John Calvin is remembered best for his theological contributions to the Protestant Reformation, and for his administration of the city of Geneva. This is as it should be. The implications of Calvinistic theology are immensely practical (as theology tends to be), and this easily can be seen in Calvinists' thoughts on economic issues. Calvin and his followers significantly improved the quality of economic thought in at least two respects. First, the development of the work ethic legitimized the secular occupations and led to a Protestant sympathy for the mercantile and industrial improvements of the next several centuries. Second, Calvin's ideas on usury helped dismantle the medieval canonists' opposition to all interest. Both of these contributions are worth a quick look.
Calvin and the Work Ethic
The Lutheran and Calvinistic work ethic meant that ordinary business was no less glorifying to God than the work of the clergy. A person seeking to serve God need not drop productive everyday work for the seclusion of a monastery, but could be assured that God would be pleased with work that men commonly despised. Alister McGrath explains:
There were no limits to this notion of calling. Luther even extolled the religious value of housework, declaring that although �it has no obvious appearance of holiness, yet these very household chores are more to be valued than all the works of monks and nuns.� Underlying this new attitude is the notion of the vocation or �calling.� God calls his people, not just to faith, but to express that faith in quite definite areas of life. Whereas monastic spirituality regarded vocation as a calling out of the world into the desert or the monastery, Luther and Calvin regarded vocation as a calling into the everyday world.1
The idea of the calling eliminated the hierarchy of sacred work over secular work, and reinforced the legitimacy of mercantile activity. This was an improvement on Luther, who, despite his defense of the principle of private property, denied the morality of any price agreed upon by a buyer and seller. Criticizing those who believed they had the freedom to sell at whatever price they chose, Luther wrote:
The rule ought to be, not, �I may sell my wares as dear as I can or will,� but, �I may sell my wares as dear as I ought, or as is right and fair.� For your selling ought not to be an act that is entirely within your own power and discretion, without law or limit, as though you were a god and beholden to no one. Because your selling is an act performed toward your neighbor, it should rather be so governed by law and conscience that you do it without harm and injury to him, your concern being directed more toward doing him no injury than toward gaining profit for yourself. But where are there such merchants? How few merchants there would be, and how trade would decline, if they were to amend this evil rule and put things on a fair and Christian basis!2
As the saying goes, �the devil is in the details.� Exactly how was a merchant to know when the agreement between himself and his customer was �fair and Christian�? Luther struggled with this question but was unable to come up with a practical answer. He preferred the civil magistrate to set prices, calculating the costs of production and counting on their wisdom and goodwill, but admitted that this was not realistic. Luther's argument banked on a hope that the merchant would rely on his own conscience, informed perhaps by what is a �normal� rate of profit. If this proved too vague for the particularities of trade, then a merchant must rely on what the government declares to be a maximum legal profit: �None of these measures [of self-restraint] is certain and safe unless it be so decreed by the temporal authorities and common law. What they determine in these matters would be safe.�3
Calvin, though more logically consistent than Luther, was not exactly friendly toward business. In his important essay on the economic thought of Luther and Calvin, Gary North points out that Calvin �had little respect for businessmen in general,� to whom he referred as ��those robbers' who hope for a catastrophe in order to raise the prices of their goods.�4 But the implications of the work ethic would favor business in the long run. Merchant activity as well as other work would become a laudatory vocation, rather than being the object of suspicion as a �second-best� occupation for the less-than-fully spiritual. And Calvin grasped some of the essentials of economics that allowed business to prosper. McGrath explains:
Although he did not develop an �economic theory� in any comprehensive sense of the term, he appears to have been fully cognizant of basic economic principles, recognizing the productive nature of both capital and human work. He praised the division of labor for its economic benefits and the way it emphasizes human interdependence and social existence. The right of individuals to possess property, denied by the radical wing of the Reformation, Calvin upheld.5
Calvin and Usury
Calvin's statements on interest were a dramatic improvement over the dominant Roman Catholic understanding of the subject, and over Luther's muddled thoughts as well. Where Luther supported overall usury restrictions and made a few concessions to the general prohibition, Calvin forbade usury only in lending to the poor. (Luther is famous for his five percent maximum on interest rates, which became such a common arrangement that a five percent lending agreement was known as a �German contract.�) Of course, as Calvin stressed obedience to the civil magistrate, any legal maximum must be obeyed. There were several other rules that a lender must follow, limiting the terms of the contract rather than the amount of interest charged. Murray Rothbard points out a strange inconsistency � despite Calvin's insistence that all lawful occupations are legitimate, he contended that no one should be a professional money-lender.6 Overall, however, Calvin's arguments on usury marked an important shift in economic thought. Rothbard writes:
Calvin began with a sweeping theoretical defence of interest-taking and then hedged it about with qualifications; the liberal scholastics began with a prohibition of usury and then qualified it away. But while in practice the two groups converged and the scholastics, in discovering and elaborating upon exceptions to the usury ban, were theoretically more sophisticated and fruitful, Calvin's bold break with the formal ban was a liberating breakthrough in Western thought and practice.7
Gary North points out that Calvin's appeal to conscience was the critical element separating him from the preceding Catholic theologians, because it led to the freedom of contract. The lender's conscience was responsible to God, and did not require the intervention of the state into the minute particulars of the lending agreement. As North writes, �Calvin� favored the general principle of the covenant ; covenanting men should be limited by consciences unrestricted by multitudinous legal pronouncements.�8 While Calvin's residual hostility toward business would not allow him to consistently promote the freedom of contract, Calvin's thought logically would lead to fewer state restrictions on lending or other business arrangements. North notes, �The conscience of man, while not completely autonomous and sovereign, was given a new role to play in the administration of property�. [C]onscience had more responsibility and fewer guidelines to direct human action.�9
Other Calvinists would expand on the case for usury. The Dutch Calvinist Claude Saumaise (or Salmasius, 1588-1653) was involved in mopping up some of the remaining errors on usury. There was not much really new in Saumaise, but he was finally consistent about usury. He even went so far as to justify professional money-lending to the poor. And, since the interest rate tends to fall with more competition among usurers, �if one doesn't like high interest rates, the more usurers the better!�10 as Rothbard put it. According to Rothbard, Saumaise represented �the high-water mark of interest theory, to remain so for over 100 years.�11
Calvinism's contributions to economics made it possible for businessmen to work with the assurance that their work was morally legitimate � even those involved in the supposedly iniquitous business of moneylending. Some have argued that if Calvin had not reformed the Christian understanding of interest, someone else would have, for the time was ripe for discarding the absurd ideas that prevailed to that point. As Frederick Nymeyer wrote, �Calvin lived at the time when long-held ideas on interest were being swept away. If Calvin had not clearly seen the perfect validity of interest, others would have. The end of the ban on interest was at hand whether Calvin had ever expressed himself or not.�12 But Calvin did express himself, and in so doing helped many Christians understand the morality of the marketplace.
1. Alister McGrath, �Calvin and the Christian Calling� First Things , vol. 94 (June/July 1999), 31-35.
2. Martin Luther, �Trade and Usury,� Online at http://www.reformation.org/luther-trade-usury.html.
4. Gary North, �The Economic Thought of Luther and Calvin,� The Journal of Christian Reconstruction, vol. 2, no. 1 (Summer, 1975), 98.
5. McGrath, 31-35.
6. Murray N. Rothbard , Economics Before Adam Smith ( Aldershot : Edward Elgar), 140.
7. Ibid., 141
8. North, 98.
10. Rothbard, 144.
11. Ibid., 145.
12. Frederick Nymeyer, �John Calvin on Interest,� Progressive Calvinism , vol. 3 (1957), 55.