Usury and Just Price

Let us now return to strictly economic themes. The dominant issues, between the twelfth and the sixteenth centuries, were the just price and usury, always considered from the standpoint of ethics.

Thomas Aquinas is commonly considered the most important philosopher and theologian of the late Middle Ages. A teacher in various cities (from Paris to Rome, from Anagni to Naples), his main work, the Summa Theologiae, written between 1265 and 1273, was to remain for centuries a central reference point for Catholic doctrine. Characteristic of this work was an original fusion between the Christian tradition and Aristotle’s philosophy.

Aristotle himself considered as unnatural any wealth stemming from commerce and condemned commerce in money, i.e. loans with interest. In the Christian tradition we also find decided opposition to interestbearing loans; in this respect a passage from the ‘sermon on the mount’ is often quoted, when Jesus says ‘lend, hoping for nothing again’.[1] Thomas

Aquinas adopted a more moderate attitude: condemnation of interest in principle[2] was followed by a detailed casuistry, in which cases of loans at interest to be condemned are distinguished from cases in which it was justified (in particular, cases in which we can speak of a damnum emergens (supervenient damage) for the lender, so as to justify a positive but relatively moderate rate of interest, while justifications based on lucrum cessans (losing a gain) are rejected, since these would open the way to legitimising a competitive rate of interest - as in fact gradually happened in subsequent centuries).

The road followed by Thomas - casuistry, or analysis of specific cases, with different answers to the question of the legitimacy of the loan at interest according to the circumstances - was adopted in subsequent centuries in a long series of writings that reveal, among other things, how little respect was accorded to the prohibition of usury and how much inventiveness was shown by the financial operators of the time in finding new kinds of contracts to circumvent the prohibitions. In general the authors of the time, Thomas included, were aware of the role of money as means of exchange and standard of measurement but not as a reserve of value.

Ethical and legal debate often intersected.[3] The importance of this debate was such that some commentators consider the various answers given to the question of the legitimacy of usury as a central element in explaining the rate of transition to capitalism. Condemnation of usury was not accompanied by hostility towards commercial activity in general, as was the case with Aristotle. The Scholastics simply called for correct behaviour, condemning fraud or coercion but also taking advantage of a counterpart’s weaker position in bargaining.

Transition towards the legalisation of interest was slow, though favoured by the Reform (Calvin, 1509-1564, condemns interest on consumption loans but not on commercial loans). At the end of the sixteenth century we still find strong opposition to usury, as in the severe A discourse upon Usurye by Thomas Wilson, published in 1572.

Shortly before its publication, in England the Act of 1571 declared all loans for interest at a rate above 10 per cent devoid of legal value, while it did not prohibit loans at lower interest rates - without, however, providing any legal protection for them. This compromise opened the way to the view that not all loans at interest should be considered usury, but only those which, exploiting the borrower’s need, applied ‘excessive’ interest.

Reaction to the regulation of loans at interest only arrived with the rise of liberalism - we may mention Turgot (1759) and especially Bentham’s Defence of usury (1787) - while Adam Smith himself, in the Wealth of Nations (1776, p. 357), still judged legal limits to the interest rate opportune, maintaining that otherwise ‘prodigals and projectors’ ready to pay even very high interest rates would crowd ‘sober people’ out of the loan market. In England, the usury laws were only abolished in 1854.

Let us now turn to the just price, another theme that goes back at least to Aristotle. Voluntary exchanges were considered useful for both seller and buyer: exchange is a fluxus et refluxus gratiarum, namely a giving and receiving graces, as Albert the Great (1206-1280) nicely put it. Following the tradition of the Roman law doctrine and certain Church Fathers such as Ambrose and Augustine, Thomas identified the just price as the price prevailing in the markets in the absence of fraud or monopolistic practices. Reference to the market price, however, had a normative, not a descriptive, value, since at the time the competitive market was the exception, while the rule consisted in the possibility of exchange open to few parties. Among other things, in the twelfth to thirteenth centuries, at least in Italy, the political authorities (municipalities, corporations) actively intervened, setting compulsory prices, or maximum limits for prices, of many among the main commodities subject to exchange. Moreover, because of the close regulation of productive techniques characterising the arts and crafts corporations, reference to necessary costs of production did not imply competition that eliminates the less efficient producers, but reference to costs entailed by respect for the existing regulations.

References to cost of production and particularly to labour costs were numerous but decidedly outnumbered by references to utility and rarity. Moreover, the structure of labour costs was clearly determined by social stratification, assumed as a given datum: in substance, the Scholastic writers considered as ‘just’ that price that allowed producers to maintain a standard of living befitting their position in society.

In the wake ofAristotle, Thomas and others confirmed that the value of goods does not reflect the ‘natural’ hierarchy (inanimate objects - vegetal world - animal world - human beings) but the ability of goods to satisfy needs (indigentia). More precisely, as Peter of Johann Olivi (1247-1298) noted, we must refer to three sources of value: virtuositas, complacibilitas and raritas, namely ability to satisfy human needs, correspondence to the preferences of the person utilising the good and scarcity.

The problem of the just price should not be confused with that of the legitimate price: following the tradition of Roman law doctrine and of canonical law, any transaction agreed on by the participants free from compulsion was considered as legitimate: ‘Tantum valet quantum vendi potest’, or, more precisely, ‘Tantum valet quantum vendi potest, sed communiter’ (‘A thing is worth as much as it can commonly be sold for’).

  • [1] Bible: Luke 6:35; we find analogous expressions in the Gospels of Matthew and Mark.Cf. also Ezekiel 18:8 and 18:13.
  • [2] In fact, interest constitutes payment for the use of a commodity, money, the value inexchange of which is already paid with the pledge to return an equal amount. A moreradical but substantially analogous thesis was that interest is the payment for the time thatgoes between the loan and the return of the money lent: hence, it was condemnedbecause time belongs to God.
  • [3] As far as canonical law is concerned, the Council of Nicaea (312) only prohibitedclergy from involvement in loans at interest; gradually regulations became moresevere, extending their field of application to all; then in the fourteenth centurya move in the opposite direction began, with increasingly shrinking definitions ofusury (condemnation of which in principle, however, was confirmed by PopeBenedict XIV in the encyclical Vix pervenit in 1745 and still applies).
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