16A045 Usury by Jim Davies, 12/13/2016    

In some quarters, charging interest on loaned money is said to be a bad idea.

When a dog is disliked, he is given a bad name; and the name applied here is "usury", which word does have an oily sound to it even before one looks it up; when one does that, the meaning is revealed as "an exorbitant amount or rate of interest, especially in excess of the legal rate" which is a profoundly useless definition. "Exorbitant" is a relative term; one man's high is another man's low; and "legal rate" is, if it applies, merely the subjective opinion of a bunch of people so immoral as to impose laws on others. An alternative definition given by the same source is "interest" itself (at any rate at all) but that's said to be "obsolete." Well, not exactly.

That's just what government did do, in the Middle Ages, when in bed with the church. It's what some Muslim governments do. And incredibly, it's what some advocate today. With astounding confusion of thought, they say that loans ought always to be free of interest, by law. And if government itself needs a loan, let it print up its own, rather than borrowing at interest or creating it via the Federal Reserve so as to disguise the existence of a central bank.

One Anthony Migchels is among some quite articulate promoters of this strange view. He appears "libertarian" by calling for the Fed to be abolished, yet is openly anti-libertarian when you get into some detail of what he's about, still without being openly pro-state. He scorns Ron Paul, even though Paul more than anyone has questioned and embarrassed the Fed. He scorns von Mises and Austrian economics. He scorns Lew Rockwell and his site. Worst of all, he scorns the memory and work of Murray Rothbard. An unusual mix, to say the least.

Let's imagine what it would be like, if interest-charging were outlawed.

First, the Fed would vanish, and good riddance, and so the shell-game whereby some of the huge FedGov debt is rolled over by borrowing from its lapdog banks at interest would end. Nobody would buy its T-bills by choice, at zero interest, so more of it would be furnished by fiat. Higher inflation would follow.

Separate laws might compel domestic money-parkers to buy them, but the lack of any interest income at all would impact their profitability; if (as many do) they manage pension funds, future retirees would suffer.

Second, buyers of homes would find very different rules in force when they apply for a mortage loan. At first blush that would be excellent news, for interest makes up a large part of the monthly repayments especially at first. However, everyone likes a nice home, so the money released by that good news would bid up the price of houses. A $200K home would soon become a $300K home, and the repayment would be the same as before, even though the interest component had disappeared.

Much more sinister is the matter of who would lend the money anyway. No bank would volunteer, since there is always a risk in lending and under the new laws no compensating interest could be earned. Therefore, a mortgage loan could be obtained only from some government bureau-rat (even if he uses conventional bankers as "front men".) The home buying applicant will obtain the loan from essentially one source, controlled by government. The latter will have a total grip on his accommodation. Dissidents need not apply.

Third, and by the same process, commercial borrowers such as businesses needing loans to expand - or to pay employees during a temporary downturn - will have to go to one lender. The cost will be zero, but the loan will be made only if the bureau-rat approves. Government's grip on enterprise will be almost total.

Fourth, since private lending (for profit) would be prohibited, all investing would be done by government. Projects of which it approves would get funded, the rest would not. All such decisions would therefore be made by bureau-rats with no personal money at stake. The enormous growth and innovation that has resulted from somewhat-free capitalism for the last five centuries would come to a screeching halt.

Thus the Migchels proposal would impoverish pensioners, allocate housing, control commerce and stifle progress. Not too dissimilar to what prevailed for centuries before the usury laws were repealed just prior to the greatest leap forward in the living standards of much of the human race, and quite like what prevailed for 70 disastrous years in the USSR. There are aspects of his gray world that could be said to be Fascist, but on the whole I liken it more closely to Communism. This false prophet may or may not be in the pay of the State, but he and his friends are doing it a very great service.

What, in contrast, will these aspects of life be like in the coming zero government society?

After everyone has learned the nature of government and therefore declined to work for it, its resultant disappearance will take with it the $20T debt, the annual spend and tax, the Federal Reserve, inflation, control, and all the rest of the ugly mish-mash that makes up the current cesspool of the ruling classes. Banks may continue to exist but will differ greatly in what they do, and money will be what the market chooses; gold, probably, anathema though it is to Mr Migchels. Above all, everyone with some to spare will be able freely to lend it out - invest it - at interest, with rates agreed of course only by borrower and lender, without regard for third parties throwing around the U-word.

From the all-important self ownership axiom everyone's labor is his own property, and therefore so is anything for which he elects to exchange it, such as money. Being his own property, he'll do with that as he wishes, for he'll have the right to control it. That's what "ownership" is all about. The hope of profit will encourage investment, and instead of one Business Development Approval Committee making investment decisions, there will be millions of individuals expressing their ideas and hopes and taking their risks with money they have saved. Some will fail, of course. But millions will succeed. The benefit to society at large will be so large as hardly to be calculable.

I'll end on a note of theory. It's sometimes asked: if the money supply is fixed (as it may be, should gold cease to be economic to mine) and if it's lent out at interest, from where does the money come to pay the interest?

The answer is that lending equals investing, and investing produces growth, which means that products and services can be provided for less cost - and hence, given competition, at lower prices. The resultant saving is what pays the interest - and then some, to enhance the whole quality of life. Fancy that! True economic growth, in a free market, leads to lower prices. That's something nobody now living has experienced, in this country. But absent government it will be seen again, and to an unprecedented degree.