The Market and the Temple/3 - The analysis. The great theological debate on the nature of interests and a crucial discernment made by the Franciscans
By Luigino Bruni
Published in Avvenire 22/11/2020
History is not fiction, Providence also speaks to us through concrete events, and the Spirit can breathe within the realms of a contract too
There was a time in Europe when Popes issued Decrees to resolve disputes regarding banks and interest. When "the economy of salvation" and "the salvation of the economy" were both at the centre of the commitment of Christians, of the intelligence of theologians, and of the eyes of public opinion. When the debates on the Eucharist and those on the legitimacy of usury had the same theological and human dignity, because the Church and the people knew perfectly well that people also lived and died due to a lack of credit or too many bad loans.
Debates that were so heated that a papal Decree was needed to put an end to the long controversy surrounding the Monti di Pietà (without being completely successful). The controversy concerned above all the interests those banks charged for their loans, which their opponents considered usury. While recognizing the reasons of the opponents as plausible, Pope Leo X confirmed the legitimacy of the banks and their practice to request the payment of an interest on their loans, «provided that it is intended exclusively for the expenses of the employees and other things related to the maintenance of the organization, and provided that no profit is made» (Inter Multiplices, 1515). The Decree therefore stated that the Monti were not incurring the sin of usury (pecunias licite mutuant), that they in fact were not usurious institutions for the sole fact of asking for the payment of an interest rate (generally around 5% per annum). The same Decree reiterated the definition of usury: «Because this is the true meaning of usury: when a thing produces gain for the sole use of the thing itself (ex usu rei), without any work, expense or risk involved». No work ... no risk.
Hence, the interest loans of the Monti di Pietà were not considered to be usury, provided that the interest was not a mere expression of profit, but a legitimate reimbursement of the bank's operating expenses. So much so that, in the last section of the Decree, Pope Leo X takes care to specify that the ideal remains the non-payment of interests (at least partial) by the poor, when public or philanthropic funds can cover management costs in a way that they are not born «entirely by the poor». The centre of the controversy was therefore the purpose of the interest, the essence or "spirit" of that small sum added to the capital. The spirit was not to be profit, but cost coverage.
However, this "spirit" that exactly what was being questioned by the opponents of the Franciscan minors. Among these, the monk Nicolò Bariani, from Piacenza, who in 1494 published a booklet that made a lot of noise: De Montis Impietatis. Bariani was an Augustinian and therefore trained in the biblical and patristic view on money and interest. For him any sum of money paid in return that exceeded the initially lent capital was usury, and therefore illegal, including those of the Monti di Pietà. The Franciscans, on the other hand, made a distinction between different kinds of interest. How? And on the basis of what "theory" could they distinguish a usurious florin from a legitimate one?
What is clear is that the debate between theologians on economics and usury was utterly exciting, controversial, tough and harsh, ever since the thirteenth century. Above all, however, it was brilliant, and still leaves us amazed many centuries later by its intelligence and depth. More than being just theologians, The Franciscans were careful observers of reality, especially that of the new Italian and European cities. They were far less interested in abstract and deductive disputes (including Aristotelian ones), and much more interested in understanding people's actual behaviours. For this purpose, they observed the practices of the merchants, thereby getting to know the economic and civil changes in a very dynamic time. And they carried out an essential practice in any attempt to understand a complex reality: discernment. They distinguished, separated, ordered phenomena that might appear similar regarding certain aspects but were very different concerning others, and which things-aspects were the really decisive ones at that given time and place. In the workshop constituted by the merchant cities of the 13th-15th centuries, they understood, for example, that the merchants who included an added value in the price of an asset, to compensate them for the risk of highly uncertain businesses carried out at sea or on land, or the money changer that in Genoa or Venice had to take into account the fluctuations of currencies and inflation, in fact did very different jobs from those carried out by professional usurer money lenders, leading peaceful and comfortable lives by their desks, (as stated by Alessandro d'Alessandria, Tractatus de usuris, early XIV sec.). All three groups paid or demanded interest on their money, that much is true, and this common element was enough for many preaching monks to condemn them all as usurers. The Franciscans however considered the three situations to be very different in substance, although similar in form. And this brings up the great theme of the difference between profit and revenue.
First of all, however, we must take a rather strange medieval friendship seriously, the one between the Franciscans and the merchants. Francis began his story in Assisi by distinguishing himself and rejecting the economy and wealth of his father Bernardone, a merchant; and shortly after, the Franciscans found themselves allies of the merchants in the Italian and European cities of the thirteenth and fourteenth centuries. Another generative paradox. Meanwhile, there is a concrete fact in here as well: unlike other religious orders, more than any other religious families, since the time of Francis, the Franciscans had developed a secular order: the Third Order. Many lay people were in fact part of their charismatic community, and many of them were merchants. They knew them; they were their brothers. Rather than judge them, they were their friends, and they knew their hearts. One can easily imagine that the first good words spoken about the market and profit were born during a fraternity meal, when a merchant-brother confided in them talking about his difficult and sometimes even risky job. And having looked into the soul of the merchants, those theologians consequently saw a different soul in the market as well. They began by feeling love and esteem for the merchants and then moved on to the markets. And that is how they came to understand them, both back in the day as well as today, because there can be no true knowledge without love-agape. There is a strong message of Christian theology in all of this: history is not fiction, Providence speaks through concrete events as well, and the Spirit can breathe within the contract of a merchant and within the workshop of an artisan as well.
And so, by looking at and loving the world, they realized that those merchants were not usurers, even when they had to ask for or pay interest. This is the essence of the inner spirit of that form of profit, the spirit of that kind of capitalism. And this lead them to realise that it was the very idea of a formal and abstract condemnation of interest on money that had to be rethought and modified, because not all kinds of interest were the same. There was a type of interest that was merely a just compensation for some of the aspects inherent to the actual economic and commercial activity involved. They understood that if the merchants did not include risk remuneration in their contracts, their activity would not be able to develop, eventually bringing about serious damage to the cities - the Franciscans clearly understood the function of the common good of honest merchants (the "boni mercanti"). Paying an insurance premium for maritime schemes (foedus nauticus) or to those who lent capital for a long commercial mission in the East, was very different from taking usury money from a bank. The usury part is in its essence, the spirit, not the actual material sum of money paid as interest, because sometimes that money was simply a necessary and good collateral component of a business operation.
And it that merchant was in a position to be able to lend money to other merchants - merchants and bankers at the beginning were highly intertwined professions and activities - here is another good reason to ask for the payment of an interest rate: loss of profit. That is, if merchant Lapo lends 1,000 florins to his colleague Duccio and thus renounces to using that money himself, it is only fair for Duccio to reward Lapo with an interest for the gain that his colleague was unable to obtain due to his loan – a medieval equivalence to the modern term "opportunity cost". Hence, in essence this interest was good, provided, however, that the person lending the money was a merchant and that the hypothetical alternative use of the money therefore was a productive one, not a mere sterile loan. In the case of good merchants, what seemed at first glance to be usury was merely a compensation for the uncertainty, for the inflation, for the variability of the markets in question. So much so, that in many cities merchants were considered to be, if not actual indigents, paupers, because they lived and were radically dependent on uncertainty.
Hence, now we get to the decisive distinction: the one between profit and revenue, entirely forgotten today. In the eyes of those Franciscan theologians and economists, if the interest involved comes in the shape of a good merchant's profit, it is legitimate; if on the other hand that same sum of money is constituted by mere yield or revenue, it is usury. Profit is the remuneration for the lawful and risky activity of a merchant, a gain that comes as a reward for his work, risk, expertise and innovation, in short his precious profession. Revenue, on the other hand, is a gain that comes from the mere fact of exercising a position of power over money, without any work and without running any real business risks. This is why, while discussing the pecuniary penalties that could be added to a mortgage to protect oneself from a delayed repayment, Fra Angelo da Chivasso states that it is in fact a legitimate claim, unless the request is made by a person who «usually lends money by practicing usury».
But how does one distinguish between the different types of merchants who lend money? This is where the Franciscan canonists and theologians gave their best, writing long digressions on the exceptions of usury and on thousands of concrete cases. Fame or name recognition always played an essential role, a collective judgment expressed by an expert community made up of honest merchants. We cannot understand medieval and early modern economic ethics without taking this collective aspect of the market and merchants into consideration. The social body, with its widespread intelligence, knew how to distinguish a usurer from a merchant. The economic activities that damage and kill, and the ones that enable us to live, are intertwined every day, in every part of the economy and in every complex area of life. Only those who, for the love of their people, know how to penetrate the living marrow of this intertwining can truly serve the economy and life. The rest is just abstract moralism, which almost always ends up doing harm to honest people, a fact as true back then and as it is today. The Economy of Francesco knew all this, the Economy of Francesco still knows all this.
