By Tyler Curtis*
Recently the nominally conservative, but increasingly populist firebrand Tucker Carlson joined self-proclaimed socialists Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders in calling for a federally-imposed 15 percent cap on interest rates. In a livestream video introducing their new bill, the Loan Shark Prevention Act , the two legislators lashed out against credit card companies and the payday loan industry for engaging in “predatory” behavior.
“[T]hey are absolutely, indisputably right,” Carlson declared on his Fox News show. But the measure is not a uniquely progressive idea, Carlson was quick to note. Bans on “excessive” interest rates, otherwise known as “usury,” have been in place throughout human history. “There’s a reason why the world’s great religions condemn usury…High interest rates exploit the weak,” Carlson asserted.
Congresswoman Ocasio-Cortez joined Carlson in citing religious admonitions against lending at interest. She naively and bizarrely attempted to catch Christians in their alleged hypocrisy, tweeting, “Usury – aka high interest – happens to be explicitly denounced in the Bible…Looking forward to having the religious right uphold their principles and sign onto my bill.”
While Carlson and Ocasio-Cortez are technically correct when they claim that Christians have condemned usury in the past, they have left out the other half of the story. It was primarily Christian thinkers, working within new market-based paradigms, who demonstrated that the collection of interest was not actually sinful and, what’s more, that its prohibition was economically irrational.
The “Sin” of Usury
The first thing to note is that, contra AOC’s claim, the Bible does not define usury simply as “high interest.” In reality, up until the Late Medieval Period, usury was understood as charging any interest whatsoever and did not come to be widely defined as “excessive interest” until much later.
Christians inherited their suspicion of usury from Judaism. The Torah makes multiple injunctions against the collection of interest (see Exodus 22:24, Leviticus 25:36-37, Deuteronomy 23:19, among others). Though most of these passages forbid charging interest to fellow Jews, it was permitted to lend at interest to foreigners.
Christians, however, made no such exception. Medieval philosophers were almost universally agreed that the mere collection of interest, at any rate and to any person, constituted a serious sin. Scripture seemed clear in its denunciation of the practice: the Psalmist praised the just man who “does not put out his money at interest” (15:5). This verse was a favorite amongst Church officials and theologians who argued vehemently in favor of usury prohibitions. No serious attempt was made, however, to reconcile a strict prohibition on usury with Christ’s seemingly implicit acceptance of the practice in His “Parable of the Talents” (Matthew 25:14-30).
For the first few centuries of Christian rule in Europe, usury was regarded as a sin of avarice and was forbidden in all cases. Only a greedy and uncharitable soul would demand to be paid interest on a loan given to the needy. Christ Himself asked that His followers lend to their neighbors, asking nothing at all in return (Luke 6:35). Several early Church councils thus condemned clerics for lending at interest; laymen too were castigated for this “shameful gain.” In time, secular authorities would ban usury as well.
It’s easy to understand why usury was so despised. In the subsistence economies of the Ancient and Medieval eras, loans for the majority of people were often only necessary in times of great need or distress. Under these circumstances, the moral response was not to seek profit from the poor, but to offer charity. To expect repayment for what ought to be charity was one thing, but it was a grave sin “when more is asked than is given,” as one Medieval text put it.
Changing economic conditions during the 13th and 14th centuries, however, induced Medieval authors to rethink the issue of usury. New commercial enterprises increased the demand for credit while raising significant questions about the morality of profits. Loans were no longer predominantly given in times of emergency or to the poor, but also to middle-class merchants. It was now difficult to argue that charging interest was always “uncharitable.”
Contemporary opinions differed as to when usury was morally acceptable. While some exceptions were allowed, most theologians and philosophers still considered charging interest to be an unnatural and exploitative transaction. Profits on the sale of goods and services, meanwhile, were not condemned. Farmers, manufacturers, and merchants created real value and were thus entitled to the fruits of their labor. Moneylenders, on the other hand, reaped profits off of their “idle money.” St. Albert the Great (1193-1280) expressed the commonly-held view that “the usurer without labor, suffering or fear gathers riches from the labor, suffering and vicissitudes of his neighbor.”
Other Medieval thinkers, however, disagreed with this premise. It was simply not true that lenders suffered no “fear” when they extended loans, some argued. In his 1499 treatise, German theologian Conrad Summenhart (1465-1511) pointed out that lenders always had to fear that they would lose money if the borrower defaulted. This observation was made more forcefully by the Spanish Franciscan monk Juan de Medina (1490-1546) who reasoned that exposing one’s property “to the risk of being lost, is sellable, and purchasable at a price, nor is it among those things which are to be done gratuitously.”
It took many decades, but the assumption of risk slowly became recognized as a legitimate justification for charging interest. Despite this, most writers, not wanting to abandon traditional Church teaching, still held that lending at interest was immoral for so-called “risk-less” loans. But even if such a loan existed (and it almost certainly does not), risk is not the only consideration a lender has when loaning money.
Near the end of the 13th century, the distinguished canonist Cardinal Hostiensis recognized that there is a clear opportunity-cost to lending money. Charging interest would allow the creditor to be compensated for any profit he could have made if he had invested his money elsewhere, a doctrine known as lucrum cessans (profit ceasing). Hostiensis strangely did not apply the doctrine to professional moneylenders, but only to those who make loans as charity. Cardinal Cajetan (1468-1534), on the other hand, taught that lucrum cessans justified any loan made to businessmen, though not to consumers.
It would not be until the early 17th century before a Christian thinker would eliminate all restrictions on lucrum cessans. In 1603, Flemish-born theologian Leonard Lessius (1554-1623) wrote that the burden of compensating the lender for his forgone profit may be assigned to the debtor in the form of interest. As economist Murray Rothbard noted , “this meant that Leonard Lessius justified not only businessmen or investors planning to invest their money, but also any people with liquid funds, including professional money-lenders.” Cardinal Juan de Lugo (1583-1660) declared that the doctrine of lucrum cessans is “the general title for purging usury.” After centuries of intellectual scrutiny, many were beginning to realize that the traditional Christian ban on usury, while still officially in force, was nothing more than a “hollow shell.”
So, What is the Christian Perspective on Usury?
Few if any modern Christians would oppose lending at interest. In spite of her direct (and disingenuous) appeal to Scripture, most Christians recognize that AOC’s strictly literalist interpretation of Biblical teachings on usury is sorely lacking. A more nuanced perspective would reveal that these passages condemn lending at interest only to the destitute. Loans were made to people who were likely well-acquainted with each other. The Old Testament authors did not and could not anticipate the complicated and multifarious financial services which have developed over the past several centuries. And what they could not know about, they could not denounce. As Albert R. Jonsen and Stephen Toulmin write , the Biblical admonitions against usury “had lost their force because the general terms in which they were expressed could hardly cover the multiple kinds of transactions that passed for ‘loans.’”
Even then, not every Biblical passage on usury denounces the practice. In the aforementioned “Parable of the Talents,” Christ likens the judgment of God to a man who goes on a journey and entrusts his property to his three servants. Two of his servants increase their shares, earning a profit for their master. The third, however, buries his share in the ground. The master is furious and tells the unproductive servant: “Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury.” Jesus was, of course, not giving an economics lesson here; but it would be strange indeed if He were to compare God to a man who profits on usury if it were an immoral activity.
That being said, many Christians would probably agree that unusually high-priced loans to those in severe financial distress should still be considered morally suspect, and arguably evil if one consciously took advantage of the poor by charging an exorbitant amount of interest, especially to a friend, relative, or coworker. But if there is a uniform rate, applied to any debtor under any and all circumstances, above which all accrued interest is “excessive?” Is it 15 percent, as Ocasio-Cortez, Sanders, and Carlson believe? Even those who generally support price ceilings would admit that it would be ridiculous to apply the same maximum price to a diverse set of goods and services, so why should we expect financial products to all be similarly priced? Are all loans priced above 15 percent automatically “exploitative”?
At the Council of Trent in 1554, Father Juan Polanco recognized the complexity of the issue: “[I]t is extremely difficult to detect when…injustice takes place in commercial dealings…[T]he matter, being a question of morals, only admits of probability, because its nature is such that the least change of circumstances renders it necessary to revise one’s judgment of the whole affair.”
To impose a cap on interest rates, without any reference to the complex and varied financial arrangements individuals find themselves operating within, is consistent with neither Scriptural teachings nor with the past three-hundred years of Christian theology.
*About the author: Tyler Curtis is a lender at a community bank in Missouri, and earned an undergraduate degree in economics from the Missouri University of Science and Technology.
Source: This article was published by the MISES Institute