Some Landmarks on the Prohibition of Usury in Scholastic Economic Thought

Theorizing interest in Scholastic economic thought can be viewed as a by-product of the debates on the doctrine of usury. This also highlights the main difficulty encountered in its restitution: we have to separate positive and normative statements and, at the same time, explain how and why they were embedded. Our contention is that Schoolmen did have explanations of a possible difference between the amount lent and the amount paid back by the borrower to the lender: this is for the "theory of interest" side. However, on moral grounds, all these explanations were not equally acceptable: this stands for the "doctrine of usury" side. During this long thirteenth, the explanations given for the difference between the money lent and the money paid back looked very much like those we are familiar with today: they favoured, not exclusively, time preference, technical productivity, risk-taking, liquidity preference, and negotiation power. Nonetheless, from a moral point of view, at least one of them was clearly not admissible: the use of greater power in negotiation in order to obtain this difference, which today we would naturally view as interest. However, a special difficulty in understanding the debates between Schoolmen arises from the fact that the mere existence of interest does not show how it should be explained. Whereas the dismissal of the explanation based on the money loan itself, as presented by Thomas Aquinas in the Summa Theologica, deserves attention, it allows other explanations, which show the relevance of the idea of an opportunity cost linked to a loan through the emergence of extrinsic titles. The creditor and the debtor might know what the correct explanation is, but the moralist – that is, a priest or a judge at an ecclesiastical court – does not. Such a perspective, which views the problem faced by the moralist as a variant of a classical asymmetric information problem, constitutes an efficient reading guide for controversies which ran throughout this period. The acknowledged existence of substitutes for interest loans called for an appropriate criterion to ensure that the income perceived by the lender is non-usurious – hence the focus on property and risk-bearing. The various positions of the Schoolmen regarding money loans can therefore be understood as so many attempts to avoid the committing of a major sin, and to obtain the relevant information on the actual interpretation of interest which should prevail.