There! I've said it. I know it's not supposed to be said. I know it's an outmoded, even medieval word, a relic of clerical meddling in economic science. And yet, the shamans may be ahead of the scientists on this one.
First, what is usury? It is not, as some suppose, charging interest on a loan. Rather, it is charging interest on a non-productive loan. What does that mean? Well, we can lend money for production or for consumption; we can lend money to start a business (or expand one) or to finance current consumption, such as buying a hamburger (which is now commonly put on plastic.)
When money is lent for a productive enterprise, the lender is entitled to a share of the rewards, since he also shares in the risk. The loan will then be liquidated by the success of the enterprise, or will be written off with the failure of the enterprise. But in either case there will be no additional burdens, hence no “usury,” that is, no “using up” the stock of society.
But if the loan produces nothing, then nothing can be charged for the loan, or else it is a simply wealth transfer rather than real growth. The scholastics also recognized the right to receive compensation for certain “externalities” of money, namely for risk and the loss of the use of the money. But beyond these legitimate claims, usury is simply a transfer of wealth from one class to another that produces nothing of itself: It is wealth without work. This is especially true of consumer loans. They are merely a claim against future earnings without contributing to those earnings. An economy that depends on consumer lending to fuel consumption is in fact merely borrowing from consumption in future periods.
Usury, aside from its character as avarice, as the desire for wealth without work, has troublesome practical consequences as well. On the one hand, it “covers up” problems in the distribution system, that is, with the wage system. If we did not inject massive amounts of consumer credit, there would be a massive failure of demand and the problems of inadequate pay would become apparent to all. As it is, these problems are hidden and will remain so until the ponzi-scheme collapses (as it must), as it does in depressions. On the other hand, usury detracts from the amount of capital available for productive investments; the absurdly high rates of interest make investment in production less attractive than investments in financing consumption.
Perhaps the last well-known economist to take usury seriously was John M. Keynes, who said:
Provisions against usury are amongst the most ancient economic practices of which we have record. The destruction of the inducement to invest by an excessive liquidity preference was the outstanding evil, the prime impediment to the growth of wealth, in the ancient and medieval worlds…I was brought up to believe that the attitude of the Medieval Church to the rate of interest was inherently absurd, and that the subtle discussions aimed at distinguishing the return on money-loans from the return to active investment were merely Jesuitical attempts to find a practical escape from a foolish theory. But I now read these discussions as an honest intellectual effort to keep separate what the classical theory has inextricably confused together... (The General Theory, 351-52)
The standard economic theory treats all interest as just another form of profit. But this is incorrect. Indeed, it would be like calling the funds from a bank robbery profit; in a narrow sense they are, since they represent an excess of income over outflow. But interest and profit serve different ends. It is legitimate to think of interest as profit only when it is a participation in profits; but when it merely finances current consumption, then it is that greatest of social evils, wealth without work, growing rich without adding anything useful to society.