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.