Friday, January 27, 2012

A question of interest—CLOSED

I hate to admit it, but there's a much better, much more fully documented and informed article by Thomas Storck in The Distributist Review.  Go read that one.

*     *     * 

Most of us know that the key to successfully managing our money is to avoid spending more than we earn in a month.  While certain debts can never be cleared because we’re paying for ongoing services, we know to avoid spending on credit and obtaining loans as much as possible.

Paradoxically — not to say ironically — we also know the only way to establish a good credit history is to obtain loans and pay them off on time.  Since your credit report is, for all intents and purposes, your public reputation, and is becoming essential to maintain in order to get good jobs and decent apartments, more than ever there’s a social incentive to spend modest amounts on credit.  This is without considering Corporate America’s constant push for you to buy, buy, BUY a bunch of crap you don’t really need so you can keep the economy expanding (and money flowing into investors’ hands).

As I’ve written before, debt as an economic engine eventually leads to an unsustainable imbalance of wealth.  But moreover, despite its normalization, we can’t help but feel that the only difference between the multi-billion-dollar national lender and the street-corner loan shark is that the former pays some attention to federal regulations. Put differently, we feel that “predatory lending” is a redundant phrase.

But is it immoral? Didn’t the Catholic Church use to teach that all lending was de facto a sin? Traditionalists will insist that the answer is “yes”.

The real answer isn’t so firm.

Strictly speaking, the Law of Moses forbade Jews from lending at interest to the poor and their relatives (e.g., Ex 22:25; Dt 15:2), but the proscription didn’t extend to foreigners (Dt 23:19-20). Ezekiel tasks the unjust man with lending at interest (Ezek 18:5-18); David tells us that one of the qualities of the man who will dwell in the heavenly kingdom is one “who does not put his money out at interest” (Ps 15:5); Proverbs, oddly enough, says that the usurer’s wealth is gathered “for him who is kind to the poor” (Prv 28:8). But from the Jewish perspective, these injunctions didn’t carry the same weight as the law. Moreover, the Hebrew word נָשַׁךְ (neshek) can be translated as either “interest” or “usury”;[1] the Latin root of the latter, usura, simply means “interest”, and must be called usura immodica to get the modern sense.[2]

The pre-Christian Greeks and Romans were equally suspicious. Plato argued against banking and charging interest, “since it is permissible for the borrower to refuse entirely to pay back either interest or principal;”[3] Aristotle held that “money born of money” was “of all forms [of getting wealth] the most contrary to nature.”[4] Cicero quoted with approval Cato the Censor’s reply to an interrogator who, inquiring about ways of getting wealthy, asked, “How about money-lending?”: “Cato replied: ‘How about murder?’”[5] And Seneca called promissory notes “ghosts of sick Avarice”: “… [What] are these things, and what are interest, and account books, and usury, except the names of unnatural developments of human covetousness?”[6] However, both cultures allowed a modest interest rate, ranging from 6% to 12% annually on loans for consumption.[7]>

With this heritage of ambivalence, it was some time before the Church began to legislate against interest in any broad fashion. Even as the Council of Vienne (1312) declared, “If indeed someone has fallen into the error of presuming to affirm pertinaciously that the practice of usury is not sinful, we decree that he is to be punished as a heretic,”[8] theologians and canonists were constructing a theory of interest, which Benedict XIV (1740-1758) eventually adopted in Vix pervenit, an encyclical which originally pertained only to Italy but was later applied by the Holy Office (now the Congregation for the Doctrine of the Faith) to the rest of the Church in 1836.[9]

Vix pervenit essentially held that lucrative interest — money that could be earned in no other way except by lending — violated the principle of contractual justice, as what was returned was more than what was given. However, in section 3:III, Benedict recognized that certain extrinsic “titles” could justify interest; for instance, an indemnity or penalty for delay in payment (moratory interest), or an indemnity against the risk of loss or the deprivation of gain through ordinary business the lender incurs by lending the sum (compensatory interest).[10] Further rescripts from the Holy Office all but confirmed the lawfulness of interest on loans.[11] To date, there’s been no dogmatic definition on the matter.

The tension has always been between the obvious utility of short-term borrowing and the opportunities it affords for the unscrupulous to enrich themselves by depriving others of their means of living. The Catechism of the Catholic Church still recognizes the wreckage done by usury: “Those whose usurious and avaricious dealings lead to the hunger and death of their brethren in the human family indirectly commit homicide, which is imputable to them.”[12] But much of the concern is less on the private scale and more on the national and international scale, where it calls for the replacement of “abusive if not usurious financial systems” with “a common effort to mobilize resources toward objectives of moral, cultural, and economic development”.[13]

In other words, the ambivalence never really went away, and still continues. The best the Church can do is define the broad outlines of usury. It remains for us to use our prudential judgment as to what is reasonable and what is robbery.


[1] Blue Letter Bible. “Dictionary and Word Search for neshek (Strong's 5392)”. Blue Letter Bible. 1996-2012. 27 Jan 2012 (http://www.blueletterbible.org/lang/lexicon/lexicon.cfm?
Strongs=H5392&t=RSV
).
[2] Traupman, John C. “Usury.” The Bantam New College Latin & English Dictionary, Revised and Enlarged. 1995. New York: Bantam Books, p. 653. See also Wiktionary. “Usura.” Wiktionary. 30 Nov. 2011. 27 Jan 2012 (http://en.wiktionary.org/wiki/usura#Latin).
[7] Vermeersch, Arthur. “Usury.” The Catholic Encyclopedia. Vol. 15. New York: Robert Appleton Company, 1912. 27 Jan. 2012 (http://www.newadvent.org/cathen/15235c.htm).
[9] Vermeersch, 1912.
[10] Vermeersch, Arthur. “Interest.” The Catholic Encyclopedia. Vol. 8. New York: Robert Appleton Company, 1910. 27 Jan. 2012 (http://www.newadvent.org/cathen/08077a.htm); cf. VP 3:III.
[11] Vermeersch, 1912.
[12] CCC 2269; cf. Amos 8:4-10.