The Moneylenders in the Temple

A brief history of modern usury

United States Private Debt to GDP, 2013-2022

Modern America runs on credit. We take out mortgages to buy homes; we take out loans to buy cars and educations; we treat ourselves to expensive new toys and charge it to our credit cards. In 2022 US public debt (debts owed by federal, state, and local governments) amounted to nearly 120% of our GDP. Corporate debt load stood at over 78% of GDP. From C-suites to trailer parks, most of us owe more than we make.

We’ve come to assume that this is the typical state of things. And it is true that we have always had debtors and creditors. We might even argue that we’ve become more enlightened about how we handle past due payments, since we no longer send people to debtor’s prisons. (Unless, of course, they owe money to the government).

But our current levels of debt and moneylending are at levels unprecedented in human history, and our rush into debt got its start a mere century ago. And we have only had widespread credit card use for about 50 years.

So how did we become so enamored of moneylending and easy monthly payments?

For most of history money lending existed on social margins. Loan sharks made a tidy living off the desperate, but they were despised as criminals by polite society. Those in need relied on help from friends and family, or they made do and did without. Stores might extend credit to long-time customers, but they didn’t charge interest on their debt. Lodges and fraternal orders helped members through tough times and those who didn’t have the money to buy homes outright rented accomodations.

Roosevelt’s New Deal introduced 15-year and 30-year insured mortgages in the 1930s. This help spark a boom in homeownership that would take us out of depression and war into two generations of unparalleled prosperity. And the debt economy that made many people homeowners also helped them to enjoy many of the conveniences that had once been reserved for the wealthy or thrifty.

With credit, factory workers could own the same televisions and washing machines as factory executives. Families who could finally move out of urban apartments into suburban homes financed new cars and drove across the country on vacations. But as the economy tightened and our manufacturing sector crumbled, many families who once used credit for luxuries now needed it to pay for necessities.

Things became harder for the working classes as the Great Postwar Boom began its inevitable slide downward. But white-collar workers found themselves doing better than ever. With college educations financed by student loans, the children of the working classes could not only live like executives — they could become executives. And companies that had once commodified worker labor now discovered they could commodify customer debt.

MasterCharge ad, September 1970

In the days when most stores issued their own lines of credit, credit bureaus were largely local. Credit scores were tallied on reports on the prospective debtor’s local reputation, with all that entailed. Then the Fair Credit Reporting Act of 1974 made discrimination on the basis of race, sex, marital status, or religion. Reputation scores were replaced by more easily tallied factors like credit history and amount of present credit presently used. And the Big Three credit bureaus — TransUnion, Equifax, and Experian — became the gatekeepers of your credit rating.

As we mastered the art of weighing and measuring creditworthiness, we also began measuring the value of debt. “Quant geeks” bundled mortgages in packages that buyers bought and sold. These packages allowed the mortgage industry to issue “subprime” mortgages at higher interest rates. Through shuffling less desirable loans in with statistically stronger debts, they could hedge their losses and reap their gains. The underlying science behind the bundling could only be understood by highly educated mathematicians. But the quant geeks assured buyers that these packages could only go up in value, and they happily trusted the science and took the profits.

As the 21st Century dawned, America had transformed itself from a nation of producers into a land of consumers. The petrodollar’s strength left America flooded with inexpensive imports. Even downwardly mobile ex-factory workers could afford a big flat-screen TV and a subprime mortgage with a balloon payment they could refinance when it came due. The working classes weren’t exactly content, but they were pacified and that’s all empires have ever asked for.

Then, in 2007, the finance industry discovered that even highly educated mathematicians can make mistakes. The ensuing Subprime Mortgage Crisis triggered the 2008 Great Recession and destroyed many businesses, most famously Lehman Brothers. The crisis was finally slowed when the government lowered short-term interest rates to near zero to encourage financial institutions to start lending again. And while we never returned to the sunny optimism of the Great Postwar Boom, or even the tech boom of the early 00s, we shuffled along until 2019, when China announced their discovery of a novel coronavirus in Wuhan.

The infrastructure we built to prop up our financial system started with the assumption that readily available credit was a good thing and would lead invariably to increased prosperity. But prosperity only increased for large corporations, finance traders, and the 0.01%. Most other Americans were left fighting for pieces of an increasingly smaller pie.

Bust of Aristotle, Vienna Museum of Art History

There are two sorts of wealth-getting, as I have said; one is a part of household management, the other is retail trade: the former necessary and honorable, while that which consists in exchange is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it.

For money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of any modes of getting wealth this is the most unnatural.

Aristotle, Politics 1.X

For Aristotle, money existed solely as a means of exchange. Before money, we exchanged commodities through barter. Money gave us a medium by which we could make these exchanges easier. The shoemaker might have no interest in a suckling pig and the carpenter might not need a bushel of wheat at the moment. But each would gladly take coins for their goods and services, then exchange those coins for goods or services they wanted.

Aristotle looked down on those who bought goods simply for the purpose of later selling them for a greater sum. And he found the idea of lending money at interest to be an even greater issue. When used for these purposes, money ceased to be a means and became an end in itself.  Instead of finding true wealth (ho alethinos ploutos) in having enough to satisfy your needs, those who seek mere accumulation of money find themselves in a race without a finish line.  

Use value was preeminent in Aristotle’s worldview. An ox is valuable when you need to plow a field; a pig is valuable because you can eat it; a field is valuable because you can farm it.  Money often left  us seduced by exchange value. You can buy things with money, but money in and of itself is only worth what somebody is willing to give you for it. 

Money leads craftsmen and artisans to design objects for money (exchange value) rather than the purpose of the design (use value).  This, according to Aristotle, would lead to an inexorable decline in the quality of goods and services. Aristotle complained of the Delphian knife that did several things poorly but was cheaper than three knives that each did the task well. He would certainly have no problem spotting this phenomenon in our modern market economy.  

Early Christian thinkers had an even greater distaste for wealth-gathering than Aristotle. Wealth tempted us to sin and distracted us from our heavenly duties. These proscriptions were as often honored in the breach as in the observance, but there was always an idea that moneylending was at heart stealing from the poor and giving to the rich.

St. Thomas Aquinas drew liberally from “the Philosopher” when he offered his thoughts on lending at interest and usury.

To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice.

In order to make this evident, we must observe that there are certain things the use of which consists in their consumption: thus we consume wine when we use it for drink and we consume wheat when we use it for food.

Wherefore in such like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing, is granted the thing itself and for this reason, to lend things of this kin is to transfer the ownership.

Accordingly if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice.

On like manner he commits an injustice who lends wine or wheat, and asks for double payment, viz. one, the return of the thing in equal measure, the other, the price of the use, which is called usury.

Summa Theologiae, 2.2.78

The Vatican condemned usury, but not infrequently found itself in need of loans from moneylenders. Many condemnations against usurious behavior were aimed at monasteries who lent money at interest to help support their institutions. In time usury was redefined as “lending money at exorbitant interest.” And since one man’s “exorbitant” is another man’s “very reasonable terms,” moneylending became increasingly tolerated if not loved.

With the Protestant Reformation, even the increasingly lax rules on usury were set aside. If the Catholic Church could get theology so wrong, why should anybody take its outmoded rules on banking and economics seriously? Jean Calvin rejected Aristotelean and Catholic thinking on usury, noting in his 1545 Letter to Sachinus that:

It is said, ‘Money does not beget money.’ What does the sea beget? What does a house from the letting of which I receive a rent? Is money born from roofs and walls?

But on the other hand both the earth produces and something is brought from the sea which afterward produces money, and the convenience of a house can be bought and sold for money.

If therefore more profit can be derived from trading through the employment of money than from the produce of a farm, the purpose of which is subsistence, should one who lets some barren farm to a farmer, receiving in return a price or part of the produce, be approved, and one who loans money to be used for profit be condemned?

Calvin’s vision was strictly concerned with lending to the prosperous who used the money to profit from it. He condemned those who burdened the poor with debts that worsened their lot. But as Calvinists grew to see poverty as a sign of divine disfavor, they found themselves more inclined to blame the poor for laziness and bad impulse control than to condemn prosperous Christians who simply expected debtors to follow the terms of their contracts.

To be fair to Calvin, commercial lending did indeed spark the growth of the Colonial era and the Industrial Revolution. But to be equally fair, anti-Colonialists and Ted Kaczynski both raise many salient points about the fruits of those movements. And today, as debt-driven markets. And in 1937 yet another man with a mixed reputation, Ezra Pound, offered a spirited defense against usury in his Canto XLV:

with usura, sin against nature,
is thy bread ever more of stale rags
is thy bread dry as paper,
with no mountain wheat, no strong flour
with usura the line grows thick
with usura is no clear demarcation
and no man can find site for his dwelling.
Stonecutter is kept from his stone
weaver is kept from his loom

WITH USURA

wool comes not to market
sheep bringeth no gain with usura
Usura is a murrain, usura
blunteth the needle in the maid’s hand
and stoppeth the spinner’s cunning.

It’s difficult to imagine a world without lending at interest, and there are many who will tell you that no modern civilization can exist without a modern banking system. But there is of course one exception to this rule, one world religion that continues to take Aristotle’s ideas seriously and to hold moneylending in contempt. That world religion has not only succeeded without usury, it has birthed several wealthy empires and produced philosophical and scientific breakthroughs that helped spark the European Renaissance.

But that is a subject for our next post.