The tin man astride a mountain of piety

January 11, 2015 § 9 Comments

The weakest members of society should be helped to defend themselves against usury, just as poor peoples should be helped to derive real benefit from micro-credit, in order to discourage the exploitation that is possible in these two areas. – Pope Benedict XVI, Caritas in Veritate, Jun 29, 2009

A straw man is a weakened form of an argument which is attacked and defeated as a polemical gambit.  A steel man is the strongest form or version of an argument.  In this post I will give the strongest argument of which I am aware (in a Catholic context) that charging “reasonable” profitable interest on a mutuum loan is not intrinsically immoral but can sometimes be morally licit.  This post builds on the background of the Usury FAQ and presumes the reader’s familiarity with the subject matter.

The entire modern Catholic usury apologia depends on what are called extrinsic titles (sometimes “just titles”) in the context of mutuum loans. It is from the concept of extrinsic titles, combined with some fairy tale about how much the world has changed or how dumb the Magisterium used to be, that it is argued that “reasonable” profit can be licitly made from a mutuum loan.

Recall that earning income from non-mutuum contracts can be morally licit.  Vix Pervenit: “Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from [mutuum] loans, to spend and invest money legitimately either to provide oneself with an annual income or to engage in legitimate trade and business. From these types of contracts honest gain may be made.”  It is only income from mutuum contracts – usury – which is prohibited.

A great deal could be written about the subject in the abstract, but in order to understand the situation you have to grasp the concrete pastoral priorities and difficulties of the medieval Church.  They were human beings in a society like us, as it happens, and the variety of opinion, knowledge, understanding, etc was as disparate then as it is today.  In no particular order, some of the issues were as follows:

  • Clergy withholding sacramental absolution from businessmen (often falsely) thought to be usurers.
  • Clergy withholding sacramental absolution from actual usurers, genuinely penitent but unable to make restitution.
  • Poor people in desperate need of financial assistance
  • Usurers basically ‘loan sharking’ the poor for very high interest.
  • Institutions sponsored by the Church, pioneered frequently by Franciscan religious, with a charter of helping the poor
  • Upholding the Church’s doctrinal integrity
  • Widespread lack of understanding of the basic difference between full recourse (mutuum) loans and non recourse (societas) contracts
  • Widespread lack of understanding of legitimate business entrepreneurship
  • Lots of innovation in financial products by merchants and their exchanges, the precursors to commercial banks, including such things as insurance bonds.

Whatever the Magisterium might say on the matter, however carefully, would therefore have tremendous consequences. Confusion is virtually guaranteed absent a charitable hermeneutic which assumes that the Popes and St. Thomas Aquinas actually did their due diligence and knew what they were talking about.  A hermeneutic which assumes nonsense as input is guaranteed to produce nonsense as output.

The first two practices were ended by decrees of the Holy Office and changes to Canon Law. It was declared to be sufficient for the penitent to be prepared to follow the direction of the Holy See, in effect removing the problem of understanding the nuts and bolts of usury from the purview of confessors (who were frequently financially naive themselves). Usury apologists like John Noonan insinuate the non sequitur that this is evidence in favor of a change in doctrine; sexual revolutionaries (including, not coincidentally, Noonan himself) take it as evidence that basic doctrines can be selectively ignored or changed.  I leave it to the reader to assess the intellectual integrity of those positions.

Now, the institutional problem of helping the poor is qualitatively different from mere private donations or friendly loans.  The medieval “Mountains of Piety” were an institutional outcome of the efforts of Catholic religious to help the poor.  One of the great ironies of the tale is that this monumental institutional effort to rescue the poor from usury became a cornerstone of subsequent “progressive” Catholic usury apologia. There is perhaps still some parallel here in sexual matters: that desperately poor couples who cannot afford another child at the present time have the medicinal option of NFP, when complete abstinence presents too great of a trial, is regularly used by contraception apologists to attack the doctrine prohibiting contraception.  Apologists for the execrable will always use distorted conceptions of the mercy of the Church to propagate their lies.

Think about the basic problem from an institutional point of view. A charitable organization to help the poor can take on one of two models. In one model, donations are made to poor people simply. This is certainly the ‘cleanest’ way to do things, but it comes with a big disadvantage: the capital base used to help the poor is used up quickly, so people who could be helped with a more efficient institutional model starve. Beyond the loans themselves, running these charitable organizations results in actual expenses: buildings must be rented or bought and maintained, and not all services can be performed by volunteers who live under vows of poverty (although many can).  Benedict XIV tells us in Vix Pervenit that

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.

The poor are not saints, and not everyone who has been helped by a social welfare institution demonstrates due gratitude once his lot has improved.  It is a real injustice for the ungrateful to selfishly deplete the base of charitable capital in a “mountain of piety”. Furthermore actual costs (as distinct from imaginary gains from foregone opportunities) can arise in a particular transaction, such as the cost of collections, the cost of clerical work or what have you.

With the approval of the holy Council (Lateran Council V), we declare and define that the aforesaid “Mountains of piety” established by the civil authorities and thus far approved and confirmed by the authority of the Apostolic See, in which a moderate rate of interest is received exclusively for the expenses of the officials and for other things pertaining to their keeping, as is set forth, for an indemnity of these as far as this matter is concerned, beyond the capital without a profit for these same Mountains, neither offer an species of evil, nor furnish an incentive to sin, nor in any way are condemned, nay rather that such a loan is worthwhile and is to be praised and approved, and least of all to be considered usury. – Leo X, Inter Multiplices, April 28, 1515 (quoted in Denzinger). (Emphasis mine)

Setting aside the fact that these medieval charitable ancestors of pawnshops frequently held actual property as security, making many or possibly even all of the loans non-recourse (that is, not mutuum loans), the “steel man” argument then – the best argument that usury apologists can propose – is that this non-profit intrinsically charitable institutional activity can be translated into the commercial domain of property: that “extrinsic titles” on a mutuum can apply not only to actual losses of property from the “Mountain” in an intrinsically charitable institutional enterprise, but to profits in a commercial venture putatively founded in property and claims terminating in actual property. The argument also depends on the specific proposed extrinsic title of lucrum cessans, that is, title to recover opportunity cost or time value of money from the mutuum borrower: a title that the Magisterium has explicitly condemned.  So the “steel man” argument in favor of “reasonable interest” on mutuum loans depends on applying a condemned title to a kind of contract that is inherently illicit in a commercial context.

The best argument for charging rent on property which does not exist rests, unsurprisingly, on asserting a property title which does not exist (property title to the “time value of money”) by a kind of institution which does not exist (a for-profit non-profit).

Seems more like a tin man to me.

§ 9 Responses to The tin man astride a mountain of piety

  • Kidd Cudi says:

    The definition of usury contains the words “profitable interest,” and if profit is not made, the interest is not profitable, and the action is not usury. Seems to me that the Church is not charging “‘reasonable’ profitable interest” at all, but rather charging un-profitable interest.

  • Zippy says:

    Kidd Cudi:

    Two of the specific “extrinsic titles” proposed and debated by scholars were damnum emergens and lucrum cessans. The former refers to actual accountable specific and direct damages – say the actual cost of processing the bills for that particular loan, or of going to court when a borrower who is perfectly able to repay the loan refuses to do so. The latter refers to “opportunity costs”, which – as I documented in the FAQ – has been explicitly condemned by the Magisterium.

    While the Magisterium has not explicitly approved damnum emergens (IIRC), it (or some interpretation of it) seems reasonable enough to me in the context of mutuum loans – which again and in general are only morally licit at all as non-profit acts of charity or friendship, are only collected when the borrower can afford to repay it, and by their nature are not property transactions capable of producing a profit.

  • Kidd Cudi says:

    After re-skimming your FAQ, I spotted many of the citations and references that I had missed (or you have added). It is good to know you’re not a crazy person reinventing the world on his own.

  • Zippy says:

    I tweaked the post a little bit, especially the second and third to last paragraphs, to clear things up a bit.

  • I do not think that is the best argument that can be made. The best would be something like… If charging interest for profit is wrong, charging interest to cover costs and mantain the principal would also be wrong, since the purpose of an action does not alter the morality of such action, and mking profit is not immoral per se.

  • Zippy says:

    David from Norway:
    I suppose different people will have different perspectives on what is rhetorically persuasive. To me it is manifest that insisting that those who are able restore what they actually personally consumed is categorically different from insisting that they express gratitude through a fixed rate of interest. “Gratitude” at a specific mandatory price cannot be true gratitude.

  • Zippy says:

    I’ve found the Catholic Encyclopedia to have accuracy issues before, but by its account of the Montes Pietas:

    The amount of a given loan was equal to two-thirds the value of the object pawned, which, if not redeemed within the stipulated time, was sold at public auction, and if the price obtained for it was greater than the loan with the interest, the surplus was made over to the owner.

    If it is true that the Montes always involved taking custody of pawned collateral (a detail IIRC neglected by Noonan in his Usury book, but I suppose I should go back and confirm that) and issuing a non recourse loan against that collateral — if that is true then the loans were not mutuum loans at all but non recourse census contracts, and therefore could not (strictly speaking) be usurious no matter how much interest was charged.

    Of course as explained in Q11 of the FAQ, just because a contract does not in Benedict XIV’s words “fall under the precise rubric of usury” does not mean it is not exploitative and wrong. The Jewish money lenders often required collateral also and charged outrageous amounts of interest.

    The main point of the post is that the concept of extrinsic titles on mutuum loans among scholars, the declaration of the liciety of the Montes, and the change in pastoral practice of confessors constitute the entirety of the evidence for the idea that the doctrine changed to allow “reasonable interest” on mutuum loans. That is the absolute best evidence for his case that the modern Catholic usury apologist has at his disposal. And it is weak tea indeed.

  • Zippy says:

    I added another question to the end of the FAQ for this subject

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