Value of Money Usury

Value of Money Usury, Medieval Economic Thought

How did such an idea of value work wnen-applied to money? The answer to this question brings up the well-known doctrine of usury. The term was used to cover what we designate as interest, and, in a broader sense, to include any price in excess of the justum pretium: qui plus quam dederit accipit, usuras expetit — he who receives more than he gives demands usury. At first (325 a.d.) usury was for­bidden the clergy only, but before the close of the twelfth cen­tury the prohibition was extended to the laity. As late as 1311 it was declared absolutely illegal. The broad simple ground for this action was the belief that to take interest for a loan of money was, like charging more than the just price, unjust. A scholastic brief against usury might be drawn as follows:

(1) The holy writ forbids it: The Mosaic law prohibits usury-taking from a brother; Christ said, "Lend, hoping for nothing again." (Luke vi, 35.)
(2) Aristotle says money is barren and cannot breed money, therefore, to demand usury for its use is unjust.
(3) It follows from the above point that to pay for money is to pay for time; but time is common property and belongs to God.
(4) Money is a res fungibilis, or "consumptible," according to the civil law. As such it has no use distinct from itself; its use cannot be separated from the ownership of it, and a loan must amount to a sale. Therefore, to lend money is to give up ownership of it, and to ask a payment for the use of that which is sold is unjust.

As in the case of the general concept of value, the develop­ment of industry and exchange wrought a gradual modification of the doctrine of usury or value of money. Aquinas and his brother scholastics recognized exceptions: for example, where a loss was incurred by a loan (damnum emergens) or a profit was missed (lucrum cessans) a corresponding sum might be de­manded of the borrower. Then other openings were made. A buyer on credit was not prohibited from paying more than the cash price; discounts were allowed on bills of exchange; money combined with labor, as in partnerships, was called productive; Jews and Lombards, being damned anyhow, were permitted to take usury; and, in the fifteenth century, the montes pietatis were allowed to receive interest. Late in the period, banking houses such as the Fuggers were associated with the financial operations of the Holy See, and it thus became difficult for the Church to frown upon interest on bank deposits.

The medieval idea of usury could not have long existed in a "money economy." The social organizations with which Biblical writers, Aristotle, and the schoolmen alike were associated, were non-capitalistic, and largely self-sufficient. They were not exchange economies. The political counterpart of this industrial condition was a predominance of clan or family feeling, a feeling which appears in the gild, and even in the medieval municipality. This explains to a large extent the general condemnation of interest-taking. Loans at interest generally involve a rather abstract or impersonal relation between the parties, such as became common with the establishment of money economy. Even today the purely business relation is apt to become un­satisfactory when existing among relatives or persons belonging to the same social organization, and the condemnation of usury was natural when most of a man's dealings were with such persons.