5 ms·

What are usurious interest rates? Is some amount of interest ok?

keiferski 2y ago
Depends on whom you ask, but this case had a major effect on removing restrictions: https://en.wikipedia.org/wiki/Marquette_National_Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp https://en.wikipedia.org/wiki/Marquette_National_Bank_of_Min.... Prior to that, usury laws existed in most states that restricted consumer loans to something like 5-13%. Personally I don’t have an issue with the concept of interest itself, but if you look at the huge amount of Americans in debt paying 20-30% on credit cards, it certainly seems excessive and usurious to me.
CamelCaseName 2y ago
It depends (especially with inflation), and yes.
- hgomersall 2y ago
  So it's ok to have high interest rates with the hope it will cause unemployment in the hope that reduces inflation?
  - aprilthird2021 2y ago
    Probably yeah, that's not usurious. Usurious is where you are basically using the loan to give you an excuse to repo / sell off the assets or collateral of the debtor.
    - potato3732842 2y ago
      >using the loan to give you an excuse to repo / sell off the assets or collateral of the debtor. <cough> buy here pay here car lots <cough>.
  - fdfgyu 2y ago
    People cannot borrow money from the central bank. Also, the deflationary effects of high interest rates are not because it causes unemployment, but because it reduced the rate of increase of the money supply. Of course, lowered money is recessionary, which leads to unemployment which puts downward pressure on wages; but wages aren't the reason for inflation - the increase in monetary mass is.
    - throwaway2037 2y ago
      Overall, I like this post. Solid reasoning. This part I have small nitpick about: > Also, the deflationary effects of high interest rates are not because it causes unemployment, but because it reduced the rate of increase of the money supply. I would prefer to say: reduced money supply has an indirect effect upon unemployment. If it costs more to borrow money, corps will expand slower (fewer new jobs), or reduce costs (labour) to increase profits.
      - fdfgyu 2y ago
        Right.
    - hgomersall 2y ago
      The Bank of England quoted reason is explicitly to suppress demand: https://www.bankofengland.co.uk/explainers/how-do-higher-interest-rates-help-to-lower-inflation https://www.bankofengland.co.uk/explainers/how-do-higher-int... It's hard to see how that's not synonymous with increased unemployment, particularly given the oft quoted Phillips curve and the NAIRU.
fodkodrasz 2y ago
Although not directly interest, but in similar vein: There was once a so called fair profit rate of 4% in the middle ages and early modern age, in Hungary. Greek wine traders operating there featured the number 4 on their seals and ornaments of their houses. (They were also often tried for violating this rule) In those ages of course there was no constant inflation in the current sense, gold standard was used for payments, etc. source, in Hungarian language, the site of the greek ethnic minority's cultural institute (the pictures feature one such ornament): https://gorogintezet.hu/kultura/2022/07/gorog-kereskedok-szerepe-a-borkereskedelemben/ https://gorogintezet.hu/kultura/2022/07/gorog-kereskedok-sze... https://gorogintezet.hu/wp-content/uploads/2022/08/15264.jpg https://gorogintezet.hu/wp-content/uploads/2022/08/15264.jpg
- sidewndr46 2y ago
  The entire concept of inflation comes from the fact that various Med. cultures figured out you could issue coinage with a high percentage of gold and then slowly drop the percentage over time to increase the purchasing power of the government. It got insanely bad at some points, with "gold" coinage being less than 50% gold. Inflation wasn't just constant, it was an everyday fact of life.
  - ejstronge 2y ago
    > The entire concept of inflation comes from the fact that various Med. cultures figured out you could issue coinage with a high percentage of gold and then slowly drop the percentage over time to increase the purchasing power of the government. It got insanely bad at some points, with "gold" coinage being less than 50% gold. Inflation wasn't just constant, it was an everyday fact of life. I'm not an expert on this - how does this idea differ from that of 'seigniorage' where the sovereign can profit from the creation of money? Your example only addresses the buying power of the sovereign; it's not obvious that it should affect the prices of goods between private parties. https://en.wikipedia.org/wiki/Seigniorage https://en.wikipedia.org/wiki/Seigniorage
    - TheGeminon 2y ago
throwaway2037 2y ago
This is a fair question. It is arbitrary, but usually over 20-30%.
fdfgyu 2y ago
Depends who you ask. Historically, no amount of compound interest was allowed because it is immoral to receive what is not yours. Then, in the Middle Ages, Catholic theologians added nuance introducing a concept of time value of money - ie when you lend out $100 you also lose the ability to use that $100 for the time of the loan. The concept of a small interest rate was adopted. Which is fine, except it opened the flood gates until we eventually got the high interest rates we have today. What makes our rates usurious? That they are issued with the issuer knowing the principal will never be paid off.
jollyllama 2y ago
As others said, it depends who you ask. The Augustinian view was that usury isn't defined by the rate but when, and I'm explaining this rather poorly, interest is charged for the use of money. Hence "usury." So a typical American mortgage would be usurious in the Augustinian definition, even if the interest rate were, say, 1%. The alternative non-usurious loan would require you to post some other kind of security to receive the money, such as giving the lender the use of some other productive land until the principal debt is paid. More like pawning something at a pawn shop and then buying it back when you get paid.
gen220 2y ago
If you're curious, Martin Luther (of Lutheranism) wrote on this [1], summarized here [2] although the original is quite legible. Mercantilism (i.e. profit-making on the exchange of goods) was a very popular way of making ones' livelihood in his time and place, so it was a frequent question religious leaders were asked to weigh in on. Essentially, "how much profit is too much profit?" [1]: (PDF) https://opensiuc.lib.siu.edu/cgi/viewcontent.cgi?article=5018&context=ocj https://opensiuc.lib.siu.edu/cgi/viewcontent.cgi?article=501... [2]: (PDF) https://history.hanover.edu/hhr/18/HHR2018-fergus.pdf https://history.hanover.edu/hhr/18/HHR2018-fergus.pdf

Depends on whom you ask, but this case had a major effect on removing restrictions: https://en.wikipedia.org/wiki/Marquette_National_Bank_of_Minneapolis_v._First_of_Omaha_Service_Corp https://en.wikipedia.org/wiki/Marquette_National_Bank_of_Min.... Prior to that, usury laws existed in most states that restricted consumer loans to something like 5-13%. Personally I don’t have an issue with the concept of interest itself, but if you look at the huge amount of Americans in debt paying 20-30% on credit cards, it certainly seems excessive and usurious to me.

CamelCaseName 2y ago

It depends (especially with inflation), and yes.

hgomersall 2y ago
So it's ok to have high interest rates with the hope it will cause unemployment in the hope that reduces inflation?
- aprilthird2021 2y ago
  Probably yeah, that's not usurious. Usurious is where you are basically using the loan to give you an excuse to repo / sell off the assets or collateral of the debtor.
  - potato3732842 2y ago
    >using the loan to give you an excuse to repo / sell off the assets or collateral of the debtor. <cough> buy here pay here car lots <cough>.
- fdfgyu 2y ago
  People cannot borrow money from the central bank. Also, the deflationary effects of high interest rates are not because it causes unemployment, but because it reduced the rate of increase of the money supply. Of course, lowered money is recessionary, which leads to unemployment which puts downward pressure on wages; but wages aren't the reason for inflation - the increase in monetary mass is.
  - throwaway2037 2y ago
    Overall, I like this post. Solid reasoning. This part I have small nitpick about: > Also, the deflationary effects of high interest rates are not because it causes unemployment, but because it reduced the rate of increase of the money supply. I would prefer to say: reduced money supply has an indirect effect upon unemployment. If it costs more to borrow money, corps will expand slower (fewer new jobs), or reduce costs (labour) to increase profits.
    - fdfgyu 2y ago
      Right.
  - hgomersall 2y ago
    The Bank of England quoted reason is explicitly to suppress demand: https://www.bankofengland.co.uk/explainers/how-do-higher-interest-rates-help-to-lower-inflation https://www.bankofengland.co.uk/explainers/how-do-higher-int... It's hard to see how that's not synonymous with increased unemployment, particularly given the oft quoted Phillips curve and the NAIRU.

fodkodrasz 2y ago

Although not directly interest, but in similar vein: There was once a so called fair profit rate of 4% in the middle ages and early modern age, in Hungary. Greek wine traders operating there featured the number 4 on their seals and ornaments of their houses. (They were also often tried for violating this rule) In those ages of course there was no constant inflation in the current sense, gold standard was used for payments, etc. source, in Hungarian language, the site of the greek ethnic minority's cultural institute (the pictures feature one such ornament): https://gorogintezet.hu/kultura/2022/07/gorog-kereskedok-szerepe-a-borkereskedelemben/ https://gorogintezet.hu/kultura/2022/07/gorog-kereskedok-sze... https://gorogintezet.hu/wp-content/uploads/2022/08/15264.jpg https://gorogintezet.hu/wp-content/uploads/2022/08/15264.jpg

sidewndr46 2y ago
The entire concept of inflation comes from the fact that various Med. cultures figured out you could issue coinage with a high percentage of gold and then slowly drop the percentage over time to increase the purchasing power of the government. It got insanely bad at some points, with "gold" coinage being less than 50% gold. Inflation wasn't just constant, it was an everyday fact of life.
- ejstronge 2y ago
  > The entire concept of inflation comes from the fact that various Med. cultures figured out you could issue coinage with a high percentage of gold and then slowly drop the percentage over time to increase the purchasing power of the government. It got insanely bad at some points, with "gold" coinage being less than 50% gold. Inflation wasn't just constant, it was an everyday fact of life. I'm not an expert on this - how does this idea differ from that of 'seigniorage' where the sovereign can profit from the creation of money? Your example only addresses the buying power of the sovereign; it's not obvious that it should affect the prices of goods between private parties. https://en.wikipedia.org/wiki/Seigniorage https://en.wikipedia.org/wiki/Seigniorage
  - TheGeminon 2y ago

throwaway2037 2y ago

This is a fair question. It is arbitrary, but usually over 20-30%.

fdfgyu 2y ago

Depends who you ask. Historically, no amount of compound interest was allowed because it is immoral to receive what is not yours. Then, in the Middle Ages, Catholic theologians added nuance introducing a concept of time value of money - ie when you lend out $100 you also lose the ability to use that $100 for the time of the loan. The concept of a small interest rate was adopted. Which is fine, except it opened the flood gates until we eventually got the high interest rates we have today. What makes our rates usurious? That they are issued with the issuer knowing the principal will never be paid off.

jollyllama 2y ago

As others said, it depends who you ask. The Augustinian view was that usury isn't defined by the rate but when, and I'm explaining this rather poorly, interest is charged for the use of money. Hence "usury." So a typical American mortgage would be usurious in the Augustinian definition, even if the interest rate were, say, 1%. The alternative non-usurious loan would require you to post some other kind of security to receive the money, such as giving the lender the use of some other productive land until the principal debt is paid. More like pawning something at a pawn shop and then buying it back when you get paid.

gen220 2y ago

If you're curious, Martin Luther (of Lutheranism) wrote on this [1], summarized here [2] although the original is quite legible. Mercantilism (i.e. profit-making on the exchange of goods) was a very popular way of making ones' livelihood in his time and place, so it was a frequent question religious leaders were asked to weigh in on. Essentially, "how much profit is too much profit?" [1]: (PDF) https://opensiuc.lib.siu.edu/cgi/viewcontent.cgi?article=5018&context=ocj https://opensiuc.lib.siu.edu/cgi/viewcontent.cgi?article=501... [2]: (PDF) https://history.hanover.edu/hhr/18/HHR2018-fergus.pdf https://history.hanover.edu/hhr/18/HHR2018-fergus.pdf