Money is meant for trade and production, not profit through debt. Modern finance defies this Catholic principle, making usury a centerpiece of the debt-driven marketplace.
(LifeSiteNews) — Since its inception the Catholic Church has identified usury, the charging of interest on loans, as a sin.
The Second Lateran Council in 1139, for example, condemned usury as “despicable and blameworthy by divine and human laws, denounced by Scripture in the Old and New Testaments.” Usurers were to “be held infamous throughout their whole lives and, unless they repent, be deprived of a Christian burial.”
Over time, the attitude to charging interest altered, and the admonition was only applied to “excessive” interest rates, which is not precisely defined. But lending solely to make money out of money remained proscribed.
St. Thomas Aquinas argued that charging interest is like selling the use of money separately from the money itself. He reasoned that money, as part of the inanimate, unproductive order, should not generate further money through interest, but rather be used only for productive purposes. The Catholic historian Hillaire Belloc similarly defined usury as “any interest, however low, demanded for an unproductive loan.”
So what does it mean when virtually the entire Western world and Japan are mired in unsustainable, system-wide usury? What was not considered, or even imagined, by previous Christian thinkers is a society in which over 95 percent of the money in the system is credit: debt with an interest rate applied.
The teachings about usury typically focus on a person’s individual choice and the exercizing of personal conscience. There was no consideration of the structural problem that now plagues most developed economies because such a thing did not exist.
Worse, the financial markets have developed techniques of what might be called ‘meta-usury’: ways to create debt to lay bets on financial instruments like currencies, bonds, or shares. Such recklessness would be unimaginable to anyone born before 1900.
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Traders in these markets – called derivatives because the trading is “derived” from conventional assets such as currencies or shares – use a technique called leverage (another word for debt) to increase their returns. When a hedge fund manager or foreign exchange trader places a bet on a financial asset they might put down $10,000 but they can then leverage it up to $1 million by borrowing the money from a broker. That way they are able to amplify the profits (or losses if they lose) with a relatively small outlay.
From the perspective of Aquinas, it represents an extreme example of selling money separate from the money itself. It certainly serves no productive purpose. Unsurprisingly, such gambling over the last three decades has repeatedly caused crises, the first major one being the collapse of Long Term Capital Management in 1998, which almost brought down the Western banking system.
Systems in which most of the money is credit (debt) are unstable because, in order to pay the interest, it becomes necessary to create more debt, which in turn increases the debt and the interest costs. The result is a downward spiral. As financial analyst Michael Howell notes, three quarters of transactions in the financial markets now involve debt refinancing rather than businesses going to the markets to get capital. “We are in a world dominated by debt and debt refinancing.”
In the U.K., according to journalist John Lanchester, only 3 percent of lending is to firms or individuals engaged in the production of goods and services (the City of London is the world’s biggest money centre). That completely fails the test of money being used for productive purposes.
The West is thus paying the price for letting usury get out of control. Howell says the central banks are forced to provide liquidity – essentially to confect money to make sure the markets keep functioning – to stop this debt-based system from collapsing. They do this by using their balance sheet to do things like buy assets such as government bonds or inject reserves into the system to help banks. Howell tracks debt relative to central bank liquidity. If it gets too high, a financial crisis ensues; if it is too low, there is an asset bubble.
The amounts produced by central banks to prevent collapse can be massive. In the 2008 financial crisis the U.S. government’s bailout of the banks, the Troubled Asset Relief Program (TARP), was about $700 billion. But the U.S. Federal Reserve, the American central bank, had to inject an astonishing $29 trillion into the global markets to keep the system afloat.
READ: New book explains why the Catholic Church has always opposed the sin of usury
What can be done to correct this system-wide usury? One option is defaults and debt forgiveness, a response that has been used for thousands of years to deal with the fact that real economic activity cannot keep pace with compound interest. But that is not a realistic choice for private banks, which would quickly become insolvent.
Another malign possibility is hyperinflation, which reduces the real value of the debt but is socially catastrophic. A third option in the past has been to start wars to steal the resources of other countries that can then be used as collateral for another debt cycle, but this does not seem likely.
A more constructive strategy is what is termed a debt-for-equity swap, whereby a government arranges for its debt (bonds) to be converted into shares or a share of an asset (equity). This approach was used with patchy effect in the Latin American debt crisis of the 1980s. But there is little sign the financial authorities are moving in this direction, or even considering it.
What seems inevitable is a rethinking of money itself, finding ways to reduce the usury, or the debt, in the system. Many societies have used money that has no interest rate. Many states have not relied on raising money by issuing debt and having taxpayers pay the interest.
Belloc observed that “every sane philosophy, every religion, had forbidden [usury]. The Greek pagan philosophers with Aristotle at their head denounced it; so did the Oriental pagans; so did the Jewish law.” He wrote that usury was regarded universally as immoral and “found in practice to be a poison ultimately destroying society.”
By that designation, Western financial markets have become insane and are poisoning society. That is certainly what it looks like. If traditional teachings on usury were updated to accommodate what is actually happening in finance, it might be an important step toward extricating the developed world from the trap it has fallen into.
