May 25th, 2005
Defending Usury
In response to a comment by a friend who pointed out that the Bible expressly forbids usury, (as do all major world religions) I wrote a paragraph for Wikipedia presenting an argument in defense of usury.:
The primary argument given in defense of usury is that charging interest is essential to guiding the investment process, which cannot be sustained by charity even it were forthcoming due to the economic calculation problem. (In other words, interest rates are required to direct investments to their most productive use.) According to this argument, interest-driven investment is essential to economic growth, and therefore to the very existence of industrial civilization. If charging interest were outlawed, industrial societies would quickly collapse due to the inability to efficiently allocate savings.
In addition to the defense of interest as such, the practice of charging high interest rates backed up by the threat of violence is also defended by those who point out that high interest rates reflect the very fact that the loans are being given to creditors with a high risk of default. The need for violence is due to the failure of governments to see this fact, or to adequately enforce the loan contracts (such as with overly lax bankruptcy laws), rather than any immorality inherent in moneylenders. Free-market economists point out that there is no such thing as a “just” interest rate because interest rates in a free market move towards an equilibrium determined by the time-preferences of individual debtors and lenders.
2 Responses to “Defending Usury”
Nice post on a topic I hadn’t thought too much about before!
– Gus
By Gus Van Horn May 25th, 2005 at 11:10 am
All well & good to taut usury. Seems you never read chapter 6 “Capitalism: the Unknown Ideal” (by Alan Greenspan) or “Atlas Shrugged”for that matter.~~~~
By C.Dember December 19th, 2005 at 12:23 am