Q. Mr. McCall, thank you for joining us to discuss your new book The Church and the Usurers: Unprofitable Lending for the Modern Economy. Why would you write a book about usury at this time?
A. There are two primary motivations for conducting the years of research to write the book. First, for decades many have claimed that the Church has changed her doctrinal position on usury; having prohibited it she now says it is not immoral. Many liberals use this purported change in moral doctrine to argue that the Church can change moral doctrine on for example contraception. The book argues that the Church has not changed (since such a change is impossible) the moral doctrine concerning usury. The second reason is the serious financial crisis that has been ongoing since 2007 and which has cost tax payers hundreds of billions of dollars. At the root of this crisis is our monetary and financial system which is rooted in the lending of money for a profit. Although I certainly do not have a magic overnight solution to the crisis, what I do know is that we will not find any solution until we accurately diagnose the causes. The book argues that a significant cause of that crisis is for profit lending.
Q. What then is usury that the Church has always taught to be a moral evil and which is reaping so much havoc on our economy?
A. Your question is not capable of a complete answer in an interview. In a sense the entire book is the answer to your question. It has been clear for thousands of years (and confirmed in multiple books in the Old Testament) that usury is evil. Yet, the biblical texts do not define usury in any detail. The history of usury has been a history of working out the definition with more precision. In particular as new circumstances arise in history, further refinement of the definition is necessary. This is true of all general moral precepts. The fifth commandment condemns all murder of human beings but what precisely constitutes murder has been a matter of refinement. Killing in a just war and in self-defense, for example, are not murder. As new medical technology is discovered, we must consider if their removal which results in death constitutes murder. The same type of analysis applies to the history of usury.
In general, usury can be defined as the charging of a profit on a loan of a consumable fungible good. Embedded in this definition are the concepts of a “loan” and “profit.” The book examines the different context in history and in our economy which raise the possibility of usury and works out definitions for these concepts.
Q. Does that mean all interest charged on a loan is usury?
A. No. This is one of the most fundamental distinctions in usury doctrine and a source of much modern confusion. Today many consider usury as “excessive” or “high” interest so that usury is a matter of degree. In reality it is a matter of quality. Interest is not usury and usury is not interest. Interest is a compensation for loss suffered and usury is a profit or gain. Thus, if a lender incurs costs in making the loan he is entitled to interest, an amount not exceeding the loss he suffered (or if agreed in advance of the actual loss a reasonable estimate of the expected loss). Our modern monetary system based on a fictitious, ever changing currency makes this calculation very difficult but the principle remains. Notwithstanding the difficulty the natural and divine law require us to use our best judgment and good faith in calculating true interest. God does not expect the impossible and we are culpable only for charging what we know or should know (by willfully blinding ourselves to reality) what constitutes a profit on a loan.
Q. Why has the Church been silent on the usury question in recent times? What was the last statement on usury by the Church?
A. The first question could be asked of some many moral evils of our time. But I would have to qualify your question. It is not the Church who is silent; there is two millennium of copious speaking about usury. The current holders of positions of authority have been relatively silent about usury and many other moral evils of our time. Their present silenced does not equate to the universal Church’s clear teaching for 2,000 years which is far from silent. The question of the silence of our present hierarchy is a complex question that is at the heart of the current crisis in the Church, the passion through which the Church is passing.
Beyond this general explanation of silence on important moral topics, there has been (even before the most modern era) a certain circumspection in speaking about highly specific factual scenarios that might involve usury. This prudential reticence is evidence in the last major magesterial document about usury, vix Pervenit of Benedict XIV in 1745. In this encyclical, the Holy Father reiterated and reaffirmed the immutability of the Church’s condemnation of usury and stated the essence of the key definitions of the concept. Yet, the Holy Father declined to apply the general prohibition to the specific contracts giving rise to the need for the encyclical. Since Vix Pervenit, the Church has relocated the forum for considering the application of the doctrine to specific facts from the public forum to the private, confession and spiritual direction. This prudential change was necessitated by the ever increasing complexity of modern monetary and commercial contexts. The general definitions are no longer as easily applied as they once were. Their analysis depends on many more ever changing contingent matters. Thus, it is not possible to issue more general conclusions applicable to many scenarios. Thus, the authorities closer to the actual cases, confessors and spiritual directors need to be the primary authorities applying the doctrine. This change is necessitated by the complexities to which I alluded which include fractional reserve banking and massive inflation which make calculating true interest very difficult.
Q. But does the NT not allow usury (Mt 25, 27; Lk 19, 23)?
A. The constant teaching of the Church has been that Luke 6:35 reaffirms the Old Testament prohibition of usury. As with many moral issues our Lord merely confirms that we should lend not seeking a gain but does not discuss all the nuances of the doctrine. The two verses to which you refer are parables and the reference to usury is not a recommendation of the act. In context, Our Lord is condemning the lack of concern for eternal salvation among the Jews of his time. He tells the story of the steward who does not comply with the prudence of the world to satisfy his master as an analogy for the stewards of their souls who do not comply with the prudence of God. He is analogizing from a story about the worldly lord and steward to the spiritual life, not recommending usury. Again this has been the constant interpretation of the Church.
Q. How can we do business without usury? Who will lend without usury?
A. The financing of business has always been possible while complying with the natural and divine law. I devote an entire chapter of the book to demonstrate that the financing of businesses with capital is not a loan of money. A business investor is morally entitled to share in the profits that his capital is used to produce. Requiring a just share of profits is not requiring profit on a loan of money. That does not mean all money given to businesses is an investment of capital. If someone merely lends money to a business and expects a return in excess of the money without sharing the risk of business failure, then he would commit the sin and injustice of usury. Again it is a qualitative difference that has to be applied to each transaction.
Putting aside business financing which is distinct from usury, it is true that sometimes people do need to borrow money to meet current needs. The Church has recognized this and allowed loans without usury. This does mean that our current system of such consumer finance is immoral. Our legal and economic system is designed to provide only for profit (and huge profits at that) consumer loans through credit cards, payday loans and subprime mortgages. As I show in the book, such was not always the case. When for-profit lending was prohibited, non-profit lending institutions flourished to meet the legitimate needs of borrowing for necessities. These institutions were only driven out of existence when for-profit lending was allowed by civil law. The for-profit lenders drove the Catholic institutions out of business so they could dominate the lending for consumption at record profit levels. Such a system was very different. It was not possible for people to go to a credit card issuer and borrow money to take excessive vacations or in general live beyond their current and reasonable expected future means. Our whole consumer economy today is based on consumers perpetually borrowing to spend more than they will ever earn. This has been accomplished by a massive transfer of wealth from borrowers to usurers.
Q. Finally, can a reader of ordinary intelligence and education understand this topic and the book or is it necessary to have technical training in economics?
A. As with all moral issues, the principles are comprehensible by all. The application to particular circumstances may be more complicated and require the advice of specialists. The book is written not to answer detailed technical questions but to make the principles better known in our confusing world. I tried to write the book in as readable a fashion as possible and not to assume any technical expertise by the reader. I hope that those who read it will find it accessible as that has been my intention throughout the process. One benefit of writing the book from a legal academic background is that unlike most economists, lawyers are experienced in translating complex legal provisions into language which non-lawyer clients to be able to understand. I tried to draw on my ten years of doing such as a practicing lawyer in writing the book.
Brian M. McCall is Professor of Law at the University of Oklahoma’s College of Law. Before joining the faculty in 2006, Professor McCall was an equity partner in the international law firm, Dechert LLP where he practiced in the fields of international corporate finance, mergers and acquisitions and private equity for nine years, seven of which were spent in the firm’s London office. Professor McCall received his Juris Doctorate from the University of Pennsylvania Summa Cum Laude, a Master’s Degree from the University of London, King’s College, and his Bachelor’s Degree from Yale University, Summa Cum Laude.
The Church and the Usurers
Unprofitable Lending for the Modern Economy