Wednesday, January 26, 2011

Questions for Anti-Usurers

Questions for Anti-Usurers
Thomas Allen

According to Deuteronomy 23:19, “Thou shalt not lend upon usury to thy brother; usury of money, usury of victuals, usury of any thing that is lent upon usury.” Webster’s New International Dictionary of the English Language, second edition, unabridged, 1948, defines “usury” as “a premium or increase paid, or stipulated, for a loan of money or goods.” Usury is a return or income on property without any apparent effort by the property owner. Usury is also called “interest,” “dividend,” “rent,” and “fee.”

The following are questions that opponents of usury need to answer to show that usury is undesirable.

1. Why have not the anti-usurers established loan companies that make interest-free loans? Why do they not put their money where their mouths are? If interest-free loans are economically preferable to interest-bearing loans, would not companies making interest-free loans soon drive companies making interest-bearing loans out of business? A truly interest-free loan would be without fees, etc. With a truly interest-free loan, a person, for example, borrows $10,000 for five years. At the end of five years, he pays the lender $10,000. The lender never receives anything more than $10,000 from the borrower. The borrower does not pay any more than $10,000. If the anti-usurers are not willing to do at least this much, why should they complain?

2. Why do most anti-usurers seek to hide their interest as fees, share-the-wealth, buy out schemes, and the like? Loan fees are merely interest by another name. (Points and fees for mortgages originated as a means to circumvent interest caps when market interest rates for mortgages rose above the statutory ceiling.)

3. Why do anti-usurers want to outlaw savings accounts and certificates of deposits? Savings accounts and certificates of deposits are interest-bearing loans to banks. Why do anti-usurers want to require small account holders to pay bankers to hold their money?

4. As savings are mostly in the form of interest-bearing loans, where will savers put their savings? How will savers earn an income on their savings? Where can the common man, who can save only a small sum, put his money to earn a return? Why are savers to be penalized?

5. Why do anti-usurers want to outlaw publicly traded corporations? Corporative stock is merely an indefinite loan with a highly variable interest rate. From a corporation’s perspective, the primary difference among mortgages, bonds, and stocks is priority of payment. Is not a dividend a return on stock like interest on a loan? Is it not a return on money?

6. Without the ability to earn interest and interest on interest, how will the common man accumulate enough capital (store enough labor) to provide for himself in his old age? Or do the anti-usurers endorse the welfare state and want to force everyone in the community, ultimately under the penalty of death, to support the old?

7. Why do anti-usurers want to push people away from relatively low risk investments like savings accounts, bonds, and dividend paying stock and to commodity speculating and gambling? Besides speculating and gambling, where else can a person earn a return on his meager savings? Most do not have enough to start a viable business, and the anti-usurers seem to want to deny them this opportunity. If they do not, how will someone raise enough capital to start a viable business? If he combines with others to form a viable business, the partnership will have an unwieldy number of partners.

8. Why do the anti-usury people want to keep the poor impoverished? If they do not, why do the anti-usurers want to prevent the poor from earning a return on any savings that they manage to accumulate?

9. Where will the masses live? No one will be able to borrow to buy a house. (The best that a lender could hope for if the borrower failed to pay the loan would be to receive a house in unknown condition and of unknown value. If the value of the house exceeds the loan, the borrower gets the excess. Such high risk lending makes the risk of potentially high rewarding commodity speculating look small.) The anti-usurers have shutoff most avenues, except gambling and speculating, of increasing savings sufficiently to buy a house outright. So, if a person does not inherit a fortune or have parents who will give him the money, where does he get the money to buy a house? Does he have the government steal it from the wealthy and give it to him? He cannot rent a place to live because no sane person will become a landlord. Renting a house or apartment is merely lending capital or property as a house or apartment. Rent on a house or apartment is usury (see the definition above). The landlord lends the use of the house or apartment. In return the landlord receives interest, which is commonly called rent. Under an anti-usury regime, the only thing that a renter should be obligated to do is to return the house or apartment to the landlord when his lease expires. Before anti-usurers try to weasel their way out of this dilemma by distinguishing between lending money and lending housing, they must explain why paying a person for the use of his property is acceptable while not paying a person for the use of his property is unacceptable? Why is receiving an increase on lending capital is acceptable while receiving an increase on lending capital is not?

10. At least some anti-usurers are consistent enough to view the renting and leasing of land, dwellings, tools, machines, etc. as the same as renting and leasing money. If one leases a car [money], the owner of the car [money] gets the car [money] back at the end of the lease. Any money paid for the lease is ill-gotten gain made on property that is returned. It is all usury. (See the definition above.) Why do the anti-usurers want to outlaw leasing and renting and rental businesses? If they do not, why are they inconsistent? Will not outlawing rental businesses force people to buy expensive equipment that they will use only once? Does not such outlawry force people to waste their resources and time in buying and selling things? What happens if they do not have the money to buy the equipment and no one will lend it gratuitously? For example, if a person is moving and cannot afford to hire a moving company and cannot afford to buy a truck to move his furniture, what does he do with his furniture? Abandon it? Sell it as a discount to get rid of it quickly?

11. Will not insurance be more expensive if usury is outlawed? As insurance companies earn much of their income via lending (stock, bonds, and mortgages), where will they invest premiums to earn a return to keep down the costs of policies? Will they not be forced to collect the full amount of coverage plus the cost of security from policyholders and hoard the money in vaults?

12. Why do the anti-usurers oppose large scale capital investments like power plants, steel mills, and automobile manufacturing assembly lines? If they do not oppose them, how will sufficient capital be saved and combined to build them—as their system discourages the savings of capital, i.e., the storing of labor? Without resorting to theft via taxation, how will enough funds be accumulated to build extremely expensive undertakings? (Remember that stock is as much of a loan as a bond; so selling stock cannot be used—unless no dividends are ever paid and no capital gains are made. What about capital losses?)

13. Why should a person be forced to risk his capital without hope of compensation, which is what anti-usury laws do? Why would any sane person want to incur the liability involved by letting another use his (the lender’s) property without compensation? Why do most anti-usurers fail to recognize that the lender risks losing his property? Why should a lender risk lose his property without compensation? Why would any rational person want to incur the risk of lending without compensation?

14. If a person buys a farm for money, to whom does the profits from the crops grown on the farm in subsequent years belong? The buyer or the seller? Does not consistency dictate that they go to the seller? Is not the buyer receiving an increase (interest) on his money (the money used to buy the farm) if he keeps any of the profits?

15. Except for charitable purposes, why should one person forgo his consumption today without compensation by lending to another person so that the other person can consume today? Is not the present value of everything greater than its future value for prisoners of time? If not, why? What are the exceptions and why are they exceptions?

16. Which has more value: a possession today or a promise to pay in the future? Or are they equal in value? If so, why? If not, why should they be treated as equal in value? Why do anti-usurers claim that they are equal in value? (As interest expresses the difference in value between the two and as the anti-usurers would outlaw interest, they in effect are claiming that they are equal in value.) If their values are not equal, then the one who promises to pay in the future is stealing value from the one who is lending what he possesses today. How can this theft be justified?

17. A person lends his gardening tools (or money) to his neighbor to prepare his (the neighbor’s) garden. The neighbor returns the tools (or money) to the lender after the time has past for preparing the garden (using the money as the lender wanted). Although the lender cannot prepare his garden, anti-usurers assert that the lender has suffered no lose as the lent property has been returned and, therefore, should receive no compensation. Why should not the lender be compensated? Has he not sacrificed his welfare for that of his neighbor? Should the neighbor get a free ride for this sacrifice?

18. Some anti-usurers argue that the lender has no claim on any portion of the labor of the borrower. If true, then why does the borrower have a claim on part of the labor of the lender? The lender forgoes the use his stored labor while the borrower is using it. Therefore, the borrower has claimed part of the lender’s labor without compensation. Why the inconsistency?

19. Does any rational person ever borrow money at interest unless he believes that the benefits of the loan outweigh the cost? If so, when and why? Why would a rational person borrow when he believes that the cost of the loan will exceed the benefit? Why would he do with borrowing that which he would never do in any other transaction, economic or otherwise? (A rational person will never undertake any kind of transaction unless he believes that the benefits will exceed the cost.)

20. Anti-usurers argue that a lender’s claim that interest is payment for his service of letting the borrower use the lender’s property is false. The lender has not surrendered any of his wealth, and he does not become poorer making the loan. Does he not become poorer if the loan is not paid back? Moreover, does he not give up the use of his property when he lends it to another? How can two people use the same property simultaneously? Does not the lender forgo the additional wealth that his property could have earned him if he had not lent it? Why should he forgo this income without compensation? Why does not the lender provide the borrower a service with the loan? If no service is rendered, is not the borrower better off without the loan, which becomes an obligation? So why borrow?

21. Why is it unjust and oppressive for a lender to demand payment for the use of his property (including money) as compensation for not being able to use that property while the borrower has control of it? Why should the lender suffer a time-use loss without compensation?

22. Do anti-usurers really believe, as some argue, that the borrower is rendering a real and valuable service to the lender by keeping the property (money) for the term of the loan and returning it to the lender? If true, should not the lender pay the borrower interest on the loan? If the lender should not pay the borrower, why should the borrower be forced to render the service of holding the lender’s property (money) for no fee? Cannot a lender keep his own property (money) more securely than he can by entrusting it to another? Why would he entrust it to another? (The exception may be storing his property [money] at an institution skilled in protecting stored property [money].)

23. Why do anti-usurers not only fail to see that a lender is providing a service, but frequently argue that he provides no service at all? To the contrary, as just discussed, some claim that the borrower is providing a service for the lender. What service is the borrower providing the lender? Is not the lender providing the borrower a service by providing the borrower the use of property that he would not otherwise have? Would not the borrower have to do without the property lent to him if the lender did not lend it? Why should the lender not be compensated for providing the service of lending the borrower the use of the lender’s property?

24. Do anti-usurers really believe as some seem to argue that borrowers borrow money to sit on it and not use it for investment or consumption? Do lenders lend money to borrowers with the thought that the borrower is doing the lender a favor by holding and using the lender’s money for a time as some anti-usurers argue?

25. Interest rates inform savers about where their savings is most needed and about how much savings are needed. If interest is outlawed, what will inform savers about where their savings is most needed and how much is needed?

26. Interest serves as a rationing tool to equalize the supply of lenders to the demand of borrowers. Without interest, will not the demand of borrowers soar and the supply of lenders collapse? Will not borrowers believe that an unlimited amount of money is available for loans? Will not lenders believe that the demand for money by people who really need it is near zero? If this is not true, then why does not the law of supply and demand apply to lending and renting of property? If interest is not used to ration lending, what will ration loans among borrowers?

27. Why do some anti-usurers believe that an exchange between two people is an act of usury if in the minds of the anti-usurers one party receives a thing of value much greater than the other? Do they not realize that no exchange can occur unless each person values what he receives more than what he gives up? Do they not realize that nothing has absolute value? (Things may have absolute value in the mind of God. What man knows the mind of God?) Are not all values subjective and constantly changing? For example, is not the value of a poor meal much greater for a hungry man than an excellent meal is to someone who has just eaten a buffet? If not, why?

28. Do anti-usurers propose to outlaw the selling of bills of exchange? No lending or borrowing is involved with a bill of exchange. When a bill of exchange is sold, it is sold for less than the face amount due. Money today is worth more than money tomorrow is worth today. Thus, no rational person will buy a bill of exchange due in a day, week, or month for full face value. Do anti-usurers propose to void this law of nature? Will they make the selling of a bill of exchange below face value a criminal act?

29. Why was life better during the anti-usury eras of the Dark Ages and Middle Ages than during the usury era of modern times?

30. Where the convoluted loans created during the Middle Ages and Renaissance to circumvent anti-usury laws better than the straight forward interest-bearing loans of today? If so, why?

31. The industrial revolution was built on interest-bearing loans, of which many were interest-bearing small savings accounts (small loans to banks). Why do the anti-usurers promote a system that would have prevented the industrial age from occurring? Was life before the industrial revolution that much better? If so, how and why?

32. Some anti-usurers cite the historical record of one government after another outlawing usury. As government is usually the largest debtor in any society, does it not have a bias toward interest-free loans? Do not interest-free loans make its wars cheaper and, therefore, make wars more enticing?

33. Why should consenting adults be prohibited from engaging in interest-bearing lending—one as the lender and the other as the borrower?

34. Why should a person with capital who needs income be prevented from agreeing with a person who can produce income but who lacks the capital to do so to exchange capital for income? By all common usury definitions, this income would be considered usury. The person with capital who cannot produce income is usually an older person. The person lacking capital who can produce income is a younger person. Why should the older person be denied a steady stream of income? Why should the younger person be denied the capital to produce income?

35. Who is ever really forced to borrow at interest? How many people have had a legal interest-bearing loan forced on them? Who are they? Can a person avoid paying interest by not borrowing? He can do without for whatever he was going to use the borrowed money; can he not?

36. Those who make a Scriptural argument against usury ought to know that the Scriptures allow interest-bearing loans to strangers, i.e., people of a different race. (“Unto a stranger thou mayest lend upon usury. . . .” [Deuteronomy 23:20]) If they do not have this rudimentary knowledge, they should not be making a Scriptural argument. Does not the prohibition against lending money to people of one’s own race give an incentive to lend to people of other races? If not, why? Do the anti-usury people intend to remove this incentive to lend to people of other races while neglecting their own race by outlawing interest-bearing loans to everyone? If so, why do they want to void what the Scriptures clearly allow? Does not the anti-usury program lead to the absurdity of Asians lending to Europeans to build up Europe while Europeans lend to Asians to build up Asia? Likewise, does it not lead to the absurdity of Europeans having to borrow from Asians to buy their cars and houses while Asians have to borrow from Europeans to buy their cars and houses? Or do the anti-usurers really believe that rational people will risk their property (lend their money) for no chance of reward when they can risk their property where they have a chance of reward?

Copyright © 2010 by Thomas Coley Allen.

More articles on economics.

1 comment:

  1. What is the reason usury was prohibited in the bible? Was it that the usurers kept accumulating properties that borrowers defaulted on? Did that lead to a wealth gap and widespread poverty, in other words socially undesirable conditions that could lead to instability and revolts, making the shmitah necessary in the first place?

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