Even before the Empire fell (we're talking about the Roman Empire here), the lending industry was dealt a death blow by the Roman Catholic Church, which had become the State Religion in 312 AD. Just 13 years later, the First Council of Nicaea forbade the clergy from engaging in any money lending that involved interest. The church had power now, and church laws were Imperial laws. Later ecumenical councils extended the prohibition to all Christians on pain of excommunication. So, now, the only people who could lend money at interest in Roman or Christian lands were people who had no fear of excommunication, ie. non-Christians.
These non-Christians, who were for the most part Jews, once the pantheistic religions of Rome had died out, were often forbidden from owning land, or from joining craft guilds. Forced out of most professions, some Jews engaged in the one business where Christian laws actually discriminated in their favor. This certainly did nothing to improve their public image.
In London and York in 1189, Jews were massacred by soldiers setting off on Crusade. In 1275, Edward I passed a law making money lending illegal, declaring it religious blasphemy. Three hundred Jewish moneylenders were hanged and their property was seized by the crown. I guess that's one way to avoid paying back a loan.
The Protestant Reformation changed the dynamic somewhat. While Protestant churches were no less against money lending - and Jewish money lenders and the rest of their communities were no less persecuted in Protestant countries - the disunity that had developed in the Christian world in some places caused a relaxing of the situation for the Jewish financiers. In other places, where the Catholic Church set up inquisitions to root out Protestant heretics, Jews were lumped in with them, and their situation became even worse than it had been. The Spanish Inquisition was not a lot of fun.
However, the Reformation fractured old empires and in some places led to a general and gradual acceptance of the money lenders, and for the first time in history, religious tolerance began to develop in these same places. The most notable example was the Republic of the Netherlands, which broke free from Spanish rule in the late 16th century. Due to the lifting of restrictions on finance, the Netherlands became a trading powerhouse, helping to usher in the Enlightenment and the Modern Era.
During this time, short-term interest rates dropped dramatically from 20-30% down to 9-10%. Money lending started to become acceptable and the power of the money lenders began to increase. This, of course, created a slight backlash as these things always do, and that backlash was popularized by Shakespeare himself in his play The Merchant of Venice.
To sum up the plot in The Merchant of Venice :
- Ship sinks, merchant doesn't have enough money to finance his next fleet.
- Merchant goes to a Jewish money lender that he had previously spat on.
- Money lender (Shylock) demands a pound of flesh as his collateral and the merchant agrees (because lightning doesn't strike twice)
- Ship sinks again, merchant can't pay back the loan.
- Shylock names his pound of flesh: The merchant's heart.
- A trial is conducted. The result: Shylock may take his pound of flesh if he can figure out a way to do it without spilling any blood.
- Now Shylock, for demanding his pound of flesh, is charged with attempted murder and can only escape hanging by giving away all his property - half to the state and half to the merchant. At the merchant's request the Duke allows Shylock to keep the state's half as long as Shylock converts to Christianity.
- All is well and everyone is happy (from the point of view of Shakespeare's Christian audience).
Next time: Modern lending, math, computers, the many ways to calculate and lend.