“COUPLED with Usury, Unrestricted Competition destroys the small man for the profit of the great and in so doing produces that mass of economically unfree citizens whose very political freedom comes in question because it has no foundation in any economic freedom, that is, any useful proportion of property to support it.”
~Hilaire Belloc: The Crisis of Civilization.
Showing posts with label Usury. Show all posts
Showing posts with label Usury. Show all posts
Tuesday, January 27, 2015
Friday, January 31, 2014
Usury
When Bonds are Issued to Yield a Profit Out of Destruction, or Exact Interest From Non-Productive Investment, the Evil Will Eat Society Up. Denounced by Ancient Pagans and Christian Moralists Alike, Usury Has Become a Term Almost Forgotten Although Its Practice Is of Daily Experience.
I NOW go on to talk of the plague of monopoly, which is one of the very worst results of modern capitalism, and is ruining society quite as much as the burning sense of injustice suffered by the worker under capitalism. I shall speak of the monopoly of production gradually killing men’s choice in what goods they shall enjoy; the monopoly of distribution, gradually killing men’s choice of where they shall buy and of whom; the virtual monopoly of credit, through the concentration of banking and the stranglehold of the bankers on the modern capitalistic world.
But before we can understand the growing monopoly of credit we must understand “Usury”.
First, let us understand what we are talking about. The word “Usury” is used today in two very different senses. It is used to mean excessive interest on money: that is the popular meaning of the word. It is also used to mean “interest on money as distinguished from profit: any interest,” large or small, demanded for the “use of money” as distinguished from payments for goods or services and from profit on trade. This is the strict original meaning of the word “Usury” and in that sense I use it here: interest on money or credit alone.
It is a strange thing that though Usury has been denounced as an accursed sin, a destruction of society, ever since human society has existed, it has in modern times been left alone, and, until quite lately, was not seriously discussed. It was taken for granted that Usury was quite natural and would do no harm. The ancient pagan philosophers denounced it; the Christian Church denounced it vigorously from the appearance of this Church until the Reformation. All our moral theologians have denounced it. And yet, for a time, after the seventeenth century, until quite recently, Usury was more and more accepted until it became a matter of course. Only when the enormous harm that it has done was beginning to be felt was the question raised again.
Now, Usury being the taking of interest on money merely “as money”, why is that wrong or harmful? Money is a social instrument devised for the exchange of goods. Its proper function is to work as currency. It does not breed. There is no natural profit attaching to it merely as money. If you keep it back from general circulation and take advantage of having it thus in your power and say to the man who needs to buy or sell “You shall not have this necessary currency unless you pay me still more money for the use of it” you are doing wrong.
The principle of taking Usury once admitted, Usury would end by eating up society. A few dollars lent out at compound interest for a few generations would demand a tribute more than all the wealth of the world could meet. A sum of money lent at 5 per cent doubles, at compound interest, in just over 14 years. The debt increases “a thousandfold” in 144 years; in 288 years “a millionfold!” In 432 years it increases “a billionfold”—one thousand million times! One cent put out at such interest when Columbus landed would now claim over $20,000,000.
But clearly you are doing no wrong if you put your wealth into some profitable enterprise and claim a portion of the profit thereon. That is where the confusion lies.
Supposing a man own a piece of land through which, deep down, runs a rich vein of copper ore. The amount of ore that could be extracted in a year’s labor would be worth, by the time he got it to the surface, $100,000. But to get it to the surface needs instruments and reserves of food and clothing and housing and the rest of it to maintain human energy while the ore is being extracted.
The owner of the vein had nothing. He gets a partner with $500,000 and his partner buys the required machinery and reserves of food, etc., so that the work can be undertaken. He bargains to halve, at the end of the year, the value of the ore extracted: that is, $50,000: one-tenth of the amount that he has put up as capital. The other $50,000 of ore is to be kept by the owner of the land. Year after year one goes on taking his share as capitalist. He is getting to one percent on his capital. But the other man has the advantage of “his” share, which he could never have had without the help of his partner. The contract is perfectly just.
Now suppose after 20 years the mine peters out. There is no more profit to be shared and therefore the original contract comes to an end from a lack of matter.But supposing the contract were worded so that the capitalist did not get his 10 percent as part of the profit, but got it as interest on money lent: not as instruments and reserves of food, etc., lent. Then he has a perpetual claim to $50, 000 a year, payable out of wealth that is not there. This is called “interest on the unproductive loan” and such interest is Usury. To pay that tribute the borrower has to get further and further into debt or to sell other wealth of his, until he is ruined; and that is how Usury eats up society.
Now when money claims interest “merely because it is money and without reference to the way that money is used,” a large proportion of the interest must always be interest on what has become an unproductive loan. Part of the vast sums paid to the money lenders annually represents real profit, real wealth, real goods. But part will always represent, if money lending instead of partnership is at work, interest on a loan which has become, or was from the beginning unproductive.
For instance, nearly all the great war loans demand interest on an unproductive loan. The money was spent in buying goods which were consumed, not in producing more wealth, but in producing no wealth—or even in destroying wealth. It went to support soldiers and sailors who produced no wealth and often actually destroyed wealth. It went to buy guns and ammunition which produce no wealth, but were actively employed in destroying wealth. You spend $100,000 in buying guns and ammunition for knocking down in war and industrial building which, in peace, produced $5,000 worth of wealth a year; and you go on asking $5,000 interest on the money represented by worn out guns, exploded ammunition and a factory that has been destroyed.
There are other ways in which the recognition of money’s right to interest, merely because it is money, eats up society, but this one major case of the unproductive loan is sufficient to show the evil that Usury does.
When money lending (“the providing of credits,” as it is called) carries interest as a matter of course, it is an activity which devours mankind.
~Hilaire Belloc: in Social Justice, April 18, 1938.
See also:
• Is Usury Still A Sin?, by Thomas Storck
• The Sin of Usury, by St. Thomas Aquinas
• Usury, from the Catholic Encyclopedia
I NOW go on to talk of the plague of monopoly, which is one of the very worst results of modern capitalism, and is ruining society quite as much as the burning sense of injustice suffered by the worker under capitalism. I shall speak of the monopoly of production gradually killing men’s choice in what goods they shall enjoy; the monopoly of distribution, gradually killing men’s choice of where they shall buy and of whom; the virtual monopoly of credit, through the concentration of banking and the stranglehold of the bankers on the modern capitalistic world.
But before we can understand the growing monopoly of credit we must understand “Usury”.
First, let us understand what we are talking about. The word “Usury” is used today in two very different senses. It is used to mean excessive interest on money: that is the popular meaning of the word. It is also used to mean “interest on money as distinguished from profit: any interest,” large or small, demanded for the “use of money” as distinguished from payments for goods or services and from profit on trade. This is the strict original meaning of the word “Usury” and in that sense I use it here: interest on money or credit alone.
It is a strange thing that though Usury has been denounced as an accursed sin, a destruction of society, ever since human society has existed, it has in modern times been left alone, and, until quite lately, was not seriously discussed. It was taken for granted that Usury was quite natural and would do no harm. The ancient pagan philosophers denounced it; the Christian Church denounced it vigorously from the appearance of this Church until the Reformation. All our moral theologians have denounced it. And yet, for a time, after the seventeenth century, until quite recently, Usury was more and more accepted until it became a matter of course. Only when the enormous harm that it has done was beginning to be felt was the question raised again.
Now, Usury being the taking of interest on money merely “as money”, why is that wrong or harmful? Money is a social instrument devised for the exchange of goods. Its proper function is to work as currency. It does not breed. There is no natural profit attaching to it merely as money. If you keep it back from general circulation and take advantage of having it thus in your power and say to the man who needs to buy or sell “You shall not have this necessary currency unless you pay me still more money for the use of it” you are doing wrong.
The principle of taking Usury once admitted, Usury would end by eating up society. A few dollars lent out at compound interest for a few generations would demand a tribute more than all the wealth of the world could meet. A sum of money lent at 5 per cent doubles, at compound interest, in just over 14 years. The debt increases “a thousandfold” in 144 years; in 288 years “a millionfold!” In 432 years it increases “a billionfold”—one thousand million times! One cent put out at such interest when Columbus landed would now claim over $20,000,000.
But clearly you are doing no wrong if you put your wealth into some profitable enterprise and claim a portion of the profit thereon. That is where the confusion lies.
Supposing a man own a piece of land through which, deep down, runs a rich vein of copper ore. The amount of ore that could be extracted in a year’s labor would be worth, by the time he got it to the surface, $100,000. But to get it to the surface needs instruments and reserves of food and clothing and housing and the rest of it to maintain human energy while the ore is being extracted.
The owner of the vein had nothing. He gets a partner with $500,000 and his partner buys the required machinery and reserves of food, etc., so that the work can be undertaken. He bargains to halve, at the end of the year, the value of the ore extracted: that is, $50,000: one-tenth of the amount that he has put up as capital. The other $50,000 of ore is to be kept by the owner of the land. Year after year one goes on taking his share as capitalist. He is getting to one percent on his capital. But the other man has the advantage of “his” share, which he could never have had without the help of his partner. The contract is perfectly just.
Now suppose after 20 years the mine peters out. There is no more profit to be shared and therefore the original contract comes to an end from a lack of matter.But supposing the contract were worded so that the capitalist did not get his 10 percent as part of the profit, but got it as interest on money lent: not as instruments and reserves of food, etc., lent. Then he has a perpetual claim to $50, 000 a year, payable out of wealth that is not there. This is called “interest on the unproductive loan” and such interest is Usury. To pay that tribute the borrower has to get further and further into debt or to sell other wealth of his, until he is ruined; and that is how Usury eats up society.
Now when money claims interest “merely because it is money and without reference to the way that money is used,” a large proportion of the interest must always be interest on what has become an unproductive loan. Part of the vast sums paid to the money lenders annually represents real profit, real wealth, real goods. But part will always represent, if money lending instead of partnership is at work, interest on a loan which has become, or was from the beginning unproductive.
For instance, nearly all the great war loans demand interest on an unproductive loan. The money was spent in buying goods which were consumed, not in producing more wealth, but in producing no wealth—or even in destroying wealth. It went to support soldiers and sailors who produced no wealth and often actually destroyed wealth. It went to buy guns and ammunition which produce no wealth, but were actively employed in destroying wealth. You spend $100,000 in buying guns and ammunition for knocking down in war and industrial building which, in peace, produced $5,000 worth of wealth a year; and you go on asking $5,000 interest on the money represented by worn out guns, exploded ammunition and a factory that has been destroyed.
There are other ways in which the recognition of money’s right to interest, merely because it is money, eats up society, but this one major case of the unproductive loan is sufficient to show the evil that Usury does.
When money lending (“the providing of credits,” as it is called) carries interest as a matter of course, it is an activity which devours mankind.
~Hilaire Belloc: in Social Justice, April 18, 1938.
See also:
• Is Usury Still A Sin?, by Thomas Storck
• The Sin of Usury, by St. Thomas Aquinas
• Usury, from the Catholic Encyclopedia
Thursday, January 2, 2014
On Usury
Usury, to take that first, like the greed from which it proceeds, is as old as human society. Like the other evils proceeding from the Reformation it was not created by the movement. We shall find in the case of Usury, as in the case of unbridled Competition (the force which, coupled with Usury, achieved the creation and enslavement of the proletariat), as likewise we have already found in the case of Contract replacing Status, that the seeds of the change had been sown long before the actual disruption of Christendom took place. What happened after the Reformation was not that these new evils, including Usury, then appeared for the first time but, as I have said, that they turned from exceptions into admitted and general habits. They were accepted, they grew, and at last came to cover the whole field of Society.
Unlike the transformation of Status into Contract and the undue growth of Competition, Usury was an evil in itself.
It was not only evil because it got out of proportion, and swelled beyond due measure, as did the replacement of Status by Contract and the practice of Competition, but was of its own nature a thing to be condemned and extirpated, if possible, as a disease. It may be remarked that it had already permeated like a mortal poison the society of pagan antiquity at its close and was one of the main evils under which the society of Graeco-Roman civilization collapsed in the West, and before the Mohammedan invasion of the East.(1)
The morals of the Church, when the Church gradually overcame the world and molded a new Europe, forbade Usury as strongly though not with so much practical effect, as did later Mohammedanism. Every sane philosophy, every religion, had forbidden it. The Greek pagan philosophers with Aristotle at their head denounced it; so did the Oriental pagans; so did the Jewish law.
Now why was this? Why was Usury thus regarded universally as immoral, and why has it been found in practice to be a poison ultimately destroying Society?
In order to answer these questions we must first understand what Usury is, in the sense in which we here employ the term; for there is great ambiguity in the use of the word and therefore misunderstanding of the thing which the word connotes.
Usury in the sense of an economic evil does not mean the taking of interest on a loan. It does not mean the taking of interest higher than some permitted minimum. It means that taking of interest upon a loan of money alone (or still worse, upon a mere promise to lend money, an instrument of credit) whether that money be invested soundly or no, whether it represent productive energy or no. Usury is, properly speaking, the taking of increment upon a loan of money merely because it is money, or worse still the taking of such increment upon a credit-instrument.
The reasons for condemning interest upon money alone, as distinguished from profit, are twofold: First, it is asking a tribute from Society as the price of releasing currency hitherto withheld from its proper function of acting as the circulating medium of exchange; secondly, it is arranging a claim for payment of a share in profit which may, but also may not, exist.
As an example of the first evil, let us consider a market in which the supply of currency is in the hands of a small number of those present, buyers and sellers; or even in the extreme case (the case of a bank in a small market town), in the hands of one controller only.
No transactions in the market, save those of mere barter, can take place unless the monopolist holding the currency permit it to be used for its natural purpose.
The natural purpose of currency is this: the facilitation of the multiple exchange of goods. If I have a surplus of wheat, having produced more than I can consume of that article, while my neighbor has a surplus of hay, having produced more than his establishment can consume, we will, if we are in contact, naturally exchange the hay for the wheat; since it is to the mutual advantage of both of us that we should do so.
Now let us suppose a third party, who had produced more potatoes than he can consume, but has not sufficient hay for his purpose; a fourth who has livestock for food in excess of his needs and would exchange the surplus for wheat; a fifth who is a craftsman and has produced clothes and boots for the supply of others in exchange for goods which he needs. Then there arises a condition not of simple barter but of multiple exchange.
The man with the hay is not in contact with the man who produced boots, nor either of them with the man who has the surplus of potatoes. There must be present a common medium of exchange which shall circulate among them if the various surpluses are to be distributed according to the demands of the producers and purchasers.
That is the true function of money, and of instruments of credit based upon money: to make possible the action of multiple exchange.
Now insofar as the monopolists hold back this current medium from general circulation, demanding a price for its use, they are demanding increment for something which has no natural increment: which does not breed. They are asking for a surplus although that which they advance produces of itself no surplus. Although that which they advance produces of itself no surplus. They are holding up the community by refusing it its normal medium of exchange.
That is the first wrong attaching to taking interest upon money alone. The second and in complex times such as ours, much the more important-evil attaching to usury is the taking of increment from a non-productive loan.
This is manifestly immoral.
A man comes to me and says: "I have found upon my property a vein of ore, but it lies deep, so that I shall require a considerable capital-say $100,000-to extract the valuable metal. That metal, when it shall have been extracted, will be worth at least $200,000. But I cannot obtain this advantage until I purchase the instruments for developing the mine and have hired the labor required to work it. Lend me the $100,000 necessary for the operation. I answer him: "If I do so, you must give me a share in the profit, say half of the total." He agrees, that without my capital he could not develop the mine; without his ore my capital would not be used. The combination of the two is productive of wealth, and we share that wealth. That is a perfectly moral transaction, even if the profit be one of 100 percent or 1000 percent over the original investment; so that if, with my stipulated half profit, I make 50 percent or 500 percent on my original loan, I am in now way to blame. The increment is not properly speaking interest on a loan of money: it is a share of real wealth.
But if I lend the money, saying; "I care not what your profits may be, nor whether there be a profit or no, but I demand $10,000 a year for the use of my $100,000"- then in case the speculation fails the borrower will be bound to pay the $10,000 perpetually, without any production of wealth to correspond to it. He will then be paying interest on an unproductive loan, and it is manifestly immoral to ask for share of wealth which does not exist.
Now, any loan at interest which is a loan of mere money may partake of this character; and among a number of such loans many will partake of this unproductive character. Of the money bearing interest merely because it is money, some large proportion at any one time must be demanding interest from activities which create no wealth out of which to pay the interest.
For instance, nearly all of the War loans issued in the belligerent countries to pay for the Great War [WWI] were loans unproductive of wealth, yet bearing interest. The money was expended, not in developing productive capacity not in turning potential wealth into actual wealth, but in feeding men occupied in killing each other, in clothing them, in giving them their wages, and armament. When the effort was over, a vast indebtedness remained; a vast annual interest was claimed in perpetuity- and yet there has been no wealth produced out of which such increment could come.
But though Usury is in itself immoral, and justly condemned by every ethical code, its chief and worst defect in the particular case we are now examining, the growth of Capitalism and its increasing proletariat, is the centralization of irresponsible control over the lives of men: the putting of power over the proletariat into the hands of a few who can direct the loans of currency and credit without which the proletariat could not be fed and clothed and maintained in work.
~Hilaire Belloc: The Crisis of Civilization
-----------------
1. It must be remarked that one of the principal factors of success in the Mohammedan over-running of half Christendom between the 7th and 8th centuries was its active penalizing of Usury. This leading tenet of Islam in its social morals gave immediate relief to myriads of debtors in North Africa, Syria and Mesopotamia. It is strictly enforced today. Nothing is more remarkable in the Mohammedan countries of North Africa today than to see how, under the rule of Europeans there, the Mohammedan still refuses to take interest from his fellow Mohammedan on a mere loan of money, and how the whole trade of Usury is confined to the European immigrants and the native Jews.
Unlike the transformation of Status into Contract and the undue growth of Competition, Usury was an evil in itself.
It was not only evil because it got out of proportion, and swelled beyond due measure, as did the replacement of Status by Contract and the practice of Competition, but was of its own nature a thing to be condemned and extirpated, if possible, as a disease. It may be remarked that it had already permeated like a mortal poison the society of pagan antiquity at its close and was one of the main evils under which the society of Graeco-Roman civilization collapsed in the West, and before the Mohammedan invasion of the East.(1)
The morals of the Church, when the Church gradually overcame the world and molded a new Europe, forbade Usury as strongly though not with so much practical effect, as did later Mohammedanism. Every sane philosophy, every religion, had forbidden it. The Greek pagan philosophers with Aristotle at their head denounced it; so did the Oriental pagans; so did the Jewish law.
Now why was this? Why was Usury thus regarded universally as immoral, and why has it been found in practice to be a poison ultimately destroying Society?
In order to answer these questions we must first understand what Usury is, in the sense in which we here employ the term; for there is great ambiguity in the use of the word and therefore misunderstanding of the thing which the word connotes.
Usury in the sense of an economic evil does not mean the taking of interest on a loan. It does not mean the taking of interest higher than some permitted minimum. It means that taking of interest upon a loan of money alone (or still worse, upon a mere promise to lend money, an instrument of credit) whether that money be invested soundly or no, whether it represent productive energy or no. Usury is, properly speaking, the taking of increment upon a loan of money merely because it is money, or worse still the taking of such increment upon a credit-instrument.
The reasons for condemning interest upon money alone, as distinguished from profit, are twofold: First, it is asking a tribute from Society as the price of releasing currency hitherto withheld from its proper function of acting as the circulating medium of exchange; secondly, it is arranging a claim for payment of a share in profit which may, but also may not, exist.
As an example of the first evil, let us consider a market in which the supply of currency is in the hands of a small number of those present, buyers and sellers; or even in the extreme case (the case of a bank in a small market town), in the hands of one controller only.
No transactions in the market, save those of mere barter, can take place unless the monopolist holding the currency permit it to be used for its natural purpose.
The natural purpose of currency is this: the facilitation of the multiple exchange of goods. If I have a surplus of wheat, having produced more than I can consume of that article, while my neighbor has a surplus of hay, having produced more than his establishment can consume, we will, if we are in contact, naturally exchange the hay for the wheat; since it is to the mutual advantage of both of us that we should do so.
Now let us suppose a third party, who had produced more potatoes than he can consume, but has not sufficient hay for his purpose; a fourth who has livestock for food in excess of his needs and would exchange the surplus for wheat; a fifth who is a craftsman and has produced clothes and boots for the supply of others in exchange for goods which he needs. Then there arises a condition not of simple barter but of multiple exchange.
The man with the hay is not in contact with the man who produced boots, nor either of them with the man who has the surplus of potatoes. There must be present a common medium of exchange which shall circulate among them if the various surpluses are to be distributed according to the demands of the producers and purchasers.
That is the true function of money, and of instruments of credit based upon money: to make possible the action of multiple exchange.
Now insofar as the monopolists hold back this current medium from general circulation, demanding a price for its use, they are demanding increment for something which has no natural increment: which does not breed. They are asking for a surplus although that which they advance produces of itself no surplus. Although that which they advance produces of itself no surplus. They are holding up the community by refusing it its normal medium of exchange.
That is the first wrong attaching to taking interest upon money alone. The second and in complex times such as ours, much the more important-evil attaching to usury is the taking of increment from a non-productive loan.
This is manifestly immoral.
A man comes to me and says: "I have found upon my property a vein of ore, but it lies deep, so that I shall require a considerable capital-say $100,000-to extract the valuable metal. That metal, when it shall have been extracted, will be worth at least $200,000. But I cannot obtain this advantage until I purchase the instruments for developing the mine and have hired the labor required to work it. Lend me the $100,000 necessary for the operation. I answer him: "If I do so, you must give me a share in the profit, say half of the total." He agrees, that without my capital he could not develop the mine; without his ore my capital would not be used. The combination of the two is productive of wealth, and we share that wealth. That is a perfectly moral transaction, even if the profit be one of 100 percent or 1000 percent over the original investment; so that if, with my stipulated half profit, I make 50 percent or 500 percent on my original loan, I am in now way to blame. The increment is not properly speaking interest on a loan of money: it is a share of real wealth.
But if I lend the money, saying; "I care not what your profits may be, nor whether there be a profit or no, but I demand $10,000 a year for the use of my $100,000"- then in case the speculation fails the borrower will be bound to pay the $10,000 perpetually, without any production of wealth to correspond to it. He will then be paying interest on an unproductive loan, and it is manifestly immoral to ask for share of wealth which does not exist.
Now, any loan at interest which is a loan of mere money may partake of this character; and among a number of such loans many will partake of this unproductive character. Of the money bearing interest merely because it is money, some large proportion at any one time must be demanding interest from activities which create no wealth out of which to pay the interest.
For instance, nearly all of the War loans issued in the belligerent countries to pay for the Great War [WWI] were loans unproductive of wealth, yet bearing interest. The money was expended, not in developing productive capacity not in turning potential wealth into actual wealth, but in feeding men occupied in killing each other, in clothing them, in giving them their wages, and armament. When the effort was over, a vast indebtedness remained; a vast annual interest was claimed in perpetuity- and yet there has been no wealth produced out of which such increment could come.
But though Usury is in itself immoral, and justly condemned by every ethical code, its chief and worst defect in the particular case we are now examining, the growth of Capitalism and its increasing proletariat, is the centralization of irresponsible control over the lives of men: the putting of power over the proletariat into the hands of a few who can direct the loans of currency and credit without which the proletariat could not be fed and clothed and maintained in work.
~Hilaire Belloc: The Crisis of Civilization
-----------------
1. It must be remarked that one of the principal factors of success in the Mohammedan over-running of half Christendom between the 7th and 8th centuries was its active penalizing of Usury. This leading tenet of Islam in its social morals gave immediate relief to myriads of debtors in North Africa, Syria and Mesopotamia. It is strictly enforced today. Nothing is more remarkable in the Mohammedan countries of North Africa today than to see how, under the rule of Europeans there, the Mohammedan still refuses to take interest from his fellow Mohammedan on a mere loan of money, and how the whole trade of Usury is confined to the European immigrants and the native Jews.
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