What is usury?

I was wondering about this recently, and read a couple of blog posts (this is one but I can’t remember the other) which gave me a basic idea of what usury is and is not. I thought I would regurgitate what I learned in my own words.

The Church’s condemnation of usury meant the charging of interest on the loan of something where, in lending it, you were neither risking nor losing anything by letting someone else have the use of it.

Money during the Middle Ages and earlier was considered “fruitless”, meaning that, unlike a cow for example, or land, it didn’t produce anything. Unlike in today’s modern capitalistic societies, there were very few opportunities for investing money to earn more money. All you could do with money was either spend it or hoard it.

If you had more money than you needed in order to live, then your excess money would just sit somewhere and be unproductive. Therefore, if you loaned it to someone, as long as you were paid back, you weren’t losing anything, beause the money would have just sat there gathering dust anyway. And if you took security on the loan — say, holding onto someone’s goat until he paid you back — then you weren’t risking anything either. You had nothing to lose.

Charging interest in that scenario was considered usury.

It would be different if the thing you were lending were something productive, for example a cow. If you loaned someone a cow for a year, you would be losing out on the milk that it produced during that time.
So it would be fair to be compensated for the lost milk that the borrower would be gaining, and you would be losing. Plus, you would be risking something (assuming he didn’t give you anything of equal value as security), because he might mistreat or neglect the cow, causing it to get sick or die. In that case, charging money for the loan of the cow would not be usury.

In modern capitalistic countries, money is not fruitless as it used to be. This is because there are abundant opportunities for investment, where your money can make more money for you in various ways, even by simply being parked, for example, in a certificate of deposit or a mutual fund. So, if you lend your money to someone and he simply pays you back the same amount, you have lost whatever money you could have earned by investing it in some way.

In other words, the definition of usury has not changed. What has changed is that money has gone from being fruitless, i.e. having no potential to earn additional money, to being fruitful in that there are any number of ways in which your money can earn you more money over the course of time, without any work on your part. Money used to be like a piece of gold that you could hide under your mattress, which, no longer how long you left it there, would remain the same size and weight of gold and would buy more or less the same amount of goods. Whereas now it’s more like a cow used to be, in that it can “bear fruit”, or in other words multiply itself, just by being put in the right place.

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5 thoughts on “What is usury?

  1. Thank you for the thoughtful and thought provoking post, however, I’m pretty certain that money was no more fruitless in the past than it is today. At the least, it could be employed to invest in or buy a field or a cow, earning more money. Money is, and always will be, as fruitful as what it buys. In times of high economic growth, things to be bought will generally be more fruitful, but money employed correctly will always be fruitful. Money is, in itself, completely fruitless, no matter where it’s put.
    My suggestion is, that charging interest is OK up to, but not over, reimbursing for the loss of the object’s use. I.e., it becomes usury once it is being done seeking abnormal profit. So to lend a cow, charging more than its worth in milk or to cover the possibility of damage, is usury. I would say it is wrong precisely because it is attempting to personally gain, without having done anything to earn that gain. It is wrong because it means to gain money, only because it is in your power to refuse an object’s use and fruitfulness to another, regardless of the common good.

    God bless you

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  2. Ignatius:

    You could be right. This was what I thought I gleaned from the articles I read, and re-reading the linked article, I think I understood it correctly, on a basic level. But I don’t claim to know whether the linked article is necessarily right. I will study the issue some more as time permits.

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  3. So much to wade through here, though I have not the time. Great jumping off point though. Very quickly:

    How does fiat money change usury as a moral issue? Is it now better or worse?
    How does fractional reserve banking change usury as a moral issue? Is it now better or worse?
    Is money sitting in a treasure chest really “not doing anything”?

    Thanks for this.

    I linked to your page on my blog under “Links”. You write interesting and pertinent topics. Keep up the good work.

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  4. I hope I haven’t held myself out as someone who knows anything about money or economics. I just wrote this to try to get my own head around it and be corrected if applicable. That being said:

    It seems to me that fiat money and fractional reserve banking came about with the rise of the modern competitive market economy, and therefore would have contributed to reducing the incidence of interest being classed as usury, by helping to make money “fruitful”.

    It seems to me that money sitting in a treasure chest really was “not doing anything”, the same as if you sowed up a bunch of dollar bills in a mattress. If anything, they may have decreased in value if the supply of gold or silver increased markedly while it was sitting. But the point is that the value of the money in the chest would not be affected by whether or not you loaned it out, because you would not have had anything better to do with it than either loan it out or let it sit there.

    I realize this is a simplistic generalization, and the real answer would depend on the specific time and place under discussion.

    Thanks for your kind words and for the link! Coming from such an excellent blogger as yourself it means a lot to me.

    (I have not put a “blog roll” on my blog before now, for fear of offending people by leaving them off. But maybe it’s about time I did so I can return the favor.)

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    • This is a very important and still ongoing debate: do savings play a role in an economy? – that is, does money “just sitting there” serve a purpose. Continue to read about it, as where you land on the question will be integral to where you land on many economic issues! I would recommend sources but I know which side I am on!

      Thanks again. No need to blogroll me!

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