Thursday, October 6, 2011

What opposition to usury really represents

   As a college student I was taught that usury simply denoted market interest rates, where the riskiness of a loan increased the interest rate charged.  Restrictions on usury thus represented a traditional price ceiling, which could only harm borrowers because it reduced the amount of money loaned, all of which would increase the welfare of the borrower and lender.
   I now believe usury is a more complex phenomenon, and that forbidding usury was more than a simple price ceiling.  I think the historical novelist Edward Rutherfurd represents this well in his excellent novel Sarum: A Novel of England.


   The meeting went well, and after less than an hour, Forest concluded the deal.  Its terms were simple.  The Fleming was to act as exclusive agent for the new venture; Forest would finance any other dealings he wished to undertake.  He would also pay off the merchant's debts, taking his house in Antwerp as security.  In effect, by the end of the afternoon, Forest owned him.
   "And the secret of him is," young Shockley had confided to Forest beforehand, "he likes to live well and he spends his money as fast as he makes it: he'll never pay off his debt to you."


—Edward Rutherfurd in Sarum: A Novel of England

A similar sentiment is expressed in the movie Anthony: Warrior of God, where the climax shows a Franciscan monk, weary from his extreme fasting but intent on fulfilling God's will, mounts a table to warn the "usurs" against their offense to God. It wasn't that the interest rate was just "too high", but that the destitute were only saved from perishing if they lived the rest of their life as virtual slaves, and that those who cannot manage their lives well (e.g., gamblers) are exploited instead of helped.
Think about the old-time mining towns where the workers were manipulated in various ways such that, as Johnny Cash sung, "I owe my soul to the company store."
I am tempted to say, "When we teach usury in class, if we are to teach it honestly it must be characterized by both an interest rate corresponding to risk and an ethical dilemma." However, I do not have good sources for these assertions: only a book and movie which I believe reflect history honestly. Though that is not enough, for now, it is all that I have.