Despite changing times, the Church’s perennial teaching has never changed
By Thomas Storck*
In the 1745 encyclical of Pope Benedict XIV, Vix Pervenit, he argues that “One cannot condone the sin of usury by arguing that the gain is not great or excessive…”
Insofar as people think about usury today, it is usually understood as the taking of excess, and often outrageous, interest on a loan; or sometimes any interest on a loan for the purchase of a consumer good. And of course, such outrageous exactions are unjust.
Nevertheless the Church’s classical understanding of usury is different: it is the charging of any interest, in any amount, no matter what the loan would be used for, simply because of the existence of a loan contract.
The most complete papal statement of this is found in the 1745 encyclical of Pope Benedict XIV, Vix Pervenit, the relevant portions of which run:
“The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious.
“One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully…to engage in business transactions. The law governing loans consists necessarily in the equality of what is given and returned; once the equality has been established, whoever demands more than that violates the terms of the loan….”
For many today this sounds absurd, a relic of an outdated approach to economics that the world discarded several centuries ago. For is not money something which an enterprising person can usefully employ in making even more money, and therefore is one not justified in simply charging something for the use of money?
The answer to this is “No” — for unless a lender can point to some loss which he will likely suffer, or some gain which he will likely forgo, on account of being temporarily deprived of his money, the lender is entitled to nothing above the principal amount loaned. During the intense historic debates over usury, theologians and jurists clearly separated what was due simply on account of the existence of a loan — the principal only — and what might be due on account of extrinsic circumstances.
Pope Benedict, in the encyclical cited above, immediately goes on to say:
“By these remarks, however, We do not deny that at times together with the loan contract certain other titles — which are not at all intrinsic to the contract — may run parallel with it. From these other titles, entirely just and legitimate reasons arise to demand something over and above the amount due on the contract.”
Accordingly, two chief possible titles to legitimate interest were recognized, with the quaint Latin names of damnum emergens and lucrum cessans. The first covered the possibility that the lender might suffer some harm, and the second the possibility that he would miss an opportunity for legitimate gain, arising from lack of access to his money.
In premodern economies, such instances of harm or forgone gain could not simply be assumed. Today, of course, there do exist numerous investment opportunities open to everyone. So, one might argue, the modern practice of regularly charging interest is fully justified on the grounds of lucrum cessans and usury should no longer be seen as a moral question.1
But this is to oversimplify the matter. For it is still the case that the charging of interest has to be justified on account of one of these extrinsic titles. Interest is not due to the lender merely because he is in a stronger economic position than the borrower. Nor can we assume, even today, that we are simply entitled to make use of one of these extrinsic titles. In periods of depression or recession, for example, «the profit expectations of businessmen are likely to be so low that they would not employ men and machines on new investment projects even if you let them borrow temporarily at a zero interest rate.»2
In other words, in such situations a lack of consumer demand makes spending on productive investment unprofitable, so a lender is likely not truly forgoing investment profit, because no profit is to be had. Hence a lender in such circumstances may not licitly invoke the principle of lucrum cessans to justify charging interest.
But what of more normal economic times?
If we keep in mind that interest can be legitimately charged as compensation for an investment opportunity forgone, then a just rate of interest could in principle be formulated based on the expected return of an ordinary investment by which the lender could have profited at that time:
“…the criterion [of a just rate of interest] is the just rate of profit from investment. This does not mean that the just rate of interest is exactly the same as the just rate of profit… [for] the profits of any business are due, at least in part, to the activities of those who are running it; and also that ordinary investment involves financial risks which are not inherent in loans of money. Consequently…the just rate of interest will be lower than the just rate of profit. How much lower? Evidently by as much as corresponds to the differential advantage of lending rather than investing.”3
It is interesting that as mainstream an economist as Paul Samuelson implicitly agrees with this evaluation of interest taking:
“Let us make the realistic assumption that when I borrow money from you, my purpose is not to hold onto the cash: instead, I use the borrowed cash to buy capital goods…to create a net product over and above their replacement cost. Therefore, if I did not pay you interest, I should really be cheating you out of the return that you could get by putting your own money directly into such productive investment projects!”4
We should note that the Church did not consider investment as such illicit. But unlike investing in a business venture, which is subject to a certain risk, lending at usury demands a return — regardless of whether the borrower’s enterprise succeeds or fails.
When in the early 19th century the Church eased her instructions for confessors and allowed those charging moderate and legal interest to receive absolution, it was not because her doctrine had changed, but because such interest was seen as probable instances of one of the just titles to interest in an increasingly complex economy. This was also probably the reason why usury began to be identified with the charging of excess interest — anything which at the time was prohibited by civil law.
But the fundamental point here is that even in today’s financialized economy, we cannot ignore morality.
Instead of simply doing what everyone else is doing, Catholics, in economic matters — as in so many other areas of life — have to stop and ask themselves how their behavior comports with the Gospel and the Church’s teaching.
Pius XI’s 1931 encyclical Quadragesimo Anno: On Reconstructig the Social Order and Perfectig it Conformably to the Precepts of the Gospel
The formal title of Pius XI’s 1931 encyclical Quadragesimo Anno was On Reconstructing the Social Order and Perfecting It Conformably to the Precepts of the Gospel! A tall order, then as now — but an unavoidable duty of Catholics nevertheless. Faithful Catholics today already recognize that we have to work to remake the world’s attitudes toward sexuality; yet we must also recognize that the Gospel, as always understood by the Church, includes remaking the world’s attitudes toward economic morality — both of them parts of our duty to reconstruct the social order according to the precepts of the Gospel.
- There were some other titles to legitimate interest, including covering the lender’s expenses and providing for a possible default.
- Paul Samuelson, Economics (New York: McGraw-Hill, 9th ed., 1973), p. 336.
- Lewis Watt, «Usury in Catholic Theology» in Richard Mulcahy, ed., Readings in Economics (Westminster, Md.: Newman, 1959), p. 278.
- Economics, 9th ed., p. 603
* Thomas Storck is a contributing editor of New Oxford Review, a member of the editorial board of The Chesterton Review, and lead host of the WCAT radio/TV program,“The Open Door.” His latest book is Economics: An Alternative Introduction (Arouca Press,2024).
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