Usury (lending at interest)

Norbert Campagna

[fr]

1In Montesquieu’s time, the debate about the moral legitimacy of lending at interest as such was essentially over, the arguments advanced by Aristotle and taken up again by the scholastics – notably, that it is not natural for money to engender money – having finally yielded to the fact of a large-scale economy that could no longer function without lending at interest. And if, as Montesquieu suggests, it would be “a very fine act to lend one’s money to someone else without interest” (EL, XXII, 19), that type of act belongs to the domain of supererogation and not what strict justice or equity requires. Religious counsel must be distinguished from civil laws, the former having “the goodness of man as its object”, the latter “the general good of society” (EL, XXVI, 9). This passage of the Spicilège (no. 369) is about the second aspect: “He who borrows from me does it only to make his profit, for otherwise why would he borrow from me? It is that profit which I justly ask him to share with me. If for example he buys a property, ought he to enjoy the income from my money and I to lose it?” The lender is entitled to a part of the profit realized with his money, and this independently of the possible risks he runs. Religious counsel concerns motives and accepts only good motives; civil laws are uninterested in motives and consider only the strict justice of acts.

2In the Défense de L’Esprit des lois, Montesquieu insists on the fact that he is speaking of lending at interest and not “in its relation with the Christian religion”, but as “an historian and jurisconsult” (OC, t. VII, p. 101) and, one could add, as a political man. His concern is to explain usages and laws, yet without abstaining from evaluating them in the light of “relations of equity” prior to man-made laws.

3But if the question the principle of lending at interest is more or less over, the question of the legitimate level of the rate of interest was still a subject of debate in Montesquieu’s time, and the term “usury” was reserved for a rate judged to be excessive. Montesquieu reproaches Mohammed with not distinguishing between lending at interest – licit in itself – and usury – illicit in itself (EL, XXII, 19), a distinction which the Romans did not make either (EL, XXII, 21). The Qur’an assimilates the two and condemns en bloc all who lend at interest (for example Sura II, verses 275-279). Islam there takes up a condemnation already found in the Old Testament or in the Talmud – where it however concerns only loans among Jews – as well as among the first Fathers of the Church. In The Spirit if Law, Montesquieu seems rather to condemn this assimilation, whereas in the Pensées he adopts a more nuanced position, judging that “Mohammed’s law, which conflates the loan with usury, was good for Arab countries”, for there economic exchanges often still were effectuated in kind (no. 1738).

4But the economy was rapidly going to become monetized, and in the Muslim world as in the Christian world, the socio-economic reality was going to diverge from religious ideals, and it was not rare to find lenders who demanded 20% in interest. Montesquieu noted moreover that a consequence of the command against lending at interest was high interest rates, since “the lender indemnifies himself against the peril of disobedience” (EL, XXII, 19).

5That peril of disobedience was in addition to the “peril of insolvency”, which could result, in maritime commerce, from the disappearance of the debtor due to the “peril of the sea”, one of the two foundations of “the extent of maritime usury”, the other being the more rapid and greater profit which commerce at sea brought to the borrower (EL, XXII, 20). These two reasons did not apply to “usuries of land”, for which reason legislators were led to forbid them or, “what is more sensible”, reduce them “to just limits” (ibid.), thus to bring an illegitimate rate of interest down to a legitimate rate.

6The short chapter devoted to maritime usury provoked a lively reaction from theologians and in the pages of Nouvelles ecclésiastiques of 9 October 1749, its critic reproached him with justifying maritime usury (OC, t. VII, p. 30-31). In the Défense de L’Esprit des lois, which appeared in early February 1750, but which the author had begun at the latest in early December 1749, scarcely two months after the two articles in the Nouvelles published on 9 and 16 October 1749, Montesquieu asserts he has never justified the extent of maritime usury, his purpose being only to show that it “was less repugnant to natural equity” than landed usury (ibid., p. 100). The author was playing here on the distinction between justification and simple explanation, but also on the distinction between economic justification and moral justification.

7Economic justification emphasizes necessity. A high rate of interest can be necessary to incite lenders to lend and thus allow the realization of commercial projects, the rate depending also on the expected profits. Montesquieu alludes to this: “In order for trade to take place, money must have a price, but this price must be low. If it is too high, the merchant, who sees he would spend more in interest than he could make in his trade, undertakes nothing; if money has no price, no one will lend it, and the merchant will not undertake anything either” (EL, XXII, 19). Moral justification can assume a positive form – strict justice requires that interest be paid to the lender --, or negative – strict justice allows interest to be paid to the lender. Montesquieu takes the former path in the Spicilège, as we saw earlier, and suggests the latter in The Spirit of Law, where it is compounded with the economic justification. After reproaching the scholastics with deriving their condemnation of lending at interest from Aristotle rather than from the Gospels, he asserts that has led to impelling dishonest men to take up commerce, “since every time a naturally permissible or necessary thing is forbidden, we only succeed in making the men who do it dishonest” (EL, XXI, 16 [20], my italics).

8The question of the rate of maritime usury had already been taken up very early by Montesquieu in the Collectio juris, where he evokes a passage of the Digeste (xxii, 2, 4): “And because the risk belongs to the lender, he is also given higher than legitimate interest, for he has what is called usura centesima”, this being equivalent to 12% per annum (OC, t. XI, p. 222). Maritime usury thus exceeds the legitimate interest which one is entitled to demand. The Digeste made the rate of interest depend on local customs and, in the event of divergent customs, ordered alignment with the custom that specified the lower rate (ibid., p. 218). We must seek a numeric indication in the Pensées, where Montesquieu draws up a list of laws meant for making the state prosperous; he provides that “one may lend at interest in any manner at all, provided the rate of interest does not exceed one-fifteenth of the principal” (Pensées, no. 185, prior to 1731) – which is equivalent to an absolute rate of between 6.5 and 7%. Another law stipulates that the “children and minors will be required to pay their debts, except for punishing userers” (ibid.). The Collectio juris again takes up the question of maritime usury with a passage from the Code de Mornac (t. i, p. 528-529) which applies to maritime usury: “This usury is very just, even among those who are very Christian, and the same is true if risks are faced by way of land” (justissima hac usura etiam apud cristianissimos, idem si in terra eminent periculum; OC, t. XII, p. 686). The rate of maritime usury is here not only explained but justified.

9To the quarrel over the question of legitimacy of maritime rates of usury is further added a quarrel over the rates of interest among the Romans, Montesquieu seeking to show that he is much more familiar with Roman laws than is his critic. The question is “whether any law mentioned by Tacitus set usury at one per cent per year, as the author has said; or rather at one per cent per month, as the critic says” (Défense de L’Esprit des lois, OC, t. VII, p. 103). Before a law was established, usurers took per year 12 ounces of copper for 100 loaned, or one ounce, equivalent to one as, per month – whence the appellations ounce-based usury and centesimal usury for one and the same form of monthly usury. Montesquieu judges that the subject is “gross usury” (EL, XXII, 22) and he explains by saying that the Romans of the time must have often borrowed to finance wars from which they brought back great spoils.

10When a law was made, it took into account only the annual rate of interest, paying no attention to its monthly division. It however maintained the usual terminology, notably that of ounce-based usury. But since it recognized only the year as temporal subdivision, ounce-based division was equivalent to one per cent per year (EL, XXII, 22). But that law was abolished a few years later and replaced by a law that forbade all forms of lending at interest among Romans. However, this law flew in the face of facts, or as Montesquieu says, “business must go forward; and a state is in trouble if everything is inactive”. But “they had only too much need to borrow”. In order to avoid the excess of “terrible usury” (ibid.) arising from custom, they fell into the opposite excess with a law forbidding every form of lending at interest, the consequence of which was no less terrible inactivity. Montesquieu draws the following moral, which is that of The Spirit of Law as a whole: “I will keep on saying, it is moderation that governs men, and not excess” (EL, XII, 12). The maximum interest rate proposed in the Pensées – the fifteenth part, or 6.5-7% – is situated precisely between the annual rate of 12% before the law and that of 1% set by the law, and thus reflects the moderation proposed by Montesquieu.

11Moderation seems unknown to the bankers who, when they do not stick to their role as change agent and begin to lend money, make use of an art that “consists in obtaining great profits from their money, without one’s being able to accuse them of usury” (EL, XXII, 16). Montesquieu gives no more precise explanation, but considering that this assertion is found in a chapter entitled “On the assistance which the state may draw from bankers”, one can imagine that the licit maximum of interest rates will be a function of the solubility of the debtor state and the confidence one has that it will indeed repay the debt.

Bibliography

Défense de L’Esprit des lois, OC, t. VII, 2010 (see especially Nouvelles ecclésiastiques, p. 15-37, and C. Volpilhac-Auger, “La référence romaine dans la controverse historique 
sur l’usure de la Défense”, p. 65-70).

Mathias Rohe, Das islamische Recht: Geschichte und Gegenwart, Munich: C.H. Beck, 2009.

Bibliographical reference

Campagna Norbert , « Usury (lending at interest) », translated by Philip Stewart, dans Dictionnaire Montesquieu [online], directed by Catherine Volpilhac-Auger, ENS Lyon, January 2014. URL : http://dictionnaire-montesquieu.ens-lyon.fr/fr/article/1390304772/en