INTEREST. — From the Latin *interesse* “to be involved, to matter,” it is the price of a service: that of the loan of capital. When reduced to a conventional unit of capital (one hundred lire) and to the unit of time (one year), it is called the rate or ratio. Being a price, interest generally follows the law of supply and demand. A high rate is therefore an expression of the scarcity of capital, as well as of a high overall risk; and vice versa. The overall risk is composed of three elementary risks: of investment, of immobilization, and of devaluation. These risks, and particularly that of devaluation—which is certain and permanent—justify interest on loans by themselves: in fact, capital depreciates over time and no longer buys, at the time of repayment, what it could buy at the time of the loan.
The legal rate, considered in light of administrative needs, is precisely commensurate with the sum of the insurance premiums relating to the first two risks and the average annual quota of devaluation.
The ancient prohibition of loans at interest by almost all religions, including Christianity (see USURY), must be understood as applying to loans properly so called, namely those of contingency or charity, technically defined as unproductive. It is natural, in fact, that if, as a result of the loan, no new wealth is produced, the payment of anything exceeding the sum of the insurance premiums against risks and the quota of devaluation is not only contrary to moral and charitable precepts, but also to economic ones: it represents an inflationary expenditure, destined to drive up prices and thus to devalue currency.
The other loans, namely productive ones, are in reality contracts for the sharing of profits (dividends), even if these are “lumped” into a fixed rate (bonds and certificates) with the stipulation of non-interference or control in the management and administration of the enterprise (see SECURITIES).
It must be observed, however, that many loans that would not otherwise belong to the category of unproductive loans do belong to it: for example, state loans to a large extent, and the financing of luxury and parasitic industries, or those that feed bureaucracy and war. When one considers the enormous mass of such loans, to which often very high interest is paid, one gains the impression that, alongside unproductive labor, in the interest of unproductive loans—and especially in the accumulation of compound interest—lies one of the fundamental and permanent causes of the incessant devaluation of currency: a cause, in turn, of class struggle (see PRICE). A capital invested at 5 percent doubles in a little more than fourteen years, and then rapidly reaches astronomical figures, even if it produces no new wealth at all. The natural outcome of this paradox is precisely the general increase in prices, or monetary devaluation (see).
All this is in perfect harmony with “Mutuum date nihil inde sperantes” (Lk 6:35), and confirms that religious and moral precepts always precede, and ultimately coincide with, scientific and practical exigencies that reveal themselves over time. Religions have therefore never deviated from the prohibition of loans at interest: nor do the mitigations of the principle represented by canon 1543 of the *Codex Iuris Canonici* and the recognition of the legitimacy of a moderate rate of interest (Decree of the Holy Office, 18 Aug. 1830, Denz.-U. 427; Decree of the Sacred Penitentiary, 16 Sept. 1830) constitute exceptions. The Lateran Council of 1515 had explained that there is usury “where the gain of the lender does not derive from a fruitful thing, and does not require work, expense, or risk on his part” (Mansi, XXXII, 906).
Economists and sociologists advocate, and in various ways pursue, the progressive lowering and ultimately the disappearance of the rate of interest, even on productive loans: it is clear, however, that the rational path to this goal is only that of the insurance of savings, which is itself the source of the abundance of capital.
For the interesting history of moral questions, see more fully: USURY.