Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

64 Money, Bank Credit, and Economic CyclesTHE CANONICAL BAN ON USURY AND THE“DEPOSITUM CONFESSATUM”The ban on usury by the three major monotheistic religions(Judaism, Islam and Christianity) did much to complicateand obscure medieval financial practices. Marjorie Grice-Hutchinson has carefully studied the medieval prohibition ofinterest and its implications. 45 She points out that Jews werenot forbidden to loan money at interest to Gentiles, whichexplains why, at least during the first half of the medievalperiod, most bankers and financiers in the Christian worldwere Jewish. 46This canonical ban on interest added greatly to the intricaciesof medieval banking, though not (as many theorists haveinsisted) because bankers, in their attempt to offer a useful,necessary service, were forced to constantly search for newways to disguise the necessary payment of interest on loans.When bankers loaned money received from clients as a loan(or “time” deposit), they were acting as true financial intermediariesand were certainly doing a legitimate business andsignificantly contributing to the productive economy of theirtime. Still, the belated recognition by the Church of the legitimacyof interest should not be regarded as overall approval ofthe banking business, but only as authorization for banks toloan money lent to them by third parties. In other words, to45 Marjorie Grice-Hutchinson, Early Economic Thought in Spain 1177–1740 (London: George Allen and Unwin, 1978). See “In Concealment ofUsury,” chap. 1, pp. 13–60.46 Until the thirteenth century, the greater part of financial activitywas in the hands of Jews and other non-Christians, usuallyfrom the Near East. For such unbelievers from the Christianpoint of view there could be no salvation in any event, andthe economic prohibitions of the Church did not apply tothem. . . . Hatred for the Jews arose on the part of the peoplewho resented such interest rates, while monarchs andprinces, if less resentful, scented profits from expropriation ofthis more or less helpless group. (Harry Elmer Barnes, An EconomicHistory of the Western World [New York: Harcourt, Braceand Company, 1940], pp. 192–93)