Usury

Zippy Catholic has been interested in usury for some time now, and I have learned a lot about it from talking to him about it over the last few years. We’ve been having a colloquy over the last few days about whether government bonds constitute usury, which he has put up over at his site (here).

The basic thing to understand about usury, at least as St. Thomas approaches it, is that usury is selling what doesn’t actually exist. Zippy tried to explain this notion to me in a horribly long thread last year over at What’s Wrong with the World. The example that finally drove it into my understanding was this:

Zippy sells Lydia a $10K bond he has written, secured only by his promise to pay principal and interest (and not by any actual assets). Lydia in turn sells Kristor a similar $10K bond that she has written, again secured only by her promise to pay. Kristor then sells Zippy an exactly similar $10K bond that he has written. Note that no change has occurred in the real wealth – the real productive capacity, the causal power – of any of the three. If any one of them defaulted, they’d all default, and they’d all be in the same situation they had been in before any of the notes were sold.

This is more or less what happened in the Crash of 08.

When the Treasury sells you a bond that is backed only by its own promise to pay, does that constitute usury? Those of you who are into this kind of thing might want to check out what Zippy has to say on the subject. I’m not quite sure he’s convinced me, but neither am I sure I yet know exactly why I feel that way. Working on it!

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118 thoughts on “Usury

  1. Clarifying example.

    Perhaps it could be honest if each was prepared (voluntarily, without coercion) to do extra labour (to the value of 10K dollars) for the person from whom you have the bond.

    Thus, if, after ‘default’ all three parties worked longer/ harder for a year (to the value of 10K of their salary), then (perhaps) the situation would be honest?

    • They would in so doing compensate for the usurious notes they had each sold. But the notes are irrecoverably usurious. And this is not because any of the three were dishonest, but because in selling the notes unsecured by any actual real assets, they were selling a mere potentiality.

  2. We should also note, that if a financial instrument has an obvious risk of default and is trading with zero discount, there is a lie somewhere. Usury is part of the system of state capitalism, or communism or whatever you want to call it. De facto agents of the state are the only people able to print massive amounts of notes that trade on par with money, thus creating money out of thin air. This drives up the price of capital, making it virtually impossible to have any kind of business without a loan from the same de facto state agents. Thus the state controls the allocation of capital (of course, using an impersonal bureaucratic mechanistic decision making process, plus a thumb on the scale to create an control groups. Beyond that, human judgment is actionable, you know). There you have the corrupt 21st century.

    Are we surprise the Church was right about this?

  3. Pingback: Usury and the Sovereign « Zippy Catholic

  4. Usury is one of my pet topics and the Distributist Review writes about it quite often. They’ve covered T-bills, as well.

    Currently, T-bills are being issued in order to monetize the debt, which is nothing other than usury. There is no productive purpose to the bond, it is just being used to cover older bonds by paying some of the interest while simultaneously inflating away their value (devaluing the dollar they are priced in).

    It’s arguably the most insidious form of usury, as it’s being done in someone else’s name. The government takes out a loan at interest in the name of children who have yet to even be born.

      • I reread it. I see what you are saying: That it is not usury because the government is doing it and issuing currency (and debt based upon that currency) is a legitimate function of government. But that does not take into account the fiat nature of the currency.

        The government is allowed to kill people, but that does not mean that it cannot commit murder. They are not exempt from sin merely because they are allowed to do things which are not sinful that are superficially similar to the sin.

      • Vanessa:
        That it is not usury because the government is doing it and issuing currency (and debt based upon that currency) is a legitimate function of government. But that does not take into account the fiat nature of the currency.

        It isn’t merely that issuing currency is a legitimate function of government. My discussion about companies issuing stock show how a non-government entity can issue its own currency, borrow it back from third parties who own it, and pay profitable interest denominated in that currency without engaging in usury.

        I also do take into account the fact that T-bills are denominated in fiat currency. See here, for example.

        I am very much with the spirit of the distributists on the subject of usury, but I do think they have parts of it wrong. All the discussion of extrinsic titles is moot, for example, because extrinsic titles only apply to altruistic lending of the sort done by the Franciscan societies: they don’t apply to profitable lending for business purposes at all. The Magisterium has clearly asserted that asset-recourse loans are not usury, so the Bellocian distinction of productive versus unproductive loans is inadequate: a profitable “loan” for consumption taken against real assets (say a house owned free and clear) – so long as recourse for recovery of principal is limited to that real asset – is de-facto a buy-leaseback arrangement, a “kind of society” in Aquinas’ words, and is not therefore usury.

        Nonetheless a great deal of modern credit is usury: credit card debt, car loans, full recourse mortgages (precisely because all of these profitable loans are full-recourse and formally allow for a deficiency judgement), etc.

        But the issuance of treasuries in fiat currency is not usury, many business loans are not usury, etc.

        So again: I am with the spirit of the distributists on usury; but some additional intellectual hygiene is required to get it right.

      • I guess that’s where we would disagree with you. We think it is more important to stick to the spirit of the law than to the letter of it.

        According to the Catholic Encyclopedia: “The Holy See admits practically the lawfulness of interest on loans, even for ecclesiastical property, though it has not promulgated any doctrinal decree on the subject.” It’s been a hotly debated and contested issue from the beginning, with viewpoints swinging widely from one generation to the next, depending upon the economic climate of the time.

        In boom times, the Vatican turns a blind eye or even engages in the practice, and when it all blows up in their face — as it always does –then they call for a jubilee and rant against the banksters. Now that the Vatican Bank is full of scandals and the Holy See itself suffers the inevitable deleveraging, the tide will soon turn again. They’ll have to drop the Euro and clean up their own house before they can rant with a clear conscience.

        But if you look at what the Bible and the Early Church actually said and did, you would have to conclude that all interest-bearing loans are usury, unless the interest is a form of fee used to cover the administrative cost of the loan. That is because the Bible admonishes us to neither lend nor loan money, and that if any loan is made, it should be made out of charity and not in order to seek profit. The ban on usury was a ban on the financialization of money — i.e. the habit of making money off of money. A fiat currency that is backed by debt is the quintessential form of that very sin, as the printing of the money itself automatically increases the debt burden on the populace. It is a perpetuum mobile of debt servitude.

        That is undeniably what modern governmental and private banking does, so the fact that they’ve found newer and more nifty ways to do it, and to skirt the moral law without explicitly breaking it, doesn’t stop their sin from destroying the economy and leaving the poor destitute. Just as a new form of fornication doesn’t get to be called something other than fornication, simply because humans have discovered a newer, more perverted way to sin.

      • Vanessa:
        I’m not sure you’ve understood much of what I said, especially if you think I am suggesting that the spirit of the law should be violated in order to preserve the letter. I’m not. Truth is a unity. What I am saying is that distributists are right to take usury seriously, but their understanding of what usury is and is not is deficient.

      • What I am saying is that distributists are right to take usury seriously, but their understanding of what usury is and is not is deficient.

        And I’m saying that the definition of usury has evolved over time, becoming more and more specific in order to create wiggle-room for the Vatican’s own financial shenanigans, and I (and the distributists) think that the ancient definition is the better one because it discourages all consumptive/destructive lending.

      • Vanessa:
        And I’m saying that the definition of usury has evolved over time, …

        Yes, perhaps, but I am not using an “evolved” definition. When I use the term “usury” I am referring to usury. When distributists use the term they are themselves using an evolved definition, because their understanding of usury is in fact inadequate.

        T

      • Zippy,

        1. If T-bills are not usury because they are backed by a currency issuer, then nothing in practice is usury. Banks notes (or account balances) trade at par with federal reserve notes, because there is a guarantee that they will be everywhere and always equal in value despite the fact that the bank note is nominally a debt and the federal reserve note is equity, because the currency issuer will create new equity. The relationship between bank notes and the currency issuer and treasury notes and the currency issuer is in principle, the same. If we recognize this, we end up with a definition of usury that says, “Usury is money lent by people not powerful enough to cajole the state into meeting its obligations via new currency issues”. So if the usurers take over the state, and force the people into debt peonage by driving up the price of all forms of capital with their new issues of equity, then they are no longer usurers. Is that correct?

        2. I think your ignoring what money actually is. Apple issuing new equity is not money, and you know that. Money is as natural an outcome of human relations as the family. When we talk about usury, we are talking about a particular practice that relates to how things actually are in a world where something is money and other things are not.

      • The thing distributists are missing – in their zeal to take usury seriously – is the distinction, made by Aquinas and by the Magisterium, between asset recourse loans and person recourse loans. See here, for example, for authoritative Magisterial teaching – not modern teaching, but teaching from the Pope in 1455 AD – on the distinction between asset-recourse loans (which are really just a form of equity investment, and are not usury) and (usurious) person-recourse profitable loans.

      • Josh:
        I think the discussion might be more productive if you say what you think my argument is. Because I’m not seeing any of my actual stated positions in what you are arguing against.

      • I know about that letter, and I also know about the canon laws and papal letters from before that one that proscribe all and any lending of money at interest. The further back you go, the more virulent the condemnation.

        It is only a guess, but the steady watering down of the teaching tells me that there must be an awful lot of money at stake. But what do I know? I’m apparently too stupid to understand that if it looks like usury, and sounds like usury, and destroys wealth like usury… it’s not usury. It’s some completely different financial transaction that leaves the borrower homeless and destitute, or even enslave an entire populace. We’ll call it nusury or pusury or even lusury and then we can get it on the game ourselves.

      • Is your position that if I were to give you a cookie in exchange for the promise that you would give me two cookies tomorrow, this is not usury, since you can bake two cookies and I knew that? Your obligation is met, fairly and squarely, though the market exchange rate between cookies and other goods may decline, harming all other cookie holders.

      • The popes are not above sin or ignorance, either. I consider it the intercession of the Holy Spirit that none of their pro-usury writings ever reached the doctrinal level. Sometimes what they (or their committee leaders) write is sheer nonsense, like that last one asking us to solve the inevitable collapse of the national usury systems with more, better, global usury.

        You claim that it is merely an effect of nomenclature that we are debating, but I see the opposite: the word matters. It matters because the denunciating of usury in the Bible is unequivocal, and using a different word for it makes it seem like a more morally neutral practice. The constant addition of caveats is shameful.

        If you want something, you should pay for it outright or share the costs and the profits with someone else. If you need something and cannot pay for it, the other members of the Church should provide it. How we managed to get from that, to the situation where the Church runs pawn shops, launders money for the mafia, and hands out credit cards, is beyond me.

        You are right, perhaps I am simply too stupid to understand.

      • Vanessa:
        Doctrinal proclamations from medieval Popes are not easily dismissed as “Popes aren’t perfect”, it seems to me. Sure, Popes aren’t perfect. Some were downright evil. But I am perfectly comfortable basing my understanding of usury on authoritative teachings of the Church and Doctors of the Church. I consider the Catholic encyclopedia to be just a lay source, definitely not authoritative but possibly helpful first level research in finding authoritative sources.

        Furthermore, you are simply assuming hermeneutical rupture without showing it. I’ve read lots of commentary on usury over the last few years, some new and some quite old. I have yet to see anyone in all that commentary show any authoritative Magisterial source contrary to the view I am expressing (which to the best of my ability is simply a parrot of Aquinas’ position and the position expressed by the collection of all Magisterial statements on the subject I’ve been able to find).

        Maybe you have some sources which do show a hermeneutical rupture in doctrine, and demonstrated that Aquinas and Pope Callistus promulgated heresy. (The Magisterium has been very quiet about usury for hundreds of years now). Maybe you have an argument that my interpretation is wrong. But if you have either of those things you haven’t shown them, and in addition you keep saying things that you think are contrary to my view which are not contrary to my view, e.g. “If you want something, you should pay for it outright or share the costs and the profits with someone else.”

        You need to think more on the distinction between asset-recourse (buying a share in some existing property and renting it back to the borrower) and person-recourse (charging rent for nothing). You have to understand that distinction – as Aquinas and the medieval Popes surely did, since they wrote about it explicitly and even made authoritative Magisterial pronouncements on it – before you can understand the essence of usury.

        Finally, what my critics are failing to realize is that usury is a sin committed by a lender against a borrower. So if individuals lending money to the government in the form of T-bills are acts of usury it isn’t the government committing usury: it is the individuals lending to the government who are committing usury. I don’t think my critics would be fully happy with the conclusion that government borrowing is licit for the government but is a sin for those who lend to the government.

      • I linked to the Encyclopedia because they have a good synopsis that shows how the pendulum has swung over time. My point is that the Magesterium has not spoken finally and unequivocally on this point, and that they have denounced or approved the practice to varying degrees over time, depending upon their own financial need and the general economic climate of the time.

        The precise question then is this: if we consider justice only, without reference to extrinsic circumstances, can the loan of money, or any chattel which is not destroyed by use, entitle the lender to a gain or profit which is called interest? To this question some persons, namely the economists of the classic school, and some Catholic writers, answer “yes, and always”; others, namely Socialists and some Catholic writers, answer, “no, never”; and lastly some Catholics give a less unconditional answer, “sometimes, but not always”; and they explain the different attitudes of he Church in condemning at one time, and at another authorizing, the practice of taking interest on loans, by the difference of circumstances and the state of society.

        The Council of Vienne (1311), for instance, states that:

        [29]. Serious suggestions have been made to us that communities in certain places, to the divine displeasure and injury of the neighbour, in violation of both divine and human law, approve of usury. By their statutes, sometimes confirmed by oath, they not only grant that usury may be demanded and paid, but deliberately compel debtors to pay it. By these statutes they impose heavy burdens on those claiming the return of usurious payments, employing also various pretexts and ingenious frauds to hinder the return. We, therefore, wishing to get rid of these pernicious practices, decree with the approval of the sacred council that all the magistrates, captains, rulers, consuls, judges, counsellors or any other officials of these communities who presume in the future to make, write or dictate such statutes, or knowingly decide that usury be paid or, if paid, that it be not fully and freely restored when claimed, incur the sentence of excommunication. They shall also incur the same sentence unless within three months they delete from the books of their communities, if they have the power, statutes of this kind hitherto published, or if they presume to observe in any way these statutes or customs. Furthermore, since money-lenders for the most part enter into usurious contracts so frequently with secrecy and guile that they can be convicted only with difficulty, we decree that they be compelled by ecclesiastical censure to open their account books, when there is question of usury. If indeed someone has fallen into the error of presuming to affirm pertinaciously that the practice of usury is not sinful, we decree that he is to be punished as a heretic; and we strictly enjoin on local ordinaries and inquisitors of heresy to proceed against those they find suspect of such error as they would against those suspected of heresy.

        And the original Biblical readings are all unequivocally against lending at interest. My own interpretation (that you could include interest to cover costs) is already a rather watered-down version of the original proclamations.

        I don’t think my critics would be fully happy with the conclusion that government borrowing is licit for the government but is a sin for those who lend to the government.

        Yes, it is the lender’s sin, and the borrower’s sin might be greed.

        With T-bills it is rather difficult to discern guilt, as some of the lending is forced (as with SS, since we cannot choose to invest those payments elsewhere, with fiat currency we are forced to use it as legal tender) and often both the borrower and the lender are the same entity (such as the US Treasury and the Federal Bank, which are not truly separate institutions, or the citizens loaning to their own government).

        T-bills are not asset-recourse loans. If we default on them, we won’t hand our women over to the Chinese for sport, or slice off California and pass it over to the Iranians. That is not the way sovereign debt works. In practice, if we fail to make the payments, our debt is downgraded and we pay a higher price for future debt, just as we would with a credit card. We can see this in action around the world right now, which is why everyone is going belly-up, as they can’t afford to refinance their loans and their tax receipts are not sufficient to cover their running costs.

      • Vanessa:
        And the original Biblical readings are all unequivocally against lending at interest.

        So is Aquinas, so is Pope Callistus III, and so am I.

        Asset-recourse “loans” are not “lending” in the condemned sense though: they are not mutuum with recourse to the person of the borrower for recovery of principal and profitable interest.

      • Vanessa:
        We can see this in action around the world right now, which is why everyone is going belly-up, as they can’t afford to refinance their loans and their tax receipts are not sufficient to cover their running costs.

        It is a category mistake to conflate sovereign debt denominated in someone else’s currency – which is the case for all of the euro-denominated debt, e.g. Greece – with debt denominated in the sovereign’s own currency, e.g Britain and the US. They aren’t even the same category of thing: they are as unalike as apples and the number two.

        The Modern Monetary theorists are kind of crazy (IMO each economic school comes with its own brand of crazy); but you might find some of their insights interesting.

      • Debt issued in a joint currency is not the same as debt issued in a foreign currency. It is still a form of sovereign currency, as it is the legal tender mandated by the sovereign nation and is even produced by that sovereign nation (Greece prints its own euros and creates its own euro-denominated debt, for instance).

        At any rate, I was mostly addressing your assertion that T-bills are asset-recourse loans, which is the main point of the original article and our main point of contention (all the medieval popes aside, although that was fun). We are arguing primarily the technical point of “Is sovereign debt an asset-recourse loan?”

        To which I can only say, “Where are the assets?” If it were a true asset-recourse loan, then the creditor would own part of some tangible American asset that would have to be handed over upon default, but that is not the case. At best, creditors can arrange to refinance the deal with less generous terms.

        They cannot simply show up at an American bankruptcy court and demand whichever bit of the country would please them best or turn the place into a source of slave labor. This is what differentiates sovereign debt from corporate equity. It looks similar on paper, but a sovereign note does not make you a part-owner of a country, where you share in its profits and suffer its losses. The only thing you are promised is that your money will be returned with interest — even if the money returned has hardly any value.

      • Vanessa:
        We are arguing primarily the technical point of “Is sovereign debt an asset-recourse loan?”

        That explains at least one disconnect, because I am not arguing that at all.

        I am arguing that a contract between the sovereign and another party denominated in the sovereign’s own currency isn’t – can’t be – a mutuum.

      • “I am arguing that a contract between the sovereign and another party denominated in the sovereign’s own currency isn’t – can’t be – a mutuum.”

        Doesn’t this mean, as I said before, that if usurers take over the state and denominate their contracts in the currency they now control, they are no longer usurers?

      • Josh:
        Doesn’t this mean, as I said before, that if usurers take over the state and denominate their contracts in the currency they now control, they are no longer usurers?

        No. Charging usury is an act on the part of a lender (the party on a particular side in a contract of mutuum).

        My proposal is that it is not possible for the sovereign to be a victim of usury denominated in his own currency, because when he “borrows” his own currency from some other party that isn’t a mutuum.

        I’m not even sure precisely what it is that you are suggesting follows from that.

      • Vanessa:
        It is different in kind from a private transaction between private parties denominated in the sovereign’s currency, for reasons given. It is what it is, and is not something else.

        If I’ve shown that the creature in front of us is not a duck then asking what kind of thing it is doesn’t undermine my argument.

      • LOL I haven’t agreed to your definition of a duck, yet! I’m intrigued by your creation of a categorization of sovereign loans at interest as not being usury because they are denominated in their own currency.

        This seems different from the medieval habit, where sovereigns usually borrowed money from marginal groups like the Lombardi and the Jews. But I have to go now, as I fly out tomorrow and still have to pack!

      • “No. Charging usury is an act on the part of a lender (the party on a particular side in a contract of mutuum).

        My proposal is that it is not possible for the sovereign to be a victim of usury denominated in his own currency, because when he “borrows” his own currency from some other party that isn’t a mutuum.

        I’m not even sure precisely what it is that you are suggesting follows from that.”

        …………………..

        Treasury borrows from the people and promises to pay interest.
        JP Morgan borrows from depositors and promises to pay interest

        Treasury borrows in US dollars and promises to pay more US dollars
        JP Morgan Borrows in US dollars and promises to pay more US dollars

        Treas and JP Morgan both de facto have the keys to the printing press.

        So when I put money into a savings account and accrue interest that can not be usury. Is that correct?

      • Josh:
        JP Morgan cannot literally create new fiat money. Uncle Sam can. The “de facto” is false.

        So when I put money into a savings account and accrue interest that can not be usury. Is that correct?

        It probably isn’t usury, as I explained here.

      • Obviously, I disagree. I think that JPMorgan is as much an agency of the government properly understood as the Treasury, but I won’t get into that.

    • Yes, I read that. I’m vehemently disagreeing.

      Usury is not just about interest, but about lending money for profit not gained from an equal or greater increase in production. I.e. it is destructive lending, or — as the Council of Nicea called it — “dishonorable gain”. Indeed, if money is loaned under a fiat currency, it is only just to expect the same real amount of capital back (i.e. to agree to return n dollars at today’s price). Just as it is just to charge a fee for the transaction, as lenders incur legitimate costs that way.

      T-bills are a dishonorable gain, as is the fiat currency that they support (lending nothing at interest and selling the notes based upon that fantastical debt). These are both usurious practices. The entire system is usurious because it is all based upon dishonorable gains.

  5. If this comment is useless to you, feel free to ignore it. However, I wonder if the whole discussion needs to be shifted. Charging interest per se is not wrong. It is rent for the temporary use of someone else’s property. What’s wrong is exploiting someone’s poverty by charging excessive interest, which is a crime against social solidarity. Practically every state in the union attempts to address that with its usury statutes.

    Printing money beyond the value of new goods and services, like the issuing of dilutive stock, is not usury, but theft.

    • Usury, like rape, is a specialized form of theft. It is the theft of wealth through interest. It is the grossest form of rent-seeking, and a little bit of usury is still usury.

      It is, however, a highly profitable enterprise, which is why it has so many defenders. Why should we bother with producing children, products for sale, or skills for trading? It’s so much easier to just conjure money out of thin air and then force everyone to pay for the use of it with their actual produce, or take out a loan today so that you can shop tomorrow. Even most of us here don’t want to abandon usury. How would we afford that second car, or that valuable college education, or that bigger house?

      Setting aside the fact that an interest-bearing loan on a depreciating asset (including cars and — as we’re all now finding out — houses and college educations) is pure financial madness. Well, we all sinned in haste and now we can repent in leisure.

      • I am coming from the point of view that money is money precisely because it is not useful. Because it is not useful, it accumulates. Because it accumulates it cannot easily, at least historically, be diluted. This is why gold always out competes silver: because silver is useful whereas gold is not. But what we hold our stored wealth hardly matters to the argument. It is a real thing… at least as real the concept of “wealth”.

    • Usury is definitely not a matter of charging “excessive” interest. It has been neutered as a moral concept in part by modernity’s assertion of that straw man.

      Usury is charging any profitable interest on a person-recourse (as opposed to asset recourse) loan. With usury the “rent” – the interest – is charged literally for nothing, since the principal is not secured by specific named assets in which the lender is taking an ownership interest.

      Any profitable loan which contractually allows for a deficiency judgment – for going after the person as opposed to specific named assets and only those assets for recovery of principal and interest in a case of default – is usurious, because it involves charging rent for (literally) nothing.

      • You’re not “charging rent for literally nothing.” You are charging rent for “the use of your wealth”… with which you would find something else to do if you were not in fact allowed to “charge rent” for it. Even in a hard-currency system with no fractional reserve banking, there will still be those who want to save now to spend later (investors) and others who want to spend now to save later (entrepreneurs). It could be that the Bible (and the Church) officially forbid this arrangement, but it is hard to imagine an advanced economy without it.

      • Steve, the prohibition of usury is not a prohibition of lending at interest per se, but of unsecured debt. A bond issued by a corporation is not usurious, because the debt is secured by corporate assets – lenders have first rights to corporate assets over the stockholders in the event of bankruptcy.

        The opportunity cost of a transaction is neither here nor there. Both usurious and non-usurious notes have opportunity costs. What counts is the structure of the agreement. If it is secured by real property, an agreement is not usurious. Real persons are not properly real property. They cannot justly be pledged as collateral. So person-recourse instruments are usurious.

        It is of course perfectly possible to write an asset-recourse note that, while not usurious, is unjust for other reasons – as carrying an exorbitant rate of interest in the circumstances, setting forth burdensome repayment schedules, etc.

      • Charging rent for opportunity costs is morally wrong because opportunity costs are not ontologically real: charging rent for them is charging rent for literally no-thing.

        It is a mistake to think that this amounts to a prohibition of investment, entrepreneurship, etc because asset-recourse investments (what Aquinas calls a “kind of society” in his discussion of usury in the Summa) are perfectly permissible. When I started companies my investors contributed money. Under the terms of the investment they had recourse to the corporations we created and their assets – but not to me personally – for recovery of principal and profit (in some cases charged as interest accruing over time). That kind of arrangement is not usury.

        I keep saying that folks need to grokk the difference between asset-recourse and person-recourse in order to understand usury. This isn’t just my advice: it is doctrine.

      • Well… what’s the difference between “personal recourse lending” and “Sorry, Mr. Investor, your SOL!”? The point is that the borrower, who wants to spend future dollars today, doesn’t have the assets to back the loan. If he did, he would need the loan, and the potential lender, who wants to spend today’s dollars in the future, would have to find something else for which to “charge rent”. Having recourse to the corporation’s assets is a red herring. The net value of the corporations assets might very well be zero. You could make all “personal recourse lending” into asset-backed lending by requiring the borrower to make little pipe-cleaner doggies for the lenders in case he cannot pay back. Hey, pipe-cleaner doggies are assets… of a sort, worth about a penny a piece. But hey, the assets of a failed corporation could be worth even less than that.

        The borrower has something real: future earnings, or an expected ability to get them. His strength is real. His skill is real. His business plan is real. If the lender didn’t think these were real, he wouldn’t lend him the money in the first place, because he would have no expectation to be paid back.

        An opportunity cost is no (real) thing in precisely the same way that a price differential between suppliers, or a price differential between optional components, is no real thing. The difference is realized (i.e., real-ized) when you either decide to pay for one and not the other. But anyway “charging rent” for an opportunity cost (i.e., interest) could also be seen as accepting a higher risk (to one’s capital) for an “extra fee”. That is, psychologically speaking, a more accurate description of “rent”.

        I expect the Church’s teaching on finance, if it has one, to account at least for Nature herself. And Nature herself appears to have created savers (savers who want to spend current wealth in the future) and spenders (entrepreneurs who want to utilize wealth today to gain wealth in the first place). Nature herself appears to have created a mechanism to govern the interplay between (natural) risk and (natural) reward, and that mechanism is called “price”. An interest rate iss (is and only is) a price. It seems to me that if the Church teaches something contrary to what nature teaches (which I doubt with a religious certainty), then she would (at least) be operating outside of the bounds of her competency.

      • Steve Nicoloso:
        The point is that the borrower, who wants to spend future dollars today, doesn’t have the assets to back the loan.

        Right. Presumably he uses the proceeds of the loan in a way which creates more value, not in a way which destroys value. That is precisely how the entrepreneurial borrowing I have done works: the investor has recourse to the business enterprise and its assets – and those alone – for recovery of principal and interest.

        Mind you they asked for “personal guarantees”. I didn’t give them. They invested anyway and made lots of money.

        The borrower has something real: future earnings, or an expected ability to get them. His strength is real. His skill is real. His business plan is real.

        You are failing to distinguish between potentialities and actualities. My new post on that subject is almost ready to go up.

      • Well… what’s the difference between “personal recourse lending” and “Sorry, Mr. Investor, your SOL!”?

        In asset-recourse lending, default results in sharing the assets backing the wager. Once the wager is over (i.e. the investment was or was not successful), then the lending transaction is finished, closed, and everyone walks off with a profit or a loss.

        In personal-recourse lending, the person’s future wages are what is backing the wager, and those can be collected until they are dead (and often extracted from the next of kin after death, or even nationalized). Personal bankruptcy laws are meant to alleviate that, but (as we can now see with student loans, and as the Council of Vienne excerpt noted), the urge to continuously increase rates to cover losses, or change the laws to force debtors to pay back the loans, is strong. This leads to indentured servitude, and Christians aren’t supposed to enslave each other, but rather to give to each other out of charity.

      • So that doesn’t answer the question: What is the qualitative difference between pledging pipe cleaner doggy-art and real property to back a putatively legitimate interest transaction?

        Real property has a price–a price which goes up and down. Pipe cleaner doggy-art has a price–a price which goes up and down. Who’s to say that a certain number of pipe cleaner doggy-art pieces, or a few tulip bulbs, or a couple hunks of gold, or an enforceable claim against the property of a future defunct company’s assets is positively worth more than any of the others.

        They all have some market value, which is at any given time uncertain up to the point of sale, at which (and at which only) the price will be known. Prior to that the value of any pledged item is only potentiality and is therefore subject to… RISK.

        And RISK is all that we’re talking about when we talk about interest. It is the price of risk. It is only the price of risk. To preclude interest is to preclude risk, which only works in a not real world, so then if the Church teaching forbids interest it only does so in the not real world. So I tend to doubt this because I don’t believe the True Religion would be fundamentally maladaptive.

        So my main complaint is the distinction between asset backed loans in which the lender may (putatively licitly) charge interest; and “personal recourse” loans in which the lender may not. I do not see the supposed bright light of day between the two. If we substitute “1000 pipe cleaner doggies” for “personal recourse”, the loan (by Zippy’s theory) becomes perfectly licit. Moreover, there is no certainty that 1000 pipe cleaner doggies could at some point of sale be more valuable than owning some “asset” which putatively backed the loans. Who knows maybe those pipe cleaner doggies will sell for 100 bucks each on ebay? (It worked with Tulip bulbs… for a while.)

      • There’s nothing in La Wik that suggests that pipe cleaner doggies could not be pledged as collateral. Since there is little distinction (economically speaking) between pipe cleaner doggies and “personal recourse”, I guess I’m right: The supposed distinction between recourse and non-recourse lending is not sufficiently hard to build a theology upon.

      • The difference is that in nonrecourse lending, if you as a lender are foolish enough to accept pipe cleaner doggies as collateral against your real capital the loss is on you. You don’t get to pretend that you are entitled to get the money you flushed down the toilet back with interest.

      • Preventing people from beating up other people or breaking their legs or fingers for not paying bills is not going to be the end of civilization. On the contrary I agree that such a prohibition is a good thing. But if the government doesn’t enforce contracts, no matter how imprudently entered into, then someone will, and that someone will likely not be without a conflict of interest.

        Paying for money is not paying for an imaginary thing. Money is a commodity just like any other. It just happens to be how we denominate all others. Money, whether gold or fiat currency, is a real thing. Money is money because (and only because) its price is so much higher than its industrial value. (Gold to make shiny useless trinkets, Ben Franklins to wipe your butt.) Money is (and only is) the commodity that represents the game theoretical solution between competing “monies”, each of which could be money only if everyone thought so. But that doesn’t mean it isn’t real. And if I can charge “rent” for the use of my house or my car or lawnmower, then I can charge “rent” for the use of my money.

      • Steve Nicoloso:
        I’ll make you the same deal I make for everyone: once you’ve shown that you understand my position on usury (which I believe to be Aquinas’ position) by paraphrasing it in your own words correctly, I’ll be happy to debate it with you.

      • You mean I cannot charge rent on the use of my lawnmower? How then can I be compensated for the risk of damage to the lawnmower to say nothing of the normal wear and tear? If not allowed to charge rent for the use of lawnmowers, people looking to rent lawnmowers will be out of luck. I suppose a few lucky ones would find some charitable person to lend them one for free once in a while (and charitably eat the depreciation), the rest will have to find (eevil) “black market” lawnmower renters.

        Look I understand what you’re saying, or saying Aquinas is saying… I just don’t buy the distinction between “real” and “unreal” asset. Money is just as real and at least as useful as anything else. It doesn’t have any special ontological status, it just happens to be denominator of all (local) estimates of financial value.

      • Steve Nicoloso:
        You mean I cannot charge rent on the use of my lawnmower?

        No, I don’t mean that.

        Look I understand what you’re saying, or saying Aquinas is saying…

        You definitely don’t understand if you think that either I or Aquinas have said or implied that you musn’t charge rent on the use of your lawnmower.

        Money is just as real and at least as useful as anything else.

        Good. When you are stranded on a desert island you can eat money, clothe yourself in money, build shelter with money, make jewelry with money, construct an iphone from money, read money for entertainment, and make a shrine to the Blessed Mother out of money.

      • A share of Apple stock and the title to a house both represent ownership of something that is ontologically real. A dollar bill doesn’t.

      • Apple is ontologically real? A corporation is a legal fiction. Granted, it is one that manages to create a lot of real-world effects, but as ontologically real things go it is pretty far down on the roster.

        Presumably if a dollar does not represent the real and and AAPL share does, I guess that makes the latter infinitely more valuable. Since there are plenty of people willing to trade shares for dollars, you stand to make a killing.

      • Yes, institutions are ontologically real, and shares in a corporation are a property title to a portion of that ontologically real thing. No, money is not a property title to any specific ontologically real thing.

        This isn’t as hard as you are making it, fellas.

      • Money is a collectible item. It is obviously ontologically real. It can, in fact, be held. It is a mere accident of the market that everyone accepts it as money (i.e., the most effective way of storing and exchanging welath). But that accident is precisely what makes it money. Of course, money’s “value” is not ontologically real. But neither is the value of 100 shares of AAPL or a deed to your family’s homestead. I believe you, Zippy, are making this harder than it needs to be.

      • Right, and that’s why I said that I didn’t think the ancients or medievals actually grokked what money was. It seems they (Aristotle and Aquinas) recognize money as a medium of exchange, but seem to ignore its potential to store wealth. This is understandable given the state of economics through 1300, but it cannot be ignored today, since most of the “money” in the world is, in fact, stored wealth with only a tiny amount of it, at any given time, is use for exchange. So it seems ludicrous today to say that my home, representing stored wealth, is real, but if I happen to sell it, then all the sudden that stored wealth becomes imaginary.

      • So it seems ludicrous today to say that my home, representing stored wealth, is real, but if I happen to sell it, then all the sudden that stored wealth becomes imaginary.

        That is ludicrous. Who said it?

      • The angelic doctor says: “To take usury for money lent is unjust in itself because this is to sell what does not exist.”

        Obviously money exists as you can stack it, count it, hear it jingle in your pockets, light cigars with it. Aquinas is no dolt, so he must mean something else. Indeed, he does. He is saying that, as with wine, you cannot sell the use of it and expect it back unused. And this only makes sense if you view money solely as a medium of exchange, i.e., something consumed. But money is not merely a medium of exchange. It never was, I think, merely that, but this fact may not have been perfectly obvious to the ancients or the medievals. But today, from pure inductive reasoning as well as tracing the historical origins of money, we can clearly see that money is itself a way of storing wealth.

        So money is a medium of exchange, i.e., something consumable, AND a medium of storing wealth. Today, most of the “money” in the world is in fact stored wealth. As a storehouse of wealth, money is just like any other investment.

        So, let us say I have a deed (a tradeable piece of paper) to some homestead. Aquinas and Zippy will allow me, as a conscientious Catholic, to charge rent for the use of that homestead and still expect it back unharmed after some time. But let us say that, because of sovereign market manipulation through easy and/or subsidized credit or what not, I believe that the value of this homestead may go down. I therefore consider owning this home a bad investment, i.e., way of storing and/or building wealth, for time horizons in which I am interested. I may therefore sell this home for say $200,000. In so doing, I am (and only am) converting the stored wealth in the home to stored wealth in a different medium: a collectible item known as money. (Maybe I made a wise prudential decision in selling, maybe I didn’t. That is neither here nor there.)

        This item is known as money because, and only because, its value, i.e., what I might today trade it for, vastly exceeds its utility (which, with paper money, is literally not much more than wiping my butt or lighting a few cigars).

        So today it is clear that we can convert stored wealth between investment vehicles: real estate and money (and many others) for any of which a certain risk and expectation of reward may be estimated. For neither the home or the money, the risk and future reward is ontologically real. Either could be destroyed or stolen. The future value of a home is home, whatever that might be worth just as a the future value of $200k is $200k whatever that might be worth.

        As stored wealth, the medium shouldn’t matter, the owner may expect the charge rent for the use of the thing as well as expect the thing back. Money, as stored wealth, is not ontologically in a different category than any other “real” investment (whether equity or real estate or commodities). In fact, money is a commodity that just “happens” to be “worth” far more than its industrial value. But it is as ontologically real as any other commodity.

        Aquinas has not, as far as I know, answered this objection. I don’t think this objection would have been au courant in 13th century Italy, so I don’t hold it against him, but I think it is a realistic objection given how our understanding of “money” has evolved.

      • Money qua money does not store ontologically real wealth because (unlike a share of AAPL) it does not represent property title to something specific with ontologically real value.

        I think that is why some folks like the idea of gold backed currency: because it ostensibly represents property title to a real asset. But as has been pointed out before, this merely conflates the roles of money qua money and commodity qua commodity, distorting the perceived value of both.

        Money is a civilized agreement to suspend the completion of barter transactions to make them liquid: that is, independent of space and time constraints as a practical matter and within reason. The idea that money stores ontologically real value is a category mistake. The title to a home isn’t valuable in itself, but it legally recognizes ownership of something real that has real value. Money qua money doesn’t do that.

      • Zippy,

        It seems quite weird to say that the assets a bank are not “real”, even if they are what you have defined as non-usurious, asset-recourse loans.

        If I understand you correctly, it implies that banking in general, at least as commonly understood in terms of maturity transformation, is morally wrong.

      • Percyval:
        It seems quite weird to say that the assets a bank are not “real”, even if they are what you have defined as non-usurious, asset-recourse loans.

        I didn’t say that the assets a bank holds are not real. Again, you have to look at the default side to figure out what is real and what is not real.

        A contract – including a loan contract – is not in itself an ontologically real asset. It is a “real” asset only to the extent that it represents rights to real assets: when you wind up the contract you end up with things of ontologically real value: houses, ores, software programs, manufacturing plants, service centers for products, organizations of employees who come into work every day, etc — or, if you’ve made a bad or unlucky investment, nothing at all.

        Money qua money though, as Aquinas points out — the idea that people today understand money better than he did, or that money has evolved, is as far as I can tell completely false — is not an ontologically real asset. Money does not represent title to any specific property in particular. That is precisely its utility as time-and-space suspended barter: you can sell what you want to sell for nothing in particular, and then trade nothing in particular for what you want to buy when you want to buy it.

        Money has only ‘virtual’ value, as a gentleman’s agreement among civilized men to make trade vastly more efficient. It has no ontologically real value. As the saying goes, you can’t eat money. Nor can it do anything valuable for you at all in itself, nor as title to some specific property.

        And it is morally wrong to insist that someone pay rent for something that is not real.

      • Zippy,

        Okay, so some bank assets are real: fixed assets, securities holdings, secured lending, for example; other bank assets are not real: unsecured consumer credit, and so on.

        And in general a loan is ontologically real if it is asset-recourse–even though you can’t eat the loan, or the asset (unless you are an economist, in which case, capital is edible).

        Do I have that right?

        Money is just a bank liability at the end of the day, and so if you think that an Apple bond or stock is real, because it entitles the holder to some ownership share in, or call option on, Apple’s fixed assets, logically that seems to suggest that money and other bank liabilities are real to the extent that banks’ assets are real. The banks mortgage book is real, so the funding for its mortgage book–deposit accounts, say–is real as well.

        Cash (as in central bank notes) should be considered real as well under such a scheme, because central bank assets are mostly the lowest of the low risk loans secured against high-grade collateral. Cash is a claim on these loans (and other assets–even the central bank needs a building to operate out of).

      • you can sell what you want to sell for nothing in particular, and then trade nothing in particular for what you want to buy when you want to buy it.

        That might be an accurate way to talk about money in the context of a highly stylized economic model in which money is a kind of pure bubble with no inherent value, but, in reality, money is a bank liability. It has value because the bank’s assets have value, in the same way that an Apple liability has value because Apple’s assets have value.

        It’s easy to imagine a world in which Apple liabilities circulated as money. In such a world, people would hold Apple liabilities both because they wanted to lend to Apple, and because they want to hold an asset that is liquid. Apple’s liabilities would not become inherently worthless simply because they are so liquid.

      • Percyval:

        Yes, I think you’ve got it. Asking what happens when the contract winds up is key. Currency qua currency isn’t a contract at all: it does not represent a property claim to any specific real assets. (Again keeping in mind that gold-backed currency wrongheadedly treats this as a defect and attempts to remedy it: it is really remarkable how economically sophisticated Aquinas’ thought is on the subject).

      • Percyval:
        money is a bank liability.

        Money – unlike a share of AAPL – is not a contract representing ownership of specified ontologically real assets.

        That said, anything can be used as a token for money. Used qua money it is morally wrong to charge usury no matter what token is used. See Aquinas’ objection 6 already linked.

      • Money is not equity, so it certainly differs from a share in Apple in many respects. But if you agree that an Apple bond is real, it seems to me that you have to agree that a bank deposit is real as well, at least to the extent that the assets which back it are real.

      • This takes us back to the question of whether banking is morally wrong. If, on the other hand, you believe that money is not real, then my loan to the bank (i.e. my deposit account) is, I think, usury–assuming I’m making some positive interest rate on it, perhaps. This implies that the business of maturity transformation, commonly understood, is illicit.

      • Percyval:
        But if you agree that an Apple bond is real, it seems to me that you have to agree that a bank deposit is real as well, at least to the extent that the assets which back it are real.

        I do. A bank deposit is denominated in dollars (or whatever local currency); but it is not cash. It is a part of the capital structure very much like preferred shares, differing only inasmuch as preferred shares generally convert to common shares one their preference clauses have been satisfied while bonds are fully disposed of once principal and interest have been paid. This is not usury to the extent that the bonds are nonrecourse, that is, are secured only by real assets specified on the books and nothing more. That was the whole point of this post.

        It becomes quite complex to analyze in the context of pervasive usury, because often enough “assets” specified on the books are themselves contracts. So we have contracts for contracts for contracts … none of which is usury as long as the complex contract chain fully terminates in actual and specific property claims to ontologically real things.

        So again, you always have to ask “what happens when the contract winds up?” in order to determine if a given contract is usury. If it terminates in open ended claims upon persons to come up with money or assets, it is usury. If it terminates in property claims to specified real assets, it isn’t usury.

        (Mind you, the fact that it isn’t usury doesn’t mean it isn’t unjust for some other reason. But usury qua usury fundamentally rests on renting out assets which don’t exist).

      • So, I suppose my next question is: what would it take to make banking lawful?

        Deposit holders are generally guaranteed in the event of default by deposit insurance schemes, up to a certain extent, to prevent bank runs. Beyond that, I’m not sure where depositors stand relative to the other creditors of the bank. Presumably, the are quite high, which is why you only make the risk free rate on deposits. But I have to admit that I’m not sure about that one.

        Still, you have a claim, right? I don’t really understand the difference you are drawing between a bank deposit and a bond.

      • Zippy,

        Thanks, I think I’ve got you. When you say that “money is not real”, you mean money “in the narrow sense”, i.e., cash or base money.

        Bank deposits, money “in the broader sense”, can be real subject to the qualifications we’ve discussed.

        But central banks are just a special type of bank, at the end of the day. Everything that we’ve said with respect to banks can also be said of central banks. Central bank liabilities like cash and bank reserves are backed by central bank assets like collateralized repo loans to the banking sector. Cash isn’t really the “pure bubble” with no inherent value beloved of economic theory.

      • Percyval:
        So, I suppose my next question is: what would it take to make banking lawful?

        Simple. Stop enforcing deficiency judgments, as I proposed here. Problem solved, and watch all the usurers squirm.

        I don’t really understand the difference you are drawing between a bank deposit and a bond.

        There isn’t a difference. I’ve tried to explain to my readers who don’t understand corporate finance that the “cash” they “put in the bank” isn’t really cash put in the bank. But if you grokk corporate finance then yeah, a bank deposit is basically a bond or bond-like contract.

        There are a number of common mistakes made about usury, mostly because it is (wrongly) considered to be some esoteric relic that doesn’t apply today. The most common mistake is the classic “usury means unfairly high interest”. But an even bigger, unspoken one is the notion that if usury (understood as charging interest for any mutuum, loosely but too broadly translated as “loan”) were not enforced then large, successful, prosperous economies would not be possible. Quite the contrary is the case, as Kristor observes in his more recent post.

        I think the distributist wing of reaction sees the assumed draconian nature of the prohibition of “usury” – all interest charged on any kind of loan whatsoever – as a feature not a bug, because they have a bit of an understandable axe to grind against the material prosperity of modern economies and accompanying hedonism. But they are wrong about usury and about fiat currency. Usury ultimately causes economic misery not flourishing, unfairness not justice; and fiat currency is more honest than commodity-backed currency, for reasons I’ve covered before.

  6. Personal bankruptcy laws are meant to alleviate that, but (as we can now see with student loans, and as the Council of Vienne excerpt noted), the urge to continuously increase rates to cover losses, or change the laws to force debtors to pay back the loans, is strong. This leads to indentured servitude, and Christians aren’t supposed to enslave each other, but rather to give to each other out of charity.

    Christians aren’t supposed to steal future value from their creditors either. They should pay what they promise or not borrow at all. Charity is one thing, and earning a return is another. Who is to say that earning a return on my wealth today might enable me to be more charitable tomorrow?

    As to indentured servitude I couldn’t disagree more. Freedom is, at least, the power to do what you will. If you cannot care for yourself, then you are by definition unfree. (And none of us are perfectly free, nor ought we be.) Moreover one may not only deserve indentured servitude but likely benefit from it.

    There is a form of indentured servitude that remains widely practiced to today: childhood. Some folks, Christians included, never quite make it out of that state, and therefore require a patron their entire lives. This isn’t even surprising. And this fact impugns not their dignity at all, any more than me ordering around my six-year old to work for me impugns hers. In fact, it is a blessing to her and an act of charity from me as long as the cost of her keep exceeds her productive value.

  7. What about trade? Is that wrong? If I buy something in China, bring it to America and sell it at a profit, is that wrong? Isn’t the transportation a service? Is charging a market price for that service wrong as well?

    Interest, even on unsecured debt, which is a claim against the person’s future cash flow and assets, is a similar charge as well. In this case, the lender is bringing money from the future into the present, for which he is charging a price.

    • I definitely think Zippy is NOT saying simple arbitrage is usury. He is saying that interest on “unsecured debt” is; because it is secured on hypothetical future earnings, for which the borrower is “personally” liable. And it is this hypotheticality that makes it usury. But I think that overthinks it, as hardcore Thomists have a tendency to do.

      Money just happens to be an easily exchangeable asset (which is why it is money in the first place). And just as I can licitly charge rent for the use of my lawnmower (which is itself a potentially productive asset), I can charge rent for the use of my money (which is itself a potentially productive asset). And what is in the subjective heart of the borrower, whether to use my money to make more, or spend it on Slim Jims and licorice ropes, or whether (tellingly) to bury it in the ground and give it back to me at the end of a certain contractual time, is immaterial. I don’t think the ancients or the medievals understood this concept of money very well and so it lead to them imbuing it with special mystical properties, which it clearly does not possess.

      Modern bankruptcy law effectively prevents the worst abuses of usury, possibly going even too far to protect irresponsible borrowers. It is, more or less, lender beware. I wish Zippy could use his august powers to go after fractional reserve banking which is prima facie unjust and in fact simply a government sponsored (mandated?) ponzi scheme.

      • Steve Nicoloso:
        I wish Zippy could use his august powers to go after fractional reserve banking which is prima facie unjust and in fact simply a government sponsored (mandated?) ponzi scheme.

        I don’t think folks have quite grasped that what makes fractional reserve banking as currently practiced unjust is precisely the usurious loans that form its substrate: that absent the substrate of usurious loans which purport to create “assets” out of thin air fractional reserve banking would just be another form of arbitrage, and one that everyman would get to participate in (including its associated risks) through their money in the bank.

      • Aren’t all (financial) assets created out of thin air? It seems to me that the major distinguishing factor is the particular liquidity properties of bank or central bank liabilities vs. the liabilities of other entities (such as you or I), which do not circulate through the economy as money.

      • Percyval:
        Aren’t all (financial) assets created out of thin air?

        Of course not! Creating a company (for example) takes work, resources, leadership, design. Financial assets like stock either represent some kind of property interest in concretely real things or interest at usury. The latter is not real: it is “created” out of thin air, and treated as equivalent to the former, which is inherently unjust.

        It is true that one mechanism of hiding usurious “creation” out of thin air in plain sight is often (though not always) fractional reserve banking. But that is because of the usury: because of the pretense that some are entitled to more than has actually been put in and legitimately produced, based on sophistries such as the pretense that risk qua risk, time qua time, and opportunity cost are ontologically real assets. They are not. If risk qua risk were an ontologically real asset then gamblers would be entitled to profit. If time qua time were an ontologically real asset then slackers would be entitled to wages. Opportunity cost has already been dealt with at length.

      • If risk qua risk were an ontologically real asset then gamblers would be entitled to profit. If time qua time were an ontologically real asset then slackers would be entitled to wages.

        Great lines. Unfortunately, the laws of our society do increasingly entitle gamblers (stock speculators) to reward for risk (as when corporations are sued by shareholders for poor stock performance), and slackers to wages.

      • Zippy,

        Of course not!

        I fear that I too am failing to understand some subtleties to your thought, or that of Aquinas, When I issue a liability, to finance the acquisition of some arbitrary asset, then the liability was created “out of thin air”. It did not exist before I issued it. I have not shifted or moved the liability from one place to another. There was no liability; I created one *from nothing*; my balance sheet expanded.

      • This is true of all your acts; of all ontological novelties. They are indeed new, and insofar as they had never before participated in the world, are so far as that world is concerned arriving therein ex nihilo.

        But wrt whether a loan is usurious, its novelty in the world is therefore neither here nor there. What counts is whether the debt is secured by some actually existing asset. If not, it is usurious.

      • I’m not sure how to explain it better than I did in my “money in the bank” post, though I’ll continue to think on ways to say it more clearly. One thing you have to do is follow the money and consider things systemically, which means taking into account what happens when things go wrong, in default, in addition to what happens when things go right. You can’t understand investment by looking at an isolated transaction: that is like trying to understand human acts by looking at a single instant in time.

        Mostly people see fractional reserve banking as something for nothing because we think about just one transaction and an upside scenario, while failing to distinguish between usury and investment (the unreal and the real) and considering downside scenarios.

        Modernity in general has difficulty distinguishing between the abstract and the concrete. I imagine that centuries of acclimation to usury is a big part of it.

      • Much of what you say here seems sensible, and, in general, I like to think that I do understand these things. At any rate, I’ve spent a lot of time *trying* to understand them (not exactly the same thing, alas)–although the context is rather different.

        Many of your statements elsewhere, taken at face value, seem quite contentious (nothing wrong with that, of course–in fact, I rather enjoy it), but I suppose I’m struggling to understand the underlying idea that motivates them, so it’s hard to respond to them in any sort of systematic or principled way.

        For example, you said upthread that,

        Yes, institutions are ontologically real, and shares in a corporation are a property title to a portion of that ontologically real thing. No, money is not a property title to any specific ontologically real thing.

        It seems to me that *shares* in a bank and shares in a non-financial corporation are more or less completely equivalent. Now, money and shares are not quite the same thing, but fiat money is a kind of theoretical speculation. In practice, money is always backed by the assets of the issuing party. These assets (fixed capital, loans, securities, cash and reserves, etc, in the case of a bank) are just as real as the assets of a typical non-financial corporation.

        With that said, I realise that it must be a bit frustrating to respond to this sort of criticism that doesn’t really speak to your underlying point. Obviously, when time permits, I need to do a bit more reading! What is not very clear, from my point of view, is what makes “person-recourse loans” more unjust than “asset-recourse loans”. There seems to be several competing explanations, none of which quite agree. If “person-recourse” loans are unjust because they do not generally lead to real wealth generation, tangible capital formation or what have you, that would seem to leave open the door to person-recourse loans that *are* just, as well as asset-recourse loans that are unjust, and so on.

  8. [pulling this conversation out to the left margin…]

    >Money qua money does not store ontologically real wealth because (unlike a share of AAPL) it does not represent property title to something specific with ontologically real value.

    But “value” is not ontologically real itself. It think that is the category error.

    Wealth is nothing real put purely notional. It is instead represented by ontologically real possessions. Some possessions may be held for purely utile reasons (e.g., food, ipods, or a back 40 acres which you hope to plant, or money that you hope to exchange for a haircut). Other possessions may be held for purely wealth storage reasons (equity in a corporation, precious commodities, fine art, or money that you have saved for use some day). It just so happens that one of item shows up on both lists. Because it shows up on both lists, we happen to call that money. Any society of any size, i.e., in which people of non-near kinship reside peacefully, will have to have some commodity that functions as money.

    Money qua money is a collectible and is therefore per se real. Just because money is not terribly useful (and the same would be true for gold only slightly less so than federal reserve notes) relative to its present non-ontologically real “value” does not make it any less real in itself. Land and improvements thereupon are real in precisely the same sense. Sure, its utility may be a higher fraction of its non-ontologically real “value” than mere federal reserve notes, but that simply means that land and its improvements are not money. Orcs could move in next door and make your land and its improvements utterly useless and worthless. Just as could happen with with money.

    In any case, whether with a home or with federal reserve notes, the ratio (or distance) between a non-ontologically real value and an ontologically real thing is always going to be non-ontologically real. So you don’t get to say that a home has ontologically real value. The home itself is real, and so is the dollar bill. The value is… I dunno, its “price” upon sale, i.e., whatever you can exchange it for.

    Assets whether real estate, equity, or collectibles seem to be one category. And value, i.e., what a thing may be used for or traded for, seems to be a different one. Anything in the former category is ontologically real. Anthing in the latter category is not. Money, I say again, is in the former category. The fact that its perceived value is much much greater than its utility is not relevant and does not inhere necesarily to its physical manifestation. The perceived value is an accident (in the Thomistic sense) of a thing being used for money. The money itself, along with every other physical asset, is real. The value, along with any notion of risk or expected return from any physical asset, is not.

    I think that is why some folks like the idea of gold backed currency: because it ostensibly represents property title to a real asset. But as has been pointed out before, this merely conflates the roles of money qua money and commodity qua commodity, distorting the perceived value of both.

    Gold is not a particularly useful commodity. It is, certainly today and almost always, well overvalued relative to its industrial or ornamental uses. This means that is partially monetized. 60%-80% of gold’s current “value” is as money. It is therefore mostly just another one of the world’s currencies. Bitcoin is utterly a competing currency having no industrial uses whatsoever. I don’t think the fact that gold and bitcoins have prices which well outweigh their industrial uses distorts anything. Their current sale prices reflect educated bets on their future monetization. Money is just an asset bubble that doesn’t pop. If gold doesn’t ever become money it is only worth about $300/oz. If bitcoin doesn’t become money, it is worth $0.0000000. But if either of them ever do… we won’t be pricing them in dollars.

    Money is a civilized agreement to suspend the completion of barter transactions to make them liquid: that is, independent of space and time constraints as a practical matter and within reason. The idea that money stores ontologically real value is a category mistake. The title to a home isn’t valuable in itself, but it legally recognizes ownership of something real that has real value. Money qua money doesn’t do that.

    I agree that money suspends the completion of a barter agreement, but the suspension is enacted with an ontologically real thing: money, i.e., a collectible which, in a sort of Nash optimum, everyone simply agrees can substitute for the trade. Again, there is no such thing as real value. All “values” are notional, subject to price discovery. Some things more utile (as in the case of arable land or 100 bbl West Texas Crude), some less (as in 100 shares of AAPL equity or federal reserve notes).

    • Steve Nicoloso:
      there is no such thing as real value.

      We have identified where you disagree with me, Aquinas, the Church, the Tradition, and people who need to eat.

    • If value is not ontologically real, then it is merely nominal, no? I.e., nonexistent, made up, illusory. That can’t be quite right.

      The ontologically real economic value of a thing is the ratio of its causal efficacy – i.e., of its capacity to perform work, its power – over the power of all other accessible things. Thus among the powers of a house, and part of what makes a house valuable, is its power to deflect rainwater. Such deflections are physical work.

      A thing may have different values to different people, just as it may have different velocities depending upon their inertial frames. Indeed, the fact that an object may have really different velocities to different observers depending on their inertial frames is just a different way of stating that it may have different powers depending upon their circumstances; for physical power is a function of change of velocity.

      In order then for a thing to have even nominal value – in order for someone even to be able to err about its value – it must have certain real values in relation to all other things. This is nothing more than to say that it must be real, and really part of a coherent causal order.

      • The “economic value of a thing” is inherently hypothetical and therefore not ontologically real at all. It suffers, I think from the same critique that Zippy makes on opportunity cost. It’s value is not certain until it is exchanged for another thing in a fair trade. It then, if only for an instant, has that value. I mean considering value to be nominal is really quite natural: something we put a notional number, i.e., a price, on. That gold is worth $X; that house is worth $Y; that ham sandwich is worth $Z. All “values” are hypothetical… up and until the exchange is made. In fact, and not unrelated to my point, the value of the denominator (the $) for each is also hypothetical.

        Certainly, the value of a thing is in its future use, but future uses are inherently uncertain. Ben Bernanke could tomorrow “defend the dollar”, raise interest rates to 5% and make gold worthless as a competing currency; Orcs could move in next door and drive down the value of the house; a bird could come and snatch the sandwich from my hands or it could turn out to be made with ketchup. Value is hypothetical, and therefore strictly ontologically unreal.

      • But the fact that the future is uncertain does not mean that the present is unreal. There could be no future without it. Likewise, that future values recognized in a future transaction are now uncertain does not make present values unreal. There could be no future transactions involving really valuable items if those items were not already really valuable.

        The value of a thing right now lies in what it is, right now, vis-a-vis some act of evaluation of what it is, right now. If that value were not available to our apprehension and evaluation, we could never have enough information about reality to enter into a negotiation about a proposed transaction involving its disposition.

      • No of course the present is not unreal. But at present an asset is just, objectively speaking, an asset. Its purpose, its telos, is known and I suppose therefore in a sense real. But whether it will be used in the way it was supposed, or ever used at all, is speculative. And whether even its intended use will bring expected consequences is also speculative. Therefore, its present value (as measured by barter or by money or by potential utility) is, I think, a matter of speculation, and therefore strictly speaking unreal. I may believe, that this bicycle in my widely acknowledged possession is worth 100 loaves of bread. The only way to find out is to actually trade it for those 100 loaves. Then an only then will we have discovered its “value”, and then only for that instant of time with that particular trader.

      • That the present value of your bike is difficult to ascertain does not mean that that value *simply doesn’t exist.* Whatever value it turns out to have to its eventual buyer cannot then exist for him to recognize unless it really exists as what it is, together with all its proper powers, prior to the transaction. You could not honestly sell it as a bike unless it was truly already a bike, and capable of producing the sorts of values that bikes produce. If the values and powers of the bike that go together to compose it as a bike, and that make it possible for the buyer to evaluate it as such, were not really present in it, it wouldn’t be a bike at all.

        Economic nominalism looks more and more like nominalism simpliciter.

      • What is value? A purpose or an intent for use, a bike having bikeness? Or a perception that one thing is “worth” the same as another, a bike being worth 100 loaves of bread?

        If value is simply that a bike has a use, as a bike, i.e., its bikeness, then value is simply a tautology: a thing is one of the type of things it is. I have no problem with that definition, but I don’t see how it helps us sort out divine teaching concerning economics.

        If the latter, i.e., that value is that for which a thing may be traded, then I don’t see how value can fail to be a potentiality that is ontologically unreal. You guys want to have cake and eat it too. Opportunity cost is road not traveled, you say, and therefore is not ontologically real. I agree. The value of a bike or a house or a velvet Elvis painting is what it might be tradeable for. This mightness makes its future value uncertain and in fact all possible future values uncertain for economic goods. That doesn’t mean that thing itself is not a real thing of the type of thing that it is, but its value, economically speaking, is not real.

        That’s nominalism?!!??!!!

        Maybe we need a clearer definition of value, because we seem to be talking about two different things.

      • Perhaps we are. I have been taking your statement that the value of the bike has no reality to mean that that value simply isn’t out there anywhere in the world, but rather nothing but a notion that we project onto it given our purposes. Value in that case is purely, only in the eye of the beholder. And that is indeed a species of nominalism.

        Realism, on the other hand, argues that we could not impute even our notional values to real things unless there was something really out there and inhering in them that formed a fitting hook for our evaluations. We could not value the bike in respect to our purposes (so as to ascertain how much, e.g., we were willing to bid for it) if it was not really valuable as a bike – if it did not really have the valuable causal powers of a bike (this in just the same way that we could not evaluate the velocity of an object with respect to our inertial frame unless it really did have the inertial properties it has).

        I should note that a potentiality does have ontological reality. It doesn’t have actuality, that’s all.

      • For one, because he and you are the two smartest bloggers I know of and I’m not sure which one is smarter. Secondly, all critiques of Moldbug of which I am aware boil down to the same sort of thing, he’s a crackpot, he’s unbelievably verbose, etc. But I’ve never seen his ideas on monetary theory or politics ever actually taken down. I suspect they cannot be and that therefore all mainstream understandings of political economy are not only flawed but dangerous, and that danger could be measured in body count.

    • Well, I haven’t read Moldbug’s economic theories and I’m not likely to. The problem isn’t the length so much as that combined with myriad objections that come to mind after reading each sentence. It might be possible to cash them out, but the work involved isn’t worth the effort given the tiny probability that Moldbug has come up with something better than millennia of tradition, the Church, Aquinas, etc. If he could be bothered to do the work to speak succinctly and clearly it might be worth the effort.

  9. Pingback: Usurpalooza « Zippy Catholic

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