Posts tagged with: usury

Interest-Rate-burdenUsury is the practice of making immoral monetary loans intended to unfairly enrich the lender. But what, for Christians, counts as an immoral loan?

For much of church history, any interest was considered immoral. The 12th canon of the First Council of Carthage (345) and the 36th canon of the Council of Aix (789) declared it to be reprehensible even for anyone to make money by lending at interest. But that view eventually changed, and today even the Vatican participates in modern banking.

Some Catholics have used this example to argue for other changes, such as contraception. As Jay Richards notes,
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davebratIn a piece today for the NYT Magazine, economics reporter Binyamin Appelbaum examines David Brat’s fusion of faith and free-market economics. Appelbaum finds that mixture problematic, to say the least, but it’s hard to sort out whether it is the religious faith or the free-market sympathies that Appelbaum finds more troubling.

In the opening paragraph, Appelbaum asserts that before Brat’s rise to prominence “there was plenty of skepticism about whether he merited the label of academic economist.” Who these skeptics are, who knew so much about Brat “even before” his “out-of-nowhere” victory, we are simply left to ponder. It seems some of his colleagues at Randolph-Macon College now harbor such skepticism. (Brat is running against a Randolph-Macon sociologist, Jack Trammell. Brat once wrote that “Capitalism is the major organizing force in modern life, whether we like it or not. It is here to stay. If the sociologists ever grasp this basic fact, their enterprise will be much more fruitful.”)

Brat’s academic record is a wortwhile question to take up, and one that there has been a great deal of interest in following his primary victory. I, like many others, wanted to find out more, and went in search of Brat’s publications (with the help of one of our interns). I’ve had a chance to look at a few, and even turned up the paper on Ayn Rand that had gained such notice. The Rand paper turned out to be a co-authored piece with a student, and something which barely qualified as a poorly-edited introduction to a conference presentation. It is certainly not a smoking gun for tracking down Randian sympathies.

The problem with Appelbaum’s piece isn’t that he is asking questions about Brat’s academic record. These questions should be asked. The problem is the tone of Appelbaum’s inquisition and his presumption against the coherence of Brat’s position. The sarcasm oozes from Appelbaum’s prose: Brat “is certainly not in danger of winning a Nobel Prize.” Likewise Brat has written “discursive papers devoid of math,” “cited Wikipedia as a source,” and “never been published in a significant journal.”
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On Exchange and Usury, Cajetan, ThomasChristian’s Library Press has released a new translation of two treatises on exchange and usury by Thomas Cajetan (1469-1534), a Dominican theologian, philosopher, and cardinal.

Although best known for his commentaries on the Summa of Thomas Aquinas, Cajetan also wrote dozens of other works, including short treatises on socioeconomic problems.

Published under the name On Exchange and Usury, these treatises reflect on the banking industry of the early modern era in the context of the Church’s usury doctrine, examining which transactions were licit, and which involved usury, among other things. The book is part of CLP’s growing series, Sources in Early Modern Economics, Ethics, and Law.

In the introduction, Raymond de Roover summarizes some of the historical context, as well as Cajetan’s contribution therein:

Because of the Church’s usury doctrine, bankers were not supposed to charge interest and, consequently, had to look for some other way of lending money at a profit, with the result that banking became tied to exchange: local banking to manual exchange (cambium minutum), and foreign banking to real exchange or exchange by bills (cambium per litteras). Since the discounting of commercial paper was ruled out by the usury prohibition, bankers bought bills of exchange at a price that was determined by the foreign exchange rates… (more…)

Wolfgang Musculus, usury, oathsChristian’s Library Press has released a new translation of Wolfgang Musculus’ commentary on Psalm 15, which includes two related appendices on the topics of oaths and usury. Released at the end of 2013, On Righteousness, Oaths, and Usury comes on the 450th anniversary of Musculus’ passing. The book is part of CLP’s growing series, Sources in Early Modern Economics, Ethics, and Law.

Musculus (1497–1563) was a second-generation reformer in the cities of Strasbourg, Augsburg, and Bern, and produced a variety of works, including an influential collection of theological topics, the Loci communes, or Common Places.

The contents of this new translation come from his commentary on the Psalms, his largest exegetical work and one of his most popular. Portions of the commentary were originally published in German, Dutch, French, and English throughout the sixteenth century. Although Musculus has been somewhat overlooked among the likes of Luther and Calvin, particularly this side of the Atlantic, his works had a significant impact on the Reformation and post-Reformation eras.

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Roger Scruton has written an excellent piece on the moral basis of free markets; it’s up at MercatorNet. He begins with the Islamic proscriptions of interest charged, insurance, and other trade in unreal things:

Of course, an economy without interest, insurance, limited liability or the trade in debts would be a very different thing from the world economy today. It would be slow-moving, restricted, and comparatively impoverished. But that’s not the point: the economy proposed by the Prophet was not justified on economic grounds, but on moral grounds, as an economy of righteous conduct.

Our long-term economic malaise may mystify world leaders, but Scruton sees its causes clearly: ways intended to speed economic development have become ways to acquire luxuries without payment; we have confused trade in debts with others’ assumption of our debts. This moral confusion is as much to be found in governments as it is in private markets, because the incentives are exactly the same — anyone who denies it is lying.

If you borrow money you are obliged to repay it. And you should repay it by earning the sum required, and not by borrowing again, and then again, and then again. For some reason, when it comes to the state and its clients, those elementary moral truths are forgotten.

Scruton concludes that morality is inescapable — though we may delay it, judgment will come.

The moral sense emerged in human beings precisely because it has proved to be, in the long run, for their advantage. It is the thing that puts a brake on reckless behaviour, which returns the cost of mistakes to the one who makes them, and which expels cheating from the fold. It hurts to be punished, and states that act wrongly naturally try to avoid the punishment. And since they can pass on their hurt so easily to the rest of us, we turn a blind eye to their behaviour. But I cannot help thinking that the result is at best only a short term economic advantage, and that the long term costs will be all the greater. For what we are seeing, in both Europe andAmerica, is a demoralisation of the economic life. Debts are no longer regarded as obligations to be met, but as assets to be traded. And the cost of them is being passed to future generations, in other words to our children, to whom we owe protection and who will rightly despise us for stealing what is theirs.

Read the full text here.

Blog author: jballor
Tuesday, August 28, 2007
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When the sign for one of those payday lending stores went up on the corner a block away from my house, I have to say I was less than enthusiastic.

The standard response in a market economy to “market failure” is for a nonprofit to fill the gap in services or meet the need. Today’s NYT reports on efforts in the short-term loan industry to meet that need. As it stands in the market system, “Payday loan stores, which barely existed 15 years ago, now outnumber most fast-food franchises. Typically a customer borrows a few hundred dollars in exchange for a check, postdated to the next payday, made out in the amount of the principal plus a fee of $15 to $22 per $100 borrowed.” 22 dollars every two weeks works out to about 572 percent annual interest.

The troubling part of this is that those who are most likely to need these kinds of loans are the poor, people who are hit the hardest by higher rates of interest. It’s also clear that they are making some very poor fiscal decisions.

Nonprofit groups are in the early stages of setting up programs to help ameliorate the situation. GoodMoney, a joint venture of Goodwill Industries and Prospera Credit Union, charges about half of what for profit lenders charge. That still works out to over 200 percent interest annually, but “Of the $9.90 that GoodMoney charges per $100 borrowed, nearly half goes to writing off bad loans, Mr. Eiden said, and the rest to database service and administrative costs.” In the case of Ms. Truckey, profiled in the NYT piece, because of GoodMoney, “A few dollars from each payment go into a savings account, the first she has had in years.”

Programs like GoodMoney are still in their infancy and it’s clear that charging some level of interest might be a necessary part of encouraging responsibility and promoting independence on the part of the borrower. And market levels of interest approaching 600 percent per annum seem a bit like throwing someone in debtors prison if they can’t pay back a loan: there’s simply no way out of the mounting debt.

Now whether or not the amount that GoodMoney is charging isn’t precisely clear (there are no entries for GoodMoney at either GuideStar or Charity Navigator, and GoodMoney’s website doesn’t seem to disclose a breakdown of the programs expenses), but the enterprise itself is an interesting exercise in meeting the needs coming out of a pretty clear instance of market failure.