Usury is still condemned by the Catholic Church and Islam as a grave evil. Before we can look at the question, there is a particularly knotty problem with definitions. First there are the exact definitions of the terms in religious discourse, and then the loose and different definitions in common modern usage. This leads to much confusion.
In religious discourse, usury is defined as charging anything on a loan. And what makes someone culpable of sin is the desire to gain from making a loan. Intent is required.
Let's look at the word interest and how it is commonly used in finance. I might say:
I have an interest in a timeshare. I have an interest in a movie theatre. I have an interest in a gold mine.
I have an interest in a loan arrangement. Anyone will understand what I mean, even though it is vague as to what the interest is. The interest is explained in the contract establishing the interest.
Then there is a specific kind of interest, a perfected security interest, which is used in innumerable ways to protect a given interest: a bank may take a floating interest in a business to block out any other banks from making any loans, one business owner may take a perfected security interest in the other owner's portion to prevent the stock from being sold to a third party, to name just two. In any event it is designed to protect a party who has an interest of some sort in a deal, and we have not even begun to talk about how interest is commonly thought of, and that is a percentage to be paid back above a loan amount.
Interest is the term we use for whatever one rightfully has as participation in a deal. So how did we get from rights in a deal to interest as a charge on a loan? The etymology of the word is:
Middle English, from Old French, from Latin, it is of importance, third person sing. present tense of interesse,to be between, take part in : inter-, inter- + esse, to be; see es- in Indo-European roots.]
The common use of the word interest, that is the amount you pay for a loan above the stated principal, is sloppy and thus leads to confusion. A bank has an interest in your home as collateral since they lent you money to buy the home. As a part of the deal, you agreed to pay 6%pa on the money you borrowed. It did not take much time for us to shift the meaning of interest from rights in a deal to the amount you pay on a loan. This amount can be an interest in the deal (I have an interest on a 100K loan that also carries 6% pa charge on the loan amount) but the 6% is not "an interest," the 6% is just a condition of the deal, and more precisely called usury.
In religious discourse, money charged on a loan is usury. All usury is forbidden, whether it is a penny on a billion dollars over a million years, or 100% on a dollar overnight. Why it is forbidden you'll have to study the theology, for my purposes I am just getting definitions straight.
I will note, the loophole is aided by the fact that in contemporary ordering of economic regulations, what you are borrowing is not money, but tallies and credit, not money. In this case, the deal itself is forbidden, since it is based on fraud.
If someone makes a loan with no percentage above the loan amount to be paid back, then the lender still has an interest in the principal to be paid back. The lender is not looking for a return ON his money, he is merely looking for a return OF his money. Nonetheless, this lender has an interest in this loan, an interest in the principle.
Now, note something interesting in the etymology, "to take part in." Islam has the exact same teaching on usury, the total prohibition. Perhaps since their prophet is a merchant, they highlight a particular aspect of usury, and that is "the lender takes no risk." He gets his principal and the usury, no matter what. This highlighted aspect is forbidden. Not only is usury forbidden, "no risk" participation in a deal is forbidden. That is to say, if Abdul lends Ibrahim $100,000 on a business deal, and the deal goes bad, Ibrahim is out the $100,000. We call these "no recourse" loans.
The idea is wealth is something to use beneficiently, not to abuse and entrap others. It also mean loans are a means for the more successful to help the less successful and teach them how to do better. Moslems have an interest in a deal, and that is in the sense of "to take part in."
You were all counseled in your youth to save money and the magic of compound interest. A young man putting aside a few hundred a month in his youth will come out at retirement far ahead of the 50 year old putting aside tens of thousands a month. The other side of that equation is the person paying out the interest. It can be a heavy burden indeed.
And that is the reason religion forbids usury, it is that usury is how the bad guys aggregate power in order to capture the commanding heights of society and take away the freedom to exercise your own will. Think what the student loan does to the young.
In religious discourse, usury is defined as charging anything on a loan. And what makes someone culpable of sin is the desire to gain from making a loan. Intent is required.
To demand or receive or even to lend expecting to receive something above the capital is to be guilty of usury; usury may exist on money or something else; one who receives usury is guilty of rapine and is just as culpable as a thief; the prohibition against usury holds for laymen as well as clerics but, when guilty, the latter will be more severely punished.
Usury, outside of religious discourse, is commonly defined as "charging an exorbitant interest rate." Interest rate is commonly defined as whatever percentage you must pay on a loan over whatever time. Intent is explicit.
I have an interest in a timeshare. I have an interest in a movie theatre. I have an interest in a gold mine.
I have an interest in a loan arrangement. Anyone will understand what I mean, even though it is vague as to what the interest is. The interest is explained in the contract establishing the interest.
Then there is a specific kind of interest, a perfected security interest, which is used in innumerable ways to protect a given interest: a bank may take a floating interest in a business to block out any other banks from making any loans, one business owner may take a perfected security interest in the other owner's portion to prevent the stock from being sold to a third party, to name just two. In any event it is designed to protect a party who has an interest of some sort in a deal, and we have not even begun to talk about how interest is commonly thought of, and that is a percentage to be paid back above a loan amount.
Interest is the term we use for whatever one rightfully has as participation in a deal. So how did we get from rights in a deal to interest as a charge on a loan? The etymology of the word is:
Middle English, from Old French, from Latin, it is of importance, third person sing. present tense of interesse,to be between, take part in : inter-, inter- + esse, to be; see es- in Indo-European roots.]
The common use of the word interest, that is the amount you pay for a loan above the stated principal, is sloppy and thus leads to confusion. A bank has an interest in your home as collateral since they lent you money to buy the home. As a part of the deal, you agreed to pay 6%pa on the money you borrowed. It did not take much time for us to shift the meaning of interest from rights in a deal to the amount you pay on a loan. This amount can be an interest in the deal (I have an interest on a 100K loan that also carries 6% pa charge on the loan amount) but the 6% is not "an interest," the 6% is just a condition of the deal, and more precisely called usury.
In religious discourse, money charged on a loan is usury. All usury is forbidden, whether it is a penny on a billion dollars over a million years, or 100% on a dollar overnight. Why it is forbidden you'll have to study the theology, for my purposes I am just getting definitions straight.
As we see above, interest is a very good term to identify the general phenomena of participation in a deal. One such participation, that theoretically may be allowed, would be if making a loan were to cost you money. Say someone desperately needed a hamburger Thursday, for which they would gladly pay you Tuesday. You have a pending deal where you can sell some spinach tuesday for $10, but if you sold it today, you could only get $5. If lending the money actually caused you a loss, then you may make a deal in which you sell your spinach today for $5, but the fellow who borrowed the money must pay you $10 on Tuesday. Since you took a loss being charitable, since you have no intent of making money on your money, your interest in this deal in which you lend five and get ten back is legitimate, kosher, halal. This particular interest is not usury. You are helping someone out and not coming out ahead.
I will note, the loophole is aided by the fact that in contemporary ordering of economic regulations, what you are borrowing is not money, but tallies and credit, not money. In this case, the deal itself is forbidden, since it is based on fraud.
If someone makes a loan with no percentage above the loan amount to be paid back, then the lender still has an interest in the principal to be paid back. The lender is not looking for a return ON his money, he is merely looking for a return OF his money. Nonetheless, this lender has an interest in this loan, an interest in the principle.
Now, note something interesting in the etymology, "to take part in." Islam has the exact same teaching on usury, the total prohibition. Perhaps since their prophet is a merchant, they highlight a particular aspect of usury, and that is "the lender takes no risk." He gets his principal and the usury, no matter what. This highlighted aspect is forbidden. Not only is usury forbidden, "no risk" participation in a deal is forbidden. That is to say, if Abdul lends Ibrahim $100,000 on a business deal, and the deal goes bad, Ibrahim is out the $100,000. We call these "no recourse" loans.
The idea is wealth is something to use beneficiently, not to abuse and entrap others. It also mean loans are a means for the more successful to help the less successful and teach them how to do better. Moslems have an interest in a deal, and that is in the sense of "to take part in."
You were all counseled in your youth to save money and the magic of compound interest. A young man putting aside a few hundred a month in his youth will come out at retirement far ahead of the 50 year old putting aside tens of thousands a month. The other side of that equation is the person paying out the interest. It can be a heavy burden indeed.
And that is the reason religion forbids usury, it is that usury is how the bad guys aggregate power in order to capture the commanding heights of society and take away the freedom to exercise your own will. Think what the student loan does to the young.
Just as we have no right to enslave ourselves (the power yes, the right no) we have no right to charge or pay usury, even if it is cloaked in the term "interest."
At the small business level, there are so many legitimate ways to be financed, that paying interest is simply not necessary. The ideal is to be self-financed. But there is vendor financing and factoring (assuming the factor can lose) to name two.
Certainly eschewing usury makes it more difficult to get financing, but not too difficult. Certainly usury can facilitate gaining more money from business, but more is not necessary. Participating in usury certainly is necessary to arrange matters so that war and poverty and misallocation and malinvestment may occur. The point of business is lifestyle, not stacking up medium of exchange.
Usury militates against wealth in the sense of general prosperity (the extent to which all have access to all goods and services) and it facilitates the economic divides and the exceptional aggregation of money that militates against peace and prosperity.
Under no circumstances should usury be outlawed. Just as the rest of us ought not be forced to pay taxes to have usury agreements enforced, we ought not be taxed to enforce a prohibition. The proper response to usury is for the rest of us to look upon it as we do say gambling debts.
If someone owes a gambling debt, we are unlikely to get excited about the "victim," the winner at cards who is not paid back. And so with loans and interest. if there is a dispute between two people oer a loan and interest, or either part, the rest of us ought merely note the participants in the dispute, assess culpability, and adjudge whether we would ever deal with either party. That is necessary and sufficient to the task of keeping the market orderly and efficient. That is all the 'government" we need. We need no state involvement.
At the small business level, there are so many legitimate ways to be financed, that paying interest is simply not necessary. The ideal is to be self-financed. But there is vendor financing and factoring (assuming the factor can lose) to name two.
Certainly eschewing usury makes it more difficult to get financing, but not too difficult. Certainly usury can facilitate gaining more money from business, but more is not necessary. Participating in usury certainly is necessary to arrange matters so that war and poverty and misallocation and malinvestment may occur. The point of business is lifestyle, not stacking up medium of exchange.
Usury militates against wealth in the sense of general prosperity (the extent to which all have access to all goods and services) and it facilitates the economic divides and the exceptional aggregation of money that militates against peace and prosperity.
Under no circumstances should usury be outlawed. Just as the rest of us ought not be forced to pay taxes to have usury agreements enforced, we ought not be taxed to enforce a prohibition. The proper response to usury is for the rest of us to look upon it as we do say gambling debts.
If someone owes a gambling debt, we are unlikely to get excited about the "victim," the winner at cards who is not paid back. And so with loans and interest. if there is a dispute between two people oer a loan and interest, or either part, the rest of us ought merely note the participants in the dispute, assess culpability, and adjudge whether we would ever deal with either party. That is necessary and sufficient to the task of keeping the market orderly and efficient. That is all the 'government" we need. We need no state involvement.
7 comments:
John Wiley Spiers: Usury, outside of religious discourse, is commonly defined as "charging an exorbitant interest rate." Under no circumstances should usury be outlawed. Just as the rest of us ought not be forced to pay taxes to have usury agreements enforced, we ought not be taxed to enforce a prohibition. The proper response to usury is for the rest of us to look upon it as we do say gambling debts. If someone owes a gambling debt, we are unlikely to get excited about the "victim," the winner at cards who is not paid back. And so with loans and interest.
Jct: No, stiffing the lender for the usury is fine but paying the lender his principal is honorable. Isaiah 55: You who are hungry and have no money, come, buy and eat." How do you buy without money? Credit's okay! And should be paid back. Only the illegitimate growth of debt beyond the amount of money which creates the mort-gage death-gamble needs to be repudiated. In the Parable of the Talents and Minas, both servants returned the Principal and repudiated the usury, taking the consequences of being thrown out into the alley where men weep and gnash their teeth (in the Kingdom of Heaven?) or being slain in front of the master for failure to pay the interest, being worked to death as a slave as the usual result of foreclosure on house and family.
So yes to repudiation of the unpayable portion of the debt for which there is no money but also no to the repudiation of debt for what we got from Isaiah and his buddies while we had no money.
You are right to challenge my statement "And so with loans and interest. " That is sloppy exposition on my part. You are right that loans are to be paid back. The context of loans AND interest is where I started, and that is intent. Loans can be not usurious but still predatory. If the intent, or structure of the loan, traps the borrower, then society ought to judge the participants as to whether they will associate with the participants.
The flip side of the predatory loan is the bad-faith confiscation via loan. Someone has misrepresented ability to repay or fails to perform in good faith after the fact is wicked indeed. Here again, it is for society to judge and shun in the measure guilt is discerned.
Thanks for challenging my exposition.
If the intent, or structure of the loan, traps the borrower, then society ought to judge the participants as to whether they will associate with the participants.
Jct: No interest-free loan traps a borrower who has his whole life to pay it off. Note also Mohammed who promised lenders their capital sums if they give up on the interest. Jesus said: Lend expecting nothing in return" meaning don't expect the poor people you lend to to ever be able to pay you back and be pleased when they can. But Mohammed promised to chase the borrowers and help for the principal. Sounds pretty great to me.
"No interest-free loan traps a borrower who has his whole life to pay it off."
Simply not true... if it takes a whole life to pay off, then the borrower is trapped. That a loan is structured in a way that a bad debt might take a lifetime to pay off is inherently unjust. WE cannot sell ourselves into slavery (well, we have the power to do so, but not the right). The bible makes provision to keep this from happening, with loans clearing regardless in 7 years and land redistribution every 50.
We can make lifelong commitments to higher order activities, say marriage, but not lower order, say commerce.
I hope I do not sound like I am advocating non-repayment of loans. I merely advocate that commercial disputes be adjudged by the community and not by the state, and that usury be recognized for the evil that it is. Loans are a good thing, but they too can be abused and a tool of an abuser. Loans are for cooperation not conquest.
JWS: if it takes a whole life to pay off, then the borrower is trapped. That a loan is structured in a way that a bad debt might take a lifetime to pay off is inherently unjust.
Jct: So what do you suggest? Not lend the needy the money because they may not be able to pay it back? If you borrow small, it takes less time to pay. If you borrow big, it takes more. Where's the injustice if there's no usury and no chasing you?
Finally, http://johnturmel.com/abprogs.htm has my large database self-insurance program. When people in the negative die, the whole database chips in. When positives die, we get some. So large positives and large negatives don't get in the way of our own personal accounts.
JWS: I hope I do not sound like I am advocating non-repayment of loans.
Jct: No, it seems you are advocating no interest-free loans to the weak who may not be able to pay it back.
JWS: I merely advocate that commercial disputes be adjudged by the community and not by the state, and that usury be recognized for the evil that it is.
Jct: No argument on the usury being bad, the argument is on the attempt to repay the principal being bad.
"Loans are a good thing, but they too can be abused and a tool of an abuser. Loans are for cooperation not conquest."
Jct: Again, I just don't see how an interest-free loan from an impartial bank with no payment schedule with everyone ready to chip in if you die negative can be abused. Just think of how you'd run your credit if you were one big family.
Jct: No argument on the usury being bad, the argument is on the attempt to repay the principal being bad.
But I have not argued this, so it is a straw man argument. I am not sure, how I'd run credit if we were all one big family, but I know I have eschewed lifetime debts, and declined the opportunity to have one.
I hope your insurance program proves successful.
Jct: No argument on the usury being bad, the argument is on the attempt to repay the principal being bad.
JWS: But I have not argued this, so it is a straw man argument.
Jct: I thought you were arguing:
"If someone owes a gambling debt, we are unlikely to get excited about the "victim," the winner at cards who is not paid back. And so with loans and interest." That the debtor stiffing the creditor is as justified as the losing gambler stiffing the winning gambler.
JWS: "I am not sure, how I'd run credit if we were all one big family,
Jct: Do you think that those kids who reap abundance are given more while those who reap no abundance, even what they have will be taken away?" (Jesus' definition of usury)
JWS: but I know I have eschewed lifetime debts, and declined the opportunity to have one.
Jct: Lucky you. Most debt is by losers for food and family sustenance, not vacations to Florida. So you've been competent enough to be a winner in the mort-gage death-gamble (by less participation in borrowing yourself into enslavement forever) while the majority of our weaker brethren have not. And the only reasons payments on debt don't make a dent is because of the....
JWS: I hope your insurance program proves successful.
Jct: Doing the division of the end-of-lfie loss or win over the whole database is trivial. Getting people onto the database to use it needs the success.
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