shifting from one defined by local agriculture to centers of commerce such as Florence. Global expansion made loans and investments more profitable, even as gold arriving from South America caused inflation. In these circumstances, the opportunity cost of not lending money grew higher and higher, as Scheinkman
Debt became essential to fighting wars, which both monarchs and the Pope needed to fund.
thought it was immoral that his countrymen raised prices in order to take advantage of a flood of
and Glaeser have argued. In addition, the spread of
Protestant refugees who arrived in Geneva; but, just as surge pricing can recruit more Uber drivers on New Year’s Eve, we know that high prices also work to send a signal so that goods can flow to where they are needed. But this isn’t the full story. The rise of debt wasn’t the Church simply bowing to the inevitable. Members of the clergy played an active role in creating the mindset that allowed usury to become respectable. From the 1100s to the 1500s, clergymen known as the Scholastics debated whether lending was truly sinful. The Scholastics were the intellectuals of their day. They studied Roman law, Greek philosophy and Arab science at universities in Paris, Cologne, Vienna and others throughout Europe, and included luminaries such as Thomas Aquinas. They wrote and thought with the nit-picking particularity of lawyers. But despite the dry tone, the Scholastics could sound surprisingly like modern economists. Unlike previous generations of thinkers, who believed that prices should reflect the cost of production, many Scholastics understood the power of supply and demand, and argued that the just
banking ultimately transformed credit from a personal transaction between neighbors to a competitive,
impersonal market. In The Idea of Usury (1949), the sociologist Benjamin Nelson argued that this institutional shift led Europeans to view moneylending more favorably during the Reformation. Luther interpreted Bible passages about usury, especially those that condemned charging interest on the poor, as calls to act generously. Usurers commit a sin, Luther wrote, only when their actions violate the do-unto-others principle – that is, only if “they do not want to be treated this way in return by others.” This reciprocity meant merchants and wealthy families were allowed to charge each other interest. Luther asked Christians to offer the needy charity rather than loans – but he still accepted interest rates under 5%. Surely we’re well rid of this moralizing approach to finance? A world without interest payments would be one in which few people could access the funds they need to attend college, buy a house, or start a business. John Calvin, the French Reformation leader,
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