Catholic views on Economics

[JanSobieskiIII]

Just perused that, the biggest issue is the wish to do away with profit/interest based lending.

I’m aware of the Catholic churches teaching on usury but it really is necessary for a functioning economy. Without pools of capital to be lent out, and without a profit incentive for people to allow their capital to be lent, it creates a shortage of capital to be used and creates a stifled environment.

 

[NickyMaz]

Somalia actually has some stuff going for it, they have oil reserves and other natural resources and they have a central government for the first time since the 90’s. Somalia is a country that had a socialist government for 30 years before disintegrating into tribal civil war and now dealing with islamist insurgency (al qaeda, ISIS). It’s a terrible situation that has deep roots in social, ethnic and religious reasons but they’re on the up-swing,

 

[phil19034]

Just perused that, the biggest issue is the wish to do away with profit/interest based lending.

I’m aware of the Catholic churches teaching on usury but it really is necessary for a functioning economy. Without pools of capital to be lent out, and without a profit incentive for people to allow their capital to be lent, it creates a shortage of capital to be used and creates a stifled environment.

I think that’s one area where there is some latitude among supporters of distributism. There is a big difference between a 3% interest rate and a 21% interest rate.

God Bless

 

[Bon_Croix]

I think that anyone who claims that Protestant’s have a unified theory or view on economics has as much place to be considered an expert on economic theory as one who claims that Protestant’s have a unified theology or Christian teaching.

 

[Maximilian75]

I dont think that reasonable interest falls within ursury… as someone else said, there is a big difference between 3% and 20% interest

 

[exnihilo]

Is that why Somalia does so well? They don’t have to worry about wasteful government projects.

I don’t know anything about the Somalian economy. What I know about the US is we do well despite our wasteful government projects. That is because we have a strong economy. But when the day comes, and it is coming, that this is no longer so then things will be different.

 

[JanSobieskiIII]

True, but interest rates are usually a reflection of the available supply as well as an estimation of a persons likelihood of paying back the loan.

When there’s a larger pool of capital money tends to be cheaper, when there’s not as much available rates tend to be higher because of more demand and less supply, it’s one of the markets natural abilities to distribute resources most efficiently.

Take disaster situations for example, when Houston was hit with a hurricane the price of bottled water went up, because the supply of potable water went down.

Now, if the price had remained super low, one person could have bought up far more than they’d need leaving less, or none at all, available for others. By charging more, they made it cost prohibitive for someone to hoard it and restrict access by others.

Same thing with a 21% interest rate, if the standard rate is that high it helps keep people from borrowing money who don’t really need it, and leaves it available for those that do.

 

[phil19034]

True, but interest rates are usually a reflection of the available supply as well as an estimation of a persons likelihood of paying back the loan.

When there’s a larger pool of capital money tends to be cheaper, when there’s not as much available rates tend to be higher because of more demand and less supply, it’s one of the markets natural abilities to distribute resources most efficiently.

Take disaster situations for example, when Houston was hit with a hurricane the price of bottled water went up, because the supply of potable water went down.

Now, if the price had remained super low, one person could have bought up far more than they’d need leaving less, or none at all, available for others. By charging more, they made it cost prohibitive for someone to hoard it and restrict access by others.

Same thing with a 21% interest rate, if the standard rate is that high it helps keep people from borrowing money who don’t really need it, and leaves it available for those that do.

OK, my point was simply that this is an area where there is room for interpretation. No everyone views interest based lending as usury, provided that the people with bank accounts there are getting a market share of the interest.

For example: if a bank is charging 21% interest on most of the loans, but only giving out 0.2% on savings accounts… then the optics there are not too good.

But if they are giving out 0.2% on savings accounts and the interest rates on most loans are at 5%, then the optics aren’t so bad in today’s banking world.

Point is… I’m not trying to get into an economics debate… I’m just saying that not everyone who supports distributism says you can’t have interest based lending. They just don’t want to see it abused.

 

[exnihilo]

Point is… I’m not trying to get into an economics debate… I’m just saying that not everyone who supports distributism says you can’t have interest based lending. They just don’t want to see it abused.

Interest and usury (if there is a distinction) is an area where I really struggle to understand what is right. I certainly don’t deny the idea that it can be unfair. But I have never been made to understand an objective, or even somewhat objective, measure for what is unfair.

 

[Bon_Croix]

Well, it is a complicated matter. Exceedingly high rates are a true injustice to the poor.

Now, there is such thing as loan forgiveness (a private transaction) as well as bankruptcy (which is Federal).

 

[exnihilo]

Exceedingly high rates are a true injustice to the poor.

What is exceedingly high?

 

[Bon_Croix]

Well, 10,000 in loan forgiveness could offset a lot of those interest accruals and save a bank’s reputation (hopefully not too late).

 

[Genesis315]

Usury is not about a particular rate level that is unfair. It is about charging something for nothing which is by definition unjust. The Fifth Lateran Council has a good definition:

For, that is the real meaning of usury: when, from its use, a thing which produces nothing is applied to the acquiring of gain and profit without any work, any expense or any risk.

Interest, therefore, can be charged on a productive loan (ie to share in the fruit of what has been lent), or to account for work, expenses, and risk (ie to cover losses or expected losses, including lawful opportunity costs, incurred by making the loan).

 

[Metis1]

I think laissez faire capitalism is a strawman some trot out far too often. I don’t see a lot of laissez faire capitalism these days, rather I see a lot of heavily regulated markets, price controls and other means to frustrate economic growth.

I wasn’t referring to “these says”.

 

[Theo520]

And the Church should continue to rightly condemn unbridled Capitalism, which is not something we have in the United States.

Where do we have unbridled capitalism in the whole world?

You could say it existed during the start of the industrial revolution, but that was completely uncharted territory and society did respond with changes to protect both worker and consumer. That era was very different in many ways. People were eager to work in the factories because sadly, it was still the best option available.

Some developing countries do have high corruption and low standards of worker protection. I think this speaks more to the maturity of their governance than unbridled capitalism though.

 

[Bon_Croix]

There is no unbridled capitalism in the U.S., but there is overbridled capitalism and an underbridled FBI.

 

[phil19034]

phil19034:

And the Church should continue to rightly condemn unbridled Capitalism, which is not something we have in the United States.

Where do we have unbridled capitalism in the whole world?

You could say it existed during the start of the industrial revolution, but that was completely uncharted territory and society did respond with changes to protect both worker and consumer. That era was very different in many ways. People were eager to work in the factories because sadly, it was still the best option available.

Some developing countries do have high corruption and low standards of worker protection. I think this speaks more to the maturity of their governance than unbridled capitalism though.

There are places in the third world where they still use child labor, and sweatshops, etc. That’s what I would call “unbridled capitalism.”

 

[Theo520]

There are places in the third world where they still use child labor, and sweatshops, etc. That’s what I would call “unbridled capitalism.”

Have you been to those places?

I would say they resemble our experience during the industrial revolution. The people taking the jobs think it’s a good job to have, and their government is very immature or corrupt. In many cases they may have adopted UN recommendations but they lack any will to enforce. I’m talking about actual sweat shops.

I’ve been to a number of factories in Asia, in the electronics business. Companies hired graduates, not children. The pay was good (for them) and expectations for quality were high. I think the garment industry was more prone to sweatshop working conditions, but that’s my speculation. I only saw factories in the electronics industry.

 

[Arkansan]

I’m aware of the Catholic churches teaching on usury but it really is necessary for a functioning economy.

No, it really isn’t. Capital projects can be funded by purely collateralized loans, there’s no need to have anyone be personally on the hook for making a return on an investment.

Talk to anyone who’s actually involved in investment banking. They all know that if a project is any good, it won’t require personal guarantees, and that if such are included, it’s reason to be suspicious.

Usury (meaning, interest bearing loans that people are personally on the hook for, per Vix Pervenit) is a scam to take advantage of needy and/or financially illiterate people.

 

[Arkansan]

If you want to understand what usury is and isn’t, read Vix Pervenit. It doesn’t have anything to do with whether rates are excessive* or whether the loan is productive or whatever. What it has to do with, is whether an interest bearing loan is backed up by actual collateral, or a personal promise. Unless there’s some specific expense extrinsic to the loan itself, it’s unjust to hold someone personally responsible for paying back more than they were lent.

*Of course, excessive interest rates in collateralized contracts may still be unjust, but not usury per se.