Usury: Thoughts on Changing the Church’s Ethical Teaching
I’m going to confess at the beginning that this is not an area of expertise for me. I did fairly well in Econ 100, but that was over a decade ago, and it was a bit of a joke class. Since then, the closest thing I’ve done to studying economics was to watch Niall Ferguson’s documentary on money.
But, despite my lack of training in economics, I do have a couple ideas about usury that I’d like to present to the readership here at Vox Nova. Furthermore, I do have some expertise in the nature and function of Church teaching and I’d like to explore that theme with reference to usury. I hope that my understanding of usury is not so off-base as to make my deeper point about the possibility of changes in Church teaching invalid. One good thing about blogging is that you can’t get away with much, so I’m sure I’ll get called out if I miss my mark. And I thank you in advance.
First of all, it is useful to look at usury because virtually every discussion about the possibility of change in Church teaching, at least on ethical issues, tends to come back to it. Even the most marginally educated Catholic is aware that Church teaching on usury has changed. The problem is that sometimes that’s all they know about it. This very often leads to the conclusion that any Church teaching on ethics can change because the teaching on usury changed and, furthermore, it can change in almost any direction I want it to.
This is an oversimplification. Now, I think those who claim that “Church teaching didn’t change, the nature of money changed,” are being a touch disingenuous, though only a touch. I think there was a genuine change, but it is important to note what kind of change it was. The Church did not decide one day (under pressure from usurious merchants, or because some “liberal” Pope got elected etc. etc.) to recognize the error of its ways and recant the previous teaching. Rather, in a new financial context (the grain of truth in the disingenuous claim noted above) the Church modified the application of a principle that it still maintained and maintains to this day, if not very loudly.
And here I come to my own thoughts on usury (and I am quite conscious that I may be showcasing my ignorance here): It seems to me that the moral and economic principle that is violated by usury is that one must not invent money that is not backed by anything of real value. If there is $100 worth of goods and services in the world and I lend you $10, demanding $11 in return, I have invented $1. Now the sum total of the value of goods and services is $100, but the amount of money on paper (or in cyberspace, or wherever) is $101. At this stage, there is only a very small problem, but this problem is compounded when several people make such loans. Things get tricky when the money on paper has less and less connection with the actual value of goods and services. Once we all owe one another $150 (or $200 or $300), but the value of goods and services is only $100, we have a problem.
It seems to me that this problem has three possible solutions, which I will present in extremely oversimplified forms.
First, the system can collapse. People stop trading with money because money, which is essentially trust that you can count, stops being trustworthy. Inflation runs wild and people are forced into a barter economy.
Second, we can forgive debts. Indeed, whether or not it was actually practiced, this is the solution in the Old Testament. Part of the Jubilee year was the forgiveness of debts. This resets the system so that the money on paper is now more commensurable with the actual value of goods and services.
Third, and perhaps ideally, people use the money lent to create something of value so that the value of goods and services increases alongside the value of money owed. The discovery of this third option was, essentially, the new information the Church needed to alter its teaching or, more accurately, the application of its principle. Inventing money that has nothing of value to back it can be legitimate when that money makes its own backing.
Those interested may want to check out David Palm’s “The Red Herring of Usury” and Thomas Storck’s “Is Usury Still A Sin?” to see more detailed technical descriptions of how this all played out historically.
Now, neither of the two authors I’ve linked to state the principle at stake the way I do. Their arguments are more complicated and I certainly do not pretend to have bettered them. Nevertheless, after reading both articles, I still believe that the basic principle I have articulated gets at the heart of the matter. And, though I am quite willing to be corrected if the principle I have articulated misses something, it also strikes me as a much simpler way to present the teaching to those with no background in economics. Indeed, I found that, though I can follow the arguments in Palm and Storck while reading the articles, I would have great difficulty explaining them in much detail to an interested party in a Q & A session or over beers.
My own articulation, however, strikes me as very amenable to such situations. Furthermore, most people today can see the trouble that comes from inventing value in cyberspace that does not reflect any actual value on the ground. It’s called a housing bubble. And when it burst, we solved it by a combination of systemic collapse (option 1) and forgiving the debts of the uber-wealthy (option 2, though quite the reverse of what the Old Testament was aiming at).
That the bubble inflated in the first place, it seems to me, was due to a failure of option 3. In other words, the money invented on paper did not actually make its own backing. This, it seems to me, is what was at play when the Church changed its articulation to a condemnation of exorbitant interest. Exorbitant interest is not a given percentage that is immoral, but rather interest that outstrips the money’s capacity to produce value. Exorbitant interest wrecks the system by creating more debt than value.
Now, it is entirely possible that I am missing something here. My lack of expertise in things economic may mean that I have articulated a principle that does not have the broad application that I think it has. It may, in fact, be the case that we must resort to arcane discussions of “mutua” and “fungibility” to explain the apparent change in Church teaching on usury.
But, whether I am correct or not about the exact principle at play for the question of usury, it is the case that any discussion about a possible change in Church teaching on ethical questions must start by identifying the principle underlying the Church’s current formulations.
It seems to me that, should Church teaching change on a given question, it will always be a matter of applying that underlying principle in new ways due to new information and/or new circumstances. It will not be a matter of the election of a progressive (or reactionary!) Pope, and it certainly won’t be a capitulation to the Zeitgeist of the age.
It is a fact of history that the Church has changed it’s teaching on ethical questions, but we must not extrapolate from that fact that everything is up for grabs. From this side of history it is virtually impossible to predict what will change in the future. Who, indeed, could have foreseen the economic developments that led to the shift on usury? What we do know is that the basic principles underlying the Church’s specific injunctions cannot change, even though the injunctions themselves can.
Anyone interested in the possibility of change in Church teaching must start at the ground floor: what is the basic principle underlying Church teaching in this area?
It is naïve to expect that the Church will simply flip-flop according to the spirit of the age. And thank God for that. A Church that accommodates itself to the age is a Church that does not outlast the age.
Brett Salkeld is a doctoral student in theology at Regis College in Toronto. He is a father of two (so far) and husband of one.
Comments are closed.
I think you humble yourself needlessly. You captured the spirit of it very succintly and very well.
Well Dan, I think you just signed up to share all the criticism about to come my way. Thanks buddy!
To quote the Fifth Lateran Council, usury is “when gain is sought to be acquired from the use of a thing not fruitful in itself, without labor, expense, or risk on the part of the lender.” The basic idea, I take it, is that you shouldn’t be profiting from an exchange unless you are actually or potentially giving something up in the exchange. The reason the Church’s teaching seems to have changed is that over the centuries the Church has developed a broader understanding of the different sorts of things a person might be giving up when making a loan. For example, there may be an opportunity cost to lending money in that if you hadn’t lent it you could have used it in the meantime for some other profitable purpose.
The problem with the analysis you set forth is that it seems to conflate usury with inflation (and conflates both with speculative bubbles). But these are distinct phenomena. For example, there was a famous case of a speculative bubble in holland several centuries ago involving tulips. People noticed that tulips had gone up in price and started buying them in anticipation of their increasing in price more. This extra demand for tulips caused the price to rise, which caused people to want to buy tulips even more, and so on, which created a speculative bubble. Nothing in that story involves any interest taking or loan making, however.
Similarly, whenever there is an increase in the money supply (by the Fed printing dollars in a fiat system, or prospector’s digging up gold under a gold standard) you will have money being created that is not backed by anything of “real value” so to speak. That will tend to decrease the purchasing power of all the pre-existing money; in other words, there will be inflation. So, to take your example, if the nominal value of all the goods and services in a society total $100, but there is $150 of currency circulating, one would expect the price of goods and services to rise until the total nominal value was $150. That may be good or bad, but it needn’t involve any interest charging or loan making.
Does that make sense?
BA,
What you say makes sense, though I still think my basic point holds. As Dan points out below, speculation is another way of violating the basic principle at work here. It pretends to create value where there is none, and that wrecks the system.
As to printing more money or mining more gold, I agree that inflation can occur in other ways than the one I pointed out. Sometimes we can complicate matters by printing more money in order to cover the increased debt-load, but that is nothing more than self-deception. The nominal value of a dollar is, in the end, not as relevant as the real relationship between money and value. Once there is more “money” than value, the system will seek equilibrium.
I think you are right that not all of this is usury per se. Nevertheless, I believe the principle I have articulated serves to demonstrate why usury is wrong as well as demonstrating why other related things are wrong. It’s kind of like how the Church’s insistence on the connection between unity and procreation in the sexual act explains not just the Church’s teaching on contraception, but a whole range of other teachings in the sexual arena as well. [I'm not interested in debating those teachings here, by the way.]
Does this make sense?
Brett,
If your principle suggests that speculation is wrong then that is a problem for your theory, as the Church does not condemn speculation (even the most strict of the scholastics allowed profit to be taken from a speculative venture).
While speculation can be a problem in certain instances, overall it tends to be beneficial. Speculation in commodities like wheat, for example, tends to make prices less volatile. Absent speculation, food would be scarce except at harvest time, when you would have a glut.
Now you could say “okay, most speculation is fine, it’s only when speculation causes a bubble that it is usurious.” The problem is that it is next to impossible to tell in advance when a speculative bubble is forming. Housing prices went up in the U.S. and then came crashing back down. Housing prices went up in Australia and have stayed up. You would have been hard pressed to look at the two cases before the crash and say that one was a bubble while the other is not. So the principle does not seem to be very useful.
A final note on the housing bubble. The Lateran Council says that usury is “when gain is sought to be acquired from the use of a thing not fruitful in itself, without labor, expense, or risk on the part of the lender.” Whatever you might think about the housing bubble, the problem wasn’t that people were making money off of riskless loans. The loans being made were in fact quite risky; if they hadn’t been, then there wouldn’t have been a crash. So I don’t really think usury can be the culprit here.
Hmmm, I wonder if my principle isn’t helpful here too? Under it, speculation as speculation would not be wrong, but speculation that is based simply on other speculation rather than what one actually expects in terms of real-world value would be.
Of course, there is room for simple human error, but I think the system is failing due to more than simple human error. It seems to me that things were intentionally convoluted to coerce others into error.
As to your last point on the housing bubble: I don’t think usury is directly the culprit, though I do think that the violation of the principle of which usury is also a violation is. The value on paper lost its relationship to the value in the world.
Should I start suspecting myself? Everything I read confirms my own theory. ;)
Brett,
I’m not sure I understand your distinction between speculation that is based simply on other speculation and speculation based on what one actually expects in terms of real-world value. Same goes for the value on paper vs. the value in the world.
People sometimes speak as if for something to have real value, you have to be able to drop it on your foot (so growing corn or building cars represents real value, whereas lots of services, included financial services, do not). I think that’s nonsense, and as a doctoral student in theology (who doesn’t produce anything of “real-world value” in this sense), I’m hoping you agree, out of crass self-interest if nothing else. :)
Agreed re: what counts as value. I think theology is a genuine service. ;)
I’m a little over my head, but it seems to me that one can speculate about a wheat crop in a perfectly legitimate way. On the other hand, it seems that speculation can be used in a that loses touch completely with the wheat crop and is only guessing at other people’s guesses. It seems to me that the further away you get from a good or service, the more likely a distortion enters the system. And such distortions will correct themselves eventually. If value has been artificially inflated, it will come down and someone (but not the rich) will lose a lot money.
Maybe you could tell me a bit about why you don’t see a distinction between paper value vs. real-world value? The distinction seems so obvious to me I don’t even know where to start. I mean, if I add $1 to a system that is really worth $100 without actually adding a good or service, you could say that I have just made the real value of a dollar $0.99 vs. the old system. The problem with that is that the guy who used to have $10, now has only $9.90. If I add $100 without adding a good or service, that poor guy only has $5. So, adding money to the system without adding a good or service steals from everyone. This is gonna cash out somewhere, and you can be sure the guy who loses the most when it does is the guy who started with the least.
It’s a little hard for me to explain why I don’t see the paper vs. real distinction when I don’t know what exactly the distinction is (I’m not saying I see the distinction but don’t think it is important; I’m really not sure what you have in mind here).
I understand the concept of inflation, which is what you describe in your second paragraph. It’s true that inflation can be a problem if it’s high or unpredictable. But I wouldn’t want to say that all inflation is wrong, as there is some evidence to suggest that a low and stable inflation rate may actually be beneficial.
There is a theory, coming out of the Austrian school of economics, that says the boom/bust cycle is the result of inflationary expansion by the monetary authority (in our case, the Federal Reserve). I believe Ferguson buys into some version of this idea, and while I haven’t seen the documentary you link to, I will boldly conjecture that maybe this is what you are getting at. My own view, FWIW, would be that the Austrian theory, while initially plausible sounding and appealing, is ultimately not correct.
I think slow and steady inflation would be a result of real world value almost keeping pace with the invented money. If the invented money is actually the cause of the increase in real world value that slowly follows it, that would seem healthy to me.
Brett,
If the increase in output (which is what I think you mean by real world value) corresponds to the increase in the money supply then you would not have any inflation. So, for example, suppose that the only goods in an economy are 100 apples with a price of $1 and there’s $100 in circulation. If the money supply increases to $101, but someone grows an extra apple (so that there are 101 apples total), then the price of an apple doesn’t change. To have inflation, the money supply would have to grow faster than the growth in the real economy.
Of course. That much is obvious to even me. ;)
“Slowly following” doesn’t imply ever catching up. But it does keep things within a reasonable range.
The basic idea, I take it, is that you shouldn’t be profiting from an exchange unless you are actually or potentially giving something up in the exchange.
This strikes me as a useful and succinct way of thinking about usury. It is narrower than my definition, which makes it better for some purposes and worse for others. In any case, I think it complements my principle nicely as a sort of concrete application to usury per se, whereas my principle applies to things beyond usury per se.
The basic idea, I take it, is that you shouldn’t be profiting from an exchange unless you are actually or potentially giving something up in the exchange.
I see this as incomplete, as it has the guise of a meaningless definition. In every circumstance, the lender gives up the opportunity to use said capital for something else, so no loan would ever fall under these provisions. If that is how the Church truly defined usury, then usury is a toothless concept fit for the scrapyard.
A clear way of presenting it.
———
Beware of proposed “non-usurus” schemes, they do not have a stated interest rate, but often when you convert it to the effective interest rate the borower paid a very exorbitant price.
I think the focus should be on charging an exorbitant price for the loan which can be done without stating an interest rate.
The teaching on usury hasn’t changed; see the Catechism at 2449 and the Compendium at 323 and 341.
My view is that this depends quite a lot on how one is defining “change.” As I said, something changed, though it may be better to called that something an application of a principle rather than an ethical norm.
I’d like to take this a step further and provide some insight into the moral nature of modern loans.
To further generalize, the Church’s ultimate premise is that the demands of justice be met in any transaction. In the case of a loan, it is both to ensure that money is backed by something of real value, and to ensure a just transaction for both parties; that the lender can receive reasonable profit for their risk, and that the borrower can repay the obligation through reasonable efforts. The former ensures justice in a natural sense, and the latter ensures justice in an interpersonal sense.
As the Church’s understanding of money became more complete over time, it became clearer that a personal loan is very different from a loan for business reasons; the former is an act of charity, in which case no interest should be charged. The latter is a joint decision where the risks are understood and shared between both parties; capital for the lender and labor for the borrower. A different set of rules applies to each, because the demands of justice are very different between an act of charity and a morally neutral joint venture.
Now, getting around to my point, there is a further shift when generalizations begin to appear, beginning with the emergence of professional lenders who offer loans as products. The requirements of justice remain constant, but now the liability shifts from the lender to the borrower. The lender’s responsibility becomes simply to ensure just underwriting guidelines. The moral onus is on the borrower to satisfy the remaining requirements of justice: they must ensure that they can both create actual value from the proceeds of the loan, and that they are capable of avoiding complete ruin in the case of default.
Under these principles, a few clear economic principles emerge:
1. Leveraged investing is evil. It is a violation of the requirement of justice that real value be created from the proceeds of a loan.
2. Speculation is evil. Speculation is a violation of the requirement of justice to create real value, relying on profit from purely artificial value through manipulation of demand.
3. Public stock markets are like a room full of naked women – morally neutral, but an occasion to sin. Regulations are in place to ensure that buyers can satisfy the needs of justice; high reporting standards of listed companies are in place to ensure that anyone can do their homework before investing. For those who invest in a public company to partake in the actual value created, it is morally fine. However, most people “play” the stock market, worried only about share price and less about the underlying value created by their portfolio companies. This is next of kin to speculation and is immoral.
The last two are related more to investing than to borrowing, but at this level of generality they share the same moral genus, so I thought I would include them.
As the Church’s understanding of money became more complete over time, it became clearer that a personal loan is very different from a loan for business reasons; the former is an act of charity, in which case no interest should be charged.
This is not an accurate statement. In fact, the position that you can charge interest for business (i.e. productive) loans but not for personal (i.e. consumption) loans was formally condemned in the encyclical Vix pervenit (see here).
Fair enough. I think I my use of the term “personal loan” is misleading, but I wasn’t sure how to express it. Essentially what I am getting at is if a person is in need, it is immoral to profit from his situation.
“For those who invest in a public company to partake in the actual value created, it is morally fine.”
Uh….. maybe. In our current limited liability system, I can invest $10,000 in a company and that is the extent of my exposure. If that company were to do tens of millions of dollars in damage to other people’s property, I would only be on the hook for $10,000 while my chance at profits is somewhat unlimited.
Sounds like…..usury!!!
Continuing from above, I’d like to tie this back to Brett’s point about the housing crisis:
The moral liability shift from lender to buyer becomes more pronounced at even deeper layers of generalization. Loans become portfolios. Portfolios become derivatives. As long as the actuarial analysis is sound and proper diligence is done when constructing said portfolios/derivatives, the lenders have satisfied the requirements of justice. It becomes the moral onus of the buyer to understand what they are purchasing, and to ensure said portfolios correspond to real and not virtual value.
Now, it’s not that such loans are intrinsically problematic. It’s that, the more complex the loan becomes, the more onus there is on each party to ensure diligence is done to satisfy justice. The problem is, this becomes extremely difficult in practice, as these types of commodities become so complicated that it is unlikely that the lenders can do the proper diligence required to satisfy justice (e.g. the toxic bonds of the housing bubble), and it is a virtual certainty that the buyers aren’t sophisticated enough to satisfy the requirements of justice that said portfolios/derivatives are creating real value.
As these financial products become further and further abstracted from reality, the temptation exists to perceive them as having intrinsic value rather than purely an aggregate value (i.e. to see them as the product, rather than an aggregate of all the real products they represent). This is a breeding ground for the ultimate sin against justice: greed. Greed is the beer goggles of the financial world. You fail to see things as they are, and only perceive the superficial. It’s only when you wake up the next morning next to Bertha that you realize your peril.
The housing crisis would never have occurred had proper diligence been done. The problem is that greed took over and diligence disappeared. Lenders sinned against justice not by the interest rate, but by issuing loans to people who had no means of repaying it, then compounded the sin by creating junk bonds, thinking they could hide them away in a derivative. Borrowers sinned against justice by taking out a loan they could never repay, against a house whose real value was far lower than the artificial value they were creating in the marketplace.
Financial crises arise when the world operates on the abstract rather than the actual. But the party has to end, and the virtual world disappears when the Nintendo gets shut off. Those who stuck around to drink the kool-aid will be left staring at a blank screen with a dead controller in the hand.
Dan,
These two comments are quite helpful. Thank you.
There, that should sufficiently deflect any criticism of your post. My work as a lightning rod is now complete. Flame away, flamers! :)
The notion that the economy is to be reduced to a zero sum value is a return (at least in some sense) to mercantilism. We would see a near collapse of the entire order of the economy. I like that you are trying to figure out a solution to the problems we have today in relation to usury, but I am personally clueless as to how to fix it.
It seems to me that there can be some flexibility in the system. If there is $101 on paper and $100 on the ground, no one is going to take the brunt of it too badly. We don’t need to calculate the actual value a given loan can create in order to determine the interest to charge on it. As long as we are within a reasonable range, things should work out. The problem, it seems to me, is that we left such a reasonable range a long time ago.
As to being clueless, count me in. Something in me knows that just opting out of the system and becoming a bartering farmer won’t fix it, but I’m sorely tempted.
I’d be wary of saying that the teaching on usury has changed, even if the Church (somewhat bamboozled, it would seem, by the complexity of modern economics) has gotten very QUIET on the matter.
Of course, there is a question as to whether all “interest” is “usury,” it seems that “fees” to cover administrative costs and the risk of default would not necessarily fall into the category of “charging for something and the use of it.” Treating money as a commodity in itself, however, and “selling Time”…is another matter entirely, however.
Have you seen the “Money as Debt” videos?:
Or the intro to the question of social credit from the Michael Journal (only the first 6 of the “lessons” are really important for understanding)?:
http://www.michaeljournal.org/10lessons.htm
Usury is alive and well in the world, is the basis of our entire economic system probably (and the basis of all its faults), and there is and always was a better (and moral/ethical) way than usury to deal with the same “problems” that evil capitalist economists claim it was “necessary” for in order to make progress.
If you read the social credit articles (and I HIGHLY recommend it; I really think if more ‘Vox Nova’ types knew about social credit, it would help them articulate a critique of the current system that didn’t just amount to ‘tax the rich’ socialism, as one sees so often from y’all)…you’ll see the problem with usury is, indeed, something like the fact that money is invented (as debt), and invented by private individuals/corporations.
Basically the problem is that we’ve tied production to finance rather than the other way around. If the production capacity exists, its use shouldn’t be limited by “money”…take the so-called housing bubble: it is simply absurd to say we spent “beyond our means” when the houses all, in fact, DID GET BUILT. So, obviously, we DID have the production capacity to build them (and, obviously, there were consumers who wanted them!) So…there should be no problem! What’s physically possible should be made financially possible!
The problem is that, every year, the prices of goods and services produced…will always outstrip the money paid into the market (as wages, previous profits, etc; saving only adds to the problem). If the World spends 100 dollars (on wages, raw materials, etc; it all, ultimately, winds up in SOMEONE’S pocket) making goods it will charge 105 for (and it only ever would; why make the goods if there won’t be a profit?)…that leaves 5 dollars (the new value created) that simply can’t be paid for. A cannot pay for A+B.
The “solution” is, currently, private credit. The 5 dollars are covered by new money loaned into existence at interest to cover the “gap” in money supply. The problem is that increasing the money supply (which IS necessary) AT INTEREST…leads to a perpetual cycle (because 105 dollars can’t pay back a loan of 106 dollars unless even MORE new money is loaned into existence at MORE interest).
In reality, of course, some authority could just declare enough new money, interest free, into existence to cover the increase in total value each year (and the value is always increasing; the production of new things vastly outstrips depreciation; just think: every new building that is built will be there for a hundred years, probably!) We’re living in an age of abundance, and the only problem is distribution and finance. It’s insane.
Could you say more about these “Vox Nova types”? I’m curious. Really, I am…
Sam
‘tax the rich’ socialism
Socialism?? So, now words just mean what we want them to? Hey, let me play:
A Sinner, in propounding Nazi positions that reek with fascistic tyranny, puts forth extremist ideology that advocates slavery.
Better yet: could you define what you mean when you use the word “socialism” in a sentence? To me, that’s become a meaningless smear-word: raising taxes on rich people vaguely resembles things done by a group of people that includes Stalin, and he was a socialist, and he killed millions and Won’t You Think Of The Children??
I think everyone would recognize, now, a difference between communism and socialism. I never said people at Vox Nova were communists. Socialism, on the other hand, is the sort of thing that exists in much of Western Europe (and especially Scandinavia) currently, and almost admittedly so. The salient feature of such a system seems to be RE-distribution of wealth through governments intervening in the economy in a variety of ways via its coercive power.
almost admittedly so. The salient feature of such a system seems to be RE-distribution of wealth through governments intervening in the economy in a variety of ways via its coercive power.
C’mon, A Sinner – by that definition, almost every government since forever is “socialist.” The only non-”socialist” government would be something out of the fevered, desolate mind of Ayn Rand.
Almost all governments are. “Socialism” is a matter of degree, no?
My grandfather was a huge proponent of social credit in Canada (I think he came within one vote of being elected in the 50′s). He actually wrote a book called Billions for the Bankers, Debts for the People, which teaches exactly what you’re talking about above.
He was shamelessly plagiarized by some yahoo named Shelden Emry. The entire book was copied, artwork and cover and all:
http://liberty-tree.ca/research/Billions.for.the.Bankers
it is simply absurd to say we spent “beyond our means” when the houses all, in fact, DID GET BUILT. So, obviously, we DID have the production capacity to build them (and, obviously, there were consumers who wanted them!) So…there should be no problem! What’s physically possible should be made financially possible!
Amen.
We’re living in an age of abundance, and the only problem is distribution and finance. It’s insane.
Again, I say to you, Amen.
But then it’s all absurd to say that we need to “create jobs” or fight “unemployment.” As the Social Credit article says:
“To speak of full employment, that is of universal employment, is to make a contradiction with the pursuit of progress in the techniques and processes of production. New and more perfect machines are not introduced to tie man to employment, nor are new sources of energy tapped for this end, but rather they are brought into production for the purpose of liberating man from work.
But, alas, we seem to have lost sight of ends. We are confusing means and ends, we mistake the former for the latter. This is a perversion, which infects our whole economic life and which makes it impossible for men to enjoy the logical rewards of progress to the full.
Industry does not exist to give employment, but to furnish products, goods. If it succeeds in furnishing such goods, then it has accomplished its purpose, met its end. And the more completely it meets this end with the minimum of time and the minimum employment of human hands, the more perfect it is.
Mr. Jones, for example, buys his wife an automatic washing machine. Now the weekly wash will take only a quarter of the day instead of a full day. When Mrs. Jones puts the clothing in the washing machine along with the soap, when she turns on the taps bringing in the proper mixture of hot and cold water, she has nothing more to do except to turn on the machine. The machine washes the clothes, rinses them, and then stops automatically when the clothes are ready to come out.
Is Mrs. Jones going to bemoan the fact that she now has more time to do what she pleases? Or is Mr. Jones going to search for another type of work to replace that from which his wife has been freed? Certainly not. Neither one is that stupid.
But we do find such stupidity running rampant in our social and economic life, for the system makes progress penalize the individual, instead of bringing him relief, in that it persists in tying purchasing power, the distribution of money, to employment and employment alone — employment in production. Money comes only as a recompense for effort and labour in production.
It is true that production distributes money to those who are employed in the work of producing. But this is as a means, and not as an end. The purpose of production is not to supply money, but to furnish goods and services. And if production is able to replace twenty salaried individuals by the introduction of one machine, it has not in any way thwarted its true purpose. And if it could furnish all the production necessary for humans, and not distribute one cent of money, it would still be meeting the end for which it exists: to furnish goods and services.”
it is simply absurd to say we spent “beyond our means” when the houses all, in fact, DID GET BUILT. So, obviously, we DID have the production capacity to build them
We promised to pay people if they would build houses for us. They built them. We couldn’t pay. They are now unemployed.
That’s an oversimplification, but there’s enough truth in it to show the flaw in A Sinner’s line of reasoning.
If you eat a meal at a fancy restaurant that you can’t afford, this doesn’t cease to be living beyond your means because you dine and dash. Someone else still ends up getting stuck with the tab.
As individuals we certainly live beyond our means, but I think A Sinner is right to point out that the resources are there to house and clothe and feed people, if we only had a system that got resources into people’s hands. It is an obscenity to live where I live and watch people driving cars worth 6 figures past the homeless shelter.
We get told that the problem is a lack of resources. But the world has plenty of resources. We just haven’t figured out a way to distribute them. We waste enormous amounts while others starve.
It’s NOT that there aren’t enough resources at the other end to get the people who built the houses what they want. There clearly were; the money coming from the mortgages was facilitating the flow of plenty of goods in that manner. The only problem was a “financial” collapse, completely on paper. The goods were all there, the production capacity was all there. Unless there was a sudden depletion of natural resources, or huge numbers of people died of some plague…the production capacity for stuff was all still there, as high as ever. As long as production capacity remains physically as abundant (and it almost always does)…why should there EVER be a periods of “economic decline” in our world of abundance?? There shouldn’t be.
Brett,
I have a book recommendation for you.
The book is Economics without Illusions by Joseph Heath (the Canadian version is called Economics for People Who Hate Capitalism). Heath, is a philosophy professor at the University of Toronto, student of Charles Taylor, expert on Habermas, and I think it’s fair to describe him as left of center. But he does a good job in the book of explaining some common economic errors of both left and right. (I’m not saying you are committing any of those errors, btw).
I’ve heard of this guy. I think I saw an interview somewhere. Thanks for this. I’ll check it out.
I support A Sinner’s general viewpoint, but social credit doesn’t solve the bubble problem. Bubbles have nothing to do with interest. Bubbles are created when the supply exceeds the demand, but the value attributed to the supply remains constant (or increases) while demand decreases. This delta is the cause of the collapse. It wasn’t the interest on the loans that caused people to be evicted from their homes – they weren’t able to make payments, regardless of whether those payments were interest or principle. They bought beyond their means.
Likewise, housing corporations didn’t look at the actual demand, but simply kept building houses and driving prices up without stopping to think whether the average income relative to the population density made sense. There was no sustianable demand, but they increased supply. Speculation destroyed the world. All the while this vicious cycle being enabled by the lenders – not selling enough mortgages? That couldn’t possibly mean demand has dried up! Why not create artificial demand by giving mortgages to people who have no business actually getting one? Then the developers will sell their unsold condos, I can sell off the toxic debts to a stupid investment broker who will bundle it with some good ones, and the cycle will continue, stronger than ever!
Social credit can’t solve the problems caused by greed and speculation.
And yet the houses got built. Using labor and resources that presumably would have just SAT THERE otherwise. Seems silly.
That’s the crux of the flaw in your argument. Resources don’t just sit around – they get allocated according to demand. In a healthy economy, resources are allocated across the spectrum, where production and consumption are harmonized. In the housing bubble, resources were wasted building houses nobody wanted. Look at the number of unfinished projects, and the incredible vacancy rate in many of the high rise condos that were built based on artificial demand. Just because we can produce doesn’t mean we should.
So the proper question is, what didn’t get built while said resources were being allocated to building houses nobody wanted?
I’ve thought that, Dan, but then you realize: contractors aren’t necessarily good at anything. Lumber and screws and nails aren’t necessarily going to be used for anything else. So much of these resources simply wouldn’t have been used, because production capacity is not at all 100% liquid or interchangeable. House-building stuff and people…are good for building houses. As for inflated demand…we have people who need the houses. It seems foolish to have house-building resources and house-wanting people…and not to pair them up. We can argue about whether the people want the houses ENOUGH to justify giving other resources (like food, clothing, etc) in the form of payment to all the house-builders…but given that crops are routinely dumped into the ocean or burnt, I don’t think there is really a shortage of that sort of thing…
Just out of curiosity, can you give a link to show me the practice of dumping crops into the ocean. I am scandalized. That, and as someone who plans on bringing up the fertility rate, it’d be nice info to have handy for my detractors.
But (a) contractors can also build more than houses, and (b) people tend to follow the money when choosing their careers: if there’s a housing boom, you get more people training to become contractors. If the boom is illusory, people are setting themselves up to be unproductive when the bubble bursts; high unemployment ensues, and the fruits of their labor remain unused. It’s very wasteful.
If we are speaking purely of production and consumption with no eye towards compensation, then what you say is absolutely true. But we all know that people don’t work for free. If the market value of their labor does not equal or exceed the value they place on their labor, then no production capacity actually exists.
Don’t confuse potential production capacity for actual production capacity. They’re worlds apart. In the potential world, the drawing on the back of my napkin for a widget to build cheesecakes is equivalent in production capacity as the unemployed baker.
I have to say that the contortions required to maintain a sense of changelessness at a certain level remind me of Ptolemaic epicycles….
Can I ask who you are referring to?
I hope not me. ;)
Not to anyone, just to the efforts to pretend that X Never Changes, a pretence that is driven by pre-emptive action to avoid being termed a Modernist, a term that itself is riven with a lack of coherence.
If the Church has changed on this question, then this is one question on which it would do well to change back:
As it is, I don’t really think the Church on the level of official teaching ever really fell into heresy on the question, it just was cowed by powerful capitalist forces into getting negligent about proclaiming it.
Funny thing that most of the countries accused of being ‘socialist’ – particular the Scandinavian ones and Central Europeans like Holland and Germany are doing much better than the glorious capitalistic U.S.A.
The system in this country is set up to be a fantastic deal for all those that do have the luxury to receive ‘income’ from investment returns – the average salary employee on the other hand gets less and less for the pleasure of paying higher tax rates than the superrich. Go figure – the power of lobbying.
One of this days this will come up in a big way politically I truly believe.
But it is funny how particular folks from the political right shamelessly utilize the general ignorance of most regarding truly understanding foreign far away places.. You can get away in these circles with implying that Scandinavia is a just terrible place to life – when the opposite is true.
Oh well
I haven’t seen anyone here imply that socialism has made Scandinavia a bad place to live. Just that the prosperity of the West in general is based on exploitation of the Third World (also accomplished through usury, mainly). Socialism can produce good results and still be unethical. I would hardly consider myself on the Right just because I’m not on the Left.
Just out of curiosity, can you give a link to show me the practice of dumping crops into the ocean.
I would also be interested in seeing evidence of this practice (assuming it exists).