The History of Usury – Financial Weapon – Usury as Prostitution – Seal of Religious Approval
Source: The Open Trade Network
The history of usury
“Take not usury nor more than thou gavest. Fear thy God, that thy brother may live with thee. Thou shalt not give him thy money upon usury nor exact of him any increase of fruits.”
“Thou shalt not lend upon usury … usury of money, usury of victuals or usury of anything that is lent upon usury.”
“And if a man hath not lent upon usury nor taken increase he is just.”
These three Old Testament quotes from Leviticus, Deuteronomy and Ezekiel respectively, and they are representative of several more, show that the prohibition of usury goes right to the legal and ethical roots of European civilization. The prohibition was confirmed and even strengthened by the early Christians. St. Augustine for instance, who defined usury as occurring when a person expects to receive anything more than he has given, held usury to be so forbidden that any profits gained by it could not even be given away as charity. St. Thomas Aquinas was still continuing this position with clarity and vigor in the 14th century.
In the classical tradition, we find usury categorically dealt with by Aristotle. He said that of all the kinds of trade, the most unnatural and most justly hated is usury. Usury not only seeks an unnatural end, but misuses money itself, for money was intended to be used in exchange, not to increase at usury. Usury is the unnatural breeding of money from money. When we add to this the condemnation of Plato, who noted that usury inevitably set one class against another and was therefore destructive to the state, and that of the Roman philosophers Cicero, Cato and Seneca, we see that both the Judaeo-Christian and Graeco-Roman traditions which together comprised the main sources of European civilization were unanimous on this issue. Religious and secular tradition spoke with one voice.
Thus it can be seen that the practice of usury had been subject to prohibition from ancient times. To put this down to primitivism, naivety and lack of economic understanding, which many detractors did and continue to do, is arrogant and a convenient way of side-stepping the underlying intellectual issues involved. The basis of the prohibition was ethical and theological and as such was concerned with deeper issues than economic expediency and international trade. Intrinsic to the prohibition of usury was the understanding that the essence of the usurious transaction – being guaranteed to get something for nothing – constitutes a rupture of natural law and is therefore bound to result in imbalance and disintegration. Any inconvenience incurred on the level of commercial transaction was put aside in favor of the larger consideration of the overall public good.
This does not mean to say that no transactions involving usury took place. They did. Very early on the ancient Jews had claimed a scriptural license to practice usury and the conditions under which they claimed to be allowed to do so give us a profound insight into the real nature of the usurious transaction. Deuteronomy Chapter 23 verse 20 states: “Unto a stranger thou mayest lend upon usury, but unto thy brother thou shalt not lend upon usury.” The word “stranger” in this text is generally interpreted as “enemy” and armed with this text, the Jews used usury as a weapon, finding in it a means of gaining power over their enemies. By means of usury, other people’s need could be transformed into their subjection.
From ghettos in the larger cities of Christendom, Jewish money-lending activities were carried on throughout the “Dark” and “Middle Ages”. They were allowed to continue under strict scrutiny and were tolerated by the authorities only for as long as they were seen to provide a useful service. Even in this oppressive situation it was possible for the moneylender to gain enormous wealth by the practice of usury – Simon of Norwich, for example. At one stage in 13th century England nearly half of the country’s tax revenue was collected from the Jewish community who represented less than 5% of the population – but they were never able to turn their wealth into power, being subject to frequent and terrible popular purges, which in this country, resulted eventually in their expulsion from the country in the 14th century not to return for 350 years.
Money lending continued to exist on a small scale throughout the Middle Ages. Unscrupulous local merchants would take advantage of humble people who had got into difficulties by reason of a bad harvest or mismanagement or some other misfortune and would be forced to borrow to fulfill the ordinary necessities of life. In these cases there would usually be an attempt to conceal the usurious nature of the loan and if it did come to light, the usurer was subject to heavy penalties and became a social outcast.
Another area in which usury existed was right at the other end of the social scale. Kings and princes would raise enormous loans at interest, generally to finance some military expedition. These loans were usually raised from foreign sources, frequently Italian, and were paid by means of taxation, escaping by sheer size from the general prohibition.
However, to all intents and purposes, usury was completely excluded from all normal commercial and social transactions. It was like prostitution, known to exist but universally condemned and reviled as were those who practiced it. In this atmosphere it was impossible for it to gain hold and so long as the status quo in Europe remained unchanged this attitude continued to prevail. However, starting with the Italian Renaissance in the 15th century things started to happen to gradually undermine the traditional order and they reached a head when on 31st October 1517, Martin Luther nailed his 95 theses to the church door in Wittenberg and the Reformation had begun. The repercussions of his challenge to the authority of Rome, went far beyond his apparent intention of reforming a corrupt institution. By his action he did more than any invading army had ever been able to do, he destroyed the unity of Western Christendom. His intention had been to break down the barriers between the individual and God; the actual result was to open the way to unlimited individual freedom of action. By breaking loose from Rome, he cast people adrift from the anchor of traditional morality which had been held in place by the Church’s Canon Law, part of which was, of course, the complete prohibition of usury. The Catholic Church, in spite of all its deviation and corruption, nevertheless represented an unbroken tradition leading back to the teaching of Jesus and before him Moses. When its authority was broken by the Reformation, it was inevitable in the freer atmosphere of Protestantism that the binding strictures on usury would be cast off.
This occurred, significantly, through the unlikely means of the rigorous Puritan moralist Calvin. Whereas before this the entire matter of usury had been subject to a whole body of traditional, time-honored doctrine, he treated the ethics of money-lending as a particular case among the general problems confronting human society which had to be solved in the light of existing circumstances. In other words he took the law into his own hands. He arrogantly dismissed the passages on usury in the Old Testament and the judgments of the past as irrelevant in the light of the prevailing circumstances and arguing that taking interest on capital is as reasonable as taking rent for land, he opened the sluice gates to a flood which has since inundated the entire world. He took it upon himself to legalize the lending of money at interest, thus giving the sanction of the law to a practice that had been held to be illegal since earliest times. The fact that he allowed only moderate interest and hedged his indulgence round with strict qualifications made no difference. The merchant now had a precedent from someone who spoke with religiosity. According to Calvin the moral law had changed and therefore it was no longer immoral to charge interest. From then on the argument within the business community was not whether interest should be permitted, but how much.
From the Puritan atmosphere of Calvin’s Geneva we move to the less salubrious goings-on at the court of Henry VIII in London. Henry had become extremely attached to one of his wife’s maids-of-honor, one Anne Boleyn, and was determined to marry her. The Pope refused to annul his first marriage, being very reluctant to cross the powerful Emperor Charles V whose younger daughter, Catherine, was Henry’s wife, and under Canon Law no other way of dissolving the marriage existed. So Henry, who, in his idealistic youth had earned the Pope’s approval and the title “Defender of the Faith” for his denunciation of Martin Luther, proceeded to follow Luther’s example by breaking with Rome and declaring himself Head of the Church in England.
Not being by any means so scrupulous as those in whose footsteps he followed, he did not hesitate to take as much advantage as possible from the new situation. The license that he proceeded to take in matrimonial matters is notorious. It is less well-known, though infinitely more important in historical terms, that one of his first actions was, following on from Calvin’s precedent, to raise a loan from City merchants at the rate of ten per cent per annum, which rate was fixed as the limit for moderate interest, thus putting the seal of royal and religious approval on usury in England.
However, it must not be thought that the ancient prohibition was set aside without a voice being raised. A furious debate on the subject raged for well over a century. Many treatises and pamphlets were written and countless sermons and speeches given. One cleric in an ironic mood, said on the subject, “This hath been the general judgment of the Church for above this fifteen hundred years, without opposition, in this point. Poor silly Church of Christ that could never find a lawful usurie before this golden age wherein we live.” The Frenchman Bodin, whose authority on economic matters was above question and who had no ecclesiastical axe to grind bluntly reasserted the traditional position when he said, referring to Calvin: “Those who maintain under the cover of religion that moderate usury of four or five percent is just because the borrower gains as much as the lender, go against the Law of God which forbids usury absolutely and cannot be revoked.” But none of this was able to really impinge on the course events were inexorably taking.
The situation was in some ways comparable to the nuclear debate in our own time. None of the passionate views expressed for or against nuclear disarmament in the public arena has any real effect on whether nuclear arms are manufactured and deployed for the simple reason that the decisions concerning these things are made in another sphere altogether and public opinion has no bearing on it one way or the other. So it was also with the introduction of usury. The source of political power had changed and the guardians of morality no longer had any real access to it.
Eventually, of course, the Churchmen themselves capitulated, and compromised rather than appear ridiculous – the Church of England has always been prone to the philosophy of “If you can’t beat them join them.” They officially redefined usury to fit in with normal business practice. It was now only usury to charge extortionate rates of interest and exactly what constituted an extortionate rate of interest was not clearly defined: so to all intents and purposes businessmen had a completely free rein. Whereas previously business practice had been subject to the moral law, now the moral law could be altered by business practice.
The general trend of the ultra-pragmatism of Tudor England, was briefly interrupted, though in the long run encouraged, by the accession of Henry’s eldest daughter, Mary. Mary, whose mother was Catherine of Aragon, daughter of the Catholic Emperor Charles V, proceeded to marry her first cousin, the fanatical Catholic Philip, King of Spain, and was appalled at everything that her father had done. She reacted with extreme harshness, instituting an inquisition and burning alive many of those who had taken an active part in the breach from Rome. When her comparatively brief reign came to an end, there was a counter-reaction which enabled the pragmatist and mercantile elements to considerably increase their influence in the return to Protestantism during the reign of her half-sister Elizabeth.
I would at this point like to take a break from the historical continuum and briefly look at an aspect of English life that was being thoroughly affected by the relaxing of the laws of usury and the easy availability of credit that that made possible.
From ancient times most of the people in England had lived on and from the land. Although many of the more rigorous aspects of the Norman-imposed feudal system were no longer enforced, the situation remained much as it had been for several hundred years.
There were the great landed families with vast estates, usually divided into manors and squire-archies underlying all of which was the basic pattern of village life. Land was farmed in strips on an open field system. There were yeoman farmers who owned their own strips or leased them from the local landowner on a permanent basis, but the majority of village people were copy holders which meant that they had a traditional right to a certain amount of land for themselves in return for doing a certain amount of work and giving a certain amount of produce to their landlord. Apart from this cultivated land, there was also an area of common land where all had a right to graze their own livestock.
With the Tudors, certain changes to this traditional picture started to take place. Henry VII wanted to centralize power and extend his direct control to all parts of the country. One of the ways he did this was to elevate the merchant class who were based in the bigger cities and encourage them to become land owners, thus breaking up the land monopolies of the great aristocratic families. This process continued under Henry VIII and was given added impetus when he seized and sold the Church land during the dissolution of the monasteries, the main beneficiaries being the new class of landowners.
At the same time the nobility were encouraged to leave their estates and spend more time at Court in London. The upkeep of large establishments in London as well as the country together with the extravagance and expense entailed by court life led many courtiers to experience severe cash flow problems. Since it had now become much easier, in the light of the previously mentioned developments, to borrow money at interest, the needy courtier would approach a likely merchant who would usually be only too willing to accommodate him, taking as security for the loan the deeds to a manor or two on the courtier’s estates. In this way many estates began to be encumbered by debt and when, as frequently happened, the nobleman defaulted, the manor held as security would pass into the possession of the merchant money-lender.
Up to this time, wealth and power had been inextricably bound up with the mere fact of ownership of land. The new landowners, whether they had got hold of their land by purchase, grant, or default, were not interested in feudal rights and responsibilities, but only in income, and therefore, increased production, and because of their debts even the old landowners themselves were now having to increase the income from their estates if they wanted to avoid losing them to their creditors. The traditional open field system was not a farming method that encouraged the increased production that was being sought and in the interests of greater economic efficiency came “enclosure”. The enclosure movement probably had more effect on more people in terms of how they lived their everyday lives than anything else before or since. The old open fields where everyone had farmed strips according to their landholding or traditional right were divided up and enclosed by hedges, walls, dykes or whatever was appropriate, and in most places the common land suffered the same fate.
The result for the poorest section of society, the copy-holders, who were by far the largest in terms of numbers, was catastrophic. Until this time they had been basically self-sufficient, farming their strips and grazing their few livestock on the common land, but all this was only by common consent and they were not able to prove any legal claim to the land they used.
Consequently great numbers of them were forced to leave their villages and seek their living in towns and cities, becoming a captive work force for the incipient Industrial Revolution.
Even many small freeholders were forced off the land because they were not able to afford to carry out the necessary measures involved in enclosing land. Some of them stayed on to become tenant farmers and paid rent to farm the same land they had once owned outright.
Since the expense incurred in enclosing land, entailing as it did hedging, banking, ditching, draining, the resiting of buildings and roads and many other things, was considerable, very few landlords were able to meet them from their own resources. Once more enter the usurer, who was very willing to lend money at interest on the security of these land improvement schemes.
Thus we see that money lenders and money lending were not only a major cause of this momentous change in land use which completely altered the life and shape of the English countryside, but they also continued to benefit from its outcome, gaining enormous wealth without risk at the expense of the entire livelihoods of a considerable section of the population.
I have gone into this in some detail because it highlights clearly what happens when usury becomes widespread in any situation. Firstly there are far-reaching and irreversible economic and social changes. Secondly the benefit in the situation is channeled to an elite group at the expense of the poor and weak who become worse off, suffering increasing deprivation and hardship.
We left our historical narrative with Good Queen Bess, and good she certainly must have seemed to the Merchant Venturers and financiers who had gained so much influence during the Tudor period. Not so good perhaps to the copy holders dispossessed of their land by the enclosures. Certainly the most significant effect of Tudor rule as far as history is concerned was the shift that occurred in the balance of power away from the traditional power structure of the landed nobility towards a new elite drawn from the merchant class, the basis of whose power was financial wealth, which was increasing exponentially due to the employment of financial techniques whose use had previously been forbidden.
Elizabeth was succeeded by her second cousin James Stuart, King of Scotland. James and his son Charles who was king after him, while they were not actually Catholics, definitely represented the old order. The doctrine of Divine Right they are famous for was not merely the arrogant assumption of power it is frequently portrayed as being, but implied responsibility on the part of the monarch to uphold the traditional moral order enshrined in the Canon Law. This, of course, ran contrary to the new spirit of mercantilism which tended to identify itself with the freedom from authority associated with the more extreme kinds of Protestantism. The mercantile class were strongly represented in Parliament and the latent hostility between the monarchy which was desirous to restore the status quo and Parliament which felt that its recently acquired power was under threat eventually erupted in the Civil War. Plato’s observation about usury had proved itself to be true. Society had become divided against itself.
When Charles I was executed, a decisive blow was struck. It was a historical watershed. Power had changed hands. The old order had given way to the new.
Ironically it was the Puritan revolution which broke the mechanism whereby religious values were able to make themselves felt in political and legal terms and which ushered in the secular state. The science of ethics became divorced from its roots in revealed texts and became something to be decided by philosophers and legislators according to the fashions and needs of the time. Mercantilism and finance rapidly began to play a greater and greater role in government.
Cromwell had been forced to resort to Dutch as well as native financiers to pay for his military exploits, which included, apart from the Civil War itself and the notorious Irish expedition, a war against the Dutch. This, the first Dutch War, was the first war fought out of purely commercial considerations and shows how trade was beginning to take centre stage in political terms. It also demonstrated rather cynically that financiers stand to gain from war whatever side they are on. In the light of all this, it is significant, though not altogether surprising, that it was during this time that banking, which was in fact the institutionalization of usury and the way it achieved complete respectability, began to take shape in the form it retains to this day.
The Earl of Clarendon was to write a few years later: “Bankers were a tribe that had risen and grown up in Cromwell’s time and never even heard of before the late troubles, till when the whole trade of money had passed through the hands of the scriveners: they were for the most part goldsmiths.”
The financial transactions that were brought together under the term banking had been taking place in one form or another for a long time previously and because of the central importance it has to the subject we are discussing, I think it would be useful at this point to take a brief look at how banking came into existence. Three main elements are involved each of which involves usury: foreign exchange, the negotiation of loans, and deposit banking which includes the creation of money.
Merchants had been conducting international trade for many centuries and gradually a way of paying for goods abroad without the necessity of having to carry great quantities of gold and silver around the world, was devised. The way it was done was by means of what were known as bills of exchange. In its simplest form this was a letter given by the buyer of the goods to the seller authorizing an agent of the buyer in the home country of the seller to pay for the goods he had bought, so that the seller could collect the money he was owed in his own country and his own currency. These bills were always post-dated to allow time for the goods to be sold and the money transferred, and what began to happen was that merchants, who wanted to get hold of their money quickly, would sell the bill to another merchant who had ready cash, at less than its face value. This second merchant would then cash the bill in when it reached its due date and make a nice profit without having had to do anything at all. This was called discounting. Dealing in these bills became a more and more sophisticated business and before long there were merchants who found it more profitable to trade in bills than actual commodities. Their trade was pure usury. This was one of the transactions taken over by the banker.
The second element was the negotiation of loans. When a loan was made there would be the lender, usually a merchant with surplus capital, the borrower, frequently a landowner in need of ready cash and also a third party, a scrivener, mentioned in the quotation from Clarendon earlier. The scriveners or scribes were a professional group who had a monopoly in the writing of legal contracts and were therefore an indispensable part of the loan process. Being in the middle of the transaction they were in an ideal position to know both those who had money to lend and also those who were looking to borrow money. Gradually they began to take on an active role and instead of just writing down the contract they would set up the whole transaction charging a sizable fee for doing so. From there to the final stage was but a short step. Rather than bringing together the two parties the scrivener would take the lender’s money, agreeing to pay him a certain amount of interest and then lend it to the borrower at a higher rate of interest, pocketing the difference, thus exactly mirroring the main transaction of modern banking. In this way they were able to accommodate very large loans by taking from several lenders and passing on to one borrower. This transaction was also taken over by the banker.
The third element was deposit banking and this did mainly involve the goldsmiths. Because of the nature of their trade in precious metals and bullion, goldsmiths usually had secure strong-rooms and for centuries people had handed over to them their excess gold and silver and other valuables for safe-keeping, receiving in return a receipt for what they had deposited. After a time some people started to use these receipts instead of the gold itself, transferring the receipt to someone else’s name when paying a large debt. Another thing people would do was write to the goldsmith authorizing him to pay the bearer of the letter a certain amount from what they had on deposit, prefiguring the modern cheque. The goldsmith would make a charge for storage and for any services of this kind he performed. In this way, privately-issued notes did begin to make their appearance as a medium of exchange, but they were still tied to existing coinage and their total volume was very small in comparison with cash transactions that took place.
After a while, however, the goldsmiths realized that the deposits they held on behalf of other people tended to remain at a more or less constant level and they started to issue receipts over and above those they had already given out, both to pay for things for themselves and increasingly, as circumstances permitted, as loans at interest. The important thing to realize is that this new paper was entirely fictitious and not backed-up by currency at all. Money had been conjured out of thin air. This transaction which was not only usurious but quite frankly fraudulent, also became an integral part of the new banking.
* [Abel Danger note to the above paragraph] Gold and silver are – by definition – fiat currencies if they are imposed as a standard. A soundly managed paper-based or (electronic?) ledger-based system of credit-debt accounting is generally more convenient, and preferable. The main factors are: the honesty and competence of those managing the system to serve the public good (and not merely their own selfish interests); and the transparency of the accounting.
Thus these three transactions, which were all originally connected to real trade, were gathered together in their usurious form under the umbrella term “banking” and entirely divorced from their original context. A new business was created dealing only in money itself. The vultures released by Calvin had well and truly come home to roost.
We left Cromwell fighting the Dutch. He won, of course, as he almost always did in battle. Had he been as successful a politician as he was general the history of England might have been considerably different but as it was, people were heartily glad to see the back of him, and were only too happy to welcome back the son of the executed king who returned to the throne of England as Charles II.
This event was bogusly known as the Restoration, bogusly because nothing was in fact restored. The situation had in fact completely changed. True, there was a king again, but in name only. He was now in no sense a ruler, merely a figurehead. Executive control was now firmly in the hands of Parliament and real power increasingly wielded by mercantile interests and the financiers who funded them. One of the conditions imposed by Parliament on the King was that he had to give up the ancient feudal dues in which the real power of the monarchy had rested in return for what was basically an income collected from revenue. Charles II was in effect a salaried employee of Parliament. His political impotence was reflected by his frivolous lifestyle and the negation of his covert attempts to restore the power of the monarchy.
When his brother James, who mounted the throne after him, made a more determined attempt to restore the old order, Parliament’s speedy response was to invite William, Prince of Orange, who had married James’s daughter, Mary, over from Holland to take over the throne. The terms on which he was to come were dictated by Parliament and by these terms any vestige of political power left with the monarchy was removed. William was quite literally the bankers’ man. He brought with him a personal banker from Amsterdam and in his wake came many other financiers from that city, which was at that time the financial centre of Europe. From this time, however, Amsterdam went into decline and London became the new centre of world finance. This was the “Glorious Revolution”.
The reign of William left basically three things to posterity. The first was the troubles in Ireland of which still we have bloody reminders every week which passes. The second was the Religious Toleration Act which in fact ensured once and for all that the state could no longer be bound by any religious restraints, since now all religious points of view were equally valid under the law. With the definitive removal of direct religious influence on government, the idea of the “rule of right” which had always been at least implicit was “replaced by economic expediency as the arbiter of policy and the criterion of political conduct.” By this act any lingering religiously-based obstacles which still stood in the way of the financiers were removed. The third thing following on from this and enshrining the final triumph of the money lenders was the foundation of the Bank of England. The usurers had won the day. The new Bank had government permission to discount bills and print as much money as it wanted. To cap it all, the National Debt was established. The Government secured from the Bank a large source of spending power in return for the promise to pay interest on a long-term basis. A specific portion of tax revenues was allocated to pay the interest. In other words, from now on the whole population were perpetually in debt. The money lenders’ wildest dreams had come true. From then on usurious transactions proceeded to adopt a larger and larger role in economic affairs until now they have so permeated everyday existence that life without them seems almost inconceivable. As a local bank manager said recently, in all seriousness, “Interest makes the world go round”.
In presenting this historical overview, it has clearly been impossible for me to cover in detail the two hundred or so years involved and I have necessarily taken a particular thread and followed it through weft and warp of the historical continuum. However, when all the details are filled in, the conclusions that I have drawn will be seen to remain true and valid. My purpose was to show how, in a period of under two centuries, the transaction of usury changed from being a crime absolutely condemned since ancient times, subject to the severest penalties of the law and despised by all people, to being respected and recognized business practice whose practitioners were honored with the highest possible accolades the state could award.
The rightness of the position of our earlier ancestors on this issue is made daily more clear as the insidious effects of usury make themselves more and more felt on the environment and in our lives. It is hoped that this seminar will help to focus attention on the harmful and destructive nature of usury which has now become so inextricably bound up with modern life and awaken awareness of it as an important political issue. Our forbears demonstrated that life is possible without it and it may well be that a cure for the otherwise terminal sickness of the society in which we live lies in the return to the ancient prohibition of it which formed the starting point of this paper.
Usury: The Root Cause of The Injustices of Our Times (PAID, Norwich, UK, 1987) The False Growth Cycle Inherent in the Credit-based Economy Together with some Historical Illustrations