My intellectual journey with usury

Originally published by Catholic Men’s Quarterly.

We called it the Wheatstone House because it was on Wheatstone Drive.  Graduate students in economics at George Mason lived there and had long discussions late into the night.  We did this for four years almost every night.  Every subject under the sun was covered from physics, architecture, music, history, and health, but most of all theology and political economy, of which economics is a subset.  No subject was too far-fetched to be entertained, and no idea was off-limits, although some were obviously better than others.

The search for truth was the goal, and these discussions ran very deep.  So deep that a number of people actually had religious conversions: one from Pentecostalism to Atheism, two from Atheism to Catholicism, one a revert to Catholicism from Protestantism (me), and two from Evangelical Protestantism to Reformed Calvinism (one of whom later converted to high Church Anglicanism and who appears now, twenty years later, to be converting to Catholicism).

No topic was off limits, but the subject of usury never came up.  Not once. We were all trained in free market economics and were effectively indoctrinated into the modern belief that interest was an appropriate charge for risk and time.  Further, it was an accepted truism that someone was free to engage in a contract or not to do so, and if someone was willing to contract for a loan at interest, his freedom to do so should not be abrogated or restricted in any way.

For us, the legitimacy of interest derived from the Time Preference Theory of Interest, a theory which teaches that $1 now is worth more than $1 a year from now, and so the only way to convince someone to part with his money is to offer him more later.  It sounds very convincing, but it is wrong.

The seeds of my recognizing the fallacy of this position is directly connected to my reversion to Catholicism from Protestantism.  My reversion was effected by three things: 1) the fact that my Protestant minister could not satisfactorily answer certain theological questions I had and eventually said “maybe this isn’t for you”; 2) the fact that the person among us graduate students who was clearly living the most Christian life was a devout practicing Catholic; 3) Centesimus Annus.

Centesimus Annus is an encyclical dealing with economics written by Pope John Paul II in 1991, a year before my reversion.  It was written with such care that I could not find a single error in it.  Here I was, a Ph.D. student in economics, reading a book written by a Pope on a subject that one would think he knows nothing about and, yet, I could find no error in it.  The implication is profound.  I had read many books even by Nobel Prize winning economists, and in all of them I could point out at least one clear error. But I could not do so in this work by the Pope.  I found that intriguing.  Not that it was all lucidly stated; there were plenty of parts that allowed for many interpretations.  But that was part of its beauty: it was obvious that where he did not know something for certain he purposely left it open to multiple interpretations.  That is not typically done among academics.  The Holy Spirit seems to have prevented him from making an error.

And so, I decided to read more papal documents.  This was a slow process, however, given that I was a full-time student and had to begin working on my dissertation.  It wasn’t until 1995 that I bought a book titled Proclaiming Justice & Peace: Papal Documents from Rerum Novarum through Centesimus Annus, and read Rerum Novarum.
Rerum Novarum contains a discussion of the Just Wage that severely undermines the type of faith in free markets that most economists have.  It is rather lengthy so I will quote only the most relevant part here, though any Catholic concerned with social issues should read the whole encyclical:

Were we to confine our attention to the personal aspect, we could take it for granted that the worker is free to agree to any rate of pay, however small, since he works of his own free will, he is free to offer his work for a small payment, or for none at all.

But this position changes radically when to the personal we join the necessary aspect of labour, as we must.  For although they can be separated in theory, in practice the two are inseparable.  The reality is that it is every man’s duty to stay alive.  To fail in that is a crime.  Hence arises necessarily the right to obtain those things which are needed to sustain life; and it is only the wage for his labour which permits the man at the bottom of the ladder to exercise this right.  Let workers and employer, therefore, make any bargains they like, and in particular agree freely about wages; nevertheless, there underlies a requirement of natural justice higher and older than any bargain voluntarily struck: the wage ought not to be in any way insufficient for the bodily needs of a temperate and well-behaved worker.  If, having no alternative and fearing a worse evil, a workman is forced to accept harder conditions imposed by an employer or contractor, he is the victim of violence against which justice cries out.

What this effectively says is that agreement does not define the good.  Agreeing to a contract or a wage does not, in and of itself, make that contract just.  And, this logic can be applied to loan contracts that contain interest as easily as it can to a wage contract.  But I did not know that yet.  However, this statement by Pope Leo XIII, written in 1891, caused me to rethink the roots of free market economics and libertarian philosophy.
Libertarian philosophy is a very consistent and attractive philosophy for thinkers who want to have everything fit together into a nice coherent whole in their minds.  Truth seekers desire this, and this is why many tend towards libertarianism and literally have faith in the free market.

Everything libertarianism teaches about the government being too large is very valuable, especially when it reveals that much of what government does can be done and has been done more efficiently by private entities.  Even the NY City subway system and the New Jersey Turnpike were originally privately owned.  Lighthouses are considered the ultimate public good that only a government can provide — until you realize that many were privately built.  So, what libertarians conclude — that government should be small and limited — is correct.  But such ends are not achievable through libertarian means because they have an improper theory of a just distribution of property.  History shows that libertarian social systems have always led to unjust wages and squalor, which in turn have always led to a strong, often socialistic, government to rectify these evils.

Libertarian social systems are not stable because they are based on a faulty understanding of justice and the origins of property rights.  The Lockean view of “he who mixes his labor with the land first acquires ownership of the land” is something to which even John Locke added a proviso: “only if there is as much and of as good quality for everyone else.”  In other words, being the first to work a piece of land is a legitimate claim to initial ownership of land only if land is not scarce.  But land today is scarce.  And so an alternative justification for ownership must be found, and libertarians do not have one.

If the current ownership structure cannot be justly defended, then redistribution may have legitimacy.  But, of course, it is obvious that taxation and redistribution contain perverse incentives — a disincentive to work on the part of both the taxpayer and the welfare recipient.  Surely, this is contrary to the will of God.  God could not possibly desire an institutional order that incentivizes laziness and disincentivizes something good like work.  That would make Him contradict His own Word.  And so I began to ask: what is a just distribution of ownership, and how can it be stable such that re-distribution (and all the perverse incentives related to it) is never necessary?  Socialism clearly contains such ungodly perverse incentives; Capitalism of the libertarian kind is unstable.  Yet, I knew in my bones that a limited government with a decentralized system of power is the right social order.  The question remained: what institutional changes to the typical free market are necessary in order for it to be stable in the long run? And this is where usury becomes important.

For our present purposes, the story of my return to the Faith is not germane except to note that it was through that return that I found myself at a coffee hour one Sunday after Mass in the company of Jim Carney, a GMU master’s student and traditional Catholic.  We already knew each other, and quickly got into a conversation that led to usury.  He said that Aquinas was right and that lending money at interest was sinful.  I was taken aback by what he said — I was usually the person challenging others with new ideas, and here was an idea that I had not yet come across.  Having nearly completed a Ph.D. in economics at that point, I was a little embarrassed to be confronted with an important subject that I had not analyzed.  My attitude at the time was: OK, I admit that I have not analyzed Aquinas on usury, but surely the entire economics profession could not be that wrong.  Nevertheless, I respected his opinion and told him that after I finished my dissertation I would revisit that issue.

The better part of a decade went by before I began to tackle it.  It took me another two years to finish my Ph.D., and since then I have been working in the private sector for all but one year.  A deep investigative study of academic issues is difficult to do when one has a full-time job.  Difficult but not impossible.  I like to say that I have kept at least half a foot in the academic door, spending as much time as I could spare investigating those issues that remained to be incorporated into a fully consistent understanding of a just social order.  The just origin of ownership was one of those issues.  Usury was another.  When I finally got to studying usury it turned out to be a much bigger issue than I anticipated.

I didn’t begin with Aquinas but, rather, the modern definition of usury as “excessive” interest.  Aquinas defined usury as ANY interest, and I found his treatment of the topic unconvincing.  Nevertheless, it was implicitly obvious to me that there was something wrong with poor people being forced to pay exorbitant interest rates when it was clear that they were only borrowing out of need.  Leo XIII was correct: agreement does not define the good when you have no choice but to agree.  So I began in the present world and asked: what constitutes excessive interest?  There seems to be something wrong with a Pay Day loan that charges 500% interest, but where does one draw the line?  It is evident that a thick line cannot be drawn at any point other than zero.  I wasn’t willing to go there — at least not yet.  And so I found where a thick line could indeed be drawn other than at zero.
Exodus 22:6 provided a clue: it says that a thief must pay back to his victim twice what he stole.  It is a self-evident truth that a borrower shouldn’t be treated worse than a thief because, worst case, the borrower is a thief and does not intend to pay back the money he borrowed.  If a thief is only required to pay back twice what he stole, surely a borrower shouldn’t be required to pay any more.  Therefore, there should be a limit to the amount of interest that can accrue, and that limit should be precisely equal to the size of the loan so that, when added to the loan, the borrower pays a maximum of double what he borrowed.

So I had found a thick line other than zero after all.  It appeared to me that all of the modern discussions about what rate of interest should be considered usurious were focusing on the wrong question.  It is obvious that you cannot draw a thick line between 10% interest and 11% and say that the former is not usury but the latter is.  But, you can draw a thick line at the TOTAL interest that is due.  And that thick line comes from the Golden Rule which lies at the root of Exodus’ notion that a thief should pay only double what he stole; thus, he gives back the X that he took plus another X so precisely that which he had tried to do to another is done to him.  Sounds like justice to me.

The logic seemed solid enough that I decided to turn it into an academic paper to see what others thought of it.  The process of researching and writing an academic paper took a lot of time.  I was writing in isolation.  I was not a part of any academic institution.  I had been in the business world for a sufficient number of years that I had virtually lost all contact with my professors, former colleagues, fellows at the Acton Institute, and others with whom I had had intellectual discussions including my Austrian Economic colleagues at the von Mises Institute where I had been a summer fellow for four years during graduate school.  And I had not yet met any Catholic thinker or institution that was analyzing usury from any perspective.  This paper was written solely from studying the writings of dead people.

I presented the paper at the October 2007 meeting of the Society of Catholic Social Scientists (SCSS), almost 4 years after I had begun that train of thought.  Most of that paper was a legal and economic analysis as to why double was the right number.  Why shouldn’t a thief pay triple or 10X?  In short, there’s a type I and a type II error, and if the thief is required to pay too much it incentivizes people to set others up or to plant ‘stolen’ things into their possession so that they can get the government to force an exorbitant restitution.  I addressed all kinds of other issues as well: What about inflation?  What about the riskiness of a loan?  What if repayment isn’t made until many years later?

I first thought that the solution from Exodus was fascinating because nowhere in the literature on usury was it discussed.  Nowhere in modern thought, in any event.  As it turns out, the code of Justinian had imposed precisely that limit on the Eastern Roman Empire for nearly 300 years.  Nevertheless, what is very old is sometimes new again, and so I rightly assumed that few alive today would have heard of this position and that it was probably still worthwhile presenting.

Moreover, capping interest at the size of the loan has the added virtue of limiting the concentration of wealth that usury mathematically guarantees.  If the economy grows at 3% and the interest that lenders charge even to governments is higher than 3%, it is a mathematical truth that the wealth of those who lend increases faster than the wealth of society as a whole.  Since lenders are typically the wealthy (the poor have no money to lend and are often in need of borrowing money), usury guarantees that the rich get richer and the poor poorer.  This explains why a free market system does not seem to lift all boats.  And this partially resolved the other fundamental question that I had: how to make a social order with a limited government stable.  Re-distribution is necessary in today’s society because of usury.  Usury concentrates wealth into the hands of the few to the point where many have absolutely nothing, and so a welfare state is instituted to give the poor what they rightly should have had to begin with.  Without usury, a welfare state may not be necessary at all.  Or, it certainly would be much smaller if it were still needed.  And so making usury illegal would go a long way towards achieving a stable limited government.  But was I going far enough?

While writing that paper, I felt that I couldn’t completely avoid discussing whether the proper legal limit on the amount of interest is zero.  I had to at least mention the Church’s historical position against all interest.  But I wasn’t ready to endorse such a position, particularly since the Church herself didn’t seem to be endorsing it any longer.  I figured that arguing for any limit was a hostile enough position relative to the modern world, and certainly was in opposition to anything that I was ever taught in graduate school, and even anything that I had ever learned from the great libertarian thinkers of the von Mises Institute.  I felt far enough out on a limb for the time being.  Even the reception at the SCSS, a Catholic organization, was moderately negative.  If I had presented it someplace else, it would have been a lot more so.
I nonetheless tackled various erroneous arguments that lending at interest was moral.

Some important Catholic thinkers have argued that interest can legitimately be charged on ‘productive’ loans but not on ‘unproductive’ loans.  I never bought that argument because there is no way to differentiate, in advance, which loans will be productive and which will be unproductive.  To assume that all loans to businesses will be productive and that all consumer loans are unproductive is erroneous.  Many businesses are unprofitable and unable to pay back their loans.  And many consumers, even some poor, are able to use a small loan to get themselves back on their feet, clean up, get a job, and then pay back the loan.  Either lending at interest is legitimate or it is not; no thick line can be drawn in advance to say that these are productive activities and those are strictly consumptive.

Others have argued that charging interest to a wealthy person is acceptable but not to a poor person.  I never bought that argument either because, again, where do you draw the line?  How rich does someone have to be before charging him interest becomes acceptable?  The argument that charging interest makes the poor destitute has been cited since the days of the Old Testament as an argument against charging interest to the poor.  Since no thick line can be drawn between the poor and the rich, if it is immoral to lend at interest to a poor person, then it is immoral to lend at interest to anyone.  But was it really immoral to lend to a poor person?  Maybe it was immoral to charge interest to someone if you know that he has nothing, but if you don’t know the situation of another, who is to say that lending money to him at interest is immoral?

Scripture itself is even a bit confusing on this when it argues in Deuteronomy 23:20-21 that a Jew could lend money at interest to a gentile, but not to another Jew.  It doesn’t say only to a rich gentile.  So what delineation is acceptable?

I interpreted the passage in Deuteronomy to be a moral opposition against lending at interest to your brother or your friend — something that, as I wrote in my paper, should cause a sense of uneasiness in the heart:

One may wonder why scripture allows interest to be charged to gentiles but not to other Jews. Think of it this way: if your brother wanted to borrow money from you, would you charge him interest? The very thought of it causes a sense of uneasiness in the heart. Of course you wouldn’t feel anything wrong if he was starting a company and offered you a piece of the ownership in exchange for your investment. If the venture succeeded, you would profit along with your brother, and if it failed you would both lose together. But, charging him interest means that he will owe you the loan plus interest even if his venture failed. Would you feel comfortable asking him to sell his home or other possessions to pay you back with interest? Clearly not.

But, I argued that lending at interest to a foreigner might indeed be acceptable.  If you don’t know who the other person is and if he is not a member of your community, such that you don’t even know someone who knows someone who knows him, then what is wrong with charging him interest?
That logic would be sound except for the fact that the Church has always taught that “your brother” now means every other human being.  Christians are not to adopt a tribalist ethic by which we treat fellow Christians one way and others in the world a different way.  We are called to love everyone, even our enemies.  To argue that charging interest is legitimate in the modern world because no sense of community exists any longer is actually an argument to jettison modern institutions and replace them with ones, which would foster a sense of community, a community in which the charging of interest would be unthinkable.

This was one major issue that I was wrestling with at that time.  I was still not willing to go all the way against interest, partially because it would render irrelevant the whole reason why I wrote the paper in the first place: to argue that a borrower shouldn’t be treated worse than a thief and, hence, that interest up to but not exceeding the loan size was acceptable.  I felt that using the golden rule to argue for a legal limit to the compounding of interest was something that needed to be presented even if it was an incomplete analysis in the end.  It is harder to accept that all interest is usury, so maybe we can get people to at least accept some limitation on the compounding.  Let’s at least move people away from the acceptance of unlimited interest.

So, in that paper I actually argued against the immorality of all interest.  But you can sense my intellectual struggle if you read it closely.  I quoted a number of modern scholars, and even the Catholic Encyclopedia, in an attempt to defend the argument that the Church never formally opposed all interest.  (Yes, the Catholic Encyclopedia says this.  It is not always correct in its interpretation of Church teaching!)  But, it was clear that the Church once DID do so.  This apparent about face is the most frequently cited example that the Church has changed her position on a moral issue, and that, therefore, she can change on other issues (like women priests, homosexuality, etc.).  Any change in dogma would, of course, mean that the gates of hell overcame the Church and, hence, that the teachings of the Magisterium could not be depended upon as being infallible.  This was a serious issue.  Toward that end, I offered the following quote taken from Tom Woods’ book titled The Church and the Market: a Catholic Defense of the Free Economy, something he quoted from Patrick O’Neil in Faith and Reason:

The error concerning the charging of interest is an example of correct moral principles (against economic exploitation and so forth) mistakenly applied on account of the inadequacies of early economic theory. When better economic theory became available (along with the lessons of practical experience), the Church could change its position because the fundamental form of her judgment was: “If W is the economic function involved in the charging of interest, then the charging of interest is immoral, because economic activities must adhere to rule X (or rules X, Y, & Z).” Changes under these circumstances do not threaten the claims of the Magisterium of the Church in any way. The discovery that the charging of interest does not (necessarily) involve exploitation, but represents instead legitimate payment for the time-value of money and for the risk factors endured by the lender, denies the antecedent of the hypothetical.

Nevertheless, I wasn’t satisfied with my response.  First of all, in that same paper I had proven that the Time Preference Theory of Interest was wrong.  Interest cannot be a legitimate payment for the time value of money because the time value of money isn’t always positive.  For example, someone may be saving for retirement.  To argue that people would spend everything that they earn this year if they were not offered interest on their money saved just does not take into account human nature.  Human beings age and die.  We save money now because later in life we will be too old to work.  We don’t want to die of starvation when we are old, and so we save now.  We do not save simply because someone entices us with a high enough interest rate to forego consumption today.  Rather, knowing that we will get old, we save even at a zero percent interest because we want to have some money to spend when we are old and retired.  Most prefer $50 during retirement to pay for necessities to an extra $100 now to pay for luxuries – that implies a negative interest rate!  Granted, people will not necessarily deposit their saved money into a bank if the bank does not offer them something better than sticking it under their mattress.  But even at zero percent interest, the bank does offer something better than under the mattress: a lower risk that a thief will steal your savings.  And so, the whole Time Preference Theory of Interest fails to explain reality.

This leaves risk of loss in making a loan as the only remaining reason to charge interest.  People who work in the financial industry know that interest is a function of the riskiness of a project: the higher the risk, the higher the rate of interest.  Charging interest for risk was the only reason I acknowledged in my paper as being acceptable.  But, the traditional teaching of the Church took into account the possible loss to the lender in allowing the lender to charge an extrinsic title called “periculum sortis”.  This was a fee, not interest.  (And I mention it in the paper!)  And the Church always allowed it.  It is necessary for the lender to be made whole.  But, properly defined, that is not interest.  So I was back to the position that there may not, in fact, be any moral reason to charge interest.

I never sought to publish that paper precisely because I saw these inconsistencies that needed to be corrected.
I couldn’t accept the idea that the Church now holds a position that is wrong — or what I was told by everyone alive was the Church’s current position —  i.e., that only excessive interest is immoral.  This position is inconsistent with the view that one should not lend money at interest to “your brother” because, for a Christian, your brother now means everyone.

As it turns out, further research revealed that the Church had never formally changed her position.  The Old Testament, the New Testament, the Church fathers, saints Aquinas, Ambrose, Augustine, Jerome, Chrysostom, Basil, Cyprian, Anthony of Padua, Bernardino of Siena, and many others, the ecumenical Council of Nicea, the Fourth Lateran Council (1215), and the Ecumenical Council of Vienna (1311), all condemned usury.  And in 1745, Pope Benedict XIV wrote an entire encyclical titled Vix Pervenit devoted to usury in which he reiterated the constant teaching of the Church that the taking of any interest is immoral and required restitution to the victim.  He specifically rejected the notion that lending to the wealthy or lending to a productive business was acceptable.  So, for at least 1745 years the Church’s position had not changed.  It only solidified.  And since 1745, nothing, absolutely nothing, in a formal Church document has been written in favor of usury or of the taking of any interest for any reason whatsoever.  In 1891 Pope Leo XIII’s encyclical Rerum Novarum reiterated the condemnation of usury.  And many encyclicals also have done so since, although without any clear explanation as to what they mean by usury.  Many theologians, and certainly virtually all modern Catholics including most bishops and priests today would say that only excessive interest is immoral.  But they would not be teaching what the Church has always taught on the subject.  Happily, and as all good Catholics would expect, the Holy Spirit seems to have prevented this error from finding its way into any formal pronouncements in contradiction to what was once taught with great vigor but remains Church teaching today.

By late 2007 I realized that charging interest is always immoral and should be illegal.  There are lots of things that are immoral but are nonetheless legal and should be legal, like being rude, envious, or losing one’s patience.  But usury is closer to theft than it is to rudeness.  Rudeness may not be illegal but it is nonetheless punished by things like not being invited to the next party.  Usury, like theft, profits the one who engages in it and consequently the only way to curtail its proliferation in society is to make it illegal.

But I did not have a good argument that I felt modern man would accept.  Quoting scripture just isn’t enough these days.  Reason is what people want to be shown.  I needed a good reason.

Then came the economic collapse of 2008.  There was the reason.  Usury was the cause of the economic collapse; Usury is the root cause of business cycles and guarantees the concentration of wealth.  Usury is the cause of the sovereign debt crises; It is compound interest that has bankrupted virtually every nation in the developed world.  Making it illegal would virtually eliminate business cycles, render nations solvent, and guarantee a wider distribution of ownership in society.  Making restitution for past usury would be sufficient to enrich the poor to a level that the welfare state could probably be eliminated.  And then the income tax could be abolished.  With a few other institutional changes, like justice in the distribution of property ownership, a limited government could once again exist; and this time it could be stable.

How is this so?  Let us deal with the distribution of wealth first.  If wealthy people had to invest all their money in the stock market or in venture capital rather than lending money at interest, on average, their rate of return would be less than the rate of return of someone with far less money to invest.  Any fund manager knows that the more assets he has under management the harder it is for him to outperform the market.  This is a fact because many great investments only require small amounts of money or can only handle small amounts of money; it may be possible to buy $100,000 worth of stock in a small cap company and not move its stock price but if you wanted to buy $1 billion worth you would end up owning the whole company and, consequently, would have to pay a much higher average price per share for it.  And so, your rate of return on your investment would be less.  If a billionaire tried to diversify, he would need to find 1000 good ideas to invest only $1 million into each.  There are not that many good investment ideas that one human being can come up with.  With only 24 hours in a day, you simply do not have the time to analyze that many ideas let alone at least ten times that many to weed out the poor investments.  So, with the exception of a few rare good investors, most billionaires would not earn the same rate of return on their billions as others would with their smaller portfolios.  Consequently, over time, the tendency would be for the distribution of wealth to become less and less concentrated.  Of course, it would never reach equality because there will always be new entrepreneurs, new Steve Jobs, who would become wealthy due to their creations.  But, the children of the wealthy – those who inherit money – would tend to have their wealth grow at a slower rate than the economy as a whole by virtue of the fact that it is simply harder for anyone to make good investments with large sums of money.  And so the natural tendency in a world without usury is for people of equal resourcefulness and virtue to have roughly the same wealth in the long run, where the long run is measured in generations.

On the other hand, if the wealthy can loan vast sums of money to the government at interest, the natural tendency would be for wealth to become more and more concentrated into their hands.  This is true for multiple reasons.  First, the government typically pays an interest rate that exceeds the growth rate of the economy (on average, the US Federal government has paid interest around 5% whereas the growth rate of the economy has averaged 3%), and, hence, guarantees that the wealth of those who lend to government grows at 5% whereas the economy as a whole grows at only 3%.

Second, the very existence of the modern welfare state perversely concentrates wealth while it redistributes income.  Here’s how it works.  The government borrows from the rich to make welfare payments to the poor so that the poor can pay their rents to the properties they rent from the rich.  So, the rich lent money to the government only to get it back in the form of rents.  And they are still owed the money they lent plus interest.  Then, the government taxes mostly the middle class in order to pay back the loan taken from the rich – plus interest.  This redistributes income from the taxpayers to the poor, but only to have the wealth of the middle class redistributed to the rich due to usury.  And this occurs even if a middle class person is sufficiently frugal never to himself take out a loan.  He is on the hook for the government’s debts.  And the government forces him to pay usury in the form of higher income taxes.

Without usury, the government debt would be much smaller.  The US Federal government currently owes about $15 trillion.  Since 1950, the US Federal government has paid about $10 trillion in interest, as measured in 2012 dollars.  The debt would be one-third its current size without usury.
With a smaller Federal debt, income taxes would surely be lower.  And the middle class would be able to save more of the money they earn.  Wealth would be more widely distributed.  Even if it was agreed to honor the existing Federal debt (the current debt holders are not the same as those who have earned interest over the years), the government could declare an end to future interest and simply pay back what they currently owe, in constant dollars, over time.  As the economy grows, the debt would become more and more manageable.  Even Italy and Spain would be solvent.  Taxes could be cut.

Moreover, forcing restitution for past usury would mean reimbursing the taxpayer for the $10 trillion in excess taxes he has paid to the government that was used to pay for usury.  And that doesn’t take into account the roughly $2.5 trillion in usury that Americans have paid on their credit cards since deregulation in 1980.  Nor the trillions we have paid in taxes to our state governments to cover their interest payments.  Nor the usury paid on home loans, car loans and other loans.  Since the US has a fiat currency, it could be used for restitution of past usury instead of bailing out banks!  With a population of 300 million, reimbursing $15 trillion means $50,000 for every man, woman, and child in the country, or $200K for a family of 4.  Since the average home costs $160,000, that’s an amount sufficiently large for most families to be able to pay off their mortgages and own their homes outright.  The restitution could be made as vouchers that must be used to pay down debts or buy a home in order to insure the funds are spent in a manner that radically increases social justice.  Since the average family pays 35% of their after tax income towards home mortgages or rents, their cost of living would drop substantially.  With even the poorest of the poor being homeowners, the welfare state could probably be eliminated.  The little welfare that would still be needed could possibly be handled through charities, especially if taxes are reduced so that people have more to give to charities.  The abolition of the income tax would also stimulate economic growth and employment further reducing the need for welfare.

Without usury, the prices of all products would be lower.  Every business that borrows money has to charge higher prices in order to be able to cover the interest it pays on the money it borrows.  Without interest, prices would be lower.  And the poor and middle class would be able to buy more of what they need and have more money left over for savings.  With no rental or mortgage payments and lower prices on all other products, most people probably would be able to save at least a little for retirement.

All along it has been usury that lies at the root of many social ills.  Doing away with it would solve almost half of the institutional problems in our society.  This is an argument that modern man can buy into.


4 responses

  1. I hadn’t seen this essay before viewing your video. So this answers my previous question about your thoughts on usury. I came at this from a much different vantage—studying Marxian Economics—but ended up in a very similar place. Though I would argue the current problems of debt and usury arose due to the special undue and harmful privileges granted to ignoble capitalist rulers by our government. Essentially, our governments have granted inherent governmental powers to private interests to reign over others.

    Such exploitation and private economic rent-taking thus leads to growing debt for two complementary reasons. First, those with great wealth receive incomes too large to possibly consume their income and so much lend throughout their entire lives. Second, others receive incomes too small to buy what they need and to buy all that has been produced or could be produced if we were at full employment.

    So my solution was to end the grants by government of inherently governmental powers to private interests (inherently governmental powers referred to in feudalism as seigniorial prerogatives such as seignorage from money origination and rent-taking from natural resources, as well as the exploitation from reigning over collective corporate enterprises). So my approach was to embrace the libertarian tenet to allow peer-to-peer lending without restriction, however, to not place anyone in such destitution so that the lending is not really peer-to-peer anymore (even periculum sortis can become injurious when the risk is a manufactured precariousness through repressive governmental policies that dispossess the poor and redistribute to the wealthy such as seigniorial prerogatives, or private wielding of inherently governmental powers, mentioned above).

    I admit that my solution might not be permanent (though it is a smaller and more limited government and thus more libertarian approach). Even without governmental policies that redistribute from the 99% to the 1%, pure chance can make some wealthy and others destitute. Or some through hard work and others through laziness might still create lingering structural/social problems in wealth distribution. However, even those wealth disparities can only become structural/social problems when conditioned by governmental policies that allow undue inheritance or grant intellectual property to such an extent it can only be called an abuse of such intellectual property granting powers.

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  3. Thomas Zabiega, M.D. | Reply

    Dr. Santelli,

    Pope Francis just condemned usury today (though he didn’t define is as well as you did). Thank you for fighting the good fight for all of Catholicism.

    Vatican City, 29 January 2014 (VIS) – Following today’s general audience, the Pope greeted the faithful present, offering some special words to the “Carta di Roma” and “Casa Alessia” associations, which both work to help the needy and refugees, and encouraged them to continue in their challenging work. He also greeted the families of workers from Castelfiorentino, Italy, recently made redundant following the closure of Shelbox due to the current economic crisis. “While I express my closeness to you, I hope also that the competent authorities will make every effort to ensure that work, which is the source of dignity, is a central concern for all”.
    Finally, he greeted the National Council of Anti-Usury Foundations. “I hope that these institutions may intensify their commitment alongside the victims of usury, a dramatic social ill. When a family has nothing to eat, because it has to make payments to usurers, this is not Christian, it is not human! This dramatic scourge in our society harms the inviolable dignity of the human person”.

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