Want An Apple in 100 Years? On Catholics and Interest

Here’s my reply to a critic who insists it is a mortal sin [!] to charge any level of interest on a loan. I’m leaving out the obvious reasons for allowing interest, based in justice: the possibility of nonpayment, the temporary illiquidity of the lender, etc.

“The Austrian School takes no position one way or the other whether to allow interest on a loan; I’m frankly rather surprised at your misunderstanding of the nature of Austrian claims. After all, you’re eager to excommunicate people for reading certain economists, so I would think you’d have researched this first. What the Austrians do is try to explain and analyze the phenomenon. Whether to allow it is a separate question.

“In my book The Church and the Market I provide a lengthy discussion of usury and have no intention of repeating that here. I cite the Holy Office from the 19th century as saying that interest rates, like any other price, must be free to fluctuate. This view comes after centuries of development as the idea of interest became better understood.

“Mr. X, do you consider an apple one hundred years from now to be equally serviceable as an apple today? I assume not. I assume, further, that you agree that it would be an extremely vulgar mistake to claim that the two things should be valued equally because their physical properties are the same. A glass of wine enjoyed in a revolving restaurant at the top of a skyscraper is the same glass of wine enjoyed in a back alley, but we surely recognize a premium one might place on the enjoyable surroundings. A fruit tree in an easily accessible location is more highly valued than a fruit tree one would have to cross a rain forest to reach, even though in crude physical terms the trees are indistinguishable.

“Why, then, if we may place a different value on things just because they are located in different places, may we not likewise place a different value on things as a result of where they are located in time? Unless you expect people to value an apple one hundred years from now and an apple today equally, you can expect a premium to be placed on the more serviceable good. This is a phenomenon observable all throughout human existence, and one you yourself would find harmless if the difference between the good involved physical location rather than temporal location.

“Can you address my argument on the merits, please? I would genuinely enjoy seeing someone explain to me why it is a mortal sin to value an apple today more highly than an apple one hundred years from now.”

Chris Ferrara

A fruitful debate focuses on specific questions and addresses them forthrightly until the matter is resolved one way or another. Let us take one issue and see if it can be addressed fruitfully:

Issue # 1: Do you maintain that all interest rates established by law or agreement are just ipso facto, or would you agree that legal or agreed rates of interest can be, and at least sometimes are, immorally excessive and unjust, and thus constitute sinful overreaching [the general meaning of usury] in business, which the Church condemns?

Stated otherwise: Do you concede that usury exists at all in the present economic system in the United States, or do you maintain that usury is nowhere to be found in that system?

Caveat: We are not discussing remedies or legal solutions, but only the moral conclusion.

P.S. Not that anybody cares, but your “work on the university system,” which I praised, was a chapter from your book, published in The Remnant as such—and not years before the book appeared. And I wonder what your recollection of my opinion of your book (which I deny categorically) has to do with the issues on which so many Catholics have been critical of your position. “Chris is jealous of my book” is not an answer to “Tom Woods rejects Leo XIII’s teaching on the just wage.” Which, of course, you do.
http://twitter.com/ThomasEWoods Thomas Woods

Someone who takes advantage of the position of a vulnerable person when he is in a position to exercise charity deserves moral condemnation. I don’t know anyone who disputes that. But I do not see a moral issue involved when, as in 99% of cases, two parties happen to have inverse valuations of the proper ratio between present and future satisfactions. If someone believes the pursuit of a particular end in the present is important enough to him that he is willing to sacrifice some future satisfaction, what are we to say about this? Are we to chide him for holding to a ratio we ourselves do not share?

If I were in a difficult spot and needed cash, and none of the self-proclaimed philanthropists were willing to help me, I would be glad for the opportunity to borrow even at a penalty rate. The alternative, in my judgment, would be far worse. How can we objectively say I am being taken advantage of when I myself conclude that the transaction I am making is the best option available to me? This is not to say that all freely entered contracts are ipso facto valid. That is a separate point. I am asking how I can be exploited by the one option I have when no one else has lifted a finger to help me. And these people who have done nothing to help me will condemn the one person who has.

There is no dogmatic answer to questions like these, particularly given how radically individualized the various circumstances are. This is yet another reason to avoid letting Nancy Pelosi and John McCain decide such questions.

(A side note: I am certain, given my personal experience, that some of the relatively few people who attack me now would have attacked me in the 16th century had I raised lucrum cessans as justification for interest. Why, this is a terrible innovation (as indeed some theologians said at the time) that can in no way justify the crime of usury, I would surely have been told. It is impossible to doubt this.)

P.S. The article on the university system preceded the release of the book, and was not published as a chapter from the book. The way you can know that is that I was already banned from the pages of The Remnant by 2005, the year of the book’s release. The book’s existence was never acknowledged in The Remnant.
Chris Ferrara

<<>>

Of course, this is not an answer to my question, which has nothing to do with charity but rather with justice in the existing economic system, which is riddled with usury.

Further, you have explicitly pronounced the teaching of Leo on the just wage as Catholic doctrine to be “fraught with error” and have, contra a line of Popes, declared that “the market wage IS the just wage,” which is precisely what the Popes have denied.

No, this debate cannot be fruitful. You are still ducking issues. Just testing.
Chris Ferrara

By the way, from The Church and the Market, p. 79: “Thus the Church has properly emphasized the justice and indispensability of the institution of private property; she has likewise condemned fraud, dishonesty, and theft, all of which derogate from the moral order upon which the market economy is based. This is all to the good, and well within the province of magisterial pronouncement. But the attempt to elevate such principles as the “just wage” to the level of binding doctrine is something altogether different, and indeed is fraught with error.”

If that is not a rejection of the just wage doctrine of the Church, then words have lost their meaning.
http://twitter.com/ThomasEWoods Thomas Woods

Since my argument is that we are dealing with inverse valuations of present over future satisfactions, it should not be difficult to understand my position on the justice of loan transactions. A far more serious problem than alleged usury is people’s insistence on living at a material level beyond what they can actually afford.

I have explained my position on the just wage at length; people may judge the arguments for themselves (see ch. 4):

http://www.iea.org.uk/sites/default/files/publications/files/upldbook410pdf.pdf

Pretty soon, just as many popes will have echoed the various teachings on liturgy and ecumenism as have today commented on the confused idea of the “just wage,” an idea that has given endless ammunition to enemies of civilization, those enemies never of course being corrected in their views or told that what they are saying does not logically follow. Then we’ll be back to evaluating the arguments on their merits.
http://twitter.com/ThomasEWoods Thomas Woods

I’m sure people are capable of reading the ensuing paragraphs to see the meaning of that statement.
Chris Ferrara

Thank you for confirming that you view the just wage teaching of a line of Roman Pontiffs, imposed as binding in conscience by St. Pius X in Singulari Quadam, as an “idea” that has served the enemies of civilization. It seems we have made progress after all in verifying where you stand. That’s all the time I have for this.
Vicki

The point which some people seem to be missing here is not that injustices can, and do, occur within any economic system, in regards to wages or interest or anything else – which no sane person will deny – but that it is difficult, if not impossible, for a 3rd party to gauge the justice or injustice of any given transaction. The best way to insure that justice be paramount is to allow the contracting parties to decide for themselves because they, and only they, are able to weigh all the subjective factors. Is this method infallible, always and everywhere insuring justice? Of course not. No system is.

It is impossible to hold the position that there is an objectively “just wage” or an objectively “just” rate of interest to which we are all bound, in all times & all places, under pain of mortal sin. Who is to decide what rate of interest – in any and all curcumstances – is just, or what wage? 5%, 10%, 15% … $5/hr, $10/hr, $15/hr … It’s insoluble! Such a solution would not only require massive coercion, but be artibrary, creating all kinds of confusion, and far more unjust to most people than a free market solution. Remember, it is just as possible to be unjust to a lender/employer as it is a borrower/worker.

For instance: a given worker might be happy to accept a wage which is lower than an arbitrary wage because he knows that the place of employment in question is around the corner from his house and he would be able to forgo owning a car and thereby save money on the car, gas, insurance, etc. And who is anyone to say that he is being exploited or that his employer may not in good conscience offer him this lower wage? Such a notion is ridiculous, which is why the Church – in Her perennial wisdom – has never claimed to be able to do any such thing!
Anonymous

For Catholics there are indeed objective standards. A just wage is a wage that allows the head of a household to support his family with the necessities of life. If he is not paid such a wage, it is indeed exploitation. Far from “ridiculous,” the principle is just. That a man would agree to a wage that cannot support his family is duress, not justice. The Church has indeed addressed such injustices. In fact, oppression of the poor is one of the sins that cry to Heaven for vengeance:

(1) Wilful murder – the blood of Abel, [Gen. 4:10]

(2) The sin of the Sodomites, [Gen. 18:20; 19:13]

(3) The cry of the people oppressed in Egypt, [Ex. 3:7-10]

(4) The cry of the foreigner, the widow and the orphan, [Ex. 20:20-22] and

(5) Injustice to the wage earner. [Deut. 24:14-5; Jas. 5:4]
http://www.mises.org Mechanized0

Nothing you stated has nullified Thomas Woods’ argument.
Anonymous

Great… cheerleaders with pom poms… important contribution.
RP

Trying eating a lawn mower….That is still property.
Will H

Dr Suter

I’ve got a question of curiosity. You say it is a mortal sin to offer an unjust wage or a usurous loan. Is it also a mortal sin to ACCEPT an unjust wage or a usurous loan? I’m not Catholic–nor anything really–but is the sin merely confined to the lender or the employer or is the sin applicable to the lendee or the employee? And does the lendee/employee have a moral duty to turn down unjust loans/wages? Does the burden of sin rest soley upon the lender/employer?
Marc

Some of you guys spend so much time “debating” in this blog you may be guilty of intemperance.
http://www.mises.org Mechanized0

It was more an observation than cheer-leading. Hopefully, other Catholics are not as eager to engage in attempted mind-reading.
http://www.mises.org Mechanized0

Consuming a medium of exchange (in this case, dollar bills) is unnecessary since it can be exchanged for food.
Mike

This is a very interesting and important discussion to be having in this day and age. Prof. McCall’s discussion explaining the important distinctions among money, apples, land, and gold is very interesting. I needed to read more of what he says so I found this web site titled “Selected Works of Brian M McCall”. Very interesting indeed.
http://works.bepress.com/brian_mccall/
http://www.facebook.com/nathan.c.webb Nathan Webb

Mr. Woods,

As much as I agree with you on most matters economic, I have to take exception to the quoted sentence:

“Clearly it was without this knowledge, at a time when the relevant science was primitive and undeveloped, that the passages you cite could have been written.”

God’s not dumb, He’s just trying to teach us. For example, He had the Hebrews set up an entire sacrificial / temple system that was incapable of dealing with sin, and allowed it to continue for a couple thousand years before revealing His real plan for dealing with sin once and for all. He was educating us on (a) the seriousness of sin, (b) man’s inability to follow the law, and (c) His great grace and sufficiency in taking our sin from us.

From what I’ve read, the passages forbidding usury are in the context of charity towards other believers who are in poverty. Similarly, believers are to be an example to the world by settling their differences out of court and, in the Old testament, were supposed to return property to its historical family every 49 years. But this is all in the context of believer-believer interactions, in order to be an example of how an ideal society would work when every person acknowledges God as their judge and king. I don’t think it’s realistic or Biblical to expect to run a mixed civilization with rules meant to demonstrate God’s goodness between people who have the same beliefs and value systems.
Papatch58

Dmlee,

The gold would not exactly be yielding a return buried in the ground. It would simply be a matter of the quantity of toasters increacing faster than the quantity of gold in the market place.
Papatch58

There are two clear examples of usury: 1) The money changers in the temple. 2) The charging of interest on scraps of paper or even virtual money created out of thin air. Maybe Dr. Woods could answer this for us. What in your estimate would interest rates typically be if we had honest gold and silver money? It seems to me that this might clear up some of the issues.
Papatch58

Luke 19 doesn’t exactly tell us why the master was hated. You might want to read it for your self. Or better yet post the entire quote.
Mike

Many are saying that Austro-Libertarianism is the other side of the Communist coin. Why would you even think that it is Catholic Tom?
Anonymous

Well, Mike, maybe you could take a look at the book I wrote on this, or consult the whole section on this topic on the Articles page of this very website. Needless to say, I am unimpressed by the arguments of the alleged “many,” as was Otto von Habsburg.
Anonymous

So time preference no longer holds when it comes to money? I’ll have to check out this extraordinary discovery. Meanwhile, Mike, if I offer you a key to open a chest with $100 in it, but the key will work only after a year’s time, what will you pay me for this key today?

See, it’s the same principle, whether land, money, etc.
Mike

Tom if are you referring to your book titled “How the Catholic Church Built Western Civilization” I even take issue with the title of it. If you watch “The Money Masters – How International Bankers Gained Control of America” you will most certainly see that Western Civilization was not built by the Catholic Church. Western Civilization is a result of the so called “Enlightenment” and particularly the Protestant Reformation. Protestants allowed Jewish and other banksters to charge usury, usurping the Catholic condemnation of it. The Catholic Church has condemned usury for 2,000 years. If you have three and a half hours to spare for a short history lesson here’s “The Money Masters – How International Bankers Gained Control of America”.
http://video.google.ca/videoplay?docid=-515319560256183936#

Speaking of Otto von Habsburg you do realize that the Habsburgs of the Holy Roman Empire were not always in line with the Catholic Church, don’t you. I imagine the claim that Otto von Habsburg being a Freemason and a member of the Bilderberg group is false, I think. Although he is definitely a globalist with this quote about him from Inside the Vatican, “he did as much as any man alive to lay the groundwork for the European Union.”
Anonymous

Mike, I am referring to my book The Church and the Market, in the post we are supposed to be commenting on. As for debating the title of my other book without bothering to examine its claims, well, I think that’s rather unfair.

And no, thanks; I am not in need of a “history lesson.”
http://profiles.google.com/phattonez7 Anthony Fernandez

How is it a sin if post parties freely agree to the transaction? How have I wronged you if you accept the terms?
http://cgouge.myopenid.com/ cgouge

I would gladly pay you Tuesday for a hamburger today.