Daily Archives: July 8, 2015

On interest and usury: Part 2

Only a communist thinks that he should be entitled to other people’s things for nothing. All the others understand that every asset (something that can produce a benefit for which others will be ready to pay) cannot be expropriated, nor can it be demanded that this asset produces no benefit for his owner, just because it is convenient for you to do so.

A piece of land is a valuable asset. Once properly put to work, the land produces a benefit to which the land’s owner is – after paying for the work needed to put this asset to use – rightly entitled. No one in possession of his wits would demand that this asset produce no utility for his owner.

A ship, industrial equipment, or any other asset produces the same sort of utility in one way or another: the rental company will put its assets to use by giving you the use of an economic good – a car – for a certain period of time. It is more complicated than that – assets can be immaterial, for example – but for what interests us one thing is clear: if I own something that produces a benefit, no Castro is authorised to say that I should not entitled to the income, to the benefit that it produces.

Most every asset can be loaned. If I own land I can either have it worked myself, or I can give the land to someone else. If I do so, I renounce to the potential profit the land would produce for me if all goes well. I will, therefore, demand that I get a remuneration for leaving the use of this income-producing resource to someone else. As it takes two to tango, the amount of money I will be able to make with the relatively safe use of letting it will have to be low enough to motivate another to do all the work, in the hope of getting not only the rent for me – which he’ll have to pay first – but a nice profit for himself. I will enjoy the smaller, but safer yield my asset can offer. He will enjoy the opportunity of the yield the use of my asset offers him.

Money is, in this sense, not different from other assets. Like land, this money has value: people will offer a remuneration to you if you lend this asset to them, for a certain time, at a certain price. They will do so because, as in the case of the land, they hope to make more money from your asset than the money they will owe you. You wish them good luck, and rest in the relative safety of your own income. You have, of course, a risk of not seeing the money back ever again; but as for everything else with economic value, you will price this risk and demand to be remunerated accordingly, if others are to use this asset.

All this is certainly banal for normal people, but seems to be a huge problem for a certain kind of nutcase; the nutcase, I mean, for which land is good, but money is bad; and to give your land to tenants for them to grow tomatoes on it is meritorious, but to lend them the money to buy the tomato plants is evil. Or, alternatively, they think that it is legitimate for the tenant not to pay back the money borrowed to buy the tomato plant, because “the bank is rich” (the bank may well lend Aunt Emma’s money, of course, and Aunt Emma isn’t rich at all; but the nutcase does not care for such details).

Money is an asset like every other. Like land, ships, or houses, it can be bought and sold; it can be left to others for an adequate remuneration; and the remuneration will take account of the risk of losing the asset in part or in toto, forever or for a time. The market will, if left to work, adjust the remuneration for the relevant asset in an efficient way. Every landlord knows that, and in letting his property will consider the risk of non payment, the time he would need to recover the asset, and the potential risk in terms of loss of income and actual damage he will not be able to recover. Every lender also knows that, and in lending his – or, possibly, Aunt Emma’s – money he will take account of the risk of non payment of the interest, the time for the recovery of the capital, and the risk of not recovering the entire capital.

Money is an asset like land, houses, ships. If you get the use of this asset, common sense and elementary justice demand that you pay for it the price you have freely agreed to pay. If you are under an obligation to repay this asset, common sense and elementary justice demand that you do what you have obliged yourself to do; instead of claiming , after the copious lunch, that the bill has now arrived.

To do anything else would mean to be a crybaby who wants to have his cake and eat it; a Castroite with the strange idea that he is entitled to other people’s assets; or, more simply, a scrounger and a swindler.

Which leads us nicely to Greece. But this is for part three.



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