Usury is Catholic

[TimothyH]

This thread is very interesting. I know little about usery but will say that the discussion here brought to mind Dave Ramsey and his Financial Peace University business/ministry/radio show.

His whole schtick is spend less than you make, “The borrower is slave to the lender” and that one should not use credit if one wants financial security. He does make certain concessions to the reality of purchasing a home in today’s world and although he does not term it this way, he basically states that it should be done in the spirit of poverty - a modest, realistically sized home, payments no more than 25% of income, and various other recommendations he makes.

They guy is clearly a died in the wool Protestant based on what I hear him say. Even so, I’d be willing to go as far as to say that he is closer to what the original posters was upset about. Given that most americans are in heavy debt to credit card companies and, at least where I live, are in homes way over their heads, both Dave Ramsey and the OP seem to have a point.

Debt is killing people out there. Its hard to blame it on companies though, people lack self control I guess, me included.

Just thinking out loud. Don’t hate me.

-Tim-

 

[JimG]

This thread is very interesting. I know little about usery but will say that the discussion here brought to mind Dave Ramsey and his Financial Peace University business/ministry/radio show.

His whole schtick is spend less than you make, “The borrower is slave to the lender” and that one should not use credit if one wants financial security. He does make certain concessions to the reality of purchasing a home in today’s world and although he does not term it this way, he basically states that it should be done in the spirit of poverty - a modest, realistically sized home, payments no more than 25% of income, and various other recommendations he makes.

They guy is clearly a died in the wool Protestant based on what I hear him say. Even so, I’d be willing to go as far as to say that he is closer to what the original posters was upset about. Given that most americans are in heavy debt to credit card companies and, at least where I live, are in homes way over their heads, both Dave Ramsey and the OP seem to have a point.

Debt is killing people out there. Its hard to blame it on companies though, people lack self control I guess, me included.

Just thinking out loud. Don’t hate me.

-Tim-

I agree with you. Debt is a way of spending more than you make, and that’s a bad idea. I just disagree with the idea that interest is always evil. It’s just the price paid for the use of money.

Debt is not always a bad thing. Incurring debt for the purchase of a home is one example. But your 25% of income figure for payments is a good idea, now widely ignored and exceeded.

It’s also a bad idea to go into debt for consumer items.

If you buy U.S. savings bonds, you’re loaning money to the government. Normally, that wouldn’t be bad, but the government is such a debt hog, now I’m not sure.

And most businesses must use debt to acquire capital equipment. Farmers couldn’t farm without debt.

 

[JimG]

I just re-read the original post, and it reminded me of something I found after my father died. It was his home mortgage, taken out in 1944 and paid off in 1954. It was a home loan with a 10 year term at 4% interest. The payments were about $45/mo. The house cost about $4,000, and no, he could not have saved up for it. His pay was something less than $1/hr.

Now, I just wish I could get a 4% savings rate from any bank. (There are some outstanding U.S. Savings bonds, though, that are paying 4%.)

 

[Cambridge]

The interest paid on a savings account will not offset inflation.

If you spend less than you earn, you will have savings. You can either put savings in a bank account, thereby charging interest for it, with little (but not zero) risk, or you can invest it in stocks or business for the hope of earning more income, but at a higher risk.

If a widow receives a life insurance settlement, she can either spend it, in which case she will surely not outlive the income, or she can invest or save it, and live off the dividends or interest, leaving the original amount untouched. That’s the correct way to handle life insurance proceeds. But should she receive zero income for this risk?

It has been said that there are only two sources of income: people working, and money working. Neither works for free, although the Fed seems to think now that widows should invest and save for zero income.

If you shop around, the interest currently paid on a one year cd can more than offset inflation, even after capital gains tax.

I don’t know why you think I should feel sorry for the economic condition of people who just cashed in on a huge life insurance policy In any case, what you are talking about is people who have a large pile of money and want to have an income, without spending any of their money or doing any work.

You seem to be interested in a perpetual money machine. That sounds like a nice dream, however, it seems like a horrible reality. In order for your machine to work, someone has to pay for it. Remember what people used to say, “money does not grow on trees.”

In order to pay out high interest on savings, you’ve got to charge high interest on loans or “print” more money, which produces inflation, which makes everyone pay for your high interest savings accounts or tax people to pay for those high interest savings accounts.

The natural order of things seems to punish people (often the innocent) for usury. It appears to make some people work for nothing, so that others can do nothing and get paid for it.

 

[JimG]

I don’t know why you think I should feel sorry for the economic condition of people who just cashed in on a huge life insurance policy In any case, what you are talking about is people who have a large pile of money and want to have an income, without spending any of their money or doing any work.

The purpose of life insurance is to replace the earnings of someone who died and was supporting a family. In order to replace that family member, the insurance proceeds must work to produce income. And for most people with life insurance settlements, even large ones are not sufficient to replace the income of the lost worker. So the family, if it is smart, must reduce its standard of living, or send the mom and kids off to work.

Capital (excess funds) is not, or at least should not be unproductive. Excess earnings can be placed under a mattress or stashed as currency in a safe, and then it IS unproductive. But the means by which individuals, and nations, increase wealth is by putting excess capital to work, not by letting it sit idle.

But at zero percent interest, it sure will sit idle, and the economy will suffer.

(As an aside, how are insurance companies able to pay out claims? They accumulate money and put it to work. The same with university endowments and charitable endowments.)

 

[Timothy17]

I just disagree with the idea that interest is always evil. ** It’s just the price paid for the use of money**.

I want you to think real long and real hard about what you just said. Money does not require tribute. It’s not a sovereign entitiy.

You don’t need to lend money into society. The act of issuing currency is a sovereign one. Any sovereign entity can issue its own credit : the question is whether or not the issuer is themselves credible. If I were to print 5,000 dollars worth of IOUs and “sell” those IOUs for 4,500 hundred dollars, then my friends would gobble them up, because they know it’s as good as gold. They know I will go out of my way to pay them back.

You don’t have to lend money into an economy. You can just as easily spend it into the economy. The American “greenback” was originally spent by President Lincoln into the economy. He wasn’t stupid : he gave it to his soliders for salary, knowing full-well that no one was going to risk angering a war-tested vet by refusing the fair compensation of his service for their country, and seeing as they were victorious there was no disputing whose money was going to be the coin of the realm. In this way he avoided paying stupendous interest on loans to finance the Union war effort.

Since the government has an interest just as any to keep inflation reasonable or even non-existent, and since only the government can determine what is legal tender, and further since the government has the taxing power, it can just as easily combat inflation by not re-circulating old notes collected via taxation, thus reducing the supply or, contrawise, not issue new currency but recycle existing currency collected via taxation.

My issue is with the fact that all money in the West is directly loaned into society, but it’s just a note : its value is owing to the public institutions and laws that enforce its status as legal tender and make it so. The primary value of money is created by civil society ; not by private or quasi-private banking houses. The U.S government, for example, could shut the Fed down tomorrow, and the currency would still be valuable (arguably more valuable), because it’s not the Fed that gives money its legal tender status, it’s the U.S government. People could care less if it said “FEDERAL RESERVE NOTE” or “US TREASURY NOTE” on their money : so long as it’s accepted. The government can instantly create value in whatever it issues as currency by making it the only thing acceptable to discharge debts, dues, fines, taxes, etc., owed to the government. That’s the beauty of being sovereign.

Pax,
Tim

 

[JimG]

I want you to think real long and real hard about what you just said. Money does not require tribute. It’s not a sovereign entitiy.

Well, I’m not a sovereign entity either, in the way that nations are, but I still want to be paid for my work. And money can still be used for productive purposes. Recall the gospel parable where the master praises his servants who invested his money to earn a return, and condemns the one who buried it in the ground.

Of course people don’t care whether their money consists of Federal Reserve notes or United States Notes, as long as it is legal tender. But it’s real value comes from the gross national product, the value of all the goods and services produced in the nation. It has to represent that value. If the government prints too much of it, electronically or otherwise, it will be worth less.

But the Fed right now is less worried about inflation than they are about deflation. Which is probably a mistake.

I’m not getting the connection between monetary policy and the charging of interest. Seems we’ve changed the subject. The only connection I see is that the Fed now controls interest rates–at an artificially low level–when it should let the market control them.

 

[Timothy17]

Capital (excess funds) is not, or at least should not be unproductive. Excess earnings can be placed under a mattress or stashed as currency in a safe, and then it IS unproductive. But the means by which individuals, and nations, increase wealth is by putting excess capital to work, not by letting it sit idle.

Your argument is correct in some instances, but not the ones we are concerned with, which is principally the lending industry (not the investment/stock market).

The loans we receive from banks are not capital loans (excess funds). They are book credit based upon deposits, and depositers are denied any right to refuse consent in the bank using their deposits as the lein or capital-backing assett for facilitating book credit loans.

Banks issue new credit up to X (I believe presently nine) times their deposits. So an hundred dollar bank deposit (excess capital) is used to lend up to $900.00 dollars at interest. The bank does not earn this in any way whatsoever : it is a legally invented privilege that is rigorously guarded (you and I cannot do this, that would be money laundering or cooking the books or some other combination of financial crime). This is why bank-runs are so dangerous, especially for banks. If the deposits dry up then their initial backing for their book credit is i) exhausted, and furthermore ii) without deposits, they cannot issue any more book credit, and therefore they must call in all their loans as quickly as possible, deny lengthening repayments, seize assetts to sell and reacquire some capital, etc.

Now the stock market certainly is excess capital being invested for the purpose of earning interest ; however, there is an awesome difference : the lender carries the risk, not the borrower, which is sensical. The borrower is the one making the capital productive, and the lender can never argue duress as he is freely risking his own surplus earnings to make future gains. With bank-lending, however, the relationship is reversed and substantially different : the lender is exercising a legally created privilege with minimum risk, and the borrower is himself taking most of the risk. The stronger party in the relationship has, quite literally, all the power, and the weaker party has virtually none.

Pax,
Tim

 

[Cathoholic]

Usury - Father Coulter does a pretty good job on outlining the usury issue here and gives even more detail here.

 

[Timothy17]

Usury - Father Coulter does a pretty good job on outlining the usury issue here and gives even more detail here.

This looks very good - thank you !

 

[JimG]

Usury - Father Coulter does a pretty good job on outlining the usury issue here and gives even more detail here.

Thanks for the link. This is an in-depth study, from the standpoint of the Church’s teaching on usury and its application.

 

[JimG]

The average investor probably does not care a whole lot whether his money is invested in stocks, bonds, or CD’s, provided the return is commensurate to the risk. If interest on CD’s is immoral while returns on stocks is moral, I doubt that most people see any ethical difference. In any case, I doubt that CD holders could be convinced that the only moral course of action would be to take everything out of CD’s and put it in the stock market.

Lenders certainly do incur the risk of non-payment. And they find ways to reduce that risk by transferring ownership of the loan to others who are willing to incur the risk–i.e. securitization of mortgages.

But owners incur the risk of ownership, and that includes the risk of decline in value. If I borrow money to buy a new car, I know it’s going to decline in value, though in rare cases, it may increase. In any case, I as owner, am recipient of the appreciation or the decline. Same with borrowing money to buy stocks. Or homes. If the home increases in value, I get the appreciation, not the lender. And if it declines in value, I get the loss. And in that case, the lender may not be repaid, thereby actualizing his risk of loss through default.

The thing is though, in a declining housing market where people got 100% loans at the top of the market, they simply cannot absorb that loss, so they walk away, transferring the loss to the lender, or the holders of the mortgage.

 

[Timothy17]

The average investor probably does not care a whole lot whether his money is invested in stocks, bonds, or CD’s, provided the return is commensurate to the risk. If interest on CD’s is immoral while returns on stocks is moral, I doubt that most people see any ethical difference. In any case, I doubt that CD holders could be convinced that the only moral course of action would be to take everything out of CD’s and put it in the stock market.

Lenders certainly do incur the risk of non-payment. And they find ways to reduce that risk by transferring ownership of the loan to others who are willing to incur the risk–i.e. securitization of mortgages.

But owners incur the risk of ownership, and that includes the risk of decline in value. If I borrow money to buy a new car, I know it’s going to decline in value, though in rare cases, it may increase. In any case, I as owner, am recipient of the appreciation or the decline. Same with borrowing money to buy stocks. Or homes. If the home increases in value, I get the appreciation, not the lender. And if it declines in value, I get the loss. And in that case, the lender may not be repaid, thereby actualizing his risk of loss through default.

The thing is though, in a declining housing market where people got 100% loans at the top of the market, they simply cannot absorb that loss, so they walk away, transferring the loss to the lender, or the holders of the mortgage.

I think you overlooked the book-credit question. Is it economically justifiable for a privileged institution to create money by fiat ? For example, how does an economist justify the long-standing rule of permitting private banks to loan up to nine times their CD’s ? Why not eight, ten, or ten-thousand times ? One would naturally argue that money and credit must, of course, issue from somewhere. The question then becomes, “Why, how, and by whom ought it properly originate ?” My argument is that the banking establishment is a privileged benefactor under the present monetary regime, at the expense of both social justice and sound economics. One can contest the present monetary regime purely on either economic or moral reasons/principles, because there are natural laws and reasons at play to which it is in society’s interest to understand and be in both harmony and conformity with.

The long, sordid history of Western economies - especially in modern times - cries out that there are serious underlying errors and problems in our economic structures. The constant reflexing between boom and bust seems not only unnatural, but something that constantly exposes man and society to the worst possible environments : unfettered speculation and unbridled greed on one hand - undoubtedly a jading influence that puffs up excessive individualism - followed thereafter by depravation and desperation, exposing him again to all sorts of evils, and inducing him to misanthropy, among other things. We seem to constantly be stuck between two extremes, and I am not convinved this is in anyway a reflection of natural law, which laws tend toward balance.

Pax,
Tim

 

[LilyM]

To offset inflation; maybe, but to pay you an income, why? You aren’t producing anything.

http://t1.gstatic.com/images?q=tbn:ANd9GcT-vEHs73rpIbz2UvTY7soCFcH_bbdl9YDjEP5GYk9IZMbefmvyWg

Remember the parable of the three servants in the Gospels? The wise ones were rewarded for investing the money entrusted to them and thereby making a profit.

These days not all of us directly invest money ourselves, but the banks we deposit it with certainly do it for us. In productive business ventures too, not just useless stuff.

So I have no problem with earning interest on it because it’s still me wisely investing my money, albeit in an indirect fashion.

 

[Darkbloom]

To claim that usury is evil is to admit you understand neither theology nor economics.

Probably the most central reason for our recent economic trouble has been the price of money (interest) being kept artificially low, which encouraged people to use the resource as though it were more plentiful than it really was.

If anything, it would be more moral to discourage this sort of over-consumption by charging more for money, thereby saving millions of people much trouble and heartache.

 

[Cambridge]

The purpose of life insurance is to replace the earnings of someone who died and was supporting a family. In order to replace that family member, the insurance proceeds must work to produce income. And for most people with life insurance settlements, even large ones are not sufficient to replace the income of the lost worker. So the family, if it is smart, must reduce its standard of living, or send the mom and kids off to work.

Capital (excess funds) is not, or at least should not be unproductive. Excess earnings can be placed under a mattress or stashed as currency in a safe, and then it IS unproductive. But the means by which individuals, and nations, increase wealth is by putting excess capital to work, not by letting it sit idle.

But at zero percent interest, it sure will sit idle, and the economy will suffer.

(As an aside, how are insurance companies able to pay out claims? They accumulate money and put it to work. The same with university endowments and charitable endowments.)

The rule of thumb for Term Life Insurance is no more than 10 years of income replacement, not a lifetime of income replacement. And of course, that is only at the beginning of the term; it steadily decreases over time, thanks to inflation, but of course, the payment also “decreases.”

I think you are conflating a few things. First, a savings account/cd and stocks and bonds are very different things.

In regards to interest rates and investments, people are buying other things or just buying CDs, since even a one year CD pays more than the current rate of inflation.

Insurance companies that survive, take in more money, than they pay out. Their investments should be low risk and low return.

 

[Cambridge]

Charging interest on loans is totally kosher with the Catholic Church, according to my RCIA instructor.

Someone want to explain to me at what point the Church stopped protesting charging people interest? I know (everyone does) that in the Middle Ages this was known as “usury” and forbidden. When did the Church officially recant this? And don’t just cite Vatican II or a Pope, actually link a document and the paragraph.

We rightfully protest abortion, for example, but we ignore the systematic and merciless plundering of entire nations, peoples and families on a global scale. Interest is the business of misers and the consequence is economic misery - why doesn’t the Church protest and condemn this? Maybe poor people and people who have a genuine interest about social justice might just take a second look at the Church if they saw that some of our teachings/rules weren’t just about sexual behaviour but also about defending and protecting the poor.

Honestly, have we just lost our nerve or are we simply too afraid to rock the establishment or is it more likely that too many Catholics are betrothed to loans to dare speak against the practice?

**Recently it was my Aunt’s 50th birthday celebration, and they showed a slideshow and quoted some interesting statistics. One was the average salary a person made in 1960: $5,300.00, and the other was the average price of a house, $12,700.00. Someone could actually save their money for a few years and straight-up and outright buy their house, with the help of parents. Now, people need 25-40 year loans to afford one.
**
Why doesn’t the Church call a spade a spade and protest usury and an economic system based upon it?

I think that’s a good point. Easy lending has encouraged people to go into debt, just to buy a house. The idea of buying a home, without going into to debt, seems like something only people like Mel Gibson can do, not the average American. Yet, it seems as if they should be able to, given the ease with which homebuilders can build a home today. The productivity of workers has increased dramatically, due mostly to improvements in construction materials, but also in tools. Adjusted for inflation, the cost of the materials themselves, have also declined dramatically (just think about plywood and drywall). The man hours that go into constructing a 1000 square foot home have plummeted, yet their price has climbed and climbed and climbed. Wages have not kept up. So, it seems like there is a major problem in the way our economy is being governed and the average person seems to be the one who suffers for it. I think the primary cause for home prices is a deliberate attempt to get people into debt, for the purpose of extracting wealth from them and giving them back nothing in return. Which is basically what usury seems to be all about; exploiting your neighbor. It seems as if this takes the cooperation of Big Business and Big Government to accomplish. The people appear to be the victims of their own vices being manipulated by their own leadership, in a way that can only be described as abusive.

How is it that Americans have come to think that a bank that charges them 3 times what a home is worth is doing them a favor, instead of taking advantage of them? It seems as if they are being taught to think that way, because it seems like an unnatural conclusion for them to come to on their own.

 

[Timothy17]

To claim that usury is evil is to admit you understand neither theology nor economics.

Probably the most central reason for our recent economic trouble has been the price of money (interest) being kept artificially low, which encouraged people to use the resource as though it were more plentiful than it really was.

If anything, it would be more moral to discourage this sort of over-consumption by charging more for money, thereby saving millions of people much trouble and heartache.

Dear Darkbloom,

Usury is most certainly an evil. The Church’s teaching on this has not changed (please see links provided in previous posts to Father Coutler’s paper, for example). What we are discussing is exactly what constitutes usury on one hand, and legitimate interest on another.

To repeat my concern elaborated upon in more recent posts,

We have a monetary system (of course). This system is artificial and man-made, and it has “rubrics” (as it were) as to how it works and operates. Anything man made will, of course, be subject to fault, error, etc. Presently, all Western economies lend all money into society, albeit at present at a very low interest rate, which means all money must, ultimately, be returned to the lender (plus whatever outstanding interest). My moral concern in this system is that the semi- or quasi-private nature of Central Bank systems permits a privileged, private class to enjoy incomes that do not naturally, properly or rightfully belong to them. It is not a sect of private individuals who make money valuable (determining its price), but rather it is the State, its society and laws that facilitate this. The Fed has been granted a privilege by Congress (in the US model) to create infinite book credit and lend it back to the governments or to banks at a fixed (or no) rate of interest. My thesis is that this privilege is unnatural and improper, as the ability to create book credit exists by artificial construct of the laws, so institutions like the Fed do engage in usury, properly understood, by demanding repayment above and beyond the principle lent, as the real “price” of money is not the interest rate at all, but civilization itself, which the Fed certainly cannot take credit for. This is especially unnatural when the State is forced to pay interest to the Fed, which is a creature and construct of the State. It seems not a little bit silly for a sovereign entity, such as the US government, to painfully indebt itself to its own creature and construct.

To illustrate better my point : consider the consequences that widespread anarchy and lawlessness would have on the value of money it they were to overwhelmingly prevail, and the State did nothing to combat it. Theft and robbery would clearly destroy productivity and create a massive transfer of wealth from useful producers to useless consumers (the criminals). Clearly property laws and law enforcement are necessary to even permit a currency-based economy. It’s the State - not the banks - who, with laws and justice, create such an environment where civilized economy can occur, and it’s the (presumably civilized) society that, by subjecting themselves to those rules and laws, make it feasible and actuate it.

No one is denying that there are situations where interest, properly understood, can be rightfully earned.

Pax,
Tim

 

[Darkbloom]

Dear Darkbloom,

Usury is most certainly an evil. The Church’s teaching on this has not changed (please see links provided in previous posts to Father Coutler’s paper, for example). What we are discussing is exactly what constitutes usury on one hand, and legitimate interest on another.

Duly noted. I was being sloppy with the terminology.

We have a monetary system (of course). This system is artificial and man-made, and it has “rubrics” (as it were) as to how it works and operates.

I am not sure that “man-made” is necessarily the same as “artificial”, or that “artificial” is synonymous with “bad”.

My moral concern in this system is that the semi- or quasi-private nature of Central Bank systems permits a privileged, private class to enjoy incomes that do not naturally, properly or rightfully belong to them. It is not a sect of private individuals who make money valuable (determining its price), but rather it is the State, its society and laws that facilitate this. The Fed has been granted a privilege by Congress (in the US model) to create infinite book credit and lend it back to the governments or to banks at a fixed (or no) rate of interest. My thesis is that this privilege is unnatural and improper, as the ability to create book credit exists by artificial construct of the laws, so institutions like the Fed do engage in usury, properly understood, by demanding repayment above and beyond the principle lent, as the real “price” of money is not the interest rate at all, but civilization itself, which the Fed certainly cannot take credit for. This is especially unnatural when the State is forced to pay interest to the Fed, which is a creature and construct of the State. It seems not a little bit silly for a sovereign entity, such as the US government, to painfully indebt itself to its own creature and construct.

I am a dyed-in-the-wool libertarian. I share all your concerns about fiat currencies and the like.

I also think that there is a moral imperative on the part of lenders not take advantage of others.

That being said, I do think that we need to be realistic and understand that any complex economy is going to need a monetary and banking system, and that system will contain certain contingent institutions that are matter of convention.

To say it another way, there is no modally necessary reason we stop at red lights and go on green. It could have been any number of ways. But it is necessary for the functioning of the roads that we adhere to this convention.

The same is true with banking practices. Our system is not the only possible one, but it seems to be fairly effective and there would be untold problems and unintended consequences if we were to meddle with that system out of misplaced piety.

To illustrate better my point : consider the consequences that widespread anarchy and lawlessness would have on the value of money it they were to overwhelmingly prevail, and the State did nothing to combat it. Theft and robbery would clearly destroy productivity and create a massive transfer of wealth from useful producers to useless consumers (the criminals). Clearly property laws and law enforcement are necessary to even permit a currency-based economy. It’s the State - not the banks - who, with laws and justice, create such an environment where civilized economy can occur, and it’s the (presumably civilized) society that, by subjecting themselves to those rules and laws, make it feasible and actuate it.

No one is denying that there are situations where interest, properly understood, can be rightfully earned.

Pax,
Tim

I think we are more or less in agreement. What I really object to is the sort of language (parasite, useless, blood sucking, etc) that this topic elicits from certain people. It is very dangerous

 

[Timothy17]

I think that’s a good point. Easy lending has encouraged people to go into debt, just to buy a house. The idea of buying a home, without going into to debt, seems like something only people like Mel Gibson can do, not the average American. Yet, it seems as if they should be able to, given the ease with which homebuilders can build a home today. The productivity of workers has increased dramatically, due mostly to improvements in construction materials, but also in tools. Adjusted for inflation, the cost of the materials themselves, have also declined dramatically (just think about plywood and drywall). The man hours that go into constructing a 1000 square foot home have plummeted, yet their price has climbed and climbed and climbed. Wages have not kept up. So, it seems like there is a major problem in the way our economy is being governed and the average person seems to be the one who suffers for it. I think the primary cause for home prices is a deliberate attempt to get people into debt, for the purpose of extracting wealth from them and giving them back nothing in return. Which is basically what usury seems to be all about; exploiting your neighbor. It seems as if this takes the cooperation of Big Business and Big Government to accomplish. The people appear to be the victims of their own vices being manipulated by their own leadership, in a way that can only be described as abusive.

How is it that Americans have come to think that a bank that charges them 3 times what a home is worth is doing them a favor, instead of taking advantage of them? It seems as if they are being taught to think that way, because it seems like an unnatural conclusion for them to come to on their own.

Yes, you bring up an excellent point about the problem : ceteris paribus, the price of things tend to go down as time passes owing to improvements. One previous poster mentioned that houses are much larger and more elaborate than in the 1960s, and that this is the cause of their increase in price ; however, as you noted, in normal economic conditions as improvements are made in the industry, it increases the value and utility of money, so someone should be able to purchase, for example, a larger house at the same price someone paid for a smaller one several years back. This is standard economics. It’s the same reason that laptops, televisions and desktop PCs are cheaper now than ever before, even though the product is far, far superior. Housing is no different. Granted, the land value plays an important role, but as anyone knows, the value of the land is only ever fractional to that of the house.

Clearly there is market manipulation at play in the housing industry where it is more clearly seen that the usual economic laws have not only been suspended, but entirely reversed. Technically speaking, it should be far cheaper today than ever to purchase and own a home and to pay it off quickly, as unlike in the 1960’s, both husband and wife are likely working. The time to pay off a house should have, ceteris paribus, at least halved (if contribution to principal repyayment is doubled by dual income) or, if the spouses maximize their purchasing power, remained equal but resulted in a vastly larger or superior home (in improved location and quality, we’d assume) ; however, we see the exact opposite has occured. It takes far longer than ever to pay for one’s house, it is now a generational enterprise for many people.

Pax,
Tim