Confusion Over Interest (Usury) and Profit

So, A. I can make money selling grain, and turn a profit.  Buy grain cheap in Iowa and sell it for a profit in New York. This is legitimate.

B. I can lend money to someone to do the above, if I share in the profit or loss, with no guarantees.

C. But I cannot lend money to someone to do the above where I am guaranteed my money back and a percentage above what I lent, for some set time.  This is usury, and is forbidden by all major religions (probably all religions) in all instances in all forms, for any time period.

Then why is the practice so widespread?  Within all religions there are those who get around the prohibition with semantics.

But let's go back to profit vs. usury.  Clearly A is an example of a profit being made, and A is how most business transactions occur (although the money behind the transaction may have a usurious aspect, such as payment by credit card.)

B is very often how deals are constructed, and there is no problem there.  The profit is the same as in A, the distribution is decided ahead of time.

So how is C different from A and B? First let's get to definitions.  A profit is a gain on a trade.  Usury is a gain on the lending of a medium of exchange (money).  Since the money lent out is the same as the money that comes back, nothing was traded.  There is a word for making money on money, or any other commodity on commodity, where the deal is between someone who will have what was lent out returned (no trade) plus more of the same, the word is usury. Profit applies to trade. If there is no trade, the word for making money on money (or same on same) is called usury.  Usury makes clear the deal is not making money on trade, but making money on money.

Shouldn't risk be rewarded?  Bankers introduced this idea.  Businesspeople never take risks, at least not in the sense commonly held, and certainly not in the sense used in any economics textbooks, not even the Austrian Economics textbooks.  Bankers run a very risky business, usury based on fractional reserves, an extremely risky proposition, for their customers.  When a bank folds, it is not the banker who loses, it is the bankers' customers.  The "con" in con artist is sort for confidence, their game is to get you to have confidence in yourself.  The banker pays for textbooks that read "entrepreneurs take risks."

Specifically, bankers can create "money" and lend it out and make money and gain wealth and power, but they cannot create "money" and spend it themselves, or at least it is foolish for them to do so.  The "money" bankers create is funny money, which gets out there, earns interest, is returned and destroyed by zeroing out the asset/liability balance sheet.  The bankers can then safely spend the interest they "earned."  If a banker were to create money and spend it on say an apartment building, he would have to make the interest payments (or no, to himself) but the foolish thing is he would have an asset that very well may have its value go below the loan value, for a loss?  Why risk loss when there is so much to be made risk-free lending money at usury?  Plus, every banker knows the boom and bust cycle, so they know that at any given time, the economy will bust and they want to have cash, not houses.  That is where we are today.

When a business person calculates subjective value, it is based on his knowledge and expectations.  He trades based on that knowledge.  The trade itself represents no risk.

For whatever the entrepreneur has traded, he already has customers, whether is is a regular flow of buyers for his thermocouplers, or his medical practice.  Events such a unexpected snowstorms or being killed by a truck are always a risk in life, but they are universal risks, not specific to trade (although, no doubt, the impact is felt.)

A modern banker makes money on money. He provides no value in the distribution process, but he offers what appears to be a shortcut to prosperity.  "If I can only get the finance..."  No, son, if you can only get the customers...  bankers get us to ask the wrong question.

 If I sell something for more than it cost me to make or buy, my customer has benefitted, and I will never see what I sold again. I've earned a profit providing a useful good or service to another who voluntarily bought.  That is business, making money on a trade.

A banker creates "money" and expects to have it returned, plus more of the same, from some other supply (one aspect of money is fungibility.)  By these means the bankers aggregate power and influence policy makers to pattern the law in a manner that protects the bankers first and foremost.

One of the patterns of law the banker has used his power to effect is, if he makes a bad loan, the taxpayers will have to make up the loss.

So here is the key difference:

In trade, we expect to earn a profit selling what we expect to never see again.  Whether our participation is money or time, we in some measure participate in any profit or loss.  If money "gets the ball rolling" the money is from savings of a participant, not debt.  If someone loaned money into the deal, it was to participate in the profit or loss.

In usury, we expect to gain an increase lending what we expect to see again soon enough. Our participation is strictly money, and we will not participate in any profit or loss. "Money" is what gets the ball rolling, and necessarily it comes come debt, never savings. When the banks lend money into a deal, it is expressly stated they will not participate in the profit or loss.

The key in capitalism is capital-formation, either through savings which is benign, or debt which is malignant.  What makes capitalism evil is when bankers introduce usury, and then the evil is exponential when the bankers create "money" through fractional reserve processes, made legal.

Now, he world can function quite well without usury, just as many people learn to love quite well without credit.  You just pay for things when you can.  It is a different world, but a quite pleasant one.

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