![]() Practically speaking, lending at interest was legal. Even though this contract was formally defined as a sale it was in substance a loan. A few years later, Holy Roman Emperor Charles V (1500-1558), considering the nature of this contract, a sale and not a loan, legalized it. Besides, he added that the entrepreneur looks at his private interest forgetting the neighbour and therefore he is acting against the precept to love the neighbour. He repeated the teachings of the canonists: loans should only gratuitous. In his first sermons on usury, Martin Luther (1483-1546) condemned the five per cent contract as a usurious contract. In this operation the investor lent to the entrepreneur the capital, to use for business, with a clause that guaranteed that the investor would recoup not only the capital but also a fixed part of the profits of the entrepreneur (5% of the invested sum). In sixteenth-century Germany, a special form of this contract was very popular: the so-called five per cent contract. This contract produced effects similar to a loan, but it was a sale and therefore, according to several theologians and canonists, it was lawful. As lending should be gratuitous, a different type of contract was invented: the sale of annuity. This passage was incorporated in a canon law norm forbidding the practice of interest. Medieval canonists and theologians pointed out many reasons against lending at interest, but here we only focus on one: the famous passage of Luke 6:35, where Christ ordered to lend hoping for nothing. The reader who wants more information can consult my book Lutheran Theology and Contract Law in Early Modern Germany. In this post, I will give a brief and general overview of these changes and its implication for private business. This prohibition continued to be effective among the Lutheran reformers but it underwent profound changes. The interest prohibition originated in the tradition of the Roman Catholic Church. Whatsoever interest in a loan, not only a high rate of interest, was prohibited. At the threshold of the sixteenth century, usury was the practice of lending at interest. Today usury consists in lending money at excessive rate of interest. ![]()
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