Abstract
Usury, charging a higher interest rate than thought by some to be “fair,” has had and still has, a bad press. Historically, it was heavily punished. It was then, and all too often is now, thought to be exploitative. Yet, as even the most economically unsophisticated must realize, both sides of these transactions must necessarily gain at least in the ex ante sense, otherwise one or the other would refuse to enter into the deal in the first place. The present paper is an attempt to justify the practice of charging interest on loans, at any rate agreeable to both borrowers and lenders.
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Notes
The dictionary defines “usury” as “The practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate.” http://www.thefreedictionary.com/usury
More strictly speaking, usury indicates a rate of interest that the speaker or writer finds offensive, for any reason.
In many historical epochs, Jews were forbidden to enter industries other than money lending. See on this: http://answers.encyclopedia.com/question/role-jews-medieval-europe-91156.html.
This is true for many other products as well, when there are risk differentials. For example poor people who live in inner cities typically pay more for groceries than those who live in the richer suburbs. This is because there is more crime in the latter places than in the former. However, the profits earned are about the same. They have to be. For, if they were markedly different, there would be a reallocation of investment from the places with lower to higher profits.
It is more than difficult to see how this can be true, absent fractional reserve banking.
The Jewish law of ona’ah prohibits usury within this community. See on this Block (2002).
See also http://www.17-s.info/node/1099; actually, in these cases, interest is implicit, not explicit.
On what basis does G make this determination? Fill in the blank here. Interest rates do not come down to us from heaven, written in stone tablets. There is no nonarbitrary way that 5% can be considered a proper rate of interest, and 20% an improper one.
Or LS approaches A, it does not much matter.
This source (http://news.bbc.co.uk/2/hi/uk_news/8460730.stm) mentions an interest rate of 1500%. This source (http://www.guardian.co.uk/money/2010/jan/15/loan-sharks-poorest-households) 825%.
This is why B needs to charge 20% in the first place: to protect itself from such eventualities.
We abstract here from threats to family members, etc.
The preferential option for the poor, a mainstay of Catholic ethical theory, leads in the very opposite direction. Here, we are asked to be particularly conscious of how any legislation will impact the least well off in society. See on this http://www.osjspm.org/option_for_the_poor.aspx; and http://www.midwestaugustinians.org/justpaxprefopt_aug.html. Also, Block (1988), Jezreel (1997), Twomey (2005).
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Labat, A., Block, W.E. Money Does Not Grow on Trees: An Argument for Usury. J Bus Ethics 106, 383–387 (2012). https://doi.org/10.1007/s10551-011-1003-x
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DOI: https://doi.org/10.1007/s10551-011-1003-x