Re: interest v. "usury"
royls_at_telus.net
Date: 09/13/04
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Date: Mon, 13 Sep 2004 01:23:31 GMT
On Sun, 05 Sep 2004 15:28:51 -0700, The Trucker <mikcob@verizon.net>
wrote:
>royls@telus.net wrote:
>
>> On Sat, 04 Sep 2004 12:05:24 -0700, The Trucker <mikcob@verizon.net>
>> wrote:
>>
>>>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.
I'm with you. Consumer goods offered for sale are not capital, and I
see no economic difference between such hats and hats in a personal
inventory, as long as they are not being used. But by the same token
consumer goods intended for the consumption of employees are not
capital, either.
>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.
So your account of interest is just compensation for risk? Then how
is "usury" not interest? There is certainly risk in consumer lending.
>If nothing else we are now selling
>used hats.
"Pre-owned."
>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.
Many people also regard their three squares a day as yielding a
positive return.
>Consumer goods do not normally return anything at all
>over and above the immediate satisfaction of the consumer.
What about keeping the worker alive and productive?
>>>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.
How people get to hold or control money is a separate issue from
whether some prefer money now, and others prefer more of it later.
>>>>>> 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.
I agree that the legal privilege of issuing bank credit as a form of
money provides occasion for rent seeking. But issuing credit money is
quite different from saving and lending credit money issued by others.
>>>> ?? 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)
That doesn't elminate the risk!
>there is no justification
>for interest in the classical sense.
Sure there is: voluntary contract between willing lender and borrower.
>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.
There is a reason that is very apparent to me: the return to lending
must compete with the return to landowning and other rent seeking
activities.
>>>>>> 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?
They don't, except as charity.
>Why would the rentier advance
>"credit" to the sharecropper at usurious rates?
To get something for nothing.
>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.
Sorry, but people make bad choices all the time. It's not a crime to
profit from them. It may not be productive or honorable to do so, but
prohibiting such dealings is what gets you absurdities like the War on
Drugs. I see little difference between a consumer lender and, say, a
professional gambler. Both profit by the poor judgment of others.
>>>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?"
I do not recognize the capacity of a gold or credit money holder to do
so, except as part of a banking system designed to facilitate it. And
as you know, landholders are in a different situation. They charge
rent, not interest, and there is no way to create more land to compete
with them.
>>>>>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.
It's not faith in government, but in the ultimate victory of truth
over untruth.
>>>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.
Defined how?
>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).
I don't see why private lenders can't do this, as long as none are
specially privileged to issue credit money.
>>>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.
Then its only difference from interest is that it leaves no residue of
profit? Or is it also not calculated as a fraction of the principal,
but on some other basis?
>>>>>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.
No, just that it _can_ be.
>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.
This fear of hoarding makes no sense. It's like any other cartel
except a landowning cartel: the return to defection prevents hoarding
from being effective. The money hoarders just lose out on the chances
to profit by lending. OTC, the temptation is always to create too
much credit.
>>>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.
I agree there is a difference between commodity/wealth money and token
money, and a further difference between token money and credit money.
IMO the latter has significant issues that the former two do not have.
>>>Money simply keeps track of who owes who.
>>
>> That's debt, not money.
>
>See what I mean:)
Yes. IMO you are allowing yourself to be confused by the money
system. That is something quite separate from the phenomenon of
interest, which occurs under commodity and token money systems as well
as credit money systems.
>>>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).
I find this completely unpersuasive. Taking an average of a data set
does not make the data all equal.
>>>>>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."
This of course does not describe interest (sorry, "usury"), as money
is not an essential resource.
>>>> 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"?
Private investors.
>The point I want to make is that the benefit or loss on these loans
>was probably societal as opposed to individual.
It wasn't, except insofar as the labor and resources were wasted.
>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.
I agree there are serious problems with the credit money system. But
they are not essential to interest under all money systems.
>>>>>> 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).
Why will he "need" to do that? Why can't he just lend on mutually
agreeable terms?
>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).
Time preference is very simple. Some people prefer $X now to $X+$Y in
the future, others prefer $X+$Y in the future to $X now. $Y is
interest.
>>>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.
I don't see this "hoarding of accounting units." I see a privilege of
issuing credit money, and that is a problem, but it is a problem
_entirely_separate_ from the universal phenomenon of 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, if they are the ones who defer consumption in order to
facilitate others' purchases, whether of capital or consumer goods?
Though I do agree that those who are privileged to create credit money
should _not_ be profiting from it.
>Why not let
>the community profit from this "service"?
Private competition would make the service more efficient. Government
as lender has about as dismal a record as government as borrower.
>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.
Maybe. But I still don't see it.
>Are you being a conservative, Roy?
You know better than that...
-- Roy L
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