The Ancient Euro-Mediterranean Aversion for Usury
One of the most specific characteristics of Islamic law in economic matters is considered to be the prohibition of interest in financial transactions (riba), based on Qur’anic precepts.1 In fact, most organized societies worldwide have displayed in their legal texts some kind of aversion for usury or at least an attitude calling for its careful regulation.2
Everybody can see that excessive imposition of interest on loans can lead to disastrous economic consequences for debtors—including sovereign states, which are required in some cases to pay interest every year on their foreign debt in amounts comparable to their gross domestic product, thus severely affecting their chances of economic development.3
The use—or abuse—of lending and financial mechanisms may lead not only to a general increase of the abstract figures of an economy, including gross domestic product, but also to a wide divide between those in control of the financial mechanisms and the mass of citizen—debtors—the former becoming richer and richer, controlling lives and misfortunes of a mass getting poorer and poorer—with a number of resulting social and political issues.
The three legal traditions related to the three major monotheist religions are all based on this wisdom and on the prohibition of those mechanisms allowing money to produce money by itself without association with any apparent human activity. Objectively, these three traditions have rules against the enslavement of men to men by economic means. Understanding how philosophers and lawyers had such a clear view of the distortions of the twentieth century so many centuries or millennia before they became evident on a global scale may be difficult (unless it is explained by taking into account, of course, the divine essence of the sources).
Islamic finance has been booming in recent years, with trillions of dollars of resources managed annually; it is producing a panoply of new financial schemes and facilities designed and operated by financial institutions in the East, reproducing Western financial operations through acceptable Islamic legal mechanisms. As has been observed, this approach in current global Islamic finance amounts to paying formal respect to the Shari’a rule while actually making interest-based finance possible in an Islamic context,4 thus disregarding the authentic spirit of Islamic law and the underlying substantial economic vision—of which the prohibition of riba is just a fragment.5
Of course, usury has been a controversial and sensitive issue in Western cultures as well, across space and time, and a significant legal issue for most important Euro-Mediterranean societies for a very long time—since the days when society, religion, and law were much more intertwined than they are now in Western societies. Western legal traditions also feature, historically at least, a degree of aversion toward usury in their social and economic visions.
The contraposition between Western economic culture and laws, on one side, and Islamic ones on the other side, as belonging to two different and segregated worlds—the former characterized by the preeminence of financial economy and liberal, individualist thought; the latter by Islamic, communitarian precepts of social justice and “real” economy—is far too simple and certainly unsatisfactory. Moreover, that narrative may contribute to the consolidation of stereotypes, mutual ignorance, distrust, and divides—and ultimately affect East-West cooperation.
The Aversion to Usury: A Euro-Mediterranean Archetype
The present-day word interest is a general one, designating at least two different concepts of patrimonial increase on capital related to the passing of time: one is that of an acceptable compensation for the use of such capital; the other is that of usury—that is, an unjustified and thus forbidden increase.6
In different times and places, however, this distinction has not necessarily been made. Interest transactions were common practice in pre-Islamic Arabia, as can reasonably be inferred from the fact that the Qur’an and several hadiths in the Sunna prohibited it.7 In the Middle Ages, banking activities in the Arab world were conducted by Christians and Jews, while the Islamic prohibition of the riba was observed by Muslims. Islamic law is rigid on this principle, which under the name of riba seems to encompass any type of remuneration for the use of capital, not just an excessive one.8
On its face, Islamic law would have great difficulty in overcoming such a clear prohibition because of the well-known operational limits of ijtihad, which cannot be used to reach a result contradicting rules established in the Qur’an and the Sunna (see, for example, Doi 1984: 78–79).
The prohibition of riba is not a specific feature of just the Islamic tradition, however. Similar precepts can be found in the Jewish sacred texts, such as “Thou shall not lend money for interest to your brother,”9 effectively prohibiting the practice of charging interest on loans among Jews.
Canon law primary sources also display a marked aversion for usury, both in the Holy Books10 and in specific normative acts of the Roman Catholic Church since its very early days: the limitation on charging interest on loans—initially limited to the clergy and capped at 1 percent per month at the First Council of Nicaea in 325—was later substituted by a total ban for both clerics and laity. The Third Lateran Council decreed in 1179 that persons who accepted interest on loans could not receive the sacraments or a Christian burial; Pope Clement V declared the belief in the right to impose usury as amounting to heresy in 1314 and abolished all secular legislation that allowed it. At the Council of Vienna in 1314, governments enacting laws enforcing usury were excommunicated. Pope Sixtus V condemned the practice of usury as “detestable to God and man, damned by the sacred canons and contrary to Christian charity” (Moehlman 1934: 6–7; see also Cremona 2001: 41–42; Noonan 1993).
An element of caution against usury was also present in Roman law, to which canon law is heavily indebted, for which the mutuum (loan) was, originally and essentially, an interest-free transaction, unless a special additional stipulation, pactum de usura, was clearly formalized.11
Canon scholars in the Middle Ages—especially St. Thomas Aquinas in the twelfth century and then Spanish and Portuguese Jesuits in the fifteenth and sixteenth centuries—developed legal doctrines from these prohibitions,12 including elements of ius naturale and of philosophical visions derived from the works of Cicero, Cato, and especially Aristotle, according to whom it is against nature to have money produce money by itself.13
Those values were widely shared in the culture and society of Europe in the Middle Ages, just as they were in the Islamic Middle East. Dante considered usury as one of the three violent sins against God and nature (with a clear link of continuity with Aristotle and Aquinas), together with blasphemy and sodomy, and consequently located the three groups of sinners against nature in the same part of his Inferno.14
In Dante’s vision, art and craft are the creation of humanity, just as nature and humankind were the creation of God, in a three-level continuum reflecting the essence of the natural universe—including the fruits of humankind’s work—protected with spiritual sanctions against violators. Punishing usury was necessary to protect human work, just as punishing sodomy was intended to sanction the laws of nature and just as the sin of blasphemy sanctioned the recognition of the role of God.15
Dante is also a bright example of the “global” reach of elite intellectuals in the Euro-Mediterranean cultural medium of the Middle Ages. He was a devout Christian and a man of his times; thus, he was loyal to his religion and opposed Islam fiercely, both politically and religiously. However, he certainly had access to Islamic culture and appreciated it.16 Important Muslim characters are included with appreciation and respect in the Divine Comedy, such as the great twelfth-century ruler of Egypt and Syria, Saladin (Salah al-Din Yusuf Ibn Ayyub),17 and the philosophers Avicenna (Ibn Sina) and Averroes (Ibn Rashid)—with an express mention of the latter’s commentary to Aristotle18—both located with Aristotle and other great Greek and Latin philosophers, poets, and scientists in a beautiful castle in Limbo, symbolizing human wisdom, where great non-Christian spirits are supposed to spend eternity.19
Since long before the Dark and Middle Ages, around the shores of the Mediterranean, a society more closely interconnected than many would think possible today existed. Mercantile activities; political events; and the circulation of people, religions, art, and ideas had taken place forever in that complex multicultural environment. Cultural cross-fertilization was common; circulating social values and legal elements were shared across the basin and across political, cultural, and religious divides.20
The aversion for usury is a deep cultural archetype and a shared social and legal value belonging to all Euro-Mediterranean societies since very ancient times.
Some three centuries after Dante’s Divine Comedy, another clear literary example of societal aversion for usury came from England. Shakespeare’s play The Merchant of Venice depicted how the law, invoked to enforce a usurious contract, was negotiated and ultimately circumvented to the benefit of the debtor, with deep scorn, of course, for the usurer.
Credit is a necessary tool for economic life and development, and capital owners are very seldom inclined to lend capital for free. In addition, a just, equitable economic development is recognized as being good for the material and spiritual progress of humankind in all three monotheist religions. Islamic scholars have developed solutions for this seeming dilemma over the centuries, based on the idea that lending money could produce a licit profit or compensation whenever the lender participated in the risk of the venture of the debtor or bore some costs in relation to it (for example, salaries for the lender’s employees or administrative costs). The well-known Islamic mechanism of musharakah, murabaha, taqaful, mudarabah—the last being at the origins of medieval commenda (Çizakça 1996),21 which is still a feature of commercial law in civil law jurisdictions22—and others represent Shari’a-compliant forms of equity-based, risk-sharing economic cooperation between the creditor and the debtor.23 Secular laws in modern Muslim states reflect and enforce those legal principles, sometimes providing for a separate Islamic banking financial sector along with a conventional banking industry24 and in other cases enforcing Islamic principles in a most general way.25
Canon law also developed doctrines substantially similar to Islamic ones. These doctrines are based on the acceptability of compensation for a service actually given or for a cost or risk borne by the lender (Cremona 2001). Eventually, the area of licit compensation was extended to include lost profits for an alternative use of the lent capital that would have been possible in the idea of cost.26 After an initial allocation of the burden of proof on the lender to indicate the actual lost profit, the system evolved toward the acceptability of a reasonably precalculated amount (Cremona 2001: 125–29).
The Catholic Church itself eventually sponsored the Mons pietatis, pawn-based credit shops run by the Church—ad maiora mala vitanda—allowing them to take fees to permit the institution to work and be viable and later also to have some excess money at the end of the year. This excess money was intended to cover the risk of not having ends met and of eventually perishing as an institution (Cremona 2001: 133–56).
The doctrines and legal techniques in canon law reflected, like the Islamic ones, a particular vision of the economic relations within a given community, characterized by a social dimension and by a quest for social justice in economic matters—to which the practice of charging interest (at least beyond what is a fair compensation for a substantial service given) was considered detrimental. The doctrines tried to find an acceptable and functional operational balance in the tension between the needs of the economy and the need to enforce those moral and social values.
From “Brother versus Other” to “Brothers and Others”
On the scope of application of the prohibition of interest, it is interesting to note how in Jewish law the prohibition was limited to intracommunity transactions rather than being a general rule: “thou shall not lend money for interest to your brother.”27 This rule is clearly a defensive one, meant to reinforce community bonds and implying an “us versus them” idea and the idea that an act that is inherently evil act can be performed against non-Jews.
Islamic law, too, permits the faithful to commit acts that would otherwise be sinful when in a state of extreme necessity or of need.28 Included in this idea of need is the necessity to avoid the weakening—and thus pursue the expansion—of Islam, thereby also legitimating haram transactions when conducted in a non-Muslim context and against non-Muslims:
According to Shari’a, Muslims are not obliged to establish the civil, financial, and political status of Shari’a in non-Muslim countries, as these lie beyond their capabilities. Allah (swt) does not require people to do things that are beyond their capacity. Prohibiting usury is a matter that concerns the host non-Muslim countries, and which Muslim communities can do nothing about it. It has many things to do with the socioeconomic philosophies of the host countries. However, in these countries, what is required of the Muslim is to establish the Shari’a’s rulings in matters that concern him in person, such as the rules that govern acts of worship, food, drinks and clothes, marriage, divorce, inheritance, and so on. If Muslims choose not to deal with these invalid contracts, including contracts involving usury in non-Muslim countries, this would weaken them financially. Islam is, however, supposed to strengthen Muslims not weaken them, increase rather than diminish them, benefit and not harm them. Some Salafi scholars claimed that Muslims could inherit non-Muslims as this goes in line with the hadith which says: “Islam increases and does not decrease,” i.e., increases Muslims in power, wealth, etc. Similar in content is the other hadith which says: “Islam is superior and none can excel it.” Therefore, if Muslims are not to trade with these invalid contracts and transactions (where extreme necessity and urgent need is involved), then they will end up paying what is required from them (in transactions that involve usury) without receiving any benefit in return. They will be losers as they will be obliged to honor these transactions, and in return they will get nothing. This way Muslims will be financially deprived and suppressed. Islam never punishes Muslims for their Islam nor abandons them in countries other than their own Muslim countries. Islam never means to let unbelievers abuse Muslims financially or otherwise, at a time where it prohibits them from getting any benefit in return.… It is permissible for Muslims to trade with usury and other invalid contracts in countries other than Islamic countries. This opinion is held by a number of renowned scholars such [as] Abu-Hanifah, his colleague Muhammad As-Shaybani, Sufayn At-Thawri, Ibrahim An-Nakha’i, and according to one opinion of Ahmad Ibn Hanbal, which was declared as true by Ibn Taymiah, according to some Hanbalite sources. It is also the declared opinion of the Hanafi school of jurisprudence.29
Jewish law distinguished brother from other. So does Islamic law. In addition, St. Ambrose (339–397), bishop of Milan, whose works influenced medieval Christian thinking, considered lending to a stranger (that is, to a non-Christian and living under the rule of a law other than civil law) a legitimate hostile act against an enemy (Banterle 1988: 105–106).30
Later in the Middle Ages, Christian Catholic universalistic doctrines affirmed the principle that every human being is a brother. The initially religious and ethnically based prohibition of usura in canon law was expanded to a general principle, applicable for anyone. St. Thomas Aquinas (1225–1274) remarked about the Deuteronomic double standard: “The Jews were forbidden to take usury from their brethren, i.e., from other Jews. By this we are given to understand that to take usury from another man is simply evil, because we ought to treat every man as our neighbor and brother.”31
Northern European political events and new religious doctrines at the beginning of modern times, after the Lutheran reform and then that of Calvin, supported different ethics of economy and work (Berman 2003; Weber 1905). As individualistic religious doctrines and social philosophies developed in central and northern Europe, everybody became other.32
The Western Deviation
At the inception of the modern era, national states were emerging in Europe, consolidating their power and projecting it overseas, where new worlds had been discovered to be explored and exploited. Scientific and technological advances were reached; the economy started growing at an unprecedented pace; and new economic models were implemented, including large-scale finance. Liberal economic thought developed on the basis of Locke’s philosophy33 and grew as a consequence of political revolutionary events in England, France, and the United States in the seventeenth and eighteenth centuries.