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Wednesday, July 25, 2007

Morbid Interest

Bill Powell writes another fine post, waxing eloquent on Calvin Elliott and the troubling question of usury.


Anonymous Anonymous said...

Wow, did I ever read that fascinating exchange. In my opinion, the argument came out in a draw.

While Bill showed the injustice of unproductive loans not necessary to continue one's labor, he has underestimated the importance of entrepreneurship, or "leadership" as he put it. Although a world without interest would make interest-free moneylending seem more reasonable than in a capitalistic system, it would still not be possible to harness the same level of capital. (From personal experience, whereas I currently have purchased some shares of stock, if the continual return of dividends was not possible, I would just have puchased precious metals + tried to keep them safe). The heavy economic growth and entrepreneurship in the USA during the 19th century [more measurable than today's economy because of the smaller amount of international trade] is evidence of this because the growth, which included an increase in the absolute living standard, happened as our modern economy was just starting up.

Although Bill is entitled to his opinion as an economist, it would be overregulation to prohibit the productive loans in question. I checked my Catechism of the Council of Trent, and the footnote states that usury does not include loans on capital, which has the effect of a means of production.

Sorry if you didn't expect a debate to begin on your humble blog, but Bill and his foes are out of my league, and I didn't want to wait for a password to come by email. So I hope this is a good repository for thoughts.

11:55 PM  
Blogger Raindear said...

This is definitely a very complicated subject and I am not sure what I think myself yet. I suspect that Bill is making an extreme case against any interest at all, in order to put the issue in perspective, since people assume it is fine these days. Unfortunately, I don't have time to post a full reply now, but I certainly don't mind bringing the discussion here.

12:54 PM  
Blogger Raindear said...

Sorry I haven't made a full reply before now! I am afraid I can answer best by raising further questions.

Perhaps interest allows greater entrepreneurship, but is unbounded entrepreneurship necessarily a good thing? Initiative is one thing, but is it really natural and wholesome to have an economic system which rewards risky speculation and the desire to get rich quickly with as little work as possible?

Also, by what standards ought a Christian measure prosperity? If we look to the classical roots of the word, economics concerns the management and welfare of the household. From a Christian perspective, household prosperity certainly involves more than material goods. Furthermore, even on the material level, while Americans have access to a superabundance of unnecessary goods, the most essential goods (home, car, land, decent food) are awfully expensive. How many folks own their homes and cars outright? Have we really achieved a higher standard of living when the possession of necessities requires debt?

That said, I think Bill would probably agree that one can require repayment for capital which brings in a return. However, from a Thomistic understanding, it does not seem to right to exact remuneration for a loan which yields no increase to the borrower. Take a look at the Summa Theologica.

3:47 PM  
Anonymous Anonymous said...

Thank you for recommending the passage in the Summa Theologica. Although I only read part (because my "objections" didn't seem similar to the listed ones), it was nice to finally read part of that great work. However, the Thomistic understanding did not seem to condemn all nonproductive loans. In the beginning of his argument, St. Thomas quoted the Old Testament, saying

"If thou lend money to any of thy people that is poor, that dwelleth with thee, thou shalt not be hard upon them as an extortioner, nor oppress them with usuries."

This recalls the emphasis of usury as a sin harming the poor, which would indeed condemn the outrageous rates of interest charged by credit card companies, which are known to easily approve cards for most who apply. However, this should not apply to home and car loans by reputable lenders, who will only approve those with enough income to repay the loan. "Oppress" further implies that the illicit loans were for everyday necessities. [thinking about all this reminded me of the good work former Senator Rick Santorum did on behalf of the poor in the area of affordable home and small business loan assistance, which I read about in his It Takes A Family and which we can probably all admire]

St. Thomas backed up his position by recalling Aristotle's thoughts on money as being solely a medium of exchange, thus using logic to condemn usury. He also, as I had previously heard, stated that usury was immoral as a charge on something which does not exist. This may have all been valid at that time, but as a numismatist, I know as a fact that the nature of money itself (the underlying postulate) has changed in the last few centuries. The first coins were little more than standardized units of gold and silver bullion. When, as in the late Roman Empire of England under Henry VIII, the money was debased, inflation was consequent. However, as money is no longer even backed on precious metal (not necessarily good) the removal of silver from our coinage in 1965 had no great effect on inflation. Although this is a well-known change, I believe it proves that the nature of money is not intrinsic. Although I readily admit that banks create lending capital out of money owned by someone is indeed a fiction, I do not see this as bad because it works. My, I have gotten off topic, sorry!

Insofar as the question of "unbounded entrepreneurship", I cannot say. As I don't believe the Church has ever spoken against the entrepreneurial spirit, as apart from materialism or greed, it seems like a subjective matter. I see risky speculation and capitalism as good, due to their proven record of making life more convenient. There are indeed many "unnecessary goods"; I am happy with them, and their abundance doesn't seem harmful so long as one remembers "Use things and love people, don't love things and use people"; to prevent that, Christian values should be taught in schools and naturally laws ought to combat fraud and exploitation. As Adam Smith believed, the free market and availability of loans has led to improvements for rich and poor, so capitalism itself ought not be attacked.

I do not have the information to answer the second part of your response. I know that "home ownership" is over 60%- an all-time high, I do not know whether or not most will be able to eventually pay off their loans.

Sorry if my writing wasn't up to snuff. I feel quite blogged out. Until our next engagement, God be with you.

4:36 PM  
Blogger Raindear said...

If you take a look at Parts IIA and IIB of "My Thoughts on Economics" in the sidebar, you can read my muddled account of how Aristotle, St. Thomas, justice and charity offer legitimate criticism of capitalism.

While St. Thomas might not criticize a productive loan, I don't believe he would consider a house loan productive. Here is an example of what I consider a productive loan and just lending: A man loans his neighbor the capital to purchase a winery with the understanding that he will receive a certain percentage of the wine sales from the first year. However, if the grapes perish on account of a drought or some grape-killing pest, the borrower owns the loaner nothing because the loan produced nothing. As St. Thomas says:
"A lender may without sin enter an agreement with the borrower for compensation for the loss he incurs of something he ought to have, for this is not to sell the use of money but to avoid a loss. It may also happen that the borrower avoids a greater loss than the lender incurs, wherefore the borrower may repay the lender with what he has gained. But the lender cannot enter an agreement for compensation, through the fact that he makes no profit out of his money: because he must not sell that which he has not yet and may be prevented in many ways from having."
"he that entrusts his money to a merchant or craftsman so as to form a kind of society, does not transfer the ownership of his money to them, for it remains his, so that at his risk the merchant speculates with it, or the craftsman uses it for his craft, and consequently he may lawfully demand as something belonging to him, part of the profits derived from his money."

I especially like this quote from St. Thomas, which puts economics in the light of Christian charity, a perspective very foreign to our sensibilities:
"Money cannot be sold for a greater sum than the amount lent, which has to be paid back: nor should the loan be made with a demand or expectation of aught else but of a feeling of benevolence which cannot be priced at a pecuniary value, and which can be the basis of a spontaneous loan. Now the obligation to lend in return at some future time is repugnant to such a feeling, because again an obligation of this kind has its pecuniary value. Consequently it is lawful for the lender to borrow something else at the same time, but it is unlawful for him to bind the borrower to grant him a loan at some future time."

As to your point about money as a medium of exchange, I fear I do not understand. For, if money is no longer backed by coin, than it is of less extrinsic value than in the past, which seems to make Aristotle's definition (of money as a medium of exchange) even more relevant. In reality, money is only valuable insofar as it is a means of obtaining other goods.

Finally, with regard to risky speculation and capitalism, I must deny "their proven record of making life more convenient." I find many aspects of life in a global, fast-paced capitalist economy dashed inconvenient: spending a significant part of every day in my car; buying groceries from a commercial chain which wafts the latest pop tunes across aisles awash in a florescent glow; cell phone dependence; the need for higher education; the cost of higher education; car insurance and car loans; and office buildings with a dearth of windows and an excess of computers.

2:39 PM  
Anonymous Anonymous said...

Hello again!
insofar as your economic thoughts IIA-IIB, the Aristotliean distinction between the first and secondary use of a given thing, which was used to call retailing unnatural, was illogical according to my understanding. The Philosopher was overusing Formal Logic, in much the same way as when he misunderstood [what we call] gravity as the desire of objects to return to their proper place, ie overapplying the Law of Identity. I believe the nature of the material world is more in tune with general laws of gravity and motion, and that the question of morality should come in with more of a regard to circumstance (as opposed to generally condemning certain "uses").
Returning to the question of loans and interest, the quote on Christian charity has only partially affected me. At least when I loaned money to my brother, I didn't charge any interest. But it still just seems too bizarre to attack interest on nonproductive loans. Even if a businessman does care about his customers, it seems too utopian to annihilate the profit motive. I find that distributism generalizes the motives of capitalists and investors. Naturally, many are stingy and greedy, but many others are kind and charitable, and are drawn in by the thrill of risk and the thought of using any gains they may make to good effect. I hope that, if I succeed in life, I will become one of the latter!
However, your vineyard analogy was very helpful. It reflects the nature of Wall Street, and on the need for some form of bankruptcy protection.
Although many people I know feel as you do about the world unbridled enterprise has created, I feel thankful for it every day. Besides bringing us electricity, cars (I don't drive, so I can't evaluate the situation of having to spend too much time in the car), and computers, I certainly love convenience stores and supermarkets (which produce many employment opportunities, which I can attest are very enjoyable), am looking forward to college, and can imagine few things more enjoyable than listening to pop music.

If you wish to again respond, I'll be happy to continue our talk, but likely unable to read your blog again for a few days, as college starts on Friday.

7:52 PM  

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