November 14, 2017 § 49 Comments
The basic principles behind the prohibition of usury are simple. Financially, usury is any contractual profit for the lender stemming from making a “loan for consumption“: a loan which authorizes the borrower to consume or alienate the actual property lent, while personally guaranteeing that he will restore to the lender the amount lent. Morally, personally guaranteed loans are only licit as acts of charity or friendship made to a borrower in need: they are never licit under any circumstances as acts of financial self-interest on the part of the lender.
Intuitively, charging rent for the use of collateral property owned by the lender – actual alienable property which is later returned to the lender intact or ultimately bought out by the borrower – is not intrinsically uncharitable.
Intuitively, charging a man rent for the use of his own person, for each breath he takes from his own lungs, is intrinsically uncharitable. Interest on a personal IOU is a charge of rent against a man for the use of his own person, since his obligation to repay simply is personal.
It is also intrinsically uncharitable to make a mutuum borrower responsible for the lender’s changing circumstances. In general with a mutuum loan the borrower is not responsible – cannot be made responsible – for all of the circumstantial changes which occur in the universe during the duration of the loan.
People use terms like “inflation” in economic theory to refer to aggregate indexes of relative price changes over time. An index is just a representative sample of statistically aggregated spot prices of particular goods and services, measured in some particular unit (US dollars, McDonalds Big Macs, etc). There are as many possible relative price indices as there are discrete combinations of goods, services, transactions, and time periods. But folks tend to treat “inflation” as if it were a basic feature of reality as opposed to a particular heuristic/statistical guesstimate about certain historical circumstantial changes in relative prices (measures of who in fact bartered what in exchange for what) for certain goods and services (and only those goods and services, etc).
I once bought a house by selling some stock, paying for the house with the proceeds. When I sold the house it had “lost value” in terms of US dollars but had “gained value” in terms of the stock I sold. Whether the house had inflated or deflated in price over the period I owned it depends on what measure we use for price. If I had sold the stock, rented a place to live, and made an interest free mutuum loan of the remainder of the proceeds I would have been financially better off still, assuming the mutuum was repaid. If I had rented and not sold the stock at all I would be worst off of all, in terms of financial outcome.
This all would have been the result of changing circumstances. In general it is not the responsibility of mutuum borrowers – it cannot be a mutuum borrower’s responsibility in justice – to compensate lenders for changes in the lender’s circumstances.
Inflation is a heuristic measure of aggregated circumstances in the economy, crafted and reported by the Bureau of Labor Statistics. Even if inflation were a measure of the actual concrete and personal changing circumstances of the actual lender, which it isn’t, it remains intrinsically unjust to charge mutuum borrowers rent for the use of their own persons simply because of the changing circumstances of a lender.
October 25, 2017 § 71 Comments
Now and then you’ll encounter the claim that although usury (contractual profit from a mutuum loan) is morally wrong as an agreement between individuals, it becomes morally licit when it is authorized by the positive law, sometimes referred to as “the law of the Prince”. Various rationalizations were suggested for this proposed title to interest – German positive law at the time enforced contracts charging up to 5% interest on mutuum loans – as within the legitimate power of the Prince, starting with the theories of Adam Tanner (SJ) of Ingolstadt in 1620. Tanner and his pupil Christopher Haunold argued that:
This custom … was morally justified, even though the lender had no title to interest. The State validated the custom by its power of eminent domain, transferring the property of the borrower to the lender [in the form of interest]. The State, it was generally admitted, had the power of eminent domain to dispose of private property for the common good. — Noonan, The Scholastic Analysis of Usury, page 353.
According to Noonan this purely positive law argument gained no traction outside of Ingolstadt (a two and a half hour drive from Cardinal Kasper’s see today) until 1736, when Vitus Pichler (SJ) and Francis Barth worked it over into a theory. Noonan describes the theory:
The premium paid for a loan in such a situation was not usury in a strict sense, but a reward to a lender which the law allowed on the occasion of a loan. … As in the conferring of property rights by adverse possession, a private person was given the right, which he would otherwise not have, to take the property of someone else, in order that the general welfare be promoted.
No surprise that this is yet another case of selective, willful amnesia. Because centuries beforehand the constitutions of the Council of Vienne had ordered the excommunication of government officials who craft statutes asserting such a title:
Serious suggestions have been made to us that communities in certain places, to the divine displeasure and injury of the neighbour, in violation of both divine and human law, approve of usury. By their statutes, sometimes confirmed by oath, they not only grant that usury may be demanded and paid, but deliberately compel debtors to pay it. … We, therefore, wishing to get rid of these pernicious practices, decree with the approval of the sacred council that all the magistrates, captains, rulers, consuls, judges, counsellors or any other officials of these communities who presume in the future to make, write or dictate such statutes, or knowingly decide that usury be paid or, if paid, that it be not fully and freely restored when claimed, incur the sentence of excommunication.
October 14, 2017 § 21 Comments
I first ‘met’ occasional commenter and current knight-of-the-blogroll Semiotic Animal in the comment boxes of the Acton Institute. It appears though that the entire comment thread at Acton was deleted, at some point: at least I don’t see any comments when I call up the page.
That’s too bad. That particular comment thread was an interesting exercise in schooling ideological free marketers on the actual medieval understanding of usury, as opposed to strawmen crafted through extremely selective curation.
The Acton moderator replies:
Thanks for bringing that to my attention, Zip. I stand corrected. Not intentional. Probably a WordPress or Disqus issue created when we updated blog theme earlier this year and brought over comments. If you care to repost a comment and discuss specifically, feel free.
Mike T made the original thread available on archive.is.
October 9, 2017 § 68 Comments
LMS Chairman writes:
The practice in Confession of not absolving unrepentent sinners is intrinsically related to its nature as established by Divine Law.
There is a problem with this view though. The ‘pastoral’ practice of absolving unrepentant sinners goes back to well before Vatican II, and is not a new or novel thing with the publication of Amoris Laetitia.
The Vademicum for Confessors in 1997, under John Paul II though not signed by him personally, authorized absolution of penitents who were unrepentant on contraception.
The various Sacred Penitentiary and papal audience rulings on usury in the 1800’s authorized absolution of unrepentant interest-takers in a couple of cases: specifically when those unrepentant usurers rationalized their behavior by appealing to either (1) the fact that they made mutuum loans to businessmen (condemned as an excuse by Vix Pervenit) or (2) by the fact that the ‘law of the prince’ authorized charging a certain rate of interest.
Amoris isn’t the camel’s nose in the tent: it is the other end of the camel coming into the tent.
That doesn’t make the current round of clarification any less urgent, but it is important to have a full and adequate grasp of the situation. Pope Francis is not an innovator. As the first Jesuit pope he is simply completing the centuries long Jesuit project of fighting the Protestant heresy by embracing it.
The History of Economic Thought website describes, consistent with my own understanding, the Salamanca Jesuit approach to morality in economic life and politics:
It is common to associate early Jesuit philosophers like Leonard Lessius, Luis Molina, and Juan de Mariana, with the Salamanca school.
The Jesuit Order (‘Society of Jesus’), founded in 1540 by St. Ignatius de Loyola, was erected to combat the appeal of Protestantism. […] The Scholastic doctrine of ‘just price’ was rejected out of hand as all-too-divine, the Jesuits arguing that value is a human affair and was determined by natural human interaction on markets. They followed much the same line on money and inflation. On moral defenses of usury and profit, the Jesuits were eager to reform Catholic doctrine to bring it more in line with current practice, to ease their efforts to overcome the resistance of Protestant towns to re-catholicization.
Quite more controversial was the Jesuit view of the basis of civil government, something the Salamanca scholars had largely and judiciously avoided. In line with their general approach, Jesuits like Molina, de Mariana and Suarez proposed that government rested on human consent […] Jesuit musings on the human rather than divine sources of government made them downright subversive to the established order. It did not help matters that, notoriously, the Jesuit philosopher Juan de Mariana (1598) openly contemplated that the murder of a monarch might be justified, if he proved tyrannical to the people. This was uttered at a tense time of notorious political assassinations – Henry IV of France (attempted in 1595, succeeded in1610), James I of England (Gunpowder Plot, 1605), Paolo Sarpi of Venice (attempted, 1606), etc. – in which Jesuit activists were suspected of having a role (and may indeed have had one).
In the popular mindset of the time, the Jesuits became synonymous with regicide and political destabilization.
The Jesuit approach (or, more fairly, a prominent and pervasive Jesuit approach) has always been to downplay and subjectivize the moral law as a way of making the Church seem more familiar and appealing to non-Catholics, especially Protestants. From this point of view, if pervasive everyday practice is contrary to the moral law as traditionally understood then what has to change is our understanding and application of the moral law, to accommodate everyday practice and get these people into the spiritual and sacramental life of the Church. The important thing is Catholic unity, and if the moral law is a cause of disunity then that implies a problem with our understanding of or application of the moral law. What is important is how people actually live, not the abstract moral demands of the Gospel.
Jesuits have been doing this for centuries, and the fruits of this approach are manifest. We are all Jesuits now.
September 25, 2017 § 18 Comments
[Conscience] can also recognize with sincerity and honesty what for now is the most generous response which can be given to God, and come to see with a certain moral security that [objectively adulterous behavior] is what God himself is asking amid the concrete complexity of one’s limits, while yet not fully the objective ideal. – Amoris Laetitia
The standard narrative of Catholic moral progressivism is that Church moral doctrine doesn’t change; it just becomes completely irrelevant. God is asking you to do the opposite of what God’s law tells you that you should do.
Since this has been going on for generations, from times well before the dreaded Vatican II, conservatives and traditionalists frequently defend this approach as a fine established tradition while simultaneously screeching incessantly in protest against its Current Year manifestations.
Contraceptive intercourse without a just title is morally wrong, but the world has changed and nowadays most people most of the time have a just title to mutilated sexual behaviors. Objective adultery without a just title is morally wrong, but the world has changed and nowadays the largest groups of adulterers most of the time have a just title to adultery. Killing innocent people without a just title is morally wrong, but the world has changed and nowadays the largest scale killers almost always have a just title to murder. And profiting from mutuum lending without a just title is morally wrong, but the world has changed and nowadays most mutuum lenders have a just title to usury.
God wants you to choose evil behaviors, you see, because if loving God requires you to keep His commandments then most people won’t actually love Him very much. Allowing people to hate God and His onerous commandments would be terribly non-inclusive and unmerciful, not to mention grossly impractical; so of course what God really wants is for everyone to remain in a safe and comfy state of salvific ignorance.
John Noonan explains how this works in his book The Scholastic Analysis of Usury:
From a theoretical viewpoint, development [of a theory of earning profits from mutuum loans] was retarded by the concept of the normally gratuitous loan, which led to a belief that ever to admit interest as due from the beginning of a loan would be to destroy the usury prohibition itself. … Loans, it will be recalled were considered licit only if made from charity; compensation on them, even if justified, was thought vitiated if it were sought chiefly for its own sake. …
In the end, as everyone knows, interest on loans came to be considered the norm, and usury the exception …
The Scholastic Analysis of Usury by John T. Noonan, Jr, published 1957, page 100
Note the typical useful ambiguity in the employment of the English term “loan“.
I’m not a regular user of Reddit, but I have an account and occasionally read Reddit threads when I see them linking back to here. On a recent Reddit thread a commenter there paraphrased a ruling made during the 1822-1836 period of “pastoral accommodation” of usury, which we’ve discussed here before. It sounded vaguely familiar but I couldn’t put my finger on it, so I asked for the citation. I was given a Latin (a language I don’t personally know) text with no citation; upon further inquiry I was given a reference to a book entirely in Latin.
Neither of these was immediately helpful to me, so I went back to my own sources.
Here is what Noonan writes:
A perplexed vicar-general asked,
“Whether a confessor sins, who sends away in good faith a penitent, who demands from a loan the gain allowed by the civil law, apart from any extrinsic title of lucrum cessans or damnum emergens or extraordinary danger?”
The Penitentiary, the Roman tribunal for issues of the internal forum, replied in the classic formula that “Non esse inquietandum”, provided he is ready to obey a decision of the Holy See.
A troubled theologian, Denavit, now sought information on precisely the same subject. he declared:
“The undersigned writer, thinking it licit by no contract to withdraw from the doctrine of Benedict XIV, denies sacramental absolution to priests who contend that the law of the prince is sufficient title for taking something beyond the sum lent apart from lucrum cessans or damnum emergens.”
In answer to his question if his conduct was, then, too severe toward these priests, the Holy Office again replied “Non esse inquietandos”.
Noonan, page 379
So in summary, some priests were absolving unrepentant interest-takers who were – the penitents were – relying on the fact that doing so was legal under the positive law. The question posed was not whether the interest-taking lender was committing sin. The question was whether the confessor-priests were committing sin in absolving those penitents, and whether Denavit was being too hard on those confessor-priests in refusing them absolution when they were, themselves, in confession. I hope that isn’t too confusing.
The response was that yes, he was being too hard on those confessor-priests and should not disturb them unless and until such time as the Holy See rules on the particular matter.
As we’ve discussed before, it would be irrational to conclude that this has any effect whatsoever on the meaning of the objective moral norm against usury. But you don’t have to take my word for that or follow the obvious reasoning; because the Grand Penitentiary himself, Cardinal Gregorio, said as much explicitly when explaining this whole series of rulings to the Bishop of Viviers:
“The Sacred Penitentiary wished to define nothing at all about the question, debated by theologians, of the title derived from the law of the prince; but only to provide a norm which confessors might safely follow in regard to penitents who take a moderate profit determined by the law of the prince, with good faith and ready to accept the commands of the Holy See.”
Noonan, page 380
If these pastoral questions about confession and the internal forum (the jurisdiction of the Sacred Penitentiary) have any bearing whatsoever on the objective content of usury doctrine, we can likewise conclude that the Church approved of just titles to contraception in 1997 when it instructed confessors that they could, in certain circumstances, absolve penitents who unrepentantly choose contracepted sexual intercourse without the confessor-priests sinning themselves in so doing.
Noonan explains (absent any disapproval on Noonan’s part) the way progressive ‘pastoral accommodation‘ works when he discusses Pope Sixtus V’s decisive, arguably infallible proclamation of the categorical illicitness of any profit from recourse contracts:
This solemn condemnation, enforced by such severe penalties, and apparently directed at the increasing popularity of the triple contract, might seem to the superficial observer a decisive blow. … In fact, however, it remained without effect upon the great debate. Two theories to explain it were generally put forward. One was that the bull was purely positive legislation, not a declaration of divine or natural law; … Purely positive legislation lapses … when it is not received by the subjects of the law; … Since the bull had been received nowhere, it had, insofar as it was positive law, no force whatsoever.
The second theory … was that it merely prohibited contracts of partnership which were “naturally usurious.”, where no compensation was paid for the insurance of the capital. Since only such “naturally usurious” contracts were condemned, and since the triple contract was not “naturally usurious,” it was argued that the bull left the latter untouched.
Noonan, page 221
Humanae Vitae and Familiaris Consortio might seem, to the superficial observer, a decisive blow. But if you are a defender of the usury status quo – including the status quo of the 1600’s – then that thing hoisting you is your own petard.
July 11, 2017 § 16 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.
June 23, 2017 § 11 Comments
“But let your speech be yea, yea: no, no: and that which is over and above these, is of evil.” – Matthew 5:37
“Fungible” means interchangeable for use: one cup of sugar is fungible with another (assuming similar enough qualities) because when we put that sugar to use, we are indifferent as to which particular cup of similar-quality sugar we use.
“Recourse” (or “full recourse“) means that when some property is transferred into an individual’s (or group’s) possession, that individual (or group) personally guarantees to return, not the actual property, but some property with equivalent use. In short, recourse means that what secures contractual performance is a personal guarantee to restore the equivalent of what was borrowed.
Once one grasps that in a mutuum loan “fungible thing” means “treated as fungible by the contract”, fungible thing and recourse become convertible into each other. Fungible and recourse are fungible contract terms, if that isn’t too confusing a way to put it.
Now the security on a contract is whatever it is that secures the contractual performance of the contracting parties: whatever it is that ensures that the contracting parties each hold up their end of the bargain.
If a contract intended to produce profits is to be morally licit, the thing(s) which secure the contract cannot be treated as fungible (alienable) by the contract. The collateral which secures a bank loan may not (as per the contract) be sold until the loan is fully discharged, because once the collateral has been sold by the borrower it can no longer act as security on the loan.
If the agreement is that certain property bound to the contract may be consumed or alienated without discharging the borrower’s obligation to repay, that specific property cannot act as what ultimately secures contractual performance. A complex contract (a societas or census) may include other property which acts as security; but property which the contract treats as fungible cannot act as security.
A recourse contract – even if it also includes collateral as partial security – is ultimately secured by a mere personal guarantee or IOU. If the collateral is completely consumed or alienated the borrower remains personally obligated to repay the loan in full; so the collateral on any recourse loan is treated by the contract as fungible in the pertinent sense.
This is reflected in Pius V’s words in Cum Onus where he insists that any licit census contract must be secured by “a fixed immobile good”: by some property which the contract does not treat as fungible/alienable from the borrower or managing partner.
A non recourse contract is a contract which by definition does not involve making promises which the parties may not be able to keep. And a recourse contract by definition involves the parties making promises they most certainly might not be able to keep. This in my view is why St. Francis Xavier admonishes confessors to:
Ask [penitents] what profits they make, how, and whence? What is the system that they follow in barter, in loans, and in the whole matter of security for contracts?
You will generally find that everything is defiled with usurious contracts, …’
And this is yet another way, in addition to all the prior ways discussed, in which we might intuit the wickedness of usury: it involves profiting by deliberately insisting that borrowers make promises which they may not be able to keep.