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Report No. 63

2.8. Origin of the prohibition against usury.-

The modern European experience with usury has its roots in the time of Charlemagne, when the prohibition against taking interest was directed primarily at clerics, apparently because collecting interest showed greed, or at least a lack of charity.1 The prescription against charging interest was gradually extended to laymen, and the whole concept of usury as a lack of charity was transformed into the idea that interest was a moral injustice similar to theft. There is considerable disagreement as to why this development occurred, but since the type of borrowing then most prevalent involved loans from a large landowner to a small farmer of a sum for day-to-day expenses, and since a lender could seize a borrower's property when the borrower defaulted on a loan, one principal reason for the wider ban may have been to decelerate further consolidation of land-holdings.2

The Scholastic philosophers, working on the foundations of (i) patristic teachings, (ii) the classification of voluntary contracts in Roman law, and (iii) the Aristotelian concept of the sterility of money, undertook to construct an analysis of interest that would apply to all debtor-creditor relationships. Goods were classified as fungible (perishable or generic), and non-fungible (durable or specific). To demand payment for, the use of non-fungible goods (for example, a horse or a house) in addition to its return, was considered justifiable.3 But, to charge for the use of a fungible goods (for example, bread, grain, or wine), in addition to the return of an equivalent, was declared to be a violation of justice, a charge for something that does not exist, since the use of the goods consists of its consumption or destruction. Money was classified as a fungible goods because, once it is exchanged for other goods, its use is accomplished and it ceases to exist for the borrower.

"Therefore", concluded Thomas Aquines, "it is in itself illicit to accept a price for the use of money loaned, which is called usury."4

1. Noonan The Scholastic Analysis of Usury, (1957), pp. 14-17, cited in Note on Usury, 18 Stanford Law Review, p. 1382.

2. Noonan The Scholastic Analysis of Usury, (1957), pp. 14-17, cited in Note on Usury, 18 Stanford Law Review, p. 1382.

3. Thomas F. Divine, professor of Economics, St. Louis University, in Encyclopaedia Americana, Vol. 27, p. 824, article on Usury.

4. St. Thomas Acquines, quoted by Thomas F. Divine in Encyclopaedia Americana, Vol. 27, p. 824.

Interest Act, 1839 Back

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