E. Michael Jones: Pope Francis good with economics?

[Catholic Economist]

Since there is an active discussion on usury taking place, I thought I might leave this link from Zippy Catholic's blog on subject:

http://zippycatholic.wordpress.com/2014/11/10/usury-faq-or-money-on-the-pill/

I think it might provide some excellent food for thought. For example, contrary to the opinion of several of the commentators on this thread Zippy posits that is immoral to charge interest to recoup opportunity costs since they are not ontologically real objects. Additionally, seemingly contrary to james03, he feels that government debt is not usurious in and of itself.

I'll admit I think a great deal of Zippy's writing and rate him as a fine thinker. Nevertheless, I am not saying that I necessarily agree with his position. Indeed, I am quite uncertain as to what to think. My hope is that in posting this link it will help to foster a discussion to aid me in thinking through his position thoughtfully.

P.S. Please let me know if this should be its own thread. Its not my intention to derail the current conversation

[james03]

Additionally, seemingly contrary to james03, he feels that government debt is not usurious in and of itself.

There are a few exceptions.  If you had a bond to build a road backed by the tolls, then it would not be usury.  Things like that.  I'd say 1% of government bonds are not usury.

[james03]

I read the Zippy article (skimmed it).  He says government debt is not usurious because the medievals held it not to be usury.  Weak.  Usually the "government" in that case was the king who you didn't want to piss off by condemning his use of usury to fund his hunting palace.

Either usury is wrong, or its not.

Also, he fails to mention where St. Thomas does say you may collect interest on a productive loan.

[Lambda Phage]

For the record:

Completely useless.  Usury is charging for the use, and only the use, of money.  It is evil.  A modern description would be a non-self liquidating loan, or a non-productive loan.  Prime examples are government debt and credit card debt.

When someone gets into financial trouble and asks for advice, what is the first thing they tell you?  Tear up the credit card.  What is causing the destruction of Greece, Spain, Argentina, Japan, etc....  Government debt.

Usury is evil.

Receiving interest on a productive loan, e.g. a corporate bond, is not usury and is perfectly fine.

Actually it's not useless. Did you read the entire entry? If you read the entire entry you would know that it is entirely useful and applicable to the discussion. It is, afterall, titled "Usury," and I will hold to its definitions rather than your arbitrary ones.

Anyway, if you'd read, the paragraph above the one I copied and pasted actually refutes your reasoning:

"Others with Claudio-Jannet (Le capital, la spéculation et la finance, iii, II and III) distinguish between the loan for consumption and the loan for production: we may ask interest from the borrower who takes money or credit in order to produce or gain money; but not from one who borrows under pressure of necessity, or for some unproductive expenditure. The increased frequency of loans for production considered in the connection with the different extrinsic circumstances would seem to justify the demand for interest on such loans at the present day. In a spirit that is not irreconcilable with the rulings of the Fathers in the matter, this system contains this element of truth, that the lender of a sum of money which is intended for productive use may refuse to lend except on condition of being made a partner in the undertaking, and may claim a fixed interest which represents that share of the profit, which he might reasonably expect to receive. The system, nevertheless, is formally condemned by the Encyclical "Vix pervenit", and contradicts the principle of the just value; it tends in fact to make the borrower pay the special advantage, while the compensation is regulated by the general advantage procured by the possession of a thing, not by the special circumstances of the borrower. Others justify the existing practice by a presumption of extrinsic circumstances, which is confirmed, according to some persons, by the permission of the civil law. This explanation appears to us to be unsatisfactory. The extrinsic circumstances do not always exist, while we can always lend at interest, without any scruple on the score of justice. And what is there to show that modern legislators pass laws merely to quiet men's consciences?"

So you are in fact wrong. Interest on loans is not justified based upon productivity. It is based solely on the fact that modern economic conditions are such that tying up one person's money is depriving that person of the opportunity to use that money to make more money. Economic conditions in the past were generally not characterized by widespread opportunity for profitable investments. That is the point of the first paragraph I copied and pasted. And that is why the Holy See has charged interest on loans for the past 100+ years now. It wasn't jews, it wasn't modernists, it was legitimate economic development. It wasn't because the loans were productive. It was "due entirely to a change in economic matters that require the present system."

Since there is an active discussion on usury taking place, I thought I might leave this link from Zippy Catholic's blog on subject:

http://zippycatholic.wordpress.com/2014/11/10/usury-faq-or-money-on-the-pill/

I think it might provide some excellent food for thought. For example, contrary to the opinion of several of the commentators on this thread Zippy posits that is immoral to charge interest to recoup opportunity costs since they are not ontologically real objects.

Oh, it's not my opinion, but the opinion of the editors of the Catholic Encyclopedia and the Holy See as it existed at the time of its writing. I'll take that and stick with it over the musings of some obscure internet blogger named "Zippy."

[Greg]

I find Credit Cards very useful.

Let's say I am in the US on a business trip and want to extend a trip to New York over a weekend, change my flight back home and stay three more days.  Where would I get the cash for that?  I am not going to carry around another $1000 in cash just in case.  I might lose it.

Where would I get the money to stay the extra time with no credit cards?

How would I have comeback for things I buy on the Internet without Visa, MasterCard, or PayPal?  Once a merchant has my money there is not much I can do to force him to refund it.

If I am stupid enough to spend money I can't pay back the next month then that is my fault.  One has to look at the cost of money, just as one has to consider the cost of everything else in life.

I can buy a Bentley or M-class Merc and find that the parts and servicing nudge gas mileage far outweigh the utility value of the car to get from A to B.  On the other hand, by driving a car like this I might convince a CEO to do business with my firm because it gives him confidence that I must be doing something right, in order to afford a car like this.  The profit from just one contract might pay for the higher costs of running a luxury car several times over.

If I work as a nurse, it is stupid to buy a luxury car.  If I work as a real estate salesperson and drive my customers to view expensive properties it probably makes economic sense.

Primarily, the responsibility to weigh up the costs of borrowing versus the utility and future value rests with the borrower.  Just as it does with the purchaser of cars, houses or anything else.

The costs of a loan and the possible outcomes are pretty easy to understand by all but the most stupid people.  People with a modicum of intelligence and common sense can assess the risks, decide what they can tolerate and borrow when they need to.  Lenders can lend on the same basis.

I would never borrow from a PayDay lender, because I will never need to, but some people do.  They are adults, the rates and fees are clear enough.  Let adults be adults and not protect people from their own stupidity.

[james03]

It is based solely on the fact that modern economic conditions are such that tying up one person's money is depriving that person of the opportunity to use that money to make more money. Economic conditions in the past were generally not characterized by widespread opportunity for profitable investments.

You do realize, don't you, that in your attempt to counter my argument you use my argument by the term "profitable investments"? I stipulate: you may receive a fair share in the gain from a loan.  That is not usury.

Usury has nothing to do with profit.  It is charging for the use of money on a non-productive loan.

[Greg]

Why is it the lender's business whether the loan is profitable or not?

They still lose the utility of the money regardless.

If you don't believe the loan is going to be profitable, then don't borrow.  I don't see why the lender is to blame here.

[Kaesekopf]

Why is it the lender's business whether the loan is profitable or not?

They still lose the utility of the money regardless.

If you don't believe the loan is going to be profitable, then don't borrow.  I don't see why the lender is to blame here.

Because rich people are bad and poor people are saints.

Sent from my SAMSUNG-SGH-I337 using Tapatalk

[james03]

Why is it the lender's business whether the loan is profitable or not?

Why is it the pimps business whether the prostitute fornicates or not?  He just takes the money and makes some phone calls.  That argument goes no where.

But go back a read what you wrote: Why is it the lender's business whether the loan is profitable or not?

In the old days, that was the bankers job, to find profitable loans.  And I have no problem with banks making profitable investments in productive activities.

I do have a problem with credit card debt and government debt.  The real world confirms that these end badly, so theory matches actual results.  Usury offends Prudence.  You are claiming an increase, when there is no increase.  When you defy reason, it will always end badly.

[Greg]

Whatever happened to personal responsibility?

Apart from a house, and maybe college if you live in the US, nobody is forced to borrow money, ever.  It is a choice.

Home and college loans are at reasonable rates, not much higher than inflation, if indeed higher at all.

You enter into a contract where the cost of borrowing can easily be worked out on cheap computer.

Like many other things there is amount of risk. You can drive a car badly or drive it well, you can maintain it or neglect it.  If you come off a mountain bend however I would assume it is your fault not the car makers.

Why is usury any more immoral than insurance premiums?  One takes a calculated risk.  The insurance company spreads the risk and adds a fat premium.  Often it re-insures the risks and only has the premium on its books or net profit.  How is that any different than a lender?

[Greg]

Bankers never found profitable loans.  They found low risk loans.  As long as the profit would pay of the loan plus interest they did not care about the profitability.

No banker would lend to a dot com company like Apple Inc or Ebay.com.  Yet these companies are fabulously profitable.  Banks simply cannot take risk like that onto their balance sheet.

So the VC lenders do lend at very high rates of interest.

If you need a car repaired to get to work and have maxed out your credit at the bank then 30 percent APR on a CC is reasonable, because you are a fiscal idiot.  You need to get to work to get paid so even an expensive tyre is worth it.  A smart person would have a few thousand in savings to pay for foreseeable emergencies to avoid borrowing on a CC.

If the credit card lenders won't lend you money at 30 % APR then you really are a bad risk and only the PayDay lender's business model can cope with your disorganisation and poor money skills.  Only they can chase you which is the only way to ever get paid back by utter bottom dwelling fiscal idiots.  You have to pay for that hand holding and wet nursing.

Prostitution is always immoral, so is a lousy analogy.

A better analogy is selling aspirin or alcohol.  Most uses of these are moral.  Should you as the seller have a responsibility to ensure each adult is not intending to overdose or get blind drunk?  Should the law restrict purchasers of aspirin to one packet or buyers of booze to 1 bottle?

No, the onus should be on the buyer to use aspirin, booze and financial loan products responsibly.

[Catholic Economist]

Like many other things there is amount of risk. You can drive a car badly or drive it well, you can maintain it or neglect it.  If you come off a mountain bend however I would assume it is your fault not the car makers.

Why is usury any more immoral than insurance premiums?  One takes a calculated risk.  The insurance company spreads the risk and adds a fat premium.  Often it re-insures the risks and only has the premium on its books or net profit.  How is that any different than a lender?

To play devil's advocate for a moment: Why should lenders expect risk premiums on loans?

I mean I think we can all agree that if a borrower actually defaults, then the lender is in good standing to take some type of action to reimburse himself (e.g. by seizing assets). However, charging a risk premium entails extracting rents from an individual because of something they may do. Somehow it doesn't seem particularly just to charge someone a fee for something they haven't actually done.

Of course, one reasonable response to this is that many of the people who are charged higher interest rates on loans have in fact abused debt in the past. But to abstract from this, perhaps consider the case of a young, hard-working man fresh out of university who has no identifiable credit history.

[Greg]

Some young male drivers are super safe.  Why is it fair to charge them high premiums when they have not had a crash yet?

Answer: because an unknown risk is still a risk.

Many borrowers don't have realisable assets.  By the time you've paid the repo man there is zero profit in repossessing their junk.

[Catholic Economist]

Some young male drivers are super safe.  Why is it fair to charge them high premiums when they have not had a crash yet?

Putting my devil's advocate hat on again: It is isn't fair. A risk premium is a risk premium whether its being charged by an insurer or a lender.

Answer: because an unknown risk is still a risk.

Many borrowers don't have realizable assets.  By the time you've paid the repo man there is zero profit in repossessing their junk.

Understandable, says the devil's advocate; but then again you have the choice not to lend to them, rather than unjustly charge them a fee for something they haven't done.

[Greg]

So come up with a system that is fair and still profitable, sell the insurance and make yourself a fortune.

There would be a HUGE demand as premiums for young drivers are very high the world over.  You could simply insure all of the safe young drivers and leave the reckless and inattentive ones to your competitors.

If there is any validity to your argument then this is a huge business opportunity and very easy to patent the risk formula for and demonstrate statistically.

Same for loans.  Simply find all of the honest and trustworthy borrowers and lend to them.  I am still not clear on how you will repossess their assets when you make a mistake or they lie on the application form and defraud you but perhaps you have an alternative legal system too???