It's All About Usury

With all the turmoil in the financial industry, you would think that there would be a national conversation of money and lending. You would think that this would be a good time to re-examine the way we create money and the way we lend it. You would think, especially, that it would be a good time to review the subject of usury, especially since the credit card market is about to collapse in the same way the mortgage market did. But no, that conversation has not taken place.

Indeed, the last great economist to address the subject was J. M. Keynes, back in the 1930's. Keynes, who was no friend of the Church, surprised himself by finding that the Church's restrictions on usury made perfect economic sense, a sense ignored by classical economists:

Provisions against usury are amongst the most ancient economic practices of which we have record. The destruction of the inducement to invest by an excessive liquidity preference was the outstanding evil, the prime impediment to the growth of wealth, in the ancient and medieval worlds…I was brought up to believe that the attitude of the Medieval Church to the rate of interest was inherently absurd, and that the subtle discussions aimed at distinguishing the return on money-loans from the return to active investment were merely Jesuitical attempts to find a practical escape from a foolish theory. But I now read these discussions as an honest intellectual effort to keep separate what the classical theory has inextricably confused together, namely, the rate of interest and the marginal efficiency of capital. [The General Theory, 351-2]

What Keynes is saying in this somewhat technical language is that when returns to pure loans are higher than returns to actual investments, you will have a problem; if you can make more money lending to consumers at 25% than to auto makers at 10%, then the money for making things will dry up, and loans will shift to consumption and speculation. We have often noted this problem in the pages of The Distributist Review, (see The Utopia of Usurers, Usury!, Usury: Wealth Without Work, and many other articles) but we can't honestly claim that we have made a big impression on the public. However, Thomas Geoghagen in the pages of Harper's Magazine, has written an indictment of the current system entitled “Infinite Debt: How unlimited interest rates destroyed the economy.” Unfortunately, the article is not yet available on-line, but it is worth picking up a copy of the magazine to read it.

There is an interesting parallel between the lifting of the usury laws and the abolishing of the abortion laws: both were accomplished not by democratic process, but by legislative fiat; in Marquette National Bank v. First of Omaha Service Corp., a 1978 Supreme Court opinion, the court found that an 1864 law prohibited the states from enforcing usury laws in their own state if it was legal in another state. For all practical purposes, this ended usury laws.

The lifting of the usury laws had dire unintended consequences, one of which was the decline of manufacturing:

It may be hard to grasp how the dismantling of usury laws might lead to the loss of our industrial base. But it’s true: it led to the loss of our best middle-class jobs. Here’s a little primer on how it happened. First, thanks to the uncapping of interest rates, we shifted capital into the financial sector, with its relatively high returns. Second, as we shifted capital out of globally competitive manufacturing, we ran bigger trade deficits. Third, as we ran bigger trade deficits, we required bigger inflows of foreign capital. We had “cheap money” flooding in from China, Saudi Arabia, and even the Fourth World. May God forgive us—we even had capital coming in from Honduras. Fourth, the banks got even more money, and they didn’t even consider putting it back into manufacturing. They stuffed it into derivatives and other forms of gambling, because that’s the kind of thing that got the “normal” big return; i.e., not 5 percent but 35 percent or even more.

But in addition to the economic effect, it had a profound effect on the moral character of the nation:

The change in credit-card caps also had a bad effect on the moral character of the nation. Because interest rates were so high, the banks no longer wanted borrowers with good moral character. Look at the way lending has changed just since the time I was in law school in the early 1970s. Even then, the mantra of my teachers in contracts and commercial paper was: “The loan must be repaid!” I have a friend, a professor, who still quotes that refrain. But it’s out of date. At interest rates of 25 percent, or 50 percent, or 500 percent, lenders don’t really want the loan to be repaid—they want us to be irresponsible, or at least to have a certain amount of bad character.

One question, however, is why we were willing to oblige the bankers by displaying such a poor moral character. No doubt the convenience of the credit card was a factor, but there is more to it than that. One reason is that we had too. The shift in the economy from manufacturing to finance meant that workers were no longer able to bargain for wages through unions and other means. Since 1972, the median hourly wage has stagnated. We experienced a very odd phenomenon: productivity exploded, but wages remained the same. Obviously, there was not enough purchasing power to clear the markets. Workers responded in two ways. One was to work more hours and put more family members to work, with a devastation effect on family life. The other was to borrow more. Further, the best and brightest of our students no longer went into engineering or manufacturing, but into finance. We started to lose even the knowledge of how to make things. As Thomas Geoghagen points out, not only did financial companies account for 40% of corporate profits in 2003, (up from 18% in 1988) but this may understate the problem. Many “manufacturing” firms, like GM and GE, actually made their profits from their finance divisions. GM became a company that manufactured cars in order to make loans on them.

Our current bail-out plans are mainly directed at the banks, the hedge funds, the insurance companies, and other financial institutions. But this will not work. Without restoring manufacturing, farming, mining, and other basic industries, we cannot rescue the economy. But we have the order exactly reversed. The bankers get an instant bailout, no questions asked, while manufacturers, like the Big Three, have to crawl over broken glass to get what amounts to “chump change” in the context of the overall “rescue” numbers. Moreover, “contracts” with the derivative traders of AIG are regarded as sacred and unbreakable, while union contracts are broken at will.

It is the habit of the modernists to despise the past, and so it is no surprise that a restriction which existed in most cultures from the time of the Babylonians to the time of Jimmy Carter would be overturned. Yet, even modernism posits some empiricism, actually looking at the effects of an action. It is now long enough to look at the effects of the Supreme Courts 1978 decision. And without revisting this decision, we cannot fix the economy.


Anonymous,  Wednesday, March 18, 2009 at 7:07:00 PM CDT  

thanks john. very illuminating as always.

الفرقد أبو الفرقد Wednesday, March 18, 2009 at 9:08:00 PM CDT  

دعاء منتشر أتركوه لدعاء أفضل

بسم الله الرحمن الرحيم الحمد لله، والصلاة والسّلام على رسول الله، وعلى آله وصحبه ، وبعد…..الإخوة و الأخوات السلام عليكم و رحمة الله و بركاته ….. قال تعالى : {‏ ولو يعجل الله للناس الشر استعجالهم بالخير لقضي إليهم أجلهم فنذر الذين لا يرجون لقاءنا في طغيانهم يعمهون ‏}‏يتصاعد العدوان الذي قتل زهاء ليوني مسلم أو عربي في فلسطين والعراق و السودان مقاطعة الصهاينةأكبر ثوابا سيقتلونك فلا تستحسر و لا تستهتر

قال تعالى : {‏ ولو يعجل الله للناس الشر استعجالهم بالخير لقضي إليهم أجلهم فنذر الذين لا يرجون لقاءنا في طغيانهم يعمهون ‏}‏

ذلك الدعاء هو اللهم { خذ من دمائنا و أرواحنا حتى ترضى } الله لا يرضى عن القتل ظلما فضلا عن قتل المسلم ظلما و إن كان كل شيئ لا يكون إلا بمشيئة الله تعالى … و مشيئة الله تعالى ليست رضاه و الخوض في هذه المسائل ليس من السنة و الدعاء الذي في القرآن { وكأين من نبي قاتل معه ربيون كثير فما وهنوا لما أصابهم في سبيل الله وما ضعفوا وما استكانوا والله يحب الصابرين ‏.‏ وما كان قولهم إلا أن قالوا ربنا اغفر لنا ذنوبنا وإسرافنا في أمرنا وثبت أقدامنا وانصرنا على القوم الكافرين ‏.‏ فآتاهم الله ثواب الدنيا وحسن ثواب الآخرة والله يحب المحسنين ‏} فسألوا الله العافية كما في دعاء الصباح و المساء و ساهموا في الدعوة إلى مقاطعة الصهاينة

والدعاء على النفس منهي عنه كما روى أبو داود عن جابر رضي الله عنه أن النبي صلى الله عليه وسلم قال : ( لا تدعوا على أنفسكم، ولا تدعوا على أولادكم، ولا تدعوا على خدمكم، ولا تدعوا على أموالكم، لا توافقوا من الله ساعة نَيْلٍ فيها عطاء فيستجاب لكم).
وروى مسلم وغيره عن أم سلمة قالت : قال رسول الله صلى الله عليه وسلم لا تدعوا على أنفسكم إلا بخير، فإن الملائكة يؤمنون على ما تقولون) .
وعن جابر -رضى الله عنه- أن النبي صلى الله عليه وسلم قال : ( من هذا اللاعن بعيره ؟ انزل عنه، فلا تصحبنا بملعون ، لا تدعوا على أنفسكم ولا تدعوا على أولادكم، ولا تدعوا على أموالكم، لا توافقوا من الله ساعة يسأل فيها عطاء فيستجيب لكم.)

وقد جعل الإسلام من شروط إجابة الدعاء : الدعاء بغير إثم أو قطيعة رحم، لما رواه أحمد عن أبي سعيد أن النبي صلى الله عليه وسلم قال: "ما من مسلم يدعو الله عز وجل بدعوة ليس فيها إثم ولا قطيعة رحم إلا أعطاه الله بها إحدى ثلاث خصال: إما أن يعجل له دعوته، وإما أن يدخرها له في الآخرة، وإما أن يصرف عنه من السوء مثلها. قالوا: إذًا نكثر؟ قال: الله أكثر".
ومن رحمة الله تعالى أنه لا يستجيب الدعاء بالشر غالبًا ، كما قال تعالى : ( ولو يعجل الله للناس الشر استعجالهم بالخير لقضي إليهم أجلهم ) يخبر تعالى عن حلمه ولطفه بعباده أنه لا يستجيب لهم إذا دعوا على أنفسهم أو أموالهم أو أولادهم في حال ضجرهم وغضبهم ، وأنه يعلم منهم عدم القصد بالشر إلى إرادة ذلك ، فلهذا لا يستجيب لهم ، والحالة هذه لطفا ورحمة كما يستجيب لهم إذا دعوا لأنفسهم أو لأموالهم أو لأولادهم بالخير والبركة والنماء ولهذا قال " ولو يعجل الله للناس الشر استعجالهم بالخير لقضي إليهم أجلهم " الآية ، أي لو استجاب لهم كل ما دعوه به في ذلك لأهلكهم ، ولكن لا ينبغي الإكثار من ذلك كما جاء في الحديث الذي رواه الحافظ أبو بكر البزار في مسنده : حدثنا جابر قال : قال رسول الله صلى الله عليه وسلم " لا تدعوا على أنفسكم ، لا تدعوا على أولادكم، لا تدعوا على أموالكم ، لا توافقوا من الله ساعة فيها إجابة فيستجيب لكم " ورواه أبو داود.
وهذا كقوله تعالى " ويدع الإنسان بالشر دعاءه بالخير " الآية . وقال مجاهد في تفسير هذه الآية " ولو يعجل الله للناس الشر استعجالهم بالخير " الآية هو قول الإنسان لولده أو ماله إذا غضب عليه : اللهم لا تبارك فيه والعنه. فلو يعجل لهم الاستجابة في ذلك كما يستجاب لهم في الخير لأهلكهم

Anonymous,  Wednesday, March 18, 2009 at 11:02:00 PM CDT  

Usura slayeth the child in the womb
It stayeth the young man's courting
It hath brought palsey to bed, lyeth
between the young bride and her bridegroom


Malcolm Thursday, March 19, 2009 at 10:54:00 AM CDT  

OK what ^^^, yeah so.... is there a jihad and a guy reciting poetry above me?

Building a Better Country Thursday, March 19, 2009 at 12:12:00 PM CDT  

I was half done with a piece on usury when I read this - looks like I need a link, not a spell checker!

Anonymous,  Thursday, March 19, 2009 at 3:01:00 PM CDT  

You have written an excellent piece John. The rentier class has always been the disease of civilization.

Man is commanded to work in order to live not live off rents that steal another man's work.

Until the ruling class either rejects the corruption of rents and usury there can be no change.

We need a rebellion within the ruling class against liberalism and modernism and return to Christianity and Classicalism. The "West" needs to become the "West" again.

You made a great point about Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp.

You should have also pointed out the the so-called "Free Market" advocates and "Libertarians" were thrilled by the Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp decision as a victory for the "free market" which is one of the reasons I'm not a libertarian or anarcho-narco capitalist.

"Free Banking" i.e. decentralized usury doesn't solved the problems of usury so the "Free Market" has no solutions to the current situation if you define "Free Market" freedom to steal of the value of labor via unregulated usury and free trade.

I define a free market as one free of the institutions and practices of theft i.e. usury and labor exploitation but that would classical political economy as opposed to Neo-Liberalism.

The problem the classical economist understood is that the "Free Market" will never exist because man will never stop trying to steal so the only question is what are the politics of trying to limit the damage of theft.

Neoliberalism is basically a fraud trying to rewrite history to say that "theft is good" and so believe us while run around looting claiming "market forces" at work and screaming "Socialist" or "Planned Economy" at anyone who objects. That's one of the reason's I hate Milton Friedmen is because he did this all the time with glib rhetoric about the greatness of capitalism versus "other systems." He wasn't a idiot and he knew he was lying and I don't see why so-called conservatives mourned the passing of one of the greatest liers of all time.

Anonymous,  Thursday, March 19, 2009 at 3:29:00 PM CDT  

Boy that next to last paragraph is a 350 yard drive right smack down the center of the fairway ! Awesome.

John Médaille Thursday, March 19, 2009 at 3:35:00 PM CDT  

I have no idea what the Arabic means; I passed it through Google translator and it came out gibberish. Sarsfield's poem means, I think, that usury is contrary to nature; it is certainly contrary to economic order.

As for Friedman and Company, read Naomi Klein's "Shock Doctrine," and you will see just how much evil these people have unleashed on the world, in the name of a failed economic theory.

Anonymous,  Thursday, March 19, 2009 at 8:05:00 PM CDT  

Actually, "Sarsfield's poem" is just the last five lines of Pound's Canto LXV - "With Usura." I thought all distributists were familiar with it. For all his regrettable kookiness, in this poem Pound manages to capture the essence of how the prevalence of usury undermines true civilization. The lines I quoted tie usury to the contraceptive/abortion mentality. Would that our bishops saw the connection as clearly as did Pound. We then might have a truly "seamless" exposition of Catholic social teaching.

John Médaille Thursday, March 19, 2009 at 8:14:00 PM CDT  

To be truthful, I haven't read Pound since I was an undergraduate, which was a very long time ago. You are right about abortion and usury: the first makes nothing of something; the second something of nothing. Both are forms of nihilism, contra naturam.

I did draw the legal parallel of how the laws against both were abolished by judicial fiat rather than legislative process.

Anonymous,  Thursday, March 19, 2009 at 8:55:00 PM CDT  

Poetry aside, this really is an incredibly important post. If the Marquette National case is truly to blame for the demise of usury laws in this country, is not the total lack of Catholic response to it (at least I don't remember any)a measure of the gaping void in Catholics' understanding of our own social teaching? It underscores the importance of the work you are doing in this blog and elsewhere.Keep it up.

P.S. "With Usura" may be the only Pound I've ever read. And for all my know-it-allness, I see that it's actually Canto XLV -- not LXV -- and the lines I quoted are not the last five as I wrote.

John Médaille Thursday, March 19, 2009 at 9:13:00 PM CDT  

Sarsfield. After Vatican II, the understanding of Catholic Social Teaching fell into decline, along with a general failure of catechises in the turbulent post-conciliar period. We are only now beginning to recover from this. CST suffered a particularly gruesome fate: it didn't actually die; it was eaten by partisan zombies. Drained of any real life, it became the zombie-like tool of left-wing ideologues and right-wing Austrians, who selected what they wanted (usually very little) and discarded the rest. A big part of my task is simply restating a doctrine which used to be better known and better understood.

Anonymous,  Thursday, March 19, 2009 at 11:10:00 PM CDT  

My thoughts exactly. We are in this position because our credit system obviously is a sham. A good economy can never stand on a system that makes people getting into debt profitable.

The sad thing is that the stimulus bill is set to recuscitate this messy system.

Besorge Friday, March 20, 2009 at 3:14:00 PM CDT  

John keep writing you are an inspiration to many of us, from this Floridian over here, I am thinking of studying Economics now, and well I would love to take courses under you. Economics seems to be worse than philosophy in the fact most people don't know what they are talking about, if not just a few who understand.

Perhaps we need to go back to the old Greek/Semetic interpretation of Economia, which meant everything.

Anonymous,  Thursday, March 26, 2009 at 11:03:00 AM CDT  

Thomas Geoghegan on “Infinite Debt: How Unlimited Interest Rates Destroyed the Economy” interviewed by Amy Goodman at DN

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