Consumed by greed and sold into slavery by friends
January 8, 2015 § 29 Comments
Much bafflement, real or polemical, is made over St. Thomas Aquinas’ claim that money is “consumed in its use” like apples or wine. This bafflement in turn creates a discursive environment in which many people actually or at least polemically fail to understand the moral prohibition of usury, despite its objective simplicity.
Usury, recall, is charging profitable interest on a mutuum loan. A mutuum loan is a loan of something which is, in St. Thomas’ terminology, consumed in its use: anything which is consumed in its use, not just money. Usury is always morally wrong without exception.
The terminology I use in the Usury FAQ means the same thing: what Aquinas refers to as things which are consumed in their use I refer to as things which are agreed to be returned in kind as opposed to in particular. Particular things actually exist; kinds of things are not particular things which actually exist. The idea of $100 or a bushel of wheat is not itself actually $100 or a bushel of wheat.
The reason that what is loaned under a mutuum (which is only morally licit as a gratuitous act of friendship or charity) must be returned in kind, as opposed to in particular, is that what was originally loaned in particular has been consumed in the pertinent sense. In a mutuum it was loaned for the very purpose of consumption in the pertinent sense (otherwise it is not a mutuum). What was originally loaned is consumed by the borrower, used up and departed from his estate, and must be replaced by something else – something else of that kind, but not that particular thing, which is gone – in order to repay the loan. The fact that the mutuum borrower does not possess the actual thing that he owes back to the lender demonstrates that any rent charged (interest) is rent charged for no thing, nothing.
In a non-mutuum contract, the borrower (recipient of investment funds) always does possess everything – every actual thing – that the lender (investor) is owed, by definition. The non recourse home mortgage borrower really does possess the actual house, and if he stops making payments the non recourse lender can exercise his foreclosure rights and claim his agreed share of the actual property.
Because a mutuum loan terminates by definition in the borrower’s personal guarantee to repay the principal in kind, that personal guarantee – which is not itself a piece of property which can be bought and sold independent of particular persons – is no actual thing but is, unless reciprocated under purely gratuitous terms of friendship, just a piecemeal enslavement of the borrower.
So in a financial transaction X is consumed, in Aquinas’ terminology, whenever the borrower either literally consumes it himself or exchanges it for something else. The point is that the original actually lent things are gone from both the borrower’s and the lender’s possession; and that is all that matters for the rest of the usury doctrine to follow. The borrower may (or may not) now possess whatever was purchased with the loan proceeds, but the money itself is no longer in the possession of either party. Unless the lender’s contractual rights terminate in something named and specific that the borrower actually does possess, any “rent” he attempts to charge in the form of interest is, literally, a rent payment for nothing.
What the mutuum borrower owes back to the lender is by definition not a specific thing: it is no thing, nothing.
And it is intrinsically immoral to charge rent – interest – for what is literally nothing.
Those who disagree, who think that the idea of a house is as real as an actual house, are welcome to rent one of my imaginary houses. You can send the rent to the Little Sisters of the Poor.
Zippy Catholic 
In 630 words no less, the clearest and most concise explanation ever.
BTW: I need a bigger home. Do you have any 4 bedroom imaginary homes, maybe with a Jacuzzi?
re: ” piecemeal enslavement”
Excellente! “It’s only a little enslavement”.
Same as only a little imprisoned; “I hereby sentence your left big toe to jail.”
re: “And it is intrinsically immoral to charge rent – interest – for what is literally nothing.”
Nowadays it’s an extortion racket, i.e. “a fee for providing the service” of (or, rather, “protecting” you from) bad-credit reporting.
[…] Source: Zippy Catholic […]
vetdoctor:
Four bedrooms with jacuzzi is pretty expensive in this area. Unfortunately the rent on the imaginary ones is the same as for real ones.
The usual way the usury is put–charging of excessive interest–appears still useful rule of thumb, with “excessive” defined by the rate of debasement of the fiat currency.
So, if the typical inflation rate is 2%, then charging of 5% or 10% would be usurious. It would be hard to get more precise.
Only someone who has failed to understand usury would think that currency debasement can justify charging it. As I said in the other thread where vishmehr24 is beating his dead horse, it is not morally licit to enslave your fellow man as a financial hedge against inflation, price fluctuation, currency debasement, or other literally abstract non-exchangable non-things. It is licit to purchase actually existing property or claims in actually existing property as such a hedge; it is not licit to enslave people as a hedge.
Furthermore, any ‘losses’ to currency debasement or inflation are just a tax on stupidity, like a lottery ticket. Anyone who holds literal cash (ahem) for any significant length of time is financially incompetent; and it is doubly immoral to enslave your fellow man as a hedge against your own incompetence.
IOW, even if we stipulate currency devaluation caused by debasement (and the entire set of theoretical and metaphysical assumptions required to support the claim), the stipulated fact that the government fraudulently debases the currency does not translate into a moral license to enslave and steal from your fellow man through usury in order to recover what the government has destroyed. It is not morally licit to rob your neighbor as compensation for what was stolen by thieves.
I’ve been lurking your blog for about a year now, and have been particularly interested in the recent usury discussion. However, as much as I like your very clear definition of usury, and dislike the extremely muddy definition of “excessive interest,” the fact remains that almost everyone I’ve ever talked to about it, and every source on the front page of google says that usury is “excessive interest” as opposed to “any interest on a mutuum.”
How do I know you didn’t just make this definition up? What sources other than “a blog I read sometimes” do I cite when defending your clearer definition of usury? Did ancient palestinians mean what you meant when referring to usury? Did the ancient church?
Why the mismatch of definition?
Kidd Cudi:
The ones I cite myself in the Usury FAQ, and any others that you uncover yourself in doing your own due diligence (the ones I cite are not exhaustive).
Beyond that there is the fact that usury is a matter of natural law. As such, it ought to be something that regular folks can understand fairly easily, like theft, contraception, murder, etc. As with other matters of natural law we would expect there to be real consequences in how people live rather than just a kind of “isn’t that nice, aren’t we wonderful, leave it to the experts” decorative quality to the doctrine. We should expect there to be ‘edge cases’ that are harder to explain in everyday terms (e.g. ‘can a man steal bread when he is starving?’), but the general case should be pretty straightforward.
Because usury is a concrete case in which progressives won over the culture, centuries before you were born. Because the world is fallen. Usury was the 18th-19th century version of the sexual revolution. The revolutionaries won then, as they are winning now, despite – or perhaps because of – the anti-realism of their views.
Also, although I assert absolutely no personal authority on the subject and encourage everyone to do their own thinking and due diligence, it is perfectly fair to ask “Why was Zippy able to read (e.g.) Vix Pervenit and Regimini Universalis and make sense of them, when so many people who read them have apparently, sincerely, found them hard to understand and thus ended up dismissing their authority?”
The answer may lie in my personal experience. I was a moderately successful Silicon Valley entrepreneur in the 90’s “Dot Com” era (probably the dumbest of the successful dot com era mafia), I’ve created a couple of companies out of whole cloth if you will (and been involved in a number of others), and as a matter of trial by fire and the good fortune of having people smarter then me involved I became quite adept at analyzing and understanding the capital structures of small ventures. In small capital-intensive ventures the question of personal guarantees, cap table entitlements, and liquidation preferences more generally are no minor matter. (Fortunately I was too poor to ever have to make personal guarantees, until I became too wealthy to need them.)
So when Callistus III says (in different language) that the difference between non recourse and full recourse loans is central to the fact that the rent contracts he was judging as licit are not usury, and John de Lugo comments on Pius V’s description of the liquidation preference difference between usurious and non-usurious census, and Aquinas makes the distinction between assets which are transferred from lender to borrower and consumed (exit the estate or inventory of the borrower) as opposed to staying on the borrower’s balance sheet as a real asset to which the lender has a claim in societas, these things all make more immediate sense to me than to folks without my peculiar experience.
But the references are all there. I’m just doing my thing as a blogger to help folks understand them, understand why the simple wisdom of the Church was right all along without qualification, and understand that the patronizing “things have changed so the decorative doctrine still exists but doesn’t apply” mantra is just the clanging voice of ignorance – whether it is coming from right-progressives (conventionally “conservatives”) or left-progressives (conventionally “liberals”).
You’re saying:
“Modern people are financially illiterate, and therefore the only good definitions of usury are historical ones.”
I thought you were supposed to be concise. 🙂
HAH! Well played.
“Illiterate” doesn’t quite capture it though. Modern people are financially anti-realist. In the trenches of small risky capital-intensive ventures though anti-realism can be fatal.
I added the following paragraphs to Q35 of the FAQ:
I stumbled upon a wonderful (usurious) method of making money:
1. Have good credit.
2. Take out a personal loan (from wherever gives you the best rate–a bank, Lending Club, whatever.)
3. Loan out the personal loan funds at a slightly higher rate via Lending Club (or similar service).
You make the spread of rates minus the cost of defaults you experience.
I was two hours into projections and planning before I even realized that the personal loans I would be making were usurious. I agonized for a while then decided it didn’t matter that much. It’s just usury, right?
Fortunately, my state of residence does not allow individuals to make loans on services like Lending Club. Further contemplation has resulted in a conviction of the evil of the plan.
And people think usury doesn’t matter. Doesn’t have negative effects. I was trivially willing to (partially) enslave strangers for personal gain.
So, while step three is textbook usury–personal recourse loans at profitable interest–it’s not entirely clear if step two is usurious as well. I understand the asymmetry of morality, but if I got the loan from the bank, it’s muddier. In that case, the bank is the usurer, but the bank is not a person. Who’s sinning?
And, this whole plan would be morally licit if the loans were no-recourse, right? If I had only the borrowers word that they would pay me back, and no way to force them to pay?
Kidd Cudi:
One of the ways to ‘dial in’ the amount of risk you want to take in business is to use what is called leverage, which is basically what you describe. An example of the use of leverage would be to borrow $1000 at 8% interest (non-compounding for simplicity of the example) and use it to buy Apple stock, in anticipation of Apple stock appreciating by more than 8% during the term of the loan. The difference in investment return (say Apple increases 20% over the term, giving a difference of 12% or $120 in simple non-compounding terms) is your profit.
If Apple stock drops like a stone, though, you can lose a lot of money.
The bottom line is that these kinds of contracts are not usury as long as the loan is non recourse. It is basically a kind of secured futures contract like I described in the Usury FAQ.
I suppose whether #2 would or would not be licit in a case of deploying leverage (obviously #3 would not) probably depends on how desperate the need was. I imagine it would have to be pretty desperate.
In general you are going to pay higher interest on an unsecured loan than on a secured loan, so as a practical matter it probably wouldn’t work to borrow unsecured money (#2) and invest it in non recourse fixed-income securities. It would pretty much have to be a speculative equity deal at the #3 stage. You can take big risks in business, but you can’t fool mother nature.
(Some of my critics have proposed that the full recourse / non recourse distinction is a mere formality in the case of a limited liability corporation; but that is just because they have not played out their own scenarios to liquidity — in short, they don’t understand the unreality of their own scenarios. In effect it is possible for people to give each other money through a corporate structure, but there is no moral prohibition against people literally giving each other money).
Kidd Cudi:
The people making the decisions to initiate usurious loans and the people carrying them out. If a corporation were to deliberately steal, for example, it would be the same sort of situation.
[…] the lender doesn’t truly have full recourse to the person of the borrower for recovery of (in kind) principal and profitable […]
(apologies if this is double-posted–weird internet issues.)
I learn by stories.
EvilBank Co makes a full-recourse student loan. This is usury. The sinners are the executives who offer the loan, and the employees who execute it. Simple.
EvilBank Co needs capital. GrayArea First Bank Inc makes a loan under essentially the same terms as a student loan (re-payment in kind for consumed goods, full recourse to the current and future earnings of the corporation, profitable interest…) to EvilBank. No usury has occurred, because if things fall apart, EvilBank declares bankruptcy, is liquidated, and GrayArea First must eat any losses. No individual humans are enslaved. The loan, though apparently full-recourse, was actually asset-backed by the assets of the corporation.
Spot a flaw?
—
The profitability of my scheme was largely dependent upon the exploitation of the difference between simple and compound interest, as I would be able to reinvest proceeds (thereby compounding) and would only have to pay simple interest.
At the risk of sounding like an angry child who has been underestimated (in his sight): I know what leverage is. I have been investing actively for 30% of my life, and 160% of my adult life. I manage my parents’ investments better than their previous (paid) advisor. I have attempted a start-up company (which failed). I work for a later stage tech start up currently. I live at a 75% savings rate, (almost none of which is kept in the bank, obviously).
—
After re-skimming your FAQ, I spotted many of the citations and references that I had missed (or you have added). It is good to know you’re not a crazy person reinventing the world on his own.
I learn by stories.
EvilBank Co makes a full-recourse student loan. This is usury. The sinners are the executives who offer the loan, and the employees who execute it. Simple.
EvilBank Co needs capital. GrayArea First Bank Inc makes a loan under essentially the same terms as a student loan (re-payment in kind for consumed goods, full recourse to the current and future earnings of the corporation, profitable interest…) to EvilBank. No usury has occurred, because if things fall apart, EvilBank declares bankruptcy, is liquidated, and GrayArea First must eat any losses. No individual humans are enslaved. The loan, though apparently full-recourse, was actually asset-backed by the assets of the corporation.
Spot a flaw?
Kidd Cudi:
You appear to have correctly grasped Q19 and Q31, by following the heuristic in Q35:
“The stipulated fact that the government fraudulently debases the currency does not translate into a moral license to enslave and steal from your fellow man through usury in order to recover what the government has destroyed”
True but the question that is probably going to go unanswered is whether you believe a debased coin to be of the same kind as a non-debased coin?
After all, if A lends 500 non-debased coins to B, then is B to return >500 debased coins or not?.
When the price of wheat goes down – even when it goes down because the government has debased the value of wheat by flooding the market – a bushel of wheat is still a bushel of wheat.
At some point it may occur to you, Shylock, that your own line of argument points toward the conclusion you have been told all along is the case but fail to acknowledge: that mutuum loans as commercial property based transactions are intrinsically unjust. Mutuum loans are only ever licit at all as acts of charity or friendship.
“government has debased the value of wheat by flooding the market ”
Again, a false analogy.
Correct analogy would be to sack of wheat containing 10% pebbles.
Whatever analogy is used is irrelevant. Even indulging the analogy, which apparently only encourages your incomprehension, if he had kept the exact same dollars and gave them back to you they would be no more or less debased.
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