The Rise of Banking Power: How the Church, War Finance, and Usurious Debt Created the Modern State

The rise of modern banking in Europe was not an isolated economic development, but the result of a deep and complex relationship between the Roman Church, usury war financing, and the growth of state power. As Europe moved through the medieval period, especially after the beginning of the Crusades, the Church increasingly required vast amounts of money to fund military campaigns against both rival Christian powers and Muslims. This need for financing pushed the Church into close cooperation with banking families, particularly those based in northern Italy.

European rulers found warfare was becoming more expensive, requiring larger armies, more advanced equipment, and sustained campaigns. Kings could no longer rely solely on income from their own lands, and parliaments were often unwilling to approve higher taxes. As a result, rulers increasingly turned to borrowing at interest. This growing dependence on credit led to the development of new financial mechanisms designed to extract revenue more efficiently from ordinary people.

Out of this process emerged what can be described as the “fiscal state.” Governments evolved into systems primarily focused on raising taxes, managing public debt, and ensuring repayment to usurious creditors. Banking ceased to be a marginal activity and instead became central to governance itself. Finance began to shape political decision making, with the needs of usury creditors influencing state policies and priorities.

A crucial part of this transformation was the Church’s shifting attitude toward lending at interest. Early Christianity had taken a strong moral stance against usury, viewing it as exploitative and unjust. This perspective was rooted in the teachings of Jesus Christ (peace and blessings be upon him) particularly the episode in which he drove money changers out of the Temple, condemning the commercialization of sacred space and the exploitation associated with it. The ideal was not profit from lending, but forgiveness of debts and justice.

“And Jesus went into the temple of God, and cast out all them that sold and bought in the temple, and overthrew the tables of the money changers, and the seats of them that sold doves, And said unto them, It is written, My house shall be called the house of prayer; but ye have made it a den of thieves.”

— Matthew 21:12–13, King James Version

Jesus Christ (peace and blessings be upon him) is stated to have visited the Second Temple in Jerusalem, where the courtyard was described as being filled with livestock, merchants and the tables of money changers, who changed the standard Greek and Roman money for Jewish and Tyrian shekels. Jerusalem was packed with Jews who had come for Passover. According to the AD 66 census by Cestius, as cited by Josephus, the attendees at the Passover Festival were counted as more than 2.5 million pilgrims.

However medieval Christian theologians gradually created exceptions for usury. The Church became more deeply involved in political and military affairs, this moral framework came under strain. Financing wars and maintaining authority required access to credit, creating a contradiction between doctrine and practice. Rather than openly abandoning its opposition to usury, the Church and its theologians gradually reinterpreted it. They introduced a distinction between “usury,” which remained condemned, and “interest,” which could be justified under certain conditions.

This distinction allowed the system to evolve without appearing to violate core religious teachings. One argument was that moneylenders had a right to earn a living, transforming lending into a legitimate economic activity rather than an inherently immoral one that exploited vulnerable people in need.

Another key development was the concept of opportunity cost: if a moneylender gave up the use of their money, they were entitled to compensation for the profit they could have otherwise made. This reframed interest as fair compensation rather than exploitation.

Theologians and legal thinkers also justified additional charges based on risk and delay. If a borrower might default, or if repayment was late, moneylenders could impose fees. These were described not as interest, but as compensation for uncertainty or inconvenience. In practice, such distinctions enabled widespread interest taking while maintaining the formal prohibition of usury.

Merchants and bankers further developed techniques to operate within these rules. In international trade, for example, they used foreign exchange fees instead of explicit interest charges, earning profits that functioned in the same way. Late fees became another common mechanism. Loans could include significant penalties for delayed repayment, sometimes doubling the effective cost of borrowing. Although these charges were presented as separate from interest, they often served as indirect ways of circumventing the original ban.

These justifications functioned largely as loopholes. The Church maintained its official condemnation of usury, but in practice allowed the behaviors it had once prohibited. Importantly, the moral arguments used to justify interest were framed around productive lending, such as financing trade or agriculture. These uses could be portrayed as socially beneficial. Yet, in reality, the largest loans were directed toward kings and governments, primarily to fund warfare. Theologians largely avoided addressing this discrepancy, constructing a moral framework that did not fully reflect actual economic practices.

As lending became more central to political life, the social status of moneylenders changed dramatically. In earlier societies, creditors were often viewed with suspicion and disdain. In medieval Europe, however, the primary borrowers were the most powerful institutions, the Church and monarchies. This elevated bankers to positions of significant influence, as they financed the operations of rulers and religious authorities. Over time, banking families became intertwined with political and ecclesiastical power, forming a new elite.

This transformation is closely linked to the development of modern states, particularly in places like the Dutch Republic and post-1688 England. These states were structured in part to guarantee the reliable collection of taxes and the repayment of usurious debt. In this sense, the modern nation state can be understood not only as a political institution, but also as a financial one, designed to primarily serve and stabilize the interests of creditors at the expense of the population that have to service the debt.

The Church also increasingly adapted spiritual concepts to support financial practices. Ideas such as redemption and forgiveness were turned into mechanisms for raising funds. The sale of indulgences (payments made in exchange for spiritual benefits such as the forgiveness of sins or salvation in the afterlife) became a prominent example. Under figures like Pope Leo X (who belonged to the famous Medici money lending family) indulgences were used to fund his extravagant life but also to finance major projects, including the rebuilding of St. Peter’s Basilica. This blending of finance and religion contributed to widespread perceptions of corruption and played a significant role in triggering the Protestant Reformation.

Although popular narratives often rightfully emphasize the exploitative role of Jewish banking families (Rothschilds, Sassoons, Warburgs, Lazards, Seligmans etc..) they often neglect to mention the role of Christians in banking in medieval and early modern Europe driven by Christian institutions and closely tied to kings, popes, and war financing.

Historians and economists often overlook the full picture because they treat economics as separate from politics and religion. In reality, the development of banking, taxation, and public usury debt cannot be understood in isolation. They were deeply intertwined with warfare, imperial ambition, Church authority, and the restructuring of political systems.

Christianity did not simply reverse its stance on usury. Instead, it gradually developed a series of intellectual justifications based on risk, delay, opportunity cost, and transactional fees that made interest acceptable in practice while still formally condemning it.

Over time, this process transformed the original moral prohibition into a much narrower concept, allowing the financial system required by both Church and State to function. In doing so, it helped lay the foundations of the modern world, where finance, politics, and power remain closely connected.

Good episode on this with Michael Hudson:

youtu.be/3roQw-zbmLM?si…