The Dumb Ox on non-recourse productive investments

March 9, 2010 § 6 Comments

He who lends money transfers the ownership of the money to the borrower. Hence the borrower holds the money at his own risk and is bound to pay it all back: wherefore the lender must not exact more. On the other hand he that entrusts his money to a merchant or craftsman so as to form a kind of society, does not transfer the ownership of his money to them, for it remains his, so that at his risk the merchant speculates with it, or the craftsman uses it for his craft, and consequently he may lawfully demand as something belonging to him, part of the profits derived from his money.

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§ 6 Responses to The Dumb Ox on non-recourse productive investments

  • Anonymous says:

    The Blackadder Says:

    Aquinas' position here is somewhat strange. On the one hand, he says that charging interest on a loan is immoral, because you can't separate the use of money from the ownership of it. On the other hand, in this quote he approves the societas (basically a joint venture where one person provides the money and another does all the work) on the grounds that the lender retains ownership of the money even though the other guy is using it. The two positions, of course, are contradictory, which may be part of the reason why St. Thomas' view fell out of favor in subsequent generations.

  • zippy says:

    The two positions, of course, are contradictory …

    No, they aren't. He is quite clear about the distinction: in a loan, the borrower is fully on the hook for the entire principal: it is a full-recourse loan. In a partnership the “loan” is not full-recourse.

    Furthermore, your notion that his position was quickly abandoned is just false.

    But you are finished commenting in these threads now, as discussed below.

  • Tommy says:

    Yes, I agree with you, Zippy. The structures of the agreements between the parties constitutes different entities, and the various titles lie differently in them. Owning stock is a very different thing than having an account at a bank, or at a savings and loan.

    Still, St. Thomas does manage to use language which (at least in our ears) lends itself to some confusion. For example, He who lends money transfers the ownership of the money to the borrower.

    If ownership refers to whole and complete ownership, absolute and entire, then the lender couldn't have any say over the use of the money lent. It wouldn't matter what the borrower does with it, the lender has lost all title to it and can no longer seek any control whatsoever. But this of course does not really represent most standard loans as we think of them, it would only be applicable in loans on signature, whereas all the other loans that have an explicit or implicit limitation on where the money goes, or with what collateral it is secured, would not be lending in the sense above. Maybe most of today's loans aren't really loans as such?

    And the later passage does not transfer the ownership of his money to them, for it remains his, so that at his risk indicates the same thing: by retaining a string over the money, the owner is not lending per se, he is involved in some other structure.

    In today's world, we rarely construct loans of significant value where the lender has no string at all over the money.

    Hence the borrower holds the money at his own risk

    OK, but if the lender retains no string over the money, and has to rely on the borrower totally, then the lender ALSO bears risk. Indeed, the lender bears the same risks as the borrower as to whether the borrower will be able to come up with the repayment, but the lender in addition bears the separate risk of whether the borrower will choose to make the repayment that he could make if he wants to.

    What do we make of Jesus's admonition that if you take a cloak in security for a loan, you are to return it before nightfall? Other passages in the Bible say that you shouldn't take on unsecured loans. Is there a divergence of treatment between borrowers and lenders?

  • William Luse says:

    Zippy's now going to tell me whether or not the practices of modern credit card companies are usurious. Suppose I purchase something for $1,000 at 14.99 APR. I have not entered a 'society' with the card company because they have no idea in advance what I'm going to do with the money. There is no agreement except that requiring me to pay them back. If I use the money to do some online trading wherein I hope to see a profit, they could care less. I can escape the interest by paying the balance in full in the space of one month. But if I could do that I wouldn't need the card. So I'll be paying it off in 3 months at the stated rate of interest. 14.99 strikes me as outrageous; on the other hand, I entered into the agreement of my own free will. Is this the kind of lending practice that should not be allowed at all, to prevent the company from making usurious loans and to protect me from myself?

  • zippy says:

    He who lends money transfers the ownership of the money to the borrower.

    That does sound confusing, but the Scholastics also tell us why they believe that: because the borrower is completely on the hook for returning the principal. In other words, to the medievals the term “loan” refers very precisely to what we would call a full-recourse loan to an individual.

    I'll make a new post summarizing my current thoughts. Thanks to everyone for all the comments.

  • […] know on magisterial authority dating from the middle ages and from St. Thomas Aquinas that asset-recourse loans are not […]

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