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Damn the money lenders?

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Aristotle and Aquinas could never have foreseen the global economic markets of today, nor the necessity for capital to run that economic engine. But as people begin to talk of an ‘end of the credit era’, it is an occasion to turn back to Aristotle’s thoughts on money lending.

Like many in the classical and medieval traditions, Aristotle and Aquinas thought money lending at interest was immoral. If you don’t want to slug through their actual arguments (immediately below), you can skim down to below the quotations where I give a brief summary of their view.

Aristotle writes,

‘There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. 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. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural.’ Politics X

Here is Aquinas’ argument:

‘ I answer that, 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. Onorder 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 kin 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. On 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 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 the 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.

Now money, according to the Philosopher [Aristotle] (Ethic. v, 5; Polit. i, 3) 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 is he bound to restore the money which he has taken in usury.’ (Summa, II-II, 78.1)

My summary:

What Aristotle and Aquinas after him are doing is distinguishing between what is natural and what is unnatural (good and bad), and here they make a distinction between natural and unnatural commerce. Here is the basic argument:

A distinction is drawn between two types of goods, fungible and non-fungible (those are actually Aquinas’ terms for them). Fungible goods are goods that are destroyed (consumed) when they are used. Food (wine) is the best example here. Food is destroyed when it is used, it cannot be returned and does not naturally make more of itself when used (from bread one does not get more bread, in fact, when you ‘use’ bread you have less and less of it).

Fields and flocks are examples of non-fungible goods (in the passage above Aquinas mentions houses). They are not destroyed when they are used. Quite to the contrary, they are naturally reproductive (they naturally produce surplus value in their use, as in the case of a flock producing wool or more sheep, a field yeilding a crop year in and year out). For this reason they can be rented.

Aristotle thinks that money is a fungible good because it does not naturally create more value. It is unnatural (immoral) to expect money to create surplus value out of itself. For that reason, money is good solely as a means of exchange. With money (as with wine and wheat), there is no distinction between the thing itself and its use, and so one ought not add an additional usury fee. In other words, lending money at interest is wrong.

I looked around for a very brief history of usury, and found that our very own Prof Norman Jones (history) has a short article giving a quick historical overview.

Thoughts?

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6 Comments

  1. Huenemann says:

    I dunno. It seems to me okay if I charge you $5 to borrow my rake. When you’re done, I expect to have my rake returned to me, plus $5. It’s “rakiness” won’t be used up. Similarly, if I lend you $100, I can expect that to be returned to me, plus an additional $5. What you do with it in the meantime — spend it, invest it, look at it, impress friends with it — is no concern of mine.

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  2. Kleiner says:

    First of all, usury is such a basic part of our financial lives now that it is difficult to really take seriously claims that it is immoral.

    But I’ll try to defend the view: Aquinas would agree in the case of the rake (just as he allows for renting houses). The rake (the thing itself) is not used up, so it is legitimate to charge a ‘use fee’ (usury).
    But he thinks money is different. This is an odd way of putting it, but he thinks money is ‘destroyed’ when it is used. Not that the actual bill or coin is destroyed, but that it does not represent some thing beyond its use. Its use is a medium for exchange. When the exchange is made, the money is ‘used up’. Money is not a ‘thing’ in the sense of being a natural asset (like a field or a flock). Money has symbolic use as a means of exchange, nothing more.
    There is something to this. People are bemoaning all of the ‘money’ they have lost in their home value or 401ks. But the reality is that money is not a thing – it is just a representation of the exchange worth of an object. If my stock portfolio fell from $100,000 to $50,000, it is not the case that I lost $50,000 – as if I actually had that money (as if the money itself were a thing possessed). Instead all that has happened is that the estimated exchange value of those assets has been reassessed.

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  3. Kleiner says:

    Huenemann and I were talking and we came up with an example:

    I have wi-fi internet in my house and, as it turns out, our neighbors can pick up our signal. They asked if they could use it (we needed to give them the login). They offered to pay, but we told them no payment required – so long as they are not going to be slowing it down by downloading huge files or something, feel free to use it.

    Why? Well at the time it just seemed wrong to charge them. We were already paying for it anyway. Sure, we were under no obligation to let them use it (it was a nice thing to do I guess), but it seemed wrong to charge a usury fee. Now we can put some meat on those bones – the internet signal is a fungible good. What we pay for gets used up (even if it is just wasted signal), and since the wi-fi signal is not itself a ‘thing’ beyond its use (like food it is ‘destroyed’ in its use), we ought not charge a usury fee.
    Imagine, by the way, if the cable company charged us for BOTH the signal and the use of the signal. We would consider that unjust. Paying for the signal is also paying for the use of the signal, since it is a fungible good. I can’t give the signal back once I am done using it.

    Now I think the modern mindset would be this: “You ought to charge them money for it, BECAUSE YOU CAN! They have a need, and you can satisfy it, so charge them a usury fee.”

    But, Amy and I thought, that just seems wrong.

    Aristotle and Aquinas think money is like that. In the case of the internet-lending, Amy and I might be poorer for it – but are we better for it? Had we acted otherwise, might Socrates have reproached us ‘because [we] attached little importance to the most important things (the state of our character) and greater importance to inferior things (money).’? (Apology)

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  4. Doug Beazer says:

    [2:275] Those who charge usury are in the same position as those controlled by the devil’s influence. This is because they claim that usury is the same as commerce. However, GOD permits commerce, and prohibits usury. Thus, whoever heeds this commandment from his Lord, and refrains from usury, he may keep his past earnings, and his judgment rests with GOD. As for those who persist in usury, they incur Hell, wherein they abide forever.

    This is a quote from the Quran! Thought it would add an interesting view of modern day views of usury

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  5. Jeremiah says:

    Does this imply that all financial tools are bad? Charging interest is just one way that modern financial institutions try to make money. Financial derivatives and hedge funds are other ‘tools’ that come to mind. Are these just sophisticated forms of gambling?

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  6. Kleiner says:

    Disclaimer: I am not an expert in finance, and am not an expert in this particular area of Aquinas’ natural law.
    But there are many forms of ‘natural commerce’ on this view. It is clear that Aquinas allows for renting property for a profit. I suspect he would have no troubles with the dividends one receives from company stock (since you are owning an asset that is not ‘destroyed’ in its use). And it seems perfectly legitimate to sell commodities.
    I guess the issue with hedge funds would be their short selling (selling things you don’t yet own with the intent of buying them later at a lower price). It is not clear to me that this particular argument speaks to that – other than the fact that it does seem immediately ‘unnatural’ to sell a good that one does not own. Even if this argument does not speak to the practice of short-selling, there might be other arguments against it (or perhaps not).

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