USURY is it good or bad or neutral ?

[niemivh]

should it not be discouraged and considered morally reprehensable again? discuss. reg.

Absolutely not. Interest is the price of money. How is the market suppose to work efficiently without knowing this price? Such a suggestion could only be made by someone economically illiterate so please go and first read a few books and get your knowledge up to par before attempting to reshape the way a whole market works. You'll find a lot of free stuff here: www.mises.org and an excellent low level of understanding required piece you should read (watch) is here: How an Economy Grows and Why It Doesn't (by Irwin Schiff)

LOL, citing a book that is a cartoon-novella using fish as currency that has a caricature of FDR so blatant that they didn't even bother to put any creativity into it.

I lulled, thanks, that literally made my day.

 

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[niemivh]

Re: USURY
Today at 10:17:18 AM
   
Reply with quote  #4
Quote from: reg on Today at 09:51:45 AM
should it not be discouraged and considered morally reprehensible again? discuss. reg.

Absolutely not. Interest is the price of money. How is the market suppose to work efficiently without knowing this price? Such a suggestion could only be made by someone economically illiterate so please go and first read a few books and get your knowledge up to par before attempting to reshape the way a whole market works. You'll find a lot of free stuff here: www.mises.org and an excellent low level of understanding required piece you should read (watch) is here: How an Economy Grows and Why It Doesn't (by Irwin Schiff)

Thank you for raising the point I was hoping would come to the fore. I accept I may be economically illiterate but I have read Mises (who I consider to be plain wrong). My point- continual growth at any level (currently wanted to be 3% p/a per economy) is fundamentally incompatible with finite resources. Why because at the basic level stuff is the asset you barter and exchange with others. When the last grain of sand has been used as an asset -what then? refering to another comment about middle age morals (not religious but social) a mans word was his bond- not any more -what a great shame!. reg.

Technology exists.  Therefore your argument is fallacious.

[MoonShadow]

Interesting question. 

The debate between usury versus free market interest rates has a disagreement between sides that is often unstated, so let me state it.

Usury is when a loan is predatory, but has historicly been linked to interest.  It's forbidden in both the Old testatment (Torah) and the Koran because the average Joe/Mohammad was mathmatically illiterate for a long time even in cultures that the general population wasn't actually illiterate.  This is the real reason that, in our modern world, we teach young children arithmatic (and why we should teach them microeconomics) in grade school.  So when they get older they stand a chance of not getting screwed by someone with a much better understanding of mathmatics.

However, in a true free market, we should reasonablely be able to assume that your average consumer isn't mathmaticly illiterate; and even if he is, use of mathmatics to defraud anyone is still fraud.

Therefore usury is a special case of fraud, that pretends to be legitimate via the creative and/or deceptive use of mathmatics to present itself as an honest contract.

As a libertarian who understands, and supports, free market economics; I shouldn't have to argue against usury, because it's not a legitimate example of a free market contract to begin with.

[MoonShadow]

Gabi
Also on wiki i read money lending exist since the Roman Empire

Yes thank you for that. Again my point is (to coin a phrase) "money is the root of all evil".

That is a common misquote of a biblical passage, that is improperly used to demonize money.  The literal translation of the passage is...

"For the love of money is a root of all sorts of evil, and some by longing for it have wandered away from the faith and pierced themselves with many griefs."

1 Timothy 6:10 New American Standard Bible


The emphasis above is my own, but note that the meaning of the passage is completely different.  The "love of money" is greed, "a root"  & "all sorts" imply greed is one of several and "by longing for it" implies that money is the object of the sin of greed, but not the sin itself.

Money of any form is simply a symbol, it is neither good nor bad upon it's own, no matter what form it should take.

EDIT: the passage also makes clear that there are certainly kinds of evil that do not have their root in the "love of money", I suggest that the love of power is a close second.

[myrkul]

Therefore usury is a special case of fraud, that pretends to be legitimate via the creative and/or deceptive use of mathmatics to present itself as an honest contract.

Now this is an interesting point. Would you say that a loan that had a high interest rate, but was clearly explained, would be usury?

What about a loan that had a low apparent rate, but by clever use of mathematics, say, compounding the interest every 30 seconds, had a deceptively high return?

[reg]

Gabi
Also on wiki i read money lending exist since the Roman Empire

Yes thank you for that. Again my point is (to coin a phrase) "money is the root of all evil".

That is a common misquote of a biblical passage, that is improperly used to demonize money.  The literal translation of the passage is...

"For the love of money is a root of all sorts of evil, and some by longing for it have wandered away from the faith and pierced themselves with many griefs."

1 Timothy 6:10 New American Standard Bible


The emphasis above is my own, but note that the meaning of the passage is completely different.  The "love of money" is greed, "a root"  & "all sorts" imply greed is one of several and "by longing for it" implies that money is the object of the sin of greed, but not the sin itself.

Money of any form is simply a symbol, it is neither good nor bad upon it's own, no matter what form it should take.

EDIT: the passage also makes clear that there are certainly kinds of evil that do not have their root in the "love of money", I suggest that the love of power is a close second.

thank you for pointing out the origin of my common misquote. in my defense i argued earlier that it was what you could do with money that was the motivating factor and certainly power over others is one such use (in my opinion) also i read that" i should keep my economics out of politics" sorry but not possible, read Marks! reg ps also Rouseaus said "every act is a political act" within which I would include economic acts.

[MoonShadow]

Therefore usury is a special case of fraud, that pretends to be legitimate via the creative and/or deceptive use of mathmatics to present itself as an honest contract.

Now this is an interesting point. Would you say that a loan that had a high interest rate, but was clearly explained, would be usury?

I don't consider the actual interest rate the defining factor.  If you're giving a loan of only 3% to someone you know is a gambling addict & accepting his house as collateral, it's arguablely predetory lending.  Particularly if he has a wife & kids that live in that house who had no say in the house being used as collateral for the loan.  Granted, the gambler has his own contributions to the fraud, and it's not a fraud if there was no way that the lender could have known in advance that his customer was likely to default.  The key is, would a reasonable third party be able to tell, in advance of the finalization of the contract, that the defaulter was likely to default under the conditions, whether or not that was his intent.  The valid goal of both parties is to repay the loan according to the terms.  If either party is being deceptive, and expects the loan to fail in some other way in advance, fraud was committed even if it cannot be proven to a third party (court).  If it was the lender using predatory practices, it's usury.  If it was the borrower, it was another kind of fraud.

What about a loan that had a low apparent rate, but by clever use of mathematics, say, compounding the interest every 30 seconds, had a deceptively high return?

Again, see above.  And compounding interest every 30 seconds is irrelevant.  One can compound continuously, if the APR remains proper.  Yes, it's possible to compound continously and do so fairly; many corporate/business loans work this way.  But the math is even  more complicated, so using continueous compounding in a consumer loan is suspicious, if for no other reason that it's difficulty for the lender to compute properly makes them uncommon.

[myrkul]

If either party is being deceptive, and expects the loan to fail in some other way in advance, fraud was committed even if it cannot be proven to a third party (court).  If it was the lender using predatory practices, it's usury.  If it was the borrower, it was another kind of fraud.

Hmm. This is not the answer I expected. I expected a fairly straight-forward "no" for the first one, and "yes" for the second.

Now, admittedly, I know only enough about loan financing not to get cheated myself, so perhaps I gave poor examples of using clever math to cheat the borrower. Perhaps the question should have referred to the contract, rather than the math itself.

In my opinion, a loan made in bad faith would be very hard to prove, as you mention. Even if the lender is malicious, I don't believe he wants the loan to fail. What he wants, rather, is to convince the borrower that it is a better deal than it really is. That might be easier to prove, by careful examination of the loan contract. A clear and simple contract, easy for the borrower to evaluate the "price tag" on his money is clearly not predatory, where a confusing contract, with fine print and misleading terms, is questionable, at best.

[Vitalik Buterin]

That is a common misquote of a biblical passage, that is improperly used to demonize money.  The literal translation of the passage is...

"For the love of money is a root of all sorts of evil, and some by longing for it have wandered away from the faith and pierced themselves with many griefs."

1 Timothy 6:10 New American Standard Bible

I'll see your New American Standard and raise you the original Greek:

http://www.sacred-texts.com/bib/gnt/ti1006.htm#010

Specifically:

ῥίζα γὰρ πάντων τῶν κακῶν ἐστιν ἡ φιλαργυρία

Literally = "for the root of all the evils is the love of money".

Any Ancient Greek scholars want to explore this one further? Dictionary is here if you want one: http://www.perseus.tufts.edu/hopper/morph?l=r%28iza&la=greek#lexicon

[Vitalik Buterin]

Opponents of usury, particularly in the Islamic school, don't necessarily come from an economic position that denies the time value of money. Rather, the argument that is often raised against lending at interest comes in two parts:

1. It creates a moral paradox between the responsibility of the creditor and that of the debtor
2. It leads to the poor overleveraging themselves and effectively functions as an anti-insurance policy.

The first argument basically asks the question: whose fault is it if the borrower defaults? One side of the coin is the it's all the borrower's fault; he made a promise to pay the money back, and promises should be kept. The creditor was defrauded, ie. stolen from, and we should feel sorry for him as a victim of this crime. However, this position is very problematic: it denies all responsibility to the lender and effectively creates a paradox in capitalist economic philosophy: you have an investment that generates a guaranteed fixed rate of interest with zero risk. All other businessmen trying to earn a return from their capital must take care to ensure that their funds are used wisely, but the lender has no such concerns. There is no mechanism built into the system to reward more careful creditors for their prudence and punish less careful creditors for their oversights. All debt enforcement systems must somehow come to terms with this fundamental problem, and some sort of balance between debtor responsibility and creditor responsibility is reached - in our society through the bankruptcy mechanism. Emphasizing exclusively debtor responsibility is impossible because if a creditor tries to shake down a nonpaying debtor too hard the debtor will simply die, at which point any further persuasion is physically impossible. Emphasizing exclusively creditor responsibility is actually possible - essentially, it would be a world where the only reason to repay a loan would be to encourage banks to lend you more money in the future, but without at least a moral component to their backing such debts would be far too flimsy to be practical.

The second argument is from the point of view of the debtor. If someone borrows money to upgrade the equipment for their business, buy more energy-efficient home appliances, establish a new location for their store, or perform whatever action that generates greater future returns for smaller present expense, they haven't just given themselves a temporary boost in capital. They've also increased their risk. The problem is that while the present expenses are guaranteed, the future returns are not. There could be bad business conditions which would, in retrospect, make the spending not worth it, the physical capital created or bought with the loan may be destroyed by a disaster, or anything else could happen. Consider two businessmen, whom we'll call A and B. Let's say A and B both have $10000 in the bank, and over the course of a year their business would take up some expenses and generate some revenue, leaving them with, at a 95% confidence level, between $5000 and $30000 at the end of the year - it'll probably be profitable, but something bad could potentially happen.  Now, let's say B decides to get a loan for expansion, agreeing to receive $100000 now and pay $106000 at the end of the year. With this loan, B's business doubles in size. What does the probability distribution for B's balance sheet look like now? At the top margin, profits increase from $20000 to $40000, adding the original $10000 and subtracting interest gives a final balance of $44000. But what if B gets the short end of the stick this year? The loss of $5000 would become a loss of $10000, and the interest payment on top would leave B with -$6000 at the end of the year - in short, in a debt trap.

What Islamic and other anti-interest thinkers promote as an alternative to debt is any kind of system where the creditor's return, and therefore the debtor's fee, is based not on a fixed sum but on the success of the debtor. Purchasing shares in a business is great, as if B gets his capital that way he can pay, for example, $12000 if the business does well that year and leave his investors with even a slightly negative return if the business does poorly. For consumer credit, informal arrangements between friends are ideal, as the economics of owing and receiving favors take circumstance and need into account. At a somewhat higher level of formality, an interest rate of 0% plus a voluntary tip is the norm.

Our current system does have some creditor responsibility in the form of the bankruptcy mechanism, but the problem with this is that the level of creditor responsibility is not fluid - it's an either/or, pay in full or utterly default, situation. Such unbalanced reward mechanisms create what's known as a Taleb distribution for the creditor, where the risk distribution appears to be stable, as the creditor is getting the same return from the system no matter what happens, but this leads the creditor to eventually forget the looming risk of total failure - losing everything to defaults. When there are many millions of debtors the distribution appears to even out, but one of the issues that people who understand Taleb distributions point out is that society is more connected than we think - if the risk of default is 1%, the risk of all 100 people defaulting is much higher than 10^-200, because defaults both lead to chain reactions and have common causes. The housing bubble can be seen as a case of creditors taking the illusory certainty of their returns for granted and suffering for it (okay, in reality they barely suffered at all, and the libertarian interpretation of Taleb distribution theory is that government-enforced stability mechanisms like FDIC and bailouts create a Taleb distribution themselves, which I'll leave others here to debate). Islamic theorists, or rather an Islamic-inspired anti-interest ideology that takes into account the much more modern work of Nassim Taleb, would argue that much greater stability can be achieved if the system is designed so that all parties involved in a credit transaction suffer the consequences of a failure in a graduated way.

[MoonShadow]

That is a common misquote of a biblical passage, that is improperly used to demonize money.  The literal translation of the passage is...

"For the love of money is a root of all sorts of evil, and some by longing for it have wandered away from the faith and pierced themselves with many griefs."

1 Timothy 6:10 New American Standard Bible

I'll see your New American Standard and raise you the original Greek:

http://www.sacred-texts.com/bib/gnt/ti1006.htm#010

Specifically:

ῥίζα γὰρ πάντων τῶν κακῶν ἐστιν ἡ φιλαργυρία

Literally = "for the root of all the evils is the love of money".

Any Ancient Greek scholars want to explore this one further? Dictionary is here if you want one: http://www.perseus.tufts.edu/hopper/morph?l=r%28iza&la=greek#lexicon

I'm not sure, but Timothy may have originally been in Aramaic, not Greek.  Either way, the transalation is  matter of opinion and I hold the opinion of the professional translators for the New American Standard in higher regard than I do yours.  No offence.

[MoonShadow]

Our current system does have some creditor responsibility in the form of the bankruptcy mechanism, but the problem with this is that the level of creditor responsibility is not fluid - it's an either/or, pay in full or utterly default, situation.

This is far from an accurate description of bankruptcy proceedings.  And there are a number of different versions of bankruptcy that runs the spectrum from total default to partial liquidation of defautor's assets to simply the court ordered extension of repayment period.

[myrkul]

What Islamic and other anti-interest thinkers promote as an alternative to debt is any kind of system where the creditor's return, and therefore the debtor's fee, is based not on a fixed sum but on the success of the debtor. Purchasing shares in a business is great, as if B gets his capital that way he can pay, for example, $12000 if the business does well that year and leave his investors with even a slightly negative return if the business does poorly. For consumer credit, informal arrangements between friends are ideal, as the economics of owing and receiving favors take circumstance and need into account. At a somewhat higher level of formality, an interest rate of 0% plus a voluntary tip is the norm.

In principle, I'm entirely in favor of this practice. (Which is why I have invested as much as I am able to in IBB) Of course, I am not in favor of forcing people to do it this way. If it is better (as it, at least on the surface, clearly is) then it will win in the market, no force required.

I mean, if people want to pay 15% interest when 0% is available... who are we to stop them?

[Vitalik Buterin]

I'm not sure, but Timothy may have originally been in Aramaic, not Greek.  Either way, the translation is  matter of opinion and I hold the opinion of the professional translators for the New American Standard in higher regard than I do yours.  No offence.

It was Greek.

As for professional translators, KJV agrees with my amateur translation, and most people tend to look at it with particularly high regard. The commentary here is interesting - some suggest that "of all evil" is simply hyperbole for rhetorical effect, others suggest that "τῶν" should be translated as "these", referring to the "foolish and hurtful lusts" from Timothy 6:9 ("But they that will be rich fall into temptation and a snare, and into many foolish and hurtful lusts, which drown men in destruction and perdition."). I can accept the latter argument, since "all evils" would be just "πάντων κακῶν" without the article.

I think there's a legitimate concern that these translations are heavily politicized in that sentence, and they do disagree with each other in this regard, which is why I think looking at the original is the only way to make any kind of ultimate decision. The idea that the love of money is not literally the root of any evil conceivable is probably correct though.

[Hunterbunter]

Usury is not the problem. The compounding of it is.

[asdf]

Absolutely not. Interest is the price of money.

This amounts to saying that the unit of mass we call "gram" has to have a known mass, or that the word "inch" has to be written in certain  length. Money is what we use to measure value, just like we use inches to measure length. In both cases it helps us compare and exchange things more easily.

Well, aside from the fact that having a known mass for "gram" is vitally necessary for proper scientific measurements, what he was saying is that it's not the price of money, per se, but of lending, ie, getting money. Islamic banking refuses interest, going on a "If you appreciate this service, pay what you want" model. It seems to work pretty well, but even though they don't call it interest, it basically is, just with the borrower setting the terms, instead of the lender.

Perhaps I wasn't clear: it's like saying that the unit of mass (an abstract concept) has to have a known mass. See, it is such a silly idea when you apply it to mass or length or color or anything else, yet most people are brainwashed into being comfortable with the same idea when it comes to money. They don't even stop to think for a moment before talking about the "price of money". What would you think of someone telling you "sorry, can't continue building this house, I'm out of inches"?

Are you familiar with Alan Watts? He said the exact same thing about inches and building a house.

It's not really the "price of money", but compensation for the opportunity cost of not being able to spend that money. The ability to use some currency over a period of time has value, hence a price in the marketplace.

Without a price you get scarcity or surpluses, basic supply/demand economics. In the case of 0 interest rates, there will be a shortage of capital. Business' that really need the liquidity and are willing to pay for it are starved of this opportunity because any old fool with a plan has already taken the free loan. It's basically price fixing and fails for the same reason as with any other good or service.

[MoonShadow]

The principal reason why the Qur’ân has delivered such a harsh verdict against interest is that Islam wishes to establish an economic system where all forms of exploitation are eliminated, and particularly the injustice perpetuated in the form of the financier being assured of a positive return without doing any work or sharing in the risk, while the entrepreneur, in spite of his management and hard work, is not assured of such a positive return. Islam wishes to establish justice between the financier and the entrepreneur.

Under these circumstances it is difficult to see how anyone could justify interest in an Islamic society. The difficulty to understand the prohibition comes from lack of appreciation of the whole complex of Islamic values, and particularly its uncompromising emphasis on socio-economic justice and equitable distribution of income and wealth. Any attempt to treat the prohibition of ribâ as an isolated religious injunction and not as an integral part of the Islamic economic order with its overall ethos, goals and values is bound to create confusion.

http://www.albaraka.co.za/Islamic_Banking/Prohibition_of_interest/Has_Islam_really_prohibited_interest.aspx

I agree with this post, generally, but the focus on interest (riba) by the Koran obscures the greater problem.  The JudeoChristian focus on usury as interest does likewise.  By doing so, the banksters can still get their risk free gains by other means, simply by calling it something different.  For example, the charging of interest for loans denominated in gold in the US has long been illegal, simply because govco doesn't want to imply that gold is still money.  So gold is no longer 'loaned' at 'interest'; instead it's 'leased' at a 'rental rate'.  The end result being exactly the same.

[Vitalik Buterin]

I agree with this post, generally, but the focus on interest (riba) by the Koran obscures the greater problem.  The JudeoChristian focus on usury as interest does likewise.  By doing so, the banksters can still get their risk free gains by other means, simply by calling it something different.  For example, the charging of interest for loans denominated in gold in the US has long been illegal, simply because govco doesn't want to imply that gold is still money.  So gold is no longer 'loaned' at 'interest'; instead it's 'leased' at a 'rental rate'.  The end result being exactly the same.

True. Lots of so-called "Islamic" banks end up allowing what is essentially customers selling something to the bank and then immediately buying it back on an installment plan.

[cryptoanarchist]

It's not really the "price of money", but compensation for the opportunity cost of not being able to spend that money. The ability to use some currency over a period of time has value, hence a price in the marketplace.

Tell that to the Bitcoinica guys...they're getting to use all their customers money for free!! ( I think the hack was an inside job )

[Ragnar17]

Interest is the price of time. Very simple.

Good bad or neutral? For whom? (had to) For the people CHOOSING to do so...it can only be good