Book Review: Popes and Bankers

September 01, 2010

Popes and Bankers is a fascinating read for anyone interested in history, finance, or even better, both. The anecdotes about the characters involved in financial history provide insight into the context we find ourselves in today. It seems the world today is not so different to that of the past. Time and again people have brought themselves and others to financial ruin because of greed, pride, and the desire to have what they cannot afford, and have it now. History is dotted with get-rich-quick schemes and financial crises that have come and gone.

The purpose of this trek through financial history is to investigate a couple of niggling questions in the mind of author, Jack Cashill. He notes that Jews and Christians were unusual amongst ancient people as they considered usury[1] sinful, and that they were instrumental in creating the Western economy. Given this, he asks:

Is it possible that monks and other Judeo-Christian moralists were useful, maybe even essential, to the creation of this economy? If so, then is it possible that their dismissal from the marketplace has condemned us to our current economic purgatory? (ppix-x)

The first part of Popes and Bankers addresses the first of these questions, tracing the role of Judeo-Christian thought and action in Western financial history. It begins by addressing an even more basic question. Since the Old Testament consistently and vehemently condemns usury[2] how did it happen that Jews became so closely associated with moneylending: ‘whence Shylock’ (p12)? The answer is found in Deuteronomy 23:19-20—it is only fellow Israelites, not foreigners, who must not be charged interest. This sets the scene for the rest of the book.

There is a further hurdle: Cashill notes curiously that from the beginning, Christians were against the idea of charging interest to absolutely everyone – both friend and enemy. It all hinged on Jesus teaching found in Luke 6:34-35: ‘And if you lend to those from whom you expect repayment, what credit is that to you? Even sinners lend to sinners, expecting to be repaid in full. But love your enemies, do good to them, and lend to them without expecting to get anything back.’

From the time of Jesus, the church continually and loudly discouraged the practise of usury. At the Council of Carthage the practice was called reprehensible, and in 1179 Pope Alexander III ‘argued that usurers should not only be excommunicated but should also be denied a Christian burial’ (p26f).

Yet by the 13^th century, despite being denied the ability to lend money at interest, the Italians had created the world’s most sophisticated banking system:

In another one of history’s great ironies, it was the flow of tithes to Rome that inspired the infrastructure for a continent-wide financial network. It was the church’s presence that made Italian’s the world’s bankers. It was the church’s regulations that made them such creative bankers. (p43)

The Medici banking story began when its founding father learnt how to make money from loans without charging interest. The ‘trick’ was to include a percentage profit within foreign exchange transactions. The church fathers forbade nominal swapping of exchanges and rather insisted on distance to legitimize the transaction. In effect, the church encouraged banking to be an international business.

Another way around usury laws gave us the term ‘interest’. Interesse could legally be charged as compensation to a lender for a loan not being repaid on time. Corruption and ‘a blind eye’ on behalf of church officials also allowed the banks to be profitable. Pawnbrokers openly lent money at interest and were left alone provided they paid an annual ‘fine’ for their evil behaviour.

Cashill turns his attention next to reformers, Martin Luther and John Calvin. Luther spoke boldly on the topic of finance, denouncing the innovation of interesse as usury by another name. Calvin, on the other hand, was not convinced that Scripture did wholly condemn usury. Instead of imposing blanket rules, he recommended deciding whether or not charging interest was appropriate or not in given situations by appeal to the principle of equity—if it is neither unjust nor uncharitable to do so, then it is permissible. So while, for instance, the needy poor should receive loans free of interest, charging interest to the rich who are investing to make a profit is fine.

The second half of the book is devoted to the history of the US financial markets and Wall Street. Cashill details the rise of finance to the working class in the 1880s, including the development of pawnshops and other small lenders, as well as the introduction of the wonders of buying on the instalment plan. The 19^th century also saw the introduction of building-and-loan associations which meant that the idea of buying one’s own home before you had saved up enough to pay for it was no longer such a radical idea. The transformation of the US into a society that accepted buying by instalment or via other avenues of credit, as a respectable and normal part of life, didn’t happen without a moral struggle. In fact, it was common to hear borrowing preached against in the pulpit. Cashill writes that throughout the 1800’s, ‘Christianity exercised a useful restraining influence’ (p130).

In the 1920s, influential academic E.R.A. Seligman came out in favour of credit on the grounds that it was good for the economy and national prosperity. He and others sought to break down the distinction between ‘productive’ and ‘consumptive’ credit, beginning by rebranding the latter sickly sounding category as ‘consumer’ credit. It worked, and the credit revolution took off. There was still a considerable, largely Protestant, voice opposing easy credit, but few heeded it and by the end of the decade, it had become respectable and commonplace. By 1923, 46 percent of General Motors buyers used instalment plans. ‘Young males had come to understand that a sharp-looking car could make them smarter, taller, and better-looking. And if it made them poorer in the process, it made them at least look wealthier’ (p154).

The book goes on to cover further developments in the use and abuse of credit in the twentieth century up to the 2000’s: the original get-rich-quick ‘Ponzi Scheme’, the impacts of the Great Depression and Great War; the introduction and popularisation of credit cards; the relaxing of lending regulations under Clinton and Bush; Bernie Madoff; and the whole sub-prime fiasco. As the story develops, the Jewish and Christian voices speaking out against debt become fewer, fainter, and more readily dismissed.

Cashill is first and foremost a journalist, not an historian. The up side of this is that he tells a good story and the book reads well; the down side is this story includes some over-confident generalisations that stretch beyond the evidence presented. There is also a moral (or agenda?) to this story: the financial mess the West is in results from moral failure and not because lending practices are inadequately regulated. This moral failure is primarily the failure of people to act responsibly when it comes to debt, but feeding into this are the feelings of entitlement people have to a high living standard (rather than having to work for it), and family breakdown (divorced or single mothers are overrepresented among the bankrupt). As a result, what we need to do is preach the salvation of saving and investing. The only regulation needed ‘is self-regulation’ (p234). This, Cashill maintains, is ‘pretty much the way Moses saw the world—and Augustine and Aristotle and Aquinas’ (p234).

While it is helpful to be reminded of personal responsibility, it’s hard to avoid feeling the moral of the story is somewhat simplistic. It jars with the complexity of an issue Christians have carefully struggled with throughout history, as does the blithe aligning of the Judeo Christian thought with the ‘no victims, only sinners’ line: there is none of the compassion of Jesus for the weak here; no mercy.

This aside, the history of credit given by Popes and Bankers, and its interaction with Christian thought is fascinating, if unsubtle. It allows us to step back and look at Western financial history with a wide lens, and see how recent and unusual our current acceptance of debt is. The contrast with preceding centuries challenges our ‘everyone else is doing it’ blinkers. It highlights the perils of our consumer culture in a world where we are tempted by the relentless advertising of new products. There is a lot to be said for a lifestyle that practices the advice of the New Testament, to live a quiet life, earn a living and to be content with what we have (1 Thess 4, Philippians 4).

[1] By which is meant ‘no more than the charging of simple interest on a loan’ (p12).

[2] Cashill references, for example, Exodus 22:25, Prov 28:8, Psalm 15, and Nehemiah 5:6-12.