Each breath will cost you a nickel

November 14, 2017 § 29 Comments

The basic principles behind the prohibition of usury are simple.  Financially, usury is any contractual profit for the lender stemming from making a “loan for consumption“: a loan which authorizes the borrower to consume or alienate the actual property lent, while personally guaranteeing that he will restore to the lender the amount lent.  Morally, personally guaranteed loans are only licit as acts of charity or friendship made to a borrower in need: they are never licit under any circumstances as acts of financial self-interest on the part of the lender.

Intuitively, charging rent for the use of collateral property owned by the lender – actual alienable property which is later returned to the lender intact or ultimately bought out by the borrower – is not intrinsically uncharitable.

Intuitively, charging a man rent for the use of his own person, for each breath he takes from his own lungs, is intrinsically uncharitable.  Interest on a personal IOU is a charge of rent against a man for the use of his own person, since his obligation to repay simply is personal.

It is also intrinsically uncharitable to make a mutuum borrower responsible for the lender’s changing circumstances.  In general with a mutuum loan the borrower is not responsible – cannot be made responsible – for all of the circumstantial changes which occur in the universe during the duration of the loan.

People use terms like “inflation” in economic theory to refer to aggregate indexes of relative price changes over time.  An index is just a representative sample of statistically aggregated spot prices of particular goods and services, measured in some particular unit (US dollars, McDonalds Big Macs, etc).  There are as many possible relative price indices as there are discrete combinations of goods, services, transactions, and time periods.  But folks tend to treat “inflation” as if it were a basic feature of reality as opposed to a particular heuristic/statistical guesstimate about certain historical circumstantial changes in relative prices (measures of who in fact bartered what in exchange for what) for certain goods and services (and only those goods and services, etc).

I once bought a house by selling some stock, paying for the house with the proceeds.  When I sold the house it had “lost value” in terms of US dollars but had “gained value” in terms of the stock I sold. Whether the house had inflated or deflated in price over the period I owned it depends on what measure we use for price.  If I had sold the stock, rented a place to live, and made an interest free mutuum loan of the remainder of the proceeds I would have been financially better off still, assuming the mutuum was repaid.  If I had rented and not sold the stock at all I would be worst off of all, in terms of financial outcome.

This all would have been the result of changing circumstances.  In general it is not the responsibility of mutuum borrowers – it cannot be a mutuum borrower’s responsibility in justice – to compensate lenders for changes in the lender’s circumstances.

Inflation is a heuristic measure of aggregated circumstances in the economy, crafted and reported by the Bureau of Labor Statistics.  Even if inflation were a measure of the actual concrete and personal changing circumstances of the actual lender, which it isn’t, it remains intrinsically unjust to charge mutuum borrowers rent for the use of their own persons simply because of the changing circumstances of a lender.

§ 29 Responses to Each breath will cost you a nickel

  • djz242013 says:

    I was trying to write a post about why usury was wrong. What makes it immoral, and why is that so hard to see when people can just intuit that things like slavery and theft are wrong? But your offhand paragraph about “charging a man rent for the use of his own person” is clearer than my much longer post. oh well.

  • Zippy says:

    djz242013:

    The biggest challenge in discussing usury with modern folks, even above getting them (us) to grasp what it actually is and is not, is developing an intuition for why usury has always been considered so despicable and heinous. I’m always looking for better ways to provide that intuition pump, and different approaches work for different people. So I would encourage finding other ways to express it, verbose or no. There is plenty of confusion on the issue to go around and my style etc doesn’t work for everyone.

  • Scott W. says:

    So I would encourage finding other ways to express it, verbose or no.

    I sell you a car and let you pay over time for it.
    Turns out you can’t afford the payments.

    Not usury: you give back the car and we both walk away.
    Usury: you give back the car but I decide it’s not enough so I go into your house and take your TV, your stereo, your PlayStation, I get a court order that allows me to garnish your paycheck etc.

  • Alex says:

    Every breath you take
    Every move you make
    Every bond you lend
    Every step you take
    I’ll be charging you

    Every single day
    Every word you say
    Every game you play
    Every night you stay
    I’ll be charging you

    Oh can’t you see
    You belong to me
    My poor ledger aches
    With every wage you take

  • Rhetocrates says:

    Another:

    Not usury: You give me a cow in exchange for money. Through unforseeable means, the cow gives milk only for a couple days, then dries up. I’m stuck with a dry cow.

    Usury: You give me a cow in exchange for money. Through unforseeable means, the cow gives milk only for a couple days, then dries up. I make you work in my fields to make up for the ‘lost milk’ because I thought the cow should give two gallons of milk each day for ten years.

    Usury-by-inflation: You give me a cow in exchange for money. The cow continues to produce milk for as long as I thought it would, but the ratio of exchange between milk and silver goes up. I put you to work in a silver mine to ‘compensate’ me for the ‘lost’ silver.

  • What about arrangements where repayment is neither in kind nor in particular; for instance if you lent me money for a house and wanted to be repaid in gold, would this fall outside the realm of usury as something other than a mutuum or societas?

  • Zippy says:

    TimFinnegan:

    It is still a mutuum, since it is a personal IOU not a non recourse loan or equity stake.

    Relevant posts:

    https://zippycatholic.wordpress.com/2015/09/22/the-just-price-head-fake-and-hidden-usury/

    https://zippycatholic.wordpress.com/2016/02/06/friendship-arbitrage/

  • A Portuguese Man says:

    So, I think I get in terms of mutuums and securitas, like in the FAQ.

    ButI don’t quite grasp it in terms of cows.

    Say someone lends me a cow. I am to pay rent for this cow until I return it.

    Say the cow dies. I can no longer return the cow.

    Is it usury if I’m to pay the rent until I find another cow to return?

  • In the example in the just price post, you gave the example of repayment in oranges. Is it proper to call this a profit producing loan since at the time of the contract the profit has not been actualized, and the contract could actually lead to a loss if when actually given the 100 oranges, apples are worth more than oranges?

    I suppose there is intent to produce a profit from the loan independent of whether a profit is actually made, but in such an agreement that isn’t necessarily the case. It does leave the door open to possible usury which would be imprudent, but it seems like a shrodinger’s contract; both usury and notbusury until the relative price of apples and oranges is known at the termination of the contract.

  • Zippy says:

    The question is, if you are lending apples as an act of charity then why are you insisting on repayment in oranges? See the friendship arbitrage post.

  • Craig N. says:

    As a purely psychological datum, when I read the Usury FAQ I found the selling-things-that-do-not-exist material unpersuasive, but the comparison to slavery struck home. Similarly here.

  • TomD says:

    Something I’ve noted about usury is that people who are financially savvy in their domain often haven’t thought deeply about it – or combine things together – and it basically comes down to “prepunishment” for fraud – because a loan may be obtained fraudulently, and fraud is bad, and the lender can recover losses due to fraud, therefore he should be able to charge interest. Combine that with the obfuscation between joint ownership (non-recourse loans) and mutuums and you get what we have today.

    The funny thing is – even they will notice that personal recourse loans are much more sketchy. The main thing to understand is that, yes, a correct understanding of usury will prohibit certain loans but those loans are bad for society; just as correct understandings of adultery and contraception will prohibit certain sex acts.

  • Zippy says:

    TomD:

    There is also a tendency to try to treat justice as something which can be achieved on average, given certain gross statistical assumptions. Everyone must be penalized for the average rate of fraudulent default, a penalty labeled a ‘risk premium’, as opposed to actual individuals being responsible for their own petty-criminal actions.

    A utilitarian view of justice, obviously.

  • Zippy says:

    TomD:

    The funny thing is – even [financially savvy people] will notice that personal recourse loans are much more sketchy.

    Personal guarantees are financially dysfunctional: their presence in any investment red flags that something is wrong with the capital structure and associated incentives: someone is trying to paper over a problem with a personal guarantee. I won’t say “most”, but I think a substantial percentage of financially savvy people grasp that much and view deals involving personal guarantees with a jaundiced eye.

    [Comment re-worded for better clarity — Z]

  • Zippy:
    “But folks tend to treat “inflation” as if it were a basic feature of reality as opposed to a particular heuristic/statistical guesstimate about certain historical circumstantial changes in relative prices…”

    It seems that inflation in itself is a feature of reality, in so far as property tends to break down over time. A mutuum of oranges requires a return of similar quality oranges and a return of rotting oranges would be unjust.

    Inflation qua measure is a relative measure of value. As such, an orange may differ with respect to an apple/apricot/asparagus/avocado in value, but an orange is tautologically worth an orange.

  • Zippy says:

    semioticanimal:

    It seems that inflation in itself is a feature of reality, in so far as property tends to break down over time.

    That isn’t inflation/deflation though (change in relative exchange price of equivalent items over time); it is depreciation (deterioration in the objective value of particular objects over time as they break down or require other maintenance).

    Depreciation (combined with other maintenance costs) is financial recognition of the second law of thermodynamics.

  • buckyinky says:

    You might be living in a usurious society when this is meant as flattery, rather than an insult, for employees.

  • TomD says:

    Honestly it’s amazing how blatant it is – terms like Human Resources are so bad even slavers wouldn’t use them.

  • A Portuguese Man says:

    Thanks Zippy, makes sense.

    Personally, I think the secured/unsecured contract approach worked better for me. And I think it also ties well with the general financial morality around it.

    I find it easy to understand that if no property secures the contract other than people, and there’s interest, then there’s usury.

    I guess you could say usury is like securing a contract with slaves.

  • A Portuguese Man says:

    BTW, I started translating the FAQ to Portuguese. Turns out, it was much harder than I thought. I hadn’t realised the amount of financial and legal jargon in it the first time I read it. I don’t know much about either thing so even though my grasp on English is solid, I need to constantly check what are the right terms in Portuguese.

    I found out that we technically refer to mutuum contracts as… “mútuos” – pretty much the same word – “mutual” in English.

    I found out a few academic works and theses on usury in Portugal, mainly from an historical perspective.

    Interesting. I’ll keep chiping away slowly.

    I can confidently say no one I know has a clue about this stuff (including me, before I found your FAQ), in a country supposedly Catholic to the bone.

  • A Portuguese Man says:

    Although, in fairness, I was raised under the premise that borrowing most kinds of valuable things, but especially money, was, generally speaking, a thing that ought not to be done.

  • TomD says:

    An interesting thing about the old bad sins – common wisdom was to avoid doing them AND avoid being a victim of (or tempting people to) them.

  • Rhetocrates says:

    I guess you could say usury is like securing a contract with slaves.

    You’d be in the company of Popes and Saints (and sainted Popes) if you did.

  • different t says:

    It seems the basic principle is that according to the Church: if a person is genuinely unable to meet some proper obligation, it is morally wrong to replace it with an improper and more burdensome obligation. Note the implicit role of judgement and authority, and therefore all of the implicit presuppositions.

    For example, if a man is unable to provide his family with sustenance (the proper obligation), it is morally wrong to replace this obligation with an obligation to “provide his family with sustenance and deliver x to the lender.” However, this is not the same as if a man provided his family with sustenance and then asked to borrow money for the purchase of a prostitute’s services. And is different still from a man who is unable to provide sustenance for his family as he traded his production for the services of a prostitute.

    This view (which is very illiberal and not about abstract finance) seems foundational from my reading of your posts about usury. However, it is not at all clear that attempting to translate this perspective into the language of finance or force fit it into a liberal framework is a good project (though, this: “An interesting thing about the old bad sins – common wisdom was to avoid doing them AND avoid being a victim of (or tempting people to) them” seems to complicate that).

  • Zippy says:

    different t:

    However, this is not the same as if a man provided his family with sustenance and then asked to borrow money for the purchase of a prostitute’s services. And is different still from a man who is unable to provide sustenance for his family as he traded his production for the services of a prostitute.

    Even if the contract stipulates limits on how the money is spent or the manner in which the lent property may be alienated from the borrower, it remains the case that interest on the loan is illicit unless the loan is secured by (and only by) “a fixed, immobile good” — that is, by some property which the contract specifies may not be alienated, since that property and only that property – specifically not a personal IOU – secures the contract.

    I’d also point out that it is morally wrong even to give a man money for the express and constrained purpose of (e.g.) paying a prostitute, or spending the money on any evil product or service for that matter, since this is formal cooperation with evil. This is entirely independent of the prohibition of usury specifically.

  • Different T says:

    Your response is exactly the translation of this view out of the illiberal framework and into the language of finance and liberalism. I understand what you are saying, it isn’t clear you understand what I am saying.

    The purpose of drawing out those other two examples wasn’t to give you an opportunity to apply your knowledge about usury. It was to highlight the ways they interact with what was identified as the “basic principle” out of which your “knowledge” of usury results. You seem to be claiming that usury results from mutuum loans with interest. OK, sure. The alternative perspective would be that the “basic principle” has become meaningless and attempts to translate it into finance or force fit it into a liberal perspective doesn’t seem to restore the meaning.

  • Zippy says:

    Different T:

    I understand what you are saying, it isn’t clear you understand what I am saying.

    It isn’t really clear to me that you are actually saying anything which is both non-tautological and understandable.

    The purpose of drawing out those other two examples … was to highlight the ways they interact with what was identified as the “basic principle” out of which your “knowledge” of usury results.

    You might want to work on some different examples then, because (as already observed) the example of giving/lending someone money specifically so he can go to a prostitute is already morally wrong on entirely orthogonal grounds.

    Your principle in your own words is as follows:

    … if a person is genuinely unable to meet some proper obligation, it is morally wrong to replace it with an improper and more burdensome obligation.

    But it is morally wrong to place an improper obligation on someone to begin with, for any reason or under any circumstances, without any preceding “if” clause. That is what “improper” means.

    As for accusing me of thinking like a liberal, etc, in my discussions of usury; I’m happy to leave judgment of the veracity of that naked assertion to readers, and posterity.

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