INTEREST. - From the Latin interesse, “to be included, to matter,” it is the price of a service: that of lending capital. Measured against a conventional unit of capital (one hundred lire) and a unit of time (one year), it is called the rate or interest rate. Being a price, i. generally follows the law of supply and demand. A high rate is therefore the expression of a scarcity of capital, as well as of a high overall risk: and vice versa. Overall risk consists of three elementary risks: investment, immobilization, and devaluation. These risks, and particularly that of devaluation, which is certain and permanent, in themselves justify the i. on loans: in fact, capital deteriorates over time and, when repayment is made, no longer purchases what it purchased when the loan was granted.
The legal rate, considered from the standpoint of administrative requirements, is precisely calibrated to the sum of the insurance premiums relating to the first two risks and to the average annual allowance for devaluation.
The ancient prohibition of interest-bearing loans by almost all religions, including the Christian religion (v. USURA), is to be understood as referring to loans properly so called, which are loans made in times of contingency or charity, technically defined as unproductive. It is natural, in fact, that if no new wealth is produced as a consequence of the loan, the payment of an i. exceeding the sum of the insurance premiums against risks and the devaluation allowance is contrary not only to moral and charitable precepts, but also to economic ones: it represents an expenditure of an inflationary nature, destined to raise prices and therefore to devalue the currency.
The other loans, that is, productive ones, are in reality contracts for participation in profits (dividends), even when these are “lump-summed” in a fixed rate (bonds and mortgage certificates), with the agreement that there be no interference in or control over the management and administration of the enterprise (v. TITOLI).
It should nevertheless be observed that many loans also belong to the category of unproductive loans which apparently would not: for example, state loans to a large extent, and the financing of voluntary and parasitic industries, or of those that sustain bureaucracy and war. Considering the enormous mass of such loans, on which i. is often paid at very high rates, one gains the impression that, alongside useless work, one of the fundamental and permanent causes of incessant monetary devaluation lies in the interest on unproductive loans, and especially in the accumulation of compound i.: a cause in turn of the class struggle (v. PREZZO). 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. The natural corrective to the paradox is precisely a general rise in prices, monetary devaluation (v.).
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 requirements destined to reveal themselves over time. Religions have therefore never departed from the prohibition of interest-bearing loans: nor do art. 1543 of the CIC and the recognition of the legitimacy of “a modest i.” constitute attenuations of the principle (Decree of the Holy Office, 18 Aug. 1830, Denz-U. 427; Decree of the Sacred Penitentiary, 16 Sept. 1830). The Lateran Council of 1515 had explained that “it is usury” where the lender’s gain does not derive from a fruit-bearing thing, and where it entails neither work, nor expenses, nor risks on his part” (Mansi, XXXII, 906).
Economists and sociologists invoke, and pursue in various ways, the progressive lowering and ultimately the disappearance of the interest rate even on productive loans: it is clear, however, that the rational way to achieve this goal is solely through the insurance of savings, which in turn is the source of an abundance of capital.
For the interesting history of moral questions V. more extensively: USURA.