In this excerpt from Beggar Thy Neighbor: A History of Usury and Debt, Manhattan College economic historian Charles R. Geisst examines Saint Thomas Aquinas' arguments against charging interest. The influencial medieval cleric "put a tight lock on the practice of usury," says Geisst, "which would put the church in a theoretical bind for centuries."
In his doctrinal magnum opus, Aquinas conveniently summed up most of the arguments against usury advanced over the centuries. Basically, most arguments defending usury centered on the idea that paying it was voluntary, so collecting it was not unjust but natural. Aristotle had rejected the notion that reciprocity itself was enough to explain the basic idea of interest and Thomas followed suit. He followed Aristotle’s dictum about lent money being essentially barren. “To accept usury for the loan of money is in itself unjust; because this is selling what does not exist, and must obviously give rise to inequality, which is contrary to justice,” he wrote in Summa Theologica. But simply being unjust would not suffice; usurers had to make restitution for their sins. “Just as a man is bound to restore other things unjustly acquired, so he is bound to restore money received through usury.” The doctrines of previous church councils were now embodied in a single document that was to have great importance in the following centuries.
The use of money, according to Thomas, was simple and had not changed since Aristotle fifteen hundred years before. “The proper and principal use of money lies in its consumption or expenditure in the business of exchange.” What is not clear from this is how wealth was to be accumulated and maintained. Presumably, it would be earned and kept through acquisition of goods or land but never invested in the modern sense for that would require a rate of return, implying something beyond the basic rate of interest. While that may sound like a major shortcoming in Thomas’s system, it actually was more complicated.
Thomas was not totally impractical about commercial life. Recognizing that commerce certainly existed and that usury was charged in daily transactions, he applied another of Aristotle’s ideas to the amount that could be charged for goods, including the lending of money. This was known as the idea of the “just price.” A good could not be sold for more than its basic value, the “price that it is worth to its possessor.” At the same time, the price charged should do no harm, either to the buyer or the seller. When it does not, the price is just. “And thus a thing may lawfully [be] for more than it is worth in itself, though not more than it is worth to its possessor.” The concept revolved around justice in business transactions, but exactly how these considerations could be given value was another problem. If a thing was to be sold at a price that it was worth to its owner, then the owner needed to do a calculation that today is known as opportunity cost. If a good was worth 10 percent more to its own er than its stated price, he could justifi ably charge 10 percent more in selling it. If land sold brought in rents of 10 percent more than its value, the selling price could legally be adjusted to reflect the income received. Beyond that point, however, the arguments were less strong because the methods for adopting and evaluating value were crude. What was just to one party could easily be unjust to another and without a standard marketplace to sort out the price the price remained moot. At the back of these arguments, however, the power of the church was substituted for the marketplace.
But interest does not seem to play a role in medieval calculations of opportunities. Today, bonds are sold and the buyer pays accrued interest, acknowledging that the seller is to be compensated for the loss of opportunity until the next interest payment date. In the medieval world, the idea of using interest rates seems not to have played a role, at least not to churchmen. Value was not measured by interest and charging for time was not a viable concept. Time still belonged to God (or the church in his absence) and time could not be measured in monetary terms. Therefore, interest could not be admitted as a standard way of measuring it.