An Essay on Mediæval Economic Teaching

by George O'Brien

SECTION 2.—THE SALE OF THE USE OF MONEY

§ 1. Usury in Greece and Rome.

The prohibition of usury has always occupied such a large place in histories of the Middle Ages, and particularly in discussions relating to the attitude of the Church towards economic questions, that it is important that its precise foundation and extent should be carefully studied. The usury prohibition has been the centre of so many bitter controversies, that it has almost become part of the stock-in-trade of the theological mob orators. The attitude of the Church towards usury only takes a slightly less prominent place than its attitude towards Galileo in the utterances of those who are anxious to convict it of error. We have referred to this current controversy, not in order that we might take a part in it, but that, on the contrary, we might avoid it. It is no part of our purpose in our treatment of this subject to discuss whether the usury prohibition was or was not suitable to the conditions of the Middle Ages; whether it did or did not impede industrial enterprise and commercial expansion; or whether it was or was not universally disregarded and evaded in real life. These are inquiries which, though full of interest, would not be in place in a discussion of theory. All we are concerned to do in the following pages is to indicate the grounds on which the prohibition of usury rested, the precise extent of its application, and the conceptions of economic theory which it indicated and involved.

[Footnote 1: Brants has a very luminous and interesting section on Cambium, Op. cit., p. 214 et seq.]

We must remark in the first place that the prohibition of usury was in no sense peculiar to the Catholic Church in the Middle Ages, but, on the contrary, was to be found in many other religious and legal systems—for instance, in the writings of the Greek and Roman philosophers, amongst the Jews, and the followers of Mohammed. We shall give a very brief account of the other prohibitions of usury before coming to deal with the scholastic teaching on the subject.

We can find no trace of any legal prohibition of usury in ancient Greece. Although Solon's laws contained many provisions for the relief of poor debtors, they did not forbid the taking of interest, nor did they limit the rate of interest that might be taken.[1] In Rome the Twelve Tables fixed a maximum rate of interest, which was probably ten or twelve per cent, per annum, but which cannot be determined with certainty owing to the doubtful signification of the expression 'unciarum foenus.' The legal rate of interest was gradually reduced until the year 347 B.C., when five per cent, was fixed as a maximum. In 342 B.C. interest was forbidden altogether by the Genucian Law; but this law, though never repealed, was in practice quite inoperative owing to the facility with which it could be evaded; and consequently the oppression of borrowers was prevented by the enactment, or perhaps it would be more correct to say the general recognition, of a maximum rate of interest of twelve per cent. per annum. This maximum rate—the Centesima—remained in operation until the time of Justinian.[2] Justinian, who was under the influence of Christian teaching, and who might therefore be expected to have regarded usury with unfavourable eyes, fixed the following maximum rates of interest—maritime loans twelve per cent.; loans to ordinary persons, not in business, six per cent.; loans to high personages (illustres) and agriculturists, four per cent.[3]

[Footnote 1: Cleary, The Church and Usury, p. 21.]

[Footnote 2: Hunter, Roman Law, pp. 652-53; Cleary, op. cit., pp. 22-6; Roscher, Political Economy, s. 90.]

[Footnote 3: Code 4, 32, 26, 1.]

While the taking of interest was thus approved or tolerated by Greek and Roman law, it was at the same time reprobated by the philosophers of both countries. Plato objects to usury because it tends to set one class, the poor or the borrowers, against another, the rich or the lenders; and goes so far as to make it wrong for the borrower to repay either the principal or interest of his debt. He further considers that the profession of the usurer is to be despised, as it is an illiberal and debasing way of making money.[1] While Plato therefore disapproves in no ambiguous words of usury, he does not develop the philosophical bases of his objection, but is content to condemn it rather for its probable ill effects than on account of its inherent injustice.

[Footnote 1: Laws, v. ch. 11-13.]

Aristotle condemns usury because it is the most extreme and dangerous form of chrematistic acquisition, or the art of making money for its own sake. As we have seen above, in discussing the legitimacy of commerce, buying cheap and selling dear was one form of chrematistic acquisition, which could only be justified by the presence of certain motives; and usury, according to the philosopher, was a still more striking example of the same kind of acquisition, because it consisted in making money from money, which was thus employed for a function different from that for which it had been originally invented. 'Usury is most reasonably detested, as the increase of our fortune arises from the money itself, and not by employing it for the purpose for which it was intended. For it was devised for the sake of exchange, but usury multiplies it. And hence usury has received the name of [Greek: tokos], or produce; for whatever is produced is itself like its parents; and usury is merely money born of money; so that of all means of money-making it is the most contrary to nature.'[1] We need not pause here to discuss the precise significance of Aristotle's conceptions on this subject, as they are to us not so much of importance in themselves, as because they suggested a basis for the treatment of usury to Aquinas and his followers.[2]

[Footnote 1: Aristotle, Politics, i. 10.]

[Footnote 2: Cleary, op. cit., p. 29.]

In Rome, as in Greece, the philosophers and moralists were unanimous in their condemnation of the practice of usury. Cicero condemns usury as being hateful to mankind, and makes Cato say that it is on the same level of moral obliquity as murder; and Seneca makes a point that became of some importance in the Middle Ages, namely, that usury is wrongful because it involves the selling of time.[1] Plutarch develops the argument that money is sterile, and condemns the practices of contemporary money-lenders as unjust.[2] The teaching of the philosophers as to the unlawfulness of usury was reflected in the popular feeling of the time.[3]

[Footnote 1: Cleary, op. cit., p. 29.]

[Footnote 2: De Vitando Aere Alieno.]

[Footnote 3: Espinas, op. cit., pp. 81-2; Roscher, Political
Economy, s. 90.]

§ 2. Usury in the Old Testament.

The question of usury therefore attracted considerable attention in the teaching and practice of pagan antiquity. It occupied an equally important place in the Old Testament. In Exodus we find the first prohibition of usury: 'If thou lend money to any of my people being poor, thou shalt not be to him as a creditor, neither shall ye lay upon him usury.'[1] In Leviticus we read: 'And if thy brother be waxen poor, and his hand fail with thee; then, thou must uphold him; as a stranger and a sojourner shall he live with thee. Take thou no money of him or increase, but fear thy God that thy brother may live with thee. Thou shalt not give him thy money upon usury, nor give him victuals for increase.'[2] Deuteronomy lays down a wider prohibition: 'Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of anything that is lent upon usury; unto a foreigner thou mayest lend upon usury, but unto thy brother thou mayest not lend upon usury.'[3] It will be noticed that the first and second of these texts do not forbid usury except in the case of loans to the poor, and, if we had them alone to consider, we could conclude that loans to the rich or to business men were allowed. The last text, however, extends the prohibition to all loans to one's brother—an expression which was of importance in Christian times, as Christian writers maintained the universal brotherhood of man.

[Footnote 1: Exod. xxii. 25.]

[Footnote 2: Lev. xxv. 35.]

[Footnote 3: Deut. xxiii. 19.]

It is unnecessary for us to discuss the underlying considerations which prompted these ordinances. Dr. Cleary, who has studied the matter with great care, concludes that: 'The legislator was urged mostly by economic considerations…. The permission to extract usury from strangers—a permission which later writers, such as Maimonides, regarded as a command—clearly favours the view that the legislator was guided by economic principles. It is more difficult to say whether he based his legislation on the principle that usury is intrinsically unjust—that is to say, unjust even when taken in moderation. There is really nothing in the texts quoted to enable us to decide. The universality of the prohibition when there is question solely of Jews goes to show that usury as such was regarded as unjust; whilst its permission as between Jew and Gentile favours the contradictory hypothesis.'[1] Modern Jewish thought is inclined to hold the view that these prohibitions were based upon the assumption that usury was intrinsically unjust, but that the taking of usury from the Gentiles was justified on the principle of compensation; in other words, that Jews might exact usury from those who might exact it from them.[2] It is at least certain that usury was regarded by the writers of the Old Testament as amongst the most terrible of sins.[3]

[Footnote 1: Op. cit., pp. 5-6.]

[Footnote 2: Jewish Encyclopaedia, art. 'Usury.']

[Footnote 3: Ezek. xviii. 13; Jer. xv. 10; Ps. xiv. 5, cix. 11, cxii. 5; Prov. xxviii. 8; Hes. xviii. 8; 2 Esd. v. I et seq.]

The general attitude of the Jews towards usury cannot be better explained than by quoting Dr. Cleary's final conclusion on the subject: 'It appears therefore that in the Old Testament usury was universally prohibited between Israelite and Israelite, whilst it was permitted between Israelite and Gentile. Furthermore, it seems impossible to decide what was the nature of the obligations imposed—whether the prohibition supposed and ratified an already existing universal obligation, in charity or justice, or merely imposed a new obligation in obedience, binding the consciences of men for economic or political reasons. So, too, it seems impossible to decide absolutely whether the decrees were intended to possess eternal validity; the probabilities, however, seem to favour very strongly the view that they were intended as mere economic regulations suited to the circumstances of the time. This does not, of course, decide the other question, whether, apart from such positive regulations, there already existed an obligation arising from the natural law; nor would the passing of the positive law into desuetude affect the existence of the other obligation.'[1]

[Footnote 1: Op. cit., pp. 17-18.]

Before we pass from the consideration of the Old Testament to that of the New, we may mention that the taking of interest by Mohammedans is forbidden in the Koran.[2]

[Footnote 2: ii. 30. This prohibition is universally evaded. (Roscher, Political Economy, s. 90.)]

§ 3. Usury in the First Twelve Centuries of Christianity.

The only passage in the Gospels which bears directly on the question of usury is a verse of St. Luke, the correct reading of which is a matter of considerable difference of opinion.[1] The Revised Version reads: 'But love your enemies, and do them good, and lend, never despairing (nihil desperantes); and your reward shall be great.' If this be the true reading of the verse, it does not touch the question of usury at all, as it is simply an exhortation to lend without worrying whether the debtor fail or not.[2] The more generally received reading of this verse, however, is that adopted by the Vulgate, 'mutuum date, nihil inde sperantes'—'lend hoping for nothing thereby.' If this be the correct reading, the verse raises considerable difficulties of interpretation. It may simply mean, as Mastrofini interprets it, that all human actions should be performed, not in the hope of obtaining any material reward, but for the love of God and our neighbour; or it may contain an actual precept or counsel relating to the particular subject of loans. If the latter be the correct interpretation, the further question arises whether the recommendation is to renounce merely the interest of a loan or the principal as well. We need not here engage on the details of the controversy thus aroused; it is sufficient to say that it is the almost unanimous opinion of modern authorities that the verse recommends the renunciation of the principal as well as the interest; and that, if this interpretation is correct, the recommendation is not a precept, but a counsel.[3] Aquinas thought that the verse was a counsel as to the repayment of the principal, but a precept as to the payment of interest, and this opinion is probably correct.[4] With the exception of this verse, there is not a single passage in the Gospels which prohibits the taking of usury.

[Footnote 1: Luke vi. 35.]

[Footnote 2: Cleary, op. cit., p. 33, following Knabenbaur.]

[Footnote 3: Cleary, op. cit., p. 34.]

[Footnote 4: Ibid., p. 35.]

We must now give some account of the teaching on usury which was laid down by the Fathers and early councils of the Church; but at the same time we shall not attempt to treat this in an exhaustive way, because, although the early Christian teaching is of interest in itself, it exercised little or no influence upon the great philosophical treatment of the same subject by Aquinas and his followers, which is the principal subject to be discussed in these pages. The first thing we must remark is that the prohibition of usury was not included by the Council of Jerusalem amongst the 'necessary things' imposed upon converts from the Gentiles.[1] This would seem to show that the taking of usury was not regarded as unlawful by the Apostles, who were at pains expressly to forbid the commission of offences, the evil of which must have appeared plainly from the natural law—for instance, fornication. The Didache, which was used as a book of catechetical instruction for catechumens, does not specifically mention usury; the forcing of the repayment of loans from the poor who are unable to pay is strongly reprobated; but this is not so in the case of the rich.[2] Clement of Alexandria expressly limits his disapprobation of usury to the case of loans between brothers, whom he defines as 'participators in the same word,' i.e. fellow-Christians; and in any event it is clear that he regards it as sin against charity, but not against justice.[3]

[Footnote 1: Acts xv. 29.]

[Footnote 2: Didache, ch. i.; Cleary, op. cit., p. 39.]

[Footnote 3: Stromata, ii. 18.]

Tertullian is one of the first of the Fathers to lay down positively that the taking of usury is sinful. He regards it as obviously wrong for Christians to exact usury on their loans, and interprets the passage of St. Luke, to which we have referred, as a precept against looking for even the repayment of the principal.[1] On the other hand, Cyprian, writing in the same century, although he declaims eloquently and vigorously against the usurious practices of the clergy, does not specifically express the opinion that the taking of usury is wrong in itself.[2]

[Footnote 1: Ad Marcion, iv. 17.]

[Footnote 2: Le Lapsis, ch. 5-6; Cleary, op. cit., pp. 42-3.]

Thus, during the first three centuries of Christianity, there does not seem to have been, as far as we can now ascertain, any definite and general doctrine laid down on the subject of usury. In the year 305 or 306 a very important step forward was taken, when the Council of Elvira passed a decree against usury. This decree, as given by Ivo and Gratian, seems only to have applied to usury on the part of the clergy, but as given by Mansi it affected the clergy and laity alike. 'Should any cleric be found to have taken usury,' the latter version runs, 'let him be degraded and excommunicated. Moreover, if any layman shall be proved a usurer, and shall have promised, when corrected, to abstain from the practice, let him be pardoned. If, on the contrary, he perseveres in his evil-doing, he is to be excommunicated.'[1] Although the Council of Elvira was but a provincial Council, its decrees are important, as they provided a model for later legislation. Dr. Cleary thinks that Mansi's version of this decree is probably incorrect, and that, therefore, the Council only forbade usury on the part of the clergy. In any event, with this one possible and extremely doubtful exception, there was no conciliar legislation affecting the practice of usury on the part of the laity until the eighth century. Certain individual popes censured the taking of usury by laymen, and the Council of Nice expressed the opinion that such a practice was contrary to Christ's teaching, but there is nowhere to be found an imperative and definite prohibition of the taking of usury except by the clergy.[2]

[Footnote 1: Cleary, op. cit., p. 43.]

[Footnote 2: Cleary, op. cit., pp. 44-8.]

The inconclusive result of the Christian teaching up to the middle of the fourth century is well summarised by Dr. Cleary: 'Hitherto we have encountered mere prohibitions of usury with little or no attempt to assign a reason for them other than that of positive legislation. Most of the statements of these early patristic writers, as well as possibly all of the early Christian legislative enactments, deal solely with the practice of usury by the clergy; still, there is sufficient evidence to show that in those days it was reprobated even for the Christian laity, for the Didache and Tertullian clearly teach or presuppose its prohibition, while the oecumenical Council of Nice certainly presupposed its illegality for the laity, though it failed to sustain its doctrinal presuppositions with corresponding ecclesiastical penalties. With the exception of some very vague statements by Cyprian and Clement of Alexandria, we find no attempt to state the nature of the resulting obligation—that is to say, we are not told whether there is an obligation of obedience, of justice, or of charity. The prohibition indeed seems to be regarded as universal; and it may very well be contended that for the cases the Fathers consider it was in fact universal—for the loans with which they are concerned, being necessitous, should be, in accordance with Christian charity, gratuitous—even if speculatively usurious loans in general were not unjust.'[1]

[Footnote 1: Op. cit., pp. 48-9.]

The middle of the fourth century marked the opening of a new period—'a period when oratorical denunciations are profuse, and when consequently philosophical speculation, though fairly active, is of too imaginative a character to be sufficiently definite.'[1] St. Basil's Homilies on the Fourteenth Psalm contain a violent denunciation of usury, the reasoning of which was repeated by St. Gregory of Nyssa[2] and St. Ambrose.[3] These three Fathers draw a terrible picture of the state of the poor debtor, who, harassed by his creditors, falls deeper and deeper into despair, until he finally commits suicide, or has to sell his children into slavery. Usury was therefore condemned by these Fathers as a sin against charity; the passage from St. Luke was looked on merely as a counsel in so far as it related to the repayment of the principal, but as a precept so far as it related to usury; but the notion that usury was in its very essence a sin against justice does not appear to have arisen. The natural sterility of money is referred to, but not developed; and it is suggested, though not categorically stated, that usury may be taken from wealthy debtors.[4]

[Footnote 1: Cleary, op. cit., p. 49.]

[Footnote 2: Contra Usurarios.]

[Footnote 3: De Tobia.]

[Footnote 4: Cleary, op. cit., p. 52.]

The other Fathers of the later period do not throw very much light on the question of how usury was regarded by the early Church. St. Hilary[1] and Jerome[2] still base their objection on the ground of its being an offence against charity; and St. Augustine, though he would like to make restitution of usury a duty, treats the matter from the same point of view.[3] On the other hand, there are to be found patristic utterances in favour of the legality of usury, and episcopal approbations of civil codes which permitted it.[4] The civil law did not attempt to suppress usury, but simply to keep it within due bounds.[5] The result of the patristic teaching therefore was on the whole unsatisfactory and inconclusive. 'Whilst patristic opinion,' says Dr. Cleary, 'is very pronounced in condemning usury, the condemnation is launched against it more because of its oppressiveness than for its intrinsic injustice. As Dr. Funk has pointed out, one can scarcely cite a single patristic opinion which can be said clearly to hold that usury is against justice, whilst there are, on the contrary, certain undercurrents of thought in many writers, and certain explicit statements in others, which tend to show that the Fathers would not have been prepared to deal so harshly with usurers, did usurers not treat their debtors so cruelly…. Of keen philosophical analysis there is none…. On the whole, we find the teachings of the Fathers crude and undeveloped.'[6]

[Footnote 1: In Ps. xiv.]

[Footnote 2: Ad Ezech.]

[Footnote 3: Cleary, op. cit., p. 56.]

[Footnote 4: Ibid. pp. 56-7.]

[Footnote 5: Justinian Code, iv. 32.]

[Footnote 6: Op. cit., pp. 57-9. On the patristic teaching on usury, see Espinas, Op. cit., pp. 82-4; Roscher, Political Economy, s. 90; Antoine, Cours d'Economie sociale, pp. 588 et seq.]

The practical teaching with regard to the taking of usury made an important advance in the eighth and ninth centuries, although the philosophical analysis of the subject did not develop any more fully. A capitulary canon made in 789 decreed 'that each and all are forbidden to give anything on usury'; and a capitulary of 813 states that 'not only should the Christian clergy not demand usury, laymen should not.' In 825 it was decreed that the counts were to assist the bishops in their suppression of usury; and in 850 the Synod of Ticinum bound usurers to restitution.[1] The underlying principles of these enactments is as obscure as their meaning is plain and definite. There is not a single trace of the keen analysis with which Aquinas was later to illuminate and adorn the subject.

[Footnote 1: These are but a few of the enactments of the period directed against usury (Cleary, op. cit., p. 61; Favre, Le prêt à intérêt dans l'ancienne France).]

§ 4. The Mediæval Prohibition of Usury.

The tenth and eleventh centuries saw no advance in the teaching on usury. The twelfth century, however, ushered in a new era. 'Before that century controversy had been mostly confined to theologians, and treated theologically, with reference to God and the Bible, and only rarely with regard to economic considerations. After the twelfth century the discussion was conducted on a gradually broadening economic basis—appeals to the Fathers, canonists, philosophers, the jus divinum, the jus naturale, the jus humanum, became the order of the day.'[1] Before we proceed to discuss the new philosophical or scholastic treatment of usury which was inaugurated for all practical purposes by Aquinas, we must briefly refer to the ecclesiastical legislation on the subject.

[Footnote 1: Böhm-Bawerk, Capital and Interest, p. 19.]

In 1139 the second Lateran Council issued a very strong declaration against usurers. 'We condemn that disgraceful and detestable rapacity, condemned alike by human and divine law, by the Old and the New Testaments, that insatiable rapacity of usurers, whom we hereby cut off from all ecclesiastical consolation; and we order that no archbishop, bishop, abbot, or cleric shall receive back usurers except with the very greatest caution, but that, on the contrary, usurers are to be regarded as infamous, and shall, if they do not repent, be deprived of Christian burial.'[1] It might be argued that this decree was aimed against immoderate or habitual usury, and not against usury in general, but all doubt as regards the attitude of the Church was set at rest by a decree of the Lateran Council of 1179. This decree runs: 'Since almost in every place the crime of usury has become so prevalent that many people give up all other business and become usurers, as if it were lawful, regarding not its prohibition in both Testaments, we ordain that manifest usurers shall not be admitted to communion, nor, if they die in their sins, be admitted to Christian burial, and that no priest shall accept their alms.'[2] Meanwhile, Alexander III., having given much attention to the subject of usury, had come to the conclusion that it was a sin against justice. This recognition of the essential injustice of usury marked a turning-point in the history of the treatment of the subject; and Alexander III. seems entitled to be designated the 'pioneer of its scientific study.'[3] Innocent III. followed Alexander in the opinion that usury was unjust in itself, and from his time forward there was but little further disagreement upon the matter amongst the theologians.[4]

[Footnote 1: Cleary, op. cit., p. 64.]

[Footnote 2: Ibid.]

[Footnote 3: Cleary, op. cit., p. 65.]

[Footnote 4: Ibid., p. 68.]

In 1274 Gregory X., in the Council of Lyons, ordained that no community, corporation, or individual should permit foreign usurers to hire houses, but that they should expel them from their territory; and the disobedient, if prelates, were to have their lands put under interdict, and, if laymen, to be visited by their ordinary with ecclesiastical censures.[1] By a further canon he ordained that the wills of usurers who did not make restitution should be invalid.[2] This brought usury definitely within the jurisdiction of the ecclesiastical courts.[3] In 1311 the Council of Vienne declared all secular legislation in favour of usury null and void, and branded as heresy the belief that usury was not sinful.[4] The precise extent and interpretation of this decree have given rise to a considerable amount of discussion,[5] which need not detain us here, because by that time the whole question of usury had come under the treatment of the great scholastic writers, whose teaching is more particularly the subject matter of the present essay.

[Footnote 1: Liber Sextus, v. 5, 1.]

[Footnote 2: Ibid., c. 2.]

[Footnote 3: Ashley, op. cit., vol. i. pt. i. p. 150.]

[Footnote 4: Clementinarum, v. 5, 1.]

[Footnote 5: Cleary, op. cit., pp. 74-8.]

Even as late as the first half of the thirteenth century there was no serious discussion of usury by the theologians. William of Paris, Alexander of Hales, and Albertus Magnus simply pronounced it sinful on account of the texts in the Old and New Testaments, which we have quoted above.[1] It was Aquinas who really put the teaching on usury upon the new foundation, which was destined to support it for so many hundred years, and which even at the present day appeals to many sympathetic and impartial inquirers. Mr. Lecky apologises for the obscurity of his account of the argument of Aquinas, but adds that the confusion is chiefly the fault of the latter;[2] but the fact that Mr. Lecky failed to grasp the meaning of the argument should not lead one to conclude that the argument itself was either confused or illogical. The fact that it for centuries remained the basis of the Catholic teaching on the subject is a sufficient proof that its inherent absurdity did not appear apparent to many students at least as gifted as Mr. Lecky. We shall quote the article of Aquinas at some length, because it was universally accepted by all the theologians of the fourteenth and fifteenth centuries, with whose opinions we are concerned in this essay. To quote later writings is simply to repeat in different words the conclusions at which Aquinas arrived.[3]

[Footnote 1: Jourdain, op. cit., p. 15.]

[Footnote 2: Rise and Influence, of Rationalism in Europe, vol. ii. p. 261.]

[Footnote 3: Endemann, Studien, vol. i. p. 17.]

In answer to the question 'whether it is a sin to take usury for money lent,' Aquinas replies: 'To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality, which is contrary to justice.

'In order to make this evident, we must observe that there are certain things the use of which consists in their consumption; thus we consume wine when we use it for drink, and we consume wheat when we use it for food. Wherefore in such-like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing is granted the thing itself; and for this reason to lend things of this kind is to transfer the ownership. Accordingly, if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice. In like manner he commits an injustice who lends wine or wheat, and asks for double payment, viz. one, the return of the thing in equal measure, the other, the price of the use, which is called usury.

'On the other hand, there are other things the use of which does not consist in their consumption; thus to use a house is to dwell in it, not to destroy it. Wherefore in such things both may be granted; for instance, one man may hand over to another the ownership of his house, while reserving to himself the use of it for a time, or, vice versa, he may grant the use of a house while retaining the ownership. For this reason a man may lawfully make a charge for the use of his house, and, besides this, revendicate the house from the person to whom he has granted its use, as happens in renting and letting a house.

'But money, according to the philosopher,[1] was invented chiefly for the purpose of exchange; and consequently the proper and principal use of money is its consumption or alienation, whereby it is sunk in exchange. Hence it is by its very nature unlawful to take payment for the use of money lent, which payment is known as usury; and, just as a man is bound to restore other ill-gotten goods, so he is bound to restore the money which he has taken in usury.'[2]

[Footnote 1: Eth. v. Pol. 1.]

[Footnote 2: II. ii. 78, 1.]

The essential thing to notice in this explanation is that the contract of mutuum is shown to be a sale. The distinction between things which are consumed in use (res fungibiles), and which are not consumed in use (res non fungibiles) was familiar to the civil lawyers; but what they had never perceived was precisely what Aquinas perceived, namely, that the loan of a fungible thing was in fact not a loan at all, but a sale, for the simple reason that the ownership in the thing passed. Once the transaction had been shown to be a sale, the principle of justice to be applied to it became obvious. As we have seen above, in treating of sales, the essential basis of justice in exchange was the observance of aequalitas between buyer and seller—in other words, the fixing of a just price. The contract of mutuum, however, was nothing else than a sale of fungibles, and therefore the just price in such a contract was the return of fungibles of the same value as those lent. If the particular fungible sold happened to be money, the estimation of the just price was a simple matter—it was the return of an amount of money of equal value. As money happened to be the universal measure of value, this simply meant the return of the same amount of money. Those who maintained that something additional might be claimed for the use of the money lost sight of the fact that the money was incapable of being used apart from its being consumed.[1] To ask for payment for the sale of a thing which not only did not exist, but which was quite incapable of existence, was clearly to ask for something for nothing—which obviously offended against the first principles of commutative justice. 'He that is not bound to lend,' says Aquinas in another part of the same article, 'may accept repayment for what he has done, but he must not exact more. Now he is repaid according to equality of justice if he is repaid as much as he lent, wherefore, if he exacts more for the usufruct of a thing which has no other use but the consumption of its substance, he exacts a price of something non-existent, and so his exaction is unjust.'[2] And in the next article the principle that mutuum is a sale appears equally clearly: 'Money cannot be sold for a greater sum than the amount lent, which has to be paid back.'[3]

[Footnote 1: Aquinas did not lose sight of the fact that money might, in certain cases, be used apart from being consumed—for instance, when it was not used as a means of exchange, but as an ornament. He gives the example of money being sewn up and sealed in a bag to prevent its being spent, and in this condition lent for any purpose. In this case, of course, the transaction would not be a mutuum, but a locatio et conductio, and therefore a price could be charged for the use of the money (Quaestiones Disputatae de Malo, Q. xiii. art. iv. ad. 15, quoted in Cronin's Ethics, vol. ii. p. 332).]

[Footnote 2: II. ii. 78, 1, ad. 5.]

[Footnote 3: II. ii. 78, 2, ad. 4. Biel distinguishes three kinds of exchange: of goods for goods, or barter; of goods for money, or sale; and of money for money; and adds, 'In his contractibus … generaliter justitia in hoc consistit quod fiant sine fraude, et servetur aequalitas substantiae, qualitatis, quantitatis in commutatis (Op. cit., IV. xv. 1). Buridan says that usury is contrary to natural law 'ex conditione justitiae quae in aequalitate damni et lucri consistit; quoniam injustum est pro re semel commutata pluries pretium recipere' (In Lib. Pol., iv. 6).]

The difficulty which moderns find in understanding this teaching, is that it is said to be based on the sterility of money. A moment's thought, however, will convince us that money is in fact sterile until labour has been applied to it. In this sense money differs in its essence from a cow or a tree. A cow will produce calves, or a tree will produce fruit without the application of any exertion by its owner; but, whatever profit is derived from money, is derived from the use to which it is put by the person who owns it. This is all that the scholastics meant by the sterility of money. They never thought of denying that money, when properly used, was capable of bringing its employer a profit; but they emphatically asserted that the profit was due to the labour, and not to the money.

Antoninus of Florence clearly realised this: 'Money is not profitable of itself alone, nor can it multiply itself, but it may become profitable through its employment by merchants';[1] and Bernardine of Sienna says: 'Money has not simply the character of money, but it has beyond this a productive character, which we commonly call capital.'[2] 'What is money,' says Brants, 'if it is not a means of exchange, of which the employment and preservation will give a profit, if he who possesses it is prudent, active, and intelligent? If this money is well employed, it will become a capital, and one may derive a profit from it; but this profit arises from the activity of him who uses it, and consequently this profit belongs to him—it is the fruit, the remuneration of his labour…. Did they (the scholastics) say that it was impossible to draw a profit from a sum of money? No; they admitted fully that one might de pecunia lucrari; but this lucrum does not come from the pecunia, but from the application of labour to the sum.'[3]

[Footnote 1: Quoted in Brants, op. cit., p. 134.]

[Footnote 2: Ibid.]

[Footnote 3: Brants, op. cit., pp. 133-5; Nider, De Cont. Merc. iii. 15.]

Therefore, if the borrower did not derive any profit from the loan, the sum lent had in fact been sterile, and obviously the just price of the loan was the return of the amount lent; if, on the contrary, the borrower had made a profit from it, it was the reward of his labour, and not the fruit of the loan itself. To repay more than the sum lent would therefore be to make a payment to one person for the labour of another.[1] The exaction of usury was therefore the exploitation of another man's exertion.[2]

[Footnote 1: Gerson, De Cont., iv. 15.]

[Footnote 2: Neumann, when he says that 'it was sinful to recompense the use of capital belonging to another' (Geschichte des Wuchers in Deutschland, p. 25), seems to miss the whole point of the discussion. The teaching of the canonists on rents and partnership shows clearly that the owner of capital might draw a profit from another's labour, and the central point of the usury teaching was that money which has been lent, and employed so as to produce a profit by the borrower, belongs not 'to another,' but to the very man who employed it, namely, the borrower.]

It is interesting to notice how closely the rules applying in the case of sales were applied to usury. The raising of the price of a loan on account of some special benefit derived from it by the borrower is precisely analogous to raising the sale price of an object because it is of some special individual utility to the buyer. On the other hand, as we shall see further down, any special damage suffered by the lender was a sufficient reason for exacting something over and above the amount lent; this was precisely the rule that applied in the case of sales, when the seller suffered any special damage from parting with the object sold. Thus the analogy between sales and loans was complete at every point. In both, equality of sacrifice was the test of justice.

Nor could it be suggested that the delay in the repayment of the loan was a reason for increasing the amount to be repaid, because this really amounted to a sale of time, which, of its nature, could not be owned.[1]

[Footnote 1: Rambaud, op. cit., p. 63; Aquinas(?), De Usuris, i. 4.]

The scholastic teaching, then, on the subject was quite plain and unambiguous. Usury, or the payment of a price for the use of a sum lent in addition to the repayment of the sum itself, was in all cases prohibited. The fact that the payment demanded was moderate was irrelevant; there could be no question of the reasonableness of the amount of an essentially unjust payment.[1] Nor was the payment of usury rendered just because the loan was for a productive purpose—in other words, a commercial loan. Certain writers have maintained that in this case usury was tolerated;[2] but they can easily be refuted. As we have seen above, mutuum was essentially a sale, and, therefore, no additional price could be charged because of some special individual advantage enjoyed by the buyer (or borrower). It was quite impossible to distinguish, according to the scholastic teaching, between taking an additional payment because the lender made a profit by using the loan wisely, and taking it because the borrower was in great distress, and therefore derived a greater advantage from the loan than a person in easier circumstances. The erroneous notion that loans for productive purposes were entitled to any special treatment was finally dispelled in 1745 by an encyclical of Benedict XIV.[3]

[Footnote 1: Jourdain, op. cit., p. 35.]

[Footnote 2: E.g. Périn, Premiers Principes d'Économie politique, p. 305; Claudio Jannet, Capital Spéculation et Finance, p. 83; De Metz-Noblat, Lois économiques, p. 293.]

[Footnote 3: Rambaud, op. cit., p. 69.]

§ 5. Extrinsic Titles.

Usury, therefore, was prohibited in all cases. Many people at the present day think that the prohibition of usury was the same thing as the prohibition of interest. There could not be a greater mistake. While usury was in all circumstances condemned, interest was in every case allowed. The justification of interest rested on precisely the same ground as the prohibition of usury, namely, the observance of the equality of commutative justice. It was unjust that a greater price should be paid for the loan of a sum of money than the amount lent; but it was no less unjust that the lender should find himself in a worse position because of his having made the loan. In other words, the consideration for the loan could not be increased because of any special benefit which it conferred on the borrower, but it could be increased on account of any special damage suffered by the lender—precisely the same rule as we have seen applied in the case of sales. The borrower must, in addition to the repayment of the loan, indemnify the lender for any damage he had suffered. The measure of the damage was the difference between the lender's condition before the loan was made and after it had been repaid—in other words, he was entitled to compensation for the difference in his condition occasioned by the transaction—id quod interest.

Before we discuss interest properly so called, we must say a word about another analogous but not identical title of compensation, namely, the poena conventionalis. It was a very general practice, about the legitimacy of which the scholastics do not seem to have had any doubt, to attach to the original contract of loan an agreement that a penalty should be paid in case of default in the repayment of the loan at the stipulated time.[1] The justice of the poena conventionalis was recognised by Alexander of Hales,[2] and by Duns Scotus, who gives a typical form of the stipulation as follows: 'I have need of my money for commerce, but shall lend it to you till a certain day on the condition that, if you do not repay it on that day, you shall pay me afterwards a certain sum in addition, since I shall suffer much injury through your delay.'[3] The poena conventionalis must not be confused with either of the titles damnum emergens or lucrum cessans, which we are about to discuss; it was distinguished from the former by being based upon a presumed injury, whereas the injury in damnum emergens must be proved; and for the latter because the damage must be presumed to have occurred after the expiration of the loan period, whereas in lucrum cessans the damage was presumed to have occurred during the currency of the loan period. The important thing to remember is that these titles were really distinct.[4] The essentials of a poena conventionalis were, stipulation from the first day of the loan, presumption of damage, and attachment to a loan which was itself gratuitous.[5] The Summa Astesana clearly maintained the distinction between the two titles of compensation,[6] as also did the Summa Angelica.[7]

[Footnote 1: Ashley, op. cit., vol. i. pt. i. p. 399.]

[Footnote 2: Biel, op. cit., iv. 15, 11.]

[Footnote 3: Cleary, op. cit., p. 93.]

[Footnote 4: Ibid., p. 95.]

[Footnote 5: Cleary, op. cit., p. 94.]

[Footnote 6: Endemann, Studien, vol. i. p. 20.]

[Footnote 7: ccxl.]

The first thing to be noted on passing from the poena conventionalis to interest proper is that the latter ground of compensation was generally divided into two kinds, damnum emergens and lucrum cessans. The former included all cases where the lender had incurred an actual loss by reason of his having made the loan; whereas the latter included all cases where the lender, by parting with his money, had lost the opportunity of making a profit. This distinction was made at least as early as the middle of the thirteenth century, and was always adopted by later writers.[1]

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. p. 399.]

The title damnum emergens never presented any serious difficulty. It was recognised by Albertus Magnus,[1] and laid down so clearly by Aquinas that it was not afterwards questioned: 'A lender may without sin enter an agreement with the borrower for compensation for the loss he incurs of something he ought to have, for this is not to sell the use of money, but to avoid a loss. It may also happen that the borrower avoids a greater loss than the lender incurs, wherefore the borrower may repay the lender with what he has gained.'[2] The usual example given to illustrate how damnum emergens might arise, was the case of the lender being obliged, on account of the failure of the borrower, to borrow money himself at usury.[3]

[Footnote 1: Roscher, Geschichte, p. 27.]

[Footnote 2: II. ii. 78, 2, ad. 1.]

[Footnote 3: Ashley, op. cit., vol. i. pt. i. p. 400.]

Closely allied to the title of damnum emergens was that of lucrum cessans. According to some writers, the latter was the only true interest. Dr. Cleary quotes some thirteenth-century documents in which a clear distinction is made between damnum and interesse;[1] and it seems to have been the common custom in Germany at a later date to distinguish between interesse and schaden.[2] Although the division between these two titles was very indefinite, they did not meet recognition with equal readiness; the title damnum emergens was universally admitted by all authorities; while that of lucrum cessans was but gradually admitted, and hedged round with many limitations.[3]

[Footnote 1: Op. cit., p. 95.]

[Footnote 2: Ashley, op. cit., vol. i. pt. ii. p. 401.]

[Footnote 3: Cleary, op. cit., p. 98; Endemann, Studien, vol. ii. p. 279; Bartolus and Baldus said that damnum emergens and lucrum cessans were divided by a very narrow line, and that it was often difficult to distinguish between them. They suggested that the terms interesse proximum and interesse remotum would be more satisfactory, but they were not followed by other writers (Endemann, Studien, vol. ii, pp. 269-70).]

The first clear recognition of the title lucrum cessans occurs in a letter from Alexander III., written in 1176, and addressed to the Archbishop of Genoa: 'You tell us that it often happens in your city that people buy pepper and cinnamon and other wares, at the time worth not more than five pounds, promising those from whom they received them six pounds at an appointed time. Though contracts of this kind and under such a form cannot strictly be called usurious, yet, nevertheless, the vendors incur guilt, unless they are really doubtful whether the wares might be worth more or less at the time of payment. Your citizens will do well for their own salvation to cease from such contracts.'[1] As Dr. Cleary points out, the trader is held by this decision to be entitled to a recompense on account of a probable loss of profit, and the decision consequently amounts to a recognition of the title lucrum cessans.[2] The title is also recognised by Scotus and Hostiensis.[3]

[Footnote 1: Decr. Greg. v. 5, 6.]

[Footnote 2: Op. cit., p. 67.]

[Footnote 3: Ibid., p. 99.]

The attitude of Aquinas to the admission of lucrum cessans is obscure. In the article on usury he expressly states that 'the lender cannot enter an agreement for compensation through the fact that he makes no profit out of his money, because he must not sell that which he has not yet, and may be prevented in many ways from having.'[1] Two comments must be made on this passage; first, that it only refers to making a stipulation in advance for compensation for profit lost, and does not condemn the actual payment of compensation;[2] second, that the point is made that the probability of gaining a profit on money is so problematical as to make it unsaleable. As Ashley points out, the latter consideration was peculiarly important at the time when the Summa was composed; and, when in the course of the following two centuries the opportunities for reasonably safe and profitable business investments increased, the great theologians conceived that they were following the real thought of Aquinas by giving to this explanation a pure contemporanea expositio. The argument in favour of this construction is strengthened by a reference to the article of the Summa dealing with restitution,[3] where it is pointed out that a man may suffer in two ways—first, by being deprived of what he actually has, and, second, by being prevented from obtaining what he was on his way to obtain. In the former case an equivalent must always be restored, but in the latter it is not necessary to make good an equivalent, 'because to have a thing virtually is less than to have it actually, and to be on the way to obtain a thing is to have it merely virtually or potentially, and so, were he to be indemnified by receiving the thing actually, he would be paid, not the exact value taken from him, but more, and this is not necessary for salvation. However, he is bound to make some compensation according to the condition of persons and things.' Later in the same article we are told that 'he that has money has the profit not actually, but only virtually; and it may be hindered in many ways.'[4] It seems quite clear from these passages that Aquinas admitted the right to compensation for a profit which the lender was hindered from making on account of the loan; but that, in the circumstances of the time, the probability of making such a profit was so remote that it could not be made the basis of pecuniary compensation. The probability of there being a lucrum cessans was thought small, but the justice of its reward, if it did in fact exist, was admitted.

[Footnote 1: II. ii. 78, 2, ad. 1.]

[Footnote 2: Rambaud, op. cit., p. 67.]

[Footnote 3: II. ii. 62, 4.]

[Footnote 4: Ibid., ad. 1 and 2.]

This interpretation steadily gained ground amongst succeeding writers; so that, in spite of some lingering opposition, the justice of the title lucrum cessans was practically universally admitted by the theologians of the fifteenth century.[1]

[Footnote 1: Ashley, op. cit., p. 99. Lucrum cessans was defined by Navarrus as 'amissio facta a creditore per pecuniam sibi non redditam' (Endemann, Studien, vol. ii. p. 279).]

Of course the burden of proving that an opportunity for profitable investment had been really lost was on the lender, but this onus was sufficiently discharged if the probability of such a loss were established. In the fifteenth century, with the expansion of commerce, it came to be generally recognised that such a probability could be presumed in the case of the merchant or trader.[1] The final condition of this development of the teaching on lucrum cessans is thus stated by Ashley:[2] 'Any merchant, or indeed any person in a trading centre where there were opportunities of business investment (outside money-lending itself) could, with a perfectly clear conscience, and without any fear of molestation, contract to receive periodical interest from the person to whom he lent money; provided only that he first lent it to him gratuitously, for a period that might be made very short, so that technically the payment would not be reward for the use, but compensation for the non-return of the money.' At a later period than that of which we are treating in the present essay the short gratuitous period could be dispensed with, but until the end of the fifteenth century it seems to have been considered essential.[3]

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. p. 402.]

[Footnote 2: Ibid.]

[Footnote 3: Ashley, op. cit. vol. i. pt. ii. p. 402; Endemann, Studien, vol. ii. pp. 253-4; Cleary, op. cit., p. 100.]

Of course the amount paid in respect of lucrum cessans must be reasonable in regard to the loss of opportunity actually experienced; 'Lenders,' says Buridan, 'must not take by way of lucrum cessans more than they would have actually made by commerce or in exchange';[1] and Ambrosius de Vignate explains that compensation must only be made for 'the time and just interesse of the lost gain, which must be certain and proximate.'[2]

[Footnote 1: Eth., iv. 6.]

[Footnote 2: De Usuris, c. 10.]

There was another title on account of which more than the amount of the loan could be recovered, namely, periculum sortis. In one sense it was a contradiction in terms to speak of the element of risk in connection with usury, because from its very definition usury was gain without risk as opposed to profit from a trading partnership, which, as we shall see presently, consisted of gain coupled with the risk of loss. It could not be lost sight of, however, that in fact there might be a risk of the loan not being repaid through the insolvency of the borrower, or some other cause, and the question arose whether the lender could justly claim any compensation for the undertaking of this risk. 'Regarded as an extrinsic title, risk of losing the principal is connected with the contract of mutuum, and entitles the lender to some compensation for running the risk of losing his capital in order to oblige a possibly insolvent debtor. The greater the danger of insolvency, the greater naturally would be the charge. The contract was indifferent to the object of the loan; it mattered not whether it was intended for commerce or consumption; it was no less indifferent to profit on the part of the borrower; it took account simply of the latter's ability to pay, and made its charge accordingly. It resembled consequently the contracts made by insurance companies, wherein there is a readiness to risk the capital sum for a certain rate of payment; the only difference was that the probabilities charged for were not so much the likelihood of having to pay, as the likelihood of not receiving back.'[1]

[Footnote 1: Cleary, op. cit., p. 115.]

We have referred above, when dealing with the legitimacy of commercial profits, to the difficulty which was felt in admitting the justice of compensation for risk, on account of the Gregorian Decretal on the subject. The same decree gave rise to the same difficulty in connection with the justification of a recompense for periculum sortis. There was a serious dispute about the actual wording of the decree, and even those who agreed as to its wording differed as to its interpretation.[1] The justice of the title was, however, admitted by Scotus, who said that it was lawful to stipulate for recompense when both the principal and surplus were in danger of being lost[2]; by Carletus;[3] and by Nider.[4] The question, however, was still hotly disputed at the end of the fifteenth century, and was finally settled in favour of the admission of the title as late as 1645.[5]

[Footnote 1: Ibid.]

[Footnote 2: Cleary, op. cit., p. 117.]

[Footnote 3: Summa Angelica Usura, i. 38.]

[Footnote 4: De Cont. Merc., iii. 15.]

[Footnote 5: Cleary, op. cit., p. 117.]

§ 6. Other Cases in which more than the Loan could be repaid.

We have now discussed the extrinsic titles—poena conventionalis, damnum emergens, lucrum cessans, and periculum sortis. There were other grounds also, which cannot be reduced to the classification of extrinsic titles, on which more than the amount of the loan might be justly returned to the lender. In the first place, the lender might justly receive anything that the borrower chose to pay over and above the loan, voluntarily as a token of gratitude. 'Repayment for a favour may be done in two ways,' says Aquinas. 'In one way, as a debt of justice; and to such a debt a man may be bound by a fixed contract; and its amount is measured according to the favour received. Wherefore the borrower of money, or any such thing the use of which is its consumption, is not bound to repay more than he received in loan; and consequently it is against justice if he is obliged to pay back more. In another way a man's obligation to repayment for favour received is based on a debt of friendship, and the nature of this debt depends more on the feeling with which the favour was conferred than on the question of the favour itself. This debt does not carry with it a civil obligation, involving a kind of necessity that would exclude the spontaneous nature of such a repayment.'[1]

[Footnote 1: II. ii. 78, 2, ad. 2.]

It was also clearly understood that it was not wrongful to borrow at usury under certain conditions. In such cases the lender might commit usury in receiving, but the borrower would not commit usury in paying an amount greater than the sum lent. It was necessary, however, in order that borrowing at usury might be justified, that the borrower should be animated by some good motive, such as the relief of his own or another's need. The whole question was settled once and for all by Aquinas: 'It is by no means lawful to induce a man to sin, yet it is lawful to make use of another's sin for a good end, since even God uses all sin for some good, since He draws some good from every evil…. Accordingly it is by no means lawful to induce a man to lend under a condition of usury; yet it is lawful to borrow for usury from a man who is ready to do so, and is a usurer by profession, provided that the borrower have a good end in view, such as the relief of his own or another's need…. He who borrows for usury does not consent to the usurer's sin, but makes use of it. Nor is it the usurer's acceptance of usury that pleases him, but his lending, which is good.'[1]

[Footnote 1: II. ii. 78, 4.]

We should mention here the montes pietatis, which occupied a prominent place among the credit-giving agencies of the later Middle Ages, although it is difficult to say whether their methods were examples of or exceptions to the doctrines forbidding usury. These institutions were formed on the model of the montes profani, the system of public debt resorted to by many Italian States. Starting in the middle of the twelfth century,[1] the Italian States had recourse to forced loans in order to raise reserves for extraordinary necessities, and, in order to prevent the growth of disaffection among the citizens, an annual percentage on such loans was paid. A fund raised by such means was generally called a mons or heap. The propriety of the payment of this percentage was warmly contested during the fourteenth and fifteenth centuries—the Dominicans and Franciscans defending it, and the Augustinians attacking it. But its justification was not difficult. In the first place, the loans were generally, if not universally, forced, and therefore the payment of interest on them was purely voluntary. As we have seen, Aquinas was quite clear as to the lawfulness of such a voluntary payment. In the second place, the lenders were almost invariably members of the trading community, who were the very people in whose favour a recompense for lucrum cessans would be allowed.[2] Laurentius de Rodulphis argued in favour of the justice of these State loans, and contended that the bondholders were entitled to sell their rights, but advised good Christians to abstain from the practice of a right about the justice of which theologians were in such disagreement[3]; and Antoninus of Florence, who was in general so strict on the subject of usury, took the same view.[4]

[Footnote 1: Endemann, Studien, vol. i. p. 433.]

[Footnote 2: Ashley, op. cit., vol. i. pt. i. p. 448.]

[Footnote 3: De Usuris.]

[Footnote 4: Ashley, op. cit., p. 449.]

It was probably the example of these State loans, or montes profani, that suggested to the Franciscans the possibility of creating an organisation to provide credit facilities for poor borrowers, which was in many ways analogous to the modern co-operative credit banks. Prior to the middle of the fifteenth century, when this experiment was initiated, there had been various attempts by the State to provide credit facilities for the poor, but these need not detain us here, as they did not come to anything.[1] The first of the montes pietatis was founded at Orvieto by the Franciscans in 1462, and after that year they spread rapidly.[2] The montes, although their aim was exclusively philanthropic, found themselves obliged to make a small charge to defray their working expenses, and, although one would think that this could be amply justified by the title of damnum emergens, it provoked a violent attack by the Dominicans. The principal antagonist of the montes pietatis was Thomas da Vio, who wrote a special treatise on the subject, in which he made the point that the montes charged interest from the very beginning of the loan, which was a contradiction of all the previous teaching on interest.[3]

[Footnote 1: Cleary, op. cit., p. 108; Brants, op. cit., p. 159.]

[Footnote 2: Perugia, 1467; Viterbo, 1472; Sevona, 1472; Assisi, 1485; Mantua, 1486; Cesana and Parma, 1488; Interamna and Lucca, 1489; Verona, 1490; Padua, 1491, etc. (Endemann, Studien, vol. i. p. 463).]

[Footnote 3: De Monte Pietatis.]

The general feeling of the Church, however, was in favour of the montes. It was felt that, if the poor must borrow, it was better that they should borrow at a low rate of interest from philanthropic institutions than at an extortionate rate from usurers; several montes were established under the direct protection of the Popes;[1] and finally, in 1515, the Lateran Council gave an authoritative judgment in favour of the montes. This decree contains an excellent definition of usury as it had come to be accepted at that date: 'Usury is when gain is sought to be acquired from the use of a thing, not fruitful in itself, without labour, expense, or risk on the part of the lender.'[2]

[Footnote 1: Cleary, op. cit., p. 111.]

[Footnote 2: Ashley, op. cit., vol. i. pt. ii. p. 451.]

It was generally admitted by the theologians that the taking of usury might be permitted by the civil authorities, although it was insisted that acting in accordance with this permission did not absolve the conscience of the usurer. Albertus Magnus conceded that 'although usury is contrary to the perfection of Christian laws, it is at least not contrary to civil interests';[1] and Aquinas also justified the toleration of usury by the State: 'Human laws leave certain things unpunished, on account of the condition of those who are imperfect, and who would be deprived of many advantages if all sins were strictly forbidden and punishments appointed for them. Wherefore human law has permitted usury, not that it looks upon usury as harmonising with justice, but lest the advantage of many should be hindered.'[2] Although this opinion was controverted by Ægidius Romanus,[3] it was generally accepted by later writers. Thus Gerson says that 'the civil law, when it tolerates usury in some cases, must not be said to be always contrary to the law of God or the Church. The civil legislator, acting in the manner of a wise doctor, tolerates lesser evils that greater ones may be avoided. It is obviously less of an evil that slight usury should be permitted for the relief of want, than that men should be driven by their want to rob or steal, or to sell their goods at an unfairly low price.'[4] Buridan explains that the attitude of the State towards usury must never be more than one of toleration; it must not actively approve of usury, but it may tacitly refuse to punish it.[5]

[Footnote 1: Rambaud, op. cit., p. 65; Espinas, op. cit., p. 103.]

[Footnote 2: II. ii. 78, 1, ad. 3.]

[Footnote 3: De Reg. Prin., ii. 3, 11.]

[Footnote 4: De Cont., ii. 17.]

[Footnote 5: Quaest. super. Lib. Eth., iv. 6.]

§ 7. The Justice of Unearned Income.

Many modern socialists—'Christian' and otherwise—have asserted that the teaching of the Church on usury was a pronouncement in favour of the unproductivity of capital.[1] Thus Rudolf Meyer, one of the most distinguished of 'Christian socialists,' has argued that if one recognises the productivity of land or stock, one must also recognise the productivity of money, and that therefore the Church, in denying the productivity of the latter, would be logically driven to deny the productivity of the former.[2] Anton Menger expresses the same opinion: 'There is not the least reason for attacking from the moral and religious standpoints loans at interest and usury more than any other form of unearned income. If one questions the legitimacy of loans at interest, one must equally condemn as inadmissible the other forms of profit from capital and lands, and particularly the feudal institutions of the Middle Ages…. It would have been but a logical consequence for the Church to have condemned all forms of unearned revenue.'[3]

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. p. 427.]

[Footnote 2: Der Kapitalismus fin de siècle, p. 29.]

[Footnote 3: Das Recht auf den Arbeiterstrag. See the Abbé Hohoff in Démocratie Chrétienne, Sept. 1898, p. 284.]

No such conclusion, however, can be properly drawn from the mediæval teaching. The whole discussion on usury turned on the distinction which was drawn between things of which the use could be transferred without the ownership, and things of which the use could not be so transferred. In the former category were placed all things which could be used, either by way of enjoyment or employment for productive purposes, without being destroyed in the process; and in the latter all things of which the use or employment involved the destruction.

With regard to income derived from the former, no difficulty was ever felt; a farm or a house might be let at a rent without any question, the return received being universally regarded as one of the legitimate fruits of the ownership of the thing. With regard to the latter, however, a difficulty did arise, because it was felt that a so-called loan of such goods was, when analysed, in reality a sale, and that therefore any increase which the goods produced was in reality the property, not of the lender, but of the borrower. That money was in all cases sterile was never suggested; on the contrary, it was admitted that it might produce a profit if wisely and prudently employed in industry or commerce; but it was felt that such an increase, when it took place, was the rightful property of the owner of the money. But when money was lent, the owner of this money was the borrower, and therefore, when money which was lent was employed in such a way as to produce a profit, that profit belonged to the borrower, not the lender. In this way the schoolmen were strictly logical; they fully admitted that wealth could produce wealth; but they insisted that that additional wealth should accrue to the owner of the wealth that produced it.

The fact is, as Böhm-Bawerk has pointed out, that the question of the productivity of capital was never discussed by the mediæval schoolmen, for the simple reason that it was so obvious. The justice of receiving an income from an infungible thing which was temporarily lent by its owner, was discussed and supported; but the justice of the owner of such a thing receiving an income from the thing so long as it remained in his own possession was never discussed, because it was universally admitted.[1] It is perfectly correct to say that the problems which have perplexed modern writers as to the justice of receiving an unearned income from one's property never occurred to the scholastics; such problems can only arise when the institution of private property comes to be questioned; and private property was the keystone of the whole scholastic economic conception. In other words, the justice of a reward for capital was admitted because it was unquestioned.

[Footnote 1: Capital and Interest, p. 39.]

The question that caused difficulty was whether money could be considered a form of capital. At the present day, when the opportunities of industrial investment are wider than they ever were before, the principal use to which money is put is the financing of industrial enterprises; but in the Middle Ages this was not the case, precisely because the opportunities of profitable investment were so few. This is the reason why the mediæval writers did not find it necessary to discuss in detail the rights of the owner of money who used it for productive purposes. But of the justice of a profit being reaped when money was actually so employed there was no doubt at all. As we have seen, the borrower of a sum of money might reap a profit from its wise employment; there was no question about the justice of taking such a profit; and the only matter in dispute was whether that profit should belong to the borrower or the lender of the money. This dispute was decided in favour of the borrower on the ground that, according to the true nature of the contract of mutuum, the money was his property. It was, therefore, never doubted that even money might produce a profit for its owner. The only difference between infungible goods and money was that, in the case of the former, the use might be transferred apart from the property, whereas, in the case of the latter, it could not be so transferred.

The recognition of the title lucrum cessans as a ground for remuneration clearly implies the recognition of the legitimacy of the owner of money deriving a profit from its use; and the slowness of the scholastics to admit this title was precisely because of the rarity of opportunities for so employing money in the earlier Middle Ages. The nature of capital was clearly understood; but the possibility of money constituting capital arose only with the extension of commerce and the growth of profitable investments. Those scholastics who strove to abolish or to limit the recognition of lucrum cessans as a ground for remuneration did not deny the productivity of capital, but simply thought the money had not at that time acquired the characteristics of capital.[1]

[Footnote 1: See Ashley, op. cit., vol. i. pt. ii. pp. 434-9.]

If there were any doubt about the fact that the scholastics recognised the legitimacy of unearned income, it would be dispelled by an understanding of their teaching on rents and partnership, in the former of which they distinctly acknowledged the right to draw an unearned income from one's land, and in the latter of which they acknowledged the same right in regard to one's money.[1]

[Footnote 1: On this discussion see Ashley, Economic History, vol. i. pt. ii. pp. 427 et seq.; Rambaud, Histoire, pp. 57 et seq.; Funk, Zins und Wucher; Arnold, Zur Geschichte des Eigenthums, pp. 92 et seq.; Böhm-Bawerk, Capital and Interest (Eng. trans.), pp. 1-39.]

§ 8. Rent Charges.

There was never any difficulty about admitting the justice of receiving a rent from a tenant in occupation of one's lands, because land was understood to be essentially a thing of which the use could be sold apart from the ownership; and it was also recognised that the recipient of such a rent might sell his right to a third party, who could then demand the rent from the tenant. When this was admitted it was but a small step to admit the right of the owner of land to create a rent in favour of another person in consideration for some payment. The distinctions between a census reservativus, or a rent established when the possession of land was actually transferred to a tenant, and a census constitutivus, or a rent created upon property remaining in the possession of the payer, did not become the subject of discussion or difficulty until the sixteenth century.[1] The legitimacy of rent charges does not seem to have been questioned by the theologians; the best proof of this being the absence of controversy about them in a period when they were undoubtedly very common, especially in Germany.[2] Langenstein, whose opinion on the subject was followed by many later writers,[3] thought that the receipt of income from rent charges was perfectly justifiable, when the object was to secure a provision for old age, or to provide an income for persons engaged in the services of Church or State, but that it was unjustifiable if it was intended to enable nobles to live in luxurious idleness, or plebeians to desert honest toil. It is obvious that Langenstein did not regard rent charges as wrongful in themselves, but simply as being the possible occasions of wrong.[4]

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. p. 409.]

[Footnote 2: Endemann, Studien, vol. ii. p. 104.]

[Footnote 3: Endemann, Studien, vol. ii. p. 109.]

[Footnote 4: Roscher, Geschichte, p. 20.]

In the fifteenth century definite pronouncements on rent charges were made by the Popes. A large part of the revenue of ecclesiastical bodies consisted of rent charges, and in 1425 several persons in the diocese of Breslau refused to pay the rents they owed to their clergy on the ground that they were usurious. The question was referred to Pope Martin V., whose bull deciding the matter was generally followed by all subsequent authorities. The bull decides in favour of the lawfulness of rent charges, provided certain conditions were observed. They must be charged on fixed property ('super bonis suis, dominiis, oppidis, terris, agris, praediis, domibus et hereditatibus') and determined beforehand; they must be moderate, not exceeding seven or ten per cent.; and they must be capable of being repurchased at any moment in whole or in part, by the repayment of the same sum for which they were originally created. On the other hand, the payer of the rent must never be forced to repay the purchase money, even if the goods on which the rent was charged had perished—in other words, the contract creating the rent charge was one of sale, and not of loan. The bull recites that such conditions had been observed in contracts of this nature from time immemorial.[1] A precisely similar decree was issued by Calixtus III. in 1455.[2]

[Footnote 1: Extrav. Commun., iii. 5, i.]

[Footnote 2: Ibid., c. 2.]

These decisions were universally followed in the fifteenth century.[1] It was always insisted that a rent could only be charged upon something of which the use could be separated from the ownership, as otherwise it would savour of usury.[2] In the sixteenth century interesting discussions arose about the possibility of creating a personal rent charge, not secured on any specific property, but such discussions did not trouble the writers of the period which we are treating. The only instance of such a contract being considered is found in a bull of Nicholas V. in 1452, permitting such personal rent charges in the kingdoms of Aragon and Sicily, but this permission was purely local, and, as the bull itself shows, was designed to meet the exigencies of a special situation.[3]

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. p. 410.]

[Footnote 2: Biel, op. cit., Sent. IV. xv. 12.]

[Footnote 3: Cleary, op. cit., p. 124.]

§ 9. Partnership.

The teaching on partnership contains such a complete disproof of the contention that the mediæval teaching on usury was based on the unproductivity of capital, that certain writers have endeavoured to prove that the permission of partnership was but a subterfuge, consciously designed to justify evasions of the usury law. Further historical knowledge, however, has dispelled this misconception; and it is now certain that the contract of partnership was widely practised and tolerated long before the Church attempted to insist on the observance of its usury laws in everyday commercial life.[1] However interesting an investigation into the commercial and industrial partnerships of the Middle Ages might be, we must not attempt to pursue it here, as we have rigidly limited ourselves to a consideration of teaching. We must refer, however, to the commenda, which was the contract from which the later mediæval partnership (societas) is generally admitted to have developed, because the commenda was extensively practised as early as the tenth century, and, as far as we know, never provoked any expression of disapproval from the Church. This silence amounts to a justification; and we may therefore say that, even before Aquinas devoted his attention to the subject, the Church fully approved of an institution which provided the owner of money with the means of procuring an unearned income.

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. p. 411; Weber, Handelsgesellschaften, pp. 111-14.]

The commenda was originally a contract by which merchants who wished to engage in foreign trade, but who did not wish to travel themselves, entrusted their wares to agents or representatives. The merchant was known as the commendator or socius stans, and the agent as the commendatarius or tractator. The most usual arrangement for the division of the profits of the adventure was that the commendatarius should receive one-fourth and the commendator three-fourths. At a slightly later date contracts came to be common in which the commendatarius contributed a share of capital, in which case he would receive one-fourth of the whole profit as commendatarius, and a proportionate share of the remainder as capitalist. This contract came to be generally known as collegantia or societas. Contracts of this kind, though originally chiefly employed in overseas enterprise, afterwards came to be utilised in internal trade and manufacturing industry.[1]

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. pp. 412-14.]

The legitimacy of the profits of the commendator never seems to have caused the slightest difficulty to the canonists. In 1206 Innocent III. advised the Archbishop of Genoa that a widow's dowry should be entrusted to some merchant so that an income might be obtained by means of honest gain.[1] Aquinas expressly distinguishes between profit made from entrusting one's money to a merchant to be employed by him in trade, and profit arising from a loan, on the ground that in the former case the ownership of the money does not pass, and that therefore the person who derives the profit also risks the loan. 'He who lends money transfers the ownership of the money to the borrower. Hence the borrower holds the money at his own risk, and is bound to pay it all back: wherefore the lender must not exact more. On the other hand, he that entrusts his money to a merchant or craftsman so as to form a kind of society does not transfer the ownership of the money to them, for it remains his, so that at his risk the merchant speculates with it, or the craftsman uses it for his craft, and consequently he may lawfully demand, as something belonging to him, part of the profits derived from his money.'[2] This dictum of Aquinas was the foundation of all the later teaching on partnership, and the importance of the element of risk was insisted on in strong terms by the later writers. According to Baldus, 'when there is no sharing of risk there is no partnership';[3] and Paul de Castro says, 'A partnership when the gain is shared, but not the loss, is not to be permitted.'[4] 'The legitimacy,' says Brants, 'of the contract of commenda always rested upon the same principle; capital could not be productive except for him who worked it himself, or who caused it to be worked on his own responsibility. This latter condition was realised in commenda.'[5]

[Footnote 1: Greg. Decr., iv. 19, 7.]

[Footnote 2: II. ii. 78, 2, ad. 5.]

[Footnote 3: Brants, op. cit., p. 167.]

[Footnote 4: Consilia, ii. 55; also Ambrosius de Vignate, De
Usuris, i. 62; Biel, Op. cit., IV. xv. 11.]

[Footnote 5: Op. cit., p. 172.]

Although the contract of partnership was fully recognised by the scholastics, it was not very scientifically treated, nor were the different species of the contract systematically classified. The only classification adopted was to divide contracts of partnership into two kinds—those where both parties contributed labour to a joint enterprise, and those where one party contributed labour and the other party money. The former gave no difficulty, because the justice of the remuneration of labour was admitted; but, while the latter was no less fully recognised, cases of it were subjected to careful scrutiny, because it was feared that usurious contracts might be concealed under the appearance of a partnership.[1] The question which occupied the greatest space in the treatises on the subject was the share in which the profits should be divided between the parties. The only rule which could be laid down, in the absence of an express contract, was that the parties should be remunerated in proportion to the services which they contributed—a rule the application of which must have been attended with enormous difficulties. Laurentius de Rodulphis insists that equality must be observed;[2] and Angelus de Periglis de Perusio, the first monographist on the subject, does not throw much more light on the question. The rule as stated by this last writer is that in the first place the person contributing money must be repaid a sum equal to what he put in, and the person contributing labour must be paid a sum equal to the value of his labour, and that whatever surplus remains must be divided between the two parties equally.[3] The question of the shares in which the profits should be distributed was not one, however, that frequently arose in practice, because it was the almost universal custom for the partners to make this a term of their original contract. Within fairly wide limits it was possible to arrange for the division of the profits in unequal shares—say two-thirds and one-third. The shares of gain and loss must, however, be the same; one party could not reap two-thirds of the profit and bear only one-third of the loss; but it might be contracted that, when the loss was deducted from the gain, one party might have two-thirds of the balance, and the other one-third.[4] In no case, of course, could the party contributing the money stipulate that his principal should in all cases be returned, because that was a mutuum. The party contributing the labour might validly contract that he should be paid for his labour in any case, but, if this was so, the contract ceased to be a societas and became a locatio operarum, or ordinary contract of work for wages. In all cases, common participation in the gains and losses of the enterprise was an essential feature of the contract of partnership.[5]

[Footnote 1: Summa Astesana, iii. 12.]

[Footnote 2: De Usuris, i. 19.]

[Footnote 3: De Societatibus, i. 130.]

[Footnote 4: De Societatibus, i. 130.]

[Footnote 5: Ibid.]

Before concluding the subject of partnership, we must make reference to the trinus contractus, which caused much discussion and great difficulty. As we have seen, a contract of partnership was good so long as the person contributing money did not contract that he should receive his original money back in all circumstances. A contract of insurance was equally justifiable. There was no doubt that A might enter into partnership with B; he could further insure himself with C against the loss of his capital, and with D against damage caused by fluctuations in the rate of profits. Why, then, should he not simultaneously enter into all three contracts with B? If he did so, he was still B's partner, but at the same time he was protected against the loss of his principal and a fair return upon it—in other words, he was a partner, protected against the risks of the enterprise. The legitimacy of such a contract—the trinus contractus, as it was called—was maintained by Carletus in the Summa Angelica, which was published about 1476, and by Biel.[1] Early in the sixteenth century Eck, a young professor at Ingolstadt, brought the question of the legitimacy of this contract before the University of Bologna, but no formal decision was pronounced, and, had it not been for the reaction following the Reformation, the trinus contractus would probably have gained general acceptance. As it was, it was condemned by a provincial synod at Milan in 1565, and by Sixtus V. in 1585.[2]

[Footnote 1: Op. cit., IV. xv. 11. Lecky attributed the invention of the trinus contractus to the Jesuits—who were only founded in 1534 (History of Rationalism, vol. ii. p. 267).]

[Footnote 2: Ashley, op. cit., vol. i. pt. ii. pp. 439 et seqq.;
Cleary, op. cit., pp. 126 et seqq.]

We should also refer to the contract of bottomry, which consisted of a loan made to the owner—or in some cases the master—of a ship, on the security of the ship, to be repaid with interest upon the safe conclusion of a voyage. This contract could not be considered a partnership, inasmuch as the property in the money passed to the borrower; but it probably escaped condemnation as usurious on the ground that the lender shared in the risk of the enterprise. The payment of some additional sum over and above the money lent might thus be justified on the ground of periculum sortis. The contract, moreover, was really one of insurance for the shipowner, and contracts of insurance were clearly legitimate. In any event the legitimacy of loans on bottomry was not questioned before the sixteenth century.[1]

[Footnote 1: Ashley, op. cit., vol. i. pt. ii. pp. 421-3; Palgrave, Dictionary of Political Economy, art. 'Bottomry'; Cunningham, Growth of English Industry and Commerce, vol i. p. 257.]

§ 10. Concluding Remarks on Usury.

It is to be hoped that the above exposition of the mediæval doctrine on usury will dispel the idea that the doctrine was founded upon the injustice of unearned income. Far from the receipt of an unearned income from money or other capital being in all cases condemned, it was unanimously recognised, provided that the income accrued to the owner of the capital, and not to somebody else, and that the rate of remuneration was just. The teaching on partnership rested on the fundamental assumption that a man might trade with his money, either by using it himself, or by allowing other people to use it on his behalf. In the latter case, the person making use of the money might be either assured of being paid a fixed remuneration for his services, in which case the contract was one of locatio operarum, or he might be willing to let his remuneration depend upon the result of the enterprise, in which case the contract was one of societas. In either case the right of the owner of the money to reap a profit from the operation was unquestioned, provided only that he was willing to share the risks of loss. But if, instead of making use of his money for trading either by his own exertions or by those of his partner or agent, he chose to sell his money, he was not permitted to receive more for it than its just price—which was, in fact, the repayment of the same amount. This was what happened in the case of a mutuum. In that case the ownership of the money was transferred to the borrower, who was perfectly at liberty to trade with it, if he so desired, and to reap whatever gain that trade produced. The prohibition of usury, far from being proof of the injustice of an income from capital, is proof of quite the contrary, because it was designed to insure that the income from capital should belong to the owner of that capital and to no other person.[1] Although, therefore, no price could be paid for a loan, the lender must be prevented from suffering any damage from making the loan, and he might make good his loss by virtue of the implied collateral contract of indemnity, which we discussed above when treating of extrinsic titles. If the lender, through making the loan, had been prevented from making a profit in trade, he might be indemnified for that loss. All through the discussions on usury we find express recognition of the justice of the owner of money deriving an income from its employment; all that the teaching of usury was at pains to define was who the person was to whom money, which was the subject matter of a mutuum, belonged. It is quite impossible to comprehend how modern writers can see in the usury teaching of the scholastics a fatal discouragement to the enterprise of traders and capitalists; and it is equally impossible to understand how socialists can find in that doctrine any suggestion of support for the proposition that all unearned income is immoral and unjust.

[Footnote 1: See Rambaud, op. cit., p. 59.]