Home / David W. Cooney / The Errors of the Economists: Usury

 

Usury and concepts of legitimate interest are points of contention between distributists and modern economists. A lack of understanding on the difference between them, and how to determine if a particular transaction is one in which interest may be legitimately charged, can make our positions confusing for those considering Distributism.

The average person, trained to accept the prevailing economic model, treats money as though it has the ability to produce wealth rather than being a convenient means of acquiring goods that actually do so, or just buying goods period. Because they look at money as a wealth generator, they see no problem in charging interest for its use. They have never been asked to look at the fundamental points that determine whether charging interest is legitimate or usurious.

What is the Real Difference Between Sales, Loans,  or Rentals?

A sale is an exchange of things of equivalent value, it is a transfer of ownership of the things exchanged. A loan is not an exchange at all. It is the temporary use of a specific thing which much be returned. A loan requires the return of the same thing loaned, not merely an equivalent thing. If I loan you my car, I require that you return the same exact car to me. If I charge you for using the car, it is a rental.

Are There Things Which, Due to the Nature of Their Use, Cannot Be Loaned or Rented?

To use a classical explanation, “consumable” things cannot be loaned. “Consumable” in this sense means that using it involves either its loss or its destruction. The use of a sandwich is the eating of it. This destroys the sandwich and it cannot be returned. The use of money is the spending of it. This means you have “lost” (are no longer in possession of) the money and it cannot be returned. Because the normal use of these means they cannot be returned, they can only be sold. I am speaking here of the “normal” use. I will address below situations where the intended use is different than the “normal” and does not involve the destruction or loss of the thing.

If I “loan” you ten dollars to buy lunch, you will no longer have that ten dollars and cannot return it, nor are you expected to do so. You are only expected to return an equivalent amount of money, which means we are actually exchanging different things of equivalent value. In other words, I am selling you ten dollars and allowing you to pay me at a later time. What is the just price for ten dollars? The amount of money, or the length of time allowed for repayment, or the existence of a contractually established plan for repayment does not alter the nature of this transaction. What we typically call loans of money are actually sales regardless of these factors. While some try to argue that the “lender” is maintaining a claim of ownership on the money, the reality is that he is relinquishing ownership of that specific money for a claim on an equivalent amount of money at a later time. This is no different than my buying you lunch today on the agreement that you will buy me lunch next week. What is the just exchange? If I buy you a grilled cheese sandwich and expect you to repay me with a grilled steak, I don’t think you’ll consider that an exchange of equivalent things. Yet, for some reason, we are supposed to accept getting one amount of money and having to return a much higher amount in exchange.

What About Legitimate Interest?

Distributists accept the concept of legitimate interest and the use of money for profitable enterprise, so how does this work in Distributism if interest on loans of money is prohibited? Another form of transaction that we would typically call a “loan of money” is actually an investment. For example, If I loan you $10,000 for your business, I can legitimately claim some portion of the profits you will make with that money. The difference between this transaction and the previous example is that this involves money used to acquire goods for a business enterprise. This is a key point that is misunderstood about our position. Interest may be charged for “productive loans.” The term “productive loans” can also cause confusion because, when we hear “productive,” we think of actually producing something. My understanding of the term, however is that it also encompasses loans to service enterprises. Therefore, a “productive loan” is a loan to a business that either produces goods or provides services for profit. Even in these cases, however, the classical view is that the interest charged is not on the money itself, but on the potential for profit it enables. In other words, the “interest” is not based on a continued claim to the money, but on a claim to a portion of profits the money made possible. It matters not whether the investment is permanent, as in buying a partnership, or temporary, where the return of the money removes the legitimate claim to a portion of profits.

What is Usury?

Usury is a concept that embodies several different ways of trying to conduct transactions that are unjust. George O’Brien gives a very good explanation in his Essay on Medieval Economic Teaching which I will attempt to summarize here.

Charging for Both the Sale and the Use of Something

This is the classic and literal definition of usury. Imagine that I sold you my lawn mower, but also attempted to charge you for every time you used it. While this is an unlikely example, it illustrates the problem with charging interest on money. Again, the confusion lies in the fact that we use the term “loan” when “sale” is more accurate. Instead of saying I loaned you ten dollars, say I sold you ten dollars to buy lunch, and you can see why the same rule should apply. It is legitimate to sell a thing, or the use of a thing, but not both.

Charging For Something That Isn’t Owned

Interest is often justified based on the fact that repayment is being made over time and the “lender” suffers a loss during the time it takes for repayment. I will address the idea of specific losses below, but we cannot charge for the time it takes to repay a debt because we are then charging for time, which is not owned.

Charging in Order to Eliminate the Risk of One Party

Even in Medieval days, people were allowed to take steps to protect themselves from losses. However, the means of doing this were always at the expense of the one being protected. Typically, a lender could take out insurance in regard to a particular transaction, but was never allowed to pass the cost of such insurance to the borrower because the borrower gains nothing from the insurance. The very idea of just compensation requires that the one paying gains the benefit of the payment. In the case where interest on loans of money is “justified” as compensating the lender against the risk of loss, it is the borrower who is making all of the payments but the lender who gains all of the benefits. Therefore, even if we allowed the borrower to be charged interest to protect the lender against a failure to repay, we would have to conclude that the borrower is justly entitled to have all of that interest returned if he does not fail to repay the loan. Any transaction where the terms protect only one side from the potential risk of loss is usurious.

Charging Excessively High Rates of Interest

Even in the case where interest may be legitimately charged, high rates of interest can be considered unjust and therefore usurious.

How Do These Apply Today?

When addressing the claims used to justify interest today, we find that nothing has changed since the Medieval, and even pre-Christian times. Certainly the mechanics, scope, and speed of transactions have changed with the development of technology, but the reasoning behind the claims used in attempting to justify usury, or to deny that certain things are usurious, are essentially the same as they always were. Let’s take a look at some of these justifications.

Interest as a Rental Fee on a Loan of Money

Rent is a payment required for the use of an item where ownership is not transferred. When I rent a car, the rental company retains ownership of the car and charges me for its use. As I have outlined above, a loan requires the return of the exact same item loaned, and the normal use of money involves its loss, so what we typically call loans of money are actually sales. However, there are cases where money can truly be loaned.

Let’s say you have a rare ten dollar bill I would like to use as part of a presentation. The expectation is that I will not spend it, but will only display it and return that same ten dollar bill to you. This is a true loan because my intended use of this piece of money does not involve its loss and you are maintaining ownership of that specific piece of money. If you charge me for that use, it is not interest, it’s a rental fee.

Compensation for Not Having the Money (Loss of Use)

Some will argue that the lender (who is actually a seller) is unjustly deprived of the money owed him, and opportunities to use it, while waiting for repayment. Therefore, interest is justified to compensate him for this loss. The problem with this claim is that he voluntarily entered into the agreement and can set time limits on repayment at that time. There is no injustice if the return payment is made on time, because he voluntarily gave up the use of the money for the term of the loan. Additionally, because the transaction is actually a sale, the “lender” has no claim on the money or its equivalent value until the time repayment is due.

In the case of late payments, a claim of unjust deprivation of the money could be made and interest justifiably charged in compensation. However, interest could only be charged on that portion of the loan that is actually late. If you borrow $10,000 with the agreement that you will pay back $200 every month, and you are late on one of your payments, interest could only be charged on that individual late payment, not on the entire balance outstanding which has not yet come due. The point is that the “lender” has voluntarily agreed to forgo the use of the money according to the terms of repayment. If I “loan” (sell) you ten dollars on Monday on the promise that you will repay me by Friday, I have suffered no loss if I agree to those terms and you repay me on time. The same is true if the term is for thirty years rather than a week.

Interest on Money as Compensation for Lost Opportunities for Gain

This is an extension of the previous claim, adding the idea that the “lender’s” use of the money during the time of the loan would have been for profitable investment. The assumption behind this claim is that whatever investments would have been made would have yielded positive returns.  Conceptually, compensation for this loss has always been admitted. Practically, such claims were denied as justification for charging interest on money on the grounds that the compensation must be equivalent to the loss, and the loss cannot be known at the time of the loan. The claim rests on a prediction of future events.

I am loaning you money now and, until you pay me back, I cannot invest that money in other places to earn a profit. Therefore I am going to make an assumption about how much profit I would have made and charge you for that. What if my assumption is wrong? Modern economists justifying such charges never seem to consider that such investments could result in less gain, no gain, or even the loss of the investment. After all, if the investment would only have yielded a two dollar return, it is unjust to charge ten dollars  for that lost opportunity. Justice would require that the difference be returned to you, but this is unthinkable to the mind of the modern economist. This is why claims for such compensation in the Medieval era always required the lender to prove the loss before he could make the claim. By using this claim to justify interest charges, modern lenders are assuming the loss, but they’re not required to prove anything.

Conclusion

Interest charged on non-productive loans, as typified by credit cards, home mortgages, and personal car loans, are usurious. They are charging for both the use and sale of money, which constitutes unjust transfers of wealth that only serve to concentrate wealth away from the average person and into the coffers of rich monopolists. The various claims that the people of the Medieval era just never imagined the different ways we use money today is false. It is true that they never envisioned computerized transactions, but a reading of the various issues they addressed shows the people of that time were very innovative and clever in their attempts to gain profit from the use of money. They also tried to use the same reasons to justify charging interest as do modern economists. The same can be said of the various cultures that have forbidden usury around the world going back for more than 2,000 years. The principles against usury developed over centuries of reasoned thought apply to today’s methods of wealth generation no less than they did in ancient times.

 

About the author: David W. Cooney

 

David W. Cooney serves on the Editorial Board of The Distributist Review. His articles have appeared in Gilbert Magazine and he has also contributed to The Hound of Distributism, a book of various authors. Originally from Southern California, he now lives with his wife and two children in Western Washington state where he works as a network administrator.

 

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59 Comments

  1. Interesting. I have a question, though. If no interest is to be taken out on home mortgages, credit cards or car loans, what is the incentive for “lending”? Can you make any gain at all (like fees)?

  2. To add to Ed’s question, how do we avoid liquidity traps in general? For example without an interest-based system, it can be better to just hoard money rather than to use it for something. So it’s not just the incentive for banks, it’s the incentive for people to do something other than stuff their mattresses.

    I think interest is directly related to our inflation rate, which is one of the major factors in getting people to actually return their money into the system to be used again.

    Additionally, would things like home-owners associations be a case of usury?

  3. David W. Cooney

    Ed,
    There are other methods of making gain from a home “mortgage.” I have almost completed an article spelling out how this would work and hope to have it posted soon. Additionally, I recently read an article where members of a credit union gain “points” toward interest free loans by keeping money in savings for a period of time. During that time, the CU earns on the money by making loans to businesses.

    Angelo,
    “without an interest-based system it can be better to just hoard money rather than to use it for something.” I think the answer to that is dividends like you get from a credit union. The fact is, that the amount of interest the average person gets from a savings account is so negligible that it isn’t much of a factor, and I haven’t found too many interest checking accounts that did not require a large minimum balance – and they pay lower interest than savings accounts. The reason the average person will not stuff the mattresses is the same that they don’t today – convenience. The ability to use a check or card (which can also be made non-usurious) is why people keep their accounts.

    In regard to home-owners associations, the answer is that the association fee is not usury. The association renders a service for the community (some better than others) and the association fees or dues are the payment for that service.

  4. Excellent and concise article David.

    Ed; The first point is that distributism will be quite a different system than corporate-capitalism. It will not have one small class of capitalists and one large class of people who need to borrow to get by. Hopefully land and the opportunity to own a home will be a lot cheaper. Also distributism will hopefully have a lot less of the consumerist culture of corporate-capitalism(which necessarily produces and necessarily needs this culture.) and so things like credit cards will hopefully be far less popular.

    Secondly there are institutions and concepts; like mutual banking, LES and so on that can provide a lot of opportunity for those still necessary loans and monetarisation in these areas. Kevin Carson is the expert on mutual banking and Thomas Greco is a key expert on LES and other such currency and monetarisation schemes.

    The area of holistic alternatives in ethos and practice, to corporate-capitalism, which incorporated the ideas of(as a small example.) Wendell Berry, Lord Northbourne, Ralph Borsodi, E.F Schumacher, Lewis Mumford, William Morris and Henry George are well worth more exploration by Distributists.

    Angelo;

    Again Distributism would probably be a different kind of economy to capitalism. Capitalism has built into it the ethos that the rich need to constantly invest and grow their fortunes. To invest with any kind of success they need effective demand for the goods or services from which investment will produce any kind of return and therefore they need to encourage the rest of the population to spend. Distributism will require far less of this atmosphere. People will return their money to the system because they truly wish to use it.

    If there was a problem in this regard we could consider something along the ideas of Silvio Gesell, who I believed advocated some sort of fee or basically perishabilityfor money that incentivised hits use. Gesell was no traditional Christian but I believe his general economic ideas weren’t too far from distributism and he may be worth a read anyway(though I must admit I have not go around to reading him so far.)because he had practical ideas for reforms in a more distributist direction(indeed his ideas about this money. His major work is available online.

    Indeed this introduction to his ideas I found just on a google search shows important answers to the queries of both you and Ed in this regard;

    http://www.cooperativeindividualism.org/newland-terry_on-silvio-gesell.html

  5. Inflation can go down as well as up. Print more money then inflation goes up; Destroy more money then inflation goes down. Even better, produce more goods and services and inflation goes down, reduce production then inflation goes up.

    Money, it’s very much like a doubly linked table of imaginary, transferable bits which relate one bit of production to another bit of production in exchange. Didn’t someone call it an axis of chaos?

    One wonders though with the massive increases in efficiency and production of the last 100 years, why inflation hasn’t gone down. ;-)

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  7. Martin, do you mean that the rate of inflation, tho still increasing the general price index from one period to the next, can become less so? Or do you mean by inflation going down simply deflation, where the price index actually goes down?
    Viking

  8. Inflation won’t go down because inflation is very, very good for those who make the money and get the money to use first…ie the government. And guess who has a monopoly on money creation? There’s a good reason why Bishop Oresme thought debasing the currency was a worse sin than urusy.

    As a practical thing, I really don’t think we can address usury in any sensible way until we get money at least closer to a stable and just system.

  9. Inflation is important to government because it is important in corporate-capitalism. Inflation encourages people to spend and demand management, particularly making sure there is enough effective demand for all the ever-increasing investment of capitalists, is key in corporate-capitalism. The situation is more complicated than that, and inflation plays other roles in corporate-capitalism, but that is undoubtedly one of its most important functions.

    What do you mean by a stable and just monetary system B Douglass?

    As far as I can see there are several major problems with our monetary and banking systems. These include restrictions which prevent mutual banking, LES and other such systems that allow low-cost, low-risk monetarisation of the assets, like furniture, and labour-time of ordinary people. They also include the fact that money can be used both as a medium of exchange and as a hoardable, mobile and imperishable commodity which can exert privilege over those whose main assets are perishable and/or immobile.

    I agree that the manipulation of currency such as the federal reserve system is a great social evil. But I still think it is the state’s job to look after the money supply, as long as it is done in a reasonable way. The only other choices are to have a totally private system, which would either be very dispersed and therefore chaotic(I’m not saying decentralisation is chaotic, but when it comes to money it is probably not best to completely decentralise it.), or link it to some arbitrary rare commodity like gold, which would be deflationary and make gold hoarding and speculation a common feature of the economy. What is best is to try, as far as is possible, to link the currency to the actual amount of goods and services in the economy.

  10. Bishop Oresme saw that devaluation of the currency (also known as Keynesian monetary policy) as such a horrible evil was not just for the impact that it had on the poor and the problems it made for the functioning of the economy in general. It was that the prince who had his picture on the coin was lying as to the value of that coin…and he did so for his own gain. Take in old coins and pay out new lower-metal content coins while claiming they had the same value. If the prince didn’t do it, it was called counterfeiting or mutilation of the coins…but if he did it, it’s all OK.

    John Mueller’s very good book Redeeming Economics has a chapter on money which shows that much or our problem now comes from the fact that we have a monopoly power over the money supply from the Fed AND that the dollar is the world reserve currency. His arguments against the reserve currency status are, from what I can tell, unique and seem very solid to me.

    That would be a first step. Getting to a gold standard would likely be ideal, although getting there presents problems. I don’t see why a decentralized, competing system of money would be a problem. What I’d like is have independent local currencies competing with state currencies competing with federal money…and maybe even some international money (possibly electronic). I suspect that federal reserve notes as they are now would not win out in such a competition.

    I’m not sure why deflation (as long as it is not rapid or unexpected) is all that bad. Price deflation sure isn’t…otherwise computers would no longer be made. Shrinking the money base I really don’t see a problem with either. Any amount of gold can back any amount of money. And hoarding will be no more likely to happen than it already is with paper money systems. But gold isn’t the only thing that can be used.

    Also the idea that money must equal the amount of goods and services in the economy is a fallacy. There is no reason why this must be true. And any attempt to chase such an ideal would just mean destruction of the market’s role in coordination of production…and probably lead to inflation when the mark is missed.

  11. Thanks for the responses. I guess I’m just worried about money naturally pooling up (liquidity traps) as they seem to be one of the problems of pre-modern monetary policy (if you can call it that). I don’t know if Distributism has an answer for that specifically, but maybe I’m just too ingrained in the current monetary style thinking to understand it.

  12. You know, Angelo, I’ve been thinking about an answer to your question some time before you asked it here. (Japan may have gotten itself into a liquidity trap a few years ago, and the US may have in the 1930’s, exacerbating if not largely causing the Great Depression.) My solution is a revised version of Silvio Gesell’s idea of currency reform. He wanted to have all money require stamps to be used, and these to be refilled every month at a cost of, if memory serves, 6.5% of value. This, he reasoned, would have the double function of (1) disallowing additions to principal due to interest from building up over time; and (2) ensuring that money would depreciate in value over time, just like real goods.
    His remedy seems worse than the disease to me. Nonetheless, I think we can use his general idea to our benefit. That is, apply such a charge to money but ONLY if it’s not used within a specified time. If put to use before the due date, then no charge to it. That would seem to me to guarantee against hoarding and so against liquidity traps.
    Viking

  13. I keep wondering if there’s just simply a way to tax savings instead of income. But it seems impractical because it’s easy enough to just shift money around and get out of the tax.

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  15. Since the invention of money, every culture with a unique exception has experienced the debasement of the currency or coins. E.g. the king mints a coin. The first recipient carves a bit of silver off an edge of the coin and passes it on the next one at full value. The next recipient also does this. After a while, the coin has noticeably less metal than when originally issued. This is why all dimes, quarters and halves have milled edges.
    Paper currency we know about. The first federal govt failure to keep promises re: debt occurred in 1933, when the govt broke the promise to exchange $20 bills for gold. Similar promises to exchange paper money for silver were broken in the middle 1960s, when Silver Certificates lost their value.
    The sole exception to the debasement of the currency is England/Great Britain from roughly the defeat of the Spanish Armada in 1588 until World War I (1914).
    A speculation as to the causes: A) the English parliament feared the power of often foreign-born kings, and restrained the monarch’s expenditures; or, B) Gains from the industrial revolution may have offset the tendencies of legislatures to increase expenditures w/o corresponding increases in taxes. The increased expenditures are popular with the merchants/laborers/pensioners who receive them; but increases in taxes are popular with no one except possibly government employees.
    TeaPot562

  16. re: taxing savings

    I’m not sure why this would be good. Saving is not hoarding. In fact the Popes’ definition of a living wage implies not just that he can get by now, but also has some saved away for the future improvement. This implies saving, and saving at at least a return to match inflation.

  17. Just a quick question, surely in the $10 for lunch example, what is being loaned is the use of another person’s wealth. This is being represented by a $10 bill. The bill itself is not the wealth, it represents it. So is it not possible to borrow somebody else’s wealth and return that exact wealth to them via a representation (bill) which, because the representation changed the amount of wealth it represents, has interest added to keep the wealth being loaned/borrowed at its original value? Just a thought.

  18. David W. Cooney

    Paul,
    The problem is that you are assuming the change before it happens. Conceptually, you are correct, but you cannot make a claim against that loss until you know what the loss is. The reason for this is that you cannot claim more than the loss as compensation. If you charge 10% interest, but the value change is only 5%, are you going to return the excess you collected? That never happens. If it did, I would be more willing to accept it as an argument.

    On the other hand, what if the value of the currency actually increases? (In know it’s hard to even imagine in our current situation.) In this case, the borrower has a legitimate claim not only against paying interest, but for paying back less than was borrowed. After all, if the $10 you borrowed from me a month ago is now worth $20 by comparison (a drastic change for illustration), then you should only have to pay me back $10 – the equivalent value. I’m sorry, but if you want to have it one way, then you must have it the other as well.

    These things are theoretically true, but extremely impractical in reality. The problem with interest is that is always assumes one outcome and that outcome is ALWAYS in favor of the lender, who does not have to prove that it was really the case. Any real outcome that would actually have favored the borrower is simply ignored. This is unjust.

  19. @David Cooney,

    That’s my point about fixing money before usury. From the “fall of Rome” through the modern era price levels didn’t change much (compared to today). Inflation was associated with war, and as such was a measure of risk more than anything. But today? It’s anyone’s guess and depending on who you believe is right, inflation could be all over the place.

    If we’re talking about loans for food, why use the CPI w/o food which most people talk about? I think though, to keep things from getting needlessly messy, that there should be some clause in ideal loans between distributists that says that if inflation is within some certain percentage of the agreed upon interest that no one will worry about it.

  20. change much in a man’s lifetime…of course there was change over the whole period

  21. David W. Cooney

    BDouglass,
    You may be correct about what needs to be fixed first; I don’t know. Regardless, there are a lot of things that are broken, but a lot of people think they are not. Therefore, we need to open the discussions so that people can consider alternatives to what we’ve been told is the best way.

  22. Oh, no doubt. I tend to dislike “global thinking” myself. None of us is ever going to be able to hijack the Fed and even if we did, would it matter?

    So, I’m looking at this from the local and thinking how you solve usury. Well you first have sound money. Then you try to establish justice in lending which assumes just money. And you go from there. Of course truly independent local money is virtually illegal and hard to get people to adopt. So, that’s another problem.

  23. B Douglass; I have nothing against LES and as long as there is a nationwide currency then I have no problem with competing systems.

    ‘And hoarding will be no more likely to happen than it already is with paper money systems. But gold isn’t the only thing that can be used.’

    I meant something a bit different by hoarding. I meant that Gold, which may or may not be a good basis for currency, is, like paper money or silver, imperishable and mobile. It therefore can serve both as a means of exchange and a relatively good store of value compared to labour and most goods and services. This means it has dual roles, that of being a means of exchange and allowing those who hold it as their main store of wealth to exert privileges over those whose wealth is mostly in labour power and goods and services. This is a major cause of usury because it allows capitalists to withhold their wealth and exert pressure on those who have labour power or goods and services to offer which are relatively perishable and/or immobile. Gold might work as a currency but measures, like those suggested by Silvio Gesell, should be taken to keep it only a means of exchange and not as a means of privilege or usury.

    So I repeat that by hoarding I didn’t mean that people simply do not spend their currency. I suppose a different term would be best. I’ll try and think of one.

    ‘Also the idea that money must equal the amount of goods and services in the economy is a fallacy. There is no reason why this must be true. And any attempt to chase such an ideal would just mean destruction of the market’s role in coordination of production…and probably lead to inflation when the mark is missed.’

    Sorry, I was unclear. The point is not that money supply should equal the amount of goods and services for any anti-inflationary reason, but that it should be approximate to it for similar reasons as I gave for getting rid of ‘hoarding'; so it stops people, particularly capitalists and usurers, manipulating the money supply for their own ends.

    Vi King;

    ‘His remedy seems worse than the disease to me.’

    How so? Surely he it removes a source of usury; the power of the holders of large amounts currency over those who have only labour power and goods and services and helps maintain money as only a means of exchange.

  24. I guess my biggest problem with all “keep the money supply matching the output” schemes is that it implies that some central body is going to keep the money supply in check…I’m not thinking that’s going to last too long un-corrupted.

    The way to get back onto a gold standard is the reason I’m not sure gold is the way to go. I really just can’t figure out a foolproof way to go back to it, as attractive as aspects of it is.

  25. Perhaps we are puting to much weight on the word interest.

    When person A loans to B interest is one way to caluclate the rent for the use of person A’s assets.

    There are others. But when you convert the rent to an interest rate it can be the same or more or less than would have been charged as interest.

    Some of the examples I have seen it is much higher. I got the impression in some cases the lender was not using interest to hide the ture csot of the loan.

    The question should not be “are we caolulating the rent as interest?” but “is the rent a just price for the loan?”

  26. David W. Cooney

    Hank,
    As I pointed out in the article, person A is not loaning or renting the asset when that asset is money because a loan or rental requires the return of the exact same thing acquired. Money is a consumable good (as defined in my article) which means that if the intention of the exchange is that person B will spend the money, it is a sale of assets. If you “loan” me a $10 bill and I spend it, I am no longer in possession of it and I cannot return it as is required for a true loan. Therefore, you have sold me $10. This is true even though I am not required to pay you for the purchase for some period of time. When I repay you, I do not have to give you a $10 bill. I can give you two 5’s, ten 1’s, or even 1,000 pennies (which would probably make you think twice about loaning my any money in the future). It is an EXCHANGE of different things of equivalent value which is the the definition of a sale.

  27. Eugene J. Diamond

    David,

    If one makes an investment in a business through a “loan of money” or productive loan, how does the investor or “lender” determine, as you wrote, “the potential for profit it enables” in order to set the interest rate? To do this it seems the parties would have to predict the future. Would the terms simply be conditional?

    For example, if one loans another $10,000 to start a business, the parties would agree to the terms of repayment of the $10,000 without the charging of interest. At the same time, the parties would agree to terms for the charging of interest should be business earn a profit. If the business fails, the investor will get back his $10,000 (and nothing more) but lose out on earning money had the business profited.

    Could you give an example of how a just interest would be determine if the business makes profit? Also, for how long could an investor justly claim an interest on the profits of his investment?

  28. David W. Cooney

    Think of it like this. I own a business and come to you asking you to make me a loan. In reality this is a temporary investment in my business. You are purchasing a portion of my business under the agreement that I will buy back that portion by a certain date. Your compensation for this is that you will get a percentage of whatever profits I make during the term of the loan.

    Let’s say that your loan warrants a 6% interest. This is not 6% charged against the money you loaned me, it means that you will get 6% of the profits made by the business during the term of the loan. This is your share of the business during that time.

    The interesting thing about this is that it does two things. While it doesn’t really discourage you from making loans, it makes sure you are more careful about them. You would closely examine my business to be sure that 6% of my profits will be worth the investment. The current situation is much more advantageous to you as a lender, because I owe you the money and interest regardless of how the business actually does. In this case, if the business does poorly, your take will be smaller. However, that is the nature of investments – we cannot always guarantee the desired outcome.

    When I pay you back your investment – which is the same amount of money you originally loaned me – you have sold back to me that portion of the business you originally bought. You get your money back, and if it helped me improve my business and earn more money, you get a share of that money.

  29. David W. Cooney

    Eugene,
    I forgot to mention the second thing in my reply. The first is that it makes the lender pay careful attention to how he loans money. The second is that it also makes the borrower more careful.

    Interest-based loans frequently come with low payment plans to extend them out for longer periods. This makes the loan more affordable to the borrower and more profitable to the lender. Unfortunately, it can give the false impression that you are doing better than you really are. You can afford things, but only because you are maintaining a debt. (Sounds like the government, right?) However, under this arrangement, the direct relation of the loan to your business itself is more evident. Because you are required to pay me from your profits, the direct relation of the loan to the success of your business is right in your face, and it could give you the incentive to manage your expenses so that you can pay off the debt as soon as possible and start using those profits for your own benefit.

  30. Eugene J. Diamond

    David,

    Thank you for your helpful answers to my questions.

  31. David

    When a banker loans me $10.00 he is not loaning me a ten dollar bill two five or even a 1000 pennies. He is loaning me the means to buy $10.00 worth of goods and services. He wants the same thing back the abiltiy to buy $10.00 worth of goods and services plus a rent for the use. He is getting back what he loaned me the abilty of buy $10.00 worth of goods and services.

    My point was that a rent charged for the loan does not have to be calulated by using interst. My cyncial side says when you see someone boasting about his “non-usurus” loans with loud moral noises how erhical he is for not charging interest – put your hand on your wallet and RUN in the other direction.

    Even if we take your argument at face value we must never forget that the alternatives can e usaed just as unjustly as your example would indicate.

    The question is not shoulc interest or anything else be used calulate the rent, but is the rent just.

  32. Wessexman, my apologies first of all for showing no indication that you had already mentioned Gesell. I need to look at previous comments more closely before writing my own.
    Now, why do I consider Gesell’s solution worse than the evil it theoretically supplants? (I’ll discuss why I say “theoretically” at the end of this email, if I remember.) Yes, it might end the current supremacy of the money masters. But there seem, to me at least, to be much better ways to do that. My own solution is to have a steeply graduated property tax. This could be tax-free until a bit above the mean amount of property for a family of a given size, then increasing slowly but surely until it made holdings past a certain size impossible. From a Distributist point of view, I think it would be even better if, instead of a government at any level taking the tax monies, they were instead given to the smaller property holdings, to help achieve a wider distribution. I must confess that interest, or something like it, seems to me to be necessary for a thriving business sector, even if fees are preferable for personal loans. I honestly can’t see what incentive anyone has to invest under a Gesellian system.
    There also seems to be no way to build up much money for retirement under his regime. I am a member, under another name than “Viking”, of the ERANet group with Yahoo. (“ERA” stands for “Economic Reform Australia”, but they have members from various English-speaking countries, which explains how a Yank (yours truly) who’s never been further south than Orlando, Florida got onto the list.) We have a Gesellian there who follows the late theorist to a rather stark degree. Under such a system, he has said that the choice for everyone is “work, beg, or starve”. While that may be fine for those hale and hearty, would you really want your old granny having to work at – anything really?
    Finally, the question I put off at the top: would the practice actually match up with the theory? One can perhaps look to the German hyperinflation of the 1920’s for an answer. Now, that would certainly seem to render interest payments rather moot, and thus should have ended the financial powers-that-be. But it worked out very differently, from what I’ve read. The financially astute somehow managed to garner a higher proportion of the nation’s riches (how, I don’t know) and, being largely right-wing, helped finance the rise of the Nazis and the destruction of the Weimar Republic. The less agile, on the other hand, saw their savings eroded beyond all measure, and so too their sense of self-reliance, their belief that they were masters and mistresses of their own fate, depreciated with said reserves. Ironic, isn’t it?
    Viking

  33. Yes, Hank, and the “means” the banker is loaning you to make your purchases is some form of money. This is true whether is is in the form of minted money or an electronic transfer of the value to your account. This does not change the fact that your use of that money involves its loss, so it cannot be a loan or a rental of the money – it is a sale. The just price for $10 is $10 no matter the form of payment. To charge you for the purchase of money (because that is what you’ve done) and also a rental for using it is usury.

    When you pay the banker back, you are giving him back the ability to buy $10 worth of goods. However, that ability also comes in a form and that form is – again – money. It doesn’t matter if it is cash, check, or electronic transfer. It is not the exact same thing that he gave you, it is merely an equivalent thing. This is true even for the electronic transfer because all that does is transfer the right to use —– MONEY.

    Since you let your cynical side out and attack the very idea of non-usurious loans being ethical and immediately tried to associate that with “loud moral noises,” it is obvious that you don’t really want to address the fundamental point. That point is the difference between a sale and a loan or rental.

    You state that “the question is not should interest or anything else be used to calculate the rent, but is the rent just.” That is not the question at all. The question is whether the transaction is really a rental at all, and it is not.

  34. BDouglass; All government is in some sense corrupt because all men are in some sense corrupt. All government is divine, because all men are in some sense divine(and of course government is decreed by God.). As decentralist as I am I think it is important not to be over-suspicious of the state, rightly constituted. However there do seem to be various alternatives to overly statist solutions. Gesell’s solution for instance is not too statist in my opinion.

    Vi King; Obviously a distributist system would be a more sedate one. It would not have the same level of investment and growth as corporate-capitalism.

    However there are reasons, I can see, to think investment would continue. For instance mutual banking would allow the low-risk monetarisation of labour power and assets, like furniture, which we cannot currently monetarise. The which of each family to provide for itself and go on doing so, under such conditions, should keep investment continuance, though obviously this is a far more decentralised and sedate sort of investment. There are no doubt other ways investment will be encouraged, but that should give an idea that it could be done.

    When it comes to saving for retirement it must first be said that, like the land value tax, Gesell’s idea can no doubt be tinkered with to make suitable allowances for such situations. However Gesell’s reform would presumably incentivise investment in real property and other such ways of providing for retirement. With suitable restrictions to keep such investment ‘distributist’ this would increase the incentives that Gesell’s reform gives to the creation and maintenance of a distributist state.

  35. Sir,
    Your lines of argument are sound if your basic premise is correct. I would suggest however you evaluate the basic premise you are using that treats money as a commodity.

    Money is not a commodity. Money is not a THING to be made. Money is a physical representation of a person’s intellectual and physical effort. We have the habit of saying that one can “make” money on the stock market but they are not “making” money. They are merely providing a representation of some previously expended energy to a corporation, so that corperation can expend energy and possible return some of that energy back to the original owner. The only entity that can “make” money is the government. That money is then used by humans (either singularly or collectivly) as a medium of the echnage of mental or physical effort.

  36. I agree, man must have government (even though the Modern State is evil) of some sort, however no one part of that government can be allowed to un-opposed have control over the money supply directly by fiat. That seems an obvious and grave danger. They will inflate and make their own borrowing cheaper and we’ll be in the same mess we are in now. That’s the beauty of the Catholic system of the Middle Ages with distributed political power and even though the prince was minting the coins, he couldn’t really force people to use his coins except to pay him. The fact that you could use his or any other prince’s coins since there was a known amount of metal in them (and no one could summon gold into existence by wishing it to be) kept them far more honest than otherwise.

    Gesell’s core problem is that he is an inflationist and buys into the fallacy that we need a money supply to keep up with expanding production. Since no one wants to think about an economy that we plan for production to decrease (or will admit it) in politics, this will be inherently an inflationary system with whoever is making the money and getting the first loans benefiting far more than those down the line.

    The aversion to such deflation as is caused by a fixed amount of money chasing more and more products is a curious thing I don’t really understand. Those purchasing items will see prices decline. Those producing items will see input costs decline. Those lending will get an implicit return on their loans through the declining prices. And the people borrowing money will pay more than what they borrowed…but if you’re borrowing then it should be assumed that that is worth it to you as opposed to just sitting on your money until the price level declines so you can afford your purchase. Yes, there is a sort of interest here, but through most of history the deflation has been very slow relatively speaking. We still have one market which has seen far more rapid price deflation: computer/technology and yet we see no real problems there. And the price drops in computers are far more than we’re talking about annually over history.

    I guess I just don’t see why $10 buying 10 items today, but next year 15 items is a bad thing. Isn’t that a really good thing? And on any large scale perfect matching of the money base to items is impossible to keep up with accurately. Even if it could, what would the point be?

  37. David W. Cooney

    Joe K,
    Whom are you addressing?

  38. Yourself sir. The basic concept that we in society have regarding the actual nature of money has caused us to look at money as a distinct commodity and not a representation of our efforts. People have grown to think of money as something to be gained not as a tool to be used as exchange.

  39. David W. Cooney

    BDouglass,
    “I guess I just don’t see why $10 buying 10 items today, but next year 15 items is a bad thing.”

    There are two ways of looking at this.

    First: If you have money in the bank, it is easy to consider this a good thing because the relative value of money has increased as if by magic.

    Second: If you are in debt, and your payment on that debt is based on a fixed dollar amount (rather than the relative value), you end up having to pay more than you got. If I loaned $10 today and you pay me back $10 next year. I will have loaned you the equivalent of 10 items, but you will have to pay me back the equivalent of 15.

    Let’s turn it around. If $10 buys 10 items now but only 5 next year (as is the usual case with our money); I will have loaned you the equivalent of 10 items, but you only have to pay me back the equivalent of 5.

    This applies to all aspects using money over time.
    This is why it is best if the relative value of the currency is stable. A change in the value, up or down, creates situations of injustice.

  40. B Douglass; I must say I too want limited government, not to mention decentralism, but in a sense a government must have power, and that means some partially unchecked power, to operate. Bonald, in my opinion, has one of the most well thought out perspectives on political power and authority, in this regard, in my opinion. In the middle ages you could have certain balances and dispersed power and authority, but to a certain point you must trust the Prince, brought up as he was in strict knowledge of his Christian duty which at all times was pressed on him. I think it is not altogether wrong that Bonald linked power and responsibility like few others, even liberal thinkers, have, but he still knew that in the end there must be power and executive authority, weakening this too much creates not freedom but a weak and feeble government that cannot protect freedom.

    I do not see how Gesell is inflationary. He wished to keep money only as a means of exchange. This meant of course that it would be close to the level of production, but I do not think this necessarily means he is inflationary.

    I didn’t really want to bring this up but you keep talking about the fallacy of trying to link the money supply to production. Who says it is necessarily a fallacy? Is it Friedman or Mises or Hayek who have something to do with such a position? Gesell, like Proudhon who shares so much in common with him in economic and even political terms, is totally different to the usual monetary thinkers. They keep the money supply tied to production because they wish to allow each individual or family, as far as possible, to monetarise their labour power and assets, including things like furniture which today you cannot easily monetarise, in a relatively low-risk fashion. This means that each individual can monetarise most of what he is worth and yet there is little room for manipulation of money or others factors so that the money supply falls around the level of production; each addition to the currency or banking system is based on the real, monetarised value of the labour power and assets of individuals. I don’t see though how inflation would come about in this set up because each addition to the money supply is linked to an increase in production and monetarised wealth and indeed I don’t see how inflation or deflation would be much of a concern, except temporarily, either way. I agree about deflation, it is not necessarily a bad thing in the sense you are talking about.

    Also I do not see what you mean by this dark talk about those who control the money supply using it for their own purposes. No doubt a bureaucracy and government without enough oversight could use control to its own purposes a little. But without a system like capitalism that can chronically benefit from this, and with enough checks I’m not sure what can be done but give a little bit of skimming off the top benefits to the government, its favourites and servants.

  41. David W. Cooney

    Joe K,
    I don’t treat money as a commodity. I do not regard it as such. How does money being a representation of the value of effort negate my positions regarding the nature of the use of money?

    If I use my efforts to make something, I can exchange that thing directly or I can loan it. However which one (exchange or loan) I do depends on the normal or intended use. If I make a sandwich and exchange it for anything – and the person who gets the sandwich intends to eat it – it is a sale.

    If I use my efforts and get paid money to represent the value of those efforts, and I hand it to you so you can buy yourself a sandwich to eat, you cannot return that money to me so it is also a sale. When you pay me back the money I handed you, you will be returning a representation of the equivalent value of your own efforts, not the representation of my efforts because you handed that representation to some other party and no longer have it to return to me. Therefore, the exchange of money between us cannot be a loan or a rental; it can only be a sale.

  42. The thing is that JoeK is technically wrong. Money is a commodity in capitalist economies. There is nothing that keeps it strictly tied to the level of real wealth and productive power in the economy. There are all sorts of tricks and traps that influence the supply of money and the liquidity of assets which only incidentally have to do with the real level of wealth and productive power in the economy.

    Now money should, as far as is possible, not be a commodity. Indeed isn’t that a part of the aim of distributism; to remove the economic power and privileges of those whose commodity is simply money over the truly productive part of the community? But that doesn’t describe the current economy.

  43. Mr. Wessexman,

    I disagree, especially in the modern economy where money is no longer tied to a physical standard. Now all money is or could be is a relative “buying power” of your effort vs mine. That “buying power” is what is manipulated by the trickas and traps that influence money. If it were infact a commodity then those trickas and traps would not be free to manipulate the relation between my effort and the value of that money.

    Mr. Cooney,

    Regarding Money as a commodity vs representation.
    Based on your treatment of money in your article I percieved you had the notion that money was a commodity. Specifically when you state that,

    “A loan requires the return of the same thing loaned, not merely an equivalent thing.”

    If money is a representation of ones effort then a loan would only require an equivalent thing since money is not a physical item but merely a representation itself.

    Therefore, unless money is an actual commodity, you will never be able to return anything but an equivalent thing

  44. David,

    What you are missing here is the time value of money. You inadvertently touch upon it in your post at 6:13AM today when you protest that when someone who borrows $10 today is made to pay $15 next year, the borrower is being forced to pay back more than he received.

    Let me ask you this. I am going to give you a gift of $10. You can choose to receive this gift today, or one year from now – which do you choose?

    If you are like most people you will choose to get the $10 today, because there is an implicit cost to waiting a year – you don’t get the use of the money in the meantime.

    This is functionally equivalent to renting a car. Your distinction between the case of the car, which is returned at the end of the rental term, and money, which is spent and repaid with “other” money at the end of the loan, is fallacious. In both cases the lender gives up the use of something of value for a period of time and is entitled to compensation for that. The fact that in former case the lender gets back the same exact property he lent while in the latter case he gets back something that is different but of equal value, is of no consequence.

    The fact of the matter is that borrowing money allows us to consume things sooner than we could otherwise by saving, and there is a great value to that, even if it is for “personal” purposes. The lender chooses to defer consumption so that the borrower can accelerate consumption and the lender must therefore be compensated.

  45. BDouglass, I agree with Wessexman that Gesell wasn’t strictly speaking an inflationist. However, his scheme WOULD achieve the same devaluation of money that inflation does.
    Part of the problem in dealing with Gesell is the question, did he only mean these stamps to be put on currency, or did he want to effectively put them on demand, savings, and time deposits, and stock & bond portfolios as well? If only on actual cash, then his reform would accomplish very little in today’s economy. If all the above, then there’d be a real problem with regard to investment, and hence saving for retirement. Btw, Wessexman, as I recall, he wanted “free land” as well as “free money”, which is to say he advocated a ground tax, making real estate investment impractical. Admittedly, my reading of him was about 30 years ago, so it’s getting rather sketchy now.
    Viking

  46. Vi King; ‘If all the above, then there’d be a real problem with regard to investment, and hence saving for retirement.’

    Except of course, as I pointed out, there can be loopholes and there can be investments in real property and immovable assets by the family. I do not see this problem with investment you keep talking about. I think you’re missing the differences between the distributist state and the capitalist state and the thriving, but distinct sort of economic activity that would proliferate in a distributist economy. Rather than investing in some multinational hedge fund for your retirement, you’d own your own family land, house and assets like furniture, and perhaps even workshop of some sort. If you didn’t have an ongoing family business to take care of you no doubt there could easily be some sort of decentralised retirement fund or LES or other way to store your labour power for the future or even a way to have a loophole in the reform for average retirees. And of course for those few retirees who still couldn’t manage there could no doubt be local or even national old-age pensions.

    What you are objecting to is not Gesell’s idea so much as a distributist state, which would largely dispense with the same sort of national and multinational investment and banking sector that we are used to in corporate-capitalism.

    The point about ground tax misses the point. I’m not talking about investment in vast estates but in the sort of set up I mentioned above.

    I;m not saying Gesell’s reforms are the necessary way to achieve a distributist economy. I think they have great promise, but the beauty of distributism is the sheer amount of options and sheer amount of work already done for us.

    Greg V; What you are doing is giving the Austrian ‘time preference theory’ of interest rates without showing that time preference actually determines interest rates. As I mentioned before Joan Robinson wisely pointed out that far from all people are spendthrifts who never think about the future, indeed many would rather save for the future and not consider the fact they might not see this future as much as they really should. In this sense the time preference theory could create a negative interest rate, which is absurd, and so it cannot be the full determinant of interest rates.

  47. David W. Cooney

    Greg V,
    What I posted was not about the “time value of money,” which is a pure fiction. It was about inflation and deflation, which are artificial manipulations of the value of currency. Again – in relation to charging interest to compensate for this – the lender is making assumptions without proof and never offers to restore any excess charged. You added nothing against this point.

    There is no implicit cost to waiting a year for the $10 you proposed giving to me, other than a possible inconvenience, but the inconvenience is simply because of time and it is not just to charge for time because it is not yours or mine. If you willingly give me a year to pay you back, then there is no injustice for which you deserve compensation.

    You say that there is no difference between the two cases you call a rental – the car where there is no exchange of ownership and the money where there must be because possession is lost – so, then, if both of those are rentals, then what on earth is a sale? You have completely negated the difference and thereby made them the same thing. You declare the difference I explained as fallacious without any explanation of why or how we go about distinguishing the differences. I’m sorry, but since I’m forced to choose between your unreasoned and unreasonable dismissal, and the likes of Aristotle and St. Thomas Aquinas, I choose to hold to my position until you prove yours.

  48. Wessexman, it strikes me that the loopholes and exceptions would have to be so numerous as to make the general law rather pointless. What you give as evidence of what a distributist state would allow the “retiree” as property wouldn’t give him/her genuine independence unless (s)he continued to work it, which was why I put the term in quote marks. You’ll have to explain to me what you mean by “store your labour power for the future”. I have to say, I certainly object to your version of distributism.
    Viking

  49. Vi King you’re going to have to into more depth I’m afraid. You keep objecting with only a short assertion for each objection so it is hard to see the assumptions and perspective behind your objections.

    Obviously the whole idea of distributism is about far more families being able to care for and support each other, together. So that itself should go a long way to answering your objection.

    I honestly do not see how the exceptions would have to be so numerous as you suggest. We are only talking about self-funded retirees. Why would exempting them make the general law pointless? Let’s not forget you’d need less for retirement in a distributist economy because you’d own more real assets.

    Mutual banks or other private, municipal or state organisations could easily serve as stores of labour power for retirees. Conceivably you’d opt to store away some of labour power, or the equivalent in assets, which you’d monetarised with the mutual bank or other organisations for your retirement. I’m not sure it is a particularly hard problem to solve myself.

    The problem of continued investment, while I believe totally solvable, is in my opinion a far more interesting one.

  50. Eugene J. Diamond

    David,

    You wrote, “In this case, if the business does poorly, your take will be smaller. However, that is the nature of investments – we cannot always guarantee the desired outcome.”

    If I made a loan to your business that amounted to a 6% share of the profits of the business for a predetermined period of time, and during that time the business was unprofitable, in fact losing money, would I share in that loss? In other words, in addition to not receiving 6% of the profits during that time, would I also risk not getting the full amount of my original loan repaid?

  51. David W. Cooney

    Eugene,
    No, you would not share in a loss because of the nature of your investment. Had you actually bought a into a partnership, that would be the case, but the terms of what we call a loan protect you from that. I continue to run my business independently, and you get 6% of the profits (not losses). If I run at a loss, there are zero profits, and you get 6% of that. If, on the other hand, I do particularly well, you get 6% of that.

    The money you originally invested is also guaranteed to be paid back in full as part of the agreement. The only way that wouldn’t happen is if things got so bad that I had to go out of business and didn’t have the money to pay you back.

    In the Middle Ages, lenders would sometimes take out insurance policies to cover a failure to repay if they thought there was such a risk. This was a separate agreement between the lender and the insurance company and the borrower didn’t have to pay for it. There are two reasons for this: First, as stated in the article, the lender is the one who benefits from the insurance, so he is the one who should pay, Second, the lender must take responsibility for his own actions. No one compels the lender to lend to a particular borrower. If you look at my business and the way I run it and believe that I might not be able to earn a profit or pay you back, you are free to refuse the loan.

    Once again, don’t get confused by the terms. What we are discussing here as a “loan” is actually a special form of sale. It is a temporary investment (a purchase of a percentage of profits). Where the purchase of a partnership grants you a full share of the company with all of the rights and risks of partnership, this arrangement is only investing in the profitability of the business with no rights (and therefore no risks) of partnership. The risk you share in this arrangement that profits might not be realized and you’ll get less profit from your investment than you planned.

  52. David W. Cooney

    Joe K,
    You stated: “If money is a representation of ones effort then a loan would only require an equivalent thing since money is not a physical item but merely a representation itself.

    Therefore, unless money is an actual commodity, you will never be able to return anything but an equivalent thing”

    This is exactly my point, you can only return an equivalent thing – even when money is in physical form. This was clearly stated in the article. This is precisely why what we typically call a loan of money is actually a sale.

  53. David,

    In your view, what is the difference between your coming to me and asking me to purchase a car that you rent from me, and lending you money to buy a car?

  54. David,

    I rescind the above question, since I forgot that you believe money can’t really be lent.

    Let me ask instead, doesn’t Church teaching allow the charging of interest?

  55. David W. Cooney

    Greg V,
    Yes, Church teaching allows the charging of interest, as does Distributism, which is based on Church teaching, but only when the transaction is of a nature that does not make it usury. Not all interest is usury.

    In the past, bankers that charged interest were automatically denied communion until they went to confession. That practiced didn’t change because the Church’s teaching changed, it changed because it was a presumption of guilt before examining the details of the transaction. To presume guilt was itself an injustice.

    Unfortunately, the change in practice was treated like a “get out of jail free” card, and the practice of charging interest on loans of money increased.

    What I have presented in this article is consistent with the Church’s teaching, including the fact that you can charge to compensate for a change in the value of money – once you have determined what that change is so that you don’t charge an unjust amount. Charging interest as part of the term of the loan is unjust because you are assuming the loss and collecting for it, without ever proving or demonstrating that the compensation that is being charged is a just amount.

    Unfortunately, most Catholics (apparently including bishops) have lost sight of this teaching. Usury is not a simple topic and there have been heated debates over the centuries about whether or not particular forms of transactions were usurious. Through all of this, however, the Church’s teaching about the evil of usury, the nature of using money which makes it a consumable item, and the fact that consumable items cannot be loaned, has not changed.

    You must also remember that the Church does not always uniformly enforce its teachings if the Magisterium thinks it is prudent not to do so according to the situation. With the financial trouble rocking the world today, and the fact that usurious practices are entwined in nearly all of the transactions that brought us to our current state, I pray that the Magesterium starts to speak out and forcefully reassert the teaching.

  56. Greg V,
    To address the first question you rescinded. If I come to you to purchase a car I am currently renting from you, we are dealing with two financial arrangements. The fact that I am currently renting the car means that you have maintained ownership of the physical car and I must return it to you. When I offer to buy the car, I am seeking to gain ownership from you. If you agree to sell me the car, you may no longer charge rent for my using it.

    If I ask you to “loan” me money to buy a car. I am actually asking you to sell me the money and allow me to pay you back at a later time. However, the money becomes my property which is why, when I purchase the car, the title goes in my name and not yours. If the money still belonged to you, then the title would have to go in your name until I paid you back.

    The terms of our agreement may include you having a lien against the car to secure the loan, but that does not signify ownership even under our current financial system. The lien is your protection against loss because I owe a debt to you. Later, when I obtain the money to pay you back, I transfer the ownership of that money to you, and we are both restored in a just manner.

  57. Greg,
    This comment comes late in the debate, but hopefully you will find time to answer it briefly. Before diving into this topic, at which I am still a novice, I would ask two important questions.

    1. What is your view of the time value of money? Certainly I am not implying that time equals money, but yet it seems to be negligent to say that it has no value. If a contractor is able to perform some service or render some good to me tomorrow for a higher price versus another with a lower price two weeks from now, I need to weigh that in the balance. Is the higher cost acceptable considering the time of delivery or am I able to wait and pay a lower price.

    2. I do not understand how money is considered a consumable commodity. Does not the “consumability” come from what I exchange for that money? If I buy a sandwich and consume it, I buy a consumable good that is necessary for my physical sustenance. If I buy a computer, I have something still in existence which represents the value of what I have purchased.

  58. I meant to address that last post to David.

  59. David,

    I have a third question for you.

    3. I would question your definition of a sale as “an exchange of things of equivalent value.” It seems to me that the equivalence is something that is determined by the two parties involved. However, that equivalence is also very conventional and does not reflect the motivation of the two parties involved. Say that I have a plumber come to perform some service at my house and we agree on a bill for $500. On my part of the transaction, his service is worth more to me than the $500, otherwise I would not part with it. On the plumber’s end, my $500 is worth more to him than the time and effort and skill that he expends in performing his service. Thus that “equivalence” is merely the objective exchange that two parties have agreed two, each of which values what the one receives from the other more than what he himself gives to the other.