AQUINAS AND MODERN
PRACTICES OF
INTEREST TAKING
Under the auspices of the Aquinas Library,
Brisbane

by
JOHN P. KELLY

With an introduction
by
COLIN CLARK

AQUINAS PRESS
BRISBANE
1945

3ΠΎ ΟΓ TO TRE DAME UBRARY

THE AQUINAS LECTURE, 1944.

“His Grace, the King, prays you, to take
into consideration matters of trade, as also
the manufactures of the kingdom, and to
restrain the bastard and barren employment
of moneys to usury and unlawful exchanges;
that they may be, as their natural use is,
turned upon commerce and lawful trading.**
Cardinal Morton, Cardinal Archbishop of
Canterbury, and Lord Chancellor of England,
to a parliament of Henry VII.

“In his conception of property, and in the
principles which underlie the Just Price and
the prohibition of Usury, I am convinced
that St. Thomas offers exactly what the
modern world needs**
Archbishop William Temple, Archbishop of
Canterbury, to the London Aquinas Society
on October 19th, 1943.

The most important contributions to
knowledge do not by any means always
come from the most famous centres of
learning, and places of which the world
hears little in this generation often become
the intellectual centres of the next. That a
pamphlet which may, I believe, bring about
a fundamental change in social science has
been written and published in Brisbane,
should be a source of pride to us, and of hope
for further achievements to come. In this
pamphlet Mr. Kelly has combined profound
learning with that deep and refreshing
modesty which learned men, alas, do not
always show. I am not qualified to make
any addition to, or comment upon, the
theology and ethics of this pamphlet. My
only contribution (which might reasonably
have better been printed at the end of the
pamphlet than at the beginning) is to make
some comment upon the bearing which this
pamphlet must have on economic science
and upon economic and financial practice.
Personally, I am fully convinced by Mr.
Kelly’s conclusions and his re-statement of
the Aquinatian doctrine. It is quite wrong
to suppose that St. Thomas Aquinas wrote
only for a simple rural community and took
no account of the problems and complexities
of modern finance. Human errors are much
the same in all ages, and, in fact, thirteenth
century Italy was a highly sophisticated
vii

UNIVERSITY OF iiOTRL DAME EJORARY

INTRODUCTION.

commercial community. St. Thomas Aquinas
faced in essence exactly the same problems
that we have to face, and his conclusions only
need translating into modern language. So
translated, they show that any interest on
loans, bank deposits, government bonds,
mortgages, debentures, outstanding accounts,
etc., is an offence against morality. It may
have been right for a medieval king, who
in time of emergency had to borrow gold
and silver from merchants whose livelihood
was thereby diminished, to pay them some
compensation for lucrum cessans; but there
is no justification now for governments
paying interest on borowings of money
created ad lib by entries in a bank book.
There is no objection to profits or dividends
from equities, ordinary shares, partnership
agreements, etc., or from preference or
participating preference shares and similar
arrangements provided the lender takes a
share of the risk and receives no return if the
venture is unprofitable. Similarly, there is
no objection to the receipt of rent or hire
for the use of houses, land, motor cars, ships,
live-stock, motor cars, etc., or of any other
articles, “the use of which does not consist
in their consumption”.
Few now hold the nineteenth century
idea that ethics has no part in the conclusions
of economic science or in the regulation
of business practice. But up to some twenty
years ago, even economists, fully aware of
the ethical obligations of their science,
would have said that interest was an
viii

ix

.DAME

W W
UWVERSITY OF

integral part of economic life, and that the
production and distribution of goods would
suffer heavily from any attempt to dispense
with interest or even seriously to control it.
This point of view would have been upheld
on the grounds:
1. That the rate of interest was the
necessary factor in attaining equili­
brium between the supply and demand
of savings, as was price in the case of
a commodity; and
2. that the rate of interest played an
essential role in attracting capital from
its less to its more socially valuable
employments.
Now, however, it would be generally
agreed that the first reason is completely
invalid, and that the second is a half truth.
Concerning the second, it is true that it is
socially desirable (under certain but not
under all circumstances) for capital to be
attracted from less to more remunerative
employments, but the factor of this attraction
should be (and, in fact, generally is) profit
rather than interest. As Mr. Kelly shows,
these are entirely different things.
The
former is continually at risk, whereas
interest, by its nature, is a claim that
continues whether in fact a profit is made
or not.
The doctrine that interest adjusts the
supply and demand of savings has been com­
pletely discredited. The principal agent of
this change has been Mr. J. M. Keynes (now
Baron Keynes). Implicitly in Treatise on

Money, published in 1930, and explicitly in
The General Theory of Employment, Interest
and Money, published in 1936, Lord
Keynes established the theory that, while
the rate of interest might affect the demand
for savings, it was entirely without influence
upon their supply. The supply of savings
depended predominantly upon changes in
the national income and a change in interest
rates might have the opposite effect from
that expected, or none at all.
Since 1936 further investigation at Oxford,
by Professor Tinbergen in Holland, and
others, have shown that the rate of interest
does not appear to have any effect upon
the demand for capital. The rate of
interest, instead of being, as was recently
thought, the equilibrating factor between the
demand and supply of savings, is now seen
to be without influence upon either their
demand or their supply.
The refinements of modern economic
science have brought us back to realise the
profound wisdom of Cardinal Morton’s
address to the Parliament of Henry VII., so
aptly quoted by Mr. Kelly on his title page,
to the effect that by restraining “the
bastard and barren employment of moneys
to usury and unlawful exchanges” monies
may be, “as their natural use is, turned upon
commerce and lawful trading.” We should
never have suffered the frightful calamity
of mass unemployment all through the last
decade of peace if money had been properly
devoted to its natural use. Unemployment

on a minor scale is due to other causes and
is difficult to get rid of, but the large-scale
unemployment which disfigured every socalled “economically advanced” country was
predominantly due to the fact that people
sought to receive interest on wealth while
keeping it idle, instead of either consuming
it, or devoting it to real risk-taking invest­
ment.
At the heart of the great structure of
present day usury lie what are called
“national debts.”
In Australia, Britain,
Canada and France, before the war started,
the annual payment of interest on the public
debt required some 6 or 7 per cent, of the
national income, or some 20 per cent of
the entire earnings of enterprise and of
individual business. The existence of a
large block of interest-bearing bonds causes
owners of capital to expect a fairly high
remuneration before they take any risk at
all, and the rate of interest on the national
debt sets a scale for interest on debentures
and mortgages. Nearly one-third of all tax
revenues had to be set aside to meet these
payments, causing taxation to be much
higher than it need be. As the war ends
every belligerent country is finding itself in
a similar position in spite Ox the reduction in
the real burden of old debts, through the
general rise in wages and prices. Interest,
sinking fund and exchange on public debts
in Australia will probably amount to over
£ 100 million per annum, or about 9 per cent,
of the national income. As total peace-time
xi

taxable capacity is only about 20 per cent,
of the national income, and as earnings from
publicly owned railways are likely to
diminish rather than increase, this will pose
an almost insoluble budgetary problem. I
think that I am on safe ground in predicting
that during the next few years the budgetary
problem posed by huge national debt interest
payments will provoke, in every country in
the world, a close study of the ethics of
usury.
liiere is no escape from the conclusion
that government loans must be interest free.
Existing contractual obligations could be
respected, but as each loan falls due it should
be paid off in cash created for that purpose
by the Commonwealth Bank.
For the
Commonwealth Bank to create money for
purposes of government expenditure, except
during a period of depression and unemploy­
ment, would have a highly inflationary effect
upon wages and prices. But to create such
funds for the purpose of replacing past
interest-bearing debt would cause little, if
any, upward pressure upon wages and the
cost of living, particularly if carried out
gradually by re-paying each loan as it fell
due. It would, of course, encourage people
to purchase (with beneficial effects upon the
economy as a whole) land, real property,
shares, etc., and would raise their prices, but
there would be little effect upon the cost
of living.
It is of course, clear that there would
be no further government borrowing. If
xii

DA^E
OF

UNMRSnY

government loans carried no interest, most
people would prefer to put their money into
some other venture. This would mean that
the cost of all future public works would
have to be met out of current taxation,
or from accumulated funds, with the excep­
tion of depression periods, in which it
is permissible and, indeed, desirable for
the Central Bank to create funds for
government expenditure, until the depres­
sion has been relieved. But the saving of
the interest burden on the budget would
greatly outweigh the current cost of new
public works, and the net effect would be
that taxation would be considerably reduced.
If banks cease either to receive or to
pay interest, it is clear that they will have
to meet necessary expenses by imposing
charges (probably so much per cheque
transaction) upon their depositors who at
present receive quite a valuable service free.
In America, where interest rates are very
low, many banks have reached this stage
already.
The man who frankly calls himself a
money-lender is generally recognised as an
evil and checked by legislation. But some
alternative provision is necessary for poor
people who have little security to offer. In
many European countries pawnshops are run
as non-profit-making municipal enterprises.
In Australia we have borrowed the title
“Mont de Piete” but not the spirit thereof.
Better still, if it could be organised, would be

W AÏ

ί

a Co-operative Credit Association organised
by trade unions or trade associations.
Though there is nothing wrong in hire
purchase if the words mean exactly what
they say, i.e., a series of payments to cover
both hire and purchase, flagrant usury is
incorporated in most present-day contracts
for hire purchase, motor car sales, etc.
Perhaps the most evil form is found in
businesses selling cash orders which the
present Prime Minister
(Mr. Chifley)
described a few years ago as “an economic
excrescence”. May the action follow the
word.
COLIN CLARK.

xiv

AQUINAS AND MODERN PRACTICES
OF INTEREST TAKING.

I.

“I was brought up to believe,” writes
Professor J. M. Keynes, “that the attitude
of the Medieval Church to the rate of interest
was inherently absurd, and that the subtle
discussions aimed at distinguishing the
return on money-loans from the return to
active investment were merely jesuitical
attempts to find a practical escape from a
foolish theory. But I now read these
discussions as an honest, intellectual effort
to keep separate what the classical theory
has inextricably confused together, namely,
the rate of interest and the marginal
efficiency of capital. For it now seems clear
that the disquisitions of the schoolmen were
directed towards the elucidation of a
formula which should allow the schedule of
the marginal efficiency of capital to be high,
whilst using rule and custom and the moral
law to keep down the rate of interest.”(1>
There is little excuse, of course, for the
Professor’s belief that the Jesuits were
medieval, but at the outset of an examination
of usury which involves a scrutiny of the

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medieval attitude to demanding interest on
money loans, this statement by one of the
most eminent of living economists should
serve at least to assure us that the discussion
may not be without some practical value.
It, too, should serve to remind us that we
who are heirs to that state of mind and
outlook which did so much to promote
justice amongst the dealings of men in
another age, have some obligation to
endeavour to apply the permanent principles
of justice to the chaotic economic conditions
of our own time.
In our day, a vague distinction exists in
popular thought between interest and usury,
the latter differing from the former only in
degree, there being nothing, in this view
essentially different between the two
exactions. Interest in our popular thought
only becomes usury when the demand for
the payment thereof éxceeds that which
either by law, custom or public opinion is
regarded as a fair increment to a lender
over and above the return of the original
amount of the loan.
It would not be profitable within the
•compass of this talk, to attempt to trace how
this modern distinction has gained popular
currency. <2) It is as well, however, to note
16

thatthe term usury still is popularly a term
of opprobrium and that the popular
conscience is still, vaguely, but, nevertheless,
appreciably aware of the injustice which is
inherent in the term. For the most part,
however, modem man is entirely ignorant
of the fact that usury with all its injustice
was at one time held to include any
exaction at all, irespective of quantum,
which was bargained for by the lender in
Connection with a loan of money over and
above the return of the original amount
loaned. Startling as it may appear to our
modem ears, there have existed in the past,
societies in which the temper was that a
lender was guilty of injustice, if, when
lending money to another he stipulated for
■&e return of the money loaned, and at the
same time with no further consideration
demanded the payment of an additional sum
by way of interest. One example of this
will suffice for our purposes:
“In the month of January 1377, Ralph
Cornwaille, of Broad Street, made a
complaint to the Mayor and aidermen of
the City of London. At the preceding
Michaelmas he had been anxious to get a
loan for a period of three months and went
to two brokers, one of whom was a
Lombard, to procure it for him, at the
17

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C'·.’

1
i

same time promising them a commission
for their trouble in the matter.
The
brokers found that Walter Southous was
willing to lend the money on receiving
security for the repayment of the full
amount on a given day from Ralph
Cornwaille, as well as similar security
from Ralph’s friend, John Tettesbury.
When the necessary documents, however,
were complete, the brokers only advanced
£10 to Ralph: at the time of repayment
he tendered the £10 which was all he had,
but Walter Southous refused to receive it,
persisted in his demand for £2 more, and
sued Ralph before the Sheriff to ‘his great
wrong and damage’............. The wrong that
rankled in the mind of Ralph was not that
the interest was extortionate, but that he
was called to pay interest at all—to return
anything more than he received—and his
view of the case was fully endorsed by
the city authorities before whom the
matter was reopened............... Ralph was
declared free from all obligations in
connection with the debt, and Walter
Southous was condemned to be imprisoned
till he made over double the £2 which he
had tried to get by usury as a forfeit to
the City of London. He had, with the
cognisance of the brokers, disregarded the
ordinance of the City of London against
usury—ordinances
which
the
public
opinion of the day completely endorsed—
and there could only be one result
according to the law and feeling of the
18

4 : ·

J 4

when such conduct was brought home
tô
Whence came the reason for this attitude
which seems so foreign to all our concepts
<A legitimate dealing? To examine the
Jasons for this attitude, and to attempt to
apply those principles to our modern
conditions are the purposes of this paper.

19

π.
Before proceeding, a possible source of
misunderstanding
should
be
removed.
Usury, involving as it does questions of
justice and of sin, is peculiarly within the
province of the moral theologian, who has to
examine objectively the implications of
every contract before coming to any
ethical conclusion. The attitude of modern
theologians to the question of interest taking
may be, on the whole, characterised as
“broad”, but in stating this I mean no
criticism.(4) Rather would I emphasise that
the modern world is not of the Church’s
making: it has ordered its economic affairs
with little reference to moral scruples, and
in such a world it is exceedingly difficult to
assess the moral implications of loan
contracts.(5) The difficulty will become more
apparent as we proceed. In circumstances
such as these, the moral theologian bids the
faithful not to be disturbed in conscience,
so long as they are in good faith and are
prepared to submit to a decision on these
matters when given, and, in effect, the
Church in its present discipline, Canon 1543
of the Code of Canon Law of 1917, takes the
same attitude when it declares that to take
20

interest
the loan of money at the
* prevailing rates approved by the civil law is
ipnât unlawful per se, provided that it is
certain that such rates are not excessive. To
assert, however, that the Church thereby
places its blessing on all modern loan
contracts is an assertion that is very difficult
to follow, for the very Canon that contains
7 this statement, commences with a re-state\ ment of the traditional attitude of the
church:
“If a fungible thing is given to someone
in such a way that it becomes his and that
later something of the same kind and
amount is to be returned, no profit can be
taken on the ground of the contract
itself.”(6)
No clearer exposition of this traditional
attitude is to be found than that of the
reasoning of St. Thomas Aquinas. Nothing
that has been written before or since on
the question of interest-taking on money
loans approaches the clarity of the
Angelic Doctor’s exposition of this question,
an exposition which enshrines profound
economic and ethical truth.<7) Indeed, it is
somewhat pathetic to note the ease with
which many commentators since have
endeavoured to escape from the inexorable
logic of Thomas, and the recklessness with
21

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ii.;.·.

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which a rash few would endeavour to
dispose of it.<8)
Now, it is significant that the traditional
attitude of the Church found its most
practical and highest expression during an
age when the Church definitely influenced
the social order, and it is significant, too, that
when society shed itself of this influence,
theologians were forced not to abandon the
traditional attitude, but to work out the
moral implications of contracts which were
part and parcel of an order not of their
making.
With the close of the eleventh century,
the Medieval Church had reached a place of
supreme importance in the civilisation of
the day. The Canon Law of the Church did
not confine itself to purely ecclesiastical
matters, but sought to effect a reform of the
law as a whole on lines approved by the
Church. The Christian world acknowledged
a twin legal system corresponding to the
twin sovereignty of Emperor and Pope. The
law embodied in this code was in substance
Boman law modified in accordance with
Christian principles. Such a modification
occurred in the case of usury.
The Roman law recognised the legitimacy
of taking interest on loans of money, but
22

- * ■ · 1 ής 'jthe Medieval Church lost no time in its
► legislation in declaring its attitude to usury.
A decree of the 2nd Lateran Council in 1139
legislated against usury.
The Lateran
j Council in 1179 was equally emphatic. The
Popes, Alexander III. and Innocent III., were
unequivocal in the matter.
The second
J Council of Lyons in 1274 continued the
■
legislation, and the Council of Vienne
j
ordered sentence of excommunication against
I
such civil authorities as by law or judicial
decision ordered the payment of usury.
Commenting on this Council, Ashley, the
well known economist, wrote:

“It was not till the Council of Vienne in
1311 that the Western Church took the
final step of absolutely refusing to
recognise all secular legislation in favour
of usury.”(9)

Obviously, the most important thing to
ascertain is the precise meaning which the
medieval canonists ascribed to the term
“usury”. Here it is necessary to become
technical for the loose use of words has led
to many unfortunate misunderstandings.
To grasp fully the implications of the
medieval attitude as expounded by St.
Thomas Aquinas, it is necessary to appreciate
clearly certain terms used in and certain
23

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distinctions made by Roman law. The
Romans made distinctions between the
various things which are capable of being
made the subject of private dominion, and
of these, two are of the utmost importance
for our purpose.
Fungible things (res fungibiles) are things
which, generally speaking, occur in ordinary
dealings, not separately but only in certain
quantities. Such things are, for example,
money, wine, grain, eggs, apples, cigars, etc.,
as opposed to, say, horses, books, plots of
land. A person who owes res fungibiles is
bound as a rule to return not individually
determined things but things determined
only by reference to a class, that is to say,
he is bound to supply a definite quantity of
things of a definite quality, the separate
things being reckoned, as between them­
selves, as equal. It is of the nature of
fungible things that other things can
“function” for them: “tantundem ejusdem
generis est idem”.(tm
Consumable things (res quae minuuntur
vel consumuntur} are things which are
extinguished and are intended to be
extinguished by use, e.g., food. It is difficult
to conceive of any article which is not at
once a fungible thing and a consumable
24

M-t
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f

thing, but it is important to note that
the Romans regarded fungibility and
consumability as two entirely different
of those things which are
capable of private dominion, and it is
important not to confuse these two
notions/11*

The Boman contract of “mutuum” or loan,,
had always as its subject matter fungible
things, and the contract arose where one
transferred a certain quantity of
res fungibiles to another, this other (the
transferee) becoming the owner of the thing,
Subject to the obligation of returning the
Same amount of the same quality as he had
received. Now, these contracts of loan only
bound the borrower to pay the exact amount
of the fungible goods that he received,
neither more or less; they did not bind him,
more particularly to the payment of interest.
If it were desired to make the debtor in a
mutuum liable for the payment of interest
as well as capital, a second contract was
required, a contract for the payment of
interest. Roman law recognised the justice
of such a contract provided that in the case
of money, certain set forms of words were
used.

S

•8'·

Aquinas and the medieval canonists would
not approve of this second form of contract,
except under certain very definite conditions.
Let us follow the reasoning of St. Thomas
•on the matter: it is crystal clear:
“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. Therefore, 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 use of the thing itself: and
for this reason to lend things of this kind
is to transfer the ownership. Accordingly,
if a man wanted to sell wine separately
from the use of wine, he would be selling
what does not exist, wherefore he would
evidently commit a sin of injustice. In
like manner, he commits a sin of injustice
who lends wine or wheat, and asks for
double' payment, namely, one the return
of the thing in equal measure, the other,
the price of the thing which is called
usury.
“On the other hand, there are things
the use of which does not consist in their
26

I > Γ4Ζ

f
’
j

; consumption. Thus to use a house is to
dwell in it, not to destroy it. Wherefore
;
in such things, both may be granted: for
instance, one may hand over to another
the ownership of his house, whilst reserv­
ing to himself, the use of it for a time,
or vice versa, he may grant the use of the
î
house whilst retaining the ownership.
I
For this reason a man may lawfully make
f J : - a charge for the use of his house............
J
“Now, according to Aristotle, money was
invented chiefly for the purpose of
S? exchange, and consequently the proper
: and principal use of money is its consump­
tion or alienation, whereby it is sunk in
exchange. Hence it is by its very nature
unlawful to take payment for the use of
money lent, which payment is known as
usury; and just as man is bound to restore
other ill-gotten goods, so he is bound to
restore the money which he has taken in
usury.’**13*
And again:
“He who lends money transfers the
ownership of the money to the borrower.
Hence the borrower holds the money at
his own risk and is bound to pay it all
back, wherefore the lender must not exact
i
more. On the other hand, he that entrusts
his money to a merchant or craftsman so
as to form a kind of society (that is a
I
partnership) does not transfer the ownerJ
ship of his money to them, for it remains
i
his, so that at his own risk the merchant

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B
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27

speculates with it, or the craftsman uses
it for his own craft, and consequently he
may lawfully demand as something
belonging to him, part of the profits
derived from his money.”(13)
It is as well to pause here to avoid
misunderstanding. The giving of a mutuum
as defined in the Institutes of Justinian
occurs in the loan of those things which are
made up by weight, number, or measure,
such as wine, oil, grain, money and which
we give in weighing out, counting or
measuring in such a way that they become
the property of the receiver. St. Thomas i
does not use the term consumable or
fungible, but it is clear that he adopts the
above definition of mutuum, and that he i
proceeds entirely on the basis that when a t
fungible is loaned for its use, under such
circumstances that its use involves its *
destruction, it is precisely because of this
that the fungible becomes the property of
the borrower. Hence the importance of the
notion of consumptibility.(14) If a fungible
be loaned under such circumstances that its
use does not involve its consumption or
destruction then the resulting contract is
not a mutuum. Thus if I lend my coins for
the purposes of display only, the contract is
28

not a mutuum, and the borrower does not
acquire absolute dominion over the subject
matter of the loan.
In medieval thought, money was regarded
as a fungible, and in its normal function
consumed in its use, because its use
necessarily entailed its being lost to the
owner, even though technically it was not
destroyed.
It is important, too, to note that there is
no mention in the thought of St. Thomas of
the fact that money is “sterile”, that is,
incapable of reproducing itself. It is true
that consumable goods made up of weight,
number, or measure are of themselves
sterile, but this is only incidental. The
sterility of money represents the popular
objection to usury, immortalised in Shake­
speare’s words put into the mouth of
Antonio: “a breed of barren metal”.
Aristotle’s thought on this subject is the
basis of all subsequent reasoning, but it has
been pointed out that the Greek philosopher’s
thought thereon has been much misunder­
stood. Aristotle condemns the breeding of
money, not because it is impossible to breed
money out of money, but because it is an
unnatural use of money. St. Thomas does
not condemn the breeding of money under
29

certain circumstances, but points out that
the breeding comes from the labour of the
individual and not from the money. This
theory of money rested on an economic fact,
namely, that labour and not capital was the
source of social wealth, which shows, as
Father Brodrick points out, that Marx was
not as original as some people think.(15)
It is obvious from this reasoning that the
sterility or otherwise of the money loaned
in the hands of. the borrower has no
relevance to the question of usury, a fact
that we must keep before us if we are to
avoid the errors of such writers as Hilaire
Belloc and Dr. R. A. L. Smith.
Thus when Belloc writes in his essay on
Usury,<16) that usury means any interest,
however low demanded for an unproductive
loan, he is adopting a definition that has no
part in the Christian tradition. Likewise,
J. L. Benvenisti, in his powerful book, The
Iniquitous Contract, falls into the same
error when he describes usury as “the unjust
rent, the rent that is exacted for the use
of a productive instrument when that
instrument will do no more than provide
subsistence”.(17) A recent perpetuation of
this error is to be found in the work of Dr.
R. A. L. Smith, The Church and the Social
30

Order, wherein the author writes that “the
Catholic Church has always opposed usury
and usurious trading on the ground that
interest on an unproductive loan is per se
unlawful”/18)
It is beyond doubt that the thought of
Aquinas did not consider the productivity
Or otherwise of the loan in the hands of
file borrower as a justification for the
demanding of interest on money loans, and
B is clear also that the present discipline
f df the Church as contained in Canon
1543, above referred to, does not allow
the same. Indeed, it is precisely such a
proposition that is condemned in the
Encyclical of Benedict XIV., of 1745, Vur
Peruenit.(19)

in.
Thomas and the canonists did not teach
that compensation for the advancement of
money was necessarily unlawful.
“There might be just titles to such
compensation,” writes Father Brodrick
S.J.,(20) “extrinsic to the contract of the
loan but arising on the occasion of it. Thus
if a man asked me in the long past, to lend
him £ 100, and I was really and truly and
without pretence going to spend that sum
on the sowing of a crop of wheat, which I
could be sure would yield me a return of
at least 5%, or on repairing a building
which, if left longer, must involve me in
5% extra expense, then I could quite
easily require the borrower to pay me
back, not a hundred but a hundred and
five pounds. These two titles arising here
on the occasion of a loan were called
technically lucrum cessans and damnum
emergens, and after a brief period of
discussion and hesitation, nearly everybody
from Pope to peasant recognised their
validity.”
Two further titles which were developed
later than St. Thomas were poena conven­
tionalis, a fine agreed upon in the contract
to be imposed for delay in the return of the
sum lent, and periculum sortis being a
«compensation for the danger of the loss of
32

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Capital which could be very real, and for
which some reasonable compensation was
regarded as just. It is to be noted that
these titles had their origin in the notion of
compensation and not that of profit, and
however necessary they become matters for
consideration in relation to individual loan
contracts, they can never be advanced as a
justification of a general loan system based
on motives of profit.

It was easy enough, as Father Brodrick
goes on to point out, to determine whether
these titles had a place in the loan contracts
of medieval Europe, but when the capitalistic
spirit seized society, the old simple tests
became difficult to apply. Money took on
yearly, more and more the lineaments of
productive capital, although not for centuries
was it to develop into the monster of
fecundity which it is to-day. Thus, whilst
> the merchants in their eagerness to get rich
5 quickly endeavoured to make the ancient
I j titles cover every sort of new and shady
I J5 transaction, the theologians on their side
I
became more and more perplexed over
I,
the increasingly complicated problems of
I
commercial injustice. The following quotaI
tion from the Jesuit Laynez, written in
I >1?
33

v 2ί· · * ’ ’

1554, makes evident the difficulties of the
theologians:
“As it is supremely necessary to avoid
cheating one’s neighbour in business or
acting towards him unjustly, so it is
extremely difficult to detect when such ;
deception or injustice has place in com­
mercial transactions. On the one hand,
neither scripture nor the ancient fathers |
and philosophers deal with the matter in |
detail, and on the other the astuteness of «
the merchants, fostered by their lust for i'
gain, has discovered so many tricks and g
dodges that it is hardly possible to see the I
plain facts, much less to pronounce on ·
them. This is the reason why modern
writers, whether theologians or jurists are Ιβο confused and at variance with one ■
another.
t
“Finally, the matter being a question | s
of morals only admits of a probability, | J
because its nature is such that the least
]
change of circumstances renders it necesjI
sary to revise one’s judgment of the
|
whole affair.
Consequently, to decide
such variable questions one would need to
be an Argus with a hundred eyes. As St.
Basil says very well, To understand
ï
justice is in truth, the part of a great
I
intellect, and of a very perfect mind.”<21)
I
Now it is open, of course, for anyone to
Î
say, as such writers as Dr. Robertson (22> and
I
the Marxist Huberman*33* do say, that the

I\-

34

'

récognition of extrinsic titles was an
elaborate cover for the allowing of usury
under different names. Any fair minded
person, however, who reads the controversies
of the period among the theologians must
come to the conclusion that the economic
and social upheavals of the age created an
entirely new set of circumstances, and that
the application of the old principles to these
new circumstances did give rise to a
complicated set of questions of justice. After
all, the theologian is concerned with sin,
and however much the theologians of the
day may have regretted the new siprit in
society, it was, nevertheless, their duty to
submit the new commercial relationships to
unbiased scrutiny. That they did this any
fair minded historian of the period must
record, and however reluctantly they came
to recognise the existence of extrinsic titles,
it is clear that many of the circumstances
did occasion the existence of such, with the
inevitable moral results.
The difficulties experienced by the
theologians in dealing with the new set of
circumstances can be appreciated from such
books at Brodrick’s The Economic Morale
of the Jesuits and Saint Peter Canisius,(84>
two models of scholarship.
‘

a-

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There can be no doubt that the Church I.
resisted with all her strength the growth i' of the capitalistic spirit, a growth which »
received so much impetus from the reformed |
religions which themselves were but a
product of the new spirit. From the fifteenth '
century onwards the spirit grew. The |
degree of resistance put up by the Church i
can be appreciated from the fact that as |
late as the 18th century the anonymous |
author of The Theory of Interest writes
.
that “among the capitalists of the kingdom
|
probably about a third do not dare to traffic
t
with their capital, some for fear of being Î
branded as usurers, others not to wound or V
burden their conscience”.(2δ) Then, too, we
r
have the evidence of the controversies which
/
led to the Encyclical Vix Pervenit in 1745
|
occasioned by a 4% loan floated by the City
I
of Verona.(26)
“In spite of this,” writes Fanfani,(27> “the
forces of capitalism end by triumphing
and new ideas transform society. From
this moment—between the end of the
eighteenth century and the beginning of
the nineteenth—the influence of Catholic
ethics greatly diminishes, but this does not
mean approval of the new situation. It
might be said, on the contrary, that the
Church has done her utmost to dis36

ι

it

criminate between those novelties that
were the healthy product of the age and
those that derived from the human mind
emancipated from religious check.............
After a period of stasis, the struggle has
begun again, signifying that the truth of
the liberal and capitalistic doctrine is not
to be recognised.”
In a book written in 1873 entitled
Usun/(28) by one Tyler, we find expressed
in the height of the capitalistic period a
typical sneer at the attitude of the canonists
: to interest taking:
“In the Middle Ages, during the corrupt
period of monkish superstition and fearful
tyranny, when commerce was at its lowest
ebb on the Continent of Europe and in
England itself, and what little there was
of it, was monopolised by the Jews and
the Lombards, so enormous was the
interest demanded for the use of money
that the business of the broker or the
money lender was considered detestable
.... but when men’s minds began to be
more enlarged, when true religion and
real liberty revived, commerce grew again
into credit, and again introduced with
itself, its inescapable companion, the
taking of loans upon interest.”
Again, we read in Lecky’s The Rise and
Influence of Rationalism in Europe, written
in 1865:
37

“As it is quite certain that commercial
and industrial enterprise cannot be carried
on upon a large scale without borrowing,
and as it is equally certain that these
loans can be effected only by paying for
them in the shape of interest, it is no
exaggeration to say that the Church had
cursed the material development of
civilisation. As long as her doctrine of
usury was believed and acted on, the arm
of industry was paralysed, the expansion
of commerce was arrested, and all the
countless blessings that have flowed from
them withheld.
The confidence of these sneers has abated,
and scholars now look with a new curiosity
to the age of the canonists to examine the
conditions of a society that so rigidly set its
face against interest taking on money loans.
The turning of the tide can be seen in the
writings of such eminent economists as
Cunningham, Ashley and Marshall, none of
them favourable to the Church, but all fairminded enough to perceive that the restraints
of the canonists were designed to promote
the interests of justice, and not to bar
material progress.
Thus Marshall in his Principles of
Economics(a°) writes that we “are perhaps
apt to lay too much stress on the
condemnation by the Church of usury and
38

Dr. Cunningham writes in his
ffi&fOWth of English Industry and Commerce
'■'faring the Early and Middle Ages:(31)

P':?

“It is commonly supposed that narrow
minded ecclesiastics laid down an arbitrary
and unjustifiable rule against taking
interest, and that they thus hampered the
growth of trade. The rule was not
arbitrary,
but
commended itself to
ordinary common sense, and it did not
hamper trade..............The medieval man
could, if he were engaged on a long job
where money was needed, borrow for the
purpose on terms which remunerated the
lender with a share of the profits, without
being guilty of usury as understood by St.
Thomas Aquinas.”

“Speaking of the middle of the 15th
century,” says Professor Ashley'32) “we
may fairly say that these methods satisfied
business needs, and that there was no
strong demand on the part of those
engaged in trade for the repeal of the
usury prohibition. It is altogether mis­
leading and unfair, then, to speak of the
prohibition as putting obstacles in the way
of the employment of capital. So far as
wealth was intended to serve as capital it
found ways open for its employment—
ways that were adequate for the time,
and against which the canonists had not a
word to say.”

I am not suggesting that anything so
written by these economists would indicate
that they had ceased to worship at the
shrine of interest, but their opinions are
recorded as evidence of a turning of the tide,
and as fair-minded comment on the age of
the canonists.

IV.

The criticism usually levelled against St.
Thomas in this matter is that whilst he
perceived with great clarity, the function of
money as a medium of exchange, he did not
clearly perceive its relation to production
loans. In other words that he did not
forsee the modern fecundity of money. On
the contrary, 1 would state that St. Thomas,
with the clarity of his extraordinary intellect,
perceived the precise dangers involved in
allowing money to assume the stature of
productive capital, and that it was to avoid
these dangers that he supported the whole
canonist structure of restricting interest on
money loans. Once you allow money to
become, in addition to a medium of exchange,
a type of productive capital, you are placing
in the hands of men, a method whereby they
can increase their wealth without necessarily
increasing the wealth of the community, and
a means whereby they can batten upon the
courage, enterprise and industry of their
fellowmen.
Aquinas began and ended with this basic
injunction, “You have no right to profit
unless you make the profit yourself or share
the risk of the man who is making it for
41

you”. If you have a sum of money in your
possession, you cannot make it become
fruitful, unless you part with the possession
of it. If you apply it together with your
labour to a project, it may well become
fruitful. If you part with the possession of
it and buy a piece of land, for example, the
result may prove fruitful. Unless, however,
you part with the possession of the money,
and risk its loss and immobilise it, you
cannot make it fruitful, unless, of course,
and here is the whole point, you find someone
who is willing to take the money from you,
to part with the possession of it at his risk
not yours, and to agree to pay you for the
privilege, a regular increment, together
with the return of the money in due course.
Apart, therefore, from money loans there
are involved in the making of money from
money, two factors: risk and immobilisation.
We must risk our money by parting with
it and purchasing therewith some fruitful
object, a process of course which deprives
us of the immediate use of our money as
money and which involves risk.<33)
A person who lends money to another so
that the borrower may put it to some
profitable purpose is not really an investor.
The borrower is the real investor. If the
42

lender becomes a partner with the borrower
then the position is different, and the
enterprise is relieved of that fixed and rigid
payment which otherwise it must under all
circumstances pay. From the point of view
of the borrower in individual cases he may
well prefer to make payments of interest,
and pay the lender out as soon as possible,
but viewed over a number of transactions it
is obvious that interest payments become a
huge and increasing charge on profits.
Moreover, interest is clearly payable by the
borrower whether his enterprise is successful
or not.
The fact that the enterprise may be
unsuccessful and the borrower still be
required to pay interest has led many
writers, as we have seen to define usury as
the exacting of interest on an unproductive
loan?84* This fallacy has developed this way.
What the canonist wanted was a direct
investment of money, and this could best be
effected, if the owner did not desire to deal
with the money himself, by the owner of
the money becoming a sharer in the risk of
the enterprise with the person to whom he
entrusted his money. The resultant contract
was never a mutuum. If, however, the
owner lent his money to another person who,
43

in fact, did the investing for him, and at the
same time bargained with that person to
receive from him a fixed interest during the
period of the loan and to have the capital
returned in due course, the owner avoided
that element of risk which made his return
depend on the success or failure of the capital
investment. Under such circumstances,
there was a mutuum, and in the absence of
extrinsic titles the contract was usurious.
Here we reach the fallacious deductions of
those who define usury as the taking of
interest on an unproductive loan, for from
these two quite distinct propositions they
deduce a general conclusion that a lender
always commits an injustice when he insists
on his profit under such circumstances as
would bring him no profit if he had directly
invested his money or agreed to share the
risks with the person to whom he handed
his money, in other words, if he insists on
his profit when the lender invests his money
unsuccessfully. This confused reasoning has
an air of plausibility about it, but it is
obviously defective as a rational basis for
considering the justice or injustice of
interest bearing contracts, and the failure to
understand its defects on the part of so many
writers has led to quite unjustifiable

!’<;Ί

:f'attacks

on the theologians. Confusion has
been intensified by the fact that one school
defines an unproductive loan as a loan of
. money for a purpose that is not of its nature
productive, and another school defines it as
a loan put to a purpose of potential
! ; productivity which in the result proves to
be unsuccessful.
\
Nevertheless, it is clear that interest is
economically mischievous when it becomes
. a drag on capital independent of productivity.
The medieval theory, of course, was designed
to ensure that this could never become the
case by prohibiting any contract which
might give rise to such a result, for apart
from the question of extrinsic titles it was
impossible to have a contract just according
to medieval standards where the borrower
had failed and was still required to pay
interest, because if such a position did, in
fact, arise, it is clear that the lender must
have failed in the first instance to agree to
share the risks: in other words, he must
have loaned a fungible, contracted for its
equivalent in return, and insisted on a
charge for its use, when, as St. Thomas
points out, a fungible has no use apart from
its destruction in such a contract. This,
however, must never be forgotten: exactly
"■ '

45

the same reasoning applies in those cases
where the borrower successfully employs the
proceeds of his loan, for if the lender were
to insist on interest by this very fact alone
he would commit usury.
St. Thomas never objected to true profit,
but he disputed the identification of the
lending of money with the investment of
capital. In effect, he condemned the theory
that savings should be rewarded by interest
without investment.
“The classical argument that interest is
necessary to evoke saving presents a
different aspect when you appreciate that
saving does not necessarily mean invest­
ment. The saving of money does actually
diminish investment, and interest is a
deterrent to investment. If we could
ensure, as the Canonists tried to do, that
savings should be rewarded only when it
became investment in capital goods, we
would avoid many evils of the modern
financial structure.”*35’

The whole Christian doctrine of property
with its responsibilities of ownership which
the modern world has forgotten is wrapped
up in this question of money and the taking
of interest thereon. If I am in possession
of money, I am in possession of something
that is vital to the society in which I live. I,

as a Christian, therefore, have very definite
responsibilities with respect to the ownership
of that money. Christian morality knows of
no theory of an unqualified and unconditional
ownership of property of any description.
Property must be used according to its true
end and purpose and in the case of money
that true end and purpose is as a means
of exchange.
Therefore, the wrongful
withholding of that money from circulation
for the purpose of making a profit by waiting
is a misuse of property. Even the attempt
of the holder of money to retain it as a
storehouse of value is a misuse of its purpose
because its function is one of exchange. If
the holder wants a storehouse of value he
should obtain it in tangible goods.

47

V.
To sum up: the proper use of money
according to St. Thomas Aquinas is its
consumption or alienation whereby it is
sunk in exchange, from which he deduces
that a loan of money involves a transfer of
the ownership of money.
It follows inescapably from this reasoning
that if an attempt is made to sell the use of
money, that is, to charge for the use of
money as you would charge for the use of a
house, you are proceeding on the assumption
that the money will in all circumstances
remain useful to the borrower, that its use
will not involve its destruction and that it
will remain in the permanent possession of
the borrower as a constant source of
usefulness.
Now, money is not capital: it merely
represents a title to capital. Whilst it
remains in your possession as money its only
immediate effect is to give you a comfortable
feeling that something is standing between
you and need. If you desire to make use of
that money, that is to receive real enjoyment
for it you must part with the possession of
it, that is, destroy it, and above all, and this
is of supreme importance, if you should
48

t

.1

I desire to add to your wealth you have to part
F with the possession of it, destroy it and
: submit to the possibility for a period of
■ ' losing your money. Likewise, if you choose
to increase your wealth by trade. All this
; is legitimate.
I '
How much easier, however, is the process
Ν'- 'of increasing your wealth if you can find a
SJtoan who is capable and industrious, who
tyiid borrow your money, assume all the risk,
agree to pay you back whether he succeeds
fails, and, further, agrees whether he
" j. succeeds or fails to pay you a fixed sum for
the use of your money. If you can find such
a man, you are relieved of responsibility
r and risk, or, more accurately, your risk is
j, minimised to the greatest possible extent.
. How much more secure you can make
ÿ yourself if your borrower executes docuiments and collaterals over property worth
■f:1 considerably more than the advance.
Now, it is this attitude to money that St.
-^Thomas wholeheartedly condemns. Money
éis a means of exchange and a title to
^productive capital, not productive capital
Jitself.
JC
In a society in which usury is in theory
Band in fact banned, money obviously would
;>Jfemain a means of exchange, and the holder
49

ï

251253
of such would have to become a genuine
investor, that is, put it to productive use
either by immobilisation and risking it
himself, or by risking it in partnership with
another, agreeing thereby to share losses as
well as profits. In such a society, if the
moral sense of the community were so low
as to require compulsion to induce men to
put money to its proper use, then compulsion
could be used, or, at least, provisions
introduced of a penal nature which would
make the holding of money an essentially
unprofitable business. There would thus be
abolished that over all capital charge, fixed
and rigid which to-day is such a stranglehold
on enterprise.
It is no answer to Thomas to assert that
the simple mode of economic life of the
Middle Ages rendered the Angelic Doctor’s
strictures against interest taking more easily
observable. Unquestionably the modern
financial structure is enormously complicated,
but the loan dealings which are so
characteristic of our time were not unknown
in the Middle Ages, and it was with full
knowledge of these transactions that Thomas
wrote. The failure of the moral theologians
to stem the tide of capitalism has been

fact that medieval society was not organised
on a basis which could give practical effect
to the moral injunctions.*36*
The arguments now advanced in favour of
interest are these: the existence of interest
is an inducement to investment, because for
all practical purposes, the lender may be
regarded as an investor. In other words,
interest must be regarded as an inevitable
capital cost to be outlaid by society in
general in order that the holders of money
may be induced to apply this money to the
increase of the wealth of the community.
These arguments, of course, proceed on the
assumption that every advance is by its
nature an investment, whereas, in fact, in
very many instances an advance is made
merely to finance losses. That this over-all
charge has become a terrific burden on
society can be adequately demonstrated by
examination of our financial structure.
The whole of our banking system to-day
depends upon the profits made out of
interest taking.
The palatial insurance
houses erected by insurance companies are
in the main modern temples erected to the
profit efficacy of interest taking—insurance
companies regard as bad business, direct
investments. The great wool companies of

this country which virtually control the
industry rarely own sheep. Their great
profits are made by methods which aim at
minimising risk to a point at which it almost
disappears. If you doubt this look at one of
their security documents.
It is quite useless to set up the
nationalisation of banking as a panacea for
our social ills, if the proposal means merely
that the Government is to set itself up
as a supreme interest gatherer. Such a
proposal would merely widen the gap
between ownership and control of productive
resources.

fS

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The devastating effect of the over-all
charge of interest will find its maximum
expression in the years that lie immediately
ahead of us. To-day, for example, citizens
in pursuance of a national duty are being
asked to invest in War Loans to an
unprecedented extent.
For every £100
invested by citizens in a War Loan on the
long term method of investment, over £50
has to be paid by the Commonwealth to the
investor before the capital is returnable,
that is to say that for every million pounds
raised in this fashion for the financing of
war, a rental of one-half million pounds is
payable by the community, in addition to
the obligation to return the original loan.
When you reflect that each loan is guaranteed
by the State which under modern conditions
ensures the highest freedom from risk
available to any lender, you realise how far
we have travelled on the slippery path of
usury/37*
Yet the public conscience is not shocked
by this, and regards the substantial
contributions of citizens to a War Loan as a
major act of patriotism. I am not suggesting
for one moment that people should refrain
S3

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from War Loan investment, given the
existing set up it is a national duty, but what
should be emphasised is that governments
which have not hesitated to conscript human
life and to wrest human beings from their
civil occupations, should not hestitate to
conscript capital. It is a normal and a
natural thing under modern conditions for a
nation to conscript life, but the conscience
is shocked at any suggestion that money
should be conscripted, and, by conscripted I
mean that money should be wrested from its
civil pursuits, put to the business of war,
and returned to its normal occupation and
to its owners in due course, but without the
payment of any amount by way of interest.
When the inevitable waste associated with
war is considered, and when we add to this
the fearful burden of interest payable on
money raised to prosecute war, it can be
appreciated that the future holds out very
special difficulties, and it can hardly be
gainsaid that the future burdens could
have been considerably lightened if our
governments had had the courage to raise
money by way of capital levy repayable
without interest. In the end those who
would have resisted such a proposal most
vociferously would have found that their

opportunities for security would have been
considerably increased.
'i
This, of course, is only one aspect of the
h
question. Governments are hardly to blame
when public opinion is so obviously in accord
1 : with this method of procedure. The currency
I ■ of the phrase, “my bit of money is earning
•
interest for me”, makes it quite clear that the
(idea of money reproducing itself without
"
risk and immobilisation raises no moral
issues in the public mind.
;
The possibility of a holder of money
making profit without investing his money
in productive capital creates an irresponsible
ownership vested with great powers. It
>
gives to the man who accumulates money
and farms it out at interest an extraordinary
grip on his fellowmen. The progressive
increase of interest enables him to obtain
control by indirect means over the pro­
ductive capacity of his fellow citizens. It
is this drain on the productive capacity of
labour, this over-all charge on industry by
way of interest payments which has created
a grave mischief, has led to an inequitable
t
distribution of wealth with consequent
I / aggregation of power and domination in the
f
hands of a few, and has in the main divorced
the ordinary man from property, the
f

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possession of which in wide distribution by
all is the only true safeguard for personal
freedom.
It is this type of powerful
irresponsible ownership which is driving
the people to the madness of communism.
In the post-war years this menace must be
grappled with or nothing will save the
propertyless masses from communism, fur
within its arms they will seek economic
security at the price of their freedom and
their dignity as human beings. One moral
principle, therefore, that should be infused
into the new order is the principle that
there should be no profit without risk, for if
that principle is rigidly enforced, there must
follow a more equitable distribution of the
real wealth which is property. For it is
when men assume a stature far above their
ordinary influence with the false power
given to them by the illegitimate fruits < f
money that the gap between the haves and
the have-nots becomes a real social evil.

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vu.
My first acquaintance with the great
social encyclical of Leo ΧΙΠ. was given to
me under such circumstances that I was
I®.
led to believe that the Pope when
f.
condemning “rapacious” usury specifically
qualified his description to make it clear
ÿ: i that when he emphasised that the condition
of the working class was aggravated by
“‘rapacious usury’ which, although more
y,
than once condemned by the Church, is
nevertheless with like injustice still practised
by covetous and grasping men”, he was
referring to those gentlemen who ply their
trade under the sign of the three brass
balls. Whilst, admittedly, these gentlemen
frequently cause great individual hardship,
I was always at a loss to appreciate why
the Pope should be so sweeping in his
denunciation of them and make them
responsible for the condition of the working
class. Further, the critics of the encyclical
always held the theory that the Pope
specifically qualified his description of usury
by calling it “rapacious” to make it clear
that he was denouncing not the interest
taking condemned by the canonists, but the
usury which alone in popular thought
57

merited opprobrium. When, however, I
turned to the original latin and found that
the term used by Leo was the equivalent of
usura vorax, the very language of the
medieval decretals, I realised that the Pope
was thundering in the tradition of Innocent,
Alexander and Benedict not merely against
the money-lenders, as we know them, but
against the whole practice of profit making
without risk.
I began this talk with a question from
Baron Keynes. I propose to end it with
another from the same passage previously
quoted. I do not suggest, of course, that
Keynes advocates the complete abolition of
interest, although he does advocate its almost
complete abolition under certain conditions.
I quote him here again, merely to seek the
aid of a great and a clear intellect in
emphasising that we cannot afford to ignore
the medieval attitude to interest if we are
to deal intelligently with the economic evils
of our age.
“For centuries, indeed for several
milleniums, enlightened opinion held for
certain and obvious, a doctrine which the
classical school (of economists) has
repudiated as childish, but which deserves
rehabilitation and honour. X mean the
doctrine that the rate of interest is not
SB

self-adjusting at a level best suited to the
.'social advantage but constantly tends to
rise too high, so that a wise government is
f|<! concerned to curb it by statute and custom
and even by evoking the sanctions of the
moral law.”(38)
To this I would add the hope that the
;J’Wisdom of those who will guide our
Π destinies in the near future will not be
‘Λ «completely unmindful of the clarity of the
^reasoning and the sureness of purpose
Ijenunciated in that minute aspect of
ÎÎ Thomism which we have considered
fi together on this Christian evening.

»

1

59

POSTSCRIPT.

1$
ί
1
•
ΰ

After the foregoing text had gone to press,
4 I had the opportunity of reading Interest
» and Usury by Bernard W. Dempsey, S.J.
(American Council on Public Affairs,
’ Washington, D.C., 1943). As this scholarly
and extremely well documented work is the
most important attempt that has been made
in the language to compare modern interest
theory and scholastic thought on usury, and
as the author obviously was inspired towards
this end by “the recrudescence of usury
analysis on a scientific basis” (page 216)
which appeared in the Economic Journal in
1931, and which first set my thoughts
towards the problems there raised, it will
not be irrelevant to comment briefly on this
new contribution to the subject.
The work consists of two parts, the first,
devoted to an analysis of modern interest
theory which the author takes as adequately
represented in the theories of Schumpter,
Fisher, Wicksell and Keynes, and second to
an exposition of the economic findings of
three Jesuit theologians, Luis Molina,
Leonard Lessius and John de Lugo, who are
selected because of their learning, because
they scientifically analysed for the purposes
61

of their normal judgments, the economic
practices of Spain, the Low Countries and
Italy and because “all three wrote, if not
strictly in form, at least very definitely in
practical content, a commentary on Thomas
Aquinas” -(page 116).

As the theologians chosen to represent
the “medieval” period belong to the late
sixteenth and early seventeenth centuries
(they died respectively in the years 1600,
1623 and 1660) it is not surprising to find
that their moral judgments, of necessity,
were affected by the fact that the economy
which faced them had committed itself
irretrievably to the principle that money is
capital. That the author is uneasy con­
cerning the choice of his representative
scholastics is evident from the dispropor­
tionate space devoted to an apologia for his
choice and from his final decision to describe
them as “late medieval usury analysts”.
The result, of course, is that Father Dempsey
expounds the views of theologians who were
dealing with a rapidly developing capitalistic
economy which was not · of their making,
and which by its very nature made the
presence of extrinsic titles, in most instances,
inevitable. The chief value of his painstaking
and exhaustive analysis of these theologians

ί

ί'-V -j ·

is to demonstrate how futile are those
Critics who describe interest titles as “the
notorious subterfuges” by which the
medieval canonist sought to “evade” the
prohibition of usury, and how such modern
economists as Ashley, Marshall and even
Keynes have written glibly of the period
with little more than a second hand
knowledge of their subject.
The book, however, is of considerably
1 · less value when it seeks to demonstrate
*.
that the views of the chosen “medieval”
’ ; representatives are a development of the
f.... .
thought of Aquinas. Rejection of and not
development of Thomist thought is involved
in the assertion that “the important
characteristics of a mutuum are two: (1)
‘
that the ownership of the thing loaned
passes with the loan, and (2) that the
payment is to be made, not by returning
the identical article but one of the same
kind”, and that usury may occur in those
cases where the subject of a mutuum is a
fungible and not a consumptible (page 143).
The author quoting from his theologians
?
goes on to give the case of a goldsmith or
silversmith who needs a certain amount of
metal to finish a particular piece on which
fij:
he is working as affording an instance of a
«3

mutuum wherein the subject matter is a
fungible but not a consumption good. “A
neighbouring workman with a little excess
supply might let him take a few ounces for
a few days at no charge, though the
object of the loan could not be called a
consumption good.” Surely the answer to
this contention is that the metal in this
instance is borrowed under cicrumstances
which make it both a fungible and a
consumptible, for its use to the borrower
consists solely in its consumption. It is of
the essence of the thought of Thomas that
if a fungible be loaned under such circum­
stances that its use does not involve its
destruction or consumption, then the
resultant contract is not a mutuum, or if
you prefer is not a contract of the type in
which usury may arise.
“The principal use of a silver vessel is
not its consumption, and so one may
lawfully sell its use while retaining one’s
ownership of it. On the other hand the
principal use of silver money is sinking it
in exchange, so that it is not lawful to sell
its use and at the same time expect the
restitution of the amount lent. It must
be observed, however, that the secondary
use of silver vessels may be an exchange,
and such use may not be lawfully sold.
In like manner, there may be some

ins secondary use of silver money; for
instance, a man might lend coins for show,
-f/ or to be used as security.” (Summa
Theologica, Q.78, Art. 1, II., Ilae.)

I;
It is clear, therefore, that if a mutuum is
ji" to be correctly defined for the purposes of
: expounding Thomist thought, there must be
J; added to the two characteristics above
Π„· insisted upon, a third characteristic: that
> ijjr the thing loaned must be loaned under such
/ circumstances that its use involves its
«Γ consumption. Without this condition, it is
very difficult to appreciate the real reason
|« for the injustice involved in usury. To make
Γ* the transfer of ownership the decisive
,· characteristic is to set up a very inadequate
foundation for a theory of interest, and is
certainly to undermine the whole thought
of Aquinas.
I am not suggesting, of course, that the
’ transfer of ownership is not an important
s consideration, in its place, for St. Thomas.
“Any advantage or gain which comes
to the borrower from the money I lend
him, beyond the actual amount of the
loan, comes from the borrower’s own
industry in employing the money wisely.
But it is not lawful for me to charge a
person a price for his own industry, just
as I should not be put to any loss by his
65

lack of skill.”
vi., ad 4.

III. Sent. d. xxxvii., art.

This distinction is the basis of the
Aquinas distinction between a mutuum and
a partnership (societas). For the reason that.
a partnership does not involve a complete
transfer of ownership, a contract for the
sharing of the profits of the joint venture is
not usurious. Father Dempsey, however,
suggests that the scholastics’ justification of
compensation for the assumption of risk in
such a contract was but a special case of
emergent loss, “since for the duration of the
loan (sic) at least, even though the final
outcome be profitable, goods subject to a
risk are of less value than goods so subject”
(page 217). This is a confused thinking.
Aquinas never regarded the assumption of
risk as a justification for the payment of
interest on a loan contract. He regarded the
taking of risk involved in a parting with
money whilst the ownership thereof is
retained as in a partnership, as sufficient
justification for a contract for the share of
any profit returned, provided profit in fact
resulted. To assert, however, that the risk
involved in any loan was per se, a title to
interest in the thought of Thomas is to
confuse the whole notion of risk as
66

3

;

enunciated by him. “No profit without risk”
means simply that the risk involved must
be a parting with money on the basis that
if the venture is unsuccessful, the owner
of the money must share the losses with the
recipient.
So much for the implications of the
Thomist insistence on the aspect of the
transfer of ownership involved in a mutuum.
More important are the implications of the
insistence on the condition that the subject
matter of the loan must be loaned under
circumstances that its use involves its
destruction. These implications give the
key to the whole medieval conception
of money, that is, that money in its
principal purpose has no use apart from its
consumption. The essential logic of this
position must be faced and disposed of in
plain terms, if a critic wishes to dispose of
Aquinas as having no answer to the
problems of our time.
Here again it is well to warn against
the error of distinguishing between con­
sumption loans and production loans.
“Loans may be divided into two broad
classes according to their purpose. The
borrowed money may be used to purchase

i

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■■■

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UH
HI
HI
HI
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IH
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ill·
MU
HU
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ll|M
fll
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hill
Jill
ijlM
CT

withdrawn from the market and are
destroyed in consumption. Or the money
may be spent to buy unfinished goods, with
the express purpose of later returning the
goods to market for sale in the hope of gain
on the transaction. The goods may or may
not have been transformed in the meantime.
Evidently there are important differences
in the matter of the interest payment on
these two types of loan” (page 3). This
distinction has its place in modern interest
theory, but it has no place in the thought
of the medievalists, although it seems to be
clear that the distinction has grown out of
a misunderstanding of their typical thought.
Father Dempsey rightly points out in his
Introduction that the scholastic explanation
of interest centered on the status of the
lender. Later, however, in dealing with the
question of consumptibility in relation to a
mutuum, he would appear to be insisting on
making the distinction (page 142 et seq).
Obviously, however, the purchase of an
article with borrowed money, whether that
article is for productive or consumptive
purposes involves the consumption of the
money, hence it is unlawful to charge for its
w,

F
r!

One has merely to read Father Dempsey’s
exhaustive analysis of modern theories of
interest to realise
the
artificiality of
certain aspects of modern economic theory.
P Unfortunately, the whole of this work is
I
couched in the jargon of the professional
J
economist theorist, a jargon which limits
the public for the work and which clearly
has reached the limit of artificiality when,
•|
as Father Dempsey points out, so many of
I
the expositors of modern economic theory
i?
use terms which for each other have lost a
common meaning.
Father Dempsey concludes that “institu­
tional usury” is rife in the modern world,
and that many economic practices if not
per se usurious operate usuriously in that
some leaders have gained from loans without
emergent loss. He expresses what appears
to be his main conclusion in these terms:
“The circumstances in which the
Scholastic would allow that a source of
legitimate interest exists are those in
which, when the demand and supply of
savings are equal, when all savings are
invested, and when there is no investment
which does not correspond to a subtraction
from previous income, that is, to funds
which have previously been cost and
which, therefore, have found their place
in the pricing system. In such cases, the
I
I
i’

69

.&

Pip

rate of return over cost, the rate of
natural interest, and the average emergent
loss in the community express ideas with
a great deal in common." (Page 206).
In simple terms, this would appear to
mean that the Scholastic would be hard put
to it, to justify the charging of interest on
the issue of created credit.

Ij

?
HOTIS

in

f. The General Theory of Employment Interest and
Money by John Maynard Keynes,—Macmillan, London

fl
fe.
t*

t

1936, at page 351.

·

A discussion of the development of the use of
the term "interest" may be found in The Ethics of
Interest by Rev. Lewis Watt S.J., The Catholic Social
Guild, Oxford, at page 10; also, in The Church and
Usury by Rev. Patrick Cleary,—Gill, Dublin 1914 at
pages 91 et seq.
This book is very useful in its
historical aspects but any real value is vitiated by
its complete misunderstanding of the thought of
St. Thomas Aquinas.

2.

3. The Growth of English Industry and Commeet*
by W. Cunningham, Cambridge, 1910, 5th. edition
Vol. I at p.360.
4.

In seeking to enunciate Catholic social principles

we should make a clear distinction between what

the Church tolerates and what the Church wants.
"The distinction which seems self evident is made
surprisingly seldom.
The Church has her negative
standards to fall below which is to fall into sin.
These standards are necessarily minimum standards,
for Moral Theology is conditioned by charity. But
she has her positive standards which are very different
.... Our outlook on society has been too much in
terms of the confessional, and too little in terms
of the City of God. A man could avoid the sin
of being theologically drunk every night of his life
and give a very poor impression to his neighbour of
the virtue of temperance." The Sun ef Justice by
7®

71

Harold Robbins—Cranton, London 1938 at page 22.

Cf. also "The moral theologians were very far from
thinking that their minimum requirements constituted

an adequate rule of life for any Christian. They
were not writing for the world at large, but for
confessors, and solely with a view to the confessional.
They knew and insisted that in his quality of
physician and guide the confessor must not allow
his penitents 'to install themselves deliberately
on the frontier between the permitted and the
forbidden,' but they knew too, that in his quality
of judge he had a strict obligation to be aware of
the exact import of the laws of God which nothing
could authorise him to make more severe than God
intended." The Economic Morals of the Jesuits by

J. Brodrick SJ.—Oxford University Press, London
1934 at page 24.

5. Various theories have been put forward by moral
theologians to justify modern practices of interest
taking. Convenient summaries of these may be
found in The Ethics of interest (supra) at pp. 12
et seq. and of the pre-Code controversies in The
Church and Usury (supra) pp. 164 et seq. That
the matter is far from settled is evident from the
controversies referred to in The Economic Evil of
Loan Interest by Edward J. Coyne SJ. in Studies
March 1932. See also The Framework of a Christian
State by Rev. E. Cahill SJ.—Gill, Dublin 1932, pages
48 et seq.; The Science of Ethics by Rt. Rev. Mgr.
M. Cronin—Gill, Dublin 1939 Vol. II. pp. 328 et
seq.; Usury and Profit Earning by rhe Rev. Dorn
J. B. McLaughlin O.S.B., The Clergy Review, London
Sept. 1936; Commentarium Textus Codicis luris

72

■

Canonici, Fr. A. Blat O.P., Lib III, Rome 1923 pp.
570 et seq.; Epitome luris Canonici, A. Vermeersch, J.
Creusen S.l. Tomus II, 469 Rome 1922; Institutiones
Theologiae Moralis, Genicot, 9th ed. Vol. 1 p. 538
et seq, Brussels, 1921; Catholics and Usury by J.
L. L. Benvenisti, Dublin Review, July 1936; Usury
and the Theologians by Rev. A. A. Beck, Dublin
Review, July 1938; Mr. Belloc on Usury by Edward
J. Coyne SJ., Studies June 1932; The Clergy Review,
January 1936 to June 1936.
6. Canon 1543 reads as follows:
If a fungible thing is given to someone in such
a way that it becomes his and that later something

of the same kind and amount is to be returned, no
profit can be taken on the ground of the contract
itself, but in lending a fungible thing, it is not in
itself illicit to contract for the payment of interest
allowed by law, unless it is clear that this is excessive,
or even for higher interest, if a just and adéquat»
title be present.

"In his conception of property and in the
principles which underlie the Just Price and the
Prohibition of Usury, I am convinced that St. Thomas
offers exactly what the modern world needs."
Address to the London Aquinas Society on October
19th 1943 by William Temple, Archbishop of
Canterbury.

7.

8. An extraordinary instance of this is to be found
in The Church and Usury by Patrick Cleary (supra!
at pp. 78 et seq. We find, for example, in this
author's examination of the thought of St. Thomas
(the book is a thesis presented to the Theological
Faculty of St. Patrick's College, Maynooth) the

73

•statement that "St. Thomas recognises quite well
that gold and silver vessels are for use and not
consumption and hence are fungibies" and that
money is a consumptive and not a fungible. Yet
this author has the confidence to assert that St.
Thomas shirks certain difficulties and extricates
himself only by an argumentum ad hominem.

9.

Economic History, Book II page 382.

10.
Institute* of Justinian by Rudolph Sohm, Oxford,
1907 at page 305.
JI. The necessity for this distinction is logically
insisted upon by Rev. A. A. Beck in The Dublin
Review, July 1936.
Father Lewis Watt SJ. in his
pamphlet The Ethics of Interest (supra) fails to
make this distinction when he defines a fungible
thing as "one which perishes in the act of serving
its natural purpose, one the natural use of which is
to be used up" at page 2.

12.

U llae Q.78 Art.l.

13.

»*d. Art.2.

14. The following quotation from Father Lewis Watt
S.J., The Ethics of Interest (supra) at page 2
admirably emphasises the importance of this notion:
"A motor car, for instance, is not necessarily
destroyed by using it.
It is true that an unskilful
or unlucky driver may destroy it, but that is not
essential to the use of the car.
The majority of
cars run away and live to run another day.
It is
true, too, that in the course of time even fair wear
and tear will destroy the car, will wear it out; but
this is not essential to the use of the car.
An
T4

fI -■
MEpij: ■MF ! *;

K·?
|y
k|’.'

everlasting imperishable car would render just as good
service as a perishable one, other things being equal,

B1

whereas an imperishable cigarette or an indestructible

||
h

,

π
Ï t
i-.

P;
U·
t'·

loaf of bread would not serve their purpose of
nourishing or soothing the user of them. No one
can both have his cake and eat it at the same
time, but one may have a car and use it, have a
house and live in it, own a field and farm it.”
15. Saint Peter Canisius by J. Brodrick SJ. London,
Sheed & Ward 1935, page 593.
16. Essays of a Catholic by Hilaire Belloc—London,
Sheed and
Ward.
Belloc's essay has been
pamphleteered by its publishers with the result that
it has had considerable influence. Thus we find the
Jesuit paper The Australian Messenger, 1 July 1932,
adopting Belloc's definition of Usury in answer to
a query on this subject.
That Belloc's definition

is wholly untenable cannot be doubted after reading
Mr. Belloc on Usury by Edward Coyne S.J., Studies,
June 1932.
17. Λ fair critique of this book may be found in
The Dublin Review, July 1938, Usury and the
Theologians by Rev. Andrew Beck.

18. The Church and the Social Order by Dr. R. A. L.
Smith, London 1943 at page 131.
19. This Encyclical la) forbids the lender of a
fungible thing to exact from the borrower, on the
mere ground of the loan, any payment over and
above the thing lent; (b) denies the validity of
the following excuses: that the charge made for
the loan is moderate or even insignificant: that the

75

^■1
^■1

borrower is a wealthy man: that the borrower is
going to use the loan to increase his fortune; (c)
admits the existence of extrinsic titles, although it
denies that these are always present; (d) declares
that sometimes charity requires that a loan be made
gratuitously; (e) declares that there are other
contracts distinct from that of mutuum in which
Stipulations for annual payments or for profits are
not illicit.
This Encyclical was addressed only to
the bishops of Italy but in 1836 the Holy Office
incidentally declared that it applied to the whole
Church, but such a declaration according to Father
Vermeersch could not give the document an infallible
character which it did not otherwise possess.
See
Catholic Encyclopedia, Title Usury.

20. The Economic Morals of the Jesuits by J.
Brodrick S.J., London, Oxford University Press, 1934
at page 123.

21. Grisa r, Jacobi Laines disputationes Tride ntiae,
Vol II, quoted in Tho Economic Morals of the Jesuit*
(supra) page 124.
22.

>^^1

■■
■■

■I
■H
■I
1

Aspects of the Rise of Economic

Individualism

by Dr. H. M. Robertson—Cambridge University Press
at page 135.

23. "What happened when the Church doctrine,
designed to fit an economy, collided with an historical
force represented by the rising merchant class? It
was the doctrine that gave way. Not all at once,
of course, .... Slowly, bit by bit, by new rulings
which said as before 'Usury is a sin—but under the
circumstances . . . .' and other rulings which said
'While it is a sin to exact usury, nevertheless in
7·

-

special cases ....". Man's Worldly Goods by Leo
Huborman—London, Victor Gollancz, 1937 at page
42.
24. The Economic Morals
Peter Canisius ( supra 1.

25.

of

the

Jesuits

and St.

La Theorie de I'lnterest de I'Argent, quoted in

Fanfani (infra).
26. See The Church and Usury
»eq.

(supra) pp. 160 et

27. Catholicism, Protestantism and Capitalism by
Amintore Fanfani—London, Sheed & Ward at page
145.

28. A Treatise on Usury by Ransom H. Tyler—New
York, 1873.
29.

The Rise and Influence of Rationalism in Europe

by W. E. Lecky, 1865.
Principles of Economics by Alfred Marshall, 8th
edition, Macmillan, London, 1925, page 737n. This,
of course, is a grudging admission.
There are
amusing passages in this work which attempt to
explain away the doctrines of the canonists.

30.

31.

Growth of English Industry and Commerce (supra)

at page 258.
32.

Introduction to Economic History and Theory by

Sir William Ashley, Book II chap, vi p. 438.
The Iniquitous Contract by J. L. Benvenisti—
Bums Oates & Washbourne Ltd., London, 1937 at
page II.

33.

34.
This theory seems to have been first advanced
by the Jansenist, Nicholaus Broedersen, in his book
Do usuris licitis et illicitis in the year 1743.
77

interest and Usury in a New Light by Henry
Somerville—Economic Journal, December, 1931. It
is interesting to record that as a contribution to a
controversy which followed upon the publication of
Mr. Somerville's article Professor Keynes wrote
(Economic Journal, March 1932).
"On the main
issue I agree with Somerville .... Personally, I have
come to the conclusion that too high a rate of
interest is 'the villain of the piece' ", See also an
interesting article in Thought, June 1937, by Henry
Somerville—The Economic indictment of Loan

35.

Interest.

36. "The underlying cause of the failure of the
Medieval Church to suppress usury, was that it did
not realise that usury presents not only a problem
or morals, but a problem of organisation" Tradition
and Modernism in Politics by A. J. Penty—London
Sheed and Ward, 1937 at pages 99 et seq., where
the theory is advanced that the problem of usury
was essentially a rural one in the Middle Ages, the
control of the gilds in the towns, being an effective
curb to it.
37. "In New
Zealand some £77,000
remains
outstanding on the debt contracted for the Maori
War, and in the meantime some £270,000 has been
paid in interest on that debt." Alternative to Death
by the Earl of Portsmouth, Faber and Faber, London,
1943.
The General Theory of Employment Interest and
Money by John Maynard Keynes (supra) at page

38.

351.

7a