Usury FAQ, or, money on the Pill

“Are we not ashamed to pay usury? Not contented within the limits of our own means, we do by giving pledges and entering into contracts, fabricate the yoke of our slavery.” – Plutarch

Some of my usury sources

We exhort you not to listen to those who say that today the issue of usury is present in name only, since gain is almost always obtained from money given to another. How false is this opinion and how far removed from the truth! We can easily understand this if we consider that the nature of one contract differs from the nature of another. – Vix Pervenit

Understanding usury requires an understanding of how the nature of some contracts differs, fundamentally and categorically, from the nature of others. Usury is not a matter of the same kind of contract differing only by ‘excessive interest’. Usurious contracts constitute a kind of contract which is intrinsically immoral by its very nature.  This FAQ is intended to help people understand what usury is – and is not – and answer many of the questions which naturally arise.

[Note: this FAQ is also available in the form of a public domain ebook.  It is also available as a hard copy book.]

1. What is Usury?
2. What is “lending”?
3. Is usury always morally wrong?
4. What if the interest rate is reasonable?
5. What is the key difference between a mutuum and other contracts?
6. What if the borrower is an institution like a government or corporation rather than an individual?
7. I don’t get it. Why is charging interest on a loan always morally wrong?
8. But economic value is relative, isn’t it? Isn’t value reducible to whatever people’s preferences happen to be?
9. What if the loan is secured by collateral?
10. Does collateral have to be physical?
11. Aren’t lots of non-mutuum contracts unjust?
12. Why would I ever lend someone money if I can’t charge interest?
13. Didn’t the Church allow the Franciscans to collect “interest” above and beyond the principal on their mutuum loans to the poor? What about “extrinsic titles?”
14. Hasn’t the Church approved charging interest to recover opportunity costs? What about the time value of money?
15. Shouldn’t an investor be compensated for giving up the opportunity cost of investing his money in something else?
16. Doesn’t the future labor of a worker constitute a ‘real asset’ against which a loan can be collateralized?
17. Traditionalist scholastics claimed that you can’t sell time; progressive scholastics asserted that the worker’s wages are a counterexample. Weren’t the progressives right?
18. Traditionalist scholastics claimed that you can’t sell risk; progressive scholastics asserted that an insurance bond is a counterexample. Weren’t the progressives right?
19. Is a corporate bond usury?
20. Is a car loan usury?
21. Is a home loan usury?
22. Are credit cards usury?
23. Does this mean that I can’t take out a student loan without committing mortal sin?
24. What is wrong with contracts between consenting adults?
25. Aren’t all unproductive loans usury? Wasn’t Belloc right when he said that the distinction between usurious and non-usurious loans was that the latter are productive?
26. Haven’t commerce and currency changed in such a way that usury is no longer much of a concern?
27. Isn’t the government the biggest violator of them all?
28. Who the heck are you to be lecturing us all on usury, anyway?
29. I know that usury was traditionally considered an execrable mortal sin. But didn’t the Church change canon law and pastoral practice to remove the penalties and stigma associated with usury? Haven’t most Catholic theologians accepted that the world has moved on from the time when the prohibition of usury made sense?
30. If the sovereign should decline to enforce usurious contracts, doesn’t it follow that the sovereign should decline to enforce any contract of exchange whatsoever which empowers one party to pursue a deficiency judgment against the other party personally, independent of any real assets posted as security?
31. I really don’t get it. Why again do you say that fixed-income investments in (e.g.) corporations (corporate bonds) are not usury?
32. In question 16 you say that the value of future labor is not a real asset which can be used as collateral on a for-profit loan. But wasn’t it relatively common before the modern era for people to be sold into slavery to pay off a debt?
33. Doesn’t St. Paul tell slaves to obey their masters?
34. Doesn’t the safe harbor of personal bankruptcy imply that modern loans are really non recourse?
35. What if the mutuum loan is made in wheat, gold, or rental cars rather than fiat dollars?
36. Wait, does this mean that if I lend out my car and the borrower destroys it, he doesn’t owe me anything?
37. I see that the Magisterium and Aquinas have actually been clear that lack of explicit recourse to real assets is central to usury: that full-recourse lending for profit is what is defined as the moral problem. But why is that the case?
38. But you’ve said that intangible or only partly tangible things like patents and operating businesses can be ‘objects’, and thus can be property. So how do I tell the difference between what can be ontologically real property and what can’t?
39. But wait, can’t a full recourse creditor go after Bob’s estate when he dies?
40. Doesn’t the Vatican Bank make full recourse loans?
41. What about that Catholic Encyclopedia article, anyway?
42. Why do you say that the 2008 financial crisis was founded in usury?
43. Does this mean that ideally consumers should always pay cash for things like houses and cars?
44. Suppose I am thinking about agreeing to a financial contract which will produce some interest or other profit for me – say by opening a bank account. How can I be sure that what I am about to do is not usury?
45. Is it morally licit to charge interest on a full recourse loan just to cover inflation?
46. What about futures contracts? Are they inherently usurious?
47. What is the evidence against Aquinas and in favor of the modern view that a reasonable amount of profit on a simple mutuum loan is morally licit?
48. What about the Fifth Lateran Council’s definition?
49. Is it acceptable for a merchant to charge penalties for late payment?
50. John Noonan and other scholars have stated that we can’t grasp the usury doctrine without getting into medieval just price theory. Yet you say that usury doctrine doesn’t depend upon any economic theory or theory of just pricing.  Why do some scholars say that there is a dependence between usury doctrine and medieval theory of just price?
51. Isn’t it usury or something related to usury when banks ‘create money’ in a system of fractional reserve lending?
52. I’m still struggling with the whole ‘loan for consumption’ thing.  Why is it that a personal guarantee of repayment is equivalent to a loan for consumption?
53. Why doesn’t the mutuum borrower owe at least enough interest to compensate for inflation?
54. Are you suggesting that simply preserving the economic buying power of some property is a kind of gain?
55. If you make a mutuum loan to a friend in need, shouldn’t that friend try to keep you from losing any economic buying power in the process?
56. Isn’t criticism of usury just veiled anti-semitism?
57. This all sounds so complicated, and use of the terms “loan” and “interest” to mean so many different things is confusing. Is there a straightforward way to tell if a simple loan for interest is usury?
58. Is there something that the government can do about usury without creating a whole bunch of complicated regulations?