July 11, 2017 § 15 Comments
John Noonan’s basic thesis is that Church doctrine prohibiting usury doesn’t categorically prohibit anything at all: that the doctrine boils down to the idea that charging interest is either licit or illicit depending on circumstances and subjective intentions extrinsic to the contract itself. The putative coup de grace in reaching this conclusion for Noonan is what is called the triple contract.
The triple contract is an agreement between two parties, but in order to understand it you have to first consider a contract between three parties: lets call them the investor, the managing partner, and the insurance provider.
The managing partner proposes (say) to undertake a risky but potentially very profitable sea voyage. The investor provides funds to finance the voyage in return for a fixed profit. The insurance provider, for a fee, provides security to the investor: a guarantee that the investor will receive his money back and a fixed profit, even if the voyage fails.
In the triple contract the managing partner is also the insurance provider, and he imputes his fee as the insurance provider to himself. In effect he agrees to provide an insurance bond as an inducement to get the investor to invest, and then underwrites the insurance bond himself.
As with most attempts to turn the moral prohibition of usury into a decorative accessory which doesn’t actually prohibit any well defined objective behaviors, the part you aren’t supposed to notice is the whole matter of security for contracts. In this case the fact that insurance bonds (understood equivocally) were accepted as morally licit is supposed to make Noonan’s readers fail to notice the difference between actual property staked as security and a personal IOU.
A personal guarantee is not a licit “insurance bond”. Rent charged against a collection of property, set aside and held in escrow as a contingency if things don’t go according to plans, is licit.
Of course, if you game the scenario forward this raises the question of why a managing partner with the resources to fully insure the investor and his profit would bother with an investor in the first place. But it might make sense if, say, the managing partner had illiquid property like farms or estates to post as security: property he doesn’t want to sell unless the enterprise fails.
So if you encounter the triple contract as something supposedly problemmatic when you are reading about usury, you can rest assured that it is a nothingburger. The sleight of hand involved rests on all of the usual equivocations.
 Note that in insurance underwriting it is not typically the case for an insurance bond to cover even 100% of the possible loss, let alone the entire loss plus a profit, because of the perverse incentives this creates to destroy economic value.