The Usury

Of all the prices, the rate is the one whose very right to exist has been most fiercely and most lastingly denied. The wage and the rent were grumbled at, regulated, sometimes cursed; but interest — the charge for the loan of money, the price of time itself — was for the greater part of recorded history not merely resented but forbidden, condemned by philosophers as unnatural and by churches as sin. To understand what the rate is, it helps to begin where the world began: with the conviction that it ought not to be charged at all.

The classic statement of the objection is Aristotle's. Money, he argued, was invented to serve exchange — a measure and a medium, barren by nature. To lend it at interest is to make money breed money, to treat a sterile thing as if it were fertile; and the Greek word for interest, tokos, means precisely "offspring," the young of the parent sum. Of all the ways of acquiring wealth, Aristotle held, this breeding of money from money is the most against nature, because it perverts the very purpose of the thing. The lender produces nothing; he merely lets his coin lie with another and demands it back enlarged.¹

On this foundation the medieval world built a sweeping prohibition. Christian canon law forbade usury — and usury then meant not excessive interest but any interest at all, any return on a loan beyond the principal. The scholastics, Aquinas chief among them, gave the prohibition a subtle rationale: money is a thing consumed in its use, so to charge for the loan of money and then to demand the money back is to charge twice for the same thing; worse, interest is a charge for time — for the interval between loan and repayment — and time is not the lender's to sell, being the common gift of God to all. The same suspicion ran through the neighboring traditions: Islamic law forbade riba; the Hebrew scriptures restricted lending at interest within the community. Across the civilizations that shaped the West, the charging of interest sat under a moral cloud that lasted a thousand years.²

The prohibition could not survive the commercial revolution, for an economy of trade and enterprise cannot function without credit, and credit will not be extended for nothing. The rehabilitation of interest came not by overturning the moral argument but by working within it — by identifying, with increasing ingenuity, things the lender does in fact give up. The canon lawyers allowed extrinsic titles to interest: damnum emergens, the loss the lender suffers from being without his money; lucrum cessans, the profit he forgoes by lending rather than investing; and the risk that he might not be repaid at all. Calvin, breaking more openly, allowed interest on productive loans as a legitimate share in the borrower's gain. Step by step, the charge for a loan was redescribed: not the breeding of barren money, but the price of a real sacrifice — of the lender's forgone use, forgone opportunity, and accepted risk.³

But notice what the rehabilitation accomplished, and what it left undone. It answered the charge of theft by naming something the lender contributes — a sacrifice, an opportunity, a risk. Yet this only relocates the question it seemed to settle: what, exactly, is that something, and is it enough to earn the interest charged? If what the lender gives up is the productive use of his money, then interest is grounded in the productivity of capital — the matter of a later plate. If it is the sacrifice of present enjoyment, the bearing of impatience, then interest is grounded in time preference — the matter of the next. If it is the surrender of ready money, of liquidity, then interest is Keynes's reward for parting with it. The ancient question whether interest is earned did not vanish; it dissolved into the modern question of what determines it — and every theory of the rate that follows is, at bottom, a fresh attempt to say what the lender gives that the borrower must pay for.⁴

The radical answer never accepted the rehabilitation at all. For Marx, interest is a share of surplus value — the money-capitalist's cut of the unpaid labor extracted in production, claimed by the mere ownership of money and without even the trouble of organizing the work. The usurer's accusers, in this telling, were right: interest is extraction, the toll that those who have money levy on those who must borrow it, dressed up by the economists as the reward for a sacrifice. The suspicion has never wholly died, and it returns, with force, wherever rates bear hardest on the weakest — in the debts of poor nations, in the interest on the loans of the poor, in the old and recurring sense that the creditor reaps where he has not sown. The medieval prohibition itself survives, in vestigial form, in the usury ceilings and interest-rate caps that nearly every modern state still imposes — the law's lingering memory that a price of time can also be an instrument of harm.⁵

The moral question, then, was never quite closed; it was set aside, as the discipline turned from asking whether interest is just to asking what fixes its level. But the turn is less a change of subject than it appears, for to say what determines the rate is, inescapably, to say what the lender contributes — and the plates that follow will find no single answer, but three rival ones, located in three different worlds, none able to claim the rate whole. That disagreement is the volume's first clue. A price that everyone pays, that bears on every loan and every deferred plan, and that the discipline cannot agree to ground in any one thing, may not be the simple fact of arithmetic it appears — may not, in the end, be a price of time at all, so much as a decision about it.⁶