An Essay on Mediaeval Economic Teaching Part 14

p. 261.]

[Footnote 3: Endemann, _Studien_, vol. i. p. 17.]

In answer to the question 'whether it is a sin to take usury for money lent,' Aquinas replies: 'To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality, which is contrary to justice.

'In order to make this evident, we must observe that there are certain things the use of which consists in their consumption; thus we consume wine when we use it for drink, and we consume wheat when we use it for food. Wherefore in such-like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing is granted the thing itself; and for this reason to lend things of this kind is to transfer the ownership. Accordingly, if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice. In like manner he commits an injustice who lends wine or wheat, and asks for double payment, viz. one, the return of the thing in equal measure, the other, the price of the use, which is called usury.

'On the other hand, there are other things the use of which does not consist in their consumption; thus to use a house is to dwell in it, not to destroy it. Wherefore in such things both may be granted; for instance, one man may hand over to another the ownership of his house, while reserving to himself the use of it for a time, or, _vice versa_, he may grant the use of a house while retaining the ownership. For this reason a man may lawfully make a charge for the use of his house, and, besides this, revendicate the house from the person to whom he has granted its use, as happens in renting and letting a house.

'But money, according to the philosopher,[1] was invented chiefly for the purpose of exchange; and consequently the proper and princ.i.p.al use of money is its consumption or alienation, whereby it is sunk in exchange. Hence it is by its very nature unlawful to take payment for the use of money lent, which payment is known as usury; and, just as a man is bound to restore other ill-gotten goods, so he is bound to restore the money which he has taken in usury.'[2]

[Footnote 1: _Eth._ v. _Pol_. 1.]

[Footnote 2: II. ii. 78, 1.]

The essential thing to notice in this explanation is that the contract of _mutuum_ is shown to be a sale. The distinction between things which are consumed in use (_res fungibiles_), and which are not consumed in use (_res non fungibiles_) was familiar to the civil lawyers; but what they had never perceived was precisely what Aquinas perceived, namely, that the loan of a fungible thing was in fact not a loan at all, but a sale, for the simple reason that the ownership in the thing pa.s.sed. Once the transaction had been shown to be a sale, the principle of justice to be applied to it became obvious. As we have seen above, in treating of sales, the essential basis of justice in exchange was the observance of _aequalitas_ between buyer and seller--in other words, the fixing of a just price. The contract of _mutuum_, however, was nothing else than a sale of fungibles, and therefore the just price in such a contract was the return of fungibles of the same value as those lent. If the particular fungible sold happened to be money, the estimation of the just price was a simple matter--it was the return of an amount of money of equal value.

As money happened to be the universal measure of value, this simply meant the return of the same amount of money. Those who maintained that something additional might be claimed for the use of the money lost sight of the fact that the money was incapable of being used apart from its being consumed.[1] To ask for payment for the sale of a thing which not only did not exist, but which was quite incapable of existence, was clearly to ask for something for nothing--which obviously offended against the first principles of commutative justice. 'He that is not bound to lend,' says Aquinas in another part of the same article, 'may accept repayment for what he has done, but he must not exact more. Now he is repaid according to equality of justice if he is repaid as much as he lent, wherefore, if he exacts more for the usufruct of a thing which has no other use but the consumption of its substance, he exacts a price of something non-existent, and so his exaction is unjust.'[2] And in the next article the principle that _mutuum_ is a sale appears equally clearly: 'Money cannot be sold for a greater sum than the amount lent, which has to be paid back.'[3]

[Footnote 1: Aquinas did not lose sight of the fact that money might, in certain cases, be used apart from being consumed--for instance, when it was not used as a means of exchange, but as an ornament.

He gives the example of money being sewn up and sealed in a bag to prevent its being spent, and in this condition lent for any purpose.

In this case, of course, the transaction would not be a _mutuum_, but a _locatio et conductio_, and therefore a price could be charged for the use of the money (_Quaestiones Disputatae de Malo_, Q. xiii. art.

iv. ad. 15, quoted in Cronin's _Ethics_, vol. ii. p. 332).]

[Footnote 2: II. ii. 78, 1, ad. 5.]

[Footnote 3: II. ii. 78, 2, ad. 4. Biel distinguishes three kinds of exchange: of goods for goods, or barter; of goods for money, or sale; and of money for money; and adds, 'In his contractibus ... generaliter just.i.tia in hoc consist.i.t quod fiant sine fraude, et servetur aequalitas substantiae, qualitatis, quant.i.tatis in commutatis (_Op.

cit._, IV. xv. 1). Buridan says that usury is contrary to natural law 'ex conditione just.i.tiae quae in aequalitate d.a.m.ni et lucri consist.i.t; quoniam injustum est pro re semel commutata pluries pretium recipere'

(In _Lib. Pol._, iv. 6).]

The difficulty which moderns find in understanding this teaching, is that it is said to be based on the sterility of money. A moment's thought, however, will convince us that money is in fact sterile until labour has been applied to it. In this sense money differs in its essence from a cow or a tree. A cow will produce calves, or a tree will produce fruit without the application of any exertion by its owner; but, whatever profit is derived from money, is derived from the use to which it is put by the person who owns it. This is all that the scholastics meant by the sterility of money. They never thought of denying that money, when properly used, was capable of bringing its employer a profit; but they emphatically a.s.serted that the profit was due to the labour, and not to the money.

Antoninus of Florence clearly realised this: 'Money is not profitable of itself alone, nor can it multiply itself, but it may become profitable through its employment by merchants';[1] and Bernardine of Sienna says: 'Money has not simply the character of money, but it has beyond this a productive character, which we commonly call capital.'[2] 'What is money,' says Brants, 'if it is not a means of exchange, of which the employment and preservation will give a profit, if he who possesses it is prudent, active, and intelligent? If this money is well employed, it will become a capital, and one may derive a profit from it; but this profit arises from the activity of him who uses it, and consequently this profit belongs to him--it is the fruit, the remuneration of his labour.... Did they (the scholastics) say that it was impossible to draw a profit from a sum of money? No; they admitted fully that one might _de pecunia lucrari_; but this _lucrum_ does not come from the _pecunia_, but from the application of labour to the sum.'[3]

[Footnote 1: Quoted in Brants, _op. cit._, p. 134.]

[Footnote 2: _Ibid._]

[Footnote 3: Brants, _op. cit._, pp. 133-5; Nider, _De Cont. Merc._ iii. 15.]

Therefore, if the borrower did not derive any profit from the loan, the sum lent had in fact been sterile, and obviously the just price of the loan was the return of the amount lent; if, on the contrary, the borrower had made a profit from it, it was the reward of his labour, and not the fruit of the loan itself. To repay more than the sum lent would therefore be to make a payment to one person for the labour of another.[1] The exaction of usury was therefore the exploitation of another man's exertion.[2]

[Footnote 1: Gerson, _De Cont._, iv. 15.]

[Footnote 2: Neumann, when he says that 'it was sinful to recompense the use of capital belonging to another' (_Geschichte des Wuchers in Deutschland_, p. 25), seems to miss the whole point of the discussion.

The teaching of the canonists on rents and partnership shows clearly that the owner of capital might draw a profit from another's labour, and the central point of the usury teaching was that money which has been lent, and employed so as to produce a profit by the borrower, belongs not 'to another,' but to the very man who employed it, namely, the borrower.]

It is interesting to notice how closely the rules applying in the case of sales were applied to usury. The raising of the price of a loan on account of some special benefit derived from it by the borrower is precisely a.n.a.logous to raising the sale price of an object because it is of some special individual utility to the buyer. On the other hand, as we shall see further down, any special damage suffered by the lender was a sufficient reason for exacting something over and above the amount lent; this was precisely the rule that applied in the case of sales, when the seller suffered any special damage from parting with the object sold. Thus the a.n.a.logy between sales and loans was complete at every point. In both, equality of sacrifice was the test of justice.

Nor could it be suggested that the delay in the repayment of the loan was a reason for increasing the amount to be repaid, because this really amounted to a sale of time, which, of its nature, could not be owned.[1]

[Footnote 1: Rambaud, _op. cit._, p. 63; Aquinas(?), _De Usuris_, i.

4.]

The scholastic teaching, then, on the subject was quite plain and unambiguous. Usury, or the payment of a price for the use of a sum lent in addition to the repayment of the sum itself, was in all cases prohibited. The fact that the payment demanded was moderate was irrelevant; there could be no question of the reasonableness of the amount of an essentially unjust payment.[1] Nor was the payment of usury rendered just because the loan was for a productive purpose--in other words, a commercial loan. Certain writers have maintained that in this case usury was tolerated;[2] but they can easily be refuted.

As we have seen above, _mutuum_ was essentially a sale, and, therefore, no additional price could be charged because of some special individual advantage enjoyed by the buyer (or borrower).

It was quite impossible to distinguish, according to the scholastic teaching, between taking an additional payment because the lender made a profit by using the loan wisely, and taking it because the borrower was in great distress, and therefore derived a greater advantage from the loan than a person in easier circ.u.mstances. The erroneous notion that loans for productive purposes were ent.i.tled to any special treatment was finally dispelled in 1745 by an encyclical of Benedict XIV.[3]

[Footnote 1: Jourdain, _op. cit._, p. 35.]

[Footnote 2: _E.g._ Perin, _Premiers Principes d'economie politique_, p. 305; Claudio Jannet, _Capital Speculation et Finance_, p. 83; De Metz-n.o.blat, _Lois economiques_, p. 293.]

[Footnote 3: Rambaud, _op. cit._, p. 69.]

-- 5. _Extrinsic t.i.tles_.

Usury, therefore, was prohibited in all cases. Many people at the present day think that the prohibition of usury was the same thing as the prohibition of interest. There could not be a greater mistake.

While usury was in all circ.u.mstances condemned, interest was in every case allowed. The justification of interest rested on precisely the same ground as the prohibition of usury, namely, the observance of the equality of commutative justice. It was unjust that a greater price should be paid for the loan of a sum of money than the amount lent; but it was no less unjust that the lender should find himself in a worse position because of his having made the loan. In other words, the consideration for the loan could not be increased because of any special benefit which it conferred on the borrower, but it could be increased on account of any special damage suffered by the lender--precisely the same rule as we have seen applied in the case of sales. The borrower must, in addition to the repayment of the loan, indemnify the lender for any damage he had suffered. The measure of the damage was the difference between the lender's condition before the loan was made and after it had been repaid--in other words, he was ent.i.tled to compensation for the difference in his condition occasioned by the transaction--_id quod interest_.

Before we discuss interest properly so called, we must say a word about another a.n.a.logous but not identical t.i.tle of compensation, namely, the _poena conventionalis_. It was a very general practice, about the legitimacy of which the scholastics do not seem to have had any doubt, to attach to the original contract of loan an agreement that a penalty should be paid in case of default in the repayment of the loan at the stipulated time.[1] The justice of the _poena conventionalis_ was recognised by Alexander of Hales,[2] and by Duns Scotus, who gives a typical form of the stipulation as follows: 'I have need of my money for commerce, but shall lend it to you till a certain day on the condition that, if you do not repay it on that day, you shall pay me afterwards a certain sum in addition, since I shall suffer much injury through your delay.'[3] The _poena conventionalis_ must not be confused with either of the t.i.tles _d.a.m.num emergens_ or _lucrum cessans_, which we are about to discuss; it was distinguished from the former by being based upon a presumed injury, whereas the injury in _d.a.m.num emergens_ must be proved; and for the latter because the damage must be presumed to have occurred after the expiration of the loan period, whereas in _lucrum cessans_ the damage was presumed to have occurred during the currency of the loan period. The important thing to remember is that these t.i.tles were really distinct.[4] The essentials of a _poena conventionalis_ were, stipulation from the first day of the loan, presumption of damage, and attachment to a loan which was itself gratuitous.[5] The _Summa Astesana_ clearly maintained the distinction between the two t.i.tles of compensation,[6]

as also did the _Summa Angelica_.[7]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. i. p. 399.]

[Footnote 2: Biel, _op. cit._, iv. 15, 11.]

[Footnote 3: Cleary, _op. cit._, p. 93.]

[Footnote 4: _Ibid._, p. 95.]

[Footnote 5: Cleary, _op. cit._, p. 94.]

[Footnote 6: Endemann, _Studien_, vol. i. p. 20.]

[Footnote 7: ccxl.]

The first thing to be noted on pa.s.sing from the _poena conventionalis_ to interest proper is that the latter ground of compensation was generally divided into two kinds, _d.a.m.num emergens_ and _lucrum cessans_. The former included all cases where the lender had incurred an actual loss by reason of his having made the loan; whereas the latter included all cases where the lender, by parting with his money, had lost the opportunity of making a profit. This distinction was made at least as early as the middle of the thirteenth century, and was always adopted by later writers.[1]

[Footnote 1: Ashley, _op. cit._, vol. i. pt. ii. p. 399.]

The t.i.tle _d.a.m.num emergens_ never presented any serious difficulty.

It was recognised by Albertus Magnus,[1] and laid down so clearly by Aquinas that it was not afterwards questioned: 'A lender may without sin enter an agreement with the borrower for compensation for the loss he incurs of something he ought to have, for this is not to sell the use of money, but to avoid a loss. It may also happen that the borrower avoids a greater loss than the lender incurs, wherefore the borrower may repay the lender with what he has gained.'[2] The usual example given to ill.u.s.trate how _d.a.m.num emergens_ might arise, was the case of the lender being obliged, on account of the failure of the borrower, to borrow money himself at usury.[3]

[Footnote 1: Roscher, _Geschichte_, p. 27.]

[Footnote 2: II. ii. 78, 2, ad. 1.]

[Footnote 3: Ashley, _op. cit._, vol. i. pt. i. p. 400.]