against usury
Symposium on Vice: Part I
Note to our Readers: A convention of ours that we expect you’ve noticed is that, up to now, most of our titles have begun with ‘on’, from “On brunch” to “On the pandemic blues”. A little explanation for the change: for some time now, we’ve hoped to adapt our model a little, to invite our readers to dive more deeply into particular topics than the span of a single essay affords. To that end we’ve co-written an extended essay (on natural law) and published a pair of essays side-by-side (on comedy and tragedy).
Now we propose something more ambitious: a symposium, a series of essays on a single topic published over the span of several weeks. Our first symposium is on vice, so as good Platonists, it seemed fitting for these essays to begin with the word ‘Against’. The first essay in the symposium is Dhananjay’s “against usury” below. The next will be Tara’s essay "against divination”. Further installments will follow this autumn.
In some corners of ethical life, modern vernacular English supplies a great deal of nuance. We can find ourselves speaking rather blandly of right and wrong, good and bad, of course. But (as Elizabeth Anscombe noted) we can also speak about justice and injustice, fraud and fair dealing, deception and honesty, generosity and greed.
Yet in other respects our ethical language has become somewhat impoverished. It was once a common enough thought that making exploitative loans to people was wrong, common enough that the practice had a name: usury. Even leaving aside its archaic sound, the word seems to have lost its signification altogether.
Part of this loss is understandable. We are better off for having dismissed the slanderous accusation that Jewish moneylenders were usurers. This charge led directly to the expulsion of the Jews from England under Edward I and elsewhere in medieval Europe, following the blanket ban on moneylending by Christians in 1179; nearly a millennium later, the charge continues to fuel anti-Semitic hatred and conspiracy theories, such as the deranged attacks on George Soros that are the coin of the realm on far-right discussion boards and television networks.
What we need to see is that usury, like murder and theft, describes a type of wrongful act. Its mistaken application does not justify doing away with the notion — at least provided that it can help us organize part of our ethical thinking.
I think it can.
Here are some parallel cases. We can make intellectual and social progress by recognizing that capital punishment is murder (as many ethicists have come to think) or by realizing that taking what is necessary for life from others’ excess is not theft (as Aquinas held). Murder and theft are not simply legal terms. They come to be legal terms by having a special valence in our ethical reasoning, specifically, the kind of reasoning that has to do with actions that are absolutely prohibited - those that cannot be justified whatever the circumstances.
My claim here is that we would do well to revive the notion of usury, as an aid to our reasoning about which financial practices are defensible, which are regrettable but perhaps unwise to outlaw, and which should be forbidden altogether.
Most people, unless they are utterly mesmerized by a libertarian theory of human nature, will grant that there are conditions under which lending becomes exploitative and harmful. A vivid example is provided by payday lending, which exploits the lack of access to the traditional financial system that many poor and working-class people face in order to charge extortionate rates and fees.
There is a genuine market failure here, of course, to borrow the terms of the economists. But the right response to such a market failure is to change the supply side, for instance, by setting up non-profit credit unions in underserved communities. Jurisdictions that ban payday lending are, for the most part, protecting people from misery.
It is also plausible - leaving the law aside - that working for or even investing in a payday lending company is unethical. Of course, as participants in a wider economic system, it is difficult to avoid every financial evil. (I will not cite the usual slogans.) But this point has sometimes been used as a justification for not setting any boundaries on our economic behavior, which cannot be right.
My goal up to now has been simply to gain a foothold for the notion of usury. We should oppose payday lending because it is a paradigmatic example of usury: high-interest lending that depends for its possibility on taking advantage of some people’s subordinate social and economic position and which brings harm to them.
But what about trickier cases? The modern economic and financial system depends on the easy and lightly regulated flow of capital. If the result is widespread prosperity - economic growth that is broadly if not equitably shared in the form of lower prices for consumers and thriving pension plans - can we reasonably array ourselves against this behemoth?
This line of thinking has sometimes been taken to be a conversation-stopper in relation to the types of ethical issues I am raising. Economic growth, however, is not an ultimate end. Even sophisticated views of financial markets and their benefits can allow for limits on the behavior of market actors. These limits may be merely prudential, as with regulation meant to curtail systemic risk, but they may also be moral.
Let me take up another concrete example. Arguments over the wisdom of a financial transaction tax tend to turn on whether the tax revenues expected by proponents like Bernie Sanders would eventuate, whether increased market volatility (due in part to algorithmic high frequency trading) could be meaningfully addressed in this way, and whether these benefits could justify the inevitable decrease in liquidity the taxes would bring about.
In connection with this debate, the pronouncement on usury by the Fifth Lateran Council is useful: “that is the real meaning of usury: when, from its use, a thing which produces nothing is applied to the acquiring of gain and profit without any work, any expense or any risk.” It can seem as though this pronouncement simply condemns the idleness of certain kinds of financial activity, a view grounded in an antiquated moralism about the value of hard work as opposed to other kinds of economically useful activity.
In reality, however, the Lateran analysis of usury in terms of work, expense, and risk identifies the conditions under which some financial benefit (e.g., interest) is justified remuneration.
The question here is of one’s entitlement to payment from others. Some high frequency trading activity is explicitly directed toward providing liquidity to markets, as is typical with so-called market makers engaged in foreign currency exchange. This practice is reasonably thought of as providing a service to other market participants. Other kinds of high frequency trading (such as latency arbitrage) instead exploit the position of specialized firms over traditional institutional investors (and, indirectly, people whose retirement savings depend on these institutions), without providing any corresponding benefit. Such activity is reasonably thought of as usurious by the definition of the Fifth Lateran Council.
As I emphasized above, it is a separate question how such activity should be legally regulated. But its moral status is not simply a matter of wicked idleness as against noble exertion. Rather, the question ought to be whether certain activities are designed to exploit others in the pursuit of profit. As with payday lending, that might mean eliminating or hindering practices that all parties engage in voluntarily, since voluntariness is consistent with the pursuit of ends that are, in themselves, unsupportable.
In this way, ancient and medieval thinking about justice as a social matter, rather than simply the product of a set of fair rules, can still help us in making sense of our world.
What does all this mean for us practically? It means, for one, that we should diagnose the growth-at-all-costs agenda that is the assumed economic world view in liberal democracies as itself staking out a moral position, not just on the levels of inequality that are tolerable in a society, but also on the kinds of exploitative behavior that are too often deemed permissible.
Second, leaving aside the matter of government regulation, we should respond to such exploitative behavior with censure. From the subprime mortgage crisis to the debacle of student loans that are virtually impossible to pay off, usurious behavior is too often regarded merely as a set of transactions that all parties were free to engage in – and, hence, free to avoid. We do not see theft, even where the victim has not taken every possible precaution, in this way.
We should, finally, reflect on and try to resist the etiolation of our ethical vocabulary. The real question is this: do we have concepts that are adequate to the tasks of calling others - and ourselves - to account and of inspiring us toward admirable living and shared flourishing?
It is striking that the recent growth in interest in Islamic finance – a banking sector that conforms itself to Muslim social teaching and the moral requirements of Islamic law – has seen no counterpart in a notionally Christian ‘West’, even in the aftermath of the global financial crisis. Yet until the early modern period there was no doubt in the minds of European social thinkers that lending and borrowing were at the very least morally charged activities.
Let us hope we can claw our way back to that perspective.