What is the Problem with Usury?

For the course in Christian Ethics that I'm auditing, we were asked to write our thoughts on chapter 7, “That which has been wrung from tears” of the book Usury, the Greek Fathers, and Catholic Social Teaching. It outlines some of the problems associated with usury. In the modern Western world the term “usury” has fallen into disuse, and as the above chapter states, “We are happy to pay 4 percent as long as we can get the holiday pillows that marketing experts tell us we need.”

The card processing companies charge merchants 2% to 3% for debit card purchases and 4% to 6% for credit card purchases. Of course, these fees are added to the purchase price whether a person pays with cash or with a card. Invisible fees such as these drive up prices, but also greatly increase the money supply by the banking system creating “new money” each time a credit card is used, thus driving inflation. Even if one pays off a credit card in full within 30 days, “new money” is added to the money supply.

It also states “people with money to waste consider 'interest' to be a nonissue.” Because most people are motivated by immediate gratification, they ignore such hidden costs and inflation in order to satisfy their craving for the latest fashion, tech toy, or automobile model. But the long-term effects of consumer credit purchases are ballooning consumer credit debt due to compound interest and the devaluation of the U. S. dollar due to inflation.

Retired people who had what seemed like a reasonable amount of savings at age 65 might discover at age 85 that the buying power of those funds, even with accumulated interest, is perhaps one-third to one-fourth of what it was. Inflation destroys the buying power of retirement savings. As long as a person is working, he can hope that his wages will keep up with inflation. But retirees living on a fixed income do not have that hope. In spite of cost-of-living increases, Social Security payments do not keep up with inflation.

Today we consider as “usury” interest rates above what a bank would charge for a 30-year mortgage. Most people are aware that payday loans and overdue credit card charges can quickly multiply the size of loans, but few people understand the effect of compound interest on a 30-year mortgage at a nominal 5% interest rate. In the first six years of such a loan the borrower's payments are actually 74% interest, and the principal is reduced by only 8.6%. The banks and their investors get the lion's share of that money up front, while the dollar is still worth nearly the same as at the outset.

Then the home-”owner” (the holder of the mortgage actually owns the house) often gets a new job that requires moving to another location, so he starts the process over again, buying another house and paying 74% interest to the banks and their investors once again. Thus “the rich get richer, and the poor get poorer.” What is the solution to this dilemma? What is the problem with usury?

The author refers to Ezekiel 18:4-9, which includes usury in the list of sins along with idolatry, adultery, robbery, judging unjustly, and neglecting or despising the poor. That is, usury is a sin. In Romans 13:8 we read, “Owe no one anything, except to love one another; for he who loves his neighbor has fulfilled the law.” I can remember as a child that my parents took this verse quite literally, and seriously considered whether it was a sin to take out a mortgage to buy a house.

In his Commentary on the Epistle to the Romans, Origen wrote, “In many cases, debt is equivalent to sin. Therefore, St. Paul wants us to owe nothing on account of sin and to steer clear of debts of this kind, retaining only the debt which springs from love, which we ought to be repaying every day.” (Ancient Christian Commentary on Scripture)

Debt is to be avoided if at all possible, and in the Old Testament charging interest from fellow Israelites was forbidden, as the author states referring to Deut. 23:19-20. In Deut. 15:1-2 we read, “In the seventh year you must declare a cancellation of debts. This is the nature of the cancellation: Every creditor must remit what he has loaned to another person; he must not force payment from his fellow Israelite, for it is to be recognized as 'the LORD's cancellation of debts,'” clearly implying that a wise lender would not lend money for more than six years.

If we adapt these principles to today, we can say that six years should be the maximum length for loans, and the interest rate should be no more than the rate of inflation. Thus, if a person avoids all consumer debt by only paying cash for everything except housing, and buys a small condominium on a 5% loan, it could be paid off fully in six years with total interest of only 16%.

This would have the effect of lessening the increase of the nation's money supply, thus decreasing the rate of inflation. Then as his family grows, he could buy a somewhat larger home and pay it off the same way in six years. Repeating this again when the older children are approaching their teenage years and need more space, the third home is fully paid for by the time the older children are about to go to college, and the parents can afford to pay cash for their higher education at community colleges, eliminating student debt.

If these ideas were adopted by traditional Christians nationwide, it would greatly reduce the rate of inflation caused by banks issuing “new money” for mortgages and consumer debt. The nation could then focus on lowering the national debt. We as Christians should learn to live in moderation and within our means, shining as lights in a dark world, as a city on a hill for all to see and emulate. Then interest rates would fall because far less “fiat currency” is being created.

The usurious interest collected by banks and their investors would decrease, and they would be forced to find jobs that actually produce goods and services for society instead of living off of other people's labor. The seemingly endless cycle of the rich getting richer and the poor getting poorer would be broken, the poor and the middle class would escape debt slavery, once again moving up the economic ladder.

I've been developing these ideas for the last several years, and you can find out about them in more detail from my essay “Escaping Debt Slavery.”

(Linked to www.Hosken-News.info of 29 Oct. 2016.)