Please don’t eat my car

June 13, 2018 § 32 Comments

In the comments to the post below, Bedarz lliachi writes:

I understand and appreciate the point – the lender merely gets the borrower’s pledge. The borrower gets the thing.

But it is unsatisfying that it is necessary to introduce idiosyncratic usages of very well-defined words. Nobody ever says that a lender “sells” the “loan”. Selling is something quite distinct from lending.

Like many words the English word “loan” is multivocal: it has several distinct meanings.  I’ll point out two of them in this post.

In one sense of the term, I loan you my car to drive for a while since your car is in the shop.  The term “loan” here means that I retain ownership of my car while you use it: you are obligated to return that actual car to me when you are finished using it. Because you are using my car, it is morally licit for me to make a profit – charge you rent – for your use of my car.

In a different sense of the term, I loan you some flour to bake into bread and eat.  The term “loan” here means that you now own that actual flour, and have personally pledged to pay me for it later with different flour.  (This is the kind of “loan” which is meant by the Latin term “mutuum“).  As a mutuum lender I no longer own that actual flour, you do: I have agreed that you may dispose of that actual flour however you wish. Furthermore, you have not pledged any collateral: you have not sold me an interest in any specific itemized actual property that you do own: all you have given me is a pledge, not ownership of any thing. In virtue of the agreement itself I now own nothing, I simply have your promise that you will pay me for what you have purchased within some agreed time.

So it is morally illicit for me to make a profit on your use of that actual flour: if I attempt to do so I am attempting to charge you rent for the use of something which I do not own. Charging rent for the use of property I do not own is intrinsically unjust.  I do not own the flour any longer once I have given it to you under a mutuum: if I did, then when you bake and eat the bread you would be stealing from me, as if you had sold the car that I lent to you in the other example.

If it is always intrinsically immoral to make a profit from this kind of lending, then why would anyone lend in this specific manner?  Out of friendship or charity, of course, and in pursuit of the common good.

But it is never morally licit to lend under a mutuum out of financial self interest.

§ 32 Responses to Please don’t eat my car

  • buckyinky says:

    This is easy to see with relatively trivial amounts of fungible goods as with the flour example. If my wife needs only a cup of flour to make a cake, and gets if from the next door neighbor, it seems absurd for either party to place a moral obligation on her to return a cup of flour later when she has it on hand.

    But say my wife needs a larger amount of flour, say a whole sackful, and borrows it from the neighbor. The larger amount of flour borrowed creates an understanding, even if tacitly, that my wife will get an extra sack on her next shopping trip to replace the one she’s borrowing from the neighbor. Am I understanding correctly that there is actually no moral obligation on my wife to do this?

  • Zippy says:

    buckyinky:

    The agreement is that your wife will replace the sack she used. What is absurd is the notion that the neighbor should profit from the use of the sack of flour she no longer owns.

  • buckyinky says:

    I got confused by reading this comment, but turns out I didn’t read it carefully enough. I camped out on the “not absolutely” qualifier and translated it to “no obligation whatsoever.” I think that was my mistake.

  • Patrick says:

    Ah, so that’s what is meant by charging for something twice. You can licitly say, “I will give you this sack of flour for a sack of the same size plus one dollar, payable tomorrow.” Usury would be, “I will give you this sack of flour for a sack of the same size plus one dollar, payable tomorrow. And 25 cents for each cup you add to the dough.” It’s not your flour anymore, so why would you be able to charge for its use.

  • Zippy says:

    Patrick:

    You can licitly say, “I will give you this sack of flour for a sack of the same size plus one dollar, payable tomorrow.

    No you can’t, at least not simply, because you are demanding more than one sack of flour as payment for exactly one sack of flour.

    What you could licitly do is buy equity in the borrower’s lawn mower for one sack of flour. You could then rent your share of his lawn mower back to him until he redeems it by giving you one sack of flour.

    Of course if a piano falls on the lawn mower you both now co-own, you lose what you invested (in addition to being out the profits).

    You could buy an insurance bond from Joe against falling pianos, with some of your mower rent proceeds, backed by the product of Joe’s wheat field. But perhaps there would be a drought, etc.

    All of which is to say that if the contract is a mutuum, any contractual profit is usury. But if the contract is not a mutuum and in no way contains a mutuum (hidden or otherwise), contractual profits are not usury.

  • Ian says:

    So what is the difference between a mutuum loan and simply selling something?

    (I take that as the point Bedarz lliachi was trying to make).

  • KevinD says:

    Ian:

    My best understanding is that a mutuum loan *is* selling something. The diference would be that this sale has ‘delayed’ payment.

  • Rhetocrates says:

    A mutuum loan is selling something, but you keep charging your customer for the sale until he sells you something back.

  • Rhetocrates says:

    Except that’s wrong; he doesn’t sell you something back. Sorry.

    A mutuum loan is selling something, but instead of taking your payment, you charge him in the future.

    Regardless of whether the future comes about or not.

  • Bedarz Iliachi says:

    A question is whether the spirit of charity and friendship that motivates a person to offer a mutuum loan–does this spirit excludes that person asking the borrower to make good his pledge?

    In other words, while we have left the lender with the borrower’s promise to repay the mutuum, can the lender insist that this promise be honored or would that insistence violate the spirit of charity and friendship?

    PS The delicate question of ownership involved in mutuum transaction and whether it is “selling” or not, I think require a more elaborate theory of ownership that what has been offered yet. It should be recognized that ownership involves much more than possession and even control. Otherwise, the word “theft” could not be meaningful. The thief possesses and controls the property he has stolen, but he does not become the owner thereby.

  • Zippy says:

    Bedarz lliachi:

    … does this spirit excludes that person asking the borrower to make good his pledge?

    Not absolutely, but I believe it excludes that insistence when the friend cannot afford to repay. See Question 13 in the Usury FAQ, and also Q47.

    The thief possesses and controls the property he has stolen, but he does not become the owner thereby.

    I’ve written a number of things about property over the years; but in this case I think it is sufficient to observe that by the very nature of a mutuum (as opposed to non-mutuum contracts), the owner (lender) deliberately and freely chooses to fully transfer ownership of the actual property lent to the borrower. This free choice to fully transfer ownership cannot be denied. Transfer of ownership is confirmed by the authorization to “consume” (alienate) the actual property and the corresponding personal guarantee to pay back in kind at a later time, whatever happens to that actual property. The very features of the contract which make it a mutuum mean that ownership has been fully transferred in a free act: if the “lender” retains ownership of the actual property (and corresponding personal risk of loss), meaning that the property cannot be alienated (consumed) without stealing from the lender, then it is not a mutuum. See the car / flour scenarios in the OP.

  • I really don’t mean to pander here, but I really appreciate you harping on this point, for the simple reason that almost no one else is and because you’re doing it in a way that I am slowly coming to understand. I’ve always had qualms about usury defined simply as high interest, but never really understood why I might ought to pay attention to those qualms.

  • ignacy says:

    As a mutuum lender I no longer own that actual flour, you do: I have agreed that you may dispose of that actual flour however you wish.

    In some jurisdictions, there is a difference between a loan (understood as above), and credit (usually reserved for the banks only), where the creditor supposedly retains ownership of the fungible good (usually money) credited, and the credit amount can be used only in accordance with the credit arrangement (e.g. for the purchase of home). Nevertheless, credit is usually full-recourse, even when additionally secured with property.

    Is this distinction illusory? Does

    Transfer of ownership is confirmed by the authorization to “consume” (alienate) the actual property and the corresponding personal guarantee to pay back in kind at a later time, whatever happens to that actual property.

    hold when the lender cannot consume as he wishes?

    Or, maybe it is that credit is just spent by the creditor as if purchasing a stake in a joint venture, but it is unjust that the creditor demands full recourse from the managing partner in that joint venture (a.k.a. lender)?

  • […] mower you both now co-own, you lose what you invested (in addition to being out the profits).  As co-owner of the lawn mower you share in any risks to that lawn […]

  • Zippy says:

    ignacy:

    Ownership is demonstrated by the fact that the owner loses all contractual claims when his property is destroyed by accident or is licitly alienated from possession. (Vandalism, theft, etc can give rise to criminal and tortious claims of course: as with “slavery” of prisoners making license plates the consequences of criminal acts should not be confused with the terms of contracts).

    A full recourse mortgage (for example) by definition remains payable by the borrower even after the house has been sold (alienated or “consumed”) or burns down in a fire. So this contract may not be a simple mutuum; but it contains a mutuum and therefore profits are usurious.

    Said more simply, sometimes usurers insist on additional security beyond the personal IOU. But adding more security to a usurious contract does not make that contract non-usurious. In order to make the contract non-usurious the mutuum – the personal guarantee of repayment – has to be eliminated.

    See the Magisterial citation here:

    https://zippycatholic.wordpress.com/2017/06/12/recourse-to-the-magisterium/

  • A Portuguese Man says:

    Zippy,

    I think it’s worth to develop this ownership point.

    This post clarified the last bit I still hadn’t understood – when it is said that usury is charging rent for nothing. It is now perfectly clear. Thanks.

    It is now much clearer, also, regarding the other post, why fungible property is common refered together with usury: it is the easiest to be consumed. Its primary purpose is to be so. Whereas a book, say, isn’t consumed by reading it (it obviously is, but ever so slightly as to not make a diffence in most cases).

    Whilst usury pertains to the nature of the contract it is easy to confuse it with the nature of property whose primary use is to be consumed.

  • A Portuguese Man says:

    As to whether mutuum contracts can be viewed as sales, my guess is that a mutuum can be viewed as a sale of something for something of the same kind, quality and quantity, payable at a later date.

  • Zippy says:

    A Portuguese Man:

    I think it’s worth to develop this ownership point.

    It is something Aquinas observes in multiple places but I have not really emphasized in precisely those terms: it is impossible to merely rent out the consumption or alienation of property as something distinct from the property itself, so to lend at mutuum just is to fully transfer ownership of the property lent. (Each new post of mine may seem redundant with things previously stated, but I do try to introduce or at least emphasize something I haven’t emphasized before).

    Here is Aquinas in the Summa:

    In order to make this evident, we must observe that there are certain things the [primary]1 use of which consists in their consumption: thus we consume wine when we use it for drink and we consume wheat when we use it for food. Wherefore in such like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing, is granted the thing itself and for this reason, to lend things of this kind is to transfer the ownership.

    And:

    On the other hand, there are things the [primary]1 use of which does not consist in their consumption: thus to use a house is to dwell in it, not to destroy it. Wherefore in such things both may be granted: for instance, one man may hand over to another the ownership of his house while reserving to himself the use of it for a time, or vice versa, he may grant the use of the house, while retaining the ownership. For this reason a man may lawfully make a charge for the use of his house, and, besides this, revendicate the house from the person to whom he has granted its use, as happens in renting and letting a house.

    ——

    [1] Aquinas observes elsewhere that any property can ultimately have consumptive or non-consumptive uses, so the mutuum lies in the nature of the contract not in the nature of the property.

  • Purple Tortoise says:

    Off topic, Zippy, but have you had any further development in your thoughts on the practice of selling a car but retaining ownership of the software needed to run the car and only licensing the use of it to the car owner under restricted conditions?

  • A Portuguese Man says:

    Zippy,

    I like your post style. These things often need to be read multiple times for the full meaning to be grasped – for me, at least.

    to lend at mutuum just is to fully transfer ownership of the property lent.

    This is the crucial observation that I was lacking.

  • Zippy says:

    Purple Tortoise:

    Nothing profound beyond what I’ve written before. Some products really do require “cloud” infrastructure to work at all (e.g. a self-driving car); other times the licensing scheme is just something on the order of fraud, selling the car without selling the embedded software essential to its use. In general I think “licensing” embedded software so that you have to keep paying just for the product to work at all is a scam. But if additional infrastructure which actually costs the provider money really is required that is a different situation.

  • pilgrim says:

    This free choice to fully transfer ownership cannot be denied. Transfer of ownership is confirmed by the authorization to “consume” (alienate) the actual property and the corresponding personal guarantee to pay back in kind at a later time, whatever happens to that actual property.

    Would you be willing to comment on the differences (if any) between the words “consume” and “alienate”? Are you using “alienate” in a sense special to Catholic or philosophical usage, rather than the current legal meaning? For in current legal terms, to “alienate” is to transfer title to some property. Obviously when you consume a cookie you are not transferring title. For your purposes, are all acts of consuming considered acts of alienation, or vice versa, or do they not quite coincide?

    If money is considered to be something like a bearer bond (which I have seen claimed), does it even make any sense to speak of “transferring title” to money in that sense? Would there be any difference between possession of money and ownership of it, for there to be a difference between having possession of money and having title to it?

  • Zippy says:

    pilgrim:

    Are you using “alienate” in a sense special to Catholic or philosophical usage, rather than the current legal meaning?

    When it comes to usury specifically, “alienate” and “consume” mean the same thing. Aquinas:

    And exchange is a use consuming, as it were, the substance of the thing exchanged insofar as the exchange alienates the thing from the one who exchanges it.

    Eating a cookie alienates the cookie from its possessor; exchanging it also alienates it. This is the sense of “consume” meant in a mutuum: authorization to consume (with its corresponding personal guarantee to repay, from which the authorization to consume arises) is the essence of a mutuum; and it would be unjust to consume what is owned by another (has not been given to you to consume).

    https://zippycatholic.wordpress.com/2018/06/09/if-you-dont-like-my-cooking-try-consuming-the-magisterial-text/

  • Zippy says:

    pilgrim:

    On this:

    Would there be any difference between possession of money and ownership of it, for there to be a difference between having possession of money and having title to it?

    What matters is the nature of the contract, not the nature of “money” (a term which can mean a number of different things). Again I’ll let Aquinas answer:

    And so if one gives money sealed in a purse to post it as security and then receives recompense, this is not interest-taking, since it involves renting or hiring out, not a contract for a loan.

    When you buy an insurance bond, the contract does not authorize you to immediately spend/consume/alienate the money or property posted as security: you only may spend it if the adverse condition insured against actually comes to pass. So you rent the money – money you are not permitted to consume, just as you are not permitted to exchange my borrowed lawn mower for a gas grill – against that possibility.

  • Veritas Quaerite says:

    So, I have a question about “in kind” repayment – especially with regards to legal tender. I hope the examples here are not stretched too thin.

    First, consider the situation where I loan someone 100 lbs of wheat, to be repaid 2 seasons hence. In the intervening time there is a blight on that strain of wheat, and repayment is in another strain that requires 110 lbs to yield the same amount of flour. Is it licit to require 110lbs to compensate for the fact the “in kind” repayment is not exact.

    *If* this is true (and I am not convinced it is), then consider the following situation:

    I loan a friend who is in a mutually acknowledged temporary situation where they need $100USD. They will pay this back in 2 years in a lump sum. In the intervening years, inflation increases drastically – so the $100USD I loaned 2 years ago are no longer in circulation and at payback it requires $110USD to equal the same value. I think this is an identical situation.

    Thoughts?

  • @Veritas Quaerite
    I think that Zippy makes the right point (if I understand him correctly) that once you’ve accepted that a mutuum is licit only as an act of friendship, then using a friend as an inflation hedge is reprehensible.
    More to the point, my thinking is that what you have a claim to is the return of the principal that you actually gave. Purchasing power is an extrinsic relation of potential exchange between the thing you gave and everything else in the market for which it can be exchanged. You don’t have a claim to the purchasing power which extrinsic to the thing given, but to the return of the thing given in kind.

  • Veritas Quaerite says:

    OK … that all makes sense to me. Fair enough.

  • Zippy says:

    semioticanimal:

    That is a very good point. I think a lot of people confuse the lending of money, that is, a specific and actual bit of property (which may be exchangeable for other property and/or which might be thought of as a measure of price), with the lending of purchasing power, that is, an abstract extrinsic relation which may or may not be realized in some potential transaction.

    But the actual thing actually lent is not purchasing power. The actual thing actually lent is (when it is money) money. Anti-realism can’t tell the difference between the real thing and an abstract estimate of what the real thing might exchange for in a hypothetical transaction.

    Relevant:
    https://zippycatholic.wordpress.com/2016/09/25/blood-money-digital-fools-gold-and-the-second-law-of-thermodynamics/

    I do think though that most of the abstract casuistry would not really get off the ground if folks truly internalized the fact that mutuum lending is only ever licit at all as an act of friendship or charity.

  • Veritas Quaerite says:

    I think it makes sense that modernity finds these distinctions so hard to understand. I feel like I see a pattern where modern people cannot distinguish the abstract from the concrete, the statistical from the data point.

  • @Zippy
    Purchasing power does have that typically modern question begging sense about it as if money had purchasing power as a horse had pulling power or a chain saw cutting power. In a mutuum, the modern might think, the borrower shouldn’t return a dying horse or rusty chain saw, so why can he give depreciated money?

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