Is banking immoral?

Did you know that banks and other financial institutions were considered morally suspect throughout the middle ages?

This video explores the intersection of religion and banking as a prelude to APN’s series on US financial history, “Money, Banking and Politics in the US: from Benjamin Franklin to Occupy Wall Street.”

Interested in learning more on this topic? I recommend the book “Debt: The First 5,000 Years” which was the main source for this video. You can read it on PDF here (the author wanted this work to be available for free to everyone).

Includes music by Kevin MacLeod:
Hand Trolley, Kevin MacLeod (incompetech.com)
Licensed under Creative Commons: By Attribution 3.0

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Transcript

What is usury?

It may seem strange to us today, but institutions of banking and finance have long been viewed as immoral. Once upon a time, all major world religions forbade the practice of usury, which had a different definition than we’re used to. They meant, not just charging excessive interest, but charging any interest at all. Many Kings and Emperors forbade the practice as well. For example, Charlemagne banned usury across the Holy Roman Empire in the year 806. 

Antipathy towards finance is deeply rooted in Judeo-Christian culture, but even more so in the Islamic world. Islamic banks still adhere to the old laws and refuse to charge interest on loans even today.

But most of us will at times find ourselves shackled by credit card bills, student loans or mortgages. Or even all three at once. But still, I imagine we might find paying interest on debts we owe to be so commonplace that we might not understand why most people have been morally opposed to it throughout history. What’s the big deal? In fact, isn’t it beneficial for our economy if, for example, new businesses are able to get the loans they need to help them start out? If they have to pay a reasonable interest rate for that service, what’s wrong with that?

Why was usury considered immoral?

I can’t speak to the religious reasons behind the prohibition against usury, but I believe it’s rooted in the material reality that charging interest actually poses a major practical problem, which is that the money doesn’t necessarily exist to pay it. Let’s take an extreme example to make it easier to show the issue here. Let’s say a financier owned one US dollar back in the year zero. Let’s say he lent that dollar at 5% annual interest and kept loaning it out, and also the profits he made from it. Let’s say those profits kept rolling over and over for thousands of years until today, how much money would that be?

Well, I know it’s a lot. Let’s get out the old calculator…

$6,042,196,183,111,850,000,000,000,000,000,000,000,000,000

Okay, that’s a lot.. Oh! Oh, my.

The lender must have made some kind of pact with Satan, I’m just saying, because this number doesn’t make any sense to me. That amount of money doesn’t exist, anywhere, nowhere close. On a long enough time scale, sometimes repaying interest that’s owed is not physically possible. Without a way for the money to recycle back into the hands of poor people and debtors, grinding poverty and massive inequality will eventually be the result in any society that allows lending at interest.

This is especially true in a simple economy with a fixed money supply. Those who are able to profit just because they own money… they will eventually end up owning all the money. All of it. And that could threaten the power of the King, or cause an economic breakdown.

The biblical jubilee

In times of civil unrest or when many were falling into debt bondage, the king would declare a jubilee and forgive everyone. They’d go back to a clean slate, and then when the economy started to break down again, they’d do another jubilee.

In the Bible, the Book of Deuteronomy is very explicit about the need for debt forgiveness on a regular basis.

At the end of every seven years, you must cancel debts.

Deuteronomy 15:1

It’s a crude solution to the problem of interest, but the jubilee system worked at least okay for a long time for most people. But the moneylenders… were not always happy with it. Yeah, they weren’t big fans. They wanted their money back, who can blame them? And when people started to agitate for another jubilee, they’d get angry and they’d start casting blame of their own. If you can’t pay your debts, you’re the one who’s bad, it’s not me! I’m a good person. I pay my debts! Remember, you promised.

This is when emperors like Charlemagne or powerful religions like the Catholic Church would step in and try another solution to put an end to the fighting between creditors and debtors. They decided to just ban interest completely. Pope Clement V went so far as to declare in 1311 that belief in the right to usury was a heresy. And they didn’t treat heretics very well back in the middle ages to be sure. Pope Clement also nullified all secular law that allowed lending at interest, ‘cause popes could do that apparently.

So, good! Banning the charging of interest should solve the problem, right? Only no, it doesn’t. First of all, people would still do it even if they were viewed as sinners or heretics. People do lots of bad things. It just moves underground or to the seedier parts of town, which is not always an improvement. And second, sometimes there are good reasons to go into debt. Lending can be a very important service. As European economies started to develop in the middle ages, merchants found that they really needed access to credit.

But both Christianity and Judaism banned the charging of interest, and most people with money didn’t want to lend it out for free, especially if there was a risk they wouldn’t get it back. And if we’re talking about an ocean voyage, the risk was pretty big. So, what was a merchant to do? Well, one important detail here is that Judaism didn’t completely ban usury. While Jews couldn’t charge other Jews interest, they could charge Christians. And being a persecuted minority often barred from any other profession, banking was a fortunate niche for them to occupy, which many Jewish people did.

Despite the high fees, taxes and outright theft that Jewish bankers sometimes had to deal with, some managed to do quite well for themselves. This, unfortunately, tended to cause resentment which heightened feelings of anti-Semitism, that, of course, already existed. This is where the canard of the greedy and cruel Jewish banker comes from, such as seen in the character of Shylock in Shakespeare’s Merchant of Venice. I’m not going to dwell on this topic much, but I do want to take a moment to recognize how important anti-Semitism is to the story I’m about to tell over the next 20 episodes of this series. It’s present in the history of money reform from the middle ages through to the present, unfortunately.

But your friendly neighborhood Jewish banker was really the start of banking in Europe. And it was a pretty profitable gig, so you know the gentiles eventually wanted to get in on it, too. The Medicis of Florence, Italy were one of the first major gentile banking families. They pioneered debt instruments called “bills of exchange.” These allowed them to make money based on changes in the exchange rate between the different currencies of Italian city-states, even if the Pope didn’t allow them to openly charge interest yet. Bills of exchange were the next best thing.

Usury redefined

Eventually the Church did soften its stance on usury, as we know. Arguments that lending involved risk that deserved compensation started to take hold in the late middle ages. Then, with the rise of Protestantism, the sin of usury became more of a personal matter between you and your God that may affect your ultimate salvation but wasn’t something to make illegal on Earth. It was around this time when usury was redefined as charging excessive interest, rather than any interest at all. But there were anti-usury laws in the US even until as late as the 1980s. Now, we’ve just completely given up on regulating finance at all, and we’ll get to that in later episodes.

Redefining usury was critical for the rise of capitalism, but, whether for practical, religious or cultural reasons, or maybe because of anti-Semitism, the association of debt and finance with sin and immorality has persisted through the centuries. Even today, people tend to view personal debt as something shameful, and we often talk about the national debt in moral terms instead of as a purely economic issue.

This is well highlighted in debates over the gold standard throughout the 19th century in the US.

We will answer their demand for a gold standard by saying to them: You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.

William Jennings Bryan, “Cross of Gold” speech

These debates weren’t just about economic policy — they were competing moral systems. For financial conservatives, gold was seen as the most moral and just of all metals. I’m not making this up. Some thought gold was ordained by God to be the basis of our money supply. Paper, on the other hand, was seen as a tool of greedy men who were out to defraud us. It was seen as sinful and debased.

Even today, our opinions about money, debt and finance are influenced by the economic conditions, simplistic money systems and religious thought that prevailed hundreds or thousands of years ago. All that has changed now, but our feelings still linger.

They never really went away, but starting In the 20th century, another layer started to form on top of everything else. The debates over money and financial policy in the public sphere started to recede a bit, and we saw the rise of financial experts and other technocrats. They managed to convince us to leave all this complicated financial stuff to them. 

They’d have us believe that there’s one best way to manage the economy and people with irrational prejudices or who don’t have years of training shouldn’t be allowed to interfere.

But with the crash of 2008, I think lots of people are waking up to realize that the experts aren’t dispassionate and they’re not apolitical. They serve certain interests… which are maybe not our interests.

To me, it’s clear that economic and financial policy has to come back under democratic control. I know that people may have irrational feelings or believe false conspiracy theories about money, people are still anti-Semitic and people still view debt in moral terms. Or, maybe they think this is all boring and not worth their time, so they don’t engage with it at all.

What can US history teach us about our financial system?

And that’s why I wanted to make this video series — it will cover all of American history from the first settlements through to today. You’ll see how often our monetary system has changed and you’ll realize this isn’t something that’s out of our control. When it changes, it changes based on politics, not only economics. We’re talking about something humans have created — we can manipulate it. We can make it serve us.

So, without further ado, here it is, the financial history of the United States, which really is the financial history of the modern world. The US dollar has a very prominent place in this story, as we’ll see. But it didn’t start out that way. Early settlers came here with basically no money at all. They had land, because they stole it from the people of the First Nations, and they enslaved black people for labor and with that huge amount of help, they turned their country into a world superpower. This is the story of how that happened, how Americans shaped the global financial system. It’s also about how it could be re-shaped. I hope you’ll subscribe to go on this journey with me

In episode one, we’ll check in on those early American settlers and see how they managed to thrive with almost no currency. Did you know they used things like sea shells and tobacco as money? Wild, right? Even weirder, they used paper.

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