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Why Usury Is Sinful

December 23, 2012

When Benedict XIV condemned usury in his encyclical Vix Pervenit (1745), he was upholding the continuous teaching of the Church, and until a future pope abrogates the teaching, usury remains a sin. The fact that even the Vatican bank pays and receives interest only proves that the world belongs to Satan and his minions. If emperors and kings were subject to the pope, as they should be, they would still outlaw usury. Lest you regard the issue of usury as a battle between theological frogs and mice, you should know that usury is the reason bankers kept all the profits and stuck taxpayers with their losses. And the financial crisis has barely begun.

The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious.”  (Vix Pervenit)

According to standard economic theory, there are three factors of production, land, labour and capital. The product of land is called “rent”; of labour, “wages”; and capital, “interest”. From this model it looks as if interest is a natural (and thus lawful) product of capital. However, this model applies only to an economic system that has been captured by usurors. There are other economic systems, for example, that of Karl Marx conflates labour and land because that suited his purpose of showing capital and labour as two factors in permanent contention.

In the Church’s (and thus nature’s) economic model, there is land (which is short-hand for God’s bounty) and labour, which man applies to nature, according to the Bible.

with labour and toil shalt thou eat thereof all the days of thy life…

In the sweat of thy face shalt thou eat bread till thou return to earth, out of which thou wast taken: Genesis 3:17,19

Capital is not a distinct factor, but only labour, stored for future use. As our economy is very complex, consider a simple subsistence economy. Say a fisherman knows that the fish he catches must be consumed within three days. So he can go out in his boat every day and catch fish or he can extend his trip and catch enough for three days. This is a slightly more efficient use of his labour as he will save himself two launches and two beachings, plus two net dryings and maybe two changes of clothes. In addition to catching enough fish to feed his family, he also has to acquire all the other goods and services that even his simple life demands, e.g. fruit and vegetables, clothes, a house, an energy source, the boat-builder, the sail-maker, the net-maker, the doctor, the winemaker and the priest. All of these providers may take payment in fish, which is all he has to offer, other than his skill as a fisherman.

The fisherman knows that the demand for fish is somewhat cyclical, as is his demand for some of the goods and services, e.g. he only needs his sail repaired once a year and replaced every five years. Unfortunately, the sail-maker won’t take payment in wet fish because most of them would go bad before he could use them or swap them. Thus the fisherman needs to come up with a way of storing the fish, which he does by salting them. His salted fish last for months and thus he can salt a percentage of his catch, and store it for future use. These salted fish are the fisherman’s capital, i.e. his labour in a form that can be traded in the future.

Not every labourer is able to store his labour in such a direct fashion, e.g. a sail-maker cannot put away a fraction of a sail each day. Instead, what he can do for his trading partners is give them a promise for a certain number of hours labour. Similarly with the builder, the roofer, the policeman and the doctor. At this point the economy is restricted to the maximum complexity of the network of barter for hours labour and/or produce. Into this system comes a middleman with has family connections in neighbouring villages, expanding the network.

Now, on any given day, the middleman knows where to find someone who needs a whole day’s labour for roof repair, or where a doctor is needed, or where fish are in high demand. This middleman will take promissory notes for an hour or two’s labour from a whole variety of tradesmen and swap them for a single note from him, that can be redeemed for roof repair, or doctoring or fish or potatoes. Sooner or later, everyone trades the middleman’s coupons for goods and services, without bothering to cash them in for the actual labour – though they could if they wanted to, because the middleman never issues a “bank note” unless it is backed 100% by an equivalent amount of labour. Equally important, the tradesmen must not issue more promissory notes for their labour than they are capable of supplying in their working lives. Otherwise, they would be stealing from someone in the future who tried to redeem the promise of labour, but were unable to because the tradesman had retired or died.

The crucial feature of this system of capital-as-stored-labour is that it is perpetual. If a fisherman swaps a day’s labour today for a stone of potatoes, whoever redeems his day’s labour – be it the potato supplier the next day, or a midwife twenty years hence –  will get exactly what they contracted for, i.e. one day’s labour from a fisherman. It was redeemed when it was needed and thus THERE IS NO JUSTIFICATION FOR ADDITIONAL PAYMENT FOR TIME ELAPSED as there has been no diminution in value.

How many day’s labour from a fisherman equal a stone of potatoes? How many hours policing equal a sirloin steak? How many hours roofing equal a pint of beer? All of these relative quantities are a function of time and place. Where fish are abundant, fishermen will have to work a bit harder, but where protein is difficult to access, dried fish will be highly valuable. A high value placed on roof building and mending will encourage young men to train as roofers, until the point where there are so many roofers that their families’ standard of living lags others’. Provided everyone has the right to apply their labour to whatever trade they wish, then everyone will find the application of labour that delivers the highest reward, in terms of attractiveness in a swap for other goods and services.

The middleman, or “banker”, who deals in promissory notes for labour is entitled to discount the bank notes he issues, as he needs to cover the costs of his operation. Plus, the issue of bank notes means that the economy is much more efficient than before, i.e. many economic exchanges take place using bank notes than could not have happened with direct barter or even labourers’ promissory notes. The market clears because there is a common denominator for all exchanges and market participants are free to decide on whether they should continue in their chosen profession or whether they should do something else. The decision is wholly a personal one, depending on many variables, e.g. age, wealth, family, location, non-financial benefits. This function of a bank – as a labour exchange through the issue of bank notes – is wholly legitimate and a natural solution to a difficult problem.

Historically, instead of promissory notes for a number of hours’ labour, artisans and labourers swapped precious metals, with gold very quickly obtaining predominance. Gold’s properties as suitability for money are well-known, i.e. it is chemically inert, it has a high value-to-weight ratio and it has a use-value of its own. In the ancient world, gold’s properties made it attractive to the rich and powerful and once a king was prepared to accept gold in payment of taxes instead of labour or produce, then everyone could reference their own efforts to a weight of gold. Therefore, gold (a.k.a. money or capital) became a substitute for labour-in-exchange, but it did not change the intrinsic nature of the underlying exchange that gold represented, i.e. labour-for-labour. And since the call on labour could always be exercised, directly (by having the roofer come and fix a roof) or implicitly by passing that claim on labour on to someone else, i.e. spending money, and having the roofer fix a roof in the future, there is never a diminution in value. There may be a change in relative prices, i.e. a day’s roofing could be worth a stone of potatoes today but only ten pounds of potatoes in the future, but that is an opportunity cost only. One day’s roofing was freely swapped and one day’s roofing will be repaid, whenever the holder of the promissory note requires it.

Thus, Vix Pervenit is sound economics and sound doctrine.


From → Chapter 1

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