A catechism on usury

[Geremia]

Frequently Asked Questions on the Subject of Usury
by "Zippy Catholic"
in EPUB, PDF, and MOBI e-book formats

[Baldrick]

Very interesting indeed; this is something I've long wondered about, particularly as a convert whose family has been in banking (among other related things) for many generations. 

How, for example, would any business even conceivably get off the ground without a loan?  Everyone loses in an economy where capital formation is paralyzed. 

A loan to a dear friend or family member sans interest of some kind of collateral is one thing; but then, what if your family or community isn't well-connected in some way?  Under this system, getting a loan would now be virtually impossible, which would mean that their options for employment are contracted indeed; possibly condemning them to lifelong servitude.  And this is especially true if companies like Apple etc. were not able to get off the ground, which have countless benefits to even people who have no direct financial benefit in the stock.  I could go on and on at book-length about this....et cetera. 

What about investing in a company by buying stock or shares?  If that's okay, what about a convertible note? 

[Gardener]

#53 is utterly retarded and betrays the author's inability to parse basic friggin math and economic reality, devalues the labor that went into the principal of the mutuum, and his argument is utterly self-serving from the borrower's point of view. When I have a moment at a real keyboard, I'll explain more in detail.

Or the reader can simply read 53 and sit there for a moment, think about it, and realize zippy needs to zip his mouth cus he's incompetent.

[Geremia]

If you think "Zippy Catholic" is amateurish (yes, he is an amateur), then read Fr. Dempsey, S.J.'s Interest and Usury. Fr. Dempsey was the student of the great Catholic economist, capitalism & socialism critic Fr. Pesch, S.J. (of solidarism fame).

[Greg]

As a member of a family that has been Catholic for many generations, this article makes me want to convert to banking.

[Greg]

[yt]http://youtube.com/watch?v=YUhb0XII93I[/yt]

[Baldrick]

What I'd like to know is what the Church Laws are on this?  Traditionally that is. 

[Gardener]

In response to #53 from the same link in the OP:

It is often said that money now is worth more than money later, and a common argument is that this justifies charging interest on mutuum loans: at least enough interest to compensate for the effects of inflation or currency devaluation.

In this present economy at least, money "now" IS worth more than money-future, because in the future it is devalued from both inflation considered of the principal itself and all the associated rises in price that occurs in a rising ripple across the social board. Further, before we simply consider money as some random object, we must properly understand it as a fungible proxy. This fungible proxy is understood in a stunted manner for those who think it better to barter and leave it at that. But even then, it goes deeper in that those barterable items are themselves fungible proxies for what ultimately amounts to a man's time, labor, and accepted risk in the fruition of those investments. To lend money thus becomes an exercise of lending the time-value of one's own labor, and thus, in an abstract sense, self.

As is typical of modern anti-realist views of property (see Question 10 for a realist view), this gets things almost exactly backwards. In fact if the argument from counterfactuals or opportunity cost were valid in the first place, what would follow is that the lender should pay interest to the borrower.

Opportunity cost is valid in concurrence with reply 1, and we shall see why in more depth.

Property in itself is always subject to decay. Suppose you lend me fresh peaches, and I personally guarantee to give you the same number of fresh peaches six months from now.

In order to provide you with fresh peaches six months from now I have to take risks and invest more capital and labor. If I just hang on to your peaches and return them to you they will be rotten, because the peaches you lent to me are subject to decay. You should pay me interest, since when I give you fresh peaches in six months you are getting a greater value back than what you gave. I personally guaranteed you fresh peaches in six months, and took all of the risk and labor of providing them upon myself. (Note: Question 46 provides a description of a non-usurious futures contract, that is, a futures contract for profit which is not based on a mutuum loan).

Property is not necessarily subject to decay. However, in the case of peaches, it is insofar as the flesh of the item, but not the pit-seed which retains, in some sense, a value of future peaches. But, this example fails because it fails to take into account all that went into the mutuum principal of the peaches-now. If the author wishes to argue that peaches@ 6 months have "more" value due to the input of time, risk and labor, then it must be asked if peaches-now simply fell from the sky like moham's magical quran. Further, peaches-now might have a greater value than peaches-future if those peaches were not merely consumed and their future potential thrown in the garbage, but those pit-seeds were planted and increased local peach supply thus driving down prices. Additionally, this example and logic says to the lender that "your X now is worth less than my X future". If equity is the goal, then it would be more fair to devalue the now in reference to the future -- such logic is obviously stupid, as this gets into an endless cycle of rabbinic-esque sophistry where the devaluation process looking forward continues in the now until the peaches aren't worth a thing now -- obviously not true -- and the peaches should be given away.

Guaranteed fresh peaches later requires investment, labor, and risk. (Question 48 is pertinent). Peaches in a bucket right now require none of those things. If any interest based on counterfactuals is justifiable at all it should go to the party who takes on the task and the risk of providing fresh peaches in six months: the borrower.

Did peaches in the bucket now just fall from the sky? If so, I'd think their novelty makes them worth a whole hell of a lot more than simply grown peaches. Fairytales could be written about such Helen of Troy peaches. A thousand Mexican ships launched for their ruddy faces full of sensual peach fuzz and soft skin covering their juicy flesh. Someone alert Homer, we have magical peaches in the bucket and Odysseus can eat his heart out. Factually, peaches in the bucket now have value which encompasses their production, risk, labor of keep, etc. Again, this example and logic tells the lender that his time, labor, life value, and product is worth less than that of another. In short, it succeeds in the same lie as communism -- I lack and therefore you owe.

And the same is true of money, or any property. (Matthew 6:19 – "Lay not up to yourselves treasures on earth: where the rust, and moth consume, and where thieves break through and steal.")  If entropy or decay (for example inflation) justifies charging interest on a mutuum loan at all, the interest it justifies is due to the borrower not the lender; because the borrower is the person who has taken on all of the risk and expense of preserving the lender's capital.

This is not true of "any"(every) property or "any" (every) fungible proxy. For in the interim the lender can exchange and reinvest his principal for something newer, less prone to decay, or simply hold on to it as it gains value over time (for example, an investment in a rare item, hedging on commodities futures, etc.). Further, Matthew 6:19 is out of context here, as it is dealing with the placing of hope in material goods rather than the immaterial which has no value attached simply because it is beyond measurability. Again, the value now is realized and admitted to be more valuable now in its measure of mere quantity. Thus, to not return the value comparison is to essentially steal the difference. Example, I give you $5 today and in the future you pay me back $5, that $5 does not have the same buying power. Its buying power, depending on the market, is maybe $4.99 or $4.50 or less. The borrower then at least owes the inflationary difference as he is otherwise holding the difference-value of the lender's life hostage. Working with larger numbers to give a less absurd example:

Let's say the borr gets $12000 from the lender and this loan has a contractual life of 1 year. At the end of the year 12k's buying power is less because prices rose. Considered of the devaluation over time, it's probably negligible. But other goods rise more in cost, and so the subjective buying power of that principal measure is less potentially more than the value considered of itself. Thus, the borr says to the lender that he wants the lender to give him the value difference of the lender's own time, labor and thus life, for the borr's own benefit NOW. This is not only stupid, it borders on satanic in both its selfishness and its stupidity. Applying this sort of thinking to morality, we arrive quickly at Luther's "sin boldly". Wisdom 2 anyone?

The borrower should be compensated for the expenses the lender would have incurred if the lender had kept his capital locked (for a fee) in a safe deposit box rather than giving it to the borrower for preservation and safekeeping. If the borrower is providing a service roughly equivalent to a safe deposit box, interest should flow the opposite direction from what the usurer proposes. Safe deposit boxes have to be rented for a reason.

The borrower is NOT providing a service "roughly equivalent" to a safe deposit box, and it's absurd to assume that the principal would not have been otherwise invested. 1) the safe deposit box considered normatively does not have any risk associated with it beyond the simple objective devaluation of currency due to inflation. 2) the risk associated with the lending of the principal is not found with merely retaining the principal. 3) it is a giant assumption to believe that the safe deposit of the principal is not within the lender's own purview of physical security (thus a fee is not able to be assumed).

The fallacy in all of this is in the notion that opportunity costs are compensable in mutuum lending in the first place (see Question 14), and the idea that mutuum lending is ever morally licit as a means to economic gain – where wealth preservation is a kind of gain – as opposed to an act of charity or friendship.

Wealth preservation is more easily realized by not lending, but either spending now and transferring into a less volatile fungible proxy or otherwise investing in something with potential to be safe but increase in value, when risk is considered. The author essentially argues for the licity of negative interest rates as a moral good. Absurd.

But once we grant the premise that opportunity costs are compensable for the sake of argument, the lender should be paying interest to the borrower. The borrower's story about counterfactual might-have-beens is more in touch with reality than the lender's story about counterfactual might-have-beens, because preserving and maintaining property against the forces of entropy always requires risk, work, and investment.

The entirety of 53 is skewed in favor of the borrower at the injury of the lender, encapsulated in this paragraph. The reality is the principal did not fall from the sky. All the author argues for went into the principal he argues about. Being a fungible proxy, money or anything of considered value, is a proxy for a man's time, labor, and thus life. The idea that a person is in any sense owed this from another is satanic and perverse. The idea that the principal and its value are only realized by the borrower is selfish and mathematically obtuse. The idea that the risk transferrence is solely found in the borrower is ridiculous, considering the lender always risks when lending. In short, the idea that a man's life is only valuable to another and whose risk is only borne by another for the gain of the other is nothing short of satanic in its selfishness and greed. It's exactly what the Pharisees said of Christ. It's exactly the mentality that gives thrust to Marxism and its variants. Its counterpoint is when the borrower is unjustly injured because the lender devalues the life, risk, and investment of the borrower. In short, the author has done nothing but argue for the same evils in reverse.

[Greg]

Helen of Troy's Peaches?

I'll be thinking about that for a week.

[james03]

Fr. Dempsey was the student of the great Catholic economist, capitalism & socialism critic Fr. Pesch, S.J. (of solidarism fame).

Have you read any Pesch?  I downloaded his supposed opus, and made it through about 5 pages.  He was completely incompetent and a fascist.  For example, paraphrasing, Pesch stated that the objective way to determine pricing was to ask people's opinions.  I kid you not.

As you state, Pesch infected the Church with the notion of "solidarity", invented circa. 1900 A.D., and now preached as being a "virtue" in the Catechism, even though the Church was not aware of this "virtue" for basically 1900 years.

Pesch also seems to have invented "social justice", or at least popularized it.

The man was a menace and completely destroyed Catholic Social Teaching.

[james03]

How, for example, would any business even conceivably get off the ground without a loan?  Everyone loses in an economy where capital formation is paralyzed. 

I've researched this thoroughly.  I'm not about to go back and pull all the cites, you'll just have to trust me on this.  Basically the definition of usury boils down to this: Taking interest on a non-productive loan.

I'll give you one quick example.  Someone opposing ANY interest would have to explain why renting a house is ok, but a rent-to-own agreement would be immoral.  Rent-to-own is the same thing as what we call a mortgage, so it ends up being an argument over semantics.  Interestingly only a non-recourse mortgage is moral.

From an economic perspective usury is evil because it introduces moral hazard into society.

In closing, examples of usury include government debt and consumer loans.  Now ask yourself, if we outlawed government debt and credit card interest (debit cards and paying the balance off monthly is fine) would the US be better or worse?  It would be a freaking economic powerhouse.

As far as business loans from banks, they are moral because the bank, in justice, is due his "interest" in the production created by the business.  If the business doesn't produce, our bankruptcy laws keep the loan from being usurious.  Bankruptcy is very moral and in keeping with the Church the teaching on usury.

[Geremia]

Pesch stated that the objective way to determine pricing was to ask people's opinions.  I kid you not.

What is incorrect with that?

As you state, Pesch infected the Church with the notion of "solidarity", invented circa. 1900 A.D., and now preached as being a "virtue" in the Catechism, even though the Church was not aware of this "virtue" for basically 1900 years.

Pesch also seems to have invented "social justice", or at least popularized it.

The man was a menace and completely destroyed Catholic Social Teaching.

In what sense did he destroy it?

[Heinrich]

http://www.nbc.com/saturday-night-live/video/first-citywide-change-bank/n9701

[Baldrick]

How, for example, would any business even conceivably get off the ground without a loan?  Everyone loses in an economy where capital formation is paralyzed. 

I've researched this thoroughly.  I'm not about to go back and pull all the cites, you'll just have to trust me on this.  Basically the definition of usury boils down to this: Taking interest on a non-productive loan.

I'll give you one quick example.  Someone opposing ANY interest would have to explain why renting a house is ok, but a rent-to-own agreement would be immoral.  Rent-to-own is the same thing as what we call a mortgage, so it ends up being an argument over semantics.  Interestingly only a non-recourse mortgage is moral.

From an economic perspective usury is evil because it introduces moral hazard into society.

In closing, examples of usury include government debt and consumer loans.  Now ask yourself, if we outlawed government debt and credit card interest (debit cards and paying the balance off monthly is fine) would the US be better or worse?  It would be a freaking economic powerhouse.

As far as business loans from banks, they are moral because the bank, in justice, is due his "interest" in the production created by the business.  If the business doesn't produce, our bankruptcy laws keep the loan from being usurious.  Bankruptcy is very moral and in keeping with the Church the teaching on usury.

That's a great explanation; thanks. And what's more the "non-productive" qualification makes complete sense.

If anyone has a resource they could point me to on this, I'd love to have one.  Thanks.   

[james03]

And what's more the "non-productive" qualification makes complete sense.

From an economic perspective, usury creates moral hazard.  From a moral perspective, usury offends the cardinal virtue of prudence because it is asking for a return when there is zero production.

Note that the notion of usury being "too high" of an interest rate is not directly true, it has some truth in certain situations.  So for example, if the Federal Reserve charges member banks 0.25% interest (less than 1%) for loans, it is usury.  If I charge 50% for money lent to a wildly successful and productive start-up company, it might not be usury.

By the way, every Catholic man should have a thorough understanding of the cardinal virtue of prudence.  It definitely does NOT mean pragmatic.  I highly recommend "The Four Cardinal Virtues" by Pieper.  Cheap book.