Interest

I wanted to think about interest separate from debt. That is an artificial distinction, of course, but that is true of many of the threads in this section. But it does seem that interest is not monolithic in its effects, so it might be possible to find out something about that if we try to see it in isolation.

In both Christianity in the past, and in islam even now, interest is forbidden. I find that very interesting because these are two very major religions, covering a vast number of people and a big area: and for some reason they actively deplore the charging of interest. It may be that this is just a consequence of their judaic roots, and that there is nothing particularly significant about it. An accident of one small groups's particular taboos, which spread with that group's influence. Perhaps the fact that christians have abandoned the prohibition lends weight to that idea. But so far as I know there is no direct instruction against it in the old testament, though there is a prohibition on a jew charging interest on another jew: so it would appear that the strong aversion does not come from the parent religion.

Christianity, and presumably islam, were also influenced by other cultures, notably Greek and Roman. They, too, had a distaste for the charging of interest, and at the very least the rates which could be charged were regulated by law most of the time. It seems reasonable to conclude that the charging of interest was seen to be an important phenomenon, which was widespread, and which had potentially damaging effects on the society, so that it needed to be discouraged, or at least regulated strongly. Given the very wide acceptance of it now, that is rather strange to modern ears. And yet we do still regulate it. It follows that there is some damage which arises from the practice, which needs to be recognised and addressed.

It seems to me that one of the problems in considering this issue is the many hats that money wears. That is, as BobC pointed up in another thread, a problem in many of these issues; and it is difficult to see through the fog to what function it is serving in any given instance. So the first question is "what is interest for?"

That of course brings us to the question of lending, and therefore of debt, immediately. So from the lender's point of view, what is the point of making a loan? That is another of those questions which look simple, but turn out not to be.

Let us suppose that people are reasonably sensible, and that some people are richer than others. There is a limit to the utility of wealth, for the individual, because money is not valuable in itself. That is recognised in the attitude we have to the archetypal miser: he is a figure of fun because he has a fundamental misunderstanding of the status of money; he sees it as an end in itself. His position is understandable because we all have some element of that in our relationship with money: it is hard to see it as a means to an end, and easy to imagine that "one can never be too rich or too thin". But the miser figure points up the absurdity through exaggeration, and he does indeed make matters plain.

It follows that there is something silly about continuing to amass money beyond the point where you can think of something to do with it: and once again we may turn to Bill Bryson's "At Home" for entertaining examples of people who illustrate that at the extreme. Very rich people who can think of nothing better to do with money than to keep a second house next door for the sole purpose of perpetually redecorating it are entertaining to read about: they are also extremely peculiar. Seen in this way the amassing of money is no more reasonable than the amassing of sofas: when you cannot enter your living room because it is full of sofas, you have lost the plot. The problem in seeing that money is just the same is two fold: we do not actually have to devote whole rooms to storing it, because it is small, and because we can put it in the bank. We do not have to be like dragons and sleep on it: so oversupply does not inconvenience us, as too many sofas do. This was not so true in the past because money was in the form of commodities, and in principle the problem would eventually present itself in exactly the same way: folk lore is full of descriptions of caves or rooms filled to the brim with "treasure": and of course the conversion of the means of exchange into objects has a long tradition: if you are going to store a vast sum of gold then you make it into the sofa: that way it gains a utility and saves space. It is not especially attractive unless you have the miser attitude: and it is not necessarily the best material to make a sofa out of: but it solves a problem, kind of. And it does impress the neighbours.

But a better way of solving the same problem is to give it to someone else: someone who does not have a surplus. If you genuinely have no use for it then you can do that. It is not much different from giving surplus clothes or books away. It is charity, in fact. It is generally held to be a good thing in itself, and we do not expect a return on charity: at least not in money terms. As I understand it, there have in some societies been institutional arrangements for recognising this aspect of the accumulation of wealth. Sometimes called "potlatch" it involves periodic redistribution through the giving of gifts. Effectively this is a solution to the problem which tends to arise in all economic systems, over time: the rich get richer and they run out of ideas. Potlatch recognises that there is a big element of luck in amassing wealth, and that having done so it is likely you will continue to amass it: and it resets the distribution from time to time. That is anathema to a society which has persuaded itself that wealth is accrued through effort and ingenuity: and which sees riches as symptomatic of virtue. But there is nothing objective about that perception and it is obviously not univeral. Potlatch was, I believe, actively suppressed by the colonial powers, and that tells you something about the challenge it represents to our own perceptions of rational behaviour, I think. We always have an agenda and a set of presumptions: often we don't look at them too closely.

Charity or potlatch is a great solution to the problem of concentration of wealth (if you see that as a problem) if you live in a small group: it is not so good when the group is larger, because then what happens is that those who are giving some of their surplus away tend to want to control where it goes, depending on their own particular values. They are apt to see it as "theirs" and so are comfortable if they can control its future use. That is understandable and I think it is probably more common than not: we all have our prejudices and our sympathies and so we wish to help those we see as unfortunate: and avoid helping those we see as feckless or undeserving. That is reinforced where the idea of wealth accumulation as related to virtue takes hold. And the physical and social separation of rich and poor gives another turn to that wheel: it is much harder to other a group you actually mix with than one you only know through hearsay and not as individuals. There are limits to our empathy, after all.

One solution to that is to insert a middle man in the form of the church or state, for example. I think the state is better, because churches are apt to make charity dependent on professions of faith: so you get phenomena like "rice christians" in china in the 19th century: but that is not inevitable, and there are religious groups who adminster charity without conditions. Nonetheless the state is comprised of all citizens and has a duty of care for all: it also has the power to enforce "charity" so that those rich people who have the miser mentality are made to participate in the redistribution despite their personality disorder. (A further advantage is that if a basic standard of living is a right there is less stigma attached to the redistribution: that is one of the reasons why universal benefits are superior to the current fad of "targetting the most needy". But I digress) From this point of view taxation is the modern equivalent of "potlatch" and legal obligation takes the place of social pressure in circumstances of large groups where such pressure can be avoided because of the functional distance between groups who are ostensibly part of one community. At some times the obligation to pay tax for this kind of purpose is widely accepted as just: at other times the misers are in the ascendant and they splutter that such redistribution is theft of wealth they acquired on merit or through their virtue, or whatever. When the misers are a strong narrative force we stop laughing at them, though I cannot for the lfe of me think why: they remain absurd to my eyes, even while they cause untold harm.

So if the purpose of giving away money is redistribution there can be no justification for interest at all. And that is one form of organising a society, with hope and justice for all. It is this kind of conception which I think underpins the traditional disapproval of usury (which originally meant all interest, though it has subsequently come to mean "excessive" interest: a shift which is interesting in its legitimation of the idea of interest: it is instructive to read the rather wriggly approach of the catholic church in this connection: they do seem to struggle with it ).

Time to start a new post I think: subject too big for one: aren't they all