Usury

[Greg]

Plenty of people borrow money for good reasons too.  Buying homes, buying a new car or good second hand car (which is necessary if you don't have the skills to run a clunker).  People borrow to buy stock which the sell for a profit.

All borrowers need to do is work out whether the loan is necessary, affordable and will yield a return which is greater than the interest they need to pay.

Borrowing for holidays, nail extensions, boozing nights out, clothes, is completely stupid.  But people should be treated as adults, and allowed to borrow, and the borrower who asks for the loan is MORE guilty than the lender since they are always the first actor.

And if it all goes wrong there are bankruptcy laws, which are not that terrible for the borrower.  If you are going to go bankrupt then you might as well be hung for a sheep as a lamb.

[Greg]

Let's imagine you had a large amount of wine, which you lent to weddings and other gatherings at a few dozen bottles per time.  Depending on how many guests turned up this would allow them to use none of your wine, some of your wine or all of your wine.

You could have two business models.

Mark up the wine by 30% for the bottles used, (but you would suffer a loss if they used none or very few because there would be breakages and costs involved in moving it).  It would also be very expensive for them if they used all of the wine.

Charge a fee for borrowing the wine (an option premium), this is exactly the same as a loan.  This encourages (but does not force them), to use some wine at the standard RRP and guarantees you a profit over and above your costs, without which the service (which is convenience) would not exist for the wedding organisers.

Are you seriously suggesting that one business model is immoral and the other is moral?

[Greg]

Physical goods and services have more or less constant value

Nonsense.

The price of commodities, used cars, energy, salt, tulip bulbs, bitcoin can vary enormously.

The price of everything is determined by the buyer and the seller.

If lending is evil, then eBay's business model is completely evil as are ALL auctioneers and real-estate agents.  I advertise an item that a series of buyers bid on.  The agent does the same amount of work regardless of the final price and yet takes a percentage of the final price, plus auction fees.

[Graham]

That is nonsense Graham.

They have been debasing currencies and coin-clipping as long as there has been money.  Roman Emperors used to do it for goodness sake.

https://www.economics.utoronto.ca/munro5/timecht2.htm

Popes were well aware of this practice as were their advisors.  Anyone with an IQ of 110 could understand that these practices were inflationary.

https://en.wikipedia.org/wiki/Price_revolution#:~:text=In%20the%2016th%20century%2C%20prices,from%201%25%20to%201.5%25.

First of all, I said "a measure," meaning an calculated percentage. Whatever you think about the understanding of economics in the past they did not have a discrete quantification of the annual change. But debasement and inflation are different things, and the fact that inflation was poorly understood is proven prima facie by what the Spaniards and tunas did to their national economies when they brought home new world loot by the galleon.

But that was not even the point. (Speaking of nonsense, how about belligerently responding to points you havent grasped.) I mentioned it only as a quick example of how much the the underlying economics have changed since those teachings were formulated. The meat of the clarification was that many loan structures have meaningfully changed from what medievals were familiar with (mutuum loans), and would therefore not fall under the older condemnations of usury. Read the Zippy FAQ

[Greg]

Inflation was well understood 200 years before Benedict condemned usury in the mid 1700s.

Moreover, I expect a divinely revealed religion NOT to condemn things they don't fully understand.   Surely that is the whole point when a religion is claiming to have the "Vicar of Christ" in charge of it.  They should only condemn what they DO understand to be immoral.

By all means say that "Christians should help others with charitable loans and a give the shirt off their back", but don't excommunicate people for lending at interest when it is just for them to ask for some return on their loan for putting their money sometimes the entire principal at risk of loss.

What would be a "fair" interest rate for lending money over a 20 year period to Jeff Bezos in 1993 given the risk of him going belly up?

Credit card type rates of interest would not be unjust in my opinion on a loan like that.

[Greg]

Whatever you think about the understanding of economics in the past they did not have a discrete quantification of the annual change.

That has nothing to do with it.

Whether you give me an APR rate or not, I still understand I am paying interest on a loan if I pay back an amount greater than the principal and that amount increases if I take longer to pay it.

The vast majority of borrowers today don't really understand the complexities of loans, compound interest, amortisation etc.  They just understand that the longer they take to pay the money back the more it will cost in the long run.

So medieval borrowers understood interest in every way they needed to understand it.  And the rates were around the 20% APR mark.

http://centaur.reading.ac.uk/16784/1/16784.pdf

[Greg]

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.  St. Thomas.

This would also ban the futures market, which have enormous advantages for the suppliers of all manner of commodities.  When you sell a futures contract you are doing exactly the above.

[Maximilian]

From my experience working in banking the people who get trapped in debt usually have a major sin or vice that they are a slave too. Usury is a consequence and not the cause of their financial troubles.

You are part of the group doing the devil's work by promoting arguments that justify sin. Usury is a sin. You are in favor of it.

But don't delude yourself into thinking that your arguments are new or original. The same reality that you mention was well known before the time of Christ.

People in former times, however, cared about their fellow man and about souls, so they realized that if usury were allowed to flourish, then all those with "major sin or vice" would become slaves not only to their temptations but also to their creditors.

This was one of the strongest arguments against usury, not an argument in its favor. They didn't say, "Well those people are sinners anyway, so let them be enslaved to the moneylenders."

For one thing, everyone depended on each other for survival, and you couldn't afford to have so many casualties. Now we are all independent, atomized individuals, and everyone else can be dragged to hell by the devil for all we care. In fact, life is a competitive foot race, and every time the devil targets someone for their "major sin or vice" and enslaves them, that's one less competitor.

Psalm 10
2 The wicked in his pride doth persecute the poor: let them be taken in the devices that they have imagined.
3 For the wicked boasteth of his heart's desire, and blesseth the covetous, whom the Lord abhorreth.
8 He sitteth in the lurking places of the villages: in the secret places doth he murder the innocent: his eyes are privily set against the poor.
9 He lieth in wait secretly as a lion in his den: he lieth in wait to catch the poor: he doth catch the poor, when he draweth him into his net.

[mikemac]

I imagine interest on loans was seen as usury up to the time of Pope Benedict XIV (1675 - 1758) for the following reasons.

Matthew 6:12

And forgive us our debts, as we also forgive our debtors.

Luke 7:41-42

[41] A certain creditor had two debtors, the one who owed five hundred pence, and the other fifty. [42] And whereas they had not wherewith to pay, he forgave them both. Which therefore of the two loveth him most?

Both of these examples obviously refer to sin, the second being an analogy for Peter.  But they also refer to debt because two thousand years ago in the middle east debt was cancelled in the jubilee years.

http://www.cadtm.org/spip.php?page=imprimer&id_article=8580

Debt cancellation in the land of Canaan in the first millennium BC

Social justice, in particular in regard to the cancellation of debts that keep the poor enslaved to the rich, is a leitmotif in the history of ancient Israel. [1]

The Deuteronomic Code [2] states that 'at the end of every seven years you must cancel debts', free any Hebrews who had sold themselves into service to pay off a debt, and furthermore 'when you release them, do not send them away empty-handed. Supply them liberally from your flock, your threshing floor and your wine press' (Deuteronomy 15).

As the law was not sufficiently respected, Leviticus reaffirmed the principle: 'And you shall hallow the fiftieth year and you shall proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you: you shall return, every one of you, to your property and every one of you to your family' (Leviticus 25:10). And to ensure compliance, the codes described in detail how purchases and sales among individuals should take into account the number of years since the previous jubilee (in other words, the number of years remaining until the property would revert to its previous owner).

If we add to these passages the many verses that prohibit the practice of charging interest on loans or lending money on pledged property, we can get a clear picture of how the Israelites in the land of Canaan sought to maintain a degree of social balance.
...

See also ...
Jubilee (biblical)
https://en.wikipedia.org/wiki/Jubilee_(biblical)


These days a Jubilee Year in the Catholic Church has more to do with God's Mercy, the forgiveness of sins, indulgences and possibly a pilgrimage to Rome.

Jubilee in the Catholic Church
https://en.wikipedia.org/wiki/Jubilee_in_the_Catholic_Church


I imagine things changed because of the connection that popes had to banking families like the House of Medici and others.

[Greg]

We are not slaves to our creditors.

We are fantastically rich compared to any generation that ever lived.  Even the poor in India and Africa are rich compared to those who lived before them.  Skilled working class people in Europe and America are driving around in Mercedes and BMWs.

I own a 7 bedroom house, 3 cars, work 25 hours per week at most and have visited 90 countries.  I was educated in state schools and from a middle class home.

There's no compunction on me to take on debt (apart from buying a house) and the interest rate on mortgages, is currently 10% of what European kings paid to Italian bankers in the middle ages.  2% as opposed to 20% back then.

[mikemac]

The Jubilee Year wasn't just about freeing debt slaves but also ... "debts would be forgiven, and the mercies of God would be particularly manifest."

[Greg]

But they also refer to debt because two thousand years ago in the middle east debt was cancelled in the jubilee years.

If you cancel debts then who will lend a few years before those jubilee years?

Interest rates, like anything else depend on supply and demand.  If you make it tougher for lenders to lend then they either won't lend, which means you cannot borrow and invest or they will lend at higher interest rates because you are forcing them to forgive the debts etc.

[mikemac]

Yeah, like I said, things probably changed because of the connection that popes had to banking families like the House of Medici and others.  Obviously there was a time when money and wealth was not such a priority as it is now.  The Reformation probably had a major impact.  And also Darwinism.

[Daniel]

The price of commodities, used cars, energy, salt, tulip bulbs, bitcoin can vary enormously.

You are correct. But what I meant was, the physical item's value is constant relative to itself. One gallon of milk is always going to be worth one gallon of the same quality milk. The only time it'll be worth less is if you let it go bad.

Let's say twenty years ago, in 2000, I needed a gallon of milk. And my neighbor happened to have an extra gallon of milk in his refrigerator. So we make an agreement, and I sign an I.O.U., and I take his milk. Now, in 2020, he comes to me with the I.O.U. and he expects me to honour the agreement. So I go into my refrigerator and pull out a gallon of milk, which I recently purchased at the grocery store for $3.00, and I give it to him. We're even. (I know that the scenario seems kind of comical, but that's beside the point.)

The scenario changes drastically once we switch from I.O.U.s to cash. Let's say twenty years ago, in 2000, I needed a gallon of milk. So I borrow $2.00 from my neighbor, go to the grocery store, and buy the milk. (Back in 2000 you could buy a gallon of milk for $2.00.) So I do that, and I don't bother to pay him back for twenty more years. It's now 2020, and he expects me to pay him back. So I reach into my wallet and pay him... $2.00. Are we actually even? Milk now costs $3.00 per gallon. He's out $1.00. (Assuming he wants to use that money to buy milk.)

Obviously the market will affect the milk's value relative to other items. When there's a milk shortage, one gallon of milk has more buying power than when there's a milk surplus. But for my example, I'm not really considering any of that. I'm considering only two very simplified scenarios: the scenario where milk is exchanged directly, and the scenario where money is exchanged as if it were a sort of milk voucher.

I'm willing to accept the Catholic teaching on this, but it seems kind of strange.

[The Theosist]

We are not slaves to our creditors.

We are fantastically rich compared to any generation that ever lived.  Even the poor in India and Africa are rich compared to those who lived before them.  Skilled working class people in Europe and America are driving around in Mercedes and BMWs.

I own a 7 bedroom house, 3 cars, work 25 hours per week at most and have visited 90 countries.  I was educated in state schools and from a middle class home.

There's no compunction on me to take on debt (apart from buying a house) and the interest rate on mortgages, is currently 10% of what European kings paid to Italian bankers in the middle ages.  2% as opposed to 20% back then.

Thanks to activity made possible in large part through financing by interest-bearing loans which would otherwise never have been made. The notion that it is necessarily sinful to grant an entrepreneur, business or homebuyer a loan on the basis of earning interest as compensation for risk, where they would otherwise never have able to obtain such financing in the first place, that is not just cuckoo but bass-ackwards. But then I know some people here genuinely, from the comfort of their armchair, wish we'd remained an aristocratic manorial polity. They probably smoke a pipe too.