Wednesday, July 06, 2011

Of Usury

"Romish Internet Graffiti" had a post a while back noting that, contrary to the view in some quarters, the Catholic Church still insists that usury is wrong. It says something about our age that people's minds are so boggled by this.

I find that there are a couple of stumblingblocks in the way of understanding what it even means to hold that usury is immoral and unnatural. Some of these have to do with the understanding of 'usury' itself.

(1) There is a common misunderstanding in which 'usury' is taken to cover any investment from which you receive a return or profit. This is not a reasonable understanding at all, but it shows how far the confusion extends.
(2) There is a rather more understandable misunderstanding in which 'usury' is taken to cover any loan with interest.

Neither of these is correct, but the fact that we simply don't make a distinction between different kinds of profit received on money given out goes a long way to showing how it has become plausible to think that usury is just a necessary part of social life.

Usury is when (to use the famous Fifth Lateran definition), from its use, a thing which produces nothing is applied to the acquiring of gain and profit without any work, any expense, or any risk. The basic idea in later condemnations of usury was always the treatment of lending as if it gave one intrinsic title to interest -- i.e., as if the mere act of lending gave one the right to have a profit. (Earlier condemnations were usually concerned with the injustice of the rich fleecing the poor for profit, and this always remained an issue, but receded in later days when extensive lending became more widely possible; it has, however, become increasingly important again as interest-charging has become more and more accepted as the norm regardless of who is borrowing.) This violates any notion of just exchange: for an exchange to be just, you must have done something to earn any profit you make. That's the "without any work, any expense, or any risk" part of the definition. If the interest charged is because you've done some work in making the loan (e.g., you are recuperating paperwork or delivery expenses in making the loan), or because making the loan has cost you something (e.g., you have to pull money out of a venture that is currently making money), or because the lending itself is risky (e.g., you could lose the whole loan, to detriment to yourself), this is what is called extrinsic title to interest. I've talked about extrinsic titles to interest before. Merely because one only appeals to extrinsic title to interest doesn't automatically make the exchange just, and, in fact Renaissance-era disputes about how just various extrinsic titles to interest could be were very heated. But such interest need not be unjust, and any injustice that arises from such interest is not the injustice of usury in the proper sense. Admittedly, things get a little more complicated when people do things that can be justified in terms of extrinsic title to interest but do so as if they had intrinsic title to it, but this is really just a point at which usury sinks below the ability of public sanction to handle directly, and not a point at which it ceases to be an issue for justice.

It's sometimes argued today, incidentally, that inflationary considerations give general title to interest: if I lend you money, and you pay me the same amount back later, inflation means that the real value of the money you gave me is less than what I gave you in the first place. Could this be considered extrinsic title to interest? Certainly -- if it is agreed upon beforehand, the interest is fixed to the level of expected interest (with possible fraction additional for any risk or damage in the loan itself), and if there is provision to pay it back (with possible fraction less for any risk or damage in the loan itself) should deflation happen instead. I find that apologists for usury who use this argument always conveniently overlook the question of what would be just should the expected inflation never happen. But certainly inflation can be taken into account to the extent it actually harms or increases the risk of the lender (and, it should be said, mere restriction of what one can do is in itself neither a harm nor an increase of risk).

One of the corollaries to this whole approach that is worth thinking about is that it means that interest can be charged for loans but its being charged and its amount always have to be explicitly justified. This is where our society falls down: we allow interest to be charged without even the shadow of a justification. This is, as we say, a lack of transparency.

Other confusions about the subject tend not to do with what makes something usury so much as with what it means to say that something is immoral and unnatural. But this is another can of worms.