“[R]emoving all judgment of one’s own, one must always keep one’s mind prepared and ready to obey the true Spouse of Christ, and our holy Mother, which is the Orthodox, Catholic, and Hierarchical Church.” –Ignatius of Loyala, Spiritual Exercises pg 173
We do in this our perpetual decree, reprobate and condemn all contracts, pacts, and conventions whatever, to be celebrated in the future, whereby it will be provided on the part of persons putting into company money, animals, or any other things whatever, that if, even by mere accidence, any injury, loss, or damage, follow, the very principal, or capital be always safe and restored [fully by] the managing partner … Fellowships of this nature … are to be entered into honestly, sincerely and with good faith, with fair and just conditions, … so that the managing partner be not [personally] obligated to pay as gain a certain sum, or quantity, free, as aforesaid, from all risk or danger; nor to restore the capital, if, by any casualty, it should perish. But if the capital, at the dissolution of the partnership, be extant, let it be restored to him, who had contributed it to the company, unless it is to be shared with the manager, or otherwise distributed, according to law, between the contractors. …
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 buyers 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.
By this our constitution, we decree that rent, or annuity can be created or constituted by no means, except in a thing that is immovable, or that may be deemed as immovable, and of its own nature fruitful.
The Bishop of Rheims in France explains that. . ., the confessors of his diocese do not hold the same opinion concerning the profit received from money given as a loan to business men, in order that they may be enriched thereby. There is bitter dispute over the meaning of the Encyclical Letter, “Vix pervenit” [see n. 1475ff.]. On both sides arguments are produced to defend the opinion each one has embraced, either favorable to such profit or against it. Thence come quarrels, dissensions, denial of the sacraments to many business men engaging in that method of making money, and countless damage to souls. To meet this harm to souls, some confessors think they can hold a middle course between both opinions. If anyone consults them about gain of this sort, they try to dissuade him from it. If the penitent perseveres in his plan of giving money as a loan to business men, and objects that an opinion favorable to such a loan has many patrons, and moreover, has not been condemned by the Holy See, although more than once consulted about it, then these confessors demand that the penitent promise to conform in filial obedience to the judgment of the Holy Pontiff whatever it may be, if he should intervene; and having obtained this promise, they do not deny them absolution, although they believe an opinion contrary to such a loan is more probable. If a penitent does not confess the gain from money given as a loan, and appears to be in good faith, these confessors, even if they know from other sources that gain of this sort has been taken by him and is even now being taken they absolve him, making no interrogation about the matter, because they fear that the penitent, being advised to make restitution or to refrain from such profit, will refuse.
Therefore the said Bishop of Rheims inquires:
1. Whether he can approve the method of acting on the part of these latter confessors.
2. Whether he could encourage other more rigid confessors who come to consult him to follow the plan of action of those others until the Holy See brings out an express opinion on this question.
Pius Vlll responded:
To 1: They are not to be disturbed. To II: Provided for in the first.
A. To the doubts of the Bishop of Viviers: *
1 “Whether the aforesaid judgment of the Most Holy Pontiff must be understood as its words sound, and aside from the title of the law of the prince, about which the Most Eminent Cardinals speak in these responses, so that it is just a matter of a loan made to business men.
2. “Or whether the title from the law of the prince, about which the Eminent Cardinals speak, must be so understood that it is enough that the law of the prince declares that it is licit for anyone to agree about a gain made from a loan only, as happens in the civil code of the Franks, without saying that it (law of the prince) grants the right to receive such gain.”
The Congregation of the Holy Office responded August 31, 1831:This has been taken care of in the decree of Wednesday, August 18, 1830, and let the decrees be given.
B. To the doubt of the Bishop of Nicea:
“Whether penitents, who have taken a moderate gain from a loan only, under title of the law, in doubtful or bad faith, can be sacramentally absolved without the imposition of the burden of restitution, provided they are sincerely sorry for the sin committed because of doubtful or bad faith, and are ready in filial obedience to observe the commands of the Holy See.”
[Condemned in a decree of the Holy Office, March 4, 1679:]
40. A usurious contract is permitted even with respect to the same person, and with a contract to sell back previously entered upon with the intention of gain.
41. Since ready cash is more valuable than that to be paid, and since there is no one who does not consider ready cash of greater worth than future cash, a creditor can demand something beyond the principal from the borrower, and for this reason be excused from usury.
42. There is no usury when something is exacted beyond the principal as due because of a kindness and by way of gratitude, but only if it is exacted as due according to justice.
[Condemned in decree of March 18.1666:]
It is lawful for the lender to require something above the principal, if he bind himself not to remand the principal for a certain time.
Alexander VII, 1655-1667, Various Errors on Moral Matters, quoted in Usury, Funds, and Banks by Rev. Jeremiah O’Callaghan, 1834, pg 123 [note Denzinger has a similar passage at §1142 as “It is permitted one who borrows money to exact something beyond the principal, if he obligates himself not to seek the principal until a certain time.” (emphasis mine) Clearly “borrows” is incorrect from the context. The typo is confirmed as in the book here on page 322 rather than a transcription error at the website cited. ]
With the approval of the holy Council [Lateran Council V 1512-1517], 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 any 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. . . . Moreover, we declare that all religious and ecclesiastics as well as secular persons, who henceforth shall dare to preach or dispute in word or in writing against the form of the present declaration and sanction, incur the penalty of excommunication of a sentence [automatically] imposed [latae sententiae],a privilege of any nature whatsoever notwithstanding.
I. The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious.
II. One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully, either to increase one’s fortune, to purchase new estates, or to engage in business transactions. The law governing loans consists necessarily in the equality of what is given and returned; once the equality has been established, whoever demands more than that violates the terms of the loan. Therefore if one receives interest, he must make restitution according to the commutative bond of justice; its function in human contracts is to assure equality for each one. This law is to be observed in a holy manner. If not observed exactly, reparation must be made.
III. 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. Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from 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.
IV. There are many different contracts of this kind. In these contracts, if equality is not maintained, whatever is received over and above what is fair is a real injustice. Even though it may not fall under the precise rubric of usury (since all reciprocity, both open and hidden, is absent), restitution is obligated. Thus if everything is done correctly and weighed in the scales of justice, these same legitimate contracts suffice to provide a standard and a principle for engaging in commerce and fruitful business for the common good. Christian minds should not think that gainful commerce can flourish by usuries or other similar injustices. On the contrary We learn from divine Revelation that justice raises up nations; sin, however, makes nations miserable.
V. But you must diligently consider this, that some will falsely and rashly persuade themselves-and such people can be found anywhere-that together with loan contracts there are other legitimate titles or, excepting loan contracts, they might convince themselves that other just contracts exist, for which it is permissible to receive a moderate amount of interest. Should any one think like this, he will oppose not only the judgment of the Catholic Church on usury, but also common human sense and natural reason. Everyone knows that man is obliged in many instances to help his fellows with a simple, plain loan. Christ Himself teaches this: “Do not refuse to lend to him who asks you.” In many circumstances, no other true and just contract may be possible except for a loan. Whoever therefore wishes to follow his conscience must first diligently inquire if, along with the loan, another category exists by means of which the gain he seeks may be lawfully attained.
To this class also belong usurers, the most cruel and relentless of extortioners, who by their exorbitant rates of interest, plunder and destroy the poor. Whatever is received above the capital and principal, be it money, or anything else that may be purchased or estimated by money, is usury; for it is written in Ezechiel: He hath not lent upon usury, nor taken an increase; and in Luke our Lord says: Lend, hoping for nothing thereby. Even among the pagans usury was always considered a most grievous and odious crime. Hence the question, “What is usury ?” was answered: “What is murder?” And, indeed, he who lends at usury sells the same thing twice, or sells that which has no real existence.
Q. 1293. What sins are equivalent to stealing?
A. All sins of cheating, defrauding or wronging others of their property; also all sins of borrowing or buying with the intention of never repaying are equivalent to stealing.
373 Q. What is the Seventh Commandment? A. The Seventh Commandment is: Thou shalt not steal.
You violate [the Seventh Commandment] also by not paying your just debts or by purchasing goods that you know you will never be able to pay for. Moreover, besides the injustice, it is base ingratitude not to pay your debts when in your power to do so. The one who trusted or lent you helped you in your need and did you a great favor, and yet when you can you will not pay, and what is worse, frequently abuse and insult him for asking his own. Though such dishonest and ungrateful persons may escape in this world, they will not escape in the next, for Almighty God will make them suffer for the smallest debt they owe.
In a recent discussion about Bitcoin, my interlocutor sought to compare a real ledger (with real property) and the Bitcoin ledger. I thought this comparison was such a devastating admission to any claim of value in BTC that it only needed to be pointed out the real differences between the two, but he persisted in insisting on the value of BTC.
The conclusion as I see it is that BTC is sui generis, that is it is a ledger unlike any other ledger. Every other ledger that exists is not valuable in itself, that is it is not valuable except as tracking the property that it actually references and is actually valuable. BTC in contrast references no real property and is valuable in itself. The numbers themselves that reference nothing are taken to be valuable, whereas in a real ledger this would be ludicrous.
However, everything that makes the Bitcoin ledger special doesn’t make it essentially different from any other ledger. It is possible to take a real ledger and set it up on a blockchain with the various technical specifications of validation and cryptography, etc. etc. Yet, at this point the only different between the real ledger and the Bitcoin ledger would be finally that one references real property and the other doesn’t.
Bitcoin is at once an unique sort of ledger while at the same time have no essential characteristics making it different from other ledgers. In essence, it is not different from a book on my desk with scribbles in it that I sell to people for real property. The differences are only incidental, e.g. validation procedures, speed, accessibility, etc.
Semiotic Animal: Hey, I’ve got an idea to walk you through. (Let’s see if I can put usury in terms a modern finance guy will understand.)
Finance Guy: Is this another thing about Bitcoin?
SA: No, but let me ask you a few things. Suppose that I sell you something. I give you some property and your give me property in return. The justification for what you give me is what I give you, right?
FG: Sure. You give me something valuable for something else valuable.
SA: Now suppose that I rent you something, say my lawn mower. I charge you some rent on it. What justifies me charging rent is that I own the lawn mower; I have a property claim against it while you use it.
SA: Suppose that I buy a corporate bond. I give a company money in exchange for a property claim against that company. On their balance sheet is a liability related to my claim. I have a right to the return of my principal in the case of liquidation and this property claim justifies me expecting interest in return, right?
SA: Suppose that I give you personally a wad of cash and you dispose of it as you please. I no longer own that money, since you can do with it as you please. What justifies me demanding interest?
FG: Well, its part of the contractual agreement that you give me money and that I owe you interest for it.
SA: Just because it is in the contract does not mean that it is justified. In the rental what justified the rent was my ownership of the mower, which is then included in the contract, but contract itself doesn’t justify the interest.
FG: Well, how did you value the amount you charged for the mower when you rented it. Its the same thing when you loan me money.
SA: My valuation may determine how much I charge, but it is the ownership of the mower in the first place that justifies that I charge something before I consider how much to charge.
FG: Oh, I see what you’re getting at now. It’s the risk with the risk-free rate, the inconvenience you take in lending it and inflation.
SA: But you did not have to reference any of that with the mower. It is on the basis of owning the mower that you make the charge and I don’t own the money after I lend it to you.
FG: You still own the money.
SA: No you don’t, because you can dispose of it as you please. If you did that with my mower, I would charge you with a breech of contract, but with the loan I expect you to dispose of the money as you please.
FG: Well, you still own the value of the money.
SA: But the value of the money inheres in the money, which I no longer own. I can’t own an abstraction. I own actual property like the actual dollar bills.
FG: Well when you put money in a bank you don’t own those actual dollar bills. You own some abstract dollar bills you’ll get later.
SA: When I deposit money into a bank, I have a property claim against their balance sheet. My account is a liability on the bank’s balance sheet that includes the right to return of a certain amount I deposited on demand. What I own is a property claim against the bank’s actual collection of property, not some abstract dollars.
FG: What does the balance sheet of the personal loan look like then.
SA: That’s the problem. You aren’t a collection of property that can be on a balance sheet. There is no property that I have a claim against to justify the charging of interest.
FG: I just fundamentally disagree with you.
SA: Ok…. (Wow, we actually covered a lot of ground and most of the objections.)
* “Et ideo pecuniae usus non habet mensuram utilitatis ex ipsa pecunia, sed ex rebus quae per pecuniam mensurantur secundum differentiam ejus qui pecuniam ad res transmutat.”
On the other hand, the Fifth Lateran Council in 1517 reversed earlier prohibitions against charging interest on loans, and current Catholic teaching mostly avoids the topic. In the most recent edition of the Catechism of the Catholic Church, the only mentions of it are in regard to global economic exploitation that leads to homicide and a vague reference to the problem of ignoring the Old Testament command to waive all debts once every seven years. – “Is it sinful to charge interest on a loan?”, US Catholic, Kevin P. Considine
At first sight, this teaching seems to destroy the whole basis of modern economies. This was the conclusion of C.S. Lewis when he gingerly addresses the issue in Mere Christianity.26 However, this is not the full story. It should be carefully noted that Benedict XIV says that, “the financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received.” The “by its nature” is rather important. It indicates that there might be just reasons to demand back more than was lent, as long as these reasons are extrinsic and not intrinsic to loaning, itself. For example, in making a loan, say that a person incurs costs, such as administrative costs, or needs to take out an insurance policy in case the loan goes bad. These would be reasons to ask for more back than was lent, but they are not titles built into loaning as such (otherwise you would be obliged in justice to charge your aged father interest on a loan you make him for his medical bills). Another potential just title would be that the lender deprives himself of some opportunity to use the money in another way that will yield a profit.27 Finally, and most importantly, the prohibition on usury in no way touches upon the morality of business investment in the sense of a joint-stock company. The reason is that, in this case, the lender and the borrower enter into a collaborative agreement in which the lender only receives dividends if the borrower makes a profit. But again, any additional money received by the lender over and above the value of the money lent out comes not from the very act of lending, but from the additional generation of wealth.
I suspect it is because most lending in modern context normally involves at least some of these titles, that the Church does not raise her voice against lending and borrowing at low levels of interest. – “Religious Freedom, Slavery, and Usury”, Homiletics & Pastoral Review, Dr. William Newton
Periodically, however, someone will suggest that the Church’s teaching on usury needs to be revitalized. Recently following a link from Darwin’s wife led me to the blog Siris, whose author Brandon has written a number of posts on the subject. Brandon differs from a lot of internet anti-usury warriors I have encountered in the past in that he actually seems to know something about the Church’s teaching on the matter (as opposed to trying to reconstruct a theory of usury from scratch, or simply relying on Belloc’s erroneous treatment of the subject). Brandon’s 2009 post on the legitimate grounds for charging interest (what are called “extrinsic titles” to interest) is quite good as a primer, and my only real objection with Brandon’s treatment is that he doesn’t seem to realize some of the implications of what he writes.
[…Brandon’s explanation of praemium legale…]
We want to allow some profit on lending, as otherwise people won’t want to lend, which will harm the common good. But we don’t want interest charges to be too high, as then people won’t want to borrow, which again will harm the common good. As it happens, economists long ago discovery a method whereby we can ensure that both parties to a transaction will tend to be better off; it’s called voluntary exchange. Let lenders decide what rate of interest to offer and let borrowers decide what rate to accept. Lenders will not offer a rate unless they believe it will be profitable to them, and borrowers will not accept a rate unless they believe it will be beneficial to them. Whatever rate they agree to, therefore, will tend to be mutually beneficial. –“Whatever Happened to Usury?”, The American Catholic, Black Adder
Vix Pervenit did not allow for profit, but did allow for the existence of “extrinsic titles.” An extrinsic title is a repayment for aspects of lending and borrowing that are not directly related to the loan. A lender might have legitimate overhead costs, or he might charge a reasonable administrative fee for his labor in overseeing his loans. He could also have a legitimate claim to be repaid more than he lent if the repayment represented the prevention of a loss. So, if the value of the original goods diminished over the course of the loan, then the lender would be entitled to receive back a value equivalent to what he had loaned. In contemporary economic practice it would, for example, be reasonable to take inflation into account when working out what is owed. A lender making loans to a number of potentially insolvent borrowers was permitted to charge for the risk of the loss of his capital, and a lender who lent out money that he would otherwise have used to turn a profit could legitimately charge the borrower for the loss of profit. A contract that was just according to these principles would have been considered morally valid even if the nature of the extrinsic titles was not made explicit. – “Desiring More than Given”, OSV Newsweekly, Melinda Selmys