The End of Usury

Well, we can dream. If it were an absolute impossibility, though, I don’t think our old friend Zippy would have written a book about it. The book is actually in the form of an FAQ, answering all of your most urgent questions and destroying, especially, all your misconceptions. For example, you have no doubt asked at one time or another: What is usury? His answer:

Usury is lending money for profitable interest. The term “usury” often specifically refers to the interest itself – interest charged on a mutuum (personally guaranteed by the borrower) loan.

Horrors, you think. Doesn’t everybody do that? Charge interest for profit, I mean? It’s the heartbeat of the American economy. So you ask, reasonably: Is usury always morally wrong?

Yes. Usury is always morally wrong without exception.

But, sputter, gasp, What if the interest rate is reasonable? I have a credit card, for Pete’s sake. I like my credit card and they only charge me 10%.

Usury is always immoral no matter what interest rate is charged. The idea that usury is only charging “unreasonable” interest is a modern fiction.

“One cannot condone the sin of usury by arguing that the gain is not great or excessive, but rather moderate or small; neither can it be condoned by arguing that the borrower is rich; nor even by arguing that the money borrowed is not left idle, but is spent usefully, either to increase one’s fortune, to purchase new estates, or to engage in business transactions.” – Vix Pervenit

Vix Parvenit is a magisterial document dating from (if I recall) the 1400′s. [Correction: the 1700's, 1745 to be exact]. It appears to be regnant in the modern Catholic mind that the Church has modified, softened or (to speak plainly) quite literally reversed an immemorial teaching of the Faith. This, says Zippy, is a damned lie. People are often stunned by the assertion. He even draws a parallel between the doctrinal de-emphasis (also known as silence) that has accompanied the universal acceptance of usury, and the pastoral reticence that has resulted in the ubiquity of contraceptive practice, which stands as means to an end called the Sexual Revolution.

Now, I’m not qualified to comment in much depth on these matters. I’m still trying to absorb it all. I can only lay claim to a suspicion that if Zippyconomics were made public policy, the effect might be a monetary and ethical stability of revolutionary proportions (without denying, of course, the possibility of utter destruction by circumstances unforeseen, the general fate of man and his machinations). I even asked if, “..put into effect throughout the economy, it might fix a lot of problems. I wonder if it would have had an inhibiting effect on the 2008 mess.”

It unquestionably would have. The root cause of that mess was full recourse real estate loans with shaky-to-ludicrous loan-to-value ratios. Without that inventory of bad loans at the bottom of the pyramid the whole ‘real estate bonds with ratings “enhanced” by credit default swaps’ scheme would never have ‘worked’. The reason usury ‘works’ is because the usurers can buy ‘slavery shares’ in individuals (as opposed to property shares in assets); and individuals of little means are tempted into it because selling a part of themselves into slavery makes them feel (and spend) as if they were wealthier than they really are.

Me:

This all sounds right, and, in a way, so obviously true that it makes one wonder why usury laws are not now in place. They would make so much sound financial sense that the stabilizing effect on the economy might be wondrous to behold. Of course, there’s still nothing to stop the government from borrowing more than it can pay back resulting in a 17 trillion dollar debt, but since we do not have any recourse at all against those who perpetrate the malfeasance, I guess it’s a different moral problem. Another species of theft, I suppose. When you say that those real estate loans back then were full recourse, such that people were selling themselves into slavery, does that mean that when they defaulted on their loans, the bank had title to more than just a repossessed house? That they could pursue the borrowers for the full amount of the loan, or at least for the unpaid balance? Maybe even get them thrown into the modern version of debtors’ prison?

Zippy:

Yes. That is a “deficiency judgment”. Most mortgages are full recourse (still are now) and allow for a deficiency judgment, if the repossessed and auctioned house sells for less than the balance of the loan. I think that a few states do not allow full recourse mortgages; but most do. There is no debtors prison in the US, but they can pursue the borrower all the way into bankruptcy court, garnish wages, etc.

I have also been struck by the resistance to Zippy’s position in various (quite many, in fact) comment threads at his own place and across the net. (One of the more civilized exchanges can be found here.) It’s one thing to try to show him wrong – which none have been able to do – and in the end, if there is no meeting of minds, to thank him for a stimulating exchange. But it’s quite another to charge into a comment box convinced, on the basis of a single post, that he must be out of his mind, when he’s been writing on the subject for years. At the well-known (I presume) The Catholic Thing, his comments to a David Warren post (concerning usury, and with which Zippy agreed) were deleted because he’d offered a link to his ebook. His free ebook. Ah, but they don’t allow advertising of any kind, anything that might distract from their own preeminence. What treatment from people of supposedly like religious mind. You’d never know we were all in this together.

There are probably various reasons for this kind of petty behavior, but I don’t wish to plumb their shallows. It’s enough to note what a sorry thing it is to discover that Catholics are as capable of it as any other human biped.

In the meantime, if you’re open to the possibility that certain transactions can still be described in our own time as usurious, that its practice is in fact very real, a very venal and grave iniquity, then you can read the FAQ at the link at the top of this post, or download it from dropbox for your Kindle in either epub or mobi format.

He knows how to turn a profit, but there is no self-aggrandizement in the enterprise. It’s offered as a service to Church and country. I repeat: it’s free. No charge. Let alone at interest.


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14 Responses to The End of Usury

  1. Zippy says:

    Thanks for the kind words Bill.

    Vix Pervenit was published at the late date of 1745; and as with Humane Vitae many folks have claimed to find it baffling and difficult to understand, most likely because they can’t read (or at least they pretend not to be able to read when they don’t like what they are reading).

  2. Lydia says:

    While I remain unconvinced by Zippy’s _overall_ argument that usury as he defines it is always intrinsically wrong, I am strongly inclined to think that the moral hazard of most _actual_ instances of what he defines as usury in the real world is very great and that therefore most of them are in fact wrong. My own inclination is to think in terms of “making a loan that exploits irrationality” on the part of the borrowers, which was undeniably true for many of the shaky home loans that led to the 2008 crash (unfortunately, the government was pressing banks to make such loans). A great many loans that meet Zippy’s definition of usury do in fact exploit irrationality on the part of the borrower and are therefore, on my tentative view, immoral for approximately the same reasons that making a profit from running a casino is immoral.

    By the way, I had a mortgage (since, thankfully, paid off in full) and never knew about deficiency judgements. I always assumed that if one defaulted the bank got the house, and that was it. Not that I intended to default, of course, but I just didn’t know that it could go beyond taking the house. I wonder how many people who take home mortgages even know about the possibility of deficiency judgements. Certainly no one ever mentioned it to us when we took our (very conventional, conservative, non-balloon) mortgage. I learned about that category first from Zippy’s posts. In the interests of honesty, if nothing else, I think that banks and preferably realtors as well would explain this to buyers.

  3. Zippy says:

    Thanks also for linking to that 2012 discussion at the Orthosphere. In re-reading my own comments in that thread I can see that even in 2012 I had not yet grasped why the kind of currency used in a mutuum does not matter: that what makes it a mutuum is the personal commitment to return the principal – no matter what kind of thing the principal happens to be – in kind as opposed to in particular. Aquinas’ discussion in De Malo is actually somewhat more helpful than his briefer gloss in the Summa; or perhaps the translators of the former did a better job ‘impedance matching’ with by brain, or perhaps the one softened me up for the other.

    Once I understood what Aquinas means by ‘consumed in its use’, all the objections rooted in various economic theories and partial theories and theories about currency just fell away. What we are left with is a simple, straightforward matter of treating our fellow man justly. It applies without caveat or modification in caveman societies and modern global economies – just like the prohibition of theft.

  4. William Luse says:

    I’ve corrected the date of Vix Parvenit. Pretty typical of my memory for things these days.

    While I remain unconvinced by Zippy’s _overall_ argument that usury as he defines it is always intrinsically wrong…

    The validity of that rests on “as he defines it.” At the risk of misrepresenting him, I believe it is his position that his argument is Aquinas’ argument is the Church’s argument. (Albeit, strictly speaking, the Church doesn’t make arguments; it declares what is true or what is forbidden.) He’s just trying to make it available to the modern mind by hitting the donkey in the head with a board. If he’s right – and I’ve seen no reason to think otherwise – the occasional liceity of usurious loans is not an option for a Catholic.

    Re your mortgage: It appears most Americans are party to usurious arrangements (without themselves being usurers) and enter them under the illusion that they are perfectly legitimate business arrangements. After all, it’s been going on a long time, everybody does it, and there ain’t no law against it. I’m at present party to a car loan that is almost certainly usurious. We’ll have it paid off soon, but still…Frankly, I couldn’t have gotten the car I wanted without taking the loan. I could have made a larger down payment, but could not plunk down the cash value of the car to avoid interest altogether. I actually had an email exchange with Zippy about this. He gave a good answer but I’m still not clear on what’s in it for the lender if no interest is charged. (I actually think the subject would be worth a blog post, but by him, not me.)

    As to why “banks and realtors” don’t “explain this to buyers,” you probably know the answer as well as I. One possibility: the honesty you require might conjure a sense of dread in the very moment you are about to sign on the usurious dotted line.

    Zippy, I know you’ve explained it before, but I’m not clear either on the difference between ‘in kind’ and ‘in particular.’ As to offering kind words, this is no burden at all. I hope the discussion you’ve started becomes a reformation. I have about as much hope for this as that the Catholic in the pew will repudiate the contraceptive mentality. But even a small hope is still hope.

  5. Zippy says:

    Bill:

    I’m still not clear on what’s in it for the lender if no interest is charged.

    The bottom line is that lenders could still make a profit but would have to make non recourse loans instead of full recourse loans.

    I’m not clear either on the difference between ‘in kind’ and ‘in particular.’

    It is actually easier to think about if you think in terms of things which are not usually used for exchange. Aquinas uses shoes as an example. If you loan someone shoes so that he can “spend” them, the borrower cannot return those shoes in particular. He may owe you back “shoes” (in kind), but because you loaned them to him for the purpose of exchange he cannot owe you back those particular shoes.

    Usury charged when the currency is shoes is no more or less usury than when the currency is dollars. It doesn’t matter what is used as currency (to be returned in kind rather than in particular); it merely matters that it is used as currency.

  6. Lydia says:

    The thing that still has me shaken a little, Bill, is that Tim and I would detest un-collateralized debt for ourselves and were definitely under the impression that our mortgage was the type of loan that Z. would call non-usurious–a fully collateralized, non-recourse loan. That was one of the reasons we felt better about it than we would have about a car loan (which we have never taken, except once from a relative who was kind when we had a crisis, and we paid no interest). Not so much because we are concerned about getting involved in usury per se (and in any event, it’s the lender, not the borrower, who is allegedly doing wrong in making a usurious loan), but because of the whole issue of rationality and risk. A mortgage was supposed to be a “safer” loan because the worst that could happen is that you would lose the house and hurt your credit rating. Which would be bad enough, but not the same as being personally on the hook for the rest of the loan value.

    It’s rather a shock to learn, six years or so after paying off the mortgage, that it almost certainly contained a possibility of a deficiency judgement about which we had *no idea*. Now, it’s all kind of academic, because our house was never close to being underwater, as they call it. We paid 20% down at the outset and then paid it off fast, so it was always worth more than the value of the mortgage. But still, it’s just the realization that, in fact, it was recourse rather than non-recourse and that we never knew that that is unpleasant. This fact will certainly feature in my future advice to, e.g., my children. At least so that they will know the facts if they are buying a house with a mortgage.

  7. Lydia says:

    As I understand Z’s view, it would not be wrong (on that basis) for you to have a credit card or take a car loan, but it might be wrong for you to have a savings account at the bank or own shares in a mutual fund. The latter could, almost certainly would, involve your being the one to _make_ profit from loans (e.g., when the bank loans out money to other people) which are usurious as he defines the term. The former–your having a credit card or car loan–would involve your being, so to speak, the victim of the usurious lending practices rather than the perpetrator. This means in a sense that careful people like me who never take non-collateralized loans but who do make interest from investments are in a morally more problematic position vis a vis usury, on his account, then people who take loans and pay interest rather than making interest.

  8. Zippy says:

    Lydia:

    As I understand Z’s view, it would not be wrong (on that basis) for you to have a credit card or take a car loan, but it might be wrong for you to have a savings account at the bank or own shares in a mutual fund.

    I address those questions directly in my FAQ in a number of places, e.g. Question 44:

    https://zippycatholic.wordpress.com/2014/11/10/usury-faq-or-money-on-the-pill/#44

    Because many institutions make full recourse loans for profit, this is similar to owning stock in (say) a hotel which provides pornographic entertainment to hotel guests. It is material cooperation with evil not formal cooperation: a (for example) checking account contract is not in itself a usurious contract.

    Material cooperation with evil is unavoidable in modern economies, but what extent of material cooperation with evil is acceptable I leave as an exercise to the reader (who probably also (e.g.) buys goods from China, etc.)

  9. Lydia says:

    I was almost certain that was what you would say, though I hadn’t seen that part of the FAQ. (I’ve read some of the FAQ but not all of it.) That was why I said “might” be wrong. My point was just that the person who has to ask himself the moral question about usury per se is the lender rather than the borrower. Though I’m not saying that you are saying the borrower couldn’t also be doing wrong–e.g., by not exercising prudence. But a failure to exercise prudence is not wrong in the same way or the same sense, as I understand you, as performing an intrinsically evil act.

  10. Lydia says:

    I also think that the bank is often doing evil in its loans and that the bank account is remote material cooperation. My tentative evaluation is that the bank is often doing evil because it is encouraging, exploiting, and profiting from human irrationality, impulsiveness, and imprudence.

  11. William Luse says:

    Zip, I now get ‘in kind’ and ‘in particular.’ I still don’t get how the lender would make a profit on a car loan without charging interest. (And I read #43 of the FAQ.) I mean, they could still profit off whatever money is in my savings account, and by helping me out with the car loan they might keep a customer and his money in their bank. I’m probably missing something that is obvious to people who know something about money.

    Lydia, I was wondering if the recourse nature of your mortgage was made clear in the teeny tiny print nobody reads. It’s as though people need to take a lawyer with them before signing a mortgage agreement.

    Owning mutual fund shares better not be immoral because I’m about to buy some. It appears that the company itemizes the stocks on offer, so I can scrutinize them to make sure I won’t be sharing in porn profits. Or at least try. We do have some savings at our bank, not a lot, the same bank from whom I took out the usurious car loan. I keep most of my money out of the bank simply because the interest accrued is almost nonexistent. And then there’s our TV cable provider, which offers porn channels. They all do. So we only take the package that doesn’t offer these. I don’t know if that’s good enough, though. I hope I don’t go to hell.

  12. Zippy says:

    Bill,

    If the car loan is non recourse – if his claims terminate in repossession of the car, and do not extend to further claims on you – then he can charge profitable “interest”, which in effect is a rental fee for the portion of the car that he owns.

    Basically it still makes sense for him to lend to you as long as you make a big enough down payment such that he can always recover what he is owed from the car.

  13. Lydia says:

    “Lydia, I was wondering if the recourse nature of your mortgage was made clear in the teeny tiny print nobody reads.”

    Yes, I bet it was. But as you say, most of us wouldn’t read the fine print, and it never occurred to anyone to emphasize that aspect.

  14. William Luse says:

    Zippy, I think I get it now.

    it never occurred to anyone to emphasize that aspect.

    Hmm. I wonder if it occurred to anyone not to emphasize that aspect.

    I’m going to google “cable service providers who do not serve porn.” I’m still worried about going to hell.

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