Comments (27)

• Jaycephus

  Well, it's not like anyone can just stop charging 'usury' anymore. As soon as you don't, the IRS comes and says, "you would have made more income if you'd charged the average usury, so we're sending you a bill for the income you WOULD have made."

  My mom is 70 and she just sold her business, and took half up front, and the rest in monthly payments with no interest. The IRS sent her the bill.

  Jay

  Published: March 25, 2009 12:02 AM

• oddjob

  I think the issue here is monthly compounding of interest. After all, banks cannot loan what they do not have to begin with. Simply adding an amount to the ledger cannot be classified as a loan. A fair price for doing business is reasonable but not the way it currently is done.

  I am not an economist or a finance guru so can someone please explain where compound interest originated and why it is used today.

  Does the financial industry really provide that much value to justify the exorbitant compensation and living like sultans. It all seems like state sanctioned gambling dressed up in fancy language.

  Published: March 25, 2009 12:15 AM

• newson

  to oddjob:

  go to "media", download rothbard's "the mystery of banking" or "what has the government done to our money?". the scales will fall from your eyes.

  Published: March 25, 2009 12:49 AM

• Adrian Eddleman

  The two biggest forms of usury are related to "fractional reserve banking" and "fiat currency" managed for profit by the international banking consortium. If you don't know what those terms are I encourage you to investigate! I am an economist and finance guru.

  Published: March 25, 2009 12:57 AM

• filc

  @ oddjob
  You said:
  "After all, banks cannot loan what they do not have to begin with."

  This is confusing to me. Thats actually exactly what banks do? This is their primary source of revenue, loans and credit. Are you just being sarcastic?

  Published: March 25, 2009 1:34 AM

• newson

  the bible didn't condemn interest (parable of the talents). loans to the poor were to be interest-free. this wasn't biblical sub-prime, however. if the indigent borrower didn't repay the charitable loan, he could be put into bonded servitude for up to seven years.

  Published: March 25, 2009 1:39 AM

• selena

  @newson

  are you aware of any resources which either grounds capitalism/liberalism on a biblical basis, or provides an economic/libertarian analysis of the old testament ordinances?

  e.g. in the old testament, it appears that servants were (more or less) considered private property of their masters... they seem to have had a different set of rights too

  Published: March 25, 2009 2:53 AM

• newson

  to selena:
  i owe that insight to gary north. do a search, and download his pdf book "honest money". it's pitched at the layman, and good.
  well, apart from his "render unto caesar..." interpretation, where i find net netterville's work more compelling - http://www.jesus-on-taxes.com/

  Published: March 25, 2009 3:25 AM

• newson

  north's got another work on the bible and capitalism, but the name slips my mind. i haven't read that, but do a search on his site.

  Published: March 25, 2009 3:34 AM

• Vanmind

  Of course, and the merchant class also adds no value to society. Only those who work the land are valuable.

  Maybe that's Obama's plan. Eliminate machinery on farms, a la Cuba, and use youth-targeted involuntary servitude to work the fields. You know, just march 'em on out there. Take them from the cities, from the towns, and from every hamlet in between. Only that kind of dedicated communal regimentation can save America now.

  Sorry, I was seeing Rouge there for a second. Is Henry Kissinger here? Oh, right, he's busy advising Obama.

  Published: March 25, 2009 4:18 AM

• Lars

  "bond traders as being ... middlemen -- sitting in mahogany offices, raking the cream off of financial transactions ..."

  Honestly not understanding ... What DO bond traders produce? I understand that they create wealth for their clients, otherwise nonone would buy their services. But isn't the wealth creation for a client, essentially a redistribution of wealth, where there are gainers AND losers?

  In comparison, if you exchange goods for money, both the buyer and the seller are happy. Both regard this exchange as good for themselves. Both are gainers. Neither one becomes a loser.

  
  

  Published: March 25, 2009 7:41 AM

• Nick E

  @Lars: Bond traders save me the hassle of negotiating a transaction that, given the time constraints the rest of my life imposes, it's very difficult for me to do on my own.

  Published: March 25, 2009 8:03 AM

• Nick E

  As a general note on what financial professionals offer to society: more folks should read Graham's classic "The Intelligent Investor". The gist of it would be that generating a decent return on investment over the long haul requires a ton of due diligence behind the scenes. If someone provides that sort of value to me they have a right to be compensated for it.

  Published: March 25, 2009 8:08 AM

• newson

  to selena:
  this is the north book i was thinking of -
  http://www.scribd.com/doc/7396436/Gods-Success-Manual-An-Economic-Commentary-on-Proverbs-by-Dr-Gary-North

  Published: March 25, 2009 8:52 AM

• newson

  north, again:
  "The translators of the King James Version of the Bible (1611) translated the Greek word toku as “usury.” But it doesn’t mean usury in the Greek; it means “interest...
  The Hebrew word “usury” was a term of criticism. Usury referred only to interest taken from a poor fellow believer, in other words, interest secured from a charitable loan. Such usury is prohibited by Biblical law.

  Published: March 25, 2009 9:06 AM

• Bruce Koerber

  Education and Ethics
  Wednesday, March 25, 2009

  Why Is Ignorance Of Usury Like A Superstition?
  
  This is the age-old rise of the ego-driven interpreter, the same unauthorized interpretation that kept the divine economy from blossuming in the past.

  Instead of the potential of a divine civilization the tiny lights of classical liberalism had to spring up and sustain themselves until the ego-driven interpreters teamed up with the ego-driven interventionists during the Protest Reformation and began anew their attempt to erase the classical liberalism philosophy from the minds of 'men and from history.

  It is the same unauthorized ego-driven interpretation that plagued Islam. There is no authority for anyone to misinterpret usury, then or now.

  Economic science proves that this is nothing but a misinterpretation. That is unless the same ego-driven interpreters and interventionists pervert economic science too! Yes, that is exactly what they have done!

  But classical liberalism and Austrian economics is experiencing a wonderful resurgence. As a result, the record will be set straight and the ego-driven interpreters and the ego-driven interventionists will find themselves scorned, thank God.

  I'd tell Robyn Blumner to go to hell but the fact that she is an ego-driven interpreter indicates that she already dwells there.
  

  Published: March 25, 2009 9:20 AM

• John Locke

  This Robyn Blumner sounds like just another pundit throwing blame at the symptoms of a systemic problem. What do you guys, especially you Bruce, think of this article?

  http://theanonymousamerican.com/index.php?option=com_content&view=article&id=66:in-government-we-trust&catid=35:economyblog&Itemid=61

  Published: March 25, 2009 9:39 AM

• Bruce Koerber

  Dear John Locke,

  I thought the article was well written and I agree with the optimism at the end.

  With warm regards,
  Bruce

  Published: March 25, 2009 10:32 AM

• oddjob

  Newson,

  thanks for the reading recommendations. I am somewhat familiar with fractional reserve banking, but this will undoubtedly shine much needed light on this subject for me. Obviously I have not had a chance to read each one yet, but does he address compound interest (monthly, quarterly, etc) on "loans" made in excess of reserves? I just fail to see how paying 2 to 3 times the initial cost of a home in exchange for a simple bookkeeping entry is justifiable. Maybe a very small percentage on the total amount borrowed or better yet a flat fee would seem more reasonable. thanks again.
  

  Published: March 25, 2009 11:29 AM

• oddjob

  Adrian Eddleman,

  I was referring to the fact that banks loan out far more than they have in reserve hence giving what they do not have. My complaint is simply that it is inherently wrong to loan what one does not have and charge monthly compounding interest. Even if we where on a true gold standard not a fractional one this still would be unethical in my opinion. This leads to the purpose of banks. Another topic altogether.

  I am not a strict libertarian since I believe in national borders, protection of internal business, and such, but there must be room in economic theory for some sort of ethics and morality. Economic theories/models should work for you not the other way around.

  More than you asked, but I am just venting.See my response to Newsom above.
  

  Published: March 25, 2009 11:38 AM

• Said

  I am happy that some people are starting to think and notice the ills that usury bring to humanity. Islam (confirming the true teachings of the previous prophets of God like Jesus and Moses) has always stood against it and now we have started to see why so. If usury continues, no gold or silver or whatever standard can help to avoid the ills and evils it will generate.
  This is a lesson that we should all learn, even our Muslim countries which continue to have usury-based systems contrary to our religion's teachings.
  Usury leads to hindering real economic activity and promoting laziness among the rich, since clearly, who needs to work if he can lend his money and get guaranteed returns? It also leads to higher prices through raising the cost of real economic activity, as compared to when real partnerships are there based on profit and loss sharing.
  On the other side, there will be those who will be enslaved and impoverished by the classical debt traps and the ever increasing interest payments. This is a system that deserves to collapse, frankly, and I pray it comes smoothly without severely affecting us. God says in the Qura'an:
  "Allaah will destroy Ribaa and will give increase for Sadaqaat (deeds of charity, alms). And Allaah likes not the disbelievers, sinners”
  [al-Baqarah 2:275, 276]
  

  Published: March 25, 2009 1:12 PM

• Vanmind

  Said, the piece on this blog is pointing out how inane criticism of interest is. The very existence of interest is due to the fact that lenders have no "guaranteed returns" as your misguided post suggests.

  I am interested in seeing some sources to back your claim that interest raises economic cost. My guess is that such a claim is similar to other socialist claims that "nothing in the world should have any price whatsoever." Here's a news flash: time costs something, and that something shows up in market prices as interest. All very moral and all very valid.

  Published: March 25, 2009 3:50 PM

• JD

  http://www.jbs.org/index.php/evinces-a-design/3823

  Though I don't usually go along with everything JBS society says (Alarmist), but once in a while they it somewhat right, and on a local radio show this morning, the President of JBS, (McMannis), spoke of Murray Rothbard & Lud. V. Mises as heavy influences on personal economic beliefs.

  Published: March 25, 2009 4:02 PM

• JD

  Folks are painting with a broad brush (regarding interest), once again, a demonizing legitimate economic practices. They don't dig deeper, to get the real problem with something that has been perverted, by a central/coercive controlling authority, where free-exchange should be the norm.

  I won't say the article I linked above is gospel, but it brings up some interesting points.

  Published: March 25, 2009 4:49 PM

• JD

  Folks are painting with a broad brush (regarding interest), once again, a demonizing legitimate economic practices. They don't dig deeper, to get the real problem with something that has been perverted, by a central/coercive controlling authority, where free-exchange should be the norm.

  I won't say the article I linked above is gospel, but it brings up some interesting points.

  Published: March 25, 2009 4:49 PM

• AC

  Interest on debt has its place. Here's an example to help folks think about this.

  An entreprenuer (we'll call him Joe) has a wonderful idea for a new business. He, however, needs $100 which he doesn't have. Joe has a couple options for financing his endeavor, 1) He could ask someone to be an equity partner, they front the $100 and Joe performs the work. The profits split 50/50. 2) Joe could ask someone for the $100 as a loan, at let's say 7% payable in monthly installments of $2, until repaid. Now, which option should Joe choose? Well that would depend upon how much profit Joe anticipates making. If Joe can take the $100 and make $50 per year off of it (profit), then if he chooses option 1, he only will make $25 (split 50/50). If he chooses option 2, Joe will make as profit $43 ($50 profit - $7 interest). Joe's cash flow for option 1 will be $25 (since he doesn't have to repay his equity partner's $100). His cash flow for option 2 will be $26 ($50 profit - $24/year in loan payments).

  The point is equity partners expect to be paid, just as the individual loaning the funds expects to be paid. Eventually, if Joe is successful and prudent, and pays back his debt under option 2, he'll have better cash flow and profits than option 1. While this example is simple, it helps illustrate the point that capital has a price.

  Published: March 25, 2009 5:45 PM

• Ned Netterville

  SAID said, "I am happy that some people are starting to think and notice the ills that usury bring to humanity. Islam (confirming the true teachings of the previous prophets of God like Jesus and Moses) has always stood against it and now we have started to see why so. If usury continues, no gold or silver or whatever standard can help to avoid the ills and evils it will generate."

  Said, I am not an expert on the Koran or the Bible, but I have studied the Gospels and other historical documents that report the words and deed of Jesus. If I have overlooked something I would appreciate you pointing it out, however I'm quite certain that Jesus never taught that it was wrong to lend money at interest, and in fact in one of his parables he seems to support the practice of putting money to work to earn interest.The "Parable of the Talents" is in Matthew 25, in which Jesus is teaching what the kingdom of heaven will be like:

  "Again, it will be like a man going on a journey, who called his servants and entrusted his property to them. To one he gave five talents[a] of money, to another two talents, and to another one talent, each according to his ability. Then he went on his journey. The man who had received the five talents went at once and put his money to work and gained five more. So also, the one with the two talents gained two more. But the man who had received the one talent went off, dug a hole in the ground and hid his master's money. After a long time the master of those servants returned and settled accounts with them. The man who had received the five talents brought the other five. 'Master,' he said, 'you entrusted me with five talents. See, I have gained five more.' His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' The man with the two talents also came. 'Master,' he said, 'you entrusted me with two talents; see, I have gained two more.' His master replied, 'Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master's happiness!' Then the man who had received the one talent came. 'Master,' he said, 'I knew that you are a hard man, harvesting where you have not sown and gathering where you have not scattered seed. So I was afraid and went out and hid your talent in the ground. See, here is what belongs to you.' His master replied, 'You wicked, lazy servant! So you knew that I harvest where I have not sown and gather where I have not scattered seed? Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. 'Take the talent from him and give it to the one who has the ten talents. For everyone who has will be given more, and he will have an abundance. Whoever does not have, even what he has will be taken from him. And throw that worthless servant outside, into the darkness, where there will be weeping and gnashing of teeth.'"

  Austrian economics (see especially Ludwig von Mises chapter on interest in HUMAN ACTION, which is available on the web: http://www.econlib.org/library/Mises/HmA/msHmA19.html ) considers interest to be an economic phenomenon that cannot be eliminated by wish or by law. It is an integral function of human action. If humans act there will be interest.

  If Islam teaches and the prophets of God taught that interest should be done away with, that is only so because at the time their views were formed the insights concerning originary interest that the Austrian-economic science was to reveal were yet to be understood. Nor did the prophets did not understand that men could build planes to span oceans and rockets to take them to the moon and beyond.

  Again, you can correct me if I'm wrong, but I have always considered the Islamic alternative to interest, what you refer to as "real partnerships...based on profit and loss sharing" to be nothing more than a cumbersome way for lenders to obtain interest.

  Of course only nation states--not God--enact laws controlling interest, which they do by limiting the freedom of real people to do business as they would prefer. This, however, also causes unavoidable, adverse consequences, as Austrian economics has shown. It appears indisputable to me that the more nation states restrict free trade the more impoverished their subjects (and subjects is the right word for such unfortunates) will be.

  Published: March 28, 2009 10:34 PM