Posts tagged with: usury

Banca_Monte_dei_Paschi_di_Siena_in_Pisa“Money has not only the character of money,” says Samuel Gregg in this week’s Acton Commentary, “but it also has a productive character which we commonly call capital.”

Like all medieval clergy, Olivi and Bernardine fiercely opposed usury. “Usury,” Bernardine wrote, “concentrates the money of the community in the hands of a few, just as if all the blood in a man’s body ran to his heart and left his other organs depleted.” Yet the same Bernardine also invested time in explaining why it was legitimate for creditors to charge interest on loans to compensate themselves for relinquishing the opportunity to invest their money elsewhere. In such circumstances, the lender had a right to be compensated for what amounted to foregone profits. “What,” Bernardine maintained, “in the firm purpose of its owner is ordained to some probable profit has not only the character of mere money or a mere thing, but also beyond this, a certain seminal character of something profitable, which we commonly call capital.”

The full text of the essay can be found here. Subscribe to the free, weekly Acton News & Commentary and other publications here.

LessiusCover-01In his famous work, History of Economic Analysis, economist Joseph A. Schumpeter gives a favorable nod to the works of Leonardus Lessius (1554–1623), sparking a fair amount of interest in the 16th-century Jesuit moral theologian.

CLP Academic has now published On Sale, Securities, and Insurance, a selection from Lessius’ most influential contribution to early modern economics, ethics, and law. The book offers the first full English translation of key sections of the second book (On Justice) of Lessius’ treatise On Justice and Right (De iustitia et iure), specifically chapters 21 (On Sale-purchase) and 28 (On Suretyship, Insurance, Pledge, and Mortgage).

Based at the Jesuit College in Louvain, Lessius earned the reputation as “Oracle of the Netherlands” for the advice and analysis he offered to local merchants, jurists, and political rulers regarding matters of conscience, duty, and justice.

As translator Wim Decock writes in the introduction: “Though dwelling on the virtues of prudence, fortitude, and temperance too, the better part of the treatise includes a systematic treatment of the virtue of justice and, particularly, of property, torts, and contract law.” (more…)

19893712-mmmainAbout twenty years ago I made some terrible choices and found myself in a serious financial bind. The amount I needed wasn’t much — about $200 — but without it I wouldn’t have been able to pay my rent. I took out a payday loan that cost me $30 every two weeks. It took about eight weeks to get clear of the loan, resulting in a cost of $120 to borrow $200 for two months.

Was I fooling myself thinking the loan could be paid in two week? Not at all. In fact, I knew quite well that there was likely no way possible for me to pay it off in that timeframe. I knew precisely how much money I was going to be able to earn and how much my expenses would be during that two-week period. I had, roughly speaking, about $40 a week that I could apply toward the loan.

But $40 was not sufficient to cover the balloon payment of $200 that was due at the end of two weeks. So I had to roll over the loan, applying $15 a week to the new fees and saving $25 a week to be paid toward the principal. That is why it took me eight weeks to pay off the original loan: $25 a week for principal + $15 a week for fees = $40 x 8 weeks = $320 ($200 for principal + $120 for fees.

If you’re middle class and think of it in terms of interest rate, that repayment cost sounds appalling usurious. And it is. But as the poor will tell you, man does not live on APR alone. Having to pay an extra $120 was cheaper than having to find a new place to live. Yes, it was a bad deal. But it was better than all my other choices. I didn’t agree to the loan because I was bad at a math; I did it because I was desperate. And the payday lending company was more than willing to take advantage of my desperation.

How then do we solve the problem of rollover fee that take advantage of the poor when they are in dire straits? As I’ve argued before, I believe a helpful first step is to get churches and other faith-based organizations involved in providing alternatives to commercial lending agencies. The Worship Center Christian Church in Birmingham, Alabama seems to be providing a wonderful example of how Christians can help.

This past Sunday the church announced it will pay off the payday loans of 48 people — a combined total of more than $41,000 on high interest rates of 36 percent or higher.

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and112812blogNear the top of the list of things I despise is companies that take advantage of the plight of the poor and desperate. But just above that on my list is something I hate even more: being poor and desperate. That’s why I loathe payday lending companies that charge usurious interest rates—and why I’m not yet ready to see them abolished.

Here’s how payday lending works. If you have a job (and pay stub to prove it), a payday lending company will allow you to write and cash a post-dated check. For this service the company will charge an absurd interest rate. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400 percent. So if you need $100, you write the check for $115 and they’ll give you $100 in cash. Two weeks later they cash your check or you can renew or “rollover” the amount—for an exorbitant fee.

Why would anyone agree to such terms? Because they have no other choice. About twenty years ago I made some terrible choices and found myself in a serious financial bind. The amount I needed wasn’t much—about $200—but without it I wouldn’t have been able to pay my rent. I took out a payday loan that cost me $30 every two weeks. It took about eight weeks to get clear of the loan, resulting in a cost of $120 to borrow $200 for two months.

If you’re middle class and think of it in terms of interest rate, that repayment cost sounds appalling usurious. And it is. But as the poor will tell you, man does not live on APR alone. Having to pay an extra $120 was cheaper than having to find a new place to live. Yes, it was a bad deal. But it was better than all my other choices.

That is why I believe every serious critique of payday lending needs to be accompanied by a serious proposal to help those who are trapped by such “poverty problems.” An excellent example of an alternative approach is the one offered by Wesley Memorial United Methodist Church in Richmond, Virginia. One of their church members, Nina McCarthy, was initially trapped in the vicious payday lending circle:
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Fail-Debtors-Prison-Poor-TaxWhile payday loans can help some people out of a financial jam, they tend to prey on the poor and create a usury situation. Now that same predatory financial monster is moving into a new territory: bonds, courts fees and fines.

Take the case of Kevin Thompson, a 19-year-old who was fined for speeding and failure to renew his license. Although he had a job, he could not afford to pay the $810 fine the court handed down. What happens next sounds Kafka-esque: (more…)

MolinaCover - CopyCLP Academic has now released A Treatise on Money, a newly translated selection from Luis de Molina’s larger work, On Justice and Right (De iustitia et iure). The release is part of the growing series from Acton: Sources in Early Modern Economics, Ethics, and Law.

Molina (1535–1600) was one of the most eminent theologians of the Jesuit order in the sixteenth century. Known widely for developing a theory of human freedom of action (and in turn, a new religious doctrine now known as Molinism), Molina was also the first Jesuit to make major contributions to economic thought through a major treatise (On Justice and Right).

In the book’s introduction, Rudolf Schuessler offers more on the historical context and Molina’s contribution therein. As Schuessler explains, Molina’s views on freedom impacted his entire approach to economics and helped “set the pace for Jesuit economic thought.”

Jesuit economic thought in the seventeenth century gravitated toward individual freedom and displayed a keen appreciation of the market economy while upholding moral restrictions for market activities in a flexible and low-profile form. These features of Jesuit economic thought are of great—although not universally recognized—importance because the Jesuits were the teaching order par excellence in early modernity. Almost all early modern economic thinkers in Catholic countries were taught by the Jesuits, and Molina had the privilege to set the agenda for his order’s economic thought…

…By summarizing and discussing the state of the art of his time, Molina sets the pace for Jesuit economic thought. After the demise of the scholastic tradition and the temporary abolition of the Jesuit order in the eighteenth century, the respective doctrines traveled on back roads into the nineteenth century where they influenced the Austrian school and the marginalist revolution in economics. Molina and his contemporaries were the first to apply the laws of supply and demand systematically to money markets, and as a result conceived the quantity theory of inflation. They began to understand the role of risk, of liquidity, and of time preference in economic contexts, as well as the institutional role of property rights. For this they still deserve our attention.

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AzpilcuetaCoverCLP Academic has now released On Exchange, a new translation of a key section in Martín de Azpilcueta’s Manual de confesores y penitents, his most influential work.

Originally published in 1549, the section was included as one of four appendices to the Manual, offering commentary on Gregory IX’s prohibition of nautical usury. The release is part of the growing series, Sources in Early Modern Economics, Ethics, and Law.

Azpilcueta (1492-1586), also known as Doctor Navarrus, was a leading canonist and moral theologian of the early modern period. Although On Exchange was meant to provide moral guidance for pastors and penitents, it has drawn the attention of economic historians for its indirect analysis of 16th-century economic realities, including explorations on exchange practices, supply and demand, and the nature of money. As noted in the book’s overview, Azpilcueta’s “account of the fluctuation of the value of money marks a significant development in early modern economic thought.” (more…)