A fungible error

June 20, 2017 § 23 Comments

A fungible thing is something which we habitually treat as interchangeable with different objects of the same kind and in the same amount.  A cup of sugar is considered a  fungible thing because we typically don’t care whether we are using this particular cup of sugar or that one: any cup of sugar with similar qualities will do.

Scholastics – academics who study the philosophy of St. Thomas Aquinas and other medieval Catholic scholars – tend, like philosophers of any school, to adopt certain habits of mind.  One of the Scholastic habits of mind is to reflexively consider the nature of a thing as one argues or dialogs about that thing.  This is of course perfectly natural and salutary, but I suspect that it underlies a common error when thinking about usury.

Because when it comes to usury, what is central and essential is the nature of the contract not the nature of the property lent.  Vix Pervenit:

We exhort you not to listen to those who say that today the issue of usury is present in name only, since gain is almost always obtained from money given to another. How false is this opinion and how far removed from the truth! We can easily understand this if we consider that the nature of one contract differs from the nature of another.  [Emphasis mine]

Scholastics – unlike Aquinas himself – tend to approach usury as having something to do with the nature of the property lent, qua fungible thing.  But a mutuum loan is not, strictly speaking, a loan of a fungible thing: it is a loan of a thing which the contract treats as fungible.  Aquinas explains this in his discussions of usury; here he is in de Malo:

As the Philosopher says in the Politics, things can have two uses: one specific and primary; the other general and secondary. For example, the specific and primary use of shoes is to wear them, and their secondary use is to exchange them for something else. And conversely, the specific and primary use of money is as a means of exchange, since money was instituted for this purpose, and the secondary use of money can be for anything else, for example, as security or for display.

He goes on to explain that it is not the nature of the property itself, but the kind of use which is authorized by the contract, which is the essence of the mutuum loan and therefore the essence of usury.  A contract which treats the lent property as fungible — as alienable from the borrower — is a mutuum loan; and it is on this kind of loan that making any profit whatsoever is morally illicit:

But if persons lend their money to others for another use in which the money is not consumed, there will be the same consideration as regarding the things that are not consumed in their very use, things that are licitly rented and hired out. And so if one gives money sealed in a purse to post it as security and then receives recompense, this is not interest-taking [usury], since it involves renting or hiring out, not a contract for a loan. And the reasoning is the same if a person gives money to another to use it for display, just as, conversely, if one gives shoes to another as a means of exchange and on that account were to seek a recompense over and above the value of the shoes, there would be interest-taking [usury].

So Thomists and other thinkers who attempt to take the sinfulness of usury seriously would do well to follow the Doctor, and avoid the pitfall of confusing the fact that a usurious contract treats the property lent as fungible with something intrinsically the case about the property itself.

And Aquinas’s correctness on the doctrinal point – that usury consists in the nature of the contract, not the nature of the property lent/borrowed – can be easily confirmed by checking Magisterial sources, such as Vix Pervenit (cited above) and others (see here and here, for example).

§ 23 Responses to A fungible error

  • With regards to money sealed in a purse put up as collateral:

    If we say Adam borrowed 20 dollars from Bob to post as collateral on a loan Adam took from carl, then there are two contracts. In the contract between Adam and Bob, it seems that the 20 dollars is not treated as fungible, which allows Bob to make a profit from the lending of the 20 dollars. But in the contract of Adam with Carl, the 20 dollars is treated as fungible because if things don’t go according to plan, the 20 dollars goes to carl and so has been alienated from Adam. Does this mean that the contract which Bob made with Adam actually treats the 20 dollars as fungible or does it mean that Adam posted something as security which is not his to give away? Or am I missing something?

  • Zippy says:

    TimFinnegan:

    You can game scenarios until you go blind, especially when they involve multiple parties contracting with each other in a network of agreements. But the bottom line is that profit on any contract secured by a personal guarantee is illicit.

    An insurance bond is really a simplified version of the more general category of futures contracts. Futures contracts can be recourse (illicit) or non recourse (licit); I describe how this works in Question 46 of the Usury FAQ.

  • Giuseppe says:

    I’m very grateful you put these observations into a separate post.

    I’m sure you didn’t mean it that way but it’s hard to believe that all scholastics after Aquinas got it wrong. (I would be personally interested in what Duns Scotus had to say on the matter.) My understanding is that the recourse distinction must have remained largely in the scholastics’ sight up to the 18th century, considering Vix pervenit being promulgated at the time. Or are we to understand the encyclical to be an intervention aimed also against the Catholic scholastics themselves?

  • Giuseppe says:

    P.S.: When I said “the recourse distinction” I indeed meant to refer to this post as I see the problem of over-emphasising the fungible aspect to go hand in hand with downplaying the recourse distinction.

  • Zippy says:

    Giuseppe:

    I’m sure you didn’t mean it that way but it’s hard to believe that all scholastics after Aquinas got it wrong.

    Not at all. I’m just pointing out a tendency, and a possible reason for it.

    Or are we to understand the encyclical to be an intervention aimed also against the Catholic scholastics themselves?

    We can only speculate, but Salamanca School (Scholastic) economic anti-realism and the like arguably pre-dates the encyclical by centuries.

    “The Scholastics” aren’t and weren’t a monolith.

  • […] Source: Zippy Catholic […]

  • Well, I certainly hope paper money having little or no tangible substance and value beyond what we imagine it to have, doesn’t soon come crashing down on our usury house of cards.

  • Zippy says:

    insanitybytes22:

    We have to be careful here . “Paper money”, and bank deposits for that matter, do possess plenty of real value rooted in real property, as I have described in detail in other posts. The financial (in addition to moral) harms of usury are real and extensive but shouldn’t be overstated. Overstating the case against it ultimately undermines the criticism (not to mention that clarity in representing the truth is good for its own sake).

  • Zippy says:

    Giuseppe:

    Once you grasp that “fungible” means “treated as fungible by the contract”, recourse and fungibility in a sense become convertible into each other. The thing(s) which secure the contract cannot be treated as fungible (alienable) by the contract[*]. If there are not some thing(s) which secure the contract, which are not treated as fungible by the contract, then the security on the contract is no thing, nothing: the contract is secured by a mere personal guarantee or IOU. And it is unjust to charge rent (profits) against literally no thing, nothing.

    [*] This is reflected in Pius V’s words in Cum Onus where he insists that a licit census contract is secured by “a fixed immobile good”: by some property which the contract does not treat as fungible/alienable.

  • Auberon Quin says:

    if one gives shoes to another as a means of exchange and on that account were to seek a recompense over and above the value of the shoes, there would be interest-taking [usury]
    I’m trying to understand how someone would use shoes in that way. Wouldn’t it be the case that if the buyer and the seller agree on the price of the shoes, by that action they are inherently defining the value of the shoes?

    Is this a price-gouging situation where you know the buyer is desperate for shoes and you sell him a $100 pair for $150?

    Or are they considering a case where a pair of shoes normall sells for $100 and the seller instead charges $20 a month for 6 monthly installments?

  • Zippy says:

    Auberon Quin:

    Just pricing is an interesting but only marginally related subject: see here and here for some discussion.

    But to understand Aquinas’s specific point here I think you have to consider his premise: “… if one gives shoes to another as a means of exchange and …”

    The contract contemplated is a mutuum: suppose Bob “lends” Harry ten pairs of shoes to be used in exchange. That is, Harry is expected to exchange the shoes for something else and Harry makes a personal guarantee to ‘repay’ Bob with ten pairs of shoes — not the same shoes, just ten pairs of that kind of shoe in comparable condition. If Bob insists on receiving back twelve pairs of shoes (or the price of twelve pairs of comparable shoes) then the extra two pairs of shoes are interest-taking (usury).

    The concept here is that if we have a contract which treats shoes the same way a mutuum loan of money treats money (that is, as fungible with a personal guarantee of repayment in-kind as opposed to return of the actual shoes which were borrowed), it is still a mutuum loan despite being made in shoes not money. Because it is a mutuum loan (personal pledge to return in-kind after the actual lent shoes have been alienated from the borrower), any profit is illicit.

    And if you have a contract which treats money the same way you would normally treat a rental of shoes (say at a bowling alley), wherein the very same shoes/money are to be returned after the rental period as long as things go according to plan, then it is licit to charge rent for the shoes/money.

    More complicated contracts may involve more ‘moving parts’, and can produce licit profits — as long as the mutual pledges of the partners in the contract are ultimately secured by actual specified property and only that specified property, as opposed to personal IOUs.

  • Zippy says:

    This is probably a good time to remind folks that mutuum loans are only morally licit as acts of charity or friendship; they are never licit for commercial gain.

  • Auberon Quin says:

    Zippy,

    I missed the lending aspect of that scenario. Thank you!

  • Zippy says:

    My job when it comes to usury is just to take a highlighter to Aquinas and the Magisterium, heh.

  • Rhetocrates says:

    It’s thankless work, but someone has to do it.

    So thanks.

  • Step2 says:

    Funny interlude:
    Stan Lee: Can I have my shoe back?
    Zippy: Per the nature of a fungible security, you can have a comparable shoe.

  • Thanks zippy.

    I spent some time today reading over Edward Feser’s explanation and defense of Aquinas’s version of hell, and, according to him, it seems the same problem plagues argumentation over that subject (that is, people will create all sorts of complex scenarios until the principles are obscured).

  • TomD says:

    Algebra can help, because the fungible commodity can become X = but if X is replaceable with money, then it becomes clearer. So obscuring it with shoes or anything else fungible reduces to money, and the question of the contract again comes to the foreground.

  • Zippy says:

    Step2:

    Plus “fungible” is fun to say out loud.

    I still think that, in service to truth in advertising, the euphemism “human resources” should be changed to “fungible productivity units”.

  • Zippy says:

    TimFinnegan:

    … the same problem plagues argumentation over that subject (that is, people will create all sorts of complex scenarios until the principles are obscured).

    This is probably worthy of its own post on the nature of blogging and other rhetoric; but in my experience there is a nearly universal ‘dialectic’ between those who defend a proposed moral or other absolute and those who attack it.

    Defenders focus on the simple and clear case, because if we can’t agree on the moral conclusions which follow from a straightforward case there is no sense even trying to discuss more complex cases. If we can’t agree that crushing a living infant’s skull is murder then how is discussing salpingectomy versus salpingostomy going to clarify matters?

    Attackers focus on complex cases or analogies while refusing to address the simple case, assume transitivity from those complex cases to the simple case, and from that assumed transitivity assert the invalidity of the universal principle.

    The second is almost always – but not literally always, because sometimes a transitive relation really does obtain – a form of question begging. It is really possible to go wrong with either approach, but if what we are interested in is the truth then the first should take primacy over the second.

    It may be a critical-dialectic as opposed to a defense-dialectic. You may notice that (editorially speaking) my critique of political liberalism frequently involves showing that it isn’t rationally coherent even in straightforward, generally uncontroversial cases.

  • “Attackers focus on complex cases or analogies while refusing to address the simple case, assume transitivity from those complex cases to the simple case, and from that assumed transitivity assert the invalidity of the universal principle.”

    You’ve just summed up the bane of my existence, the blight on my potato. There’s a dead deer on the side of the road, we should just pick it up, but jurisdiction,global warming,the lgbt agenda, sustainability, immigrants, committees, gender quotas. The personal is always so elaborate and so political. Meanwhile, nature is efficiently relieving us of the dead deer, almost as slowly as I am being relieved of my sanity.

    Simple really can be best sometimes. There’s probably a much better word for “simple,”but that’s the heart of the problem.

  • TomD says:

    There’s a deer rotting in the pond I walk by. I should have pushed it in long ago, now it’s in pieces and can’t be pushed.

  • […] “Fungibile” means interchangeable for use: one cup of sugar is fungible with another (assuming similar enough qualities) because when we put that sugar to use, we are indifferent as to which particular cup of similar-quality sugar we use. […]

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