The greatest obstacle to the development of banking was the ecclesiastical doctrine of interest. This had three sources: Aristotle’s condemnation of interest as an unnatural breeding of money by money,57 Christ’s condemnation of interest,58 and the reaction of the Fathers of the Church against commercialism and usury in Rome. Roman law had legalized interest, and “honorable men” like Brutus had charged merciless rates. Ambrose had denounced the theory that one may do what he likes with his own:
“My own,” say you? What is your own? When you came from your mother’s womb, what wealth did you bring with you? That which is taken by you, beyond what suffices you, is taken by violence. Is it that God is unjust in not distributing the means of life to us equally, so that you should have abundance while others are in want? Or is it not rather that He wished to confer upon you marks of His kindness, while He crowned your fellow man with the virtue of patience? You, then, who have received the gift of God, think you that you commit no injustice by keeping to yourself alone what would be the means of life to many? It is the bread of the hungry you cling to, it is the clothing of the naked you lock up; the money you bury is the redemption of the poor.59
Other Church Fathers had verged upon communism. “The use of all that is in the world,” said Clement of Alexandria, “ought to be common to all men. But by injustice one man has called this his own, another that; and so has come division among men.”60Jerome held all profit unjust; Augustine considered all “business” an evil, as “turning men from seeking true rest, which is God.”61 Pope Leo I had rejected these extreme doctrines; but the mood of the Church continued unsympathetic to commerce, suspicious of all speculation and profit, hostile to all “engrossing,” “forestalling,” and “usury”—by which last term the Middle Ages meant any interest charge whatever. “Usury,” said Ambrose, “is whatever is added to the capital”;62 and Gratian embodied this blunt definition in the canon law of the Church.
The councils of Nicaea (325), Orléans (538), Mâcon (585), and Clichy (626) had forbidden the clergy to lend money for gain. The capitularies of Charlemagne for 789, and the Church councils of the ninth century, extended the prohibition to laymen. The revival of Roman law in the twelfth century emboldened Irnerius and the “glossators” of Bologna to defend interest, and they were able to quote Justinian’s Code in its behalf. But the Third Council of the Lateran (1179) renewed the prohibition, and decreed “that manifest usurers shall not be admitted to communion, nor, if they die in sin, to Christian burial; and no priest shall accept their alms.”63 Innocent III must have taken a more lenient view, for in 1206 he advised that in certain cases a dowry “should be committed to some merchant,” so that an income might be derived from it “by honest gain.”64 Gregory IX, however, returned to the conception of usury as any receipt of any profit on a loan;65 and this remained the law of the Roman Church till 1917.
The wealth of the Church was in land, not in trade; she scorned merchants as the feudal baron scorned them; land and labor (including management) seemed to her the only true creators of wealth and value. She resented the rising power and opulence of a mercantile class not too well disposed to feudal landowners or to the Church; she had for centuries thought of all moneylenders as Jews; and she felt justified in rebuking the hard terms exacted by moneylenders from needy ecclesiastical institutions. By and large, the effort of the Church to control the profit motive was an heroic assertion of Christian morality; it formed a wholesome contrast to the imprisonment or enslavement of debtors that had disgraced Greek, Roman, and barbarian life and law. We cannot be sure that men are happier today than they would have been had the view of the Church prevailed.
For a long time the legislation of governments supported the position of the Church; and the prohibition of interest was enforced in the secular courts.66 But commercial necessity proved stronger than fear of prison or hell. The expansion of trade and industry demanded the use of idle money by active enterprise; states at war or in other emergencies found it easier to borrow than to tax; guilds both lent and borrowed at interest; landowners extending their property, or leaving for crusades, welcomed the moneylender; churches themselves, and monasteries, survived their crises or rising costs or needs by recourse to the Lombards, the Cahorsians, or the Jews.
The wits of men found many subterfuges from the law. A borrower would sell land cheap to the lender, leave him the usufruct as interest, and later repurchase the land. Or the landowner sold to the lender some or all of the annual rents or revenues of his land; if, for example, A sold to B for $100 the rents of a parcel yielding $10.00 a year, B was in effect lending A $100 at ten per cent. Many monasteries invested their funds by buying such “rent charges”—above all in Germany, where the word for interest, Zins, grew out of the medieval Latin for rents, census.67 Towns borrowed money by deeding to the lender a share in their revenues.68 Individuals and institutions, including monasteries, lent money in return for secret gifts or fictitious sales.69 Pope Alexander III complained in 1163 that “many of the clergy” (chiefly monastic) “while they shrink from common usury as from a thing too plainly condemned, do notwithstanding lend money to others who are in need, take their possessions in pledge, and receive the fruits therefrom accruing beyond the principal lent.”70 Some borrowers pledged themselves to pay “damages” increasing for every day or month of delay in repaying a loan; and the date of payment was placed so early as to make such concealed interest inevitable;71 on this basis the Cahorsians lent money to certain monasteries on terms equivalent to sixty per cent per year.72 Many banking firms openly lent at interest, and claimed immunity on the theory that the law applied only to individuals. The cities of Italy made no excuses for paying interest on their government bonds. In 1208 Innocent III remarked that if all usurers were excluded from the Church as canon law demanded, all churches might as well be closed.73
The Church reluctantly adjusted herself to realities. St. Thomas Aquinas, about 1250, courageously formulated a new ecclesiastical doctrine of interest: the investor in a business enterprise might legitimately share in the gain if he actually shared in the risk or the loss;74 and loss was interpreted to include any delay in the repayment of the loan beyond a stipulated date.75 St. Bonaventura and Pope Innocent IV accepted the principle, and widened it to legitimize a payment made to a lender in return for the temporary loss of the use of his capital.76 Some fifteenth-century canonists admitted the right of states to issue interest-bearing bonds; Pope Martin V in 1425 legalized the sale of rent charges; after 1400 most European states repealed their laws against interest; and the Church prohibition survived as a dead letter which all agreed to ignore. The Church tried to find a solution by encouraging St. Bernardino of Feltre and other ecclesiastics in establishing, from 1251 on, montes pietatis—“hills of love”—where trustworthy persons in need, by depositing some article as a pledge, might obtain loans without interest. But these precursors of our pawnbrokers’ shops touched only a small sector of the problem; the needs of commerce and industry remained, and capital rose to meet them.
The professional moneylenders exacted high rates of interest not so much because they were conscienceless devils as because they ran great risks of loss and head. They could not always enforce their contracts through appeals to the law; their accumulations were subject to requisition by kings or emperors; they could at any moment be banished, and were at all times damned. Many loans were never repaid; many borrowers died bankrupt; some went on crusades, were excused from paying interest, and never returned. When borrowers defaulted, the lenders could only make up the loss by raising rates on other loans; the good loan had to pay for the bad one, as the price of commodities bought must include the cost of commodities spoiled before sale. In twelfth-century France and England the interest rate ranged between 33⅓% and 43⅓%;77 sometimes it rose to 86%; in prosperous Italy it sank to 12½% to 20%;78 Frederick II, about 1240, tried to lower the rate to 10%, but soon paid more than that to Christian moneylenders. As late as 1409 the government of Naples allowed 40% as the legal maximum.79 The interest rate fell as the security of loans rose, and as the competition of lenders increased. Gradually, through a thousand experiments and errors, men learned to use the new financial tools of a progressive economy, and the Age of Money began in the Age of Faith.