The idea of lending money at a cost or interest rate has been a concept that has been around for centuries. St Thomas Aquinas was an early Western philosopher who is acclaimed to be the thought of much of the catholic churches teachings today. Aquinas was against the notion of lending money at interest for various reasons. Following the catholic view on usury often leads to an association with greed and exploiting the person in need of the loan. In today’s society usury is almost virtually never disputed and seen as something customary to everyone.
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With the concept of inflation and quite a capitalistic society we now live in it is hard to agree with many of Aquinas’ arguments against usury. Aquinas did not see any righteousness in selling or buying something for more or less than it was worth because that would be sin. Aquinas also believed it was right to trade money for things such as necessities but not money for money because this left too much room for greed. Although some of Aquinas’ points are valid, in today’s society it works much differently because there is loaning money fairly without exploiting a person in need.
Aquinas saw two ways to exchange money for what he considered commodities or “things” such as food, land or raw materials; and the exchange of money for money (at interest). He saw this as unjust because it left too much room for greed. On a smaller scale this would seem justifiable such as loaning someone personally money for food if they were in desperation and would have a hard time paying it back. However, a commodity is by definition something of use, advantage Aquinas on Usury 2 or value (2014).
Today many people use money that is loaned to them to buy something as imperative as a home or property. This home will quite possibly be worth a significant increase from initial price. The title of this property will be in the name of the person who purchased the home; however, if we apply Aquinas’ theory then the
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person could sell the home and make a gain yet not pay interest on the money used to purchase this home and make interest off. By definition liquid cash can be viewed as a said commodity. There are situations where exploitation is visible when it comes to lending money at interest.
Loaning money at rates that it is evident will put someone in a situation where they will never be able to return the loan is unethical and could be viewed as sin. However, Aquinas’ idea of it being sinful could be viewed as obsolete if proper regulation from institutions such as banks and loan firms were put in place by the government. Adam Smith believed in this sort of idea on the basis of an interest rate ceiling (1987). This would leave a maximum allowed interest rate on borrowing and limit the exploitation often associated with usury.
On a smaller scale such as a need for food or to buy clothing to survive it is understandable where Aquinas would view usury as a sin. However, in today’s society there are often programs to help if you need food or necessities led by companies and even the government. If you can prove you are in need of money to provide for necessities there are programs such as welfare that are in effect. Also there is a big difference between not being able to pay a Visa bill between a $200 dollar pair of jeans being a part time worker versus a single mom who can’t pay for a five dollar pair of jeans at Aquinas and Usury 3
Valu Village. Often times money is borrowed for things that are not necessary and bought at free will; if this is the case and the buyer is aware of this there is no wrong in loaning the money at interest. It would be too general to say it is wrong to loan money at interest because it leaves room for greed, when often we are lending money to feed our own greed. Aquinas also believed it was contrary to justice to sell goods at a higher price than their worth, or to buy them for less than their value.
Applying this theory in a capitalistic environment once again leaves little to no room to prosper individually. Also it is hard to regulate the value of objects whether it is food, property and especially money with the current inflation and deflation trends. With this concept it is virtually impossible to lend money for a long- term period without a risk of losing money off the loan. Adjustments can be argued to be made once the loan is made to adjust for inflation, however, in business it will typically be difficult to dispute a 2% increase if there is no binding contract.
Although it is very rare that some of the bigger firms lose on a loan, there are still risks involved in the loan. Usury was always viewed as negative because there was no understanding of lending money as a service or good. It has been argued that if you give someone a banana, you do not ask for two back. This is true in practice but money is something that is used as a universal means of trade. If someone asked for one thousand bananas it would be right to ask for money or something to be returned for giving that many bananas.
The same concept applies for money; if someone of close Aquinas and Usury 4 relation asks to borrow twenty dollars because they left their wallet at home you will not expect any money back. However, if they need fifteen thousand you may need the money for one of your own personal necessities or investments. It can be argued money has an opportunity cost if lent out for a significant amount of time. There is also the risk of someone not paying a loan and leaving the person who loaned the money out that initial loan.
This is one of the big reasons companies have higher interest rates. When you are loaning to hundred or thousands of people it is likely some may go bankrupt or just simply not have the funds to pay you. With Aquinas’ principle of not loaning to gain money essentially is irrelevant in the business world due to the variables and risks associated with money; It can be argued that it is not a business to loan money, however, in today’s society it will be virtually impossible to attain loans at significant value from anywhere but a business.
Although Aquinas’ views are still highly regarded in terms of lending money at interest, it is far too hard to make such a general comment about the notion with so many variables and concepts involved. The scale of loans has changed too drastically to be able to make such a generalization about such a broad topic. With such a large scale of people needing loans it will be next to impossible to attain loans for everyone by people or organizations without an added benefit for the group which in today’s case in interest which is essentially profit.
Loaning the money also holds a risk factor for reasons such as opportunity cost of that money for the loaner, inflation, and chance of the recipient of the loan defaulting. These are all reasons Aquinas and Usury 5 besides profit that there is a need to loan money at interest. The final argument is that money itself is a commodity that Aquinas did not believe. However, someone may be using the money loaned to make profit on an investment, which essentially is using it for leverage. This concept is proof money can be a commodity by definition.