Usury

[RedOctober]

Usury

From "The Wealth of Nations", by Adam Smith, Book 1, Chapter 9 "Of the Profits of Stock".

Quote: The lowest ordinary rate of interest must, in the same manner, be something more than sufficient to compensate the occasional losses to which lending, even with tolerable prudence, is exposed. Were it not more, charity or friendship could be the only motive for lending.

Lending of course is considered a necessary "evil" as it facilitates the outlay of monies for economic growth. Otherwise, a business or person will have to save until they have the adequate funds, thus delaying economic growth and consumption. As Smith stated, there is no incentive for someone with funds to lend except for charity or friendship, thus a person is motivated by profit incentive, which, as a number of my econ professors stated, is just another term for greed without the stigmatization.

One of the aspects of usury, the interest rate almost always includes a provision for risk, particularly that of default risk (borrower failing to repay). Of course this percentage normally does not cover the entire loss, but is spread out across a class of borrowers. For example, if there are ten borrowers and statistics show that one will default, the other nine essentially pay for the loss via a portion of the interest rate. Thus the lender is covered and essentially takes on no risk and if none default then his profit is greater. What risk he does take is if more than the statistical average default, but if the entity is savy enough and reads market conditions well, he can avoid this, such as insuring against the possible loss (also by passing off the cost to the borrowers).

Most don't realize but the Bible does have implication on such practices and there are a number of references, here are just a few:

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)

10 "I also, with my brethren and my servants, am lending them money and grain. Please, let us stop this usury!
11 "Restore now to them, even this day, their lands, their vineyards, their olive groves, and their houses, also a hundredth of the money and the grain, the new wine and the oil, that you have charged them." (Nehemiah 5:10,11)

5 He who does not put out his money at usury, Nor does he take a bribe against the innocent. He who does these things shall never be moved. (Psalm 15:5)

7 If he has not oppressed anyone, But has restored to the debtor his pledge; Has robbed no one by violence, But has given his bread to the hungry And covered the naked with clothing;
8 If he has not exacted usury Nor taken any increase, But has withdrawn his hand from iniquity And executed true judgment between man and man;
9 If he has walked in My statutes And kept My judgments faithfully -- He is just; He shall surely live!" Says the Lord GOD. (Ezekiel 18:7-9)

13 If he has exacted usury Or taken increase -- Shall he then live? He shall not live! If he has done any of these abominations, He shall surely die; His blood shall be upon him. (Ezekiel 18:13)


Its interesting but not surprising that most Western Protestant religions tap dance around this. Why? Most have gone to bed with either the government or its preferred economic system. Now one can make the statement that the Bible verses only apply to those who are deemed poor. So who are the poor? There are numerous definitions, but lets just go straight for the question, is middle class wealthy? The answer is invariably no, but they are not considered the poorest of society either. But at the same time, they are incapable of lending significant sums of funds to anyone else such as the wealthy are, thus, they should be classified as poor as the Bible implies that the wealthy are deemed able to lend.

But then the near 300 year old argument comes into play, society would not have developed if it not for lending and usury. This has become an automatic "truth" if you will, despite it not being exactly true. So how does a bank lend to a business? Simple, they become part ownership partners. Much like a corporation is percentage owned, the bank can do the same. Issuance of stock equal to the amount borrowed for large companies, or a "partner" in smaller ones. They partake in the profits equal to their share, which slowly diminishes as the loan is paid back. Once its paid off, the bank no longer has any ownership stake, has its funds returned and makes a profit.

Of course, the bank takes a risk in the business, but they will only take on a good risk thus reducing economic waste into a failed business. The underwriting would be more scrutinized thereby ensuring loans to good operations, should the business fail, they would still be allowed their portion of liquidation and spreading the loss to other businesses would not be necessary. Overall, it would be a more efficient use of monies (perhaps even allowing more to be lent out and allowing businesses to grow even faster and stable). But of course, this won't happen, the current system allows a bank to take higher profits (that would not be available under a no usury system) and spreading the risks to other borrowers keeps them away from most losses and should they fail, insurance (also borrower paid) covers them.

Quote:I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. - Thomas Jefferson