Chapter XLVIII: Section CXCI: INTEREST-POLICY.--THE CANON LAW, etc

The canon law, from the first, endeavored to prevent contracts for interest. We may even say that the prohibition of interest-usury is the key-stone of the whole system of the political economy of the _Corpus Juris Canonici_. The development of that law coincides, as to time, with the senility of the Roman Empire and the childhood of modern nations.[191-1] In the golden age of papal power, every interest-creditor was refused the communion, the _testamenti factio_ and the right of ecclesiastical burial. Proceedings at law could not be instituted for the recovery of the principal debt until the creditor had restored all the interest obtained. In the council of Vienna, in 1311, it was declared heresy to defend the taking of interest. The universal antipathy of the church towards the growing importance of the _bourgeoisie_,[191-2] and the desire to give the spiritual courts an extensive jurisdiction in litigated cases, may have contributed largely to the adoption of these measures. In later medieval times, the secular power offered its services to execute these laws;[191-3] and, to judge of what public opinion in this matter was, we need only call to mind the decided disapproval of interest by Dante, Luther and Shakespeare.[191-4]

The _Weddeschat_, a species of pledge or loan on security, constituted the transition from this state of things to the modern economic system of interest. The _Weddeschat_ was a sale with a reserved right of redemption, by which the debtor gave his creditor the use and enjoyment of a piece of land a sort of interest in kind, but which he could at any time recover back, by payment of the principal. This was not very oppressive on the debtor, as he was the only party who could recall the contract.[191-5] In a higher stage of civilization, indeed the continuance of this species of land-pledge would be exceedingly disadvantageous, since the momentary possessor of a piece of land which might be bought back by another person at any time at a price fixed in advance, would scarcely think of improving it.[191-6]

And so, the introduction of rent-purchase (_Rentekauf_) was an important step in advance: the incumbrancing of a piece of land which remained in the possession of the debtor with an interest in kind paid to the creditor. The latter could never claim anything further, while the debtor and his heirs might redeem the land from this interest-incumbrance by paying back the purchase money.[191-7] As the Pope, on the 19th of January, 1569, renewed, in express terms, the prohibition of all interest not based on rent-purchase, so did the police ordinances of the Empire, of the sixteenth century, declare it to be the only lawful form of loaning at interest; provided, always, that only the debtor could demand the cancellation of the contract.[191-8] We find, however, that, on the whole, at least Protestant countries had, before 1654, adopted the modern Roman law relating to interest.[191-9] [191-10]

However, the long persistence of the prohibition of the canon law in relation to interest, even with the refuge afforded by the introduction of the rent-purchase system, and of dormant partnerships (_Commanditen_) etc., so common in the sixteenth century,[191-11] would be unintelligible, if, contemporaneously, the Jews did not carry on an important and somewhat free trade in capital,[191-12] precisely as the Armenians, Hindoos and Jews do in the Mohammedan world of to-day.

[Footnote 191-1: The apostolic canons and several decrees of
councils of the fourth century prohibit the taking of
interest by the clergy. A Spanish provincial council dared,
in 313, to extend the prohibition to the laity. Pope Leo I.
condemned the taking of interest by the laity also, but only
in the form of a moral law. (443.) The synod of
Constantinople (814) punished the violation of the
prohibition with excommunication. See _Thomas Aquin._ (ob.
1274.) De Usuris, in the Quæstiones disputatae et quod
libetales. The canon law, however, always permitted
delay-interest (_Verzugszinsen_), and Gregory IX, allowed
_justa et moderata expensa et congruam satisfactionem
damnorum_ to be taken into account, (c. 17, X.) De Fora
Comp. II, 2. A tacit recognition of the productiveness of
capital is to be found in c. 7, X. De Donatt. inter. Virum.
cett. IV, 20; and the later schoolmen, _Antonin_ and
_Bernhardin_, (ob. 1459 and 144) are pretty clear on the
point. But _Albertus Magnus_ had already recognized the
_damnum emergens_ and _Thomas Aquinas_ the _lucrum cessans_
as causes of interest. (Tübinger Zeitschr., 1869, 151, 159,
161.) The essentially modern character of Roman law, which,
in the form it has finally assumed, is in harmony with a
high development of national economy, accounts for the fact
that the glosse of _Accursius_ relying on _Irnerius_ and
_Bulgarus_ entirely ignores the prohibition of interest. For
a similar reason, in the 16th century, _Donellus_ and
_Cujacius_ stand entirely on Roman ground. In the interval,
indeed, men like _Bartolus_ and _Baldus_ were not disquieted
by the canon law. (_Endemann_, Studien in der
Römisch-Canonischen Wirtchaftsund Rechtslehre, I, 18, 27
seq. 61.) Compare the rich historical material in
_Salmasius_, De Usuris, 1638; De Modo Usurarum, 1639, and De
Mutuo, 1640.]

[Footnote 191-2: _A. Thierry_, Lettres sur l'Histoire de
France, éd. 2., 248 ff.]

[Footnote 191-3: Thus the emperor Basil, in the year 867, as
_Justinian_ had before him, forbade the further payment of
interest, once the amount already paid equaled the
principal. (L. 29 seq.; Cod. IV, 32, Nov., 121, 2.) Compare
Sachsenspiegel, I, 54. _Edward the Confessor_ is said to
have issued the first prohibition of interest. (_Anderson_,
Origin of Commerce, a. 1045.) _Edward III._ forbade all
interest as the ruin of commerce. (Idem a., 1341.) About
1391, the lower House had its zeal aroused against the
"shameful vice of usury;" and again, in 1488, all interest
on money and all rent-purchases stipulated for on unlawful
conditions, were threatened with a fine of £20, the pillory,
and six months imprisonment. (_Anderson_, a., 1488.) In
France, the edict of Philip IV. of 1312. Compare
_Beaumanoir_, Coûtumes, ch. 67, des Usures, No. 2.]

[Footnote 191-4: _Dante_, Inferno, XI, 106 ff., suggests
that interest-creditors had violated the command of _Moses_,
I, 3. _Macchiavelli_ seems to judge otherwise: Compare
Istoria Fior., VII, a, 1464; VIII, a, 1478. Very interesting
discussions on the legitimateness of the taking of interest
in 1353 seq., in which the Dominicans, up to the time of
_Savonarola_, defended the strictest opinion. (_M. Villan_,
III, 106.) _Luther_, Tract on Trade and Money, 1524, and
Sermon on Usury, 1519. Later still, _Luther_ became more
moderate. Thus, in his letter to the Danzig counsel, 1525,
in _Neumann_, Geschichte des Wuchers in Deutschland, 617
ff., in which, for instance, he blames the forcible carrying
out of interest-prohibitions, draws a distinction between
rich and poor, etc. So, too, in his letter: An die
Pfarrherren, wider den Wucher zu predigen, 1540.
_Melanchthon_, Phil. moral., 137 ff., is also more moderate.
_Calvin_ was clearer in this matter, and no longer
recognized the canonical prohibition of interest. (Epistolæ
et Responsa, Hanov., 1597, epist. 383.) Similarly
_Zwinglius_, who will not praise interest, but considers it
a natural consequence of property (Opp. ed. Tugur., 1530, I,
319 ff.), and even _Erasmus_, ad. Evang. Luc., 6, 44. Adagia
v. Usuræ nautt. In _Shakespeare_, compare Merchant of
Venice. _Bodinus_ also rejects on principle, even Roman
interest, which he held to be 1-1/2 per cent. a year: De
Republ., 1584, V. 2. Even the practical Dutch excluded the
so-called "table-keepers," from the communion up to 1657.
Compare the contests hereon in _Laspeyres_, Gesch. d.
volkswirthsch. Ansich. d. Niederl., 258 ff.]

[Footnote 191-5: The mutual right of cancellation
(_Kündbarkeit_) in the case of these contracts during
periods poor in capital and credit, would easily have ruined
the debtor. Compare _J. Möser_, Patr. Ph., II, No. 18. Hence
municipal rights in the latter part of the middle ages,
which in many other respects are so antagonistic to Rome,
have seldom anything to object to its measures in this
matter.]

[Footnote 191-6: A reason why, as _A. Strüver_ remarks, the
Church which was more a creditor than a debtor, never
approved the Weddeschat above mentioned.]

[Footnote 191-7: The institution of rent-purchase
(_Rentekauf_) was already developed in the Hanse cities at
the beginning of the fourteenth century. (_Stobbe_, in the
Zeitschr. f. deutsches Recht, XIX, 189 ff.) About 1420, the
bishops of Silesia inquired of the Pope, whether such
contracts which had been the practice in Silesia for a
century were lawful. The answer was a favorable one,
although he left the rate of interest free in this
particular case (Extr. Com. III, 5, 1, 2); after _Alexander
IV._, however, as early as 1258, had instructed inquisitors
not to take part in litigations concerning usurious
contracts. Formerly all such contracts were prohibited in
express terms. (Decret. Greg., V. 19, 1, 2), although, in
France, the ordinances of Louis IX. and Louis X. (1254 and
1315) had established fixed rates of interest therefor.
Between pledge and rent-purchase, the right of the (virtual)
loaner to expel the (virtual) borrower, which after fell
into disquietude, occupies, so to speak, a middle place.
(Compare _Eichhorn_, D. St.- und R.-Gesch., II, § 361, a
III, § 450.) It was decreed, in France, in 1565, that all
rent in kind should be converted into money rent.
(_Warnkönig_, Franz., St.- und R.-Gesch., II, 585 ff.)]

[Footnote 191-8: Magnum Bullar. Roman., II, 295.]

[Footnote 191-9: A Prussian law allowing interest even
without a contract of rent-purchase as far back as 1385.
(_Voigt_, Geschich. von Preussen, V, 467.) In Marseilles, in
1406, a rate of interest of ten per cent. allowed.
(_Anderson_, Origin of Commerce, s. a.) Likewise in England,
37 Henry VIII., c. 9. In Brandenburg, 1565, 6 per cent.
(_Mylius_, C. C., March, II, 1, 11.) A retrograde step by 5
and 6 Edward VI., c. 20; by which all interest was again
prohibited. These laws had, practically, the effect of
increasing interest to 14 per cent., and were therefore
repealed in 1571. How unnatural the prohibition was is
apparent from the fact that by 4 and 5 Philip and Mary, c.
2, the possessor of 1,000 marks was estimated equal to a
person with £200 annual income. In Denmark, the taking of
interest at 5 per cent. was allowed in 1554, since "although
it is contrary to God's command, yet [according to an
opinion given by _Melanchthon_] this commerce cannot be
entirely abolished." (_Kolderup-Rosenvinge's_ Dänische R.
G., in _Homeyer_, § 142.) Similar views of the elector
Augustus, 1583. (Cod. August 1, 139 ff.)

The German Empire, in 1600, allowed the debtor to contract
that, in case of delay, the contract might be declared
annulled. In France, on the other hand, even during the 18th
century, nearly all loans were made in the form of
_rent-purchase_ (_Law_, Trade and Money, 127), and the
creditor could declare the contract void only in case the
debtor did not pay him the rent. (_Warnkönig_, Franz. R. G.,
II, 585 ff.) For strictly Catholic countries, the prohibition
relating to the taking of interest still really remains.
However, _Leo X.'s_ bull, Inter multiplices, exempts the
so-called _monti di pietà_, and by this means put obstacles
in the way of saving, and promoted real usury. Of this last,
_Niebuhr_, Briefe, II, 399, adduces very striking instances
from the Pope's own temporal dominion. In the case of
pledge, even 12 per cent. per annum is required. (Rom im
Jahr, 1833, 163.) Yet, in 1830, the Poenitentiaria Romana
instructed the clergy, without, however, deciding the chief
question, not to disquiet people any longer in the
confessional who had taken interest. (_Guillaumin_,
Dictionnaire de l'Economie politique, art. usure.) On the
Russian Sect, _Staroverzen_, which still condemns the taking
of interest, see _Storch_, Handbuch, II, 19. By the Russian
government it was permitted very early. _Ewers_, Ältestes
Recht der R., 323 seq.]

[Footnote 191-10: The first scientific defense of interest
is generally considered to be that of _Salmasius_, loc. cit.
Yet _Bacon_, Sermones fideles, C. 39 (after 1539), and at
bottom also _H. Grotius_, De Jure Belli et Pacis, 1626,
taught that it was lawful to take interest in so far as it
was not against the love due to one's neighbor (_Endemann_,
loc. cit., I, 62 ff.), and _Besold_, Quaestiones aliquot de
Usuris, 1598, was as near the truth as _Salmasius_. Compare
_supra_, note 4. How earnestly _North_ and _Locke_ labored
against the lowering of interest by governmental
interference, see _Roscher_, Z. Gesch. der engl.
Volkswirths., 90, 102 ff. The best writers, in strictly
Catholic countries, did violence to themselves in this
matter for a long time after. Thus _Galiani_, Della Moneta,
II, I seq.; and one cannot help being greatly surprised at
witnessing the subtleties which _Turgot_, Mémoire sur le
Prêt d'Argent, 1769, had to have recourse to, to prove the
clearest matters. Thus: at the moment of the loan, a sum of
money is exchanged against the mere promise of the other
party, which is certainly less valuable. [If it were not,
why should he borrow?] This difference must, therefore, be
made up in interest, etc. _Mirabeau_ even was a decided
opponent of interest. (Philos. rurale, ch. 6.) Compare,
however, the theological defense by _Viaixnes_, 1728, in the
Traité des Prêts de Commerce, Amsterdam, 1759, IV, 19 ff.]

[Footnote 191-11: Of course, evaded in a thousand ways in
practical life. Thus, for instance, people gave wheat, other
commodities, and even uncoined gold and silver as loans, and
had what interest they pleased promised them. In alienating
the capital, they might stipulate _à fonds perdu_, as they
thought best. (Turgot, I, c. § 29.) When debtors had
promised under oath to make no complaint, the church ordered
that they should be helped officially. When the temporal
power showed itself lax, Alexander III. decreed that such
questions should be brought before the spiritual courts.
(Decret. Greg. V., tit. 19; 13 _Innocent_, Epist., VIII, 16;
X, 61.) In England, _Richard of Cornwall_ obtained a
monopoly of the whole loaning business. (_Matth. Paris_, ed.
1694, 639: compare, also, 20 Henry III., 5.), from which
fact the existence of the custom of taking interest about
1235, is apparent. Cases in which English kings borrowed and
promised payment back _cum damnis, expensis et interesse:_
Anderson, Origin of Commerce, a. 1274, 1339.]

[Footnote 191-12: Compare _Gioja_, Nuovo Prospetto, III,
190. The canon law desired to put an interdict on their
taking interest also: Decret. Greg., V, tit. 19, 12, 18.
Frequently, also, a minimum of interest was provided for
them: Ordonnances de la Fr., L. 53 seq. II, 575. Receuil des
anciennes, Lois, I, 149, 152. John of France extended this
to four _deniers_ per _livre_ per week, that is, annually
86-2/3 per cent.! (_J. B. Say_, Traité II, ch. 8.) In
Austria, in 1244, 174 per cent. allowed! (_Rizy_, Ueber
Zinstaxen und Wuchergesetze, 1859, 72 ff.)]