Calvin knew that money wasn’t “sterile”

Over time, however, Christians grew more careful in defining usury. The Fifth Lateran Council (1512-17) defined usury as “nothing else than gain or profit drawn from the use of a thing that is by its nature sterile, a profit acquired without labor, costs, or risk.” This meant that if the lender lent money with labor, cost, or risk to himself he could charge interest without being guilty of usury. Likewise, Calvin talked about acceptable and unacceptable kinds of usury. Making money off the poor is one thing, but “if we have to do with the rich, that usury is freely permitted.” Surely, he argues, “usury ought to be paid to the creditor in addition to the principal, to compensate his loss.” In short, “reason does not suffer us to admit that all usury is to be condemned without exception” (Commentary on Exodus).

via Is It Wrong to Charge Interest on a Loan? – Kevin DeYoung.

This is an excellent summary by Pastor Kevin DeYoung. But I want to point out that Calvin was a more revolutionary thinker on the issue. Here is what an economist (one hostile to Calvinism and to Calvin especially) had to say about Calvin’s economic reasoning about interest:

Calvin’s main contribution to the usury question was in having the courage to dump the prohibition altogether. This son of an important town official had only contempt for the Aristotelian argument that money is sterile. A child, he pointed out, knows that money is only sterile when locked away somewhere; but who in their right mind borrows to keep money idle? Merchants borrow in order to make profits on their purchases, and hence money is then fruitful. As for the Bible, Luke’s famous injunction only orders generosity towards the poor, while Hebraic law in the Old Testament is not binding in modern society. To Calvin, then, usury is perfectly licit, provided that it is not charged in loans to the poor, who would be hurt by such payment. Also, any legal maximum of course must be obeyed. And finally, Cal vin maintained that no one should function as a professional money-lender.

So Calvin was much better than the Lateran Council, which looks rather superstitious when compared to him. And, if Calvin could be improved upon, then other Calvinists did so.

The honour of putting the final boot to the usury prohibition belongs to the seventeenth century classicist and Dutch Calvinist, Claude Saumaise (latinized name, Claudius Salmasius) (1588-1653). In several works published in Leyden, beginning with De usuris tiber in 1630 and continuing to 1645, Salmasius finished off this embarrassing remnant of the mountainous errors of the past. His forte was not so much in coining new theoretical arguments as in finally willing to be consistent. In short, Salmasius trenchantly pointed out that money-lending was a business like any other, and like other businesses was entitled to charge a market price. He did make the important theoretical point, however, that, as in any other part of the market, if the number of usurers multiplies, the price of money or interest will be driven down by the competition. So that if one doesn’t like high interest rates, the more usurers the better!

Salmasius also had the courage to point out that there were no valid arguments against usury, either by divine or natural law. The Jews only prohibited usury against other Jews, and this was a political and tribal act rather than an expression of a moral theory about an economic transaction. As for Jesus, he taught nothing at all about civil polity or economic transactions. This leaves the only ecclesiastical law against usury that of the pope, and why should a Calvinist obey the pope? Salmasius also took some deserved whacks at the evasions permeating the various scholastic justifications, or ‘extrinsic titles’, justifying interest. Let’s face it, Salmasius in effect asserted: what the canonists and scholastics ‘took away with one hand, they restored with the other’. The census is really usury, foreign exchange is really usury, lucrum cessans is really usury. Usury all, and let them all be licit. Furthermore, usury is always charged as compensation for something, in essence the lack of use of money and the risk of loss in a loan.

Salmasius also had the courage to take the hardest case: professional money-lending to the poor, and to justify that. Selling the use of money is a business like any other. If it is licit to make money with things bought with money, why not from money itself? As Noonan paraphrases Salmasius, ‘The seller of bread is not required to ask if he sells it to a poor man or a rich man. Why should the moneylender have to make a distinction?’ And: ‘there is no fraud or theft in charging the highest market price for other goods; why is it wrong for the usurer to charge the heaviest usuries he can collect?’

Empirically, Salmasius also analysed the case of public usurers in Amsterdam (the great commercial and financial centre of the seventeenth century, replacing Antwerp of the previous century), showing that the usual 16 per cent charge on small loans to the poor is accounted for by: the costs of the usurers borrowing their own money, of holding some money idle, of renting a large house, of absorbing some losses on loans, of paying licence fees, hiring employees, and paying an auctioneer. Deducting all these expenses, the average net interest rate of the money-lenders is only 8 per cent, barely enough to keep them in business.

Of course, I hate the way this stuff is misused to justify consumer debt, but it is still quite right and it shows that Calvinists have nothing to be embarrassed about when they refuse to condemn the practice of lending money at interest.

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