Wednesday, November 01, 2006

Usury, Religion, And Real Estate

An interesting Chronicle article on Islamic finance co-ops creating opportunities for homeownership for Muslims who follow strict Islamic law against usury - which can include a prohibition against paying interest.

Reading the article, I thought back to a walking tour we'd taken in Florence last May, where the subject of usury came up in a discussion of Medici artistic patronage and charity.

So then I had to read up on usury because I missed that day of CCD:

Usury in scholastic theology
St. Thomas Aquinas, the leading theologian of the Catholic Church, argued charging of interest is wrong because it amounts to "double charging", charging for both the thing and the use of the thing. Aquinas said this would be morally wrong in the same way as if one sold a bottle of wine, charged for the bottle of wine, and then charged for the person using the wine to actually drink it. Similarly, one cannot charge for a piece of cake and for the eating of the piece of cake. Yet this, said Aquinas, is what usury does. Money is exchange-medium. It is used up when it is spent. To charge for the money and for its use (by spending) is to charge for the money twice as if one were to charge for a piece of cake and then make a further charge for eating it. It is also to sell time since the usurer charges, in effect, for the time that the money is in the hands of the borrower. Time, however, is not a commodity that anyone can sell.

This did not, as some think, prevent investment. What it stipulated was that in order for the investor to share in the profit he must share the risk. In short he must be a joint-venturer. Simply to invest the money and expect it to be returned regardless of the success of the venture was to make money simply by having money and not by taking any risk or by doing any work or by any effort or sacrifice at all. This is usury. St Thomas quotes Aristotle as saying that "to live by usury is exceedingly unnatural". Islam likewise condemns usury. Judaism condemns it save when practised against non-Jews. St Thomas allows, however, charges for actual services provided. Thus a banker or credit-lender could charge for such actual work or effort as he did carry out e.g. any fair administrative charges. The Catholic Church, in a decree of the 5th Lateran Council (Session 10, 4 May 1515) expressly allowed such charges in respect of credit-unions run for the benefit of the poor known as "Mons Pietatis".

Later, the Protestant John Calvin (father of a Protestant Reformation movement known as Calvinism) defended interest charges. A connection was advanced in influential works by Richard H. Tawney and by Max Weber that this set the stage for the development of capitalism. In fact, technology and joint-stock companies were at least as influential and trade and commerce were not retarded in countries that maintained laws against usury. However, the growth in derivative financial "products" was certainly increased by the allowance of interest charges.
Perhaps more fun - from the section on usury in literature: "In The Divine Comedy Dante places the usurers in the inner ring of the seventh circle of hell, below even suicides. (Showing how cultural attitudes have changed since the 14th century, the usurers' ring was shared only by the blasphemers and sodomites.)"

To anyone carrying any amount of credit card or student loan debt - I'm guessing that sounds about right.

Unrelated sidenote: Is there an appropriate use for the word "resiliency" or is it simply one of those nouveau faux words created by folks who can't correctly use the word "resilience?"

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