A Remark on Usury

St. Thomas explains his objection to usury:

I answer that, To take usury for money lent is unjust in itself, because this is to sell what does not exist, and this evidently leads to inequality which is contrary to justice. In order to make this evident, we must observe that there are certain things the use of which consists in their consumption: thus we consume wine when we use it for drink and we consume wheat when we use it for food. Wherefore in such like things the use of the thing must not be reckoned apart from the thing itself, and whoever is granted the use of the thing, is granted the thing itself and for this reason, to lend things of this kin is to transfer the ownership. Accordingly if a man wanted to sell wine separately from the use of the wine, he would be selling the same thing twice, or he would be selling what does not exist, wherefore he would evidently commit a sin of injustice. On like manner he commits an injustice who lends wine or wheat, and asks for double payment, viz. one, the return of the thing in equal measure, the other, the price of the use, which is called usury.

On the other hand, there are things the use of which does not consist in their consumption: thus to use a house is to dwell in it, not to destroy it. Wherefore in such things both may be granted: for instance, one man may hand over to another the ownership of his house while reserving to himself the use of it for a time, or vice versa, he may grant the use of the house, while retaining the ownership. For this reason a man may lawfully make a charge for the use of his house, and, besides this, revendicate the house from the person to whom he has granted its use, as happens in renting and letting a house.

Now money, according to the Philosopher (Ethic. v, 5; Polit. i, 3) was invented chiefly for the purpose of exchange: and consequently the proper and principal use of money is its consumption or alienation whereby it is sunk in exchange. Hence it is by its very nature unlawful to take payment for the use of money lent, which payment is known as usury: and just as a man is bound to restore other ill-gotten goods, so is he bound to restore the money which he has taken in usury.

In the example of the rental of a house, the landlord is a seller, and the renter is a buyer. The landlord sells the use of the house to the buyer. St. Thomas is thus explaining usury in this way: the lender sells the use of his money to the borrower, while retaining ownership of the money. At the end of the period, therefore, the borrower must return the original money, since the lender has retained ownership, together with an additional fee for the use of the money.

This is intrinsically unjust, St. Thomas says, because someone cannot have the use of the money without having the money, since using money consumes it.

This is correct, if one analyzes the transaction in this way. But on the other hand, no one would ever borrow money if they analyzed the transaction in this way. In reality, St. Thomas has confused the buyer and the seller. The lender is not a seller, selling the use of money, but a buyer. When he gives money to the borrower at the beginning of the transaction, he does not retain ownership of the money. On the contrary, the money is a payment, by the lender as a buyer, to the borrower as a seller. When the borrower promises to repay the sum with interest, he is promising to provide the future money that he is selling to the lender.

To illustrate this with a concrete example, suppose the lender lends $100 to be repaid a year later with $110. Then the lender buys $110 future dollars for the present sum of $100, and the borrower sells $110 future dollars for the present sum of $100.

St. Thomas is correct, however, that “what does not exist” is being sold here, although he is mistaken about the nature of the transaction. It is not the use of $100 that is being sold, but a future $110, which “does not exist” because it is future. And this is not an injustice; selling what does not exist here is no more unjust than it is unjust to make a contract to provide a certain amount of wheat a year from now. Nor is the price unjust, since future money is in itself less valuable than present money, just as it would be less valuable to be promised wheat a year from now, than to be given it immediately. The different particular situations of the lender (the buyer) and the borrower (the seller) explain why they both benefit from the transaction, just as both the buyer and seller of wheat benefit from it due to their particular situations.

 

Irreversible Change

Many plans for human society may be possible in the way that bringing back last Friday is impossible, and yet not be real human possibilities. It is easy for us to see this in the case of plans that correspond to things that have never existed, as for example the sort of plan proposed by people with socialist tendencies. For example, the Tradinista manifesto states:

8. Livelihood should not depend on the market.

Markets are not unjust in themselves, but they become vehicles of exploitation when people must sell their labor-power on the market in order to survive. So, while citizens should be free to engage in market exchange, the polity should ensure that no basic needs – food, clothing, shelter, healthcare, etc. – go unmet, guaranteeing a livelihood independent of the market.

Consider this as it stands. According to this, markets are “vehicles of exploitation” if I have no way to survive without selling my labor-power, that is, without getting a job. “The polity should ensure” that this does not happen. It must guarantee that if I prefer not to get a job, I do not need to get one, and that there remains a way for me to survive without one.

Let’s suppose we live in such a polity, and I declare that I don’t like jobs, and I have decided that I will not get one. What happens now? How does the polity ensure that I can survive, and that I do not need to get a job?

The tradinista response becomes somewhat confused when confronted directly with this question. They do not clearly state that they favor a Basic Income guarantee, but in fact this would be the only reasonable way to implement their requirement without making people who choose not to work into slaves, which would thereby nullify the idea that people are not obliged to work, as one can see after a little thought. We will look at this more closely below.

The problem with the manifesto is not that it favors a basic income. It might well turn out that the idea is reasonable, and that someday it can be implemented in some society. But there is indeed a problem with the claim that this belongs to the very essence of a just society. There is simply no proof, nor good reasons to believe, that this is workable or conducive to human welfare in the real world and in presently existing societies. Suppose the USA were to adopt the above statement from the tradinista manifesto as a constitutional amendment. If they are right that this belongs to the nature of a just society, such an amendment would be commendable.

First, some people may decide to stop working. I might do so myself, given my preference for the useless. “The polity” would be obliged to support these people. Whether given as money or in other forms, that support would be taken from taxes, which would mean that taxes would rise. This might make working for a living more uncomfortable for some others, and some of these might decide to stop working themselves. And so the process might well repeat until the whole of society is at the level of bare subsistence, and many would die, as a result of their borderline subsistence condition.

Now there is no guarantee that we would get this result. But there is no guarantee that we would not, so the tradinista proposal does not make sense as a condition for a just society, unless they view this consequence as acceptable.

All of this is in fact why St. Paul says, “For even when we were with you, we gave you this command: Anyone unwilling to work should not eat.”

The tradinista site responds to this use of St. Paul:

“He who does not work, neither shall he eat.” In using this line against the Manifesto Milco puts himself in the tradition of those many who have imagined an apodictic Apostolic anathematization of Left politics; he also demonstrates how little he understands the philosophy embedded in the Manifesto.

Neither the Tradinista Collective nor any other Leftist thinkers imagine that human welfare might be decoupled from human labor. Indeed, in their relentless emphasis on the importance of the common worker, Leftists tend to emphasize just how essential work is to the maintenance and flourishing of society. Leftists do not differ from apologists of capital by devaluing labor – they differ in their view of how labor should be politically governed.

One of the basic insights of the Left, to which the Manifesto is much indebted, is that the absence or near-invisibility of explicit physical coercion does not therefore make the market an arena of authentic human freedom. The Manifesto’s authors take for granted that in labor relations, in debts, and in interactions with the agents of state power, a liberal illusion of free and equal treatment under the law often hides instances of oppression and corruption – instances which liberals can endorse only because their worldview allows them to be overlooked. Once however they are not overlooked, the formal or legal distinction of free and unfree labor becomes only one important distinction among many. To rely solely on that distinction, to “outsource” decisions about the relations of workers to the market, seems to the authors of the Manifesto to be a kind of ethical abdication – a fine illustration of the weakness of moral philosophy in our times.

This is virtually incoherent. Consider again the statement from the manifesto, that markets “become vehicles of exploitation when people must sell their labor-power on the market in order to survive.” What is the alternative? In the response above, they say in a roundabout way, although with much confusion, “yes, people will still have to work, or they won’t be able to survive.” But then either they are being paid for their work, and thus they are selling their labor, or they are not being paid. The implication of these alternatives is obvious: either you sell your labor for money, or you sell yourself into slavery. Your choice.

Chesterton’s argument is that the above sort of argument should only apply to things that have never existed, such as socialism. It should not apply to arrangements that have actually existed in the real world. Times are all alike, so if something has existed in the past, it can exist again.

The response to this is found in the last post. In many cases, neither the original arrangements nor the new arrangements came about by human planning. So we should not find it surprising if human planning cannot revert things to the original arrangement. In this sense, many changes in human society are in fact humanly irreversible.

If At First You Don’t Succeed

Suppose you have a dozen problems in your life that you are trying to solve. And suppose that whenever you try to solve one of them, you almost always fail. Is there a chance that a time will come when you have solved them all?

There is such a chance, of course. You almost always fail, but if you continue to try other possible solutions, you might hit on a solution sooner or later. And then you will have only 11 issues remaining, and you can continue from there, working on the next one.

And even after more or less resolving one problem, you might later discover a still better solution. Thus for example I discussed a certain solution to time management here, but my current solution is substantially better, although including important elements of that one.

In a similar way, I discussed the general idea of progress in the posts here, here, and here. A very simple summary of the ideas argued there is that people are trying to make things better for themselves and others, and even if they do not always succeed, they sometimes do. And for the reason assigned above in this post, you do not have to succeed in solving your problems all of the time, or even most of the time, in order to generally make progress.

In economics, there is a similar reason for the fact that markets do as well as they do, and in biology, why natural selection works as well as it does, despite the fact that a majority of individual changes either do nothing or are actively harmful.

 

Origen and Adam Smith

Speaking of prayer, Origen says,

Suppose that a righteously minded physician is at the side of a sick man praying for health, with knowledge of the right mode of treatment for the disease about which the man is offering prayer. It is manifest that he will be moved to heal the suppliant, surmising, it may well be not idly, that God has had this very action in mind in answer to the prayer of the suppliant for release from the disease. Or suppose that a man of considerable means, who is generous, hears the prayer of a poor man offering intercession to God for his wants. It is plain that he, too, will fulfill the objects of the poor man’s prayer, becoming a minister of the fatherly counsel of Him who at the season of the prayer had brought together him who was to pray and him who was able to supply and by virtue of the rightness of his principles, incapable of overlooking one who has made that particular request.

The fact that the person’s prayers appear to have been answered by chance, Origen maintains, is merely an appearance. Since God is the cause of all things, he is also the cause, directly or indirectly, of all that results from those things, and consequently of these supposedly chance answers to prayer.

Adam Smith, in The Theory of Moral Sentiments, argues thus:

It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets, which are employed in the oeconomy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for.

The inequality of wealth among men, Smith is arguing, is much less than it first appears. There may be a man who theoretically has a million times your personal wealth. But he cannot eat a million times as much as you, but only a little more, if at all. And likewise, in a somewhat analagous manner, in respect to wealth in all the ways in which it touches an individual. And consequently the benefit that comes from that wealth can be, and will be, distributed among other men, not in a perfectly equal manner, but in a manner far closer to equality than one would first suppose.

Smith asserts here that it is the “invisible hand” of Providence that has intentionally designed a world that must have these results. The terminology of the “invisible hand” is used by some modern economists in a more general way, simply speaking of the way in which good results can come about without the explicit intention of the persons concerned, without necessarily intending to say that the good results were intended in any sense, by Providence or anything else.

In reality, however, both Adam Smith and Origen are correct. All things come from the first cause. Nothing is lost on account of the fact that things proceed through secondary causes as well; on the contrary, this only makes everything better.

 

Bryan Caplan on Preferences Over Beliefs

Responding to the criticism mentioned in the previous post, Caplan begins by noting that it is quite possible to observe preferences:

I observe one person’s preferences every day—mine. Within its sphere I trust my introspection more than I could ever trust the work of another economist. Introspection tells me that I am getting hungry, and would be happy to pay a dollar for an ice cream bar. If anything qualifies as “raw data,” this does. Indeed, it is harder to doubt than “raw data” that economists routinely accept—like self-reported earnings.

One thing my introspection tells me is that some beliefs are more emotionally appealing than their opposites. For example, I like to believe that I am right. It is worse to admit error, or lose money because of error, but error is disturbing all by itself. Having these feelings does not imply that I indulge them—no more than accepting money from a source with an agenda implies that my writings are insincere. But the temptation is there.

After this discussion of his own experience, he considers the experience of others:

Introspection is a fine way to learn about your own preferences. But what about the preferences of others? Perhaps you are so abnormal that it is utterly misleading to extrapolate from yourself to the rest of humanity. The simplest way to check is to listen to what other people say about their preferences.

I was once at a dinner with Gary Becker where he scoffed at this idea. His position, roughly, was, “You can’t believe what people say,” though he still paid attention when the waiter named the house specialties. Yes, there is a sound core to Becker’s position. People fail to reflect carefully. People deceive. But contrary to Becker, these are not reasons to ignore their words. We should put less weight on testimony when people speak in haste, or have an incentive to lie. But listening remains more informative than plugging your ears. After all, human beings can detect lies as well as tell them. Experimental psychology documents that liars sometimes give themselves away with demeanor or inconsistencies in their stories.

Once we take the testimony of mankind seriously, evidence of preferences over beliefs abounds. People can’t shut up about them. Consider the words of philosopher George Berkeley:

“I can easily overlook any present momentary sorrow when I reflect that it is in my power to be happy a thousand years hence. If it were not for this thought I had rather be an oyster than a man.”

Paul Samuelson himself revels in the Keynesian revelation, approvingly quoting Wordsworth to capture the joy of the General Theory: “Bliss was it in that dawn to be alive, but to be young was very heaven!”

Many autobiographies describe the pain of abandoning the ideas that once gave meaning to the author’s life. As Whittaker Chambers puts it:

“So great an effort, quite apart from its physical and practical hazards, cannot occur without a profound upheaval of the spirit. No man lightly reverses the faith of an adult lifetime, held implacably to the point of criminality. He reverses it only with a violence greater than the faith he is repudiating.”

No wonder that—in his own words—Chambers broke with Communism “slowly, reluctantly, in agony.” For Arthur Koestler, deconversion was “emotional harakiri.” He adds, “Those who have been caught by the great illusion of our time, and have lived though its moral and intellectual debauch, either give themselves up to a new addiction of the opposite type, or are condemned to pay with a lifelong hangover.” Richard Write laments, “I knew in my heart that I should never be able to feel with that simple sharpness about life, should never again express such passionate hope, should never again make so total a commitment of faith.”

The desire for “hope and illusion” plays a role even in mental illness. According to his biographer, Nobel Prize winner and paranoid schizophrenic John Nash often preferred his fantasy world—where he was a “Messianic godlike figure”—to harsh reality:

“For Nash, the recovery of everyday thought processes produced a sense of diminution and loss…. He refers to his remissions not as joyful returns to a healthy state, but as ‘interludes, as it were, of enforced rationality.'”

One criticism here might go as follows. Yes, Caplan has done a fine job of showing that people find some beliefs attractive and others unattractive, that some beliefs make them happy and some unhappy. But like C.S. Lewis, one can argue that this does not imply that this is why they hold those beliefs. It is likely enough that they have some real reasons as well, and this means that their preferences are irrelevant.

One basis for this objection is probably the idea that sitting down and choosing to believe something seems psychologically implausible. But it does not have to happen so explicitly, even though this is more possible than people might think. The fact that such preferences can be felt as “temptations,” as Caplan puts it in describing his own experience, is an indication that it is entirely possible to give in to the temptation or to resist it, and thus that we can choose our beliefs in effect, even if this is not an explicit thought.

We could compare such situations to the situation of someone addicted to smoking or drinking. Let’s suppose they are trying to get over it, but constantly falling back into the behavior. It may be psychologically implausible to assert, “He says he wants to get over it, but he is just faking. He actually prefers to remain addicted.” But this does not change the fact that every time he goes to the store to buy cigarettes, every time he takes one out to light it, every time he steps outside for a smoke, he exercises his power of choice. In the same way, we determine our beliefs by concrete choices, even though in many cases the idea that the person could have simply decided to choose the opposite belief may be implausible. I have discussed this kind of thing earlier, as for example here. When we are engaged in an argument with someone, and they seem to be getting the better of the argument, it is one choice if we say, “You’re probably right,” and another choice if we say, “You’re just wrong, but you’re clearly incapable of understanding the truth of the matter…” In any case it is certainly a choice, even if it does not feel like one, just as the smoker or the alcoholic may not feel like he has a choice about smoking and drinking.

Caplan has a last consideration:

If neither way of verifying the existence of preferences over beliefs appeals to you, a final one remains. Reverse the direction of reasoning. Smoke usually means fire. The more bizarre a mistake is, the harder it is to attribute to lack of information. Suppose your friend thinks he is Napoleon. It is conceivable that he got an improbable coincidence of misleading signals sufficient to convince any of us. But it is awfully suspicious that he embraces the pleasant view that he is a world-historic figure, rather than, say, Napoleon’s dishwasher. Similarly, suppose an adult sees trade as a zero-sum game. Since he experiences the opposite every day, it is hard to blame his mistake on “lack of information.” More plausibly, like blaming your team’s defeat on cheaters, seeing trade as disguised exploitation soothes those who dislike the market’s outcome.

It is unlikely that Bryan Caplan means to say your friend here is wicked rather than insane. Clearly someone living in the present who believes that he is Napoleon is insane, in the sense that his mind is not working normally. But Caplan’s point is that you cannot simply say, “His mind is not working normally, and therefore he holds an arbitrary belief with no relationship with reality,” but instead he holds a belief which includes something which many people would like to think, namely, “I am a famous and important person,” but which most ordinary people do not in fact think, because it is obviously false (in most cases.) So one way that the person’s mind works differently is that reality doesn’t have as much power to prevent him from holding attractive beliefs as for normal people, much like the case of John Nash as described by Caplan. But the fact that some beliefs are attractive is not a way in which he differs. It is a way in which he is like all of us.

The point about trade is that everyone who buys something at a store believes that he is making himself better off by his purchase, and knows that he makes the store better off as well. So someone who says that trade is zero-sum is contradicting this obvious fact; his claim cannot be due to a lack of evidence regarding the mutual utility of trade.