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.

(From: Cyclopaedia of Political Science, Political Economy, and of the Political History of the United States by the best American and European Authors, ed. John J. Lalor (New York: Maynard, Merrill, & Co., 1899). Vol 2 East India Co.; link below)

LAWS, Sumptuary, laws designed to repress or moderate the expenditures of private citizens. Such laws existed in almost all the ancient republics and in most of the modern states.

—The ancient republics were based, as we know, on equality of conditions. [The error of this statement appears from the writings of Aristotle. Vids Blanqui’s Hist. of Polit. Econ., chap. ii., p. 10.—E. J. L] As soon as that equality was in a certain measure changed, the very existence of the state was in peril. Legislators, then, to avert the danger, had recourse to agrarian laws, sumptuary laws, laws to favor marriages, and laws ordering the employment of free men in field labor. All these laws, so diverse in the nature of the subjects to which they applied, were inspired by one single idea and tended to the same end, to prevent the extinction of the free population, from which the national armies were recruited. These laws, which to-day seem strange to us, show how the ideas of the ancients on liberty different from ours, and how different was their social condition from that which exists among us.—”The Romans,” says Plutarch, “thought the liberty ought not to be left to each private citizen to marry at will, to have children, to choose his manner of life, to make feasts; in short, to follow his desires and his tastes, without being subject to the judgment and supervision of any one. Convinced that the deeds of men are manifest in these private actions, rather than in public and political conduct, they had created two magistrates charged with keeping guard over morals, and reforming and correcting them, so that no one should allow himself to be enticed from the path of virtue into that of voluptuousness, or should abandon the ancient institutions and established usages.”

—But the censure instituted at Rome was only one particular form given to the exercise of a right which all antiquity recognized in the state. They thought that by prohibiting the use of articles of luxury, they would repress the avidity of the great and diminish the general consumption of society, that impoverishment would be retarded; that men of the middle class would be prevented from falling into indigence, from which they could emerge only by labor; for we must remember the fundamental principle of the military republics, that labor was dishonorable. Public opinion excused the Roman patrician for having poisoned and assassinated; it would not have pardoned him for engaging in commerce or working at a trade: hence a whole economic system that was artificial and against nature.

—At Rome, we find sumptuary tendencies in even the law of the Twelve Tables. “Do not carve the wood which is to serve for a funeral pile. Have no weeping women who tear their cheeks, no gold, no coronets.” People never regarded these prohibitions. The Oppian law. passed almost immediately after the establishment of the tribunate, forbade matrons to have more than a half ounce of gold, to wear clothing of diversified colors, or to use carriages in Rome. Soon, in the year 195 before our era, the abrogation of that law was demanded, and the demand supported by a revolt of women, as described by Titus Livy. In spite of the opposition of Cato, who, in his speech, showed the intimate relation of that law to the agrarian laws, its abrogation was decreed.

—Fourteen years later, under the inspiration of the same Cato, the Orchian law, limiting table expenses, was promulgated. Twenty years later the Faunian law was passed for the same end. It fixed the expense of the table at about ten cents for each individual on ordinary days, and at less than thirty-one cents for the days of festivals and games. It was prohibited to admit to one’s table more than three outside guests, except three times a month, on fair and market days; prohibited to serve at repasts any bird, were it merely a fatted chicken; prohibited to consume more than fifteen pounds of smoked meat per year, etc. Soon the luxury of the table passed these narrow bounds, and Sylla, Crassus, Cæsar and Antony, in succession, caused now decrees to be issued against gluttony.

—It is true that, by a singular coincidence, most of these men who made laws against luxury at the table, were conspicuous in history for their excesses. The infamy of the feasts of Sylla, Crassus and Antony has come down to us through all these centuries; and if Cæsar was less addicted to gluttony than these famous personages, he introduced no less luxury at his repasts. This circumstance likewise proves clearly that all these statesmen, whatever course they followed themselves and whatever were their personal tastes, considered sumptuary laws a political remedy in some sort applicable to a people in a bad condition. It was not through regard for morals, for private integrity, that they had recourse to sumptuary laws; it was to preserve, if it was still possible, the Italian race, which was rapidly disappearing under the two-fold action of pauperism and civil wars. But private expenses can not be regulated either by laws disregarded by the very persons who make them, or by physical means; the change must be effected through public opinion, religion and morals. When public opinion is so corrupt as to honor theft and despise labor; when all religion is destroyed; when it is honorable among the great to eat and drink immoderately, and to vomit in order to eat again, laws can have no efficacy. Sumptuous banqueting also, incredible as it may seem, increased under the emperors. The emperors then also made sumptuary laws at the same time that they were presenting the spectacle of the most scandalous excesses. Some of them, however, gave what was better than laws, grand examples of abstinence and sobriety, but without result, without power to arrest society on the declivity down which it was precipitating itself. It is as impossible to regulate the employment of wealth acquired by conquest and robbery as that of wealth acquired by gaming.

—The sumptuary laws in all ancient countries were of no avail. Sometimes evaded, sometimes openly despised, they did not arrest the increase of luxury, and did not retard the downfall of the military republics founded upon equality. It seems to us, however, that J. B. Say has treated them with a little too much disdain in the following passage, where he has, however, clearly brought out the difference between the sumptuary laws of antiquity and those of modern states: “Sumptuary laws have been made, to limit the expenditures of private individuals, among ancient and modern peoples, and under republican and monarchical governments. The prosperity of the state was not at all the object in view; for people did not know and could not yet know whether such laws had any influence on the general wealth. * * The pretext given was, public morality, starting with the premise that luxury corrupts morals; but that was scarcely ever the real motive. In the republics the sumptuary laws were enacted to gratify the poorer classes, who did not like to be humiliated by the luxury of the rich. Such was evidently the motive for that law of the Locrians which did not permit a woman to have more than one slave accompany her on the street. Such was also that of the Orchian law at Rome, a law demanded by a tribune of the people, and which limited the number of guests one could admit to his table. During the monarchy, on the contrary, sumptuary laws were the work of the great, who were not willing to be eclipsed by the middle classes. Such was, doubtless, the cause of that edict by Henry II., which prohibited garments and shoes of silk to any others than princes and bishops.”

—There were, in ancient times, other motives for the enactment of sumptuary laws than desire to gratify the poorer classes, and in feudal monarchies the laws originated in other causes than a jealousy of the great: These monarchies were also an artificial creation, founded “on ancient institutions and received usages”; these institutions, these usages, tended to entail property in some families, and to settle rank permanently; and if antiquity had its agrarian laws, which meant equality, feudal society, we must not forget, had its own, which meant inequality and hierarchy.

—The advent of movable wealth and of luxury profoundly disturbed feudal society, where all was founded on the pre-eminence of that property considered especially noble, viz., real estate. A system of agriculture which had become fixed by tradition did not allow the nobility to increase their revenues, while the profits of commerce, navigation and the industries, and the possession of movable capital, elevated the middle class. The luxury of this class, who were eager to imitate the style of the great, disturbed the harmony of society: it deranged a hierarchy without which people saw only disorder. Hence arose sumptuary laws, which distinguished classes by their garb, as the grades in an army are distinguished by the uniforms.

—The vanity of the great, perhaps, called for the sumptuary laws of modern nations, as the jealousy of the lower classes had welcomed those of the ancient republics. But, in antiquity as in feudal monarchies, the legislator was inspired by state considerations, by a desire to prevent innovations which he considered as fatal. From the time when the plebeians came into competition with the luxury of the nobles, from the moment that they were their rivals, it was evident that, if the way was left open for such competition, wealth would finally gain the victory over birth in the opinion of the people, i.e., over the nobility themselves. Now, as feudal monarchies were founded on the right of race, everything that could diminish the authority of this right, tended to subvert the constitution of the state. Even those who did not clearly perceive the import of the luxury of the bourgeois, and who, bourgeois themselves, could not be wronged by it, nevertheless felt that this luxury disturbed the established order, and they supported the sumptuary laws.

—These laws, then, were at all times inspired by the desire of arresting an irresistible movement resulting from the very force of things, from the development, disordered perhaps, but logical, of human activity. They were, moreover, powerless, and were always evaded by a sort of tacit and general conspiracy of all the citizens, without any one daring or being able to find fault with the principle, without any one thinking of contesting the power of the legislator on this point in the very least. In fact, we must remember that in monarchies in modern times, the law-making power was scarcely less extended than in antiquity. People did not recognize the right of every man to work, and still less, the right to work when he pleased; and, what was of much more consequence, they professed that the king held a strict control over his kingdom, and would not allow one class to encroach on the rights of another, or to change the rank assigned to it by ancient custom. “The said lord the king,” we read in an ordinance of 1577, “being duly informed that the great superfluity of meat at weddings, feasts and banquets, brings about the high price of fowls and game, wills and decrees that the ordinance on this subject be renewed and kept; and for the continuance of the same, that those who make such feasts as well as the stewards who prepare and conduct them, and the cooks who serve them, be punished with the penalties hereunto affixed. That every sort of fowl and game brought to the markets shall be seen and visited by the poulterer-wardens, in the presence of the officers of the police and bourgeois clerks to the aforesaid, who shall be present at the said markets, and shall cause a report to be made to the police by the said wardens, etc. The poulterers shall not be allowed to dress and lard meats, and to expose the same for sale, etc. The public shall be likewise bound to live according to the ordinance of the king, without exceeding the limit, under penalty of such pecuniary fines as are herein set forth against the innkeeper, so that neither by private understanding nor common consent shall the ordinance be violated.”

—The world to-day lives in a different order of ideas, and when we read the ordinances of French kings, we find them no less strange than the ancient laws: they seem to us to apply to a social condition in which each laborer was a civil officer, as in the empire of Constantine. These ordinances are nevertheless the history of but yesterday, the history of the eve of the French revolution, and we are still dragging heavy fragments of the chain under which our fathers groaned. But ideas and sentiments have gone far in advance of facts: we have difficulty in comprehending the intervention of the government in the domestic affairs of families, and in contracts which concern only private individuals. As to luxury, it can not disturb classes, in a society where all are on a level, and it can not do much harm if the law of labor is respected, if rapine can not become a means of acquiring property.

—Since the revolution, no sumptuary law has been enacted in France, and yet the luxury of attire which formerly distinguished the nobility has disappeared. A duke dresses like anybody else, and he would be ridiculed if he sought to distinguish himself by a manner of dress different from others. Such is sumptuary law in our time. Any one who should try to make himself singular by particular garments or an exceptional mode of life, would be immediately noted, not as a dangerous citizen, but as a ridiculous fellow. Opinion has undergone an entire revolution. Private expenses are meanwhile increasing, and this increase, too, is pretty rapid. They can not, however, depart far from uniformity vain prodigalities can not be a title to glory in a society where the law of labor is recognized, and the one who will surrender himself to them, however rich he may be, is forced by public opinion to wear a certain modesty, even in his greatest excesses. Sumptuary laws can no longer be proposed. We need not think the honor of the change is due to our wisdom, to our pretended superiority to the ancients; let us simply recognize, (and it is in this that progress consists), that the essential principle of society has changed: the world moves on another basis.

—When the Roman people had, in despite of the observations of Cato, abrogated the Oppian law against the luxury of women, Cato, who had become censor, attempted to have it revived in another form. He included in the census, that is, in the valuation of the wealth of the citizens, jewels, carriages, the ornaments of women and of young slaves, for a sum ten times their cost, and imposed a duty on them of 3/1000 or 3/100 of the real price. He substituted a sumptuary tax for a sumptuary law. The moderns have done as did Cato. After the sumptuary laws had become a dead letter, they imposed taxes on the consumption of luxuries. England has taxes on carriages, on servants, on armorial bearings and on toilet powder. So far as political economy is concerned, these taxes are irreproachable; but they bring little into the treasury, and have scarcely any influence on consumption or on morals.