Money and interest
Money and banks did not go well together in philosophical and religious thought from Antiquity to the Renaissance. In his Nicomachean Ethics and Politics, Aristotle (384-322 bc) defines money as a measure of value, hence a medium of “justice in transactions” and of exchange, and as a store of value.
On the other hand, he argues that reason condemns the lending of money for interest, because money in this case is no longer a means of economic activity, but its final end: “The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest” (Aristotle Politics, 1885: 19). Indeed, chrematistics properly speaking is what causes the unlimited desire of wealth that corrupts politics, according to Plato (425-347 bc). In addition, the Bible states God’s prohibition of usury. Either through reasoning or revelation, the source of bank profit is condemned. However, God’s order was the main cause of the hostility to banking activities prevailing in the Judeo-Christian world.In ad 325, the Council of Nicaea prohibited priests from loaning money for interest; then Charlemagne extended the prohibition to lay people in 789, threatening those who exercised banking activities with excommunication. Five centuries later, in his Summa Theologica (1266-73), Thomas Aquinas drew his inspiration from Aristotle in order to reconcile faith with reason and argue in favour of God’s prohibition. On the one hand, he condemned money if taken as an end in itself in exchanges, instead of as a means of exchange. On the other hand, he referred to Roman law and classified money not as a non-consumable good but as a consumable. It is important to recall that consumable goods, such as wheat or wine, unlike non-consumable goods, such as houses or land, cannot be lent for interest, because their use cannot be separated from their ownership.
In the same century, the bill of exchange emerged. This was a complex innovation, bringing several units of account into play and acting as a means of transaction that combines exchange and loan operations. The market pricing of bills of exchange was a source of bank profit, which may appear to be a commercial or arbitrage gain. In fact, it was an interest linked to the loan - a fact that was brought to light three centuries later (Davanzati in 1588). In the meantime, the scholastics began to legitimise the circumventing of usury laws by introducing risks and costs into the analysis of bills of exchange, arguing that the bills improve the functioning of markets, that is, that they favour the fixing of just prices. An additional argument touched on by Aquinas was formulated and developed by Calvin in 1545: interest is legitimate in so far as it is paid by the entrepreneur, out of the profit that he makes in an activity that would not have existed in the absence of the loan. Thus, the way was opened for legalising banking activity.