Re: interest v. "usury"

From: The Trucker (mikcob_at_verizon.net)
Date: 09/05/04 

Date: Sun, 05 Sep 2004 15:28:51 -0700

royls@telus.net wrote:

> On Sat, 04 Sep 2004 12:05:24 -0700, The Trucker <mikcob@verizon.net>
> wrote:
>
>>royls@telus.net wrote:
>>
>>> On Fri, 3 Sep 2004 12:54:54 -0500, "Jim Blair" <jeb@wisc.edu> wrote:
>>>
>>>>"Mark Monson" <m_monson@ztech.com> wrote in message
>>>>news:D0xZc.78422$0o5.2933@bignews1.bellsouth.net...
>>>>>
>>>>> From Economics for Helen, by Hilaire Belloc:
>>>>>
>>>>> Usury is the taking of any interest whatever upon an UNPRODUCTIVE
>>>>> loan.
>>>>>
>>>>> A man comes to you and says: "Lend me this piece of capital which you
>>>>possess" (for
>>>>> instance, a ship, and stores of food with which to feed the sailors
>>>>> during
>>>>the
>>>>> voyage of the ship). "Using this piece of capital to transport the
>>>>> surplus
>>>>goods
>>>>> from this country over the sea and to bring back foreign goods which
>>>>> we
>>>>need here I
>>>>> shall make a profit so large that I can exchange it for at least one
>>>>hundred tons of
>>>>> wheat. The voyage there and back will take a year."
>>>>>
>>>>> You naturally answer: "It is all very well for you to make a profit of
>>>>> one
>>>>hundred
>>>>> tons of wheat in one year by the use of my ship and of my stores of
>>>>> food
>>>>for sailors
>>>>> who work the ship, but what about me ? I grant you ought to have part
>>>>> of
>>>>this profit
>>>>> for yourself, as you are taking all the trouble. But I ought to have
>>>>> some,
>>>>because
>>>>> the ship and stores of food are mine; and unless I lent them to you
>>>>> (since
>>>>you have
>>>>> none of your own) you would not be able to make that profit by trading
>>>>> of
>>>>which you
>>>>> speak. Let us go half shares. You shall have fifty tons of wheat and I
>>>>will take
>>>>> fifty, out of the total profit of one hundred tons.
>>>>>
>>>>> The man who proposed to borrow our ship agrees. The bargain is struck,
>>>>> and
>>>>when the
>>>>> year is over you make a fifty tons profit of wheat on your capital.
>>>>>
>>>>> That is the earning of interest on a productive loan.
>>>
>>> No, that is the earning of profit in a partnership.
>>
>>If the ship and provisions are "capital" as defined by Adam Smith and
>>Henry George, then the return to these is interest.
>
> The provisions are consumer goods, same as any worker's food.

I agreed with that until 2 days ago when this proposition was presented
and now I don't. A similar proposition was put forth on a different
board in which the person claimed that a bunch of hats in someone's
closet was a hoard of hats or a consumer good or savings. The person
then claimed that if I put the hats in a store window and offered them
for sale then they would be capital. This is BTW supported by Smith
and George. I disagreed with this proposition regardless of what Smith
and Henry George might have said about it and I still
do. But let us assume the hats were a special kind of hat used by the
workers of an enterprise in delivering a service or in creating goods.
Then I can tolerate referring to these hats as capital in that they are
actually being employed to further the advance of wealth. I see the
provisions for a long sea voyage the same way. If the ship sinks the
provisions are gone and that is the end of it. The hats in the window
and provisions in a store room have alternative markets. If the hat
business fails because the location was bad then the hats can be sold
at wholesale to a different retailer and some of the savings recouped.
When savings are invested in _real_ capital the alternatives become
quite limited and it is this quality that imparts risk and thus makes
an investment deserving of interest. If nothing else we are now selling
used hats. In regard to the provisions being a consumer good as opposed
to a savings we also see that the provisions are SUPPOSED to yield a
positive return. Consumer goods do not normally return anything at all
over and above the immediate satisfaction of the consumer.

And to quote Bart Simpson "Those are _my_ opinions and you can't have
em!"

>>Not to be confused
>>with rent paid to the use of fiat money.
>
> The money system is a separate issue.

I will not debate this one here and now, but I will do so later.

>>>>> There is nothing morally wrong about that transaction at all. It does
>>>>> no
>>>>one any
>>>>> harm. It does not weaken the State or society, or even hurt any
>>>>individual. There is
>>>>> a sheer gain due to wise exchange (which is equivalent to production);
>>>>everybody is
>>>>> benefited - you that own the capital, the man who uses it, and all
>>>>society, which
>>>>> benefits by the foreign exchange. Supposing your ship and stores of
>>>>> food
>>>>were worth
>>>>> a hundred tons of wheat, then your profit of fifty tons of wheat is a
>>>>profit of
>>>>> fifty per cent, which is very high indeed. But you have a perfect
>>>>> right to
>>>>it: your
>>>>> capital has produced a real increase of wealth to that extent. If your
>>>>capital be
>>>>> worth ten times as much, then your profit is only five per cent
>>>>> instead of
>>>>fifty.
>>>>> But your moral right to the fifty per cent is just as great as your
>>>>> moral
>>>>right to
>>>>> the five per cent. No one can blame you, and you are doing no harm.
>>>>>
>>>>> Now supposing that, instead of coming to ask you for the loan of your
>>>>ship, the man
>>>>> came and asked you for the loan of a sum of money which you happened
>>>>> to
>>>>have by you
>>>>> and which would be sufficient to buy and stock the ship. It is clear
>>>>> that
>>>>the
>>>>> transaction remains exactly the same. The loan is productive. He makes
>>>>> a
>>>>true
>>>>> profit, that is, there is a real increase of wealth for the community,
>>>>> and
>>>>you and
>>>>> he have a right to take your shares out of it you because you are the
>>>>owner of the
>>>>> capital, and he because he took the trouble of organising and
>>>>> overlooking
>>>>the
>>>>> expedition.
>>
>>This is fine as far as it goes. But let us understand that the money was
>>NOT capital and never will have been capital. When the money has been
>>SPENT and we now have ownership of the actual stuff we can then talk
>>about being owner(s) of capital. And if the enterprise fails then we
>>lose and there is no owing of some amount of money to the person that
>>had the money in the beginning. His money has been placed at 100%
>>risk just as his ship and his stores had been placed at 100% risk
>>and it is this actual INVESTMENT and the risk of loss that entitles
>>the owner of _real_ capital to the earning of INTEREST.
>
> So real interest only compensates risk and depreciation? This does
> not account for time preference.

Time preference is apparently a hoax created to legitimize rent paid
to the aristocratic holders/controllers of money.

>>>>> These are examples of profit on a productive loan.
>>>
>>> Right. Profit, not interest.
>>
>>Profit is often used to hide rent. Better to call the return by the
>>correct classical name _interest_.
>
> IMO the classical account of the payment of interest to capital is not
> clear. Interest is commonly expressed as an annual rate, and the
> return to capital is just a sum, which may not even be positive.

Interest is the return to capital. It does not matter how it is
spread out. "capital gains" could be a very good example of
interest in the classical sense, so too dividends. "interest" as folded
spindled and mutilated by neoclassical crapola is actually rent paid to
the monopolizer of money/credit.

>>>>> Now suppose a man to come to you if you were a baker and say: "Lend me
>>>>half a dozen
>>>>> loaves. My family have no bread and I cannot see my way to earning
>>>>anything for a
>>>>> day or two. But when I begin to earn I will get another half dozen
>>>>> loaves
>>>>and see
>>>>> that you are not out of pocket. " Then if you were to reply: 'I will
>>>>> not
>>>>let you
>>>>> have half a dozen loaves on those terms. I will let you owe me the
>>>>> bread
>>>>for a month
>>>>> if you like, but at the end of the month you must give me back seven
>>>>loaves": that
>>>>> would be usury.
>>
>>The point being missed here is that the enforcement of this contract by
>>the sovereign (the dudes with the swords) will insist that the lender
>>be paid regardless of the condition of the borrower. The punishment
>>could be confiscation of assets, or whatever it might take to make the
>>lender whole. This is NOT interest because the lender is not at risk.
>>The lender is protected from loss.
>
> Yes, there is a problem of risk transfer here, and I believe that this
> may be the source of the "usury" issue.

I certainly believe this to be the _root_ of the issue.

>>> ?? Those who can pay cash have all the bread they want. Others who
>>> can't pay cash also want the bread. How to allocate it, if no
>>> interest may be charged?
>>
>>http://GreaterVoice.org/econ/credit.php
>>
>>If the people can show the ability to hold a job then credit should be
>>extended at NO INTEREST (really at no rent).
>
> Fine. I'll take an infinite amount of credit at no interest, please.

(snicker) Don't forget about the "finance charge" and the downpayment.
(but I see I have neglected the down payment part in the little story)
The point in all of this messing about is that when risk is eliminated
(the cars can be repossessed and remarketed) there is no justification
for interest in the classical sense. But there _IS_ a charge for the
service. And repossession of cars from those that have abused the system
is part of the cost of this service. Just as the word "profit" hides
rent and co-mingles it with interest the word "intertest" when used
by the current banking establishment co-mingles rent flowing into the
coffers of the private banking system and the legitimate need for
payment of services rendered. This payment for services is more
properly called a "finance charge". Bankers got to make a living, but
methinks they are living a lot higher off the hog than the rest of us
and for no apparent reason.

>>This is done by a rational
>>government subdepartment called the banking system.
>
> ?? "Rational"? Not.

I _AM_NOT_ referring to the current banking system, Roy. Hummel seems
to have this problem even worse than you. Y'all seem to mistake my
position as somehow mixed up with the piece of banking crap we have.

>>>>> The man is not using the loan productively: he is consuming the loaves
>>>>immediately.
>>>>> No more wealth is created by the act. The world is not the richer, nor
>>>>> are
>>>>you the
>>>>> richer, nor is society in general the richer. No more wealth at all
>>>>> has
>>>>appeared
>>>>> through the transaction.
>>>
>>> Yes, it has: the wealth he would not have been able to produce had he
>>> starved.
>>
>>And what if he is a no good bum (or a rich man's son) that will never
>>produce any wealth at all.
>
> The latter has collateral, but why would anyone lend to the former?

Why would people give dope to a doper? Why would the rentier advance
"credit" to the sharecropper at usurious rates? As I say below, we
get to a point where we are talking about crime. Most of the time
the "crime" that is seen is the "crime" of the borrower as he tries
to repay the pusher (er, lender). The real crime is in taking
undue advantage of one's position; the real crime is the usury.

>>The determination of whether or not the
>>individual is worthy of credit needs to be as rational and reasonable
>>as can be tolerated by the society as a whole.
>
> Why not just as rational and reasonable as the extender of the credit
> chooses to be?

This is the question that needs an answer and I asked it first but in
a different way:

"Why should the individual who (for whatever reason and by whatever means)
has accumulated a very large share of the gold/money/land/jellybeans
or whatever be allowed to strangle the economy or let it flourish?"
Surely you must realize that the strangulation of the economy is in the
best interest of the money holder as labor will come begging for any
scrap of bread thus allowing even more usury. See Republicanism 101.

>>How much "finance
>>charge" is the greater community willing to pay so that less than
>>pristine credit history can be accepted by the financial intermediary?
>
> Why not leave it up to the parties to the arrangement?

I insist on a lender of last resort and that this lender be under the
control of a representative form of government that MUST have the
interest of the citizenry as its priority. This is _NOT_ to be
confused with the current state of the union.

>>>>Therefore the extra loaf that you are claiming is
>>>>claimed
>>>>> out of nothing. It has to come out of the wealth of the community - in
>>>>this
>>>>> particular case out of the wealth of the man who borrowed the loaves -
>>>>instead of
>>>>> coming out of an increment or excess or new wealth. That is why usury
>>>>> is
>>>>called
>>>>> "usury" - which means: "wearing down", "gradually dilapidating.
>>>
>>> Lots of voluntary interactions likewise result in losses to one or
>>> both parties: boxing, marrying for money, gambling, buying drugs or
>>> junk food, etc. Does that mean they should be forbidden by law?
>>
>>With a proper monetary system and a proper credit system there is no
>>need to forbid usury unless it results in crime.
>
> There is no need in any monetary and credit system.

I believe we simply disagree on this issue because of our differing
views on government. You have an abiding faith in government that
I lack. My faith in government (authority if you will) can only
be restored through a system of representation that limits the power
of the aristocratic minority. We, in the USA do not currently have
such a system but that does not measn we cannot ever have such a
system. The Constitution of the USA did a pretty good job of
defining such a system but we have allowed our government to get
out of hand as it abides by the letter and not the spirit of
how representation was/is to work.

>>>>> It is clear that if the whole world practised usury and nothing but
>>>>> usury,
>>>>if wealth
>>>>> were never lent to be used productively, but only to be consumed
>>>>unproductively, and
>>>>> yet were to demand interest on the unproductive transaction, then the
>>>>wealth that
>>>>> was lent would soon eat up all the other wealth in the community until
>>>>> you
>>>>came to a
>>>>> situation in which there was no more to take. Everyone would be ruined
>>>>except those
>>>>> who lent; then these, having no more blood to suck, would die
>>>>> themselves,
>>>>and
>>>>> society would end.
>>>
>>> Silliness. Society would likewise end if everyone were to devote
>>> themselves to nothing but making shoes. Does that mean shoemaking
>>> must be forbidden?
>>
>>Usury need not be forbidden. All that is necessary is to understand that
>>wealth that is not at risk is not capital and not entitled to interest.
>
> There appears to be no room in classical economics for the return to
> extension of credit.

In the modern world limited credit is advanced for any reason. The
payment for that credit is unfortunately called interest. But just as
in the case of land any profit from such undertaking should be
returned to the public because it is simply rent. The "profit" is
what is left after we pay for the system itself and that includes
policing it and repossessing things and doing those things necessary
to prevent abuse. What really happens here is that a profit is
never realized as the cost of credit is actually measured in the cost
of policing the credit system. The actual "profit" inures to the
community at large as the economy is not constricted by Allen
Greenjeans or anyone else.

If I borrow a bunch of money to go to Weasel Fun Park and blow it
all then the lender (the new version of the central bank) has the
right to take my other assets to satisfy the debt and that is what
should happen. This "policing" increases the price of credit for
others and so you have a system that will correct itself as the
majority who have a legitimate use for credit will move to police
the institution in such a way as to prevent abuse.

Needless to say this central bank is under control of the elected
government and in a true representative democracy they are held
accountable (not to be confused with the current US government
or the Fed).

>>If I make sufficient down payment on a car and insure it then the bank
>>is always protected against loss and there should be no INTEREST even
>>though a finance charge needs to be assessed.
>
> Please define this "finance charge."

This is the cost of salary, the office space, the cost of computer
systems and all the other costs associated with running the credit
system. The additional payment over and above the principle is
to cover these costs. This must also cover the cost of recovering
from bad loans like the cost of repossessing cars or the cost of
liquidating collateral.

>>>>> As in the case of the ship, it matters not in the least whether the
>>>>> actual
>>>>thing,
>>>>> the loaves of bread, are lent, or money is lent with which to buy
>>>>> them.
>>>>The test is
>>>>> whether the loan is productive or not.
>>>
>>> And that is up to the parties themselves to decide.
>>
>>Of course it is. But there must be a lender of last resort that will
>>extend credit on NO RETURN of anything but principle and the finance
>>charge where the finance charge is simply the cost of keeping the
>>books and repossessing the actual goods or confiscation of other
>>assets.
>
> No, there mustn't. No interest = no basis for allocation.

I don't see it that way at all. The cost is the finance charge. You
keep acting like money is something that _MUST_ to be saved up or earned.
It isn't. It is simply a way to keep track of real stuff like labor
and goods and who owes who. That does not mean that people can't
save up money and use it in the future just as they do now. It simply
means that they will be unable to strangle commerce by hoarding money
and thus extract rent from those who wish to engage in trade. The
protection of the value of saved money is very high on the priority of
the central bank in the scheme that I propose.

>>This inane stupidity that there is some limit to the amount
>>of MONEY is ridiculous.
>
> ?? Whoa. We part company on that one...

That is because of our differing definitions of money. I am of the
opinion that money is a means to account for real commerce and trade
and savings and the like. Gold is a commodity and so are sea shells.

>>Money simply keeps track of who owes who.
>
> That's debt, not money.

See what I mean:)

>>To limit economic growth by virtue of constricting money is just
>>plain stupid.
>
> To pretend that purchasing power is infinite and need not be allocated
> is even stupider.

See "finance charge". But perhaps the discussion now shifts to the
preservation of value of saved up money....

Money value is tied to land and labor and the explanation is long.

>>What matters is the actual VALUE of the money as it
>>sits in someone's savings account and that value is always measured
>>as the amount of labor one can command with this money.
>
> ?? But labor is not uniform, and cannot be measured in that way.

Hogwash.

http://GreaterVoice.org/econ/glossary/rudimentary_wages.php

You may also be able to use "minimum wage" (the wage at the margin).

>>>>The intention of Usury is present
>>>>when the
>>>>> money is lent at interest on what the lender KNOWS will be an
>>>>> unproductive
>>>>purpose,
>>>>> and the actual practice of usury is present when the loan, having as a
>>>>fact been
>>>>> used unproductively, interest is none the less demanded.
>>>
>>> Interest was agreed. Why shouldn't it be paid?
>>
>>That IMHO would be called RENT.
>
> But that is not what economists mean by "rent."

Then screw em.

http://GreaterVoice.org/econ/glossary/Economic_Rent.php

"Rent is labor or goods expropriated through the ownership
of an unearned essential resource."

You may have earned your money, but so long as my use of credit
does not destroy the value of your earnings (what the money
would have purchased at the time you acquired it) then you
have no say in the extension of credit; no right to limit
my economic pursuits by hoarding all the money (the accounting
units).

>>>>> As in every other case of right and wrong whatsoever, there is, of
>>>>> course,
>>>>a broad
>>>>> margin in which it is very difficult to draw the line. A man guilty of
>>>>usury and
>>>>> trying to excuse himself might say, even in the case of food lent to a
>>>>starving man:
>>>>> "The loan may not look directly productive, but indirectly it was
>>>>productive, for it
>>>>> saved the man's life and thus later on he was able to work and produce
>>>>wealth."
>>>
>>> Bingo.
>>
>>The productivity of the loan is in the eye of the lender and the borrower.
>>Usury is controlled by making credit available to those who are credit
>>worthy WITHOUT enriching the holders/hoarders of money.
>
> Who gets to say who is credit worthy? How much credit do they get?

The real BINGO! I say it is a PROPER central bank regulated by the
elected government in a system that is actually representative
(not to be confused with the current payola congress and the Fed).

>>At the same
>>time the VALUE of savings must be protected from _real_ inflation (which
>>is a decline in the amount of labor that money will purchase).
>
> I thought that was increased standard of living...

You may be right on this one. Part of this is taken care of by
devaluing the currency at 2% per annum to cover the cost of
protecting these savings, but that may not be sufficient. It is
a real problem I admit. I'm very much open to discussion on
VALUE. But at present I am committed to value being tied to land
and labor as opposed to my mother, a diamond, or a glass of water
in the desert.

>>>>> In this margin of uncertainty we have only common sense to guide us,
>>>>> as
>>>>in every
>>>>> other similar case. We know pretty well in each particular example we
>>>>> come
>>>>across
>>>>> whether a loan is productive of not; whether we are borrowing or
>>>>> lending
>>>>for a
>>>>> productive purpose, or for a charitable or luxurious one, or for one
>>>>> in
>>>>every way
>>>>> unproductive.
>>>
>>> And yet, loans that many would consider unproductive have paid off for
>>> society.
>>
>>Examples???
>
> Lending Ferdinand de Lesseps money to build the Suez Canal was widely
> considered unproductive folly, but wasn't. Lending him money to build
> the Panama Canal was widely considered an opportunity to make huge
> profits, but _was_ unproductive folly.

And who loaned the "money" in these ventures, i.e. who took the "loss"?

The point I want to make is that the benefit or loss on these loans
was probably societal as opposed to individual. The grant of credit
to build the interstate highway system in the USA does not come from
Bill Gates and IMHO this illustrates the problem with individualized
control of credit.

>>>>> Usury, then, is essentially a claim to increment, or extra wealth,
>>>>> which
>>>>is not
>>>>> there to be claimed. It is a practice which diminishes the capital
>>>>> wealth
>>>>of the
>>>>> needy and eats it up to the profit of the lender - so that, if Usury
>>>>> go
>>>>unchecked,
>>>>> it must end in the absorption of all private property into the hands
>>>>> of a
>>>>few money
>>>>> brokers.
>>>
>>> No, only the property of profligate borrowers.
>>
>>Run around to the other side of this little arrangement and ask yourself
>>why the holder of money should be entitled to anything at all other than
>>the preservation of the value of his money less a service charge for
>>preserving said value.
>
> Time preference and compensation for risk.

If the holder of money wants to be compensated for risk then he
will need to INVEST the money, i.e. the money is gone and the
capital replaces it. He was an owner of money and he is now an
owner of "capital" (or some folly).

Time preference in this context has never been shown to me in a way
that is sensible. And I have this strange feeling that it will
ultimately turn out that "time preference" has been designed
specifically to legitimize rent seeking from hoarding the means
of credit. (rent).

>>If I had a horde of peaches or gold or
>>rice then I would need to protect this hoard from the roaches and the
>>pirates. That is a cost. There is a COST to hoarding stuff and it is
>>the protection of the hoard. People should PAY some small derisory fee
>>for this service and their control over credit should be nil.
>
> Whoa. Those are two entirely different and seemingly unrelated
> propositions. I can agree with the first. But how can they have
> control of their wealth and not have control over whether and to whom
> and under what terms they will lend it?

In the system I propose you can lend to anyone you want on various
agreed terms . But you can't seek rent by hoarding all the
accounting units and if you get too far out of bounds (like the
pusher) the rest of the society will get you. In many cases now
they act to prevent abuse by limiting the amount of RENT you can
demand even if they do misname it as interest.

>>If they
>>wish to earn interest they will need to actually INVEST the dough.
>
> Facilitating present consumption in return for increased future
> purchasing power is a service. Call the return to this service
> whatever you like, there is nothing wrong with it.

Why should money holders profit from this "service"? Why not let
the community profit from this "service"? It seems to me that my
system encourages _real_ capital creation and _real_ investment
while providing a very good system of credit and finance for day
to day transactions. Are you being a conservative, Roy? 

-- 
"I know no safe depository of the ultimate powers of society but
the people themselves; and if we think them not enlightened enough
to exercise their control with a wholesome discretion, the remedy
is not to take it from them, but to inform their discretion by
education." - Thomas Jefferson.  http://GreaterVoice.org

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