INTEREST RATES and USURY
The Laws of Usury were an attempt in Middle Age Europe to neutralize the accumulation of wealth beyond the amount necessary for individual survival. In the event of an accumulators fortuitous circumstance, the accumulator class was felt that if they wanted to share their largess with others (those in need), they should do so without any attached a premium in repayment beyond the amount loaned. If they did demand additional recompense,, it was usury--breaking the law.
In a subsistence economy, each (hopefully) produces what they (and their family) need to survive. No doubt that reality held sway though a vast majority of hunter/gatherer epochs of human history. Then, as time went on, with the manifold inventions brought to fruition by human ingenuity and luck, and those inventions flowed into increased human/economic productivity (including agriculture, the use of animal labor, etc.), some enterprising souls began to accumulate more than needed for their subsistence. All of which led to the question: what to do with it? (1) Store it for a rainy day. (Cave and silos and barns attest to that chosen option.) Another question arose: (2) After counting the average number of rainy days in any given year, was it cost-effective to build new barns and silos for rainy days that can that never possibly be? (3) Throw the accumulated excess away. (I suppose that led to bothersome foraging by those who lived below subsistence, but human-goats always have been and always will be: SEE flea markets.) (4) Give it away to those who are beneath subsistence level? (And religions, stressing the commonality of man, reinforcing such a solution. More than a few accumulators were promised heaven because of such personal largess in the face of their personal accumulation.)
Others argued another rationale (was it their greed rationalized?): that just by 'giving' wealth away it rewarded or encouraged sloth. Productivity, invention, the growth of knowledge would be severely de-incentivized by such undeserved generosity.
A compromise was established. Let the accumulators when so moved 'lend' it to others for a short period of time: the needy borrowers could then use these accumulated productive resources to start there own farms, hunt down their own animals to train, go to school to learn knowledge that would help them to move to and beyond subsistence...enabling them to survive and eventually to give back the borrowed amount to the original owner-accumulators.
However, in loaning people risks were recognized--what if the loan is never paid back? What if the borrower wasted the resources; was a lousy or unlucky farmer, a foolish or incapable trainer of animals, a lousy student? To mitigate against such unfortunate occurrences, the accumulator/loaner decided to attach a premium to the loan repayment: an interest rate, intended to cover and spread the risk of a loan default.
So far, so good. This method of dealing with accumulated goods and the dispensing of same all sounds rational...and fair...if one accepts that the initial accumulation of goods and services is the reward of personal effort and not mere luck. BUT...should an accumulator be rewarded if luck were the determining fact in the possibility of accumulation? What if the initial accumulation of wealth did not occur due to the efforts of meritocracy but were affected to some degree by only luck: such as, accidents of birth, geography, accidents of weather and climate; and if so, should the lucky accumulator be allowed to accumulate that portion of wealth based only on luck: while others--the unlucky--are left starving? And get an interest rate on top of it?
Religion--stressing the commonality of humankind--argued 'no'. Luck should be neutralized in the formula of success. Let the factor of luck--the fact that life contains uncontrollable and inherent risks or 'accidents', fortunate for some, unfortunate for others, be removed from the equation: luck should be balanced: why not allow the 'risks' attendant on birth be offset in some way by denying all accumulators additional recompense for their loaning?
In this formulation, interest rates become usurious; in that they unfairly protect the accumulating class against any overall (class) wealth-risk in loaning; while being blind to the risk factor of those (eventual borrowers) who enter life with more risk (measured by the lack of luck in birth, inheritance, geography and climate) in the overall economic arena.
The early Christian church's condemnation of interest rates--usury--was such an attempt at balancing this an unfair disparity in risk-acceptance, believing as it did (and still does, I assume) in the commonality in value and worth of all human beings (at least as it is enshrined in the US Declaration of Independence: each individual has an equal right to life, liberty and the pursuit of happiness).
Let us banish interest rates once again--usury--once and for all. Let the accumulators be generous because it feels good (the secular equivalent of 'going to heaven': reduces ulcers, colitis, and any anxiety about the 'underclass'). Or grant the loans to the unfortunate without interest because it prevents revolutions (the rationale behind Foreign Aid), or because the government is going to tax it all away if you don't (remember when there was a 90% tax rate on income over $200,000?). And remember: not all loans are defaulted. Only a percentage.
Do we really need interest rates? 'What goes round, comes round'. Let's return to kindergarten...where we all learned to share--without interest rates. What happened?
In a subsistence economy, each (hopefully) produces what they (and their family) need to survive. No doubt that reality held sway though a vast majority of hunter/gatherer epochs of human history. Then, as time went on, with the manifold inventions brought to fruition by human ingenuity and luck, and those inventions flowed into increased human/economic productivity (including agriculture, the use of animal labor, etc.), some enterprising souls began to accumulate more than needed for their subsistence. All of which led to the question: what to do with it? (1) Store it for a rainy day. (Cave and silos and barns attest to that chosen option.) Another question arose: (2) After counting the average number of rainy days in any given year, was it cost-effective to build new barns and silos for rainy days that can that never possibly be? (3) Throw the accumulated excess away. (I suppose that led to bothersome foraging by those who lived below subsistence, but human-goats always have been and always will be: SEE flea markets.) (4) Give it away to those who are beneath subsistence level? (And religions, stressing the commonality of man, reinforcing such a solution. More than a few accumulators were promised heaven because of such personal largess in the face of their personal accumulation.)
Others argued another rationale (was it their greed rationalized?): that just by 'giving' wealth away it rewarded or encouraged sloth. Productivity, invention, the growth of knowledge would be severely de-incentivized by such undeserved generosity.
A compromise was established. Let the accumulators when so moved 'lend' it to others for a short period of time: the needy borrowers could then use these accumulated productive resources to start there own farms, hunt down their own animals to train, go to school to learn knowledge that would help them to move to and beyond subsistence...enabling them to survive and eventually to give back the borrowed amount to the original owner-accumulators.
However, in loaning people risks were recognized--what if the loan is never paid back? What if the borrower wasted the resources; was a lousy or unlucky farmer, a foolish or incapable trainer of animals, a lousy student? To mitigate against such unfortunate occurrences, the accumulator/loaner decided to attach a premium to the loan repayment: an interest rate, intended to cover and spread the risk of a loan default.
So far, so good. This method of dealing with accumulated goods and the dispensing of same all sounds rational...and fair...if one accepts that the initial accumulation of goods and services is the reward of personal effort and not mere luck. BUT...should an accumulator be rewarded if luck were the determining fact in the possibility of accumulation? What if the initial accumulation of wealth did not occur due to the efforts of meritocracy but were affected to some degree by only luck: such as, accidents of birth, geography, accidents of weather and climate; and if so, should the lucky accumulator be allowed to accumulate that portion of wealth based only on luck: while others--the unlucky--are left starving? And get an interest rate on top of it?
Religion--stressing the commonality of humankind--argued 'no'. Luck should be neutralized in the formula of success. Let the factor of luck--the fact that life contains uncontrollable and inherent risks or 'accidents', fortunate for some, unfortunate for others, be removed from the equation: luck should be balanced: why not allow the 'risks' attendant on birth be offset in some way by denying all accumulators additional recompense for their loaning?
In this formulation, interest rates become usurious; in that they unfairly protect the accumulating class against any overall (class) wealth-risk in loaning; while being blind to the risk factor of those (eventual borrowers) who enter life with more risk (measured by the lack of luck in birth, inheritance, geography and climate) in the overall economic arena.
The early Christian church's condemnation of interest rates--usury--was such an attempt at balancing this an unfair disparity in risk-acceptance, believing as it did (and still does, I assume) in the commonality in value and worth of all human beings (at least as it is enshrined in the US Declaration of Independence: each individual has an equal right to life, liberty and the pursuit of happiness).
Let us banish interest rates once again--usury--once and for all. Let the accumulators be generous because it feels good (the secular equivalent of 'going to heaven': reduces ulcers, colitis, and any anxiety about the 'underclass'). Or grant the loans to the unfortunate without interest because it prevents revolutions (the rationale behind Foreign Aid), or because the government is going to tax it all away if you don't (remember when there was a 90% tax rate on income over $200,000?). And remember: not all loans are defaulted. Only a percentage.
Do we really need interest rates? 'What goes round, comes round'. Let's return to kindergarten...where we all learned to share--without interest rates. What happened?
posted by Cliff Osmond at 8:38 PM
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