Joel Kaye has shown that the thirteenth-century expansion of trade helped spur refinement of scholastic economic theory, especially for Franciscans, whose views and practices of poverty were contentious. Two very important theories of finance had been developed by the great Franciscan Peter John Olivi in the late thirteenth century: opportunity cost and risk. According to Olivi, it was because of opportunity cost and risk that merchants justly can make profits on arbitrage, seek modest returns on a loan, and charge a range of prices based on market conditions. It took the radical poverty of the Franciscans to see with fresh eyes the value to society provided by merchants and trade!

These theories provided groundwork for the idea that interest-bearing loans could be socially valuable rather than merely extractive. Another Franciscan, Bernardino da Feltre, took up the argument, extended it, and openly supported low-interest lending to the poor. He helped Pavia set up a Monte in the fifteenth century. The Monte was a collateralized loan service initially funded by donations. Poor and middle-class people could pawn an item in exchange for a loan. What made this controversial was that the one-year loan would bear interest between 2 and 15% per year to pay for the stewards of the fund. Were profits on a loan morally legitimate if they only paid for the management of the loan? In Leo X’s formulation the interest gained was given a list of legal uses, all of which were meant to indicate that loan services should have zero producer surplus. At first, only the expense of running the fund was an approved use of the interest, and any additional profits were to help the poor. However, the notion of just remuneration to the Monte expanded to include both opportunity cost and risk. And at the same time, in practice, the notion of “help the poor” expanded — as did who could deposit funds in the Monte.

While the Franciscans supported a limited form of lending at interest in charitable circumstances, the Dominicans took the other side of the debate. The Dominicans thought the loosening of the purse was also a loosening of morals. For how could a person charge interest in any circumstance without opening the door to justifying interest in many circumstances? It is not how the interest is used that makes it just or unjust. It is the act itself: as soon as you’ve charged interest, no matter how noble the cause the interest is put to, you’ve stolen from the laborer as an idle lender. The ongoing dispute was on the docket to be resolved at the Fifth Lateran Council.

At that council in 1515 Franciscan financial reasoning won. The Monti di Pietà were sanctioned by Pope Leo X. The 1515 document Inter multiplices gave full license to the practice. He understood that the Monti, properly restricted, helped and did not harm, and the payment in interest was a just fee for the administration of the program.

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Pope Leo X was not a priest prior to his accession to the pontificate; indeed, he was a young Medici, appointed cardinal at age thirteen, studied theology and canon law, and officially donned the red cardinal cap at age sixteen. After 21 years of working the scene of Florentine and Roman patronage, art, and politics, he became Pope at age thirty-seven. His great love was for the refinements of the totally ravishing, wildly exciting, Greco-philic artistic and literary movement of the age. Of the frugal arts, restraint and thrift, he knew little. Yet he had taste and a talent for understanding the ways of the world and even its corruption. So while he plunged the Papal States into debt of Biblical proportions, he also funded every pious and studied thing a man could think of — from orphanages to obelisks, from Greek and Hebrew printing presses to Tuscan and Florentine comedians and handsome companions, from benefices for distant relatives, to Raphael’s renovations of Vatican rooms. And famously, he raised money — by selling indulgences — to build the mother of all churches, St. Peter’s Basilica.