If you don’t like my cooking, try consuming the Magisterial text
June 9, 2018 § 34 Comments
“Loan for consumption” is the way that the Latin term “mutuum” is sometimes translated into English. Any (and all) profits from mutuum contracts are what constitutes usury. Profits on non-mutuum contracts are not usury: such profits may or may not be licit on other grounds, but they are not usury specifically. The great majority of present day business investment is not usurious: usury occurs mainly in lending to consumers, especially in the form of credit cards, student loans, and the like.
I’ve given my own various descriptions of what distinguishes a mutuum from other contracts. A mutuum is secured by the promise of the borrower as opposed to (or in addition to) collateral property. The agreement is that the borrower may consume all of the actual property – that the property lent and any collateral may be fully alienated from the possession of both borrower and lender – and yet the borrower’s obligation to repay remains. The lender has recourse to the borrower himself through his promise, and not merely to an inventory of collateral property, for recovery of what the lender invested. The “asset” securing the loan simply is the promise or personal IOU of the borrower: it literally does not exist as something distinct from the contracting parties themselves. The modern terminology for this distinction is (at least roughly speaking) “non recourse” lending, as distinct from “recourse” lending or lending backed by a personal guarantee.
Citing a blogger with a goofy pseudonym doesn’t really do it for many people though, and understandably so. If someone asks you for a Magisterial citation for what distinguishes mutuum contracts (where profit is immoral) from contracts which may give rise to morally just profits, a helpful one comes from Pope Callistus III (1455-1458), Usury and Contract for Rent, from the Constitution “Regimini universalis” May 6, 1455 (quoted in Denzinger). In this citation Pope Callistus III describes what specifically makes the charge of rent or interest morally licit, that is, non-usurious:
“As guarantee for the payment of the aforesaid revenues and rents [borrowers] mortgage those of the aforesaid houses, lands, fields, farms, possessions, and inheritances that have been expressly named in the relevant contracts. In the favor of the [borrowers] it is added to the contract that in proportion as they have, in whole or in part, returned to the said [lenders] the money just received, they are entirely quit and free of the obligation to pay the revenues and rents corresponding to the sum returned. But the [lenders], on the other hand, even though the said goods, houses, lands, fields, possessions, and inheritances might by the passage of time be reduced to utter destruction and desolation, would not be empowered to recover even in respect of the price paid.”