Our entire global economy is built on a practice that has been condemned by great thinkers since antiquity, and nobody is saying a word against it. Aristotle insisted that it was unnatural, Plato abhorred it, Muslims despise it and the Romans and the Chinese, though more tolerant, enacted harsh penalties if it was taken to excess. Even Adam Smith said it should be held in check.
But this is not about sweatshops, or slavery or those nasty speculators. This is about usury; that is, taking interest on non-productive loans.
So, what is wrong with that? It has been practiced for thousands of years, and in the last few hundred it has become inextricably bound to our economy, our world, our way of life.
We can buy houses on interest, cars on interest, even couches and refrigerators and mattresses on interest. How could it be bad if everyone is doing it in our glorious age of enlightenment, fairness and tolerance?
Let’s begin with the theoretical arguments against usury. Money, unlike chickens, does not multiply over time. Because of this, Aristotle argues that unless the debtor is going to use the money to buy something productive like chickens, then it is wrong to expect interest on the money.
It would be like lending someone a cup of sugar, then coming back the next week and demanding the cup plus a teaspoon. (Please note that this argument assumes a currency without inflation. If the laws of the universe mysteriously changed, and it took a cup and a teaspoon this week to do what a cup did last week, then the situation would be totally different.)
You could perhaps compare it to lending somebody a set of silver spoons. In that case, one could legitimately demand payment for the use of spoons.
So why not charge for the use of the money? Why can’t we rent out money just like anything else?
Aquinas, one of the most respected philosophers of all time, wrote that to use certain things, such as water and carrots, is the same as to consume them. As a result, their use should not be separated from themselves, for their use involves their own destruction; if you sell the use of a consumable, you are selling the consumable itself. It would then be ridiculous and unfair to charge for the use of a consumable along with selling it.
One might insist, as Aquinas does not, that the lender may charge a fee for the service, just as the shopkeeper makes a profit in return for having a place where one may conveniently buy flour. There is a vast difference, however, between charging a fee and charging 5 percent compound interest for ten years, thereby giving a 63 percent service fee to a pile of rich investors.
A much simpler argument is to say that usury is quite often a method of exploiting disadvantaged people. The usurer takes away what the debtor needs most: money.
Many will look at these theoretical arguments and say that it is all very nice, but that usury has vastly increased economic growth. That is certainly true, but is it stable growth, and is it growth for everyone?
Hilaire Belloc, a writer and historian from the earlier half of the last century, warned that it was a major contributor to the decline of Rome, and argued that it is a great cause of economic inequalities and instabilities.
This is because the people who directly profit from usury already have money, and it increases debt. Then, when inequalities build up and the rich get richer, resentment can likewise build up and the poor get angrier, leading to class warfare and social strife.
Also, as we have seen countless times and are seeing again at this moment, usury encourages people to lend out too much money, so that a downturn sends everything to pieces.
This column will naturally be criticized for failing to give any solutions. I am very sorry, but there probably are none, at least for now; our economy is too dependent on it.
Others will find fault with the arguments. Some is my own fault, and some is lack of space, but others have written better and longer critiques, so please read theirs before dismissing this as anachronistic nonsense.
Finally, it is probably best to repeat myself, and explicitly state that I am not against taking interest on money used to buy farms and mines and supertankers, just on money used for non-productive things, like food, chairs, and enormous televisions.
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JosieWales 2 years, 8 months ago
Dio,
supertankers are part of the oil industry's production process. They play the indespensable role of allowing companies to transport their product. They are a form of capital and could be considered similar to tractors.
dio 2 years, 8 months ago
Supertankers are transporting oil, not producing oil.
dio 2 years, 8 months ago
JosieWales,
You did not get the point. Please read the last sentence of the column one more time. A self-propelled container might be a capital in itself, but it is not a production unit. The word "supertanker" should be replaced by "oil platform".