On minding your own business and the unpersoning of contract counterparties

March 17, 2017 § 21 Comments

In Question 49 of the Usury FAQ I discuss whether a merchant may licitly charge an individual[1] penalties for late payment on unsecured merchant credit, distinguishing between two cases.

In one case the individual mutuum debtor has the resources to pay the merchant on time and refuses to do so. This is a form of theft or fraud, and thus is (under the natural law) a criminal act subject to the extrinsic titles and criminal penalties which arise from criminal acts.

In the other case the debtor has suffered misfortune and is unable to pay on time.  By extending unsecured credit the merchant took the risk of this occurring upon himself, and is not entitled to late payment penalties.

Notice that this means that the merchant who extends unsecured credit, and the enforcing sovereign, have to understand the individual holistically and charitably as a human being, in order to make this distinction.  It means – and I’m sorry to break this to you – that the dehumanizing incantation “it is just business” doesn’t actually turn contract counterparties into unpersons.

Treating others like the human beings they are in reality is a lot of work, and doesn’t always make for the most efficient business operations.  The other horn of the dilemma is that failure to extend unsecured credit will almost certainly limit a merchant’s available market.  With those moral constraints in place, it is almost as though extending unsecured personal credit should only be an act of charity, not a business decision.  It is almost as though we are to expect nothing in return when we lend money in exchange for a personal IOU.

But efficiency isn’t everything.


[1] As usual, the prohibition of usury applies to debt qua personal IOUs not to debt qua impairment of specified property.  The balance sheets of institutions are inventories of property and the various claims against that property, so “debt” which impairs the balance sheet of an institution is not the kind of “debt” implicated in usury.

§ 21 Responses to On minding your own business and the unpersoning of contract counterparties

  • Roman Lance says:

    Zippy,

    Suppose a lender is asked for money as an unsecured loan (the requestor needs money to pay a tax debt), the lender intends to give the money as an act of charity but the potential debtor insist it is to be a loan.

    The loan (a gift as viewed by lender) is made and the debtor makes no indication that they intend to follow through with repayment of the “loan”.

    My question is: Does the lender have a duty to try and retrieve the loan amount, or may he, without saying a word, forgive the debt?

    If you need more information please let me know.

    Thanks.

  • Zippy says:

    Roman Lance:

    My own view is that a lender has plenary power to forgive debts owed to himself, without any requirement that he explain himself, etc.

    Now, ISTM that the borrower in this very particular kind of case has done an at least minor wrong to the lender, by breaking or intention to break a promise even though the lender did not ask for the promise. Whether it is good to admonish those who have done us wrong or not is a matter for prudential evaluation, and I guess I can imagine a case like this where admonishment would be good to the point of obligatory. But even then it seems better for someone other than the lender to do the admonishing, and I’d suggest that cases where the lender is obliged to admonish would be rare.

  • Roman Lance says:

    @zippy,

    Thanks for you incite.

    God Bless.

  • itascriptaest says:

    that the dehumanizing incantation “it is just business” doesn’t actually turn contract counterparties into unpersons.

    But but Murray Rothbard says this is statism!

  • TomD says:

    My question involves the case of an unsecured mutuum with no recourse at all in the contract if the borrower just decides not to pay; similar to what would happen in a land where nobody enforces mutuum contracts.

    It would be very similar to a societas that you never intend to foreclose on; so it might have the structure of a mutuum with interest but not be usury? Probably a bad idea, but interesting to concept (another would be a business loan on a known assetless business). They all end up being things like “sure, friend, here’s some money, pay me back whenever” when your friend insists on giving you more though you don’t want it.

    Scandalous to holy ears or whatever that was called; valid but not to be used if at all possible.

  • jamesd127 says:

    Seems to me that the prohibition against usury makes sense when someone can be enslaved or enserfed for personal debt, when there are harsh measures against people who default. Debtors prison and all that.

    If lenient enforcement against deadbeats, the moral status of usury changes. Bankruptcy becomes morally like reorganizing a limited liability company.

    Clearly there is nothing wrong with former shareholders being wiped out, and holders of the lowest rank of corporate debt becoming shareholders. The moral problem is when the asset is a person, and this moral problem is diminished in proportion as enforcement against defaulters is lenient.

  • TomD says:

    More and more I’m realizing that usury is selling something that should be free, in a way; friendship is beautiful, don’t sell it. Sex is beautiful, don’t sell it.

    And certainly don’t try to buy it.

  • Zippy says:

    TomD:
    A significant impediment most folks encounter when thinking about usury is that most folks don’t really think their own agreements through. It is an endless source of frustration to me, as an investor and in other capacities, that even supposedly very competent lawyers and brokers and the like have such limited imaginations and truncated thoughts. I am continually astonished that human beings can function at all in what is supposed to be a high level professional capacity while locked in their tiny truncated logic boxes.

    On the present subject, folks commonly think about the “when things go according to plan” possible future but neglect the infinite “when things don’t go according to plan” possibilities, truncating their thoughts at best at various blanket contingencies (e.g. “the car is insured” or whatever). In other words, most people fail to consider “the whole matter of security for contracts” (St. Francis Xavier): they fail to consider what roots their contract claims in actual reality, and fail to keep actual reality distinct from empty promises (personal IOUs). St Francis Xavier observes that many business agreements are defiled by usury, that is, by contract terms which anticipate profits and insist on personal guarantees of various parties as security in case things don’t go according to plans; or (in the case of simple usury) are entirely ambivalent to the borrower’s plans.

    This is why Vix Pervenit advises:

    In the third place, those who desire to keep themselves free and untouched by the contamination of usury and to give their money to another in such a manner that they may receive only legitimate gain should be admonished to make a contract beforehand. In the contract they should explain the conditions and what gain they expect from their money. This will not only greatly help to avoid concern and anxiety, but will also confirm the contract in the realm of public business. This approach also closes the door on controversies-which have arisen more than once-since it clarifies whether the money, which has been loaned without apparent interest [usury], may actually contain concealed usury.

  • Zippy says:

    TomD:

    More and more I’m realizing that usury is selling something that should be free, in a way; friendship is beautiful, don’t sell it. Sex is beautiful, don’t sell it.

    And certainly don’t try to buy it.

    Most sins in the domain of property – including crossover between property and sex e.g. prostitution – involve actions which package, commodify, and sell human goods (and even human beings themselves) which transcend property, as if those human goods were or could be property.

    In the words of that great Oracle of our time The Beatles, “Can’t Buy Me Love”.

  • Mike T says:

    I have mused several times to right-liberals that it is hypocritical for a businessman who says “it’s just business” and casts people aside (rather than laying them off for honest reasons) to expect those same workers to come to his aid if they find him in need of immediate help in a risky situation (in terms of physical harm). If we say that one cannot even be expected to take a haircut or three in business to help others, then we absolutely cannot expect people to risk lasting physical harm.

  • You don’t suppose this is why we always put the payday loan people on the shady side of town, in between the liquor store and the topless bar, do you?

    I’m not quite sure where not taking oaths comes into play here, but Matthew 5:34 speaks of not swearing at all, not by God or by earth, and usury strikes me as a kind of oath, where we are asked to make promises we cannot always fulfill, where we take an oath to become wage slaves for the rest of our lives.

  • Scott W. says:

    It means – and I’m sorry to break this to you – that the dehumanizing incantation “it is just business” doesn’t actually turn contract counterparties into unpersons

    Language warning:

  • MMPeregrine says:

    Zippy, do you have an opinion on what people should do with the rewards money they receive from credit card use? For example, I have a credit card that I use for most online purchases because I don’t want to use my checking account or debit card information online for security reasons. I receive a % back in cash rewards for paying the balance off at the end of the month – it occurred to me that the rewards are entirely, or at least heavily tainted with, usury proceeds. Therefore, what do you believe is the best way to use the cash reward money? I was thinking of donating it to charity because proper restitution seems impossible.

    Basically, receiving rewards money for credit card use seems to be at least material cooperation with usury. But I imagine that using the credit card for the sole purpose of getting rewards money (getting something for nothing) is potentially formal cooperation with usury. Do you agree with that assessment? Do you think this works retroactively? More specifically, I wonder if I should donate by matching dollar for dollar the same I amount I received that way particularly because I used to make purchases with the card, instead of using cash or check, simply to get rewards points.

  • TomD says:

    Credit card companies have two streams of income – usurious loans (people who carry a balance) and merchant charges. Credit card companies could continue to exist entirely on the merchant charges; AMEX used to only do that. They make between 1-3% on the merchant fees even if you pay off in full every month; the rewards cards charge a higher merchant fee to cover. If you work it out, a card that charges 2% merchant fee and is paid off each month (say $1k) is effectively earning the credit card company a 26.82% return on the money (or if they spend it, $20 a month or $240 a year). Using the money on many cards for people who carry a balance earns them less (any card below 10% usury).

    So in a way by using a rewards card, if anything you’re conspiring with the credit card company to “overcharge” the merchant (though they fully agree to it). Perhaps that might help inform?

    I really need to figure out how to start a Catholic Usury-free Credit Onion; Sharia banks have almost the whole usury-free market and it’s not fair.

  • Advenedizo says:

    Sharia banks are not usury free, they are just pretending. They consider the interest as part of the principal and then charge you principal + interest at 0% interest.

  • MMPeregrine says:

    Thanks TomD. That was helpful. I’m thinking that the Saint Vincent de Paul society is pretty close to the medieval mountains of piety and cover at least some of what a Catholic usury-free credit union (not onion) would do.

    I wonder if it’s worth trying to convince credit card companies that usury doesn’t even really pay off compared to charging merchants. And chasing down delinquent borrowers probably takes significant time and resources for them so that it’s even less worth it. Or should we focus all efforts on trying to convince them that usury is fundamentally wrong whether or not it paid off in the short term? And it puts many in danger of going to hell. The answer is probably Both-And.

    It’s similar to sharing that hormonal contraceptives damage women’s bodies, hoping to persuade them away from using them. That is a good reason to stop using hormonal contraceptives. But the best reason is that contraception is intrinsically evil – kills children, prevents other children from being born, and it kills or damages the man and woman’s soul who choose to use it as well as others who aid them. Both arguments are helpful because they’re both true.

    But it’s interesting to learn that usury might not even make sense for businesses in the short term.

  • Zippy says:

    Advenedizo is correct about the Sharia concept of usury being perverse. I don’t have any direct experience with Mohammedan investors, but I am aware of some examples where Sharia compliance came into play. In one example a majority-Moslem owned private company (not a mom-and-pop shop; an aircraft manufacturer) was not permitted to accept a business line of credit which would have saved its bacon, because the line of credit charged “interest”. There was of course no mutuum loan involved though. Eventually the Moslems were bought out by the Chinese.

    Sharia reflects the mindless uncomprehending voluntarist rigorism typical of musselmen, and makes a nice straw man for Western usurers to attack.

  • […] that in a good polity, the only way to acquire a magistrate-enforceable personal debt would be by committing a crime (including, possibly, criminal […]

  • Zippy says:

    MMPeregrine:

    Zippy, do you have an opinion on what people should do with the rewards money they receive from credit card use?

    I don’t. As a product of material cooperation with evil that falls into the domain of prudence. That of course doesn’t mean that there are no right or wrong answers, but I don’t have what I consider to be any special insight here.

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