Category: Usury

3.5 Time Outs: New Things

Thanks once again to our host Larry D. at Acts of the Apostasy, who’s also doing a time-travel edition today.

Click and be amazed.

1.

Blogging Popes.  That’s my topic for today.  Not the kind you’re thinking of, though.

2.

See, here’s what happened:  Saturday night I was bored, tired, and itching for something to read.  Something fun and relaxing and novel.  Meaning, new-to-me.  I usually grab one of my daughter’s library books for this purpose — just enough entertainment to get me through a non-digital Sunday, but not so much that I’ll be out of service, glued to a book, for 10,000 hours waiting for Br. Cadfael to tell me who did it.  But I needed novelty.

So I went to Papal Encyclicals Online.  I’m sure that’s what you do, too.  But before you get too impressed, keep in mind that the three reasons this was a possible source of reading material were:

  • I’d never read most of them before.  Strike one against my Catholic-nerd credentials.
  • They’re usually very short.  This is why I’ve read the minor prophets, but *still* never gotten through all of Isaiah.
  • There was no chance I’d let the cat starve, or grouse at my children for interrupting me during an especially gripping scene.

And the thing is, they tend to cover that same juicy ground as your average Catholic blogger, only you get bonus credit for not being stuck to the computer all day while you work up your angry frenzy at the injustice in the world.  Of course, no Star Trek screen shots for illustrations, but look, I was desperate for entertainment.

3.

And the one I picked was Rerum Novarum.  Which is basically a series of blog posts on economics.  Perfect.

(Let me just say right now, JPII’s follow-up work is not blog-genre.  Waaay more wordy.  Waaay more.  I haven’t finished it yet.  But I’m half thinking, “What more is there to say?  Leo.Encyclicalpress.com already covered the whole territory.  But you know how it is, people need to explain the obvious.  Or maybe people needed the obvious re-explained.)

Here’s a sample snippet of the Leonine goodness:

Hence, by degrees it has come to pass that working men have been surrendered, isolated and helpless, to the hardheartedness of employers and the greed of unchecked competition.

And this:

The mischief has been increased by rapacious usury, which, although more than once condemned by the Church, is nevertheless, under a different guise, but with like injustice, still practiced by covetous and grasping men.

Followed by this:

To this must be added that the hiring of labor and the conduct of trade are concentrated in the hands of comparatively few; so that a small number of very rich men have been able to lay upon the teeming masses of the laboring poor a yoke little better than that of slavery itself.

 

See? I spent my weekend reading 64 Cath-Econ-blog posts, 19th century edition.

3.5

And although I could pretty much shut my eyes and point my finger anywhere in the document to find a good quotable quote, one of my underlined favorites is

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Well that’s all for today.  Still accepting suggestions for additions to the sidebar, so tell me who to add.  But do just one link per comment, because otherwise the robotic spam-dragon will consume the whole lot of them.  Thanks!

What use a Classics Degree?

Darwin answers the question:

This isn’t because a degree in the humanities is “useless”. I believe that learning Greek, Latin, history and philosophy was very useful to me. But it was useful to me in the sense that a liberal art is meant to be useful — in allowing one to think like a “free man”. It is not useful in the sense of providing instant and easy employment. I think that it would be helpful if colleges and departments were a little more honest about this. It would also be very, very helpful if people took it into account before blithely borrowing large amounts of money. (And if people were less blithe about borrowing so much money in order to fund college degrees, perhaps the absurd rate of tuition increase would slow down. You may be assured that one of the things allowing universities to make off like bandits is that people have the illusion that having a degree, any degree, is an automatic ticket to a “good job”.)

He also confirms that Rush Limbaugh is not a classicist.  Apparently people were confused on that point.

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Meanwhile, Archbishop Chaput demonstrates how to use such an education.  From his “On Being Human in an Age of Unbelief”:

That leads to my fourth and final point. The pro-life movement needs to be understood and respected for what it is: part of a much larger, consistent, and morally worthy vision of the dignity of the human person. You don’t need to be Christian or even religious to be “pro-life.” Common sense alone is enough to make a reasonable person uneasy about what actually happens in an abortion. The natural reaction, the sane and healthy response, is repugnance.

The whole thing is excellent, and eminently readable.  Print it out and read it on paper, because it merits sitting down and giving it your full attention.  Great essay to discuss with your high school or college student.

 

3 Quick Takes: Rosary, College, Good things to read.

I could never be coordinated enough produce seven on a Friday.  But here’s three:

1) If you ever wondered how someone like me ended up in the Legion of Mary, yeah, it’s about how you’d think.  Don’t be fooled by that lovely little picture Sarah R. stuck up, I pray nothing but plastic these days.  Unblessed at that, which horrifies the gallant rosary-maker I thanked the other week, but I tell you right now there is a rosary permanently stuck in the track of the seat of my truck.  Yes.  With the cheerios crumbs and the hardened mass you secretly hope is just gum, but maybe it isn’t.  It’s all I can do to pray the thing; keeping it from falling out of my pocket and into the netherworld where no blessed objects belong is beyond my  ability.

2) I don’t care what the nice guy at the Newman Society says, $20,000 a year for college tuition is not “affordable”.  Put me firmly in the camp with Msgr. Pope, on the question of “Are We Unjust to Require College Degrees As Often As We Do?” Yes.  We are unjust.  It is a mockery to post “degree required” positions for jobs that don’t pay enough to cover the cost of student loans.

3) I am having massive fun today hitting the “share” button in Google reader.  I made a little sidebar here on the blog that shows my favorite google-read posts.  If you are like me and never, ever, actually visit your favorite blogs (because you read everything in RSS), but weirdly you want to know what things other people wrote that I think are worth reading, I think the link to my Google Reader Shared Posts page is here. Which in theory you could subscribe to.  I have to test and see if that works.  (Update: Yes!  It works!)

Under Water

Submersion continues.  But look, Brandon at Siris is writing about Usury!  Yes!  Oh I love it! And there’s more here, that I haven’t had time to read yet, but I know you will, since you are so desperately bored without me.

And many smart people (including Siris) have already posted the famous First World Problems music video, but if you resisted watching, no really, it actually is pretty funny.  A tad heavy-handed at the end, but probably if you watch TV normally you won’t notice so much.

To finish the theme, here’s a day in the life at a third-world small business.

Enjoy.  Have I mentioned I have an inordinate passion for air-conditioning this time of year?

 

Higher Ed

Darwin writes here about how everyone’s getting a college degree these days, and the economic consequences.  I was going to leave a comment, but I finally just decided to hit the ‘like’ button and be done with it.

Mr. Magundi laments the consequences of collegization for communities, but offers a hopeful solution:

We have raised the price of higher education to the point where it may simply be ruinous even for comfortably well-off families. And so we may end up abandoning the university system as we’ve built it up, in favor of a system where we stay home for most of our higher education, perhaps in community colleges, or in some similar institution we haven’t thought of yet. Educated people might get in the habit of thinking of the place where they grew up as home. And in spite of the disadvantages to Harvard and Cornell, I think that might be a very good thing.”

Am I the only one horrified that you can’t get a decent catholic college education without taking out a mortgage on your life?  Though I think charities such as Mater Ecclesiae Fund have their hearts (and wallets) in the right place, I find it frankly predatory that catholic colleges will load students up with such levels of debt to begin with.

Yes, I meant that.

***

Meanwhile, Public Discourse is running this essay.  The gist: the political science education offered in the Ivy League in the 1990’s let ideology get in the way of reliable scholarship — to the detriment of the State Department today.  Well, funny about that.  Because those of us getting our int’l poly-sci degrees from Backwater State U, we were studying under some of these guys.  Taking courses like “Islam, Politics and Revolution”.

–> And happily for the State Department, some our grads found their way to Washington.  So not all is lost.  Most of us local-U grads grow up to be, well, locals.  But we let loose a tithe of our debt-free adventurers, to go assist our better-indoctrinated educated brethren up north.

So if our government should get something right, you know who to thank.

Just kidding.  Sort of.

Usury Part 3: Lending Gone Right

This is the post where I propose that there is an acceptable kind of lending at interest.  Which we can then use to evaluate other situations and see how they stack up.  Here goes:

Imagine for a moment that I give up my life of prayer, goofing off, and educating children (let us not contemplate which one I put most effort into — hint, the prayer part could use a lot of work), and decide to start a business.  Any kind of business, but one that produces a tangible product.  Knitting socks, growing tomatoes, something like that.

[If either of those sound immoral to you, just imagine me producing something that you think really truly ought to be produced.  We’re going for an unimpeachably worthwhile productive activity here, for the purposes of our study.  And we are going to refrain from comments about how my knitting and gardening skills are only slightly better than the prayer life.]

Now imagine that I have the talent for this business, all the necessary organizational skills, even the ability to file my taxes properly. (Which I actually can do!)  But that YOU are the one who has the cash I need to buy supplies.  And you’re perfectly willing to invest in my business.

So what do we do?  Surely the Church does not require you and I to abandon all prospects of a business venture, on account of the peanut butter and chocolate never being permitted to touch.  You have the cash, I have the rest, we can change the world one sock at a time, if only we can join forces.  Our current options are this:

Become full partners in a business. It’s like getting married, only harder to put asunder if things go awry.  You love me, but not that much.  Really all you want is to fund some yarn purchases in exchange for a cut of those huge margins I’m gonna make on my extraordinarily unique sock creations.

I sell you stock in my company. If it’s a publicly-traded company, it will be relatively easy for you to sell off your portion of the business if you so desire, but you may or may not get your desired share of the profit if you do that.  If it’s a privately held company, it’s eerily like that partnership option.  And from my perspective — do I really want you having a voice in how I run my sockworks?

–> Really what you and I both want is for you to contribute some cash to this year’s sock run, and at the end of the season you take your cut of the profits and move on.  Maybe we’ll join up again later, maybe we won’t.  But we want a nice, clean, short term arrangement.

Now in certain staunchly Muslim countries I am told that to get around the usury problem, a profit-sharing type of financial instrument is available.  But here in the U.S., we either have ownership equities (those stock or partnership options rejected above), or . . . DEBT.

Yes, debt.

Our friend, debt.

Bet you never thought I would type that ever.

But here’s what:  Debt is simple.

You want to contribute some cash to my sock works in exchange for a share of the profits.  Now we could, in theory, set up something to do exactly that.  I say you’ll get, say, 10% of the profits off of this year’s sock production in exchange for buying a year’s supply of yarn.  But where does that leave us?

–What if we disagree about how to calculate the profits? I feel sure sure sure my knitting needles will depreciate fully this year, and you think I can get a good twenty years out such sturdy bamboo.  (Which means lower costs, more profits, a bigger piece of pie for us to split.)

–What if I have more than one product line, and you only funded one of them? Now the accounting gets really rough.  How do I allocate my call center costs between the project you funded (all that beautiful chartreuse wool — thank you!)  and the project my other faithful reader funded? 

-And that’s not even taking into account horrible management decisions, strange market conditions, and everything else. Surely I would have made much more money, you argue, if I’d gone with the other shade of chartreuse.  And if only we had waited 14 months before settling up instead of 12, you would have gotten 10% of a much bigger pie, what with the sudden epidemic of Sheep Flu that hit right after I paid you off.

Summary: Profit sharing is complicated.

So we simplify our agreement.  I expect that if I use your $100 to buy wool, I can turn around and sell the socks for $150.  Dividing the proceeds fairly, after taking into account my other expenses, we agree that if I pay you back the $100 plus an additional $5 as your share of the expected profits, that will be a win-win.  And we agree that I’ll pay you back exactly one year from now, rather than having to worry about exactly when the project is over.

Will one of us end up the loser?  Maybe.  I might not sell as many socks as planned, and I still have to pay you the $5 interest.  I might make more profit than planned, and you still get only a measly $5.  But it is a clean arrangement, built around the real expected values of what wealth the sock project is going to generate.  If it is part of an overall habit of making prudent business decisions  over the long run, it should balance out.  Maybe this project you get the better end of the deal, next time chance favors me, but in the long run, when we aggregate all these little arrangements we work out within the business community, we both get our fair share.

And that, I think, is the basic model of why and how debt can be good.

Usury, I argue, is something else.  A situation where we pretend to have good wholesome debt, but in fact one of us is abusing the financial instrument to exploit the weaker party. We’ll look at that in Part IV.

 

 

 

Usury II – Kings, gold, wars, family jewels

2nd Installment is finally here, and I know there is at least one other person on the entire internet who is interested, because Jim Curley posted on topic last week.  (And yes, I would totally write an entire blog just to keep Jim Curley entertained.  What sensible person wouldn’t?  Plus it turns out that the SuperHusband sometimes reads here, and when he does, he laughs at all my jokes.  So that’s two reasons the rest of you have to put up with Usury.  Intro is here.)

Anyhow, post #2 is a sidenote about where we are not going in this series.  And it’s this:

In Dante’s era (and before) a fair bit of the moneylender’s business was loaning money to warlords.  This is a rough business model: The industry functions more smoothly — that is, more profitably — when the lender is the one who can shake down the delinquent borrower.  Staying afloat is rather more awkward when that relationship is reversed.

[Note to creditors of the US government: We do not intend to nuke you nor expel you.  We just expect you to continue to loan us money.  Forever.  Because no, we are not going to pay you back.  Don’t people know this by now?  99% of the time, the chronically late, the chronically disorganized, and the chronically indebted stay that way.  Hence my desk and our deficit.]

So back on the not-our-topic:  Moneylender finance wars.

And here is what you need to know about wars:  Wars do not generate wealth.

You can have a defensive war to protect your wealth, or you can an offensive war to acquire someone else’s wealth.  But war does not create wealth, it spends it and destroys it.  So anyone who is loaning money (at interest) to finance a war is loaning money for a non-wealth-generating activity.

Now this is very confusing because wars keep people Very Busy.   The employment rate — that is, the measure of how many people are being kept busy — goes up.  And this warms our hearts, because if you haven’t got anything to do, you also probably don’t have a way to feed yourself.

But all this extra work falls into one of three categories:

  • Things you get paid to do right before someone kills you
  • Things you produce that will be used up by the people getting killed
  • Things you could have been making all along, if only the king had wanted them sooner.

I concede that last category is a kind of wealth generation.  But the king could have purchased it war or no war.  And given that the whole business of war is to kill & destroy until the enemy gives up, I maintain that war does not generate wealth.  (It may still be necessary – see “just warfare”.  But that doesn’t mean it makes us wealthier.  There are many things we must do that do not make us wealthier.)

But I go into the whole giant aside because Dante (and us as well) would have observed that the money lenders were, at least some of the time, making a profit off lending money for war.  And that is mighty distracting when we want to debate the morality of usury, but I don’t think it should be our topic.  Either you need to go to war or you don’t.   If you must, then I suppose you’ve got to pay for it somehow, and let’s not get all carried away about the moneylenders until we understand the morality of lending at interest in blander situations.   If it is an unnecessary (and therefore unjust) war, you never should have waged it to begin with, so money lenders are a moot point.

***

The other thing I want to say about the historic situation with money lending is all that drama over the family jewels.  You know, such and such (usually Jewish) moneylender held the crown jewels of xyz great king, and blah blah blah.   Hello?  This is not an O. Henry story.  I’m very sorry if her majesty had a particular fondness for her financial instruments.  If my 401K were as pretty as all that, maybe I’d have it shaped into something I could wear on my head, too.

But whereas I will gladly dive right into the topic of holding cloaks, cars, and the family farm for collateral, I draw the line at lumps of metal and rock, no matter how cool lookin’.  Precious metals and minerals are money.  They do have intrinsic value out in the garage, as drill bits and conductors and all that, so yeah, if we were talking about pawning your tools, I’d be willing to talk.  But the bulk of their value is as money, and it is as money, not as hardware, that bankers will accept them.

Now you can imagine that a bankrupt king would be perfectly happy to sell you sob story about why he had to shake down his banker to get back the precious heirlooms.  Because it was all a plot against his poor innocent majesty.  So when we start to talk about the morality of banking, especially within the historical context, keep in mind to disregard all that propaganda.   It’s not about family memories.  If we’re going to ream the bankers, we’ll have to find a more substantial charge than “his majesty wants his money back”.

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And that’s where we’ll start to head in part III — back into the question of whether lending at interest is ever right, or ever wrong.

This series, btw, is coming out awfully slowly because I have been sleeping late.  (You thought it was because I was deep in thought.  No, I was not.)  If I wake up early, it gives me this lovely uninterrupted writing time when I can actually think.  But after a certain hour, that window is gone gone gone.  The only reason I got this post out is because I sent SuperHusband off to an event with the big kids, and put two littles in bed.  So if I’m going to get more substantial posts written, either I’ve got to stop sleeping so much, or else people need to start sending us more invitations.  I’m good with either.

Usury – Intro

Note: I expect maybe a little series is brewing here.  I thought this was going to be The Post, and instead it’s just an introduction.  Oh dear.  Well, it should be fun, anyway.  Talking about usury is always fun.  We’ll sidetrack into the family jewels and the waging of wars next post, as all good usury discussion must.  Then it’ll be back on topic in post #3.

***

So back to usury. Dante complains, as Mark Shea explains:

Well, for Dante, since fruitfullness can only proceed from Nature or Art (or, as we would say today, “raw natural resources and manufacture of goods and services”), it follows that mere chicanery by which dead gold or silver are made to “breed” by manipulation of interest rates by those who lend at interest is another form of perversion.

The argument is that money-lenders aren’t producing anything.  But somehow they’re getting rich anyway.  Suspicious.  Very suspicious.

Now we can take the classical view of the situation, and argue that bankers are “renting out” their money.  Same as you might rent an apartment, or a car, or a tuxedo.  The banker owns something you need to use for a while.  You get the use of the item, and in exchange you pay a fee, in addition to returning the item when you are done with it.    All very above-board, frankly.

As with housing, the renting of money only comes under fire when there’s a perceived abuse.   We want there to be a certain amount of real estate and money available for rent.  (And tuxedos.  But no one gets too excited about tuxedo-sharks.) What we do not want is for one lucky super rich guy to lord it over us, and the rest of us have to live in his tenements or his mill village and pay ridiculous fees just to cash our paycheck, with us constantly in crisis and owing money we can never pay back.

–> The ‘rental’ model of banking works pretty well until you attempt a moral analysis.  Suddenly you’re stuck: The difference between a modest mortgage and a horrendous title loan is only one of degree, not of kind.  Surely there should be no objection when both parties engage willingly?

If you are happy with loan sharking, it’s not a problem.  But suppose you have this nagging feeling that all is not right?  And suppose you are comfortable with a certain amount borrowing and lending — perhaps there’s even a favorite financial instrument you have rather come to know and love?  Then you’re super-stuck, because you can’t just outlaw all lending at interest, because there goes your baby out with all the rest of the wash.  Trouble trouble.

What I’d propose is that we take apart the types of loans and financial investments that are out there, and see what makes them work.  Is it all just an indistinguishable mass of “money for rent”?  Or is there something qualitatively different going on?  And if different (as I will argue), what kinds of transactions are good, and which kind are that financial chicanery that Dante would have been right to detest?

***

Next up: Disclaimer about kings and their wars.  Then back to answering the question.