Usury in the Modern World

This is the final part of a three-part series in which I speak about ethical investing from a Catholic perspective (though there is a debate!) This series was prompted by an interview of Jacob Imam with Pints With Aquinas. In my first article, I addressed the question of ethical investing and how the USCCB has recommended Christians navigate the modern economy. In the second installation, I discussed the responsibility to invest. In this last piece, I break down usury and why (most) modern investing would not fall into this category.

When discussion of investing arises in Catholic (and other circles), it is not uncommon to expect a discussion of the condemnation of usury. Many might throw away the concept of usury as an irrelevant vestige of the middle ages, yet Pope Francis has condemned usury as a grave sin that “kills life, stomps on human dignity, promotes corruption, and sets up obstacles to the common good.” Usury is all the more a concern today since so many of us have the capital by which to be at risk of committing this sin. But, first, the all-important question: what exactly is usury?

In his 1874 encyclical Vix Pervenit, Pope Benedict XIV describes usury as follows:

The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious. (Section 3, I)

In this definition we begin to see the need for good discernment in money dealings. Determining what is owed in a contract is difficult, and we can often rationalize ourselves as being owed more than would be fitting. It might be tempting to avoid contracts altogether, but then how do we interact in the world? How do we engage in legitimate business and not get taken advantage of? Pope Benedict XIV continues:

By these remarks, however, We do not deny that at times together with the loan contract certain other titleswhich are not at all intrinsic to the contractmay run parallel with it. From these other titles, entirely just and legitimate reasons arise to demand something over and above the amount due on the contract. Nor is it denied that it is very often possible for someone, by means of contracts differing entirely from loans, to spend and invest money legitimately either to provide oneself with an annual income or to engage in legitimate trade and business. From these types of contracts, honest gain may be made. (Section 3,III)

The tension we feel between our calling to do business in this world but also be fair, I posit, is the exact same tension that calls us to be in the world but not of it. We are called to live our lives responsibly in a fallen world. We will make mistakes that lead to evil. This is by nature the very evil of the world we live in. We can’t cocoon ourselves off from the world around us to avoid evil because we likely commit sins of omission in this action.

So let’s wrestle with this question! I posit that usury develops from deals that are imbalanced when the power on one side clearly overwhelms the power of the other. Hence usury can occur in any sort of contract or trade. Whether it is a loan, an investment, or a purchase, the sin of usury is still possible. This can be a credit card company charging insane interest. It can also be a local upselling to a foreigner who has not used the currency. More relevantly, it can be you holding back information in a business deal because it will lower the amount your interlocutor is willing to pay. In all of these situations, you are using some type of power, whether wealth or knowledge, to get more than you would expect if all was balanced in the negotiations. The desire to extract more than one’s due is at the core of usury.

For many, investing may seem like it holds a similar imbalance. You put money in so that you get more money out! At best this seems like gambling, at worstusury. However, this analysis fails to take one crucial piece into account: time. When you make an investment you are giving someone else (or a company) your money and the time you leave your money with them. The combination of time and money should then equal the amount received later. While standard returns from investments can seem high, they are not actually that unreasonable. As I demonstrated in my rent example in the first article, it is perfectly reasonable to expect 6-10% return annually. The math of compound interest in both property and the stock market then kicks in, but this is a math problem, not an ethical one.

In fact, we can know that the amount expected from most investments is reasonable because real estate tends to beat it out. Once we realize that money is an asset as much as property, we understand that “renting it out” is quite an equitable thing to do. Opportunity cost is real and I suspect those shocked at the high returns of investments fail to see how significant these costs are. While usury is a real concern in our world, I think it is less of a concern to address with prudent investment decisions and more a concern in our daily interactions in the business work.


5 responses to “Usury in the Modern World”

  1. Garrett Avatar

    Why cite “The nature of the sin called usury has its proper place and origin in a loan contract” and then blow past it, saying, “usury can occur in any sort of contract or trade”?

  2. Daniel Sutkowski Avatar
    Daniel Sutkowski

    Thanks for your comment! I understood Pope Benedict to be defining usury as being rooted in, but not limited to, a loan contract. For instance, if an employee is unaware of his own value in the market and is taken advantage of by an unscrupulous employer, that would quality as usury. (even though it is not a loan contract)

  3. And thanks for the reply!
    “Usury” is your word for buying something for less or selling something for more than it is worth. (Aquinas calls this “cheating” in question 77, by the way.)
    What would you call selling what does not exist? (what Aquinas calls “usury” in question 78). Or do you think that that is never done, since, in your words, “opportunity cost is real”?

  4. Daniel Sutkowski Avatar
    Daniel Sutkowski

    Thanks for your reply! Sorry, I get back so late to your comments!

    I think I will stick with the definition I presented in the article from Benedict IX, just because it helps to have a standard use of terms!

    About selling something that does not exist, Aquinas gives the example of selling wine (the item) and selling the consumption of wine (the action) as a form of double charging that is unjust. However he does, in the next paragraph, say that there are some items that you sell based on the use of an item over some time (renting!).

    My main departure from Aquinas is that the concept of money has changed significantly since he wrote the summa. Inflation exists now in a way that was not at all present for most of human history. To hold unto cash is to lose value – period.

    Further, when you invest in a company you are purchasing ownership of it. While only a slight bit of ownership usually, you still have the ability (and duty in my estimation) to vote in shareholder meetings and be actively involved in the company you choose to invest in.

  5. Garrett Avatar

    Is it sinful to abdicate your responsibility to be actively involved in every company you ostensibly “own” via investments?

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