Usury Prohibition: Medieval Crony Capitalism

During medieval Europe, the Roman Catholic Church via Pope Benedict XIV promulgated usury prohibition or Vix Pervenit: On Usury and Other Dishonest Profit—where charging interest rates on loans were condemned as a sin.

Guess who profited from the prohibition throughout those years?

From Mark Koyama* (hat tip: Café Hayek) [bold emphasis mine]

The usury prohibition created monopoly rents which made it possible for the Church, the state and international merchant–bankers to benefit from the suppression of usury. It was this shared interest that made the usury prohibition a self enforcing institution. It cemented a partnership between the leading merchant–bankers, secular rulers, and the Church, and because it shaped the beliefs and expectations of medieval society as a whole, it generated behavior that reinforced and perpetuated its own existence.

So the church integrated the role of the ‘baptist and the bootlegger’ which essentially converted her moral positions into laws that generated economic windfall for them. Of course, this was not restricted to the church , who acted as a political patron, but had to be backed by a vested economic client seen in “international merchant bankers”-manifestations of patron client relations.

In short, the usury prohibition laws engendered crony capitalism-the medieval ‘church’ edition.

Then and today, the nature of economic rent hardly makes any difference. Only the participants has changed.

*Evading the ‘Taint of Usury’: The usury prohibition as a barrier to entry