This chart tells you why inflation is a wonderful thing:
But, when the population began to grow exponentially, the money supply had to grow with it. After all, you can't have 7 billion people in the year 2000 all chasing after the same amount of money that only 1 billion people had available to them in 1800. There wouldn't be enough money to go around. In order to accommodate the inflating world population, economies had to inflate their currencies.
This is why everyone moved to fractional reserve banking and eventually to fiat currency. It kept people from starving, gave everyone a shot at having money. How does it work? Fiat currency means you cannot demand a set amount of metal for a particular unit of currency. In metallic currency, a metal is worth its weight. When paper money was introduced, it was accepted only because it represented metal. Thus, prior to fiat currency, a paper dollar could be exchanged on demand for a set amount of metal: gold or silver. But with fiat currency, this ability to demand a set amount of metal for each unit of paper or electronic currency is taken away. No one can lay that demand against a bank or a government.
Fractional reserve banking means that a bank or government is allowed to lend out more money than it has. For example, for every dollar it keeps in its vaults, it creates five dollars out of thin air, and lends each of the five newly created dollars to a different customer. The single existing dollar is held in reserve in case one of the five customers is unable to repay the loan. If that happens, the bank can cover that default.
When the five pay back the loan, the amount of money in the system has now grown by a factor of five. The five have freely given their work to enrich the entire system so that everyone else has a shot at getting money too. Now that new money can be lent out at a five-fold increase. Now twenty-five others can donate their work to the system to keep the system going. The size of the pie is no longer fixed: everyone contributes to growing the pie.
The money supply inflates to keep pace with the inflating population. The transition away from metallic standards and into fiat currency allows the creation of money. In this system, new money is actually created through lending. Lending is how new money gets into the system. Everyone who takes out a loan contributes to the system by helping create more money through their work.
And see what has happened! Interest on a loan is no longer a way to consume money, it is instead a way to produce new money so that everyone can have money. In this view, charging and paying interest is no longer primarily an act of rapacity, it is now primarily an act of charity.
Thus, in the last two centuries, the definition of money changed. By the industrial age, money was no longer something that was primarily consumed, rather, it became something that is primarily created.
"Usury", as the name implies, only makes sense in regards to things that can be used up, consumed. The Church's teaching on usury were formulated when money was a fixed entity that was used up within an essentially fixed population. The Church's teaching assumes money is a consumable good. But when the definition of money changed from something we consume to something we create, the usury teachings concerning interest on a loan no longer applied. Our new definition of money - new value created through loans - had rendered them useless.
Now, Pope Francis recently denounced usury, a subject I have written on before. But notice what he said. He didn't denounce interest on loans. He denounced bills that kept poor people from even being able to afford food: "When a family has nothing to eat, because it has to make payments to usurers, this is not Christian, it is not human!"
So, if usury isn't interest on a loan, what is it? As Aquinas points out (ST II, II, 78, 1) usury has two components: (1) it is selling something that doesn't exist AND (2) it leads to inequality, which is unjust. He used interest on a loan as an example, but he also pointed out that not all interest charged for a loan was evil. He allowed, for instance, interest on the loan used to buy a house, because a house is not consumed, it is not eaten up, by being lived in.
Usury is the selling of something that doesn't exist that leads to inequality. It doesn't need to involve a loan or interest at all.
Everyone has an equal right to food. As Pope Francis points out, exacting payment in such a way that people cannot exercise their right to eat food is usury - it is exacting a payment to exercise a right that already exists, a right that no one should have to pay to exercise. Usury is my claiming that I control your right to eat. I have no such control nor any such right. Usury is my charging you so that you can exercise your right to eat. I am charging you for something - my "control" over you, my "right" over you - that doesn't exist in order to create my ownership of you. That is usury.
When we demand payment from the poor before we allow the poor to eat, we have engaged in usury, even if no loan is involved. It isn't interest on a loan that is the problem. Usury is the failure to recognize each person's inalienable rights to life, liberty and the pursuit of happiness, that is, the pursuit of God. What Pope Francis has said is perfectly in accord with both the current economic system and with ancient Catholic teaching.
25 comments:
I hope this post is an April Fools joke.
1. Your definition of money is incorrect, even according to Aquinas.
2. The use of Aquinas to justify interest on a home loan is an egregious misreading of the Summa. He is specifically talking about renting a house.
3. The whole theme of the article is modernist--what the Church has said in the past doesn't really apply in this day and age.
1) So, tell me Aquinas' definition of money, please provide references.
2) He is talking about renting because no one bought a house on loan until the modern age. However, the underlying principle is identical - the house is not consumed - so the principle remains the same.
3) The Church teaches that fornication is a sin, but that teaching doesn't apply to me. Why not? Because I'm married. I cannot fornicate. I can only commit adultery. Thus, what the Church has said in the past about fornication does not apply to me in this day and age, yet what I've just said is not modernist, it is traditional Catholic teaching.
Steve,
Do you agree with the chart's claim that the 1st modern humans appeared around 160,000BC? If so, what's your evidence and how do you reconcile that position with Genesis? I understand this isn't the primary point you are trying to make, but you're including this idea in your argument. Pax.
I hold the same position on Genesis that the CCC holds.
Whether human beings came into existence 160,000 years ago or 5,000 years ago makes no difference at all to the basic point: human population growth has produced exponential growth in the last 200 years in a way that has not been seen for at least 4000 years.
How do you think the CCC weighs in on whether or not modern humans appeared 160,000 years ago?
The graph has another problem. There should be a sudden and dramatic reduction in the global population at the time of the deluge.
The graph may or may not be accurate in its representation of more recent times, but it's clearly at odds with the story of human history revealed in Scripture, which makes it problematic for basing your argument on. Pax.
I'll tell you what, Andrew. *YOU* draw up a chart showing human population sizes throughout history and send it to me.
It doesn't matter whether I use your chart or this one - the conclusion is the same.
It's refreshing to hear you admit that the charts, graphs, and stats you wrap your arguments up in are essentially meaningless window dressing. That doesn't make your argument true or false, but if it doesn't matter to you whether or not the figures are actually true, then it would be clearer to simply present your argument without them.
I think your argument fails for another reason. "Modern finance" is primarily the creature of the dying populations of so-called devoloped countries- US, Europe, Japan, etc, who are killing off their own populations with abortion, contraception, and sodomy. Populations growth is happening in areas with more traditional economies.
Andrew, I don't think you are reading this correctly.
The charts are not meaningless window dressing. They are crucial to the point.
Your chart is not going to differ in any substantial way from mine. You might fiddle around with what happened 5000 years ago, but there is no question about what has happened over the last 2000 years - that is going to be the same whether we look at your chart or mine.
My argument depends on the last 2000 years.
As for population growth happening the "the more traditional countries" that is not true in any but a technical sense. Population growth has been dropping in EVERY COUNTRY IN THE WORLD for the last century.
A few countries have still not fallen below 2.1 fertility rate, but there is absolutely no reason to think they won't, especially since nearly all of the countries with fertility rates above 2.1 are non-Catholic.
So...the population is exploding and yet reproduction is falling below replacement levels everywhere. You're asserting two contradictory things Steve.
So almost the entire section of the graph dealing with the past is innaccurate. And if as you seem to agree, the section of the graph dealing with the future, is also innaccurate (below replacement level births does not equal a rapidly rising population), what makes you think that the small section of the graph dealing with the recent past is accurate enough to be "crucial" to your point? This question is especially relevant since your source, the UN, is an organization with a vested interest in convincing everyone that a rapidly rising population is a grave peril to humanity in order to dress up their population control programs as a humanitarian effort.
If charging and paying interest is now "primarily an act of charity", then does it some how becomes a virtuous act to run up all of your credit cards? Should you and I contact our mortgage companies and ask to refinance to a higher interest rate? After all it would be more charitable for them to charge more and us to pay more.
You're confusing several issues. The proper size of the money supply and the morality of usury are two different questions.
You define usury as selling something that doesn't exist. You also say that modern finance creates money..."poof"..out of nothing, i.e. it's something that doesn't exist. The creation of money should be a function of the state for the purpose of promoting the common good.
For some good books to help in understanding Church teaching and economics, I'd recommend "The Church and the Libertarian" by Chris Ferrara and "Economics as if God Matters" by the recently deceased Rupert Ederer. Pax.
No, Andrew, the two things are not contradictory. Read up on how demographics works. Fertility can decline but population can still increase if the average age of death increases, which is what is happening. People use to die at 50, now they die at 70, so even though women aren't having enough babies, the population continues to increase, it just skews older.
I don't define usury as selling something that doesn't exist, Thomas defines it that way: "To take usury for money lent is unjust in itself, because this is to sell what does not exist." 3 times he says it.
The graph of the past is not inaccurate. Everything it depicts for the last 3000 years is perfectly accurate. The UN is telling us fertility rates are dropping across the board. So is the CIA. So is everyone who studies the matter. If they were trying to dress up population control, they would say it is rising way too fast. No one is saying that.
Sure it's more charitable for you to give more than is owed. Go ahead.
I understand Church teaching and economics just fine. I'm not interested in either of your books.
Perhaps some of your other readers might be interested in the books I mentioned. Ederer's in particular is good in that it is a systematic examination of what the Pope's have said regarding economics over the past 100+ years. It seems rash to dismiss out of hand a book addressing the "ancient teaching of the Church" that you claim to be in accord with.
You are misrepresenting Aquinas. He doesn't say you can charge interest for a house. He says you can charge for the use of your house. You can RENT it, because the tenant can use the house while destroying it. So you sell him the use of the house (rent) while maintaining ownership of the house. You can't rent someone a glass of wine, because when they drink it, it's gone. http://eawc.evansville.edu/anthology/aquinas78.htm
that should be the tenant can use the house while NOT destorying it, unlike the wine. Pax.
Something to consider when tossing the Church's teaching on usury into the garbage can or claiming economics is beyond the competency of papal teaching:
60. Many believe in or claim that they believe in and hold fast to Catholic doctrine on such questions as social authority, the right of owning private property, on the relations between capital and labor, on the rights of the laboring man, on the relations between Church and State, religion and country, on the relations between the different social classes, on international relations, on the rights of the Holy See and the prerogatives of the Roman Pontiff and the Episcopate, on the social rights of Jesus Christ, Who is the Creator, Redeemer, and Lord not only of individuals but of nations. In spite of these protestations, they speak, write, and, what is more, act as if it were not necessary any longer to follow, or that they did not remain still in full force, the teachings and solemn pronouncements which may be found in so many documents of the Holy See, and particularly in those written by Leo XIII, Pius X, and Benedict XV.
61. There is a species of moral, legal, and social modernism which We condemn, no less decidedly than We condemn theological modernism.
Pope Pius XI, Ubi Arcano
Asserting the average age of death is increasing while abortion and abortifacient drugs grow more prevalent is another contradiction. A massive segment of humanity dies before 9months. Discounting them calculations of average lifespan is only possible when once accepts the anti-Christian classification of the unborn as non-persons. Thanks for the post Steve. Even when you are dead wrong you at least raise interesting topics which is more than most people do on the interent. Pax.
If you are buying a house on loan from a bank, you are renting the house from the bank until you have paid off the loan. This is why the bank is considered a joint owner of the house. Aquinas describes the modern situation quite well.
As for increasing age, I've already dealt with the abortion/infanticide issue in other posts. Abortion merely returns the infant mortality rate to its pre-Industrial levels. Meanwhile, the average age at death has increased to well beyond 70 years.
Everyone agrees on the demographic transition - the fact that fertility rates have been DROPPING since the mid-1800s. The entire population increase since 1800 is due to increased lifespan, not increased fertility.
Even the population control freaks agree on this. That's why they want the fertility rate below replacement. They foresee continuing increases in lifespan, so they aren't worried about short-term depopulation because world population will continue to increase due to increased lifespan until at least 2050.
Andrew, your problem is, you don't know the first thing about population demographics.
Nor does he appear to know much about either Aquinas or economics, particularly if he's suggesting Chris Ferrara as a guide.
Show me where Aquinas allows interest on a loan used to buy a house as you claimed, because the passage in the ST that you cited doesn't say that. It says the opposite, "To take usury for money lent is unjust in itself."
Steve, either you're reading comprehension is far worse than I ever thought, or you are being deliberatly disingenous. Paying interest on your mortgage is more then "renting your house" from the bank. If you have a 12 month lease from your landlord and pay $500 a month for your apartment, that is rent. The interest on a mortgage is something else. Under a mortgage you are paying for the house, and you are paying for the loan, which as Aquinas said is "unjust in itself."
Your argument that the meaning of money has changed so prior condemnations of usury no longer apply, can just as easily be used to claim that the definition of sex has changed and so prior condemnations of contraception don't apply today. You can use the same graph to support that false argument in fact. Say "sex" used to be primarily about procreation, but due to the "population explosion" it is now primarily about pleasure, therefore contraceptive sex is no longer bad, because "sex" isn't the same thing that it used to be.
Of course all of this is nonsense, just like your claim that preying on someone with usury is now an act of charity.
Your claim that poor people have a right to food also rings a little hollow, since in a previous post, I remember you claiming that poor people no longer exist, having been eliminated by the march of history like the sin of usury.
Sorry Andrew, but I'm confused.
Are you suggesting that the bank should not be charging interest on a loan or mortgage, and should just be giving money away, as long as you promise to pay it back (some day)?
I'm no economist, but the idea of a bank giving me $500,000 to purchase a house, on the condition i pay it off in 30 years, interest free, is a little unjust towards the banking system. What happens if I can't pay the loan off? They would have to sell the home and hopefully break even.
But what if the same scenario happened to 500 customers that had a mortgage with them? Where are they coming up with $250 million, and how can the bank continue to lend to people when they have to wait 30 years to get there money back, which, by the way, won't have the same purchasing power 30 years later.
And that's IF the customers can actually pay it all back.
Why would a bank even bother to take the risk?
Hello Michael,
Thanks for the questions. I think to begin with you are starting with wrong place to examine the problem. "How will the mortgage industry as-is, survive?" Is not the right question. The ends do not justify the means. We need to start with the question of what is right and what is wrong. The work the other way is something called consequentialism which was condemned by Bl. Pope John Paul II.
As you pointed out, if you don't pay the mortgage the bank gets the house. So they're risk is covered by the collateral. But wait a second, advocates of usury, say the interest is supposed to be covering the risk.
For most of human history a home has not been something that people go into massive debt for. I agree that if we outlaw usury, the practice of buying and/or building a house would have to radically change in our society.
If the bank doesn't think it can sell the house for $500,000 why did it loan you $500,000 to buy it? If the house is truly worth what you and the bank say it's worth, then there is no risk for the bank. They either get their $500,000 back PLUS interest. Or they get the house PLUS whatever part of the mortgage you did pay. They do not truly share in any real risk. In your scenario nobody is forcing the bank to make the loan. If it's not a good idea, then they shouldn't do it. While a reasonable profit is a good thing, profit is not the only motiviation for why people do things, so if those who need to borrow money to own a home, cann't do some from a commercial business, then perhaps they will be able to do some from some other entinty- family, Church, civic, etc.
If you're interested, I'd again recommend the two books I suggested, as well as a subscription to Culture Wars magazine, Anthony Santelli in particular has an ongoing series of articles on usury which are very informative. Pax.
I would think that even an honest banking system needs to charge interest so that it can they continue to loan out money to others that require it.
Whether there is risk to the bank or not, in that whether they will make there money back or not, is irrelevant unless they have what would seem to be an infinite amount of money.
You also seem to forget that this is not a perfect world. Putting aside human frailty for a second, what about the natural elements. If a bush fire or hurricane rips through a whole suburb, where will the money be coming from to pay for the repair or rebuild costs for the houses lost? Insurance?
What happens if someone couldn't afford insurance? And there is no money for rebuilding? Bankruptcy. The bank, who lent the $500,000, has now no recourse to getting it's money back.
This is a very really possibility, as seen all over the world when natural disasters strike; so there is plenty of risk for the bank.
Or what about the reason for deciding to lend out millions and billions of dollars. Generosity? Where did the money come from to begin with to be able to share it around?
And then add in human frailty, either that of the banker who, being in control of millions, has the opportunity to cheat somewhere along the line. And even the person being lent the money; there'd be opportunity for corruption along the line.
I understand that interest doesn't stop either of the above examples from happening, but at least the risk is minimised somewhat by making sure that the person lending out the money will be making something out of it.
If you're not in a business to make a profit, then why would you be in business for? That may sound unchristian from some people's point of view, but unless you make a profit, the business can't expand. And while some people only want to be self employed and make enough to survive on, unless all of society decided to be self employed, who is going to employ the rest of society.
In a word, I think Steve has explained very coherently THE Argument FOR capitalism in this post and comments, and in his link to his other post above, and in those comments also.
Your theory might be good, but in the real world, this fallen world, it's only a fantasy.
Andrew, if you can be kicked out by a third-party and they can take it away from you, you don't own it.
The Church has no problem with people making a profit.
I think this conversation is done. At least, I am finished with it.
"If the bank doesn't think it can sell the house for $500,000 why did it loan you $500,000 to buy it? If the house is truly worth what you and the bank say it's worth, then there is no risk for the bank. They either get their $500,000 back PLUS interest. Or they get the house PLUS whatever part of the mortgage you did pay. They do not truly share in any real risk."
Not only that, but the bank is not actually loaning money it has. The bank is just counterfeiting the money. When you take out a loan, that's what brings the money into existence. We literally rent our money at compounding interest.
Shouldn't a government create the money itself and spend it into existence for the common good, and keep careful transparent control of the quantity - as is presently done and has been done for the past two hundred years on the Island of Guernsey?
Instead the government "borrows" the money from banks at compounding interest.
So if the bulk of the money supply is borrowed into existence as an interest-bearing debt - that is, borrowed at compounding interest - then where does the money come from to pay the compounding interest?
Oh gee, I guess that has to be borrowed too - at compounding interest. Genius.
And yeah, that's where both father and mother having to work and still getting boinked in the ass comes in doesn't it? Because that's what a government "borrowing" its nation's money into existence at compounding interest does and essentially is: enslaving the productions of its citizens to ultimate sterility. Usury.
Usury - screwing people over since day one.
Greetings Steve,
I agree with you that the Church has no problem with people making a profit. In fact I said so in this thread.
I hope at some point you'll edit your original post to remove the claim that Thomas Aquinas says you can charge interest on a home loan, since he says no such thing. If you want to disagree with Aquinas, go ahead and argue why you're right and he's wrong, but don't falsely claim he says things that he doesn't.
Pax.
Sorry, Andrew. Reasonable people understand that what Aquinas says maps just fine. You aren't reasonable.
Aquinas says:
1. You can't charge interest on a loan.
2. You can rent your house.
You conclude that Aquinas says you can charge interest on a loan to buy a house.
So there are three possiblities:
1) You can't read very well.
2) You are purposely lying.
3) You're thinking has been so warped by the likes of Weigel, Novak, Fr. Sirico, etc, that your ideological bias is preventing you from actually believing that Aquinas actually means what he says.
There's no way for me to really know, but I'd guess it's #3.
If Aquinas actually says that you can charge interest on a loan to buy a house, why don't you provide the actual quote where he says that?
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