Usury from an OrdoNaturalist Perspective
A Critique of Contractually Invalidity Interest
Abstract
This article proposes a critique of the practice of usury — understood as the imposition of contractually invalid interest — from an OrdoNaturalist approach inspired by Hans-Hermann Hoppe’s argumentation ethics. Unlike utilitarian, Marxist, and religious views, which treat usury as acceptable if useful or condemnable if exploitative, it is argued here that usury is null ab initio because it violates the principles of self-ownership and contractual reciprocity. The text distinguishes legitimate loans, based on mutual risk and limited guarantees, from usurious loans, characterized by unlimited liability, perpetual debt, and the alienation of the debtor’s autonomy. It concludes that usury is incompatible with natural order and constitutes a disguised form of economic slavery.
1. Introduction
From the OrdoNaturalist perspective, which I develop from Hoppean libertarianism, usury should not be understood merely as a controversial financial practice, but as a contract invalid by nature.
Historically, Abrahamic religions condemned usury as a sin, while modernity came to accept it as a necessary financial mechanism for credit and banking activity. Nevertheless, the practice persists as a subject of ethical debate, especially in cases of predatory lending, such as American student loans, payday loans, and consumer financing with abusive compound interest.
I distinguish my approach from three prevailing perspectives:
Utilitarian, which considers usury acceptable if it promotes general economic benefits.
Marxist, which regards any interest as an intrinsic form of capitalist exploitation.
Religious, while my aim is a secular and natural argument without theological grounding, it can still be applied by religious thinkers.
The central claim here is that usury is invalid at its core, because it undermines the libertarian contractual principles derived from Hoppe’s argumentation ethics.
2. From Argumentation Ethics to Contract Theory
Hans-Hermann Hoppe, in A Theory of Socialism and Capitalism (1989), presents argumentation ethics, according to which the very practice of debate requires the recognition of self-ownership as a normative principle. Each individual is the exclusive owner of his body and the products of his labor.
Although Hoppe does not directly address usury, his normative framework provides the tools to analyze it:
contracts are valid only when they preserve self-ownership,
and when they do not establish relations of unrestricted domination.
Thus, debt contracts that alienate the debtor’s future without limit, or that make exit impossible, fail the test of argumentation ethics: they are disguised coercion.
3. Legitimate Loans versus Usurious Loans
To clearly delimit the boundary between legitimate and usurious contracts, it is necessary to rely on concrete examples, which will later be given their theoretical justification.
Examples of Legitimate Loans
Mortgage with mutual risk: Suppose an individual contracts a loan of $1 million, offering as collateral a house valued at $1.5 million. The debt grows at 1% interest per year. If the property appreciates, the debtor may sell it and pay off the obligation, keeping the surplus. If it depreciates, he can hand the property to the creditor, extinguishing the debt without compromising additional assets. In this case, both parties bear risks: one loses potential appreciation, the other limits exposure to the mortgaged asset.
Agricultural loan with harvest as collateral: A farmer receives $100,000 in financing, offering his future grain harvest as collateral. If the harvest is good, the debtor repays and keeps the surplus. If lost to weather, the creditor bears the reduced value recovered. Risk is shared, and liability is delimited without alienating the debtor beyond the harvest.
Examples of Usurious Loans
Credit cards with compounding penalties: Debts that, even after repaying the original amount, continue accumulating through penalties and fees. The creditor assumes no real risk beyond potential default: the contract perpetuates itself indefinitely, trapping the debtor in financial servitude.
Student loans without bankruptcy relief (U.S.): The debtor is prohibited from declaring insolvency to discharge the debt. This entails permanent alienation of autonomy, making the contract null.
International public loans with unlimited guarantees: States contract debts that tie up future tax revenues for decades, transferring the burden to generations that never consented to the contract.
These examples show that the validity of a loan is not determined by the presence of interest per se, but by the structure that legitimizes it. Only when there is reciprocity, mutual risk, and limited liability can the contract be deemed legitimate.
4. Title Transfer, Risk, and Contractual Exits
In the theory of the transfer of title of contracts (TTToC), as articulated by Murray Rothbard in The Ethics of Liberty (1982) and refined by thinkers such as Stephan Kinsella, a valid contract arises exclusively from the voluntary and reciprocal transfer of title over scarce and alienable resources—i.e., goods, services, or conditional rights—anchored in self-ownership and libertarian ethics. This framework transcends legal formalities, serving as an ethical pillar that ensures voluntariness and justice in bilateral relations, aligning with Hans-Hermann Hoppe’s argumentation ethics.
In essence, the TTToC promotes reciprocity through simultaneous exchanges of title: each party must transfer something from their exclusive domain so that the agreement does not result in a unilateral donation or coercive imposition. For example, in a sale, the buyer transfers title over money in exchange for the title over the seller’s good, creating symmetrical obligations based on genuine property. This reinforces the integrity of voluntary interactions, preventing contracts from becoming tools of exploitation.
In the absence of mutual title transfer, as in loans where the lender assumes no proportional risk over their own resources, the agreement degenerates, invalidating its moral and contractual legitimacy, since it violates the core of TTToC: one cannot transfer what one does not own, nor alienate inalienable rights such as self-ownership.
This exchange relationship must be concomitant under a quid pro quo regime, under penalty of degenerating into something akin to a double donation, which would not be legally enforceable. After all, no one can be obliged to transfer title in response to a prior donation, as this would be an empty promise, devoid of the ethical substance of a voluntary property exchange.
Beyond reciprocal transfer of title, every contract must provide clear and proportional exit mechanisms for the parties involved, under penalty of ethical and practical invalidity. Without mechanisms of resolution or termination—such as exit clauses by mutual agreement, time limits, or failure conditions—the contractual arrangement may degenerate into a permanent alienation of individual will, transforming initial consent into an indefinite prison.
Such alienation violates the core of self-ownership: the individual’s right not to be bound irrevocably to obligations that enslave them economically or morally. Moreover, the notion that an individual could sell themselves into slavery is unjustifiable within libertarianism, as already elaborated by Kinsella in his Legal Foundations of a Free Society (2025).
A usurious contract exemplifies this failure in a paradigmatic way. In it, compound interest and cumulative penalties create a self-perpetuating debt, generating debts upon debts with no clear horizon of repayment. The debtor, initially attracted by the capital offered, sees their autonomy eroded: the debt transcends the initial collateral, extending to personal property, future labor, or even subsequent generations. Such a structure is not a voluntarily assumed risk but rather a trap that disguises coercion under the pretense of consent. These contracts are null ab initio (invalid from the outset) because they subvert reciprocity in title transfer and transform the relationship into unilateral domination, since formal consent alone is not sufficient as a criterion of validity.
This requirement for exits is not a regulatory whim but an essential safeguard for contractual freedom. Contracts without escape—such as perpetual debts or unlimited obligations—amount to veiled slavery, contradicting Hoppe’s argumentation ethics. In contrast, legitimate arrangements incorporate “escape valves” that preserve individual agency, allowing renegotiation or dissolution without disproportionate punishments. Depending on the degree of abuse—as in contracts deliberately predatory or designed to enslave the debtor—one may justify the imposition of punitive damages on the lender. Such a penalty functions not as arbitrary regulation but as restitution for attempted fraud, contractual abuse, and ethical violation.
Note: In conventional contractual theory, especially derived from common law, “consideration” refers to the essential element of a contract: a benefit or burden mutually exchanged between the parties, such as the “price” of a promise (e.g., payment in exchange for a good), ensuring reciprocity and preventing empty unilateral promises. This formalism ensures balance and legal enforceability. In contrast, Murray Rothbard’s Title Transfer Theory of Contract (TTToC) rejects consideration as a formal requirement, grounding validity exclusively in the voluntary and reciprocal transfer of title over scarce and alienable resources, with no need for binding abstract promises—the focus is on self-ownership and ethics, not formalized future obligations.
In my discussions I sometimes use the term heuristically for accessibility to a non-libertarian audience, but the core argument is fully aligned with TTToC, since it concerns alienable goods; it was pointed out to me that this could cause confusion, so I chose to clarify.
5. Responsibility and Risk in the Libertarian Context
Contracts represent pure expressions of human will and autonomy, grounded in the foundations of the Title Transfer Theory of Contracts (TTToC), in which the parties freely negotiate the terms of their exchanges—reciprocal transfers of title over scarce and alienable resources—without external interference, thereby justifying the notions of contractual risk and responsibility.
Reciprocal title transfer ensures that each party incorporates a mutual obligation into the contract, avoiding unilateral asymmetries. Without it, an agreement could degenerate into an arbitrary demand that nullifies it, where one party imposes duties on the other without an equivalent counterpart—a subtle form of expropriation that violates the non-aggression principle. For example, a lender who loans without assuming any personal risk (such as market fluctuations or default) does not perform a genuine transfer of title, rendering the contract an impositive demand for an inescapable donation. This mutual responsibility reinforces libertarian ethics: no one is coerced into fulfilling empty promises, and every exchange must involve bilateral commitments that respect individual property and self-ownership.
By requiring that both parties “put something at stake”—be it capital, time, or effort—the reciprocal transfer of title establishes a balance of risks inherent to the contract. Each participant accepts the potential losses resulting from their decision, promoting a rational allocation of resources and inhibiting opportunistic behavior (such as moral hazard, also known as bigodagem in colloquial Portuguese, where one party acts recklessly knowing that the burden falls on the other).
In a legitimate loan, for example, the lender risks the depreciation of the collateral, while the borrower exposes a specific good without alienating their entire person. This shared risk reflects individual responsibility: actions carry costs, and contractual freedom flourishes when these costs are internalized by all.
6. Usury and the Problem of Public Debt
Public debt represents an extreme case of institutionalized usury. Unlike private contracts, it suffers from insurmountable flaws:
It is contracted without the individual consent of citizens.
It is transferred to future generations, who never participated in the “agreement.”
It is structured never to extinguish, since continuous rollovers perpetuate interest charges.
From the OrdoNaturalist standpoint, public debt is invalid from its origin, amounting to collective economic slavery imposed through political coercion by the state.
Murray Rothbard was explicit on this point: for him, public debt can and should be repudiated. In The Case Against the Fed (1994) and other works, he argues that such debt is not a voluntary contract, but coercion via taxation. Thus, nullifying it is not illegitimate default, but the restoration of justice against an expropriative scheme.
Therefore, far from being a legitimate financial institution, public debt is the highest expression of systemic usury — a contract without consent, without creditor risk, and without debtor exit. Unsurprisingly, its abuses are mirrored in its private counterpart.
Conclusions on Usury
Not all interest is usury: when there is mutual risk, limited liability, and exit mechanisms, interest is legitimate.
High interest is not usury, only contractually invalid interest is.
All usury is invalid: it occurs when the creditor eliminates his risks and imposes unlimited obligations.
Self-ownership is inalienable: no contract can demand servitude by debt.
Without exit mechanisms, contracts are null ab initio: they must be reverted to prior or analogous conditions, with possible punitive damages in abusive cases.
Public debt must be repudiated — reinforcing the critique of private usury.
In short, usury is not merely unethical: it is legally invalid and incompatible with a social order founded on self-ownership and contractual reciprocity. By contrast, legitimate loans strengthen social cooperation, while usurious loans establish economic slavery disguised as contract.
Bonus: Possible Criticisms and Responses
“Usury is widely accepted, and prohibiting it would restrict access to credit.”
R: Libertarian ethics is not guided by popularity or convenience, but by principles such as self-ownership and voluntary consent. Invalid contracts remain illegitimate regardless of acceptance. Banning usury does not eliminate credit, but ensures it is offered on ethical terms.
“The definition of usury is vague and could include legitimate transactions.”
R: To avoid vagueness, usury is defined narrowly as interest-bearing contracts that are contractually invalid or coercively exploit vulnerabilities. High interest in contracts with mutual risk and limited guarantees remains valid.
“Prohibiting usury is paternalistic and restricts individual freedom.”
R: Prohibition of usury protects genuine freedom. Usurious contracts often arise in contexts of desperation, where creditors assume no real risk. Safeguarding against this is not paternalism, but ensuring true voluntariness.
“Usury is a free-market issue and should be left to the parties involved.”
R: Contractual freedom is not absolute in libertarian ethics. Contracts that explicitly or implicitly violate its principles are invalid, even if formally agreed upon. Usury is a distortion of the market, not its expression.
“If interest rates are low, usury would not violate ethics.”
R: The rate does not determine ethical validity; the conditions of interest do. High rates may lead to faster collateral execution, but if liability is limited, the contract ends naturally. Market dynamics already discourage absurd rates, as debtors prefer selling assets rather than surrendering them below market value.
“Without usury, creditors wouldn’t lend to high-risk individuals.”
R: Creditors can still lend to high-risk borrowers by requiring third-party guarantees (such as cosigners). As long as contracts are fair, with limited guarantees and shared risks, high-risk lending is possible without usury.
Acknowledgments
I would like to thank those who helped sharpen my focus on this theme, enabling me to write this article. I am deeply grateful not only for the knowledge they shared, but also for their patience and time.
Mateus Larsan: His critiques motivated me to distinguish valid from invalid interest, and to contrast modern with traditional views.
Lucas Serafim: His insights into finance and Church doctrine clarified historical and doctrinal positions on usury.
Father Marcelo Jiménez: Brought a pastoral and theological perspective, emphasizing dignity and justice, which I translated into libertarian ethics.
Avelino Morganti: Invited me to his podcast, allowing me to refine this article over time.
Israel Pereira: His recent critiques led me to restructure and clarify this revised version.
Stephan Kinsella: Engaged in discussions convinced that this contractual limits exist, this article responds to some objections to clarify terms misused.
These exchanges deepened my reflections on usury, considering both ethical and social implications. Though my article does not necessarily represent their own positions, I am grateful that their input motivated me to explore this subject within libertarian ideas.
This is very interesting. However, I think another point that is fundamental. Central and commercial banks do not transfer a valid title according to the title transfer theory because they do not own the money before transferring it. They just create it out of thin air. This is the basic reason why debt, both towards a Central Bank and towards a commercial bank, is invalid.