The Church on the financial meltdown: Usury and speculation are to blame

By Angelo Matera

Posted 9/17/08 at 2:08 AM


If there’s anyone in the mainstream media willing to listen to the Church these days (I doubt it), they’ll discover that centuries of Catholic teaching about the sinful practices of usury and financial speculation can explain why Wall Street is tumbling down. (For the best technical explanation, read The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash, by Charles Morris, a Catholic, and frequent contributor to Commonweal).

Put very simply, usury is lending money at punishingly high interest rates, and speculation is high-risk investing that is actually a form of gambling. It you go to the online Catholic Encyclopedia of 1913, you’ll find clear, informed, and balanced explanations of both terms (if only the media could be like this!), including examples of when high-interest lending and high-risk investment Can be justified.

But the verdict is clear. To those “subprime” lenders who justify themselves by saying that giving out mortgages at very high interest rates to people who were poor credit risks was about making the American Dream possible for the masses, the encyclopedia responds with warnings about temptation and sin: “Lending money at interest gives us the opportunity to exploit the passions or necessities of other men by compelling them to submit to ruinous conditions; men are robbed and left destitute under the pretext of charity. Such is the usury against which the Fathers of the Church have always protested.”

And about the real estate market mania that drove lenders to issue mortgages that were only viable if property values continued to skyrocket, (not to mention the deceptive slicing up of these mortgages into multiple, inscrutable parts, that no one understood, for re-sale in secondary markets around the globe), the encyclopedia has this to say: “…speculation tends to develop a passion which frequently leads to the ruin of a speculator and his family. The hope of becoming rich quickly and without the drudgery of labour distracts a man from pursuing the path of honest work. The speculator, even if he succeeds, produces nothing; he reaps the fruit of the toil of others, he is a parasite who lives by preying on the community.”

Unfortunately, as in every financial crisis during the past twenty years, the speculators who profited and the people who were ruined were usually not the same people. The “collateral damage” from these crises includes (among others) the employees of Bear Sterns, Lehman Brothers and whichever company falls next. (They join past victims from Drexel, Enron, Arthur Anderson, and more).

There are those who view the Church’s suspicions about usury and speculation as archaic remnants of pre-modern thinking. Judge John Noonan, the famous dissenter against the Church’s ban on birth control, wrote in his book A Church That Can and Cannot Change,, that the Church definitively reversed its position on usury. He’s wrong. As with other issues, such as religious liberty, Church teaching on usury is an example of a “development” of doctrine. (See John Henry Newman on this subject). As the social context changes, Church teaching evolves, becoming more nuanced, but never contradicting previous positions. 

From the Catechism of the Catholic Church, to the social encyclicals issued by popes going back to Leo XIII in the nineteenth century, the Church continues to recognize usury and speculation as harmful forms of lending and investment (the Church is not alone—civil government still has laws against excessive interest rates and “ponzi” investment schemes. And Moslem businesses have to find ways to work around Islamic prohibitions against lending at interest). These concerns are part of the Church’s economic humanism, reflected in these statements from the Catechism [#2423 to 2426]:

“Any system in which social relationships are determined entirely by economic factors is contrary to the nature of the human person and his acts… A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable. The disordered desire for money cannot but produce perverse effects. It is one of the causes of the many conflicts which disturb the social order… The development of economic activity and growth in production are meant to provide for the needs of human beings. Economic life is not meant solely to multiply goods produced and increase profit or power; it is ordered first of all to the service of persons, of the whole man, and of the entire human community. Economic activity, conducted according to its own proper methods, is to be exercised within the limits of the moral order, in keeping with social justice so as to correspond to God’s plan for man…”