The very concept of moneylending has a rich and deep history. Money itself began as a system of promises overseen by third parties, such as priests.
That history is so deep, it’s probably in places you wouldn’t expect. For example, the Bible explicitly uses words like “money” and “lend” in the Old Testament.
Usury is the term connected to protecting people from moneylenders charging excessive interest rates. However, today we think of usury laws as laws properly calculated – the sense and sensibility of market forces that define what is and is not ‘excessive’. But centuries ago, usury laws were matters of morality beside the market.
Alex Mayyasi explored the history of moneylending in his brilliant essay for Aeon magazine this July.
It was the famous Greek philosopher and scientist, Aristotle, who first vilified moneylending, describing the practice as “the birth of money from money”. The Consul of the Roman Republic, Cato the Elder, when asked what he thought of usury, replied “what do you think of murder?”
The Gospel of Luke shared Aristotle and Cato’s criticism. “Love ye enemies, do good, and lend, hoping for nothing thereby,” the gospel scribe admonished. The Qur’an too, doesn’t mince words about its thoughts on usury.
Those who charge usury are in the same position as those controlled by the devil’s influence.
Today we’re used to credit cards, clean bathrooms, and talking to people over Wi-Fi. But back then we had courtyards, brick toilets that were never sanitized, and small towns that made up your economic network. Moneylending was a much more intimate process. It was an economic network of “peers rather than strangers”. As Mayyasi notes:
To understand it, think about your reaction to the idea of a bank making a loan to a business at a 5 per cent interest rate. No problem, right? Now compare that to how you’d feel if your mother lent you money on the same terms. In Biblical times, the typical loan was more like the second case – it wasn’t an arms-length transaction, but a charitable loan from a wealthy man to a neighbour who’d experienced misfortune or had nowhere else to turn.
Usury was seen as alien – a ‘market without an underlying moral structure’. Usury laws were even explicitly forbidden by clergy at the First Council of Nicaea in 325 CE; the world’s first council to determine canon, observance, and execution of Christian practices. In 800 CE, the Holy Emperor Charlemagne officially prohibited moneylending.
Public perception of moneylending as immoral persisted into the 13th century. A French cardinal famously told the tale of the dead moneylender. In the story, the moneylender decides to take a 3rd of his inheritance to his grave. When his family dug open his grave, hoping to take the inheritance, they were greeted to demons bursting through his mouth – a tale suggesting that there was no honor among thieves. Or moneylenders, rather.
However, the perception on usury laws and moneylending began to change in the 13th and 14th century. According to Mayyasi, that change in perception is connected to the he concept of purgatory, which Mayyasi argues allowed attitudes on moneylending to change. “The hope of escaping Hell, thanks to Purgatory, permitted the usurer to propel the economy and society of the 13th century ahead towards capitalism.”
Today, lenders come in the form of banks, and if you’re less fortunate, speedy cash. But centuries ago you could be dealing with the actual Knights Templar, the famous Catholic military order between 1119-1312. Mayyasi explains how “the Knights protected pilgrims who traveled to the Holy Land, and this protection included safeguarding their funds by allowing pilgrims to deposit money in Europe and withdraw it in the Holy Land.”
Back then interest wasn’t some standard issue monthly fee. Lenders would ask for “a share of profits from the borrower’s business”.
It wasn’t until 1462 in Italy that the very first non-profit pawnshop was created. Within that timeframe there were professionals called Scholastics. The Scholastics were clergymen, involving heavyweights such as Thomas Aquinas, interested in analyzing the ethics of usury laws – of analyzing the interest and banking from the 1100’s to the 1500’s. It was with the Scholastics where the philosophy of supply and demand began.
The Scholastics were also the first to analyze the value of risk management. “Some clergymen also realized that people who lent money were unable to use it on other profitable ventures. This is a very modern justification for permitting interest: opportunity cost. The price of borrowing money reflects the missed opportunity to invest it profitably elsewhere,” Mayassi observes.
The hardest part about usury laws in the 21st century is navigating through a system that isn’t always transparent. Financial transactions happen within a complex network of banks, collection agencies, debt buyers, and people with titles you’ve probably never even heard of. Learn the rules of the financial game by first knowing the players. And if you know the game’s history, perhaps you’ll know something about the game’s future.
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