Usury (/ˈjuːʒəri/)[1][2] is the practice of making loans that are seen as unfairly enriching the lender. The term may be used in a moral sense—condemning taking advantage of others' misfortunes—or in a legal sense, where an interest rate is charged in excess of the maximum rate that is allowed by law. A loan may be considered usurious because of excessive or abusive interest rates or other factors defined by the laws of a state. Someone who practices usury can be called a usurer, but in modern colloquial English may be called a loan shark.
In many historical societies including ancient Christian, Jewish, and Islamic societies, usury meant the charging of interest of any kind, and was considered wrong, or was made illegal.[3] During the Sutra period in India (7th to 2nd centuries BC) there were laws prohibiting the highest castes from practicing usury.[4] Similar condemnations are found in religious texts from Buddhism, Judaism (ribbit in Hebrew), Christianity, and Islam (riba in Arabic).[5] At times, many states from ancient Greece to ancient Rome have outlawed loans with any interest. Though the Roman Empire eventually allowed loans with carefully restricted interest rates, the Catholic Church in medieval Europe, as well as the Reformed Churches, regarded the charging of interest at any rate as sinful (as well as charging a fee for the use of money, such as at a bureau de change).[6] Christian religious prohibitions on usury are predicated upon the belief that charging interest on a loan is a sin.
Usury (in the original sense of any interest) was denounced by religious leaders and philosophers in the ancient world, including Moses,[7] Plato, Aristotle, Cato, Cicero, Seneca,[8] Aquinas,[9] Gautama Buddha[10] and Muhammad.[11]
Certain negative historical renditions of usury carry with them social connotations of perceived "unjust" or "discriminatory" lending practices. The historian Paul Johnson comments:
Most early religious systems in the ancient Near East, and the secular codes arising from them, did not forbid usury. These societies regarded inanimate matter as alive, like plants, animals and people, and capable of reproducing itself. Hence if you lent 'food money', or monetary tokens of any kind, it was legitimate to charge interest.[12] Food money in the shape of olives, dates, seeds or animals was lent out as early as c. 5000 BC, if not earlier. ...Among the Mesopotamians, Hittites, Phoenicians and Egyptians, interest was legal and often fixed by the state. But the Hebrew took a different view of the matter.[13]
Theological historian John Noonan argues that "the doctrine [of usury] was enunciated by popes, expressed by three ecumenical councils, proclaimed by bishops, and taught unanimously by theologians."[14]
In England, the departing Crusaders were joined by crowds of debtors in the massacres of Jews at London and York in 1189–1190. In 1275, Edward I of England passed the Statute of the Jewry which made usury illegal and linked it to blasphemy, in order to seize the assets of the violators. Scores of English Jews were arrested, 300 were hanged and their property went to the Crown. In 1290, all Jews were to be expelled from England, allowed to take only what they could carry; the rest of their property became the Crown's. Usury was cited as the official reason for the Edict of Expulsion; however, not all Jews were expelled: it was easy to avoid expulsion by converting to Christianity. Many other crowned heads of Europe expelled Jewish people, although again converts to Christianity were no longer considered Jewish. Many of these forced converts still secretly practiced their faith.
The growth of the Lombard bankers and pawnbrokers, who moved from city to city, was along the pilgrim routes.
In the 16th century, short-term interest rates dropped dramatically (from around 20–30% p.a. to around 9–10% p.a.). This was caused by refined commercial techniques, increased capital availability, the Reformation, and other reasons. The lower rates weakened religious scruples about lending at interest, although the debate did not cease altogether.
The 18th century papal prohibition on usury meant that it was a sin to charge interest on a money loan. As set forth by Thomas Aquinas in the 13th century, because money was invented to be an intermediary in exchange for goods, it is unjust to charge a fee to someone after giving them money. This is because transferring ownership of property implies the right to use that property for its purpose: "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."[16]
Charles Eisenstein has argued that pivotal change in the English-speaking world came with lawful rights to charge interest on lent money,[17] particularly the 1545 act, "An Act Against Usurie" (37 Hen. 8. c. 9) of King Henry VIII of England.
During the Principate period, most banking activities were conducted by private individuals who operated as large banking firms do today. Anybody that had any available liquid assets and wished to lend it out could easily do so.[18]
The annual rates of interest on loans varied in the range of 4–12 percent, but when the interest rate was higher, it typically was not 15–16 percent but either 24 percent or 48 percent. They quoted them on a monthly basis, and the most common rates were multiples of twelve. Monthly rates tended to range from simple fractions to 3–4 percent, perhaps because lenders used Roman numerals.[19]
During this period, moneylending primarily involved private loans given to individuals who were consistently in debt or temporarily so until harvest time. This practice was typically carried out by extremely wealthy individuals willing to take on high risks if the potential profit seemed promising. Interest rates were set privately and were largely unrestricted by law. Investment was always regarded as a matter of seeking personal profit, often on a large scale. Banking was of the small, back-street variety, run by the urban lower-middle class of petty shopkeepers. By the 3rd century, acute currency problems in the Empire drove such banking into decline.[20] The rich who were in a position to take advantage of the situation became the moneylenders when the increasing tax demands in the last declining days of the Empire crippled and eventually destroyed the peasant class by reducing tenant-farmers to serfs. It was evident that usury meant exploitation of the poor.[21]
Cicero, in the second book of his treatise De Officiis, relates the following conversation between an unnamed questioner and Cato:
...of whom, when inquiry was made, what was the best policy in the management of one's property, he answered "Good grazing." "What was next?" "Tolerable grazing." "What third?" "Bad grazing." "What fourth?" "Tilling." And when he who had interrogated him inquired, "What do you think of lending at usury?" Then Cato answered, "What do you think of murder?"[22][23]
The book of Deuteronomy prohibits Jews from charging interest except when making loans to foreigners. Typically, a loan is considered a form of Tzedakah or Ṣedaqah (Hebrew: צדקה [ts(e)daˈka]), a Hebrew word meaning "righteousness" but commonly used to signify charity. (This concept of "charity" differs from the modern Western understanding of "charity". The latter is typically understood as a spontaneous act of goodwill and a marker of generosity; tzedakah is an ethical obligation.) In the Rabbinic period, the practice of charging interest to non-Jews has been restricted to cases when there is no other means of subsistence.[24] "If we nowadays allow interest to be taken from non-Jews, it is because there is no end to the yoke and the burden king and ministers impose on us, and everything we take is the minimum for our subsistence, and anyhow we are condemned to live in the midst of the nations and cannot earn our living in any other manner except by money dealings with them; therefore the taking of interest is not to be prohibited" (Tos. to BM 70b S.V. tashikh).[25]
This is outlined in the Jewish scriptures, specifically in the Torah:
If thou lend money to any of My people, even to the poor with thee, thou shalt not be to him as a creditor; neither shall ye lay upon him interest.[26]
Take thou no interest of him or increase; but fear thy God; that thy brother may live with thee. Thou shalt not give him thy money upon interest, nor give him thy victuals for increase.[27]
Thou shalt not lend upon interest to thy brother: interest of money, interest of victuals, interest of any thing that is lent upon interest. Unto a foreigner thou mayest lend upon interest; but unto thy brother thou shalt not lend upon interest; that the LORD thy God may bless thee in all that thou puttest thy hand unto, in the land whither thou goest in to possess it.[28]
that hath withdrawn his hand from the poor, that hath not received interest nor increase, hath executed Mine ordinances, hath walked in My statutes; he shall not die for the iniquity of his father, he shall surely live.[29]
In thee have they taken gifts to shed blood; thou hast taken interest and increase, and thou hast greedily gained of thy neighbours by oppression, and hast forgotten Me, saith the Lord GOD.[30]
Then I consulted with myself, and contended with the nobles and the rulers, and said unto them: 'Ye lend upon pledge, every one to his brother.' And I held a great assembly against them.[31]
He that putteth not out his money on interest, nor taketh a bribe against the innocent. He that doeth these things shall never be moved.[32]
Johnson contends that the Torah treats lending as philanthropy in a poor community whose aim was collective survival, but which is not obliged to be charitable towards outsiders.
A great deal of Jewish legal scholarship in the Early and High Middle Ages was devoted to making business dealings fair, honest and efficient.[33]
As Jewish people were ostracized from most professions by local rulers during the Middle Ages, the Western churches and the guilds,[34] they were pushed into marginal occupations considered socially inferior, such as tax and rent collecting and moneylending. Natural tensions between creditors and debtors were added to social, political, religious, and economic strains.[35]
...financial oppression of Jews tended to occur in areas where they were most disliked, and if Jews reacted by concentrating on moneylending to non-Jews, the unpopularity—and so, of course, the pressure—would increase. Thus the Jews became an element in a vicious circle. The Christians, on the basis of the Biblical rulings, condemned interest-taking absolutely, and from 1179 those who practiced it were excommunicated. Catholic autocrats frequently imposed the harshest financial burdens on the Jews. The Jews reacted by engaging in the one business where Christian laws actually discriminated in their favor, and became identified with the hated trade of moneylending.[36]
Several historical rulings in Jewish law have mitigated the allowances for usury toward non-Jews. For instance, the 15th-century commentator Rabbi Isaac Abarbanel specified that the rubric for allowing interest does not apply to Christians or Muslims, because their faith systems have a common ethical basis originating from Judaism. The medieval commentator Rabbi David Kimhi extended this principle to non-Jews who show consideration for Jews, saying they should be treated with the same consideration when they borrow.[37]
The Old Testament "condemns the practice of charging interest on a poor person because a loan should be an act of compassion and taking care of one’s neighbor"; it teaches that "making a profit off a loan from a poor person is exploiting that person (Exodus 22:25–27)."[39] Similarly, charging of interest (Hebrew: נֶֽשֶׁךְ, romanized: nešeḵ) or the taking of clothing as pledges is condemned in Ezekiel 18 (early 6th century BC),[40] and Deuteronomy 23:19 prohibits the taking of interest in the form of money or food when lending to a "brother".[41]
The New Testament likewise teaches giving rather than loaning money to those who need it: "And if you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them, expecting nothing in return. Then your reward will be great, and you will be sons of the Most High; for He is kind to the ungrateful and wicked. Be merciful, just as your Father is merciful. - Luke 6:34-36 NIV
The First Council of Nicaea, in 325, forbade clergy from engaging in usury[42]
Forasmuch as many enrolled among the Clergy, following covetousness and lust of gain, have forgotten the divine Scripture, which says, "He has not given his money upon usury" [Ezek. xviii, 8], and in lending money ask the hundredth of the sum [as monthly interest], the holy and great Synod thinks it just that if after this decree any one be found to receive usury, whether he accomplish it by secret transaction or otherwise, as by demanding the whole and one half, or by using any other contrivance whatever for filthy lucre's sake, he shall be deposed from the clergy and his name stricken from the list. (canon 17).[43] [bracketed material in source]
At the time, usury was interest of any kind, and the canon forbade the clergy to lend money at interest rates even as low as 1 percent per year. Later ecumenical councils applied this regulation to the laity.[42][14]
Lateran III decreed that persons who accepted interest on loans could receive neither the sacraments nor Christian burial.[44]
Nearly everywhere the crime of usury has become so firmly rooted that many, omitting other business, practise usury as if it were permitted, and in no way observe how it is forbidden in both the Old and New Testament. We therefore declare that notorious usurers should not be admitted to communion of the altar or receive christian burial if they die in this sin. Whoever receives them or gives them christian burial should be compelled to give back what he has received, and let him remain suspended from the performance of his office until he has made satisfaction according to the judgment of his own bishop. (canon 25)[45] [emphasis in source]
The Council of Vienne made the belief in the right to usury a heresy in 1311, and condemned all secular legislation that allowed it.
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. By these statutes they impose heavy burdens on those claiming the return of usurious payments, employing also various pretexts and ingenious frauds to hinder the return. 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. They shall also incur the same sentence unless within three months they delete from the books of their communities, if they have the power, statutes of this kind hitherto published, or if they presume to observe in any way these statutes or customs. Furthermore, since money-lenders for the