Morality in Medieval Economics
A study on usury
Mike Mercer, August, 2010
The idea that usury was wrong dates back to pre-Christian times. The book of Deuteronomy, chapter 23 verses 19-20, of the Old Testament clearly speaks out against it. "Thou shall not lend with usury to thy brother; usury of money or of grain, usury of any thing that is lent is unclean." 1 In early Rome many bankers specialized in making loans, with high interest rates, to people in the provinces. These loans were frequently needed to pay the land taxes required to pay the military. Rome itself, and later all of Italy , was exempt from said taxes. The point is that usury rates were much higher for non-citizens than they ever were for citizens.
The founders of the Church had nothing to say on the matter, perhaps they thought God had said it clearly enough. The council of Nicaea in 325 AD offers the first recorded ban on usury, but it only applied to clergy members. It wasn't till 806 AD that a similar law was enacted, by the Holy Roman Emperor Charlemagne, to cover the population at large. During this period, there was little record of usury in Europe. However it was practiced in Byzantium, which had a highly developed system of commerce and banking. A strong state authority closely regulated money lending and the profits that could be made from it.
The simple fact was that in early medieval Europe there was not much cash or surplus of any kind to be given out in loan. Documents often specified payment in coin, but most accounts were settled in payment of goods and services. That began to change in the 11th century as the feudal system brought stability to Europe, and increased agricultural production brought about a growth in market towns. Slowly horded wealth was released back into the economy, and new wealth was exploited. "Also there was a scramble to dig up buried treasure. Pagan princes were known to have been entombed with vast wealth, and the Church offered no protection for their graves" 2
The first recognizable group of usurers were the Jews. They were not subject to church law, and indeed were in no violation of their own law regarding usury, which was based on Deuteronomy 23; 19-20. It forbid Jews from lending to their brothers with a usury charge, but allows them to lend at a profit to foreigners. For centuries the Jews dominated the money lending trade in medieval Europe , having been forbidden to practice many other crafts in the Christian world. They excelled at what they were allowed to do. However the Jews were not the only money lenders, an increasing number of Christians entered that trade in the 11th century, and many of them charged usury fees to all clients. This caused a flood of moral condemnation, adding to the already unfavorable view many people had of the merchant class.
At this time " there was no collision between church doctrine and public policy regarding the business world, because both were formed by the same environment and accepted the same broad assumptions as to what was socially best." 3 Economic interests were seen as subordinate to the real purpose of life, which was securing one's salvation. Economic conduct was part of personal conduct and thus the rules of morality clearly applied. There were numerous warnings for men not to let the pursuit of wealth interfere with what was truly important in life. The medieval thinker saw it thus: " Payment may properly be demanded by a craftsman, who makes goods or by a merchant who transports goods over a long distance to a place that is in need of them, because both vocations serve a common good. The sin of avarices may hang on them, but indeed it lies unpardonably heavy upon the speculator - those who profit from weakness, who exploit situations for no one's good but their own." 4 Material wealth was seen as necessary, since with out it a man could not support his family or help his neighbors. But it must be stressed that wealth was a means to an end, not an end in itself, and a man should have no more wealth than he required. Unlike modern society which accepts profit growth as justification for almost any action, the medieval world considered economic actions subordinate to moral authority. "The Church condemned as a sin precisely that effort to achieve a continuous and unlimited increase in material wealth which modern society upholds as a virtue." 5
The moral influence in economics can be seen most clearly in the doctrine of just price, which basically states: " That prices will vary with market conditions, but must correctly correspond to the labor and material costs of the producer."6 Further more, it was believed that prices were most fair in an open market, where bargaining was allowed. Because a deal would only be struck when both parties were satisfied with the price. Usury violated both these principals. The lender did no real work or produced any goods; he expected to make a profit for doing nothing more than temporarily handing over what he had in surplus. Worse than this was the fact that money lenders almost never engaged in bargaining. When you came to them, you were in need, and so the lender could set terms that you had no choice but to agree to. Little wonder that the usurer fast became a hated figure. They were often compared to the rich man in the story of Lazarus, Luke 16; 19-31. In this tail, Lazarus dies after a life of struggle and poverty, and then goes to heaven. While the rich man enjoys comforts on earth, then dies and goes to hell.
The 12th century saw an increase in trade and the availability of coinage. Under this new economy the traditional agreement between lord and knight, land holdings in exchange for military service, began to change. Knights more and more, chose to fulfill their military duty by paying scutage: a cash fee, so that their lords could hire mercenaries. In this climate the money lender flourished, he may have been despised but his service was needed. Thus in 1139 the second Lateran Council spent a considerable amount of time dealing with the issue of usury. Brother Gratian, a legal expert, offered two definitions for usury; "1. Expecting to receive back more than you have given in loan. Placed the matter in simple terms and pointed out the sinful nature of him who offered the loan. 2. What so ever exceeds the principal is usury. Placed the issue in legal terms and pointed out that anything that could be counted or measured could be the subject of a loan."7 The council concluded that usury was theft, and one of the worst kinds of theft because it was a case of the rich robbing from the poor. Some clerics preached that the usurer was in double peril to his soul. Because he let avarice drive him into forgetting to help his neighbors in need, and instead of performing his Christian duty, he prayed upon the weakness of his fellow man to enrich himself. Church doctrine declared that if a usurer died unrepentant, then he was damned to hell. So serious was his sin that his body was refused a Christian burial, unless his family could make suitable restitution for his ill gotten gains. In theory this meant repaying the people the usurer had wronged, in practice it meant a donation to the Church. When a money lender in Paris asked; 'how may I save my soul? His priest instead of urging restitution, told him to donate his ill gotten gold to the building of Notre-Damn cathedral. 8 In the early 13th century the Pope went a step further, he decreed that unrepentant usurers should have their assets seized by the church, and given in aid to the poor. This proved highly unpopular with the families of money lenders, and very difficult to enforce.
Although it was less vocal in its condemnation of usury, secular law did mirror the Church's position during the 12th century. Even Florence , which was rapidly becoming a center of finance, had strict laws against usury. " The city council decreed that no usurer could become mayor, or councilor, or even a guild master."9 The city court tried a dozen usurers each year, and those that were found guilty had to pay a fine and make reparations to the victim. Yet money lending was a profitable enough business that most offenders continued their sinful practice even after being convicted. This may be explained by the fact that no state considered usury an offense worthy of death. The failure to stop usury seems a clear indication that secular authorities didn't really want it to come to an end. Indeed many nobles acted as money lenders, while others made use of the usurer's service. Thus enforcement of the anti usury laws varied greatly from place to place.
The inconstant position of the nobility on usury should come as no surprise; any number of pressures could cause their outlook to sway. The group that does concern us is the clergy, this supposedly united body of Christ, holy mother Church guardian of morality. What we find when we look at the medieval church is a hypocritical organization. On the one hand, it publicly condemns usury. On the other hand, it engages in the money lending business. No doubt, many clerics honestly preach against the evils of avarice and the sins associated with greed. Unfortunately many with in the church had not overcome these sins, and looked for riches on earth. "Usury with in the church was quite common; of course they hid it behind a mask, so that it would not be sin. Clerics lent money under papal license and were required to charge a fee, not for the money lent, but for the license to enable the transaction."10 The result was money lending for profit, which did not quite technically fit the legal definition of usury. It was a case of the letter of the law being used to violate the spirit of the law.
People became increasingly dissatisfied with the Church during the 13th century. They wailed against the inequality that was so obviously going on. They claimed, at Rome everything is for sale, and that marks of silver were more valued than the gospel of St. Mark. In popular art the story of how Jesus drove the merchants from the temple, Luke 20; 45-48, was seen depicted in paintings, sculpture, wood carvings, even on pottery. A few churches even had new stain glass windows commissioned to show that they supported the protest against mercantilism. However no repentance movement swept the church, those clerics amassing wealth; in the name of the Lord, continued on into the 14th century. At which time the poets Chaucer and Langland wrote witty satirical verses to poke at the hypocrisy of the Church. In veiled words they charged; " clerics at all levels were guilty of offenses such as the misappropriation of alms, inappropriate sale of indulgences, failure to provide spiritual guidance, engaging in mercantile trade, usury, drunkenness, and adultery."11 In one of the best ironies of the age, a campaign was launched by Italian clerics to preach against avarice. Italy had become the leading financial district of the world. " Their sermons pointed out how the love of money was the root of all evil, and that avarice was more dangerous than pride. That usurers may fool themselves, even the wise among men, by calling their trade and their profits by other names. But God would know the truth and judge them accordingly."12
It was not always easy for usurers, often they did lose out on a deal. When a client proved unable to pay and had no worthwhile goods to claim in lieu of payment, the lender was left with little recourse. If he took the matter to court he might find himself up on a charge of usury. Worse yet were cases involving nobles who chose to forget their loan, or who used legal trickery to nullify it. " Many people thought the deceitful debtor a suitable match for the greedy usurer."13
But in the late 13th century things began to turn in favor of the sinful money lending thieves. There were two bells that sounded freedom for commerce, or we might say, death for morality in economics. First, was the popularizing of the writings of an 11th century banker named Bloch. He speculated that one could use mathematics to calculate the values in any given activity to determine if it would be profitable or not. A seemingly innocent work of logic, his formula proved reasonably accurate. However it took morality completely out of the equation. Choices made based on Bloch's formula had an eye towards profit, with no regard for souls of men. The church condemned this idea but could not stop its spread. Second, was the revival of Roman literature and law. The idea of 'interest' which meant, compensation for loss, under Roman legal terms came to be popular among bankers and merchants. The payment of interest was intended to protect the lender should he suffer any financial damage while his money was outstanding. It assumed that if the lender had said money in his possession he could have avoided the damage. The church recognized this as a fair concept, " Interest is not profit - it is the avoidance of loss."14 More importantly than offering protection, it offer a way to side step the usury law, lenders soon began to demand interest payments against the possibility of loss. This was not usury because it was not a fee for the use of money. The Italian bankers of the 14th century refined this concept into the doctrine of business protection, which aimed to have the customer cover the risk of any possible loss; an idea that the Church quickly adopted for its own business dealings.
The Pope, after his initial acceptance of the concept of interest, remained silent on the issue. In practice usury and interest were the same thing, both involved payment above the principal, but by the letter of the law - they were not. Even when it became clear that money lenders were using interest as a loop hole to escape charges of usury, the Church refused to amend its definition of usury to include the charging of interest. This move was seen by some as proof that the Church had lost the will to fight against the growing trend. Commerce had not yet won over morality in the 14th century, but it had marched a few steps along that path. For centuries what had been sinful and illegal, was little by little becoming acceptable. Many called this progress, the inevitable victory of increasingly complex economics over outdated idealism.
1. Revised King James Version, Holy Bible, p 214
2. Lester K Little, Religious Poverty and the Profit Economy in Medieval Europe, p 15.
3. R H Tawney, Religion and the Rise of Capitalism, p 38.
4. R H Tawney, Religion and the Rise of Capitalism, p 36.
5. R H Tawney, Religion and the Rise of Capitalism, p 35.
6. R H Tawney, Religion and the Rise of Capitalism, p 40.
7. Diana Wood, Medieval Economic Thought, p159.
8. R H Tawney, Religion and the Rise of Capitalism, p 30.
9. R H Tawney, Religion and the Rise of Capitalism, p 37.
10. Diana Wood, Medieval Economic Thought, p 171.
11. Dinah Hazell, Poverty and Plenty; Journal of Medieval Studies, Volume 25.1, p 57.
12. Alexander Murray, Piety and Impiety: Study of Church History, Volume 8, p 36
13. Diana Wood, Medieval Economic Thought, p 181.
14. Diana Wood, Medieval Economic Thought, p 182
1. Lester K Little, Religious Poverty and the Profit Economy in Medieval Europe, Cornell University Press. 1978
2. Ekelund, Hebert, Tollison, Anderson, and Davidson, Sacred Trust; The Medieval Church as an Economic Firm, Oxford University Press. 1996
3. Diana Wood, Medieval Economic Thought, Cambridge University Press 2002
4. R H Tawney, Religion and the Rise of Capitalism, Harcourt, Brace & World, Inc. 1962
1. Dinah Hazell, Poverty and Plenty; Mediaevalia, An Interdisciplinary Journal of Medieval Studies, Volume 25.1, 2004, Binghamton University Press.
2. Alexander Murray, Piety and Impiety in the 13 th Century; Popular Belief and Practice, Study of Church History, Volume 8, 1972, Cambridge University Press