Why interest on debts should be illegal

Helix · May 3, 2020

we don't really need loans anymore. the rich can raid the treasury when they need money (or if they don't,) and everyone else can **** off.

Ahlevah · May 3, 2020

AmNat said:
If we agree that consent can be vitiated by necessity, then it's certainly fair to question a desperate person's ability to mortgage his person (which is essentially what a personal recourse loan is). Especially since such an agreement requires state enforcement to work (versus an organ sale which is once and done).

Sure, but necessity will dictate action, and the action in this case will be to obtain the money from any channel possible, including an illegal, more deleterious one than the one that would exist absent the usury law. So if the object here is to help the person, I don't see it. Then there's the issue of freedom. What kind of society do we want? Who is in the best position to make a decision about one's personal welfare? Generally speaking, people tend to act in their own best self-interest. Does that mean they ALWAYS do? No. But are we going to remove the ability of every person to make a choice about whether or not he should borrow money at a "usurious" interest rate because we've decided as a paternalistic society that we know what's best for him even though we know absolutely nothing about his particular circumstances?

AmNat said:
Regardless, the main point of usury prohibitions wasn't to benefit poor credit risks (though like addicts, they would arguably benefit in the long run from being cut off), the main point was to prevent debt from becoming a normal and expected part of ordinary life, as it has since usury was legalized.

I would agree that we've taken too much of a dismissive attitude towards debt and borrowing. But I question how much usury laws have affected this. People are constantly bombarded with appeals in media and advertising to borrow and spend in pursuit of a materialistic approach to happiness. But we've also divorced risk from reality, thanks to our government. Pension funds can't fund benefits with bonds because they pay squat, so they buy more stocks. We have people who shouldn't be buying new cars because they can't really afford them, rolling two and even three car loans into a single 8 or 10-year loan at ridiculously low interest rates. Car salesmen now arrange most financing, and now they make more from finance than they do from sales commissions. Now, thanks to COVID-19, we'll probably see another "cash for clunkers" program to support "jobs" as auto sales finally crater. Get ready. Honestly, we've so distorted our economy with so much "malinvestment" that I can barely recognize it.

cpwill · May 3, 2020

justabubba said:
i do not like that chocolate is fattening
vendors should quit selling chocolate so that i do not have the option to eat it

notice how devoid of logic that ^ is
same is true for your not expecting interest to be incurred on debt

Exactly. What the OP (and AmNat) seem to be missing is that... if you don't like paying interest.... you don't have to.

cpwill · May 3, 2020

Visbek said:
lol... Sorry but no, there is no difference whatsoever.

Scenario 1: I borrow $200,000 from the bank. The bank charges a 3.8% interest rate. I have to pay $931.91 a month for 30 years.

Scenario 2: I borrow $200,000 from the bank. The bank charges a 3.8% profit rate. I have to pay $931.91 a month for 30 years.

Wow. Huge difference!!! lol....

Kushinator · May 3, 2020

cpwill said:
Exactly. What the OP (and AmNat) seem to be missing is that... if you don't like paying interest.... you don't have to.

The OP and AmNat both don't want you to have the option of paying interest.

AmNat · May 3, 2020

Ahlevah said:
Sure, but necessity will dictate action, and the action in this case will be to obtain the money from any channel possible, including an illegal, more deleterious one than the one that would exist absent the usury law. So if the object here is to help the person, I don't see it. Then there's the issue of freedom. What kind of society do we want? Who is in the best position to make a decision about one's personal welfare? Generally speaking, people tend to act in their own best self-interest. Does that mean they ALWAYS do? No. But are we going to remove the ability of every person to make a choice about whether or not he should borrow money at a "usurious" interest rate because we've decided as a paternalistic society that we know what's best for him even though we know absolutely nothing about his particular circumstances?

The "freedom" in question refers to having a certain type of contract enforced by the state. It is absurd to hold that individual freedom requires positive state action (which legal usury does). Especially when active prohibitions on certain exchanges are allowed, though an organ sale might seem no less necessary to the person selling.

I would agree that we've taken too much of a dismissive attitude towards debt and borrowing. But I question how much usury laws have affected this. People are constantly bombarded with appeals in media and advertising to borrow and spend in pursuit of a materialistic approach to happiness. But we've also divorced risk from reality, thanks to our government. Pension funds can't fund benefits with bonds because they pay squat, so they buy more stocks. We have people who shouldn't be buying new cars because they can't really afford them, rolling two and even three car loans into a single 8 or 10-year loan at ridiculously low interest rates. Car salesmen now arrange most financing, and now they make more from finance than they do from sales commissions. Now, thanks to COVID-19, we'll probably see another "cash for clunkers" program to support "jobs" as auto sales finally crater. Get ready. Honestly, we've so distorted our economy with so much "malinvestment" that I can barely recognize it.

English law first allowed usury in the 16th century, and restrictions on it have (for the most part) gotten progressively looser as time has gone on. Most recently, in Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. (1978), the Supreme Court effectively gutted usury laws by letting national banks apply the laws of their state of charter across the country. Since then, many commercial banks have relocated to South Dakota and Delaware (which have no usury laws), and many other states have substantially loosened their laws, to avoid relocations.

One can't strictly demonstrate cause and effect here, but the connection between usury and general financial irresponsibility is certainly not contradicted by the timeline.

cpwill said:
Exactly. What the OP (and AmNat) seem to be missing is that... if you don't like paying interest.... you don't have to.

I've heard this rhetoric before somewhere . . .

ecofarm · May 4, 2020

justabubba said:
i do not like that chocolate is fattening
vendors should quit selling chocolate so that i do not have the option to eat it

notice how devoid of logic that ^ is

It doesn't make sense for you but it couldn't hurt Kim Jong Un.

Ahlevah · May 4, 2020

AmNat said:
The "freedom" in question refers to having a certain type of contract enforced by the state. It is absurd to hold that individual freedom requires positive state action (which legal usury does). Especially when active prohibitions on certain exchanges are allowed, though an organ sale might seem no less necessary to the person selling.

If you believe Thomas Jefferson, the whole point of civil society is to secure the natural rights of man. In one sense, state action is, in fact, intended to ensure individual freedom. That would include the freedom to not be threatened with physical harm if you can't satisfy a debt, or the freedom to be free of that debt if there is no possibility of repayment. But the existence of the state is not a required condition for the sort of freedom I'm advocating. If two rational adults can come to terms on a loan, who is to stop them?

AmNat said:
English law first allowed usury in the 16th century, and restrictions on it have (for the most part) gotten progressively looser as time has gone on. Most recently, in Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp. (1978), the Supreme Court effectively gutted usury laws by letting national banks apply .the laws of their state of charter across the country. Since then, many commercial banks have relocated to South Dakota and Delaware (which have no usury laws), and many other states have substantially loosened their laws, to avoid relocations.

There was a time when there were indentured servants and debtors' prisons, too, and then there's that line from Hamlet: "Neither a borrower nor a lender be.... " The fact is debt doesn't have the stigma it used to have. After World War II, we got the credit card and the shopping mall, and they vastly expanded commerce in this country. But if I had to put my finger on one driver of the credit boom in this country, it's the manner in which we've divorced, through law, regulation, and the actions of the Federal Reserve, the risk versus the reward of taking out a loan. Lenders are making loans they otherwise would not be making thanks to bailouts and cheap money. I really don't think the decline of usury laws has had that much to do with it, since money is actually cheaper than it's been historically.

Liberty One · May 4, 2020

fra93 said:
Interest on a debt is considered a tariff on the risk assessment that the debt would not be paid back.

Incorrect. Interest is what you paying for "renting" the money. If you borrow $100 for one year, that person does not have the use of the money for that year. Just like if you borrow a car for a year you'd be expected to pay a rental fee for the use of the car. You pay a rental fee (interest) for the use of the money. The amount you pay in "rent" is based on a risk assessment, but not the fee in and of itself.

fra93 · May 4, 2020

Liberty One said:
Incorrect. Interest is what you paying for "renting" the money. If you borrow $100 for one year, that person does not have the use of the money for that year. Just like if you borrow a car for a year you'd be expected to pay a rental fee for the use of the car. You pay a rental fee (interest) for the use of the money. The amount you pay in "rent" is based on a risk assessment, but not the fee in and of itself.

This makes a lot of sense. Thank you for your reply. In that logic the interest should be only proportional to the amount of borrowed money, and not the risk to do not getting it back.

AmNat · May 4, 2020

Ahlevah said:
If you believe Thomas Jefferson, the whole point of civil society is to secure the natural rights of man. In one sense, state action is, in fact, intended to ensure individual freedom.

What are the "natural rights of man"?

That would include the freedom to not be threatened with physical harm if you can't satisfy a debt, or the freedom to be free of that debt if there is no possibility of repayment. But the existence of the state is not a required condition for the sort of freedom I'm advocating. If two rational adults can come to terms on a loan, who is to stop them?

Who will enforce the loan agreement?

There was a time when there were indentured servants and debtors' prisons, too, and then there's that line from Hamlet: "Neither a borrower nor a lender be.... " The fact is debt doesn't have the stigma it used to have. After World War II, we got the credit card and the shopping mall, and they vastly expanded commerce in this country. But if I had to put my finger on one driver of the credit boom in this country, it's the manner in which we've divorced, through law, regulation, and the actions of the Federal Reserve, the risk versus the reward of taking out a loan. Lenders are making loans they otherwise would not be making thanks to bailouts and cheap money. I really don't think the decline of usury laws has had that much to do with it, since money is actually cheaper than it's been historically.

Cause and effect isn't provable here. Though it seems implausible (to me) that the law would have no effect on societal attitudes, especially when its progression has been temporally correlated with the progression of societal attitudes. YMMV.

Ahlevah · May 4, 2020

AmNat said:
What are the "natural rights of man"?

I'm thinking Locke (life, liberty, and property) and Jefferson (life, liberty, and the "pursuit of happiness")--the Enlightenment political theory that set the foundation for Jefferson's argument in the Declaration of Independence to separate from Britain and establish the civil state called the United States of America.

AmNat said:
Who will enforce the loan agreement?

In a state of nature? It could be nobody other than basic trust. If you got screwed, you just didn't loan the person your property again. In a basic society, such as a tribe, it could be a tribal elder or council. According to Natural Law Theory, what you're describing--enforcement--is one reason humans established civil society (laws, regulations, courts, etc.): to create order out of chaos.

AmNat said:
Cause and effect isn't provable here. Though it seems implausible (to me) that the law would have no effect on societal attitudes, especially when its progression has been temporally correlated with the progression of societal attitudes. YMMV.

True, and I'm not saying usury laws have no effect on societal attitudes. But it seems reasonable to assume that laws and regulations that distort risk-taking would have a significant effect on the willingness of people to lend to those who otherwise would not have the availability of credit at a reasonable price. Look what happened, for example, to the credit spreads between so-called "junk bonds" and investment-grade bonds once the Federal Reserve announced it would buy junk to facilitate trading. There's ample evidence that what I'm saying is true.

AmNat · May 4, 2020

Ahlevah said:
I'm thinking Locke (life, liberty, and property) and Jefferson (life, liberty, and the "pursuit of happiness")--the Enlightenment political theory that set the foundation for Jefferson's argument in the Declaration of Independence to separate from Britain and establish the civil state called the United States of America.

Where do these rights come from, and what is their specific content?

In a state of nature? It could be nobody other than basic trust. If you got screwed, you just didn't loan the person your property again. In a basic society, such as a tribe, it could be a tribal elder or council. According to Natural Law Theory, what you're describing--enforcement--is one reason humans established civil society (laws, regulations, courts, etc.): to create order out of chaos.

Should civil society enforce all agreements, or only those whose enforcement it deems beneficial to the society?

True, and I'm not saying usury laws have no effect on societal attitudes. But it seems reasonable to assume that laws and regulations that distort risk-taking would have a significant effect on the willingness of people to lend to those who otherwise would not have the availability of credit at a reasonable price. Look what happened, for example, to the credit spreads between so-called "junk bonds" and investment-grade bonds once the Federal Reserve announced it would buy junk to facilitate trading. There's ample evidence that what I'm saying is true.

I certainly agree that the government has done lots of things to screw up our financial system.

bomberfox · May 4, 2020

For one interest is in no way a tariff. Lets be a little more clear shall we?

Ahlevah · May 4, 2020

AmNat said:
Where do these rights come from, and what is their specific content?

The short answer: natural rights come from exactly where Jefferson said they come from in the Declaration of Independence: "the Laws of Nature and Nature's God." If you need any more elaboration on the topic, there are plenty of books that discuss it, including the most famous argument written by John Locke in his Second Treatise.

AmNat said:
Should civil society enforce all agreements, or only those whose enforcement it deems beneficial to the society?

I'm going to defer to Jefferson again on that point. If a civil society derives its "just powers from the consent of the governed"--power to the people and all of that--then there needs to be some consensus on what the rules are. Personally, I think there are very few absolutes, so some agreements likely won't be legally enforceable, and not all enforceable agreements will necessarily be beneficial to the society.

AmNat · May 5, 2020

Ahlevah said:
The short answer: natural rights come from exactly where Jefferson said they come from in the Declaration of Independence: "the Laws of Nature and Nature's God." If you need any more elaboration on the topic, there are plenty of books that discuss it, including the most famous argument written by John Locke in his Second Treatise.

And how do God (or nature) make these rights clear?

I'm going to defer to Jefferson again on that point. If a civil society derives its "just powers from the consent of the governed"--power to the people and all of that--then there needs to be some consensus on what the rules are. Personally, I think there are very few absolutes, so some agreements likely won't be legally enforceable, and not all enforceable agreements will necessarily be beneficial to the society.

And what should the basis of such decisions be? Where was this consent given and what were its terms?

Ahlevah · May 5, 2020

AmNat said:
And how do God (or nature) make these rights clear?

They don't. :lol: People have written lengthy treatises on the topic. They're abstractions, constructs based on rational thought and logic as opposed to empiricism. But there's a quote attributed to the Irish philosopher Francis Hutcheson that I think frames the concept in its simplest terms: "Nature makes none masters, none slaves" (What are natural rights?).

AmNat said:
And what should the basis of such decisions be? Where was this consent given and what were its terms?

Now your're getting into another area of political philosophy than can get a bit complicated: social contract theory. There's more than one way to run a government, but anyone who favors the Western democratic model can consult--surprise!--Thomas Jefferson :lol::

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, --That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness.

Jefferson didn't invent the concept of the social contract. It goes back at least to 5th Century BC Greece. But the architect or inspiration for this part of the Declaration of Independence was the French philosopher Jean-Jaques Rousseau and his 1762 essay, The Social Contract.

cpwill · May 6, 2020

AmNat said:
cpwill said:

Exactly. What the OP (and AmNat) seem to be missing is that... if you don't like paying interest.... you don't have to.

Click to expand...

I've heard this rhetoric before somewhere . . .

"If You Don't Like Paying Interest, You Don't Have To Take The Money"?

:shrug: you don't.

jpn · May 17, 2020

fra93 said:
The proposed lending model pushes financing institutions to be responsible, and to evaluate more carefully the investments, which will lead to a slower and more sustainable growth.

I love outside-the-box thinking! But...why would any institution lend money, as opposed to investing it in stocks or bonds, if they don't get paid for lending it? What's their incentive?

Waddy · May 17, 2020

There is nothing wrong with reasonable interest. However, what you should be asking is debt a good idea? Generally, for almost everyone, that answer is no. So you get educated in a good paying technical field, buy a modest home and car, and diversify your investments over decades. Pay off that original modest debt as fast as possible. The home mortgage deduction is a scam. After that first car, pay cash from then on. And be picky choosing a spouse; divorces can set you back decades. So do your best to stay married if you do marry. Buy that Harley while you're in your 30's, and then park it in the garage until you need it for your mid-life crisis.

Albert12 · May 25, 2020

Thank you for your reply

Why interest on debts should be illegal

Helix

Ahlevah

cpwill

cpwill

Kushinator

I'm not-low all the time

AmNat

ecofarm

global liberation

Ahlevah

Liberty One

fra93

New member

AmNat

Ahlevah

AmNat

bomberfox

Ahlevah

AmNat

Ahlevah

cpwill

jpn

Retired Navy Commander

Waddy

Albert12