The Franciscan Alternative: Banking for the People

In the Middle Ages, the financial parasite draining the people of their assets and livelihoods was understood to be “usury” – charging rent for the use of money. Lending money at interest was forbidden  to Christians, as a breach of the prohibition on usury proclaimed by Jesus in Luke 6:33. But there was a serious shortage of the precious metal coins that were the official medium of exchange, creating a need to expand the money supply with loans on credit.

An exception was therefore made to the proscription against usury for the Jews, whose Scriptures forbade usury only to “brothers” (meaning other Jews). This gave them a virtual monopoly on lending, however, allowing them to charge excessively high rates because there were no competitors.  Interest sometimes went as high as 60 percent.

These rates were particularly devastating to the poor.  To remedy the situation, Franciscan monks, defying the prohibitions of the Dominicans and Augustinians, formed charitable pawnshops called montes pietatus (pious or non-speculative collections of funds). These shops lent at low or no interest on the security of valuables left with the institution.

The first true mons pietatis made loans that were interest-free. Unfortunately, it went broke in the process.  Expenses were to come out of the original capital investment; but that left no money to run the bank, and it eventually had to close.

Franciscan monks then established montes pietatis in Italy that lent at low rates of interest. They did not seek to make a profit on their loans. But they faced bitter opposition, not only from their banking competitors but from other theologians.  It was not until 1515 that the montes were officially declared to be meritorious.

After that, they spread rapidly in Italy and other European countries.   They soon evolved into banks, which were public in nature and served public and charitable purposes. This public bank tradition became the modern European tradition of public, cooperative and savings banks. It is particularly strong today in the municipal banks of Germany called Sparkassen.

The public banking concept at the heart of the Sparkassen was explored in the 18th century by the Irish philosopher Bishop George Berkeley, in a treatise called The Plan of a National Bank. Berkeley visited America and his work was studied by Benjamin Franklin, who popularized the public banking model in colonial Pennsylvania. In the US today, the model is exemplified in the state-owned Bank of North Dakota.

From “Usury” to “Financialization”

What was condemned as usury in the Middle Ages today goes by the more benign term “financialization” – turning public commodities and services into “asset classes” from which wealth can be siphoned by rich private investors. Far from being condemned, it is lauded as the way to fund development in an age in which money is scarce and governments and people everywhere are in debt.

Land and natural resources, once considered part of the commons, have long been privatized and financialized. More recently, this trend has been extended to pensions, health, education and housing. Today financialization has entered a third stage, in which it is invading infrastructure, water, and nature herself. Capital is no longer content merely to own. The goal today is to extract private profit at every stage of production and from every necessity of life.

The dire effects can be seen particularly in the financialization of food. The international food regime has developed over the centuries from colonial trading systems to state-directed development to transnational corporate control. Today the trading of food commodities by hedgers, arbitrageurs and index speculators has disconnected markets from the real-world demand for food. The result has been sudden shortages, price spikes and food riots. Financialization has turned farming from a small scale, autonomous and ecologically-sustainable craft to a corporate assembly process that relies on patented technologies and equipment increasingly financed through debt.

We have bought into this financialization scheme based on a faulty economic model, in which we have allowed money to be created privately by banks and lent to governments and people at interest. The vast majority of the circulating money supply is now created by private banks in this way, as the Bank of England recently acknowledged.

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