Ethical arguments defending usury

[Charles Brown <cbrown@xxxxxxxxxxxxxxxxx>]

Ethical arguments defending usury

At  (http://en.wikipedia.org/wiki/Usury)


The primary ethical argument in defense of usury has been the argument of
liberty <http://en.wikipedia.org/wiki/Negative_freedom>  against the
"restraint of trade" (since the borrower has voluntarily entered into the
usury contract).

A practical argument for usury in welfare economics
<http://en.wikipedia.org/wiki/Welfare_economics>  is that charging interest
is essential to guiding the investment process, based on the claim that
profits <http://en.wikipedia.org/wiki/Profit>  are required to direct
investments to their most productive use (solving the economic calculation
problem <http://en.wikipedia.org/wiki/Economic_calculation_problem> ).
According to this argument, interest-driven investment is essential to
economic growth <http://en.wikipedia.org/wiki/Economic_growth> , and
therefore to the very existence of industrial civilization. This practical
argument for the utility of usury treats all "unearned" returns to capital
<http://en.wikipedia.org/wiki/Capital>  as interest; traditionally,
guaranteed interest <http://en.wikipedia.org/wiki/Interest>  is usurious,
whereas dividends <http://en.wikipedia.org/wiki/Dividends>  from shared
ventures are less so. In this tradition, the practical case against usury
does not completely apply (although replacing debt market
<http://en.wikipedia.org/wiki/Bonds>  investments with stock market
<http://en.wikipedia.org/wiki/Stock_market>  savings may not always be
desirable). Officially, this is how capitalist Islamic states solve the
calculation problem. An example of the 'moral' difference between dividend
income and interest income is found in the Merchant of Venice
<http://en.wikipedia.org/wiki/Merchant_of_Venice> : Shylock
<http://en.wikipedia.org/wiki/Shylock>  lends Antonio
<http://en.wikipedia.org/w/index.php?title=Antonio&action=edit>  money for
trade speculation, demanding repayment in flesh should Antonio's project
fail utterly (accepting none of the business risk
<http://en.wikipedia.org/wiki/Risk> ).

In addition to the defense of interest as such, the practice of charging
high interest rates is defended by those who point out that such rates
reflect the very fact that the loans are being given to creditors with a
high risk of default (in a competitive
<http://en.wikipedia.org/wiki/Competitive>  debt market the interest spread
<http://en.wikipedia.org/wiki/Spread>  simply covers the credit risk).
Austrian economists <http://en.wikipedia.org/wiki/Austrian_economists>  say
that there is no such thing as a "just" interest rate separate from the free
market <http://en.wikipedia.org/wiki/Free_market>  equilibrium determined by
the time-preferences <http://en.wikipedia.org/wiki/Time_preference>  of
individual lenders and debtors. (Other free market theorists take a similar
view on the merit of an unregulated debt market, but may not explain the
subjective estimate of a worthwhile interest-rate bargain through time
preference.)

Some "loan sharks" have even defended the threat or use of violence (legal
or illegal <http://en.wikipedia.org/wiki/Illegal> ) against non-payers (such
as required by Shylock <http://en.wikipedia.org/wiki/Shylock> ). This
(minority) position is based on the idea that without violence there will be
a market failure <http://en.wikipedia.org/wiki/Market_failure>  - since very
high interest loans will only be taken up by those intending to default. The
need for violence in this case is due to the failure of governments to see
this fact, or to adequately enforce the loan contracts (such as with overly
lax bankruptcy <http://en.wikipedia.org/wiki/Bankruptcy>  laws), rather than
any immorality inherent in moneylenders
<http://en.wikipedia.org/wiki/Moneylender> . See: "The market for lemons
<http://en.wikipedia.org/wiki/Adverse_selection#The_market_for_lemons> ".

Some low-interest charity loans (such as small business micro-loans) have
made a defense on the fact that interest rates allow for the indefinite
administration of the charity, the replacement of defaulted loans, and in
some cases, the creation of additional loan pools in other regions. The
final "ethical result" of the interest rates justifies charging them