Reply To: Usury


Thank you to PatriciaColling and Organization Man for the questions on usury. If you skip ahead to the lectures on Medieval Economics you’ll find a brief discussion of usury. Throughout history, usury has been taken to be the demanding of any interest (however little) on a loan.

In the course, I don’t deal specifically with the question of whether there is some close or intrinsic link between fractional reserve banking (FRB) and usury. Let’s take the broader question: is there some intrinsic connection between banking and usury?

Consider the following: you borrow a pound of sugar from me. I lend it to you on condition that you give me back one and a half pounds. So it would appear you can have usury (as traditionally defined) without banking.

Can you have banking without usury? Yes. If one had a pure deposit bank which provided services for which one paid (protection of money, disbursement to appointed persons, etc.) there appears to be no hint of usury here. [see Huerta de Soto, Money, Bank Credit and Economic Cycles]

Can you have FRB without usury? As the concept is traditionally employed, the answer would appear to be ‘probably not’ but the concept as traditionally employed is problematic, as its history shows. There are problems with FRB but usury may not be the only or the most significant one.

What I’ve just written is speculative and I am open to further elucidation or correction.