The Price of Time: The Real Story of Interest
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But looking from the point of view of the one who loans the money, without interest there's only risk and no reward. I mean like when I'm lending an amount of money to someone with no interest, all I can hope is that they might repay them back (uncertain). And most likely I'll have to go through the trouble of incentivizing them to return my money, another cost on my side with no benefits since I can only hope to get back what I already had. So I have some money now, lend them and temporarily lose them, then go through great lengths of effort and stress to get them back and at the end all I can hope for is that I'll have what I already had. Probabilistically this is a certain losing position, by pure statistics some money will get "lost". I'm locking myself into a loss.
Really as a loaner, how do you justify lending money with no interest? What's in it for you?
Charging for interests means that you are making profit of others poverty want want. This gives you incentive to promote desperation and desire.
If you lend w/o [edit]interest[/edit], you won't encourage lavish spending, but encourage a solution to the root cause of the poverty, so that you won't have to do it again? Instead you'll be promoting good, which a lot of people like doing just for the sake of it.
This is why Christianity and Islam forbade usury.
Sorry if this comes across as facetious, but do I really have to spell this out, are you human or an AI?
[edit spelling]
Well go ahead and lend them poor people your money to buy food. There's no shortage of such people in every area of the globe, including where you live.
Do you do that? How much money do you give consistently, on a regular basis, to someone in need? I'd wager zero, but of course, it's easy to preach. For your information I do give regularly quite a consistent amount by myself on top of the =~ 50% the state rips of from me in taxes, most of which go to social security. There's never enough supply of free give as there's demand for it.
>> This is why Christianity and Islam forbade usury. >> Sorry if this comes across as facetious, but do I really have to spell this out, are you human or an AI?
Well that was before capitalism was a thing. Again, I urge YOU, not "the rich" or "others" to practice what you preach.
>> Do you do that?
I also happen to believe that if you do good deeds it's better to keep it to yourself. As to not promote inflated egos.
My point isn't that me personally would be a fantastic person who is a saint, which I'm not but rather that usury has negative effects, which doesn't really have anything to do with whether I'm a person that reaches your standards or not.
>> How much money do you give consistently, on a regular basis, to someone in need? I'd wager zero, but of course, it's easy to preach.
Are you misrepresenting my argument on purpose? I was talking about the drawbacks of usury here, not about the benefits of giving gifts. Isn't that obvious?
Regardless, wouldn't it be better to teach a man how to fish, so to speak? My aim with helping people wouldn't be to put them into perpetual dependency upon, me to give others the impression, that I'm a very generous man, but rather to _actually_ help them out of their situation, does that make sense to you?
>> For your information I do give regularly quite a consistent amount by myself ..
Good on you, I'm happy to hear that!
>> on top of the =~ 50% the state rips of from me in taxes, most of which go to social security. There's never enough supply of free give as there's demand for it.
As far as your views on taxes, we're probably more or less in agreement on that subject!
I mentioned something tangential to that here "...but encourage a solution to the root cause of the poverty...". If I lend money to someone, w/o benefiting or being able to take something in return, it would be in my interest, to steer him away from bad decisions, thus making life better for him or her, given that he or she wants to do that.
If you let me elaborate, I see one of the benefit of donations from individuals and organisations as being that it would encourage a solution to the root cause of the poverty, (through the individual being grateful to an individual instead of seeing themselves entitled to income), rather than having a socialist government opening up an infinite poverty hole, that'll only grow the more you feed it.
>> Again, I urge YOU, not "the rich" or "others" to practice what you preach.
What I was "preaching" in this instance was not to commit usury, not giving to the poor, which you seem to be a bit confused about, and I do not do that, so you don't have to worry about that.
A lot of muslim countries have 0% APR by law, so the statement that that was before capitalism isn't really true?
"Lends at interest, and takes profit; shall he then live? He shall not live. He has done all these abominations; he shall surely die; his blood shall be upon himself.." -- Ezekiel 18:13
“If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him.
-- Exodus 22:25
"You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest."__
-- Deuteronomy 23:19
Did they change the bible when capitalism was introduced?
I'm not a theologian, perhaps you have studied the bible more carefully than me, and can tell me if there is a broader context that would give a different view that I'm missing here, if that's the case please enlighten me, but this seems quite clearly against usury to me.
many more here: https://www.openbible.info/topics/usury
Can I go out on a limb here and assume that you see yourself as a christian?
) If this habit was generally frowned upon, we wouldn't have as many self-appointed saviors who'll for instance rip you off in the form of taxes
seriously...you are out of touch of reality and humanity...money has enslaved you and others...that is why you should get rid of it....
You forgot: "... and give them to me!" LOL :)
Bitcoin and the like might be a possible exception of course.
Let's not confuse commerce and charity, and within commerce let's not confuse lending with usury. Charity is gifting money with no expectation of anything in return, lending is temporarily transferring money for a mutually beneficial purpose, while usury is extortionate and exploitative. I would have thought your example of a starving person would come under old fashioned charity, but if not then lending isn't necessarily unreasonable.
If you're not allowed to profit from lending, very few people would lend money for luxury goods, for instance.
It's one example of when someone would want to lend w/o interest.
Yes you might not be poor and want to build a house, what does that have to with whether there is a point for anyone anywhere to lend without taking interest?
On the other hand, if I'm loaning someone money, it's almost certainly related to some commercial venture, and I reasonably expect to be paid for the risk I'm taking with that person.
I wouldn't say it's lying, it's more like accepting the risk that you won't get it back.
> On the other hand, if I'm loaning someone money, it's almost certainly related to some commercial venture Would you loan maybe family or friends money for something that would be good for them lets say an education? Or would you support the government doing the same?
Some people would refuse that out of pride, so you might as well spare their honor and lend it to them in some cases, but yeah sure.
> On the other hand, if I'm loaning someone money, it's almost certainly related to some commercial venture, and I reasonably expect to be paid for the risk I'm taking with that person.
Wouldn't a more appropriate instrument for investing in a commercial venture be to buy shares in their company?
Creditors DO provide a service and interest rates exist on a sliding spectrum. This is just a debate over math and magnitude.
How is this different from interest? It's precisely what interest is. So phony.
Reminds me the old story about ultra-orthodox Jews who are prohibited by the Talmud from working or traveling during Shabbat (Sunday), except travel on water. So what they did when they needed to take the train on this day? They'd carry a basin and a bottle of water with them, seat down, take their shoes and socks off and put their feet into the basin then pour the water from the bottle in it. Voilà, commandment obeyed, traveling on water! No interest!
Also see special jew-elevators with a Shabbat-mode so that they always go up and down by every level so that you can use them without operating them, meaning that you can take the elevator on a Shabbat without tricking a gentile into pushing the button for you (1).
I was under the impression that Shabbat was on a Friday or Saturday. (nitpicking of course).
(1) So that they can go to hell instead of the jew, or whatever?
> So that they can go to hell instead of the jew, or whatever?
Anyone who follows https://en.m.wikipedia.org/wiki/Seven_Laws_of_Noah is an OK chap apparently, probably not as cool as a Jew but I guess not to burn either? Shabbath stuff is only important if you are a Jew.
> meaning that you can take the elevator on a Shabbat
If you are really strict and not disabled you would not use elevator even with this workaround.
> I was under the impression that Shabbat was on a Friday or Saturday
Outside of Israel some places switched to Sunday because otherwise too few people care.
If it's about putting someone through education, then maybe it isn't about immediate short term financial gain.
Obviously you are correct that someone trying to make profit by lending will need to charge more money than they lend in a way or another.
My point is that if you have people out to gain profit from lending people money, they would wan't people to want things that they don't necessarily need.
Of course for this to work out you need a relatively static society. Which was the case for several thousand years (in that time almost everyone was disrupted by some war or other disaster and so some family ended up overall a winner, but for most it was the safe bet)
That is an extraordinary claim.
If government set or controlled allowable interest rate or set it to zero there would be no business cycle? The downturn in 2020 was caused by interest?
When money is free, it leads to very destabilizing dynamics such as elevated PE ratios and currency volatility.
You mean like... now?
Banks, non bank financial institutions and individuals are free to choose what interest rates they set, to set interest rates for a sector they thinks is at risk well above market levels or to cease lending activity altogether. The fact they choose to lend at low rates is because market participants are pretty bad at predicting the future and market dynamics encourage cutting credit prices, not because the government forces them to lower rates (it doesn't)
And the reality of banking timescales is that a shortage of capital available at a price isn't a nice little hint to change lending activity, it's a signal that since they can't borrow any more to meet obligations they'd best stop honouring depositors' withdrawals. Which is why we have central banks stepping in to make capital available, and before they did that we didn't have stability, we had a lot more ordinary people losing their savings to bank failures and more volatile business cycles.
Yes, the base interest rate acts a floor on interest rates (individuals and banks are entitled to choose to lend below the Fed funds rate. It just unprofitable to do so. It would be even more and profitable to do, so if the Fed didn't exist). They don't set a ceiling on it, so market participants do choose their own rates, and are entirely free not to get their risk assessments wrong and lend at too low a rate (which Austrians claim to be the primary driver of business cycles). The herd behaviour to lend money at low markups above the base rate is a problem of market dynamics, not a problem of lack of market freedom.
In the absence of central banks, the banking sector still competed to lend at the lowest rate, was not blessed with any more insight into whether a particular industry had too much capital flowing into it or a particular loan was a bad one, business cycles were still a thing and banks went bust more often.
Perhaps a better society would have higher employment, perhaps a better society could afford for one spouse to stay at home and take care of the kids, perhaps a better society would have lower income disparity, perhaps a better society would have more innovation, perhaps it would have more ecological conservation. It's impossible for a single economic lever to square the circle on all of those outcomes for everyone.
Free markets are "one dollar, one vote", as compared to government which is (nominally) "one man, one vote".
The other half of your premise is also completely mistaken. Voting power is not linear in number of votes you get.
But interest aside, the activity of lending itself exacerbates boom/bust because people depending on the money lent out coming back to them are at a higher risk of default, and if they default, they put more people at risk...
If anything the generic austrian stance too generous. Their knee jerk anti state stance leaves some weird window of the state being able to manage things if it were only smart enough.
Centrally planned economies tend to be "simplified" by placing strict restrictions on what types of trade are allowed. Can't have people behaving unpredictably!
The point is, markets should be more independent of the state for other reasons that have nothing to do with any given outcome. (Though I'd claim that some subset of desired outcomes, like income inequality reduction would still come to pass).
Government meddling does make it worse. Governments fighting the business cycle is perverted and should not be the task of government. Paul Volker rediscovered the business cycle and wrote a book about it.
https://archive.org/details/rediscoveryofbus0000volc
Interest rates naturally vary across time, space, lenders, and borrowers. Leave rates to the free market and have government enforce anti-discrimination.
Who would be more efficient at pricing money: the market or the government?
This is an oversimplification. Credit is the main endogenous source of business cycles. But there are exogenous shocks, too, like droughts.
Taking oil as an example, he illustrated that demand growth is very stable, effectively indexed to continous GDP, but supply is very 'lumpy' & because oil sites (& even oil states) tend to go online/offline in discrete steps.
The same phenomenon applies to metals, agricultural goods and other fuel sources.
Unfortunately I can't find the Youtube clip of this interview
> the existence of interest is what causes ups and downs in economies
You arent even making as extreme of a claim. You’re saying interest rates and business cycles are linked. Not that interest rates are what cause ups and downs in the economy. Think about it: if that were true, and we removed interest rates, the economy couldnt go down? Its an absurd claim.
And it's easy to verify. Look at the business cycle in the US before and after the creation of the Federal Reserve, for example. Under the Fed, we had the Great Depression and 2008, and relatively mild recessions other than that. Compare that with the 19th Century.
An interesting alternative to consider, is money that intentionally depreciates value at a fixed rate ("demurrage" [1]). In theory, this would incentivize lending at zero interest (assuming relative price stability for real goods, which is easier said than done).
This is exactly property of coins (gold, silver or copper). Even without debasement (like clippage) they were loosing value as they were worn out as a result normal usage. Money changers were exchanging worn out/damaged/clipped coins at current market value minus some comission.
Jesus apparently didn't appreciated that a Jew coming from say Alexandia or Gallile had been bringing a bunch of coins of different origin, issuance, often clipped or destroyed by use... Charging 4-8 percent (kolbon) for exchanging used and foreign coins into new shekels required by Temple wasn't excesive. It is on par on charges for foreign purchases by today's banks.
Temple services (purification, healing) were on the other hand prohibitively expensive while Jesus provided them for free...
Historically there were many Jewish people not happy about this happening in the temple. I doubt Jesus was the only one driving them away from time to time, they just kept coming back to the temple.
The rest of your post is just made up based on trying your best to interrupt things in the worst possible light it is not more reasonable than believing anything else.
It's not made up. It's just modernized. And he was 12 according to NIV
* https://en.wikipedia.org/wiki/Opportunity_cost
We tend to focus on lending money for commercial purposes, but in the ancient world most folks were probably peasant farmers, and they generally needed to borrow / be lent to because the crops failed: charging them interest in their hour of need would be against the virtue of charity.
You borrow from the landlord, the rich or the bank, to pay for seeds, fertilizer, machinery, energy, labor etc and pray you don't get hit by weather, pests, disease, market price fluctuations. If all goes well you pay it back.
If it doesn't govt steps in, to the keep you(ie the banks and rich people) afloat. See the size Farming Subsidies and Protections world wide.
When they don't step in farms shutdown.
Aristotle called it the "unnatural birth of money from money".
Religions who ban usury (now or in the past) only did so for "one's own kind", sometimes leaving theological ambiguity as to whether you are allowed to charge those of a different faith. We might call it hypocrisy.
To Artistotle, we would say today that his notion of the "barrenness" of money is illogical - other assets that don't bear "offspring", such as houses and land, could generate rent, so too could money.
Aquinas also does not seem to mention being rewarded for risk in a commercial/investment venture (AFAICT):
Of course, Ezra Pound was a proper and proud fascist.
Not the case for islam, it's banned for all, regardless of being an 'in-group' or 'out-group'.
And the closest financial instrument similar to charging interest that's allowed is basically the lender buying it and selling shares of the thing to you at a markup with installments, meaning that they are sharing the risk with you.
Islamic banking has provided several workarounds to accommodate financial transactions without charging explicit interest.
In a Malthusian economy, i.e. zero real growth, a condition which characterizes most of antiquity, this makes sense. Rulers borrowing to take a calculated risk usually meant conquest, i.e. violently taking others' stuff.
The economic and moral calculus changes in a positive-sum game, where risk can increase the size of the pie for all. So some of this variance may be explained by whether the thinker lived in a stable or growing era.
> other assets that don't bear "offspring", such as houses and land, could generate rent
Financial yield traces its roots directly to crop yield. (The grain markets in Ancient Rome are a great example of markets working without stable conceptions of money and banking [1].)
[1] https://www.cambridge.org/core/books/grain-market-in-the-rom...
A car need to be consumed in ordinary use. There are people still driving the car they bought new in 1968 (or whatever year), and the car looks and drives like it is less than a year old. However the amount of labor required to keep a car at this level isn't generally seen as worth it and so the average car is about 12 years old and obviously not like new at that age.
From my perspective Aristotle is spot on. In fact, you just keep listing more examples how he is correct. All those things you listed can only generate an income by having another person pay for it. The house is dead, the people living inside it generate the income that pays your rental payments.
I will never make this comment if it not were because it is a curated content in the "London Review of Books".
However, usury can't be banned, because the concept of lending is about bringing money from places with low utility to places with high utility. Strangely enough, this means any ability of money to save transaction costs and facilitate gets priced into interest. We are even further away from the time preference theory at this point. The real question one should ask, if lending brings money to the poor, which is a good thing, why does it flow to back to the rich? Why doesn't an overabundance of wealthy people willing to lend for nothing appear?
This is just wrong. Time preference doesn't require lenders to have perfect knowledge, it also describes how two lenders with access to similar (necessarily incomplete) information about the future would behave differently due to different time preferences.
My observation is that a lot of people are poor because they lack the ability to make money, generally because they don't have any skills. I lived in a city that was pretty poor, and there was no interest in education and no real thought that one could better oneself by learning skills. One girl I met was "homeschooled", which meant that she was unsupervised and did whatever she wanted, which was not learn anything. She was borrowing from her future to do nothing now. When all you have to offer is unskilled labor, you are going to be poor.
I also knew a couple who were also quite poor, but they had a small shop (which they lived in), and were augmenting it through drop shipping businesses advertised on TikTok. The shop was not successful, but between the two of them, their other businesses were doing okay. These people were poor, but they did not have the poverty mindset of the others.
If everything required perfect knowledge to be actionably modeled, humans wouldn't do anything. At the very least, markets wouldn't clear.
In practice, the realized price of time preference is typically a fraction (or multiple) of its full value, proportionally reflecting the uncertainty involved in its estimation. This is true of all factors involved in the pricing of any marketable asset, not just time preference and not just loans.