Capital and Interest: A Critical History of Economical Theory
William A. Smart, trans.
London: Macmillan and Co.
THE DEVELOPMENT OF THE PROBLEM
Book I, Chapter I
The Opposition to Interest in Classical and Mediæval Times
It has often been remarked that not only does our knowledge of interesting subjects gradually develop, but also our curiosity regarding these subjects. It is very rarely indeed that, when a phenomenon first attracts attention, it is seen in its full extent, with all its constituent and peculiar details, and is then made the subject of one comprehensive inquiry. Much more frequently is it the case that attention is first attracted by some particularly striking instance, and it is only gradually that the less striking phenomena come to be recognised as belonging to the same group, and are included in the compass of the growing problem.
This has been the case with the phenomenon of interest. It first became the object of question only in the form of Loan interest, and for full two thousand years the nature of loan interest had been discussed and theorised on, before any one thought it necessary to put the other question which first gave the problem of interest its complete and proper range—the question of the why and whence of Natural interest.
It is quite intelligible why this should be so. What specially challenges attention about interest is that it has its source and spring, not in labour, but, as it were, in some bounteous mother-wealth. In loan interest, and specially in loan interest derived from sums of money that are by nature barren, this characteristic is so peculiarly noticeable that it must excite question even where no close attention has been given it. Natural interest, on the other hand, if not obtained though the labour, is certainly obtained under co-operation with the labour of the capitalist-undertaker; and to superficial consideration labour and co-operation with labour are too easily confounded, or, at any rate, not kept sufficiently distinct. Thus we fail to recognise that there is in natural interest, as well as in loan interest, the strange element of acquisition of wealth without labour. Before this could be recognised, and thus before the interest problem could attain its proper compass, it was necessary that capital itself, and its employment in economic life, should take a much wider development, and that there should be some beginning of systematic investigation into the sources of this income. And this investigation could not be one that was content to point out the obvious and striking forms of the phenomenon, but one that would cast light on its more homely forms. But these conditions were only fulfilled some thousands of years after men had first expressed their wonder at loan interest "born of barren money."
The history of the interest problem, therefore, begins with a very long period in which loan interest, or usury, alone is the subject of investigation. This period begins deep in ancient times, and reaches down to the eighteenth century of our era. It is occupied with the contention of two opposing doctrines: the elder of the two is hostile to interest; the later defends it. The course of the quarrel belongs to the history of civilisation; it is deeply interesting in itself, and has besides had an influence of the deepest importance on the practical development of economic and legal life, of which we may see many traces even in our own day. But as regards the development of the theoretical interest problem, the whole period, notwithstanding its length, and notwithstanding the great number of writers who flourished during it, is rather barren. Men were fighting, as we shall see, not for the centre of the problem, but for an outpost of it which, from a theoretical standpoint, was of comparatively subordinate importance. Theory was too much the bond servant of practice. People were concerned less to investigate the nature of loan interest for its own sake than to find in theory something that would help them to an opinion on the good or evil of interest, and would give that opinion a firm root in religious, moral, or economical grounds. Since, moreover, the most active time of the controversy coincided with the active time of scholasticism, it may be guessed that the knowledge of the nature of the subject by no means ran parallel with the number of the arguments and counter-arguments that were urged.
I shall therefore not waste many words in describing these earliest phases in the development of our problem, and this all the more readily that there are already several treatises, and some of them excellent ones, relating to that period. In them the reader will find much more detail than need be introduced for our purpose, or would even be appropriate here. We begin, then, with some account of the hostility to loan interest.
Roscher has well remarked that on the lower stages of economical development there regularly appears a lively dislike to the taking of interest. Credit has still little place in production. Almost all loans are loans for consumption, and are, as a rule, loans to people in distress. The creditor is usually rich, the debtor poor; and the former appears in the hateful light of a man who squeezes something from the little of the poor, in the shape of interest, to add it to his own superfluous wealth. It is not to be wondered at, then, that both the ancient world and the Christian Middle Ages were exceedingly unfavourable to usury; for the ancient world, in spite of some few economical flights, had never developed very much of a credit system, and the Middle Ages, after the decay of the Roman culture, found themselves, in industry as in so many other things, thrown back to the circumstances of primitive times.
In both periods this dislike has left documentary record.
The hostile expressions of the ancient world are not few in number, but they are of trifling importance as regards development of theory. They consist partly of a number of legislative acts forbidding the taking of interest,—some of them reaching back to a very early date,—partly of more or less incidental utterances of philosophic or philosophising writers.
The legal prohibitions of interest may, of course, be taken as evidence of a strong and widespread conviction of the evils connected with its practice. But it can scarcely be said that they were founded on any distinct theory; at any rate no such theory has been handed down to us. The philosophic writers, again—like Plato, Aristotle, the two Catos, Cicero, Seneca, Plautus, and others—usually touch on the subject too cursorily to give any foundation in theory for their unfavourable judgment. Moreover, the context often makes it doubtful whether they object to interest as such, or only to an excess of it; and, in the former case, whether their objection is on the ground of a peculiar blot inherent in interest itself, or only because it usually favours the riches they despise.
One passage in ancient literature has, in my opinion, a direct value for the history of theory, inasmuch as it allows us to infer what really was the opinion of its author on the economic nature of interest; that is, the often quoted passage in the first book of Aristotle's Politics. He there says: "Of the two sorts of money-making one, as I have just said, is a part of household management, the other is retail trade: the former necessary and honourable, the latter a kind of exchange which is justly censured; for it is unnatural, and a mode by which men gain from one another. The most hated sort, and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural use of it. For money was intended to be used in exchange, but not to increase at interest. And this term Usury () which means the birth of money from money, is applied to the breeding of money, because the off-spring resembles the parent. Wherefore of all modes of making money this is the most unnatural" (Jowett's Translation, p. 19).
What this positively amounts to may be summed up thus: money is by nature incapable of bearing fruit; the lender's gain therefore cannot come from the peculiar power of the money; it can only come from a defrauding of the borrower (). Interest is therefore a gain got by abuse and injustice.
That the writers of old pagan times did not go more deeply into the question admits of a very simple explanation. The question was no longer a practical one. In course of time the authority of the state had become reconciled to the taking of interest. In Attica interest had for long been free from legal restriction. The universal empire of Rome, without formally rescinding those severe laws which entirely forbade the taking of interest, had first condoned, then formally sanctioned it by the institution of legal rates. The fact was that economical relations had become too complicated to find sufficient scope under a system naturally so limited as that of gratuitous credit. Merchants and practical men were, without exception, steadily on the side of interest. In such circumstances, to write in favour of it was superfluous, to write against it was hopeless; and it is a most significant indication of this state of matters that almost the only quarter in which interest was still censured—and that in a resigned kind of way—was in the works of the philosophical writers.
The writers of the Christian Middle Ages had more occasion to treat the subject thoroughly.
The dark days which preceded and followed the break up of the Roman Empire had brought a reaction in economical matters, which, in its turn, had the natural result of strengthening the old hostile feeling against interest. The peculiar spirit of Christianity worked in the same direction. The exploitation of poor debtors by rich creditors must have appeared in a peculiarly hateful light to one whose religion taught him to look upon gentleness and charity as among the greatest virtues, and to think little of the goods of this world. But what had most influence was that, in the sacred writings of the New Testament, were found certain passages which, as usually interpreted, seemed to contain a direct divine prohibition of the taking of interest. This was particularly true of the famous passage in Luke: "Lend, hoping for nothing again." The powerful support which the spirit of the time, already hostile to interest, thus found in the express utterance of divine authority, gave it the power once more to draw legislation to its side. The Christian Church lent its arm. Step by step it managed to introduce the prohibition into legislation. First the taking of interest was forbidden by the Church, and to the clergy only. Then it was forbidden the laity also, but still the prohibition only came from the Church. At last even the temporal legislation succumbed to the Church's influence, and gave its severe statutes the sanction of Roman law.
For fifteen hundred years this turn of affairs gave abundant support to those writers who were hostile to interest. The old pagan philosophers could fling their denunciations on the world without much proving, because they were neither inclined nor able to give them practical effect. As a "Platonic" utterance of the idealists their criticism had not sufficient weight in the world of practice to be either seriously opposed or seriously defended. But now the matter had again become practical. Once the Word of God was made victorious on earth, a hostility immediately showed itself, against which the righteousness of the new laws had to be defended. This task naturally fell to the theological and legal literature of the Church, and thus began a literary movement on the subject of loan interest which accompanied the canonist prohibition from its earliest rise far into the eighteenth century.
About the twelfth century of our era is observable a noteworthy departure in the character of this literature. Before that century the controversy is mainly confined to the theologians, and even the way in which it is treated is essentially theoiogical. To prove the unrighteousness of loan interest appeal is made to God and His revelation, to passages of Holy Writ, to the commandments concerning charity, righteousness, and so on; only rarely, and then in the most general terms, to legal and economical considerations. It is the fathers of the Church who express themselves most thoroughly on the subject, although even their treatment can scarcely be called thorough.
After the twelfth century, however, the discussion is conducted on a gradually broadening economic basis. To proofs from Revelation are added appeals to the authority of revered fathers of the Church, to canonists and philosophers—even pagan philosophers,—to old and new laws, to deductions from the jus divinum, the jus humanum, and—what is particularly important for us as touching the economic side of the matter—to deductions from the jus naturale. And now the lawyers begin to take a more active part in the movement alongside the theologians—first the canon lawyers and then the legists.
The very ample and careful attention which these writers gave to the subject is chiefly due to the fact that the prohibition of interest pressed more hardly as time went on, and required to be more strongly defended against the reaction of the trade it oppressed. The prohibition had originally been imposed in economical circumstances of such a nature that it was easily borne. Moreover, during its first hundred years the prohibition had so little command of external force, that where practical life felt itself hampered by the restraint it could disregard it without much danger. But later, as industry and commerce grew, their increasing necessity for credit must have made the hampering effects of the prohibition increasingly vexatious. At the same time the prohibition became more felt as it extended to wider circles, and as its transgression was punished more severely. Thus it was inevitable that its collisions with the economical world should become much more numerous and much more serious. Its most natural ally, public opinion, which had originally given it the fullest support, began to withdraw from it. There was urgent need of assistance from theory, and this assistance was readily obtained from the growing science.
Of the two phases of the canonist writings on this subject, the first is almost without value for the history of theory. Its theologising and moralising do little more than simply express abhorrence of the taking of interest and appeal to authorities.
Of greater importance is the second phase, although neither as regards the number of its writers nor the very imposing array of arguments they introduced. For what originally emanated from the few was soon slavishly repeated by the many, and the stock of arguments collected by the earlier writers soon passed to the later as an heirloom that was above argument. But the greater number of these arguments are merely appeals to authority, or they are of a moralising character, or they are of no force whatever. Only a comparatively small number of them—mostly deductions from the jus naturale—can lay claim to any theoretical interest. If, even of these arguments, many should appear to a reader of to-day little calculated to convince anybody, it should not be forgotten that at that time it was not their office to convince. What man had to believe already stood fixed and fast. The all-efficient ground of conviction was the Word of God, which, as they understood it, had condemned interest. The rational arguments which were found to agree with the divine prohibition were scarcely more than a kind of flying buttress, which could afford to be the slighter that it had not to carry the main burden of proof.
I shall very shortly state those rational arguments that have an interest for us, and verify them by one or two quotations from such writers as have given them clear and practical expression.
First of all, we meet with Aristotle's argument of the barrenness of money; only that the theoretically important point of interest being a parasite on the produce of other people's industry, is more sharply brought out by the canonists. Thus Gonzalez Tellez: "So then, as money breeds no money, it is contrary to nature to take anything beyond the sum lent, and it may with more propriety be said that it is taken from industry than from money, for money certainly does not breed, as Aristotle has related." And in still plainer terms Covarruvias: "The fourth ground is that money brings forth no fruit from itself, nor gives birth to anything. On this account it is inadmissible and unfair to take anything over and above the lent sum for the use of the same, since this is not so much taken from money, which brings forth no fruit, as from the industry of another."
The consumption of money and of other kinds of lent goods furnished a second "natural right" argument. This is very clearly and fully put by Thomas Aquinas. He contends that there are certain things the use of which consists in the consumption of the articles themselves, such as grain and wine. On that account the use of these things cannot be separated from the articles themselves, and if the use be transferred to any one the article itself must necessary be transferred with it. When an article of this sort then is lent the property in it will always be transferred. Now it would evidently be unjust if a man should sell wine, and yet separate therefrom the use of the wine. In so doing he would either sell the same article twice, or he would sell something which did not exist. Exactly in the same way is it unjust for a man to lend things of this sort at interest. Here also he asks two prices for one article; he asks for replacement of a similar article and he asks a price for the use of the article, which we call interest or usury. Now as the use of money lies in its consumption or in its spending, it is inadmissible in itself, on the same grounds, to ask a price for the use of money. According to this reasoning interest appears as a price filched or extorted for a thing that does not really exist, the separate and independent "use" of consumable goods.
A similar conclusion is arrived at by a third argument that recurs over and over again in stereotyped form. The goods lent pass over into the property of the debtor. Therefore the use of the goods for which the lender is paid interest is the use of another person's goods, and from that the lender cannot draw a profit without injustice. Thus Gonzalez Tellez: "For the creator who makes a profit out of a thing belonging to another person enriches himself at the hurt of another." And still more sharply Vaconius Vacuna: "Therefore he who gets fruit from that money, whether it be pieces of money or anything else, gets it from a thing which does not belong to him, and it is accordingly all the same as if he were to steal it."
Lastly, in a very strange argument, first, I believe, incorporated by Thomas Aquinas in the canonists' répertoire, interest is looked upon as the hypocritical and underhand price asked for a good common to all—namely, time. The usurers who receive more, by the amount of their interest, than they have given, seek a pretext to make the prohibited business appear a fair one. This pretext is offered them by time. They would have time recognised as the equivalent for which they receive the surplus income formed by the interest. That this is their intention is evident from the fact that they raise or reduce their claim of interest according as the time for which a loan is given is long or short. But time is a common good that belongs to no one in particular, but is given to all equally by God. When, therefore, the usurer would charge a price for time, as though it were a good received from him, he defrauds his neighbour, to whom the time he sells already belongs as much as it does to him, the seller, and he defrauds God, for whose free gift he demands a price.
To sum up. In the eyes of the canonists loan interest is simply an income which the lender draws by fraud or force from the resources of the borrower. The lender is paid in interest for fruits which barren money cannot bear. He sells a "use" which does not exist, or a use which already belongs to the borrower. And finally, he sells time, which belongs to the borrower just as much as it does to the lender and to all men. In short, regard it as we may, interest always appears as a parasitic profit, extorted or filched from the defrauded borrower.
This judgment was not applied to the interest that accrues from the lending of durable goods, such as houses, furniture, etc. Just as little did it affect the natural profit acquired by personal exertions. That this natural profit might be an income distinct from that due to the undertaker for his labour, was but little noticed, especially at the beginning of the period; and, so far as it was noticed, little thought was given to it. At any rate the principle of this kind of profit was not challenged. Thus, e.g. the canonist Zabarella deplores the existence of loan interest on this ground among others, that the agriculturists, looking for a "more certain" profit, would be tempted to put their money out at interest rather than employ it in production, and thus the food of the people would suffer,—a line of thought which evidently sees nothing objectionable in the investment of capital in agriculture, and the profit drawn from that. It was not even considered necessary that the owner of capital should employ it personally, if only he did not let the ownership of it out of his hands. Thus profit made from a sleeping partnership was, at least, not forbidden. And the case where one entrusts another with a sum of money, but retains the ownership of it, is decided by the stern Thomas Aquinas in the words: that such an one may unhesitatingly appropriate the profit resulting from the sum of money. He need not want for a just title to it, "for he, as it were, receives the fruit of his own estate"—not, as the holy Thomas carefully adds, a fruit that springs directly from the coins, but a fruit that springs from those things that have been obtained in just exchange for the coins.
Where, as not seldom occurs notwithstanding this, exception is taken to profit obtained by personal exertions, the exception is not so much to the profit as such, as to some concrete and objectionable manner of getting it: as, e.g. by business conducted in an avaricious or quite fraudulent way, or by forbidden traffic in money, and such like.
Notes for this chapter
From the abundant literature that treats of interest and usury in ancient times, may be specially mentioned the following:—
Böhmer, Jus Ecclesiasticum Protestantium, Halle, 1736, vol. v. tit. 19.
Rizy, Ueber Zinstaxen and Wuchergesetze, Vienna, 1859.
Wiskemann, Darstellung der in Deutschland zur Zeit der Reformation herrschenden national-ökonomischen Ansichten (Prize Essays of the Fürstliche Jablonowski'sche Gesellschaft, vol. x. Leipzig, 1861).
Laspeyres, Geschichte der volkwirthschaftlichen Ansichten der Niederländer (vol. xi. of same Prize Essays, Leipzig, 1863).
Neumann, Geschichte des Wuchers in Deutschland, Halle, 1865.
Funk, Zins und Wucher, Tübingen, 1868.
Knies, Der Kredit, part i., Berlin, 1876, p. 328, etc.
Above all, the works of Endemann on the canon doctrine of economics, Die national-ökonomischen Grundsätze der kanonistischen Lehre, Jena, 1863, and his Studien in der romanisch-kanonistischen Wirthschafts-und Rechtslehre, vol. i. Berlin, 1874; vol. ii. 1883.
E.g. the prohibition of interest by the Mosaic Code, which, however, only forbade lending at interest between Jews, not lending by Jews to strangers, Exodus xxii. 25; Leviticus xxv. 35-37; Deuteronomy xxiii. 19, 20. In Rome, after the Twelve Tables had permitted an Undarum Foenus, the taking of interest between Roman citizens was entirely forbidden by the Lex Genucia, B.C. 322. Later, by the Lex Sempronia and the Lex Gabinia, the prohibition was extended to Socii and to those doing business with provincials. See also Knies, Der Kredit, part i. p. 328, etc., and the writers quoted there.
I may append some of the passages oftenest referred to. Plato in the Laws, p. 742, says: "No one shall deposit money with another whom he does not trust as a friend, nor shall he lend money upon interest." Aristotle, Nichomachean Ethics, iv. § 1: "Such are all they who ply illiberal trades; as those, for instance, who keep houses of ill-fame, and all persons of that class; and usurers who lend out small sums at exorbitant rates: for all these take from improper sources, and take more than they ought." Cicero, De Officiis, ii. at end: "Ex quo genere comparationis illud est Catonis senis: a quo cum quaereretur, quid maxime in re familiari expediret, respondit, bene pascere. Quid secundum? Satis bene pascere. Quid tertium? Male pascere. Quid quantum? Arare.... Et, cum ille, qui quaesierat, dixisset, quid foenerari? Tum Cato, quid hominem, inquit, occidere? "Cato, De Re Rustica: "Majores nostri sic habuerunt et ita in legibus posuerunt, furem dupli condemnare, foeneratorem quadrupli. Quanto pejorem civem existimarunt foeneratorem quam furem, hinc licet existimari." Plautus, Mostellaria, Act iii. scene 1: "Videturne obsecro hercle idoneus, Danista qui sit? genus quod improbissimum est.... Nullum edepol hodie genus est hominum tetrius, nec minus bono cum jure quam Danisticum." Seneca, De Beneficiis, vii. 10: "Quid enim ista sunt, quid foenus et calendarium et usura, nisi humanae cupiditatis extra naturam quaesita nomina?... quid sunt istae tabellae, quid computationes, et venale tempus et sanguinolentae centesimae? voluntaria mala ex constitutione nostra pendentia, in quibus nihil est, quod subici oculis, quod teneri manu possit, inanis avaritiae somnia."
See also Knies, Der Kredit, i. p. 330, etc.
Luke vi. 35. On the true sense of this passage see Knies as before, p. 333, etc.
On the spread of the prohibition of interest see Endemann, National-ökonomische Grundsätze, p. 8, etc.; Studien in der romanisch-kanonistischen Wirthschafts-und Rechtslehre, p. 10, etc.
See Endemann, Studien, pp. 11-13, 15, etc.
To give the reader some idea of the tone which the fathers of the Church adopted in dealing with the subject I append some of their most quoted passages. Lactantius, book vi. Divin. Inst. chap. xviii. says of a just man: "Pecuniae, si quam crediderit, non accipiet usuram: ut et beneficium sit incolume quod succurat necessitati, et abstineat se prorsus alieno in hoc enim genere officii debet suo esse contentus, quam oporteat alias ne proprio quidem parcere, ut bonum faciat. Plus autem accipere, quam dederit, injustum est. Quod qui facit, insidiatur quodam modo, ut ex alterius necessitate praedetur." Ambrosius, De Bono Mortis, chap. xii.: "Si quis usuram acciperit, rapinam facit, vita non vivit." The same De Tobia, chap. iii.: "Talia sunt vestra, divites! beneficia. Minus datis, et plus exigitis. Talis humanitas, ut spolietis etiam dum subvenitis. Foecundus vobis etiam pauper est ad quaestum. Usurarius est egenus, cogentibus nobis, habet quod reddat: quod impendat non habet." So also chap. xiv.: "Ideo audiant quid leg dicat: Neque usuram, inquit, escarum accipies, neque omnium rerum." Chrysostom on Matthew xvii. Homily 56: "Noli mihi dicere, quaeso, quid gaudet et gratiam habet, quod sibi foenore pecuniam colloces: id enim crudelitate tua coactus fecit." Augustine on Psalm cxxviii.: "Audent etiam foeneratores dicere, non habeo aliud unde vivam. Hoc mihi et latro diceret, deprehensus in fauce: hoc et effractor diceret... et leno... et maleficus." The same (quoted in the Decret. Grat. chap. i. Causa xiv. quaest. 3): "Si plus quam dedisti expectas accipere foeneratores, et in hoc improbandus, non laudandus."
Molinaeus, in a work that appeared in 1546, mentions a writer who had shortly before collected no less than twenty-five arguments against interest (Tract. Contract. No. 528).
See Endemann, Grundsätze, pp. 12, 18.
Commentaria perpetua in singulos textus quinque librorum Decretalium Gregorii IX. v. chap. iii.; De Usuris, v. chap. xix. No. 7.
Variorum Resolutionum, iii. chap. i. No. 5.
Summa totius Theologiae, ii. chap. ii. quaest. 78, art. 1. Similarly Covarruvias: "Accipere lucrum aliqod pro usu ipsius rei, et demum rem ipsam, iniquum est et prava commutatio, cum id quod non est pretio vendatur... aut enim creditor capit lucrum istud pro sorte, ergo bis capit ejus aestimationem, vel capit injustum sortis valorem. Si pro usu rei, is non potent seorsum a sorte aestimari, et sic bis sors ipsa venditur."
Lib. i. Nov. Declar. Jus. Civ. chap. xiv. quoted in Böhmer's Jus Eccles. Prot. Halle, 1736, p. 340.
Thomas Aquinas, De Usuris, i. chap. iv.
Secundo (usura est prohibita) ex fame, nam laborantes rustici praedia colentes libentius ponerent pecuniam ad usuras, quam in laboratione, cum sit tutius lucrum, et sic non curarent homines seminare seu metere." See Endemann, National-ökonomische Grundsätze, p. 20.
Endemann, Studien, i. p. 361.
De Usuris, ii. chap. iv. qu. 1.
End of Notes
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