Studying Islamic Finance

السلام والازدهار العدالة المجتمعي
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Wednesday, April 17, 2013

The Encyclopedia of the Catholic Church on Usury

On the topic of usury, the English language Encyclopedia of the Catholic Church gives an American understanding of the law on usury.

One finds in the Encyclopedia of the Catholic Church:

Even at the present day, a small number of French catholics (Abbé Morel, "Du prêt à intéret"; Modeste, "Le prêt à intérêt, dernière forme de l'esclavage") see in the attitude of the Church only atolerance justified by the fear of greater evils. This is not so. The change in the attitude of the Church is due entirely to a change in economic matters that require the present system. The Holy See itself puts its funds out at interest, and requires ecclesiastical administrators to do the same.

One would be pardoned for relying on this passage.  The encyclopedia of the Catholic Church is not the catechism of the Catholic Church.  And if the Holy See requires ecclesiastical administrators put funds out at interest, as it does (although this is exceedingly difficult to determine if true), this is an error in administration, not a change in teaching of faith and morals.

The other problem is the definition of interest, which something in Church language aside form usury, and in common language the same thing.  This makes for complicated explication, since usury is clearly forbidden.

There was in older times the simple prohibition on making money on money, like on like.  As clever men resisted this prohibition, two new elements were introduced to the argument: time and space.  What about money loaned out gratis held longer than promised.  If I pay a fine Monday for failure to pay a debt, for money I did not receive back from the loan on time, is not the person who delayed paying me back obliged to pay my fine.  This is a claim on nonperformance, due to an interval of time (interesse).

What if I lend someone money for a journey and they will repay me when they arrive a thousand miles away. but the money has to be transmitted back some why.  Is there not a warrant to pay for the cost of transmitting the money over space?  This is a claim on a loss in making a loan, the cost of the interval of space that must be covered to repay the loan.  So interest means a warrant to cover a loss, not as we think today a warrant to earn a gain.

So if the church is lending out at interest, it is in the sense of a claim on a loss, not a gain on a loan.  Now this is debatable if they have crossed the line administratively, in fact it is debatable if in the real world there are any instances where time or space or both causes a loss that would warrant a "make whole" premium.

With usury and interest synonymous in English, much usury sneaks by as interest.  How much is yet to be exstimated.

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