Tag Archives: Islamic banking

Riffing On Usury

https://en.wikipedia.org/wiki/Usury

Some of the earliest known condemnations of usury come from the Vedic texts of India. Similar condemnations are found in religious texts from Buddhism, Judaism, Christianity, and Islam (the term is riba in Arabic and ribbit in Hebrew). At times, many nations from ancient Greece to ancient Rome have outlawed loans with any interest. Though the Roman Empire eventually allowed loans with carefully restricted interest rates, the Catholic Church in medieval Europe banned the charging of interest at any rate (as well as charging a fee for the use of money, such as at a bureau de change).

http://www.theoccidentalobserver.net/2017/07/24/putting-shylock-to-shame-the-moneylender-portrayed-as-hero/

@John Walton

Usury, in essence, is making money from having money, by lending to people who are naïve or have suffered reversals. The lender, like the capitalist, takes some risk and has some overhead, but to the extent one can separate the lender/investor’s contribution of useful expertise from the effect of merely having money at his disposal, to that extent one may raise the issues of undeserved profit and exploitation. Savings and loan associations and mutual insurance companies are collectives where the profit returns to the members. In recent decades many of these companies were taken public by greedy investors who became members and were often in league with management, who invoked spurious reasoning to justify the transition, which works to the detriment of the majority of depositors or policy-holders. The before/after contrast illustrates my idea of profit beyond what is appropriate or necessary. It was not unusual for ‘professional depositors’ to open as many as two hundred accounts around the country to qualify for participation in stock offerings that were (nearly) sure things, but not seen as such by the small fry, some of whom, in any case, could not afford to risk savings even on a sure thing. Peter Lynch has written about this process, which is likely not as profitable for investors today as back when few people understood it.

@John Walton

I agree with your second point but not your first. Defenders of capitalism may cite libertarian premises like yours, in which case they need to explain why people coming newly into the world have a duty to respect the claims of people who amassed land before they were born. Other defenders point to capitalism’s superior productivity, which is a way of appealing to an ethical norm, namely that we should prefer capitalism because it produces a greater level of material well-being for the average person. But most of us distinguish between more and less deserved well-being. We think a doctor deserves his wealth more than a pornographer or an idle rich person who sits back and lets a hired manager invest for him. Libertarians think free exchanges between adults should be beyond the scope of ethical assessment but I don’t see why. Their own view is itself an ethical position. Why is it wrong to interfere with any voluntary exchange? We don’t hesitate where children are parties (nor do we hesitate to regulate drugs and dangerous products), but some adults are as naïve and vulnerable as children, and these are targeted by the archetypal usurer. Nor does looking out for such people automatically ‘infantilize’ the society and lead to communism. At least, I don’t see that it must.

@Hipster Racist

An excellent comment and it’s great to see someone else pointing out the differences between credit unions and mutual companies with collective ownership and private banks. In the former, the owners of the enterprise are the customers, while in the later, an outside group is the owner while the customers are a different group.

The lender, like the capitalist, takes some risk

This isn’t particularly true in the modern financial system and in practice it has never been true in the transactions people decried as “usury.” When a speculator lent money on a shipping excursion the speculator may well have suffered losses when the ship went down. The usurers that people complained about often had the backing of the state to “make them whole” – the borrowers who could not repay the compound interest and fees were often then enslaved. The distinction between “usury” and “investment” is something the Church, despite a heroic effort, never really got right for all sorts of reasons, a primary one being the Church didn’t particular care about the practical effects, they were more interested in their incoherent ideology and their own political power.

E. Michael Jones, a valuable cultural critic, despite being an anti-white fanatic, has at the least tried to come to grips with this in the modern world and tries to retrofit Catholic anti-usury ideas as not being specifically about interest rates, or compounding, but instead a power balance.

I suggest one might try to understand the concept of “barren metal” not with confused analogies of biological reproduction but instead understand “usury” as what we now refer to as “economic rent.”

https://en.wikipedia.org/wiki/Economic_rent

The Jews were allowed to benefit from “economic rent” on money. There is no economic reason why this should be so:

In classical economics, economic rent is any payment made (including imputed value) or benefit received for non-produced inputs such as location (land) and for assets formed by creating official privilege over natural opportunities (e.g., patents). In neoclassical economics, economic rent also includes income gained by beneficiaries of other contrived exclusivity, such as labor guilds and unofficial corruption.

The Church, in practice, gave the Jews a monopoly on certain kinds of finance, which greatly hurt Europeans. Whether or not the Church even understood what it was doing, or if they were in fact “in league” with the Jews is open to historical interpretation, and frankly the Church doesn’t come out looking good either way.

It seem obvious that neither the Church, not libertarian ideologues, have any idea nor any motivation to do something about the modern problems of usury/economic rent, but fortunately, it looks like White/European technology will once again save the day. We are already seeing a revolution in our understanding of economics and money.

Here’s my prediction: both Catholic and libertarian ideologues will go out of their way to squash the revolution in economics as both ideologies are once again trumped by European ingenuity.

But expect both to type countless words online to try to maintain some sort of relevance.

@John Walton

Thanks for the compliment and thanks for pointing out that the objection to usury is at bottom an objection to (excessive?) rents. The ‘barren metal’ objection seems wrong, in that money is a proxy for non-barren capital goods. But I wonder if another ‘biological’ objection might have some validity. I am ignorant of the literature but I would guess that if the money supply doesn’t change then the usurers as a group own a larger and larger portion of the wealth over time, provided they can keep their own consumption costs below the usurious profits. But I suppose the entrepreneurial borrowers as a class will charge their customers, including the usurers, enough so that the entrepreneurs come out ahead. So, who loses? I guess the non-entrepreneurial ‘defensive’ borrowers lose and drift into destitution. Interesting. What is this ‘new economics’ you refer to? You have piqued my curiosity!

@Hipster Racist

We do not need to ignore our traditional moral instinct that “usury” is wrong, nor do we have to rely on medieval misunderstandings of monetary systems to explain why it’s always been considered wrong.

For the last 20 years or so, “Islamic banking” has been a regular topic in the financial literature as Western banks seek to incorporate all that oil money into the system.

Sharia prohibits riba, or usury, defined as interest paid on all loans of money (although some Muslims dispute whether there is a consensus that interest is equivalent to riba).

Here we see the same argument over whether riba/usury is any sort of interest on money or something else. Consider the alternatives in Islamic banking:

Some of the modes of Islamic banking/finance include Mudarabah (Profit and loss sharing), Wadiah (safekeeping), Musharaka (joint venture), Murabahah (cost plus), and Ijar (leasing).

https://en.wikipedia.org/wiki/Islamic_banking_and_finance

Notice that Islamic banking accepts various financial transactions when the interests of the borrow and lender are the same, when the risks are aligned the same way.

If a lender stands to gain more from a default than a repaid loan, that is an obvious conflict of interest – in that situation the lender wants the borrower to default, presumably in order to claim the collateral.

If the money supply doesn’t change then the usurers as a group own a larger and larger portion of the wealth over time

Yes, if in the historical case, Jews as a class have a monopoly on finance, then in the aggregate Jews will wind up with Christian wealth. Actually figuring out the absolute quantity of money is difficult and practically impossible in a decentralized system. In practical terms, whatever class controls the money can always hold back supply of money to force defaults, and this appears to have happened.

Like pornography, it’s likely that many have simply thrown up their hands and said “I know usury when I see it.” “Usury” has traditionally been considered a sin, a moral crime, an evil. Libertarians will try to simply punt on the moral issues and demand you define usury by a specific number, so they can say, “well if 10% is usury, is 5% ok?” “If 0% is the only acceptable interest rate then there will be no lending at all.” By making it a math problem they are ignoring whatever moral instinct that has existed throughout history in many cultures that declares “usury” – however defined – as morally wrong.

“Money,” as in currency, what is used instead of simple barter, is a “social construct” and various forms of money have proved practical in various cases because it’s a decentralized way to coordinate trade. With modern communication technology, “the internet” etc., decentralized coordination can provide alternative to coordinating trade.

Of course there is the crypto-currencies like Bitcoin, but even that relies on traditional ideas of money. There are already thought experiments about decentralized money creation, why give banks a monopoly on money creation? Why can’t money be created and destroyed as needed by individuals?

The path forward for money and banking is not to prevent people from creating money out of thin air but to allow everyone to create money out of thin air.

https://hackernoon.com/beyond-bitcoin-truly-decentralized-banking-d7793edc7d99

Counter Currents once published a great article about various non-libertarian ideas of money and other aspects of the economy.

https://www.counter-currents.com/2015/12/money-for-nothing-3/

I’m suggesting that there is a reason why “usury” has always been considered a sin and that “usury” may be best defined as something other than simple compound interest.

Another good work to read on the topic is “Debt: The First 5000 Years.”

https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years