"You are the nation that permits Usury, which has been forbidden by all the religions. Yet you build your economy and investments on Usury." -- Letter to America Q2.2.b.ii., Osama bin Laden

This quote from bin Laden sparked a curiosity about this word usury. I found that any attempt to define usury leads to a discussion about the place of morality in commercial transactions; or the place of commerce in the proper fabric of a civil society.

Traditional
The essential definition of usury is the charging of additional moneys for unproductive loans. From Hillaire Belloc's Economics:

"Lend me half a dozen loaves. My family have no bread and I cannot see my way to earning anything for a day or two. But when I begin to earn I will get another half dozen loaves and see that you are not out of pocket." Then if you were to reply: 'I will not let you have half a dozen loaves on those terms. I will let you owe me the bread for a month if you like, but at the end of the month you must give me back seven loaves": that would be usury.

That is not to say that additional charges are categorically disallowed. If the loan is productive, then the imposition of interest (or shared profits) is acceptable and beneficial. Again, Belloc:

"Lend me this piece of capital which you possess. Using this piece of capital to transport the surplus goods from this country over the sea and to bring back foreign goods which we need here I shall make a profit ...."

You naturally answer: "It is all very well for you to make a profit ..., but what about me ? I grant you ought to have part of this profit for yourself, as you are taking all the trouble. But I ought to have some,  .... Let us go half shares."

There is nothing morally wrong about that transaction at all. It does no one any harm. It does not weaken the State or society, or even hurt any individual. There is a sheer gain due to wise exchange ...

Another traditionalist discussion of usury is found at thetruereligion.org. Don't confuse the discussion about usury with the discussion about the nature of money in the post-industrial West (that's a whole 'nother subject). There is a clear acceptance that the shared interest in the production of wealth through Labor, Capital, and Land is not usurous.

Free Market
The free market definition is that usury is simply excessive interest rates, particularly thosed charged by unregulated lenders such as loan sharks. The article "Usury and Interest" at submission.org argues this point of view as does this from smartagreements.com. Many of the western economic sites only cite the term in passing, and usually in reference to Jeremy Bentham's essay Defense of Usury (which argues for the liberty of individuals to make free contract).

In short, it doesn't matter the type of loan. What matters is the amount of the loan terms.

Analysis
The free market analysis would propose that the difference between the free market and the traditionalists is a matter of degree. Both camps agree that interest rates should be regulated. In the free market, the individual is given credit to be able to decide in his own what is the best interest rate, so the regulations protect against only the most outrageous of abuses. The traditionalists, on the other hand, do not trust in the individual and insist a paternalistic restriction of liberty and choice. There is no need for outside moral guidance because the efficiency of the market will control behavior.

The traditionalist analysis would answer that there is a significant difference between the two. The free market position makes no distinction about the character of the loan and this is contrary to social good. It is proper for society to determine what economic activity is beneficial and what is detrimental. It is proper to maintain the vitality of the social fabric against the predations of individual avarice and greed. Economic activity is just one part of a full life and is constrained by the other requirments of that life. Many traditionalists defer to a divine guidance as the authority.

In both cases the use of capital to increase the capabilities of society is seen as beneficial. Interest is justified as necessary to encourage investment of existing capital into new enterprises. Interest is ok to compensate capital for the risk encountered. What separates the traditionalists from the free marketeers is whether there is a distinction to be made between types of loans.

Questions
One question I didn't find addressed about the traditionalist position is what happens if the venture fails. Is the debtor still on the hook to the lender? If so, what risk is the lender taking to justify the charging of interest?

To what degree is consumer debt to be considered usury by traditionalists? A large part of the growth of productivity and innovation in the West over the past century has been built on consumer products.