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Baptists, Catholics, and the Prohibition on Usury

Via Rod Dreher comes some good news: the Kentucky Baptist Convention is pushing for legislation to regulate predatory lenders:

Kentuckys largest religious denomination joined Tuesday in a growing call for regulations on payday lenders, saying such loans cost the annual equivalent of nearly 400 percent in interest and amount to usury decried in the Bible.At its annual meeting, the Kentucky Baptist Convention adopted a resolution without dissent calling for state and local regulations that would cap interest on short-term loans at 36 percent.Its the first public statement in recent memory by the state affiliate of the Southern Baptist Convention on regulating financial institutions, and it puts it on the same page with several other religiously affiliated organizations that comment more regularly on economic issues.

One of those "other religiously affiliated organizations" is, of course, the Catholic Church: witness Benedict XVI's call in Caritas in Veritate for financial regulations that will protect the vulnerable "from the risk of usury and from despair", plus the much louder condemnation in Leo XIII's Rerum Novarum:

Public institutions and the laws set aside the ancient religion. Hence, by degrees it has come to pass that working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition. The mischief has been increased by rapacious usury, which, although more than once condemned by the Church, is nevertheless, under a different guise, but with like injustice, still practiced by covetous and grasping men. To this must be added that the hiring of labor and the conduct of trade are concentrated in the hands of comparatively few; so that a small number of very rich men have been able to lay upon the teeming masses of the laboring poor a yoke little better than that of slavery itself.

This article from the 1957 Catholic Encyclopedia provides a helpful (for me, anyway) summary of the development of Catholic teaching on the issue, and concludes as follows:

Lending money at interest gives us the opportunity to exploit the passions or necessities of other men by compelling them to submit to ruinous conditions; men are robbed and left destitute under the pretext of charity. Such is the usury against which the Fathers of the Church have always protested, and which is universally condemned at the present day. ... It is in itself unjust extortion, or robbery. The sin is frequently committed. In some countries are found the exaction of interest at 30, 50, 100 percent and more. ... The exorbitant charges of pawnbrokers for money lent on pledge, and, in some instances, of persons selling goods to be paid for by installments, are also instances of usury disguised under another name. As a remedy for the evil, respectable associations for mutual lending have been instituted, ... and help has been sought from legislators; but there is no general agreement as to the form which legislation on this subject should take.

As the article notes, however, the framing of the prohibition against usury as a prohibition just against "exorbitant" rates of interest is a significant walk-back from the Church's earlier position, where figures like Thomas Aquinas stood with numerous official documents in arguing that Christians should be disallowed from charging any interest whatsoever on monetary loans. In a paper that she wrote in 1970 and was recently published in a posthumous volume titled Faith in a Hard Ground [edit: the title of the paper is 'Philosophers and Economists: Two Philosophers' Objections to Usury' -- JS], the philosopher Elizabeth Anscombe explores the rationale for this position, observing that it lies in the idea that it is appropriate to charge someone for the use of something only if, when they give it back to you, its value has somehow decreased. Here is how that argument is addressed in the article linked just above:

The just price of a thing is based on the general estimate, which depends not in all cases on universal utility, but on general utility. Since the possession of an object is generally useful, I may require the price of that general utility, even when the object is of no use to me. There is much greater facility nowadays for making profitable investment of savings, and a true value, therefore, is always attached to the possession of money, as also to credit itself. A lender, during the whole time that the loan continues, deprives himself of a valuable thing, for the price of which he is compensated by the interest.

This seems reasonable to me, though I am sure that Anscombe would not be fully satisfied. (She rarely was.) Of course, another reason why it can be necessary to charge interest on loans is because it can be the only way to cover transaction costs and -- even more importantly -- make up for cases where loans are not repaid. Kiva, an organization that enables you to lend money for worthy projects via microfinance institutions, or MFIs, explains these points as follows:

There are three kinds of costs the MFI has to cover when it makes microloans. The first two, the cost of the money that it lends and the cost of loan defaults, are proportional to the amount lent. For instance, if the cost paid by the MFI for the money it lends is 10%, and it experiences defaults of 1% of the amount lent, then these two costs will total $11 for a loan of $100, and $55 for a loan of $500. An interest rate of 11% of the loan amount thus covers both these costs for either loan.The third type of cost, transaction costs, is not proportional to the amount lent. The transaction cost of the $500 loan is not much different from the transaction cost of the $100 loan. Both loans require roughly the same amount of staff time for meeting with the borrower to appraise the loan, processing the loan disbursement and repayments, and follow-up monitoring. Suppose that the transaction cost is $25 per loan and that the loans are for one year. To break even on the $500 loan, the MFI would need to collect interest of $50 + 5 + $25 = $80, which represents an annual interest rate of 16%. To break even on the $100 loan, the MFI would need to collect interest of $10 + 1 + $25 = $36, which is an interest rate of 36%. At first glance, a rate this high looks abusive to many people, especially when the clients are poor. But in fact, this interest rate simply reflects the basic reality that when loan sizes get very small, transaction costs loom larger because these costs can't be cut below certain minimums.

This strikes me as a significantly stronger argument than the first one. (It is notable -- and perhaps not an accident? -- that the rate cited is the same as the one suggested by the Kentucky Baptist Convention. Microfinance is singled out for praise in the paragraph quoted above from Caritas in Veritate, by the way.) For more on the Church's view of usury, see this piece by Dale Ahlquist (h/t Dreher once again). And while we're at it, let me note that Kiva gift cards make a fine Christmas gift.Image credit: Flickr user Steve Rhodes.

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The explanation from Kiva could also be used to examine the rationale behind the one-size fits all interest rates charged by credit card issuers. An interest rate of 24% might be justified on a balance of $5,000.00 but is it equally justified when that debtor is carrying a debt of $25,000. Should there be legislation that requires that the percentage rate reduce on higher balances? It seems that the ability to repay would be enhanced and the risk of default would be reduced if this system were adopted.

Schwenkler is incorrect. The Catholic Church has not reversed its position on usury from condemning all interest charges to now condemning only exorbitant interest charges. Judge Noonan, formerly of the California 9th Circuit Court, previously made that identical erroneous charge. However, Avery Cardinal Dulles logically rebutted that false claim by explaining clearly in his FIRST THINGS article, October 2005, titled DEVELOPMENT or REVERSAL? that the Catholic Church merely developed its consistent position without change.

My post uses the word "development" in just that context, actually. But in any case I'm unsure why calling the change "a significant walk-back" (another phrase I used) entails that it was a reversal. Perhaps we could read one another with a bit of charity?

When a moral teacher tells you you must never do something, and later says that sometimes you may do it, the teacher has changed his/her teaching. It's the difference between "never" and "sometimes" that shows the change, unless, of course, in your vocabulary "sometimes" means "never".

"When a moral teacher tells you you must never do something, and later says that sometimes you may do it, the teacher has changed his/her teaching."This is true enough, but there is clearly an underlying commitment that remains the same despite the change; I take it that the point of calling it a "development" is to signal that this underlying idea comes to be better understood and articulated, rather than outright rejected.

John S. --Statements are either true or not true. The question here is: what did the Church mean in the 13th century and later when it said "You may never charge for lending money"? Unless there is evidence that the statement was ambiguous (in which case there would actually be *two* statements conveyed by one set of symbols), you don't have a case.Or is reasonable to think that when the Church now says and repeats and repeats, "You may never kill a fetus to save the life of a mother" that that statement really also means "With a few exceptions, you may not kill a fetus to save the life of a mother".

Ann,I am not denying that the teaching has changed. What is issue is whether that change constitutes a development of doctrine, involving a "preservation of type" as Newman puts it.

John,If you mean that the general principles embodied in the first statement have been retained in the new teaching, I agree that might true. But to replace specific teaching with a different specific teaching is not a development -- it's a change. Retaining some of your old position is just that -- retaining something old.

Most of the moral theology after the third century is an attempt by moralists to come back to the original gospel. So far had Christian leaders strayed from it. Christianity fostered the class system so much so that the clergy became the most privileged class until the French Revolution. In the majority of the Christian world blood relations have become more important than relationship to the body of Christ. Now too many moralists argue for a open system where banks and others can charge the market rate. But this problem is incidental to the fact that the unity of Christianity, at least with its leadership is a figment of one's imagination. The downtrodden are really despised as the victors get the spoils with the church approval. Nothing crystallized this more than the treatment of children by the church leadership.

A lender, during the whole time that the loan continues, deprives himself of a valuable thing, for the price of which he is compensated by the interest.Jct: The lender does not deprive himself of a valuable thing, he deprives himself of the receipt for the valuable thing, for the poker chip, not the asset. Usury is not interest on anything, it's no interest on cows, that could be excessive interest; it's not interest on grain, that could be excessive interest, usury is interest on sterile media: gold, silver, paper, computer credits that do not have babies and create a death-gamble mort-gage among players who all borrowed 10 and owe 11 in their elimination game of musical chairs with life-support tickets to the death! Thomas 95: Jesus said: "If you have money, do not lend it out at interest." Oh right, someone determined that Thomas wasn't worth keeping in the official Bible and ordered them all destroyed. Until they were rediscovered, undoctored by religious censors, in 1945 at Nag Hammadi! And who could have known Jesus's words better than his (twin?) brother "Judas of James," where James was their big brother. James didn't become King of the Jews like Jesus did because he had been consecrated from the womb as a priest. See Eisenman. Regardless, the early Christian communities ran a LETS Local Employment-Trading System where they pooled all their resources and no one was richer than the next. Personally, I don't mind those who score abundance having more as long their abundance supplies their want so that their abundance may later supply our want; in that way, he who gathered much didn't have too much and he who gathered little didn't have too little, that there be equality." CorrII,8:14 Of opportunity. But he who gathered much had more than he who gathered little, but not too much and not too little! Christian Communistic Capitalism where everyone gets to be a capialist whose winnings are available to help the poor! Imagine a world where the rich are the heroes of the poor! Instead of to those who have abundance will be given more and from those without abundance, even what they have will be taken away." "Taken away" meaning interest! This phrased differential equation explaining interest is the most repeated direct quote of Jesus in scripture! 7 times. His definition of interest, the malfunction turning the servant token system into a master slavery system, is his most cited quotation and absolutely no one but John The Engineer has ever explained what it meant. Of course, for arguing Christ spoke in differential equations, I was voted July 1995 global Kook-of-the-Month. I didn't feel so bad when my challenge whether, given the Bank Balance B, Interest rate i, and time t, anyone else could derive the differential equation in Christ's words. One Texas Physics student got it: dB/dt = iB dB/dt The rate of change of your bank balance B is the interest rate times your old balance so that to those who have abundance, positive Balance, will more be given and from those with negative Balance, even what they have will be taken away. I've put the whole exegisis to verse at http://johnturmel.com/poembibl.htm

I'm not sure how active or effective this campaign is, but Metro IAF's "Ten Percent is Enough!" website might be of interest to some folks here:http://www.10percentisenough.org/

Theology and philosophy should inform government decisions but shouldn't be allowed to make them - at least if you believe that democracy is the way to go. You can try to convince people that something is wrong, but if they don't listen or if they disagree, you're bound to accept their verdict. Of course, you can keep trying to convince them, as you should if you believe you're right.The trouble here is, of course, that modern America is built on debt. If we all lived within our means, we'd have a much smaller, less vibrant economy. Which maybe sounds nice until you realize that the temptation to debt is universal, and other countries likely wouldn't feel bound to live within their means. And in the global world, no country is an island.

Hi, John, I just want to commend you for this thoughtful post. One of my own little idiosyncratic thoughts is that debt has been an instrument of oppressing the poor for millenia, and free-market capitalism has its own ways of doing this.I've noted, in my own pastoral work, that there are two basic profiles of the poor in the US. One type is the underclass, who seem to be born into a thick culture of poverty, pass that culture along to their children, and find escaping that culture extremely difficult. The other profile are those who were born into the middle class, but have fallen into the dark and freezing waters of poverty. Often enough, debt is the powerful wave that washes them over ship's railing, and debt is the block of concrete tied to their ankles that prevents them from rising back to the surface. It could be a foreclosed house, it could be credit cards, it could be student loans. Those are the guises of the predatory lender, who has been around as long as humans have engaged in economic activity. In earlier times, we sold debtors and their families into slavery, or imprisoned them. Now we undermine their credit histories, and erect legal hurdles that make it nearly impossible to climb out of the water.