[patriciacolling]

I apologize in advance if this idea was addressed but has political thought ever contributed the sin of usury to fractional reserve lending or, perhaps, the lending of “fiduciary media”?????

[jhendon5]

The political thoughts of Murray Rothbard did in his book “History of Economic Thought”. Ron Paul does as well. And Austrian economist Robert Murphy does too – here’s a link: http://mises.org/daily/4499.

There are those who claim that the “Money Multiplier” is a myth but I must admit I don’t really understand their reasoning. Here’s an example: http://www.forbes.com/sites/johntamny/2012/07/29/ron-paul-fractional-reserve-banking-and-the-money-multiplier-myth/

I’ve just started this particular course on political thought and don’t know if this is covered in the course or not.

[gerard.casey]

Thank you to PatriciaColling and Organization Man for the questions on usury. If you skip ahead to the lectures on Medieval Economics you’ll find a brief discussion of usury. Throughout history, usury has been taken to be the demanding of any interest (however little) on a loan.

In the course, I don’t deal specifically with the question of whether there is some close or intrinsic link between fractional reserve banking (FRB) and usury. Let’s take the broader question: is there some intrinsic connection between banking and usury?

Consider the following: you borrow a pound of sugar from me. I lend it to you on condition that you give me back one and a half pounds. So it would appear you can have usury (as traditionally defined) without banking.

Can you have banking without usury? Yes. If one had a pure deposit bank which provided services for which one paid (protection of money, disbursement to appointed persons, etc.) there appears to be no hint of usury here. [see Huerta de Soto, Money, Bank Credit and Economic Cycles]

Can you have FRB without usury? As the concept is traditionally employed, the answer would appear to be ‘probably not’ but the concept as traditionally employed is problematic, as its history shows. There are problems with FRB but usury may not be the only or the most significant one.

What I’ve just written is speculative and I am open to further elucidation or correction.

[patriciacolling]

But profiting from usury is the motive for FRB, right? I guess an important implication of FRB is inflation. I suppose the risk of FRB could voluntarily be agreed upon but that doesn’t address the effects of inflation on people that do not volunteer for it. I guess because I see that time preference is an acceptable demand for a product, I’m trying to reconcile the sin of usury–although, I’m more comfortable with spending and investing from personal savings and/or contributions rather than personal debt; but, that is just a personal preference. I think using a reserve to earn profit (on an amount beyond that of which you have to lend out–and by keeping a portion of what is lent out while lending out the full amount–because the amount would have to come from nothing) could be sinful but I don’t have that sorted out yet either. Thank you Organization Man for the links–I’ll try to get to them soon. Thank you Professor Casey for your input, lessons and discussion–perhaps it is wrong of me to try to rationalize what is meant by usury for my own satisfaction. That is something I’ll have to reconcile with myself but I do not want to become complacent.

[dardner]

I believe you are correct to say, “an implication of FRB is inflation”. I do not however agree that profiting from usury is the motive for FRB. Rather, profiting from usury is the motive behind any banking. I am considering usury as any interest on loans, instead of the more modern definition of excessively high interest. A bank is like any other business. In order to get money to loan, it needs people to give them money. It does this by offering to pay interest on deposits and other “free” services, without which there would be no incentive to save money in a bank. As Professor Casey mentions De Soto, I do not see how this follows in regards to usury. The loan is a desired service. A service already provided in conventional banking, along with security and disbursements. So why pay to save when you can be paid to save. Usury or interest in the case of loans is no different than any other price for a good. If you knew that future money would be worth more than present money I think you could argue for a negative interest rate. Such as if you borrowed $10, in the course of the loan you would only pay back $9 instead of say $11.

To a foreigner you may charge interest, but to your brother you shall not charge interest, that the LORD your God may bless you in all to which you set your hand in the land which you are entering to possess. (Deuteronomy 23:19,20)

As to the sinful nature of usury, I have no clue what the bible is trying to get across but it seems to have missed the mark on this issue. I think Professor Jewell might be able to explain this.

Fractional reserve banking on the other hand, amounts to fraud. As you say the risk of FRB could be voluntarily agreed upon but that means everyone is agreeing to massive price inflation, bond defaults or oppressive taxation. Admittedly I don’t fully understand this but I find it hard to believe that such a practice will not have a consequence. Those are my thoughts anyway.

[patriciacolling]

That Forbes article, as far as I can tell, maybe I didn’t finish it, didn’t mention agreeing to lend out your savings by agreeing not to take it back before a period of time. I think it had a different definition of “bank” than I do, too. I don’t see how lending based on just a fraction of the savings is not a money multiplier, either. The fact that that money has to be paid back, essentially bringing back down the money supply, is demonstrated by the saw tooth money supply graphs before the federal reserve, I guess. I don’t think he mentions that the central bank keeps the equilibrium from happening by its system of inflation. I know this is from lending to the banks or the open market–the open market being the more culpable–the writer doesn’t mention all that, though, does he?

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