Chapter IV. Mutuum and Usury

ECONOMIC goods may be divided into those which are meant for immediate consumption and those which are meant to subserve our wants by repeated use. In the first category are articles of food and drink, in the second are commodities which are capable of rendering continued services, such as a saw, a sewing-machine, a house. It is with the first class of goods that we have principally to do in this chapter. They are sometimes called fungibles because any amount is interchangeable with the same quantity and quality of the same commodity (mutua vice funguntur). Thus, if I lend a bushel of wheat, I shall be satisfied if I get back a bushel of the same quality; I do not expect to receive back the same identical grain. The matter of the contract of mutuum is something fungible, which is consumed in the very first use of it.

It is obvious that such commodities may be the matter of many different contracts. They may be the matter of the contract of sale, or gift, or exchange, or loan. The contract which was called mutuum in Roman and canon law was a gratuitous loan of a fungible commodity on condition that after a certain period of time the borrower should restore to the lender an equal quantity of the commodity and of the same quality. Unfortunately, we have no term in English which is the precise equivalent for mutuum. We use the term Joan of lending a horse, which we expect to be restored to us in specie, and of lending a bottle of wine, which we do not expect back but another instead of the same size containing the same quality of wine. As an equivalent for mutuum we may make use of the expression loan for consumption as distinguished from Joan for use.

In all contracts justice requires that values which are given in exchange should be equal. A sin against justice is committed by charging an unreasonable price for a horse. What the reasonable price is depends on the demand, on the available supply, and on a great variety of factors, but it is proximately determined by the common estimation of intelligent men at a fixed time in a certain place. The fair price of a fungible commodity which is consumed in the first use of it is the money equivalent of the value which that use has, The commodity is for consumption, and the only value that it has is the value of that consumption. There is no other use in the commodity which can give it any additional value. The fair price of a bottle of wine is the money equivalent of the value which the wine has for drinking. In other words, the value of the first consumption of the commodity is the value of the commodity.

On the other hand, commodities which are not consumed in the first use of them, but which continue to render repeated services, have a value over and above that of the first use. The value of a house is greater than the value of the lease of it for a year, because the house will continue to render services and be valuable after the year’s lease of it expires. The fair price, then, of a commodity which is not consumed in the first use of it will be greater than the value of that first use.

All this seems evident, yet with a view to the deductions which we shall presently make, it is well to strengthen what has been said by the words of a modern professor of political economy. Dr. G. Cassel writes: “‘ All economic goods may be divided into two categories: those which satisfy our wants in being consumed at once, and those which afford a series of useful services before they are worn out. Food is an instance of the former category, houses of the second. This line of subdivision is one of the most fundamental in economic science. The price paid for an article of immediate consumption is, of course, the same as the price paid for the use of this article. This is not so in the case of an article belonging to the second category. The price paid for the single useful service it affords is one thing; the price paid for the article itself is quite another.”¹

¹ The Nature and Necessity of Interest, p. 86 (1903).

Money considered as a medium of exchange is a fungible; it is a commodity whose use is exhausted for the owner of it when he has paid it in exchange for value received. It is not, under this respect, a commodity which is susceptible of repeated use by the same owner. Money, then, may be the matter of a contract of loan for consumption, and, if a sum of money be thus lent, justice requires that an equal sum be returned at the end of the term, and justice will not allow a greater sum to be exacted in return. For the whole value of the sum of money is the value it has for making exchanges, the value which it has in the first expenditure of it; and if, over and above the sum lent, a further sum were demanded for the use of the money, the same thing would be charged for twice over. An equal sum is due in return for the use of the money; a further sum would be a second payment for the same use. Thus when money is regarded merely as a medium of exchange a sin against justice is committed if an additional sum besides the principal is exacted for a loan; it is called the sin of usury, money unduly exacted for the use of money. This is the reasoning of Aquinas,¹ and it seems as cogent to-day as it was in the thirteenth century. By this argument he defended the doctrine concerning usury which the Fathers and Doctors drew from Holy Scripture and tradition. Benedict XIV sums up the constant teaching of the Church on usury in his celebrated encyclical, Vix pervenit. There the Pope says: “‘ The sin which is called usury consists in this, that from the loan for consumption (which of its own nature requires that only so much as was received should be returned) the lender desires more to be returned to him than the borrower received, and therefore contends that some gain, over and above the principal, is due to him merely on account of the loan. For whoever, when once a sum equal to the debt has been repaid, is not ashamed to exact something more from the borrower on account of the mere loan, which has been repaid by the equal sum, such a one stands convicted of acting against the obligation imposed by a loan for consumption, which requires equality between the sum lent and the satisfaction for it ” (cf. Can. 1543).

This argument is valid when money is regarded as a means of exchange for articles of consumption and a measure of their value. Until modern times this was the chief function of money, but now we find that the above argument does not impress us with convincing force because in modern society money is not only a means of exchange for articles of consumption and a common measure of value, but also the most convenient form of storing capital. Within the last hundred or hundred and fifty years modern society has become capitalistic, and money is the chief form of capital. No wealth-producing object of importance can be undertaken without a supply of money, and money is now readily exchangeable for land, machinery, means of distribution, and other instruments for the production of wealth. Capital is one of the factors necessary for the production of wealth, and it is the chief instrument of its production. Money, then, looked upon as capital, is not a mere fungible; it is not a commodity which is consumed in the first use of it; it is the main instrument necessary for the production of wealth, and it thereby acquires a new function; it becomes virtually productive and puts on the nature of land and machinery, with which it is so readily exchangeable. Indeed, nowadays land can hardly put forth its natural productivity without the aid of capital, and machinery cannot be worked for the production of wealth without it. It follows, then, that nowadays money is not merely a means of exchange; it is also an instrument of production, and just as money may be charged for the use of land, or of a house, so money may be charged for the use of money. Money now has its fair and reasonable price like any other commodity, and the sin of usury is committed not by taking a fair and reasonable interest for a loan, but by exacting excessive interest. What is a fair and reasonable interest is a question whose solution depends upon circumstances, and, proximately, on the common estimation of intelligent men, like the fair and reasonable price of other commodities.

The foregoing seems to be the true solution of the old and much-disputed question of usury. It rests on historical facts and economic truths which are commonly admitted by modern theologians and economists, and it furnishes a satisfactory explanation of the changed attitude towards the taking of interest for money loans which the Church has adopted in modern times. Canon 1543 rests the title for taking moderate interest for money on positive law.

Although the use of money as capital was known in particular places and especially in centres of commerce in former ages, yet this use was exceptional and could: not characterize money in general, The capitalistic function of money was of very gradual growth, and we have to wait till the latter part of the eighteenth, or the first part of the nineteenth, century before the capitalistic era was fully developed even in the most advanced nations of Europe. It may be well to quote one or two passages from economists of standing in proof of this. Dr. Cunningham writes: “ In dealing with the Christendom of earlier ages we have found it unnecessary to take account of capital, for, as we understand the term in modern times, it hardly existed at all. In the fourteenth and fifteenth centuries we may notice it emerging from obscurity, and beginning to occupy one point of vantage after another, until it came to be a great political power in the State, . . It would be still more hopeless to try to treat the intervention of capital as an event which happened at a particular epoch, or a stride which was taken within a given period. It is a tendency which has been spreading with more or less rapidity for centuries, first in one trade and then in another, in progressive countries.. We cannot date such a transformation even in one land; for though we find traces of capitalism so soon as natural economy was ceasing to be dominant in any department of English life, its influence in reorganizing the staple industry of this country was still being strenuously opposed at the beginning of the present century [the nineteenth].’’²

The following is from Professor Cassel’s book, The Nature and Necessity of Interest: ‘‘ Interest paid for the use of capital, not for the use of money. ... The question For what is interest paid ³ was taken up again, a few years afterwards, and treated in the most successful way by the eminent French economist, Turgot. He rejects the old idea of a ‘ price of money,’ and defines interest as the price given for the use of a certain quantity of value during a certain time—a formula never afterwards surpassed in clearness and definiteness. He shows how this price is fixed by demand and supply, and he gives special attention to the causes which govern the demand for capital. What he has to say on this subject is even in our days of the highest value, and should not be neglected by any serious student of the theory of interest. He puts capital— i.e., the use of a certain quantity of value during a certain time— as a factor of production on the same line with the other factors.

Thus historical fact and scientific explanation of the rise of the capitalistic age and the theory of interest on money as capital synchronize with the beginnings of the change in the Church’s teaching on the lawfulness of interest on loans. In the year 1830 the Holy Office gave answer to a question of the Bishop of Rennes that confessors were not to be disturbed who absolved penitents in spite of their taking interest on money lent to merchants. Similar answers followed in quick succession, so that now there is no practical difficulty as to the lawfulness of taking moderate interest for money loans, though the Church has not yet formally settled the general question.

In England the usury laws, dating from Edward the Confessor, were repealed in 1854, owing to the prevalence of the opinion that such laws were economically unsound and practically ineffectual. Experience, however, has shown that the rapacity of usurious moneylenders requires curbing, and the Moneylenders Act, 1900, empowered courts of justice to grant relief from any usurious bargain which, in the opinion of the court, was harsh and unconscionable.

Canon 1543 is as follows: “‘ If a fungible be so given to another that it becomes his and afterwards as much is restored in the same kind, no gain can be received on account of the contract itself; but in the lending of a fungible it is not per se unlawful to make an agreement about the lawful interest, unless it is certain that it is immoderate, or even about a greater interest, if there be a just and proportionate title.”

¹ Summa, 2-2, q. 78, a. I.

² Western Civilization, n. 114.

³ Page 20.