Capitalism and Calvin - Essay Example

Capitalism and Calvin John Calvin contribution to economics especially in the rise ofcapitalism is widely recognized by many economists and historians with some of them suggesting that the man's work embodies the spirit of capitalism and that his attacks on certain of Aristotle's beliefs brought us into the "modern world". Before we go on discussing how Calvin contributed to capitalism, we first discuss the word capitalism. If we are to look in the modern world, we can see that trade is characterized by an exchange of goods which brings in profits to the seller. This is the idea behind Capitalism - to make profits from an investment. Products are manufactured from raw materials then sold at a price higher than the cost of production. Money is loaned and paid with interests. By viewing products and services as currencies of money, we realize that everything about capitalism involves applying interests on services and products provided. The idea of applying interest on loans, which is the spirit of capitalism, was widely condemned in ages past. The practice was called usury and anyone conducting such an activity was condemned by Christian societies as it was against the teaching of the Bible. Exodus 22:25 forbad oppressing one's neighbor with usury. Deuteronomy 23:20-21 said you could not charge your brother usury. Ezekiel 18:7-8; 13 makes it clear that the righteous do not lend at usury; and that usurers "shall not live." Leviticus 25:35-36 says if your brother is poor do not charge him usury. The final Old Testament word on the issue came from the Psalmist, who charged the godly to aid their neighbors, not lending to them at interest. The strongest rejection of loans at interest came from Christ in Luke 6:35, where He says "Lend, hoping for nothing in return." Usury was very much hated that St. Jerome declared it to be the same as murder, echoing Cato and Seneca, since it consumed the life of the borrower. Christians, however, seemed required by God to condemn it. (Bieler, 1964) Then came John Calvin. Calvin was part of a society that had forbidden the lending of money at interest for 750 years (since the council of Nicaea in 775).By 1544 Calvin had "formulated a doctrine about lending money at interest". John Calvin's letter on usury of 1545 made it clear that when Christ said "lend hoping for nothing in return," He meant that we should help the poor freely. Following the rule of equity, we should judge people by their circumstances, not by legal definitions. Humanist that he was, Calvin knew there were two Hebrew words translated as "usury." One, neshek, meant "to bite"; the other, tarbit, meant "to take legitimate increase." Based on these distinctions, Calvin argued that only "biting" loans were forbidden. Thus, one could lend at interest to business people who would make a profit using the money. To the working poor one could lend without interest, but expect the loan to be repaid. To the impoverished one should give without expecting repayment. The arguments in Calvin's letter on usury are amplified in Charles du Moulin's Tractatus commerciorum et usurarum, redituumque pecunia constitutorum et monetarum, written in 1542 and published in Paris in 1546. Du Moulin ("Molinaeus") developed a utility theory of value for money, rejecting Aquinas' belief that money could not be rented because it was consumed. This attack on the Thomist understanding of money was taken up by Spanish commentators. Domingo de Soto, concerned about social justice, suggested that Luke 6:35 was not a precept, since it has no relation to the justice of lending at interest. Luis de Molina, writing in the late sixteenth century, agreed. He suggested that there was no biblical text which actually prohibited lending money at interest. ( in Noonan, 1957) By the second half of the sixteenth century Catholics and Protestant alike were increasingly tolerant of the idea that the legality of loans at interest was determined by the intentions of the parties involved. Theologians were often reluctant to admit much latitude for usury, but secular law and commercial practice embraced the idea that loans at interest, made with good intentions, were legitimate. By then most places permitted some form of lending at interest, often relying on Roman Law reified in Civil Law to justify it. In the Dutch Republic and England the issue was relegated to conscience. The state ceased to meddle in usury unless it was antisocial, leaving individuals to decide for themselves whether their actions were sinful. At about the same time the image of the usurer in literature changed from a sinister, grasping sinner to a socially inept fool. (Kerridge, 2002). As social good became the proper test of a loan's propriety, there emerged two distinct debates about usury. By the first third of the seventeenth-century the issue of usury as a sin had been relegated to the conscience of the lender. The state was increasingly concerned only with whether or not the rate of interest was damagingly high. As the Act against Usury passed by the English Parliament in 1624 demonstrates, the rate of interest was important to the national economic well-being, lowering the maximum rate of 10%, established in 1571, to 8%. An amendment to the Act announced that this toleration of usury did not repeal the "law of God in conscience." (Jones,1989). By the eighteenth century the moral issue of usury was no longer of interest to most Protestant thinkers. In practice lending at interest with collateral had become normal, as had deposit banking. It was regulated by states, and this regulation was seen as benefiting business and protecting the poor. Adam Smith thought that since money can by made by money, so its use ought to be paid for. Nonetheless, he defended usury laws as the necessary in order to encourage productive investment and discourage consumptive spending. A cap on interest rates makes money cheaper for productive borrowers, while forcing up the cost of money to those borrowing simply to consume, since they would be getting their money outside the regulated money market. The expense of money borrowed for consumption actually keeps many people from borrowing at all. In the early nineteenth century the Roman Congregations issued a series of rulings that took the pressure off. Faithful Catholics engaged in lending were not committing sin as long as they lent at a moderate rate. The moral condemnation of usury as an oppression of the poor did not disappear, however. It was adopted by socialists, whose antagonism toward capitalists convinced them that a market in money was evil. To them, usury was the "new slavery." Nonetheless, it was the reason behind the growth of capitalism. (Divine, 1959) In essence, the Calvinist Puritan leaders of the Reformation or those who were influenced by Calvin, believed that profitable undertakings were themselves God's work and gave the world a perfect recipe for capital accumulation by regarding frivolous spending as equivalent to sin. It is also maintained that without this attitude, Europe would never have acquired enough capital to launch the capitalist system. The Calvinists or the Reformed divinity were less bound to precedent and adjusted itself rapidly to the new economy. With this idea of practicing thrift, temperance, honesty, and consideration for others, they became a successful merchant class and thus capitalism grew. References: Bieler, Andre (1964)The Social Humanism of Calvin, trans. P.T. Fuhrmann. Richmond: John Knox Divine, Thomas F. (1959) Interest: An Historical and Analytical Study of Economics and Modern Ethics. Milwaukee: Marquette University Press. Jones, Norman (1989). God and the Moneylenders: Usury and the Law in Early Modern England. Oxford: Blackwell, 1989. Kerridge, Eric (2002). Usury, Interest and the Reformation. Aldershot, Hants. and Burlington, VT: Ashgate Noonan, John T. (1957) The Scholastic Analysis of Usury. Cambridge, MA: Harvard University Press, 1957. Read More