Usury: the basics

Last month, I got dragged into yet another one of Theso’s or Reinhardt’s quixotic debates about usury. I want to say this once so that I never need to tweet about it again.

  1. Usury is a sin.
  2. Usury is accepting interest (i.e., profit) on a secure loan.
  3. A secure loan is one where, from a legal point of view, the lender assumes no risk; it merely deprives him of the use of his money until he demands repayment.
  4. For a loan to be risk-free (in the context of the theological concept of usury), all of the following conditions must be met:
    • It must be impossible to discharge the debt
    • The creditor must have speedy/effective legal recourse in the event of default
    • There must be no possibility of the debtor’s assets being inferior to the value of the debt
    • There must be no possibility of multiple creditors having conflicting claims on the same assets.
  5. A loan wherein the lender is exposed to the same economic risks as borrower (for example, if he is to be repaid out of the profits of the business the loan is financing) cannot be usurious.
    • (The creditor is in effect a silent partner in the debtor’s enterprise.)
  6. A loan cannot be usurious if repayment (either of the principal or the interest) is voluntary, or secured only by an asset or some abstract status.
    • (A social expectation that a debtor demonstrate gratitude to his creditor with some gift, on top of the original loan, is not usury.)
    • (A loan secured by the debtor’s word of honor cannot be usurious if it is not legally enforceable.)
    • (But a loan which both parties expect to be enforced by extralegal means – e.g. by a mafia loan shark – is secure, and thus any interest is usury.)
  7. A loan to a corporation cannot be usurious, unless the debts of the corporation become fully-secured personal debts upon the failure of the corporation.
    • (Otherwise, a corporation that fails must have some legal process that discharges its outstanding debts after distributing remaining assets among creditors.)
  8. A loan to an individual can only be usurious in a jurisdiction where loans are not discharged in personal bankruptcy.
    • (If a loan can be discharged in personal bankruptcy, there is ipso facto a risk that the debtor will default.)

The concept of usury is germane primarily in a society where debts could not be discharged. Originally, debt slavery and indentured servitude allowed creditors to actually assume ownership of their debtors, if their other assets were insufficient to cover their debts. The body of the debtor is the ultimate collateral for a debt-free loan. As ancient societies sunk into the usury crisis, some allowed creditors to whip or torture defaulted debtors; this encouraged them to make efforts to repay, and if ultimately the debtor died on the rack, this would at least uphold the principle that debts are undischargeable and debts must be honored.

There is nothing wrong with (literal) debt slavery. There isn’t even anything wrong with corporal punishment for debtors, if the sovereign feels the need for it. But in societies where the entire future life of the debtor stands as security for the loan, the creditor does not take on any real risk — indeed, realistically he stands to profit if his debtor’s misfortunes allow him to acquire the latter’s assets and even his family at distressed prices — and it is unnatural greed for him to demand interest payments on top of that. (Instead of rationing out risk-free loans to those willing to pay the most for them, he should lend to those he judges most deserving or most grateful.)

A lender may well say, “But with this same money, I could expand my business, or found a new one, and make a great deal of money. I won’t lend it out if I have to forgo those profits.” Well then by all means, use the money productively! Buy whatever you need to expand production, and then reap the reward for the risk you’ve taken in order to better serve your neighbors. The prohibition on usury is not merely to punish greed for its own sake, but rather to promote entrepreneurship.

However, the question is remote from our present circumstances because there are no secure loans in American society, so any lending is risky and deciding who will use a (fully dischargeable) loan responsibly is, itself, a form of entrepreneurship.

Hypothetically, I could see the case for indicting the holders of FDIC-insured savings accounts as usurers. Those deposits are as secure as any loan in the history of mankind, backed as they are by the full power of the state, even if the bank that holds the deposit fails; but the “interest” on FDIC-insured accounts is so low, the question becomes trivial.

Theso often argues that federally-insured student loan debt is usurious. Yes, it is nearly impossible to discharge in bankruptcy court; but there are no immediate consequences for simply refusing to pay. Wage garnishment is not structurally equivalent to indentured servitude or a public whipping, even if the debtors lack any honest way to scrabble out of their financial hole. I’m not sure Theso is wrong, but I’m not sure he’s right, either.

(Fundamentally it’s hard for me to think the student debt crisis wrongs debtors when it is so expensive for the taxpayers who are cast in the role of unwilling usurers.)

Many Roman Catholics who doggedly condemn the modern financial system for its usury tie the theological critique of usury to an economic critique of the financial system as whole, lumping usury in with speculation, financial manias, and structural instability. I’ve never read a good critique along these lines. Most papists don’t seem to recognize that the pre-condition for usury is the absolute security of the loan on which usury is charged. A financial system in which usury was possible would have be a very safe one, because every usurious loan would be secured by the entire property, person, and liberty of the debtor. If a financial instrument is risky — and especially if the risk is contagious, meaning that each insolvent firm’s losses can be passed on to its creditors — that implies the liability it creates can be discharged and is not usurious.

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9 thoughts on “Usury: the basics

  1. To be clear, you are against the practice of charging “interest” or “vig” on a loan?

    What do you think about the World Bank and foreign lending from the following article?

    https://americanaffairsjournal.org/2017/08/development-delusion-foreign-aid-inequality/

    We recently wrote:

    “Arguably, a neocameralist state could not only be said to already exist but, in actual fact, pertains to the entire world and has done so for quite some time.

    What might this be?

    Answer:

    The World Bank, which sees various nations’ voting power for board positions based on how many shares they hold. Furthermore, the current Chief Economist and Senior Vice President of the World Bank, Paul Romer, has advocated for “charter cities” that would be run in a similar fashion to a neocameralist state. Moldbug called Romer’s ideas “UR Lite, very lite.””

    https://imperialenergyblog.wordpress.com/2018/01/13/the-steel-cameralist-manifesto-part-7-the-three-cameralist-systems-and-the-art-and-science-of-statecraft/

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    1. The world bank isn’t usurious because agreements between sovereign nations can never be secure in the necessary sense.

      >you are against the practice of charging “interest” or “vig” on a loan?

      if it’s usury, yes; if it’s not usury, no

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  2. Thank you very much for pointing out that usury is sinful. Too few are willing to say this.

    Unfortunately you don’t have any background in finance or corporate law and you have due to this ignorance misconstrued the language you use as it pertains to financial transactions. Everything you say after point #1 is nonsense. Anyone who has any real experience in finance will say the same. You are…not even wrong. What you are saying has no meaning.

    The go to on usury in the Christian reactionary blogosphere is of course Zippy Catholic, whom you either have not read or, likely because you are clearly ignorant of basic financial concepts, perhaps could not understand.

    I do understand that because you reject the church ordained by Jesus and you reject the explicit teachings of Jesus in lieu of a make-believe religion which affords your personal interpretation the authority of God, you don’t actually understand what “sin” is. And it’s often difficult to understand the truth while trying to keep ahold of the lies we tell ourselves. I pray that when He makes the truth undeniably known to you at your final judgment that you will have the humility and the love to accept it. Peace be with you.

    Liked by 1 person

  3. >Usury is accepting interest (i.e., profit) on a secure loan.

    Usury is the lack of mercy. In the Middle Ages Western thought confused it interest, but while interest [on a secure loan] can be usurious, it isn’t necessarily so (for it is not risk that you are charging the premium for, but for time, risk only adds on top of that). Similarly, charging basic goods to the destitute would be just as usurious as giving them loan with interest (indeed, more or less it’s the same thing, because they would only need the loan for the goods), though normally it isn’t usurious to charge for the goods.

    >There is nothing wrong with (literal) debt slavery.

    Church fathers beg to differ.

    Saint John Chrysostom writes:
    But should any one ask, whence is slavery, and why it has found entrance into human life, (and many I know are both glad to ask such questions, and desirous to be informed of them,) I will tell you. Slavery is the fruit of covetousness, of degradation, of savagery; since Noah, we know, had no servant, nor had Abel, nor Seth, no, nor they who came after them. The thing was the fruit of sin, of rebellion against parents. Let children hearken to this, that whenever they are undutiful to their parents, they deserve to be servants. Such a child strips himself of his nobility of birth; for he who rebels against his father is no longer a son; and if he who rebels against his father is not a son, how shall he be a son who rebels against our true Father? He has departed from his nobility of birth, he has done outrage to nature. Then come also wars, and battles, and take their prisoners. Well, but Abraham, you will say, had servants. Yes, but he used them not as servants.

    Saint Gregory of Nyssa writes:
    Because of poverty somebody is sitting at your door, pleading with you; at a loss he flees for refuge to your wealth, hoping that you might bring relief to his need. But you do just the opposite: you should be an ally, but you become an enemy, for you do not help him so that he can be freed both from the distress which is pressing on him and his indebtedness to you. Rather, you sow evils for this man who has come on hard times, strip the naked, injure the wounded, and pile care upon care and woe upon woe. Whoever receives money through usury takes a pledge of poverty and under the pretence of a good deed brings ruin on someone’s home. You might perforce give wine out of charity to someone who is sick with a raging fever, if he is overcome with thirst and asks you for a drink. It brings him relief for a while when he takes the cup, but after a little while it makes his fever strong and ten times worse. In the same way if you give money laden with poverty to a poor man you are not relieving his distress but adding to his misfortune.

    Saint Basil the Great writes:
    The Lord has laid a clear command on us, saying: ‘And from him who would borrow of thee, do not turn away’ […] the avaricious person […] does not pity one who is suffering misfortune beyond his desert; he takes no account of his nature; he doe not yield to his supplications; but, rigid and harsh he stands, yielding to no entreaties, touched by no tears, preserving in his refusal […] But when he who is seeking the loan makes mention of interest and names his securities, then, pulling down his eyebrows, he smiles and remembers somewhere or other a family friendship, and calling him associate and fried, he says, ‘We shall see if we have any money at all reserved.’ […] he binds them with contracts. If he had been able to make you richer, why would he have sought your doors? Coming for assistance he found hostility […] It was your duty to relieve the destitution of the man, but you, seeing to drain the desert dry, increased his need. Just as is some physician, visiting sick, instead of restoring health to them would take away even their little remnant of bodily strength, so you also would make the misfortunes of the wretched an opportunity of revenue […] Do you know that you are making an addition to your sin greater that the increase to your wealth, which you are planning from the interest? Whenever you have the intention of providing for a poor man for the Lord’s sake, the same thing is both a gift and a loan, a gift because of the expectation of no repayment, but a loan because of the great gift of the Master who pay in his place, and who, receiving trifling things through a poor man, will give great things in return for them. “He that hath mercy on the poor length to God.”

    >Well then by all means, use the money productively!

    No! One would only be committing lesser usury if he ignored the destitute for the sake of profit. Only, then it would be a sin of negligence rather than exploitation. To avoid usury altogether one must become his brother’s keeper and give freely to the needy.

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    1. These are great quotations, thank you. I agree to a limited extent about your framing it as a “confusion” but (a) the fathers themselves were not confused, (b) the key point to communicate to a contemporary audience is that the question of usury presupposed a now marginal practice of securing loans with the liberty of the debtor.

      Chrysostom’s view that servitude is made part of the human condition through sin is one that I find unobjectionable (but not prejudicial to the rights of a Christian prince to enact slavery or debt slavery).

      The other two quotes raise separate q about charity and avarice that are conceptually connected to the doctrine of usury but sadly not easy to fit into post

      Liked by 1 person

      1. >but not prejudicial to the rights of a Christian prince to enact slavery or debt slavery

        It should be noted than neither am I. In fact, I think that slavery might even be necessary.

        Liked by 1 person

      2. “Necessary”, huh? 🙂 Wouldn’t go that far myself, but the Church did consider that the slaves it owned and their posterity would be servi of the universal Church until the end of time.

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