Where does interest come from and why is it judged so badly?
The Civil Law (Corpus Juris Civilis), built on the great texts of Roman law which were rediscovered during the first half of the eleventh century, provided an analytical framework which seems to have left no room for the possibility of interest.
This was influential on Canon Law, especially for Gratian around 1140, who in his Decretum introduced the various decisions of the popes and of the Councils on usury, as well as for popes such as Gregory IX, Boniface VIII and Clement V, who completed the Corpus Juris Canonici. Moreover, the prohibition of usury reached its climax at the beginning of the fourteenth century, when Clement V promulgated a decretal at the Council of Vienna in 1311, according to which those who claimed that usury was not a sin should be punished as heretics. Numerous texts by theologians, including William of Auxerre, Robert of Courςon, Thomas Aquinas, Giles of Lessines, and Raymond of Penaforte, supplemented this literature. All this shows the variety of the influences on the doctrine of usury: the Patristic literature came first, drawing on the teaching of the Scriptures. It was on this already well-established basis that both the Roman law and the rediscovery of Aristotle’s moral and political philosophy gave the doctrine of usury the shape of the classical argument which Thomas Aquinas developed in the Summa Theologica (IIa-IIae, q. 78).The decisive elements could be traced back to Christian antiquity, to the Greek and Latin Church Fathers who told, in various ways, the same instructive story: that of a consumption loan by a rich man who is widely provided for in all necessities, given to a poor man for whom obtaining the loan is a condition of survival (typical examples from the fourth century can be found in Gregory of Nazianzus or John Chrysostom). This story remained a reference point for centuries, and, later, most scholastic thinkers considered that in such a situation the “voluntary agreement” of both parties was not enough to prevent the loan from being usurious (see, for instance, Robert of Courςon at the beginning of the thirteenth century, for whom a poor man is not guilty of usury when he is obliged to borrow and pay interest (De Usura: 17-19): this voluntary agreement was called “absolute” for the lender, but “conditioned” for the borrower.
This distinction, concerning the nature of an agreement, rests on a positive statement: the money loan can be understood as a particular case of voluntary exchange, after which neither the lender’s nor the borrower’s situation gets worse (and the lender’s is clearly much better). This is a way to say that scholastic thinkers conceded that exchange is mutually advantageous. Of course, this was not specific to the analysis of a money loan: it clearly comes from the theory of the just price. Such was, for instance, Thomas Aquinas’s position when, commenting on Aristotle’s Politics, he wrote that “purchasing and selling were instituted for the common good of both parties, for each one needs the other’s products and reciprocally” (Ethicorum, l.V, lect.9, c; see also Summa Theologica, IIa-IIae, q.77, a.1, resp.). This is a way to argue that some kind of surplus arises from a money loan as it does from every more standard type of voluntary exchange. Analytically, this also explains why interest is a withdrawal from this exchange surplus to the benefit of the lender. However, the story of the consumption loan has another consequence: it emphasizes the difference between the negotiating power of the lender and of the borrower. The lender is supposed to be vested with a much greater power than the borrower, so that he is able to appropriate most of the surplus emerging from exchange. We know that such a picture is highly disputable, at least in its practical relevance. The fourteenth century, for instance, presents several examples of loans where the borrower is the prince, so that the greater power of negotiation is on his side, the lenders being threatened with the loss of their capital - if not their lives. Nonetheless, the normative conclusion is straightforward: the condemnation of usury amounts to the condemnation of the appropriation of a part of the surplus arising from a loan.
Now, what is the proportion of the surplus above which a licit transaction, morally acceptable, would turn into a usurious transaction? Curiously, the primary impression produced by the literature on usury gives rise to two opposite answers.
The story of the consumption loan is one where the total amount of the surplus falls into the hands of the lender: the loan has not helped the borrower escape misery. His situation after the loan is by no means better. The loan has just given him the opportunity to survive, as he did before. Usury might therefore be viewed as a situation in which the negotiating power of the lender is high enough to allow him to appropriate the whole surplus. By contrast, both the severity of the Church Fathers, and the popular knowledge based on the exempla to which Jacques Le Goff (1986) had devoted special attention, suggest that the slightest amount perceived above what is paid back would be usurious.The contradiction is only apparent. The consumption loan story expresses constant suspicion of the lender, and the belief that his negotiation power usually gives him all that is possible under the condition of voluntary agreement by the borrower. The church shows such a strong aversion against this asymmetry of power that it finds it more appropriate to forbid any kind of supplement paid on a loan by the borrower.
The basis of such suspicion against the lender comes from the fact that usury as a sin is a sin of intention, which means that far from being self-evident from its factual existence, it depends on an intention, which is usually not observable to the moralist. In the early thirteenth century, for instance, William of Auxerre defined usury as “the intention to receive something more in a loan than the capital” (Summa Aurea, t.48, c.1, q.1). Though the formulation insists on the materiality of usury, a similar idea can be found in Robert of Courqon: “usury is a sin resulting from the fact of receiving or aiming at receiving something above the principal” (De Usura: 3; see also ibid.: 13, 57, 61, and 78).