Usury in the Temples of Wall Street
Today we bring you the next in our continuing series on “old world thinking” which is thoroughly discredited and inappropriate for the modern era. Let’s take a moment and look at the concept of usury, both past and present. It’s an old word and carries an almost universally negative connotation.
19 ” You shall not charge interest to your brother — interest on money or food or anything that is lent out at interest.
20 “To a foreigner you may charge interest, but to your brother you shall not charge interest, that the LORD your God may bless you in all to which you set your hand in the land which you are entering to possess. (Deuteronomy 23:19,20)35 ‘ If one of your brethren becomes poor, and falls into poverty among you, then you shall help him, like a stranger or a sojourner, that he may live with you.
36 ‘Take no usury or interest from him; but fear your God, that your brother may live with you.
37 ‘You shall not lend him your money for usury, nor lend him your food at a profit. (Leviticus 25:35-37)
Far be it from me to pound on the pulpit here, so these quotes can simply be taken in historical context. We’re told that such loans, profits and associated risk are a vital part and parcel of business today. Companies take not only large amounts of venture capital to start up, but frequent short term loans to meet their regular obligations. When such cash, referred to as “greasing the wheels of commerce” suddenly becomes unavailable, the entire financial and industrial system teeters on the brink of ruin.
But what really happens in the process of money being lent at interest? In essence, one party is drawing cash out of the system while doing nothing productive in the business in question. They create nothing, they provide no materials, they perform no labor, yet they draw profit out of the process.
To think of this in simpler terms, imagine a small business machine shop which produces valves. The owner has his own property where he conducts business. He has to buy raw material, maintain and operate his machinery, pay his workers, cover overhead costs, conduct marketing and sell his product for a profit. If he saves and manages his money wisely, perhaps he can pay for all of these associated costs and the profits are his. If he has to borrow money to meet these costs, then a larger amount will need to be paid back. Makes sense, right?
Now… how many people in our global economy can take money out of the system while adding nothing fundamental to the processes of production? Or, if you prefer, how many leaches can you attach to the patient before it’s bled out and dies? If less and less people actually make things and sell things, compared to the number of people who make vast sums by essentially handing little pieces of virtual paper back and forth and suctioning money out of the process, how long would it be before the system collapsed under its own weight?
Just some food for thought on Lincoln’s birthday. Enjoy!
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8 Responses to “Usury in the Temples of Wall Street”
It's an easy and insanely complicated answer. If you can use the borrowed money to increase productivity more than the amount of interest then it is a net good. However, I also believe that advancement takes place in fits and starts, and at some point it becomes impossible to increase productivity at the right amount because the technology/demand isn't there, or social mood is such that people value trivialities more than hard work. It is at this point that there is a severe misallocation of resources and we start seeing debt bubbles/insane luxury/etc. The process is driven by the underlying foundation of our monetary/economic system which requires continual growth just to stay in the same place (due to having to pay off interest). The whole thing is inherently unstable.
This is why I agree with the premise of generational wealth and super cycles.
If you think credit is tight now, just try banning the charging of interest.
You say, “But what really happens in the process of money being lent at interest? In essence, one party is drawing cash out of the system while doing nothing productive in the business in question. They create nothing, they provide no materials, they perform no labor, yet they draw profit out of the process.”
They provide the money that makes the process possible. They assume the risk that the loan will not be repaid (a not-unsubstantial risk, as the events of the last year have shown).
This is that weird “lenders are parasites” nonsense that is common on the very far left, who have zero understanding of economics.
Was this site ever really moderate, or is that just a gag title?
Mikkel,
Unstable, but in the end worth it, no? I mean we are better off than we were 70 years ago, right? If we had a more stable system we would have less growth, no? A genuine question.
There has been no theoretical fundamental system devised that can produce the benefits without the negatives, although there are suggestions that we can design a way to partition our current system to lessen the amount of feedback and correlations…which would make things stay together longer, theoretically. The problem is whether it'd be dismantled when we hit a low growth period and people get impatient.
The futurist/technocratic argument is that society as a whole should move towards automated systems, urban redesign, AI, and other technology that would allow for physical needs to be more or less addressed by technology and then there could be a zero growth economic system. Of course that would also require there to be about 4-5 billion less people.
Oh one thing I should note though; since it is inherently unstable it would be good for us to recognize that fact. If we want to have an unstable system then we should be open to the inevitability of depressions and systemic collapse, and then set up temporary systems to help with the downturn. Instead we spend all the time trying to prop up something that is mathematically impossible to prop up, until it collapses in a way that destroys the lives of (now billions) people and leads to political turmoil, war, etc.
Of course that would also require there to be about 4-5 billion less people. Sure, nitpick over the one little flaw.
I'm not sure I buy that it has to be so unstable- my gut feeling is that if we'd let the corrections play out then we wouldn't allow things to become so unstable. We've tried to manage all of the cyclical downturns and we're seeing now that this has long term unintended consequences. An old friend once penned a song with a lyric that I love, “There are no big decisions, just the small ones you chose not to make” and to me, it seems that this is “There are no big depressions, just the small recessions you chose not to allow.”
Well it depends on your system. It's true that managing all the cyclical downturns builds up all this garbage that eventually gets flushed, but if you don't then each cyclical recession is larger. They've done studies and found that managed economies have similar long term growth rates but have less volatility…so the periods of prosperity are longer and the collapse is deeper. That's on a financial level, but also growth is strongly tied to resource utilization and if you overlay the principal resources for a particular technological set (land/trees, oil, whales, uranium, whatever) then there is a very strong correlation. Those contribute to “supercycles” that last over many generations.
The reason why it's unsustainable is because it relies on an exponential process and is based a lot on future expectation of growth being similar to the present. This is something that people don't really get on an intuitive level. So what happens is that as either the financial slows or the resources get depleted then there will be a peak. Now the thing is that on an absolute level, the peak rate of change often is only half way through the process of appreciation (or consumption) so people don't worry, but due to the compounding nature of the system then a decrease in rate causes things to start correlating and falling apart. Eventually this causes everything to be flushed down the tubes and genuinely contract.
But in general, any exponential system will eventually collapse in an environment with limited resources, so that's why it's inherently unstable.
Jct: Worse, for businesses borrowing the Principal (P), they must charge prices demanding both the Principal and the Interest (P+I) creating a perpetual shortage of I/(P+I) (Miracle Equation) causing that fraction to be knocked out of the mort-gage death-gamble musical chairs elimination game and that fraction having their collateral confiscated resulting in Shift B inflation, not more money chasing the goods but the same money chasing less goods. Usury creates poverty!
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