simplistic, contains error in basic facts, and a possible example of anachrony in narrating historical events.
While there existed since Gratian a broad principle that the lending of money for profit is sinful, often overlooked is the fact that canon lawyers used the word “interest” to mean a lawful charge for the loan of money. Generally this was seen as a fair charge to cover factors like risk and opportunity cost. “Usury” then and today has connotations of an unreasonable charge on borrowing money. In the Church, the law on this was often unclear and for a long time not systematized. Many inveighed against charging interest on personal loans, but not commercial ones. Some condemned both.
The Medieval Church proclaimed blanket prohibitions on usury in the 9th, 10th, and 11th centuries. However, this must be seen in light of the economic structure of the time. Borrowing prior to the twelfth century was almost entirely for consumption rather than production or investment. In an agrarian society, tillers of the soil tend to simply borrow to get through hungry periods before the harvest.
With the rapid development of commerce in the 11th and 12th centuries, however, the Church began to properly systematize the law on usury and declared many for-profit financing operations and credit devices as non-usurious. The Church and the Papacy were themselves borrowers and lenders of large sums of money at interest, and Church institutions themselves pioneered strategies for investing the large sums of money they had lying idle in deposit.
Today, governments are borrowing large amounts of money to cover day-to-day operations, like the welfare bill, that they cannot pay off with direct tax collections in the course of a fiscal year. That cannot be justified like borrowing for large, expensive infrastructure projects with long-term benefits. So we might want to consider the nuances of the Medieval Church’s position on borrowing and debt.
The Jewish perspective on this is very similar with some interesting differences. Rabbi Baruch Epstein of Belarus, writing in the early 20th century, says that with economic development in the latter Middle Ages, offering a loan to a neighbour was no longer only to offer him some of your surplus to get him through bad days. It was now handing over capital and ultimately the main tool by which one earns a livelihood. This can be classed as an investment, which enjoys greater esteem in Jewish law than the acceptable interest-free loans and the totally forbidden act of usury.
However, Jewish law, unlike the Church and other systems, never drew a distinction between taking interest and usury. Thus there is the legal category called iksa, where the lender becomes a silent partner in the business so it is not considered a loan at all but an investment.
As is said in the Talmud:
He who lends money is greater than he who performs charity; and he who forms a partnership is greater than all (Talmud Shabbat 63a).
I used to disparage the iksa system as a legal fiction to justify usury but lately I see a beautiful consistency in it.
Good sources on this are Law and Revolution: The Formation of the Western Legal Tradition by Harold Berman, and Judaism, Law, and the Free Market by Joseph Isaac Lifshitz.