Thursday, May 17, 2007


I'd like to get a better grasp about why and when the concept of "usury" went out of fashion. It was long held by Judaism and Christianity to be a sinful activity, condemned because it was immoral to base on economy upon money-lending. While all lending was not held to be necessarily bad (hence, some allowance was made for its practice, but usually as a separate contract, to denote its lower status), it was viewed as a practice that had a certain kind of internal logic or tendency - in this case, a tendency to make money-lending the very object of the economy. One might conclude that the current Church ban on contraception has the same kind of logic - allow it (even in marriages), and a wholesale tranformation of sexual behavior follows. Might it also be concluded that the experiment lifting the ban on usury - indeed, even doing away with the word itself, a word that denotes disapproval, a status that has been superceded by the more approving term "finance" - has shown us that a wholesale transformation of the economic system was the result? That the object of economy becomes money-making and increase, the pursuit of luxury, the tendency to create a society of debtors and indebted and a widespread embrace of debt as acceptable - and not the provision of necessities for living, or in Aristotelian parlance, "living well"?

Current journalistic commentary on the "sub-prime lending crisis" tends to focus on the idea of "predatory lending," treating it as a kind of anomaly rather than a likely logical outcome of ever-expanding demands to find new markets for procurement of interest. The financial sector of our market is now arguably the most important part of the economy; should it run into difficulties, a whole house of cards will collapse (hence, the hand-wringing about whether the sub-prime market will plunge the entire housing market, and hence the entire economy, into a tailspin). But, can we so easily and blithely conclude that the "subprime lending crisis" is anomolous? Might it not be that the current system depends upon ever greater circulation of credit for the sake of keeping the system going? In an economy that actually produces increasingly little - other than various financial devices and packages - the game becomes keeping the flows going, at least until the last person is holding the bag (of IOUs).

I write about this having just read a very dry, but nonetheless interesting posting at the Mises Institute website that examines a basic problem in a money-lending economy: what happens when the money being made on money exceeds the value of actually produced goods in that economy? The author of this article argues that we have reached that point, and makes the following rather startling claim:

"Against this backdrop the crucial question is: where is the borderline between a 'good' and 'bad' rise in debt-to-GDP ratios? To Austrian economists the ratios spell danger. They maintain that today's government-controlled paper-money systems have decoupled credit expansion from the economies' productive capacities: "circulation credit" feeds a "credit boom" that is doomed to end in severe economic, social and political crisis.[3] Austrians fear that the collapse of the credit boom will lead to the destruction of the currency through a deliberate policy of (hyper-)inflation, destroying the free-market order."

Now, I'm not convinced that the "market" would behave very well in an unregulated credit environment - but, I'll leave that for the moment. Most interesting is the contention that our credit markets now account for more economic activity than actual production of goods. As the author says - and I paraphrase - if this keeps up, the shit will hit the fan. Maybe the long-superceded dim view on usury had a point, after all. At the very least, it should be viewed as a regrettable necessity, not the aim of "household management" itself.


Anonymous said...

John Noonan spends part of his recent book, 'A Church That Can and Cannot Change', dealing with the history of the Catholic Church's attitude toward usury. I haven't had a chance to look at the book, but I have heard positive things about it.

Patrick Deneen said...

Thanks Ken. I have Noonan's book, and your note will prompt me to get it off the shelf. In the end, perhaps the status of Church doctrine itself is not as important as the state of dominant culture (the connection between the two is too complicated and mysterious for me to explore here). After all, the ban on contraception hardly has much influence on even today's Catholics, and one rather suspects any effort to revive disapproval of usury would have the same lack of effect. Most interesting to me is that, if anything, the very word usury is more disapproved than the actual practice. Certainly part of this, and perhaps a big part, is the shameful history of anti-Semitism that grew up with "unofficial" money-lending. But I don't think this is the only reason. What I'm more interested in is the disappearance of disapproval, on the one hand, toward excessive earnings by moneylenders (any of today's credit card rates would qualify), and, on the other hand, toward indebtedness. It is a societal change that has certainly been good for the bottom line of the banks and financial industry, and no doubt for the home improvement industry, but I doubt whether it has been good for the nation as a whole. Time will tell.