Category Archives: Money

You Betcha

June 6, 2018Freedom, Money, Moralilty, VirtueBetting, Catholic Church Teaching on Gambling, Gamblingtwowingstogod@gmail.com

Last month the Supreme Court struck down a federal law that prohibited sports gambling, paving the way for states to fabricate their own legislation regarding sports betting. What each of the states end up doing is still to be decided, but before political expediency takes over, we should take an opportunity to consider the morality of gambling. The topic of gambling and games of chance is not foreign to the moral teachings of the Church. It has been a part of her Magisterium from very early on. And so we can look at the principles that have been articulated in order to shine some light upon the subject of betting.

Over the past century, the Church has seen a profound shift in her pedagogical methods. Gone are the days of the manualists, paving the way for more positive virtue-based pedagogy. Fr. Reginald Garrigou-Lagrange described the prevailing views of the two schools as “the science of virtues versus the science of sins to be avoided.” Whether this change in emphasis is a good thing or not is a question for another time, but what is not questionable is the fact that the “science of the virtues” approach has brought with it an open antagonism towards the science of “sins to be avoided.” The manuals were very useful at the time because of the manner in which they taught. They would first articulate general moral principles and then give examples of applying those principles to concrete examples. It gave the readers (who were mostly confessors and theologians) a moral vocabulary that enabled them to navigate the practical realm with greater ease. These manuals still retain their use today, even if in a complementary way.

The point of this digression, and how it relates to gambling, is that one would be hard-pressed to find an adequate discussion of gambling in today’s moral theology books. The emphasis may be on developing the virtue of temperance, but without concrete situations in which the virtue is formed leaves us without any frame of reference. Even if half the story is positive, it is still only half the story. Discussing the virtue without discussing how the stop the opposing vice from forming is not enough. Virtue isn’t only formed by facing a temptation head on, but also in the speed in which we flee from those moments of trial. In other words, virtues are positive things that are formed by avoiding the near occasion of sin, a concept we hear very little about today.

Moral Approach

With that being said, we have to return to one of the most popular manuals of moral theology (partially because it was the first that was written in English) to find a thorough discussion of gambling. In his Manual of Moral Theology, Fr. Thomas Slater, S.J. briefly treats the subject of gambling and games of chance. He says that gambling, when it is framed within the realm of recreation and entertainment, is morally legitimate with some obvious caveats. First, on the part of the gambler he must be acting freely and betting what is at his free disposal. This means that he is not betting money that would otherwise be necessary for living and providing for his family. Likewise both parties must clearly understand the rules of the game and that the outcome of the game is uncertain.

The reason why it is helpful to examine this issue from the “old” schema of moral theology is that this is one of those situations where just because you can do something, doesn’t mean you should. Gambling is fraught with moral danger because it is a highly addictive form of entertainment that very quickly gets out of control, paving the way for moral ruin. Neuroscientists have recently discovered, what St. Thomas and the Scholastics already knew, certain behaviors by arousing our passions, can become addictive. Specifically they have found that certain behaviors like gambling produce similar chemical responses in our brains as some of the most addictive drugs like cocaine. These neurotransmitters (of which dopamine is the primary one) are produced in response to certain stimuli and produce a feeling of pleasure. This release is not just in the actual winning of the bet, but in the anticipation of the winning. This means the pleasure comes not so much in winning but in betting. And like all physiological pleasures we must “up the ante:’ (pun intended) in order to reproduce the same response. The stakes must become higher and higher to produce the same feeling. We do not need to look to far to find examples of men (mostly) and women whose lives have been ruined because of this addiction.

We are Catholics and that means we do not flee from things simply because their abuse can lead to addiction. As Chesterton once said, “In Catholicism, the pint, the pipe, and the Cross can all fit together.” But recall that gambling was a morally legitimate means of recreation. Once it ceases to be that, either because we do as a source of income, or it becomes an addiction, it no longer serves its purpose. In fact one must ask how exactly this type of recreation, even when engaged in as such, re-creates us especially given the obvious dangers. Still it remains legitimate, even if I cannot personally see its merits.

Legal Approach

Chesterton’s quote also reminds us of a related historical failure in which laws were made to curb abuse by prohibiting all use—Prohibition in the 1920s. At the time, drunkenness was a social problem that needed to be dealt with. Unfortunately by prohibiting “the production, transport and sale of (though not the consumption or private possession of) alcohol” (18^th Amendment), it opened the door to even greater social ills. This was because they were not good Thomists, failing to recognize that you cannot outlaw every vice. The Angelic Doctor thought that laws should only treat “the more grievous vices from which it is possible for the majority to abstain; and chiefly those that are to the hurt of others…” In essence, the Angelic Doctor is saying that when a law prescribes acts that are far beyond the virtue of the average person in society, then there ought to be no laws against it. One of the reasons for this is that the law may become a pathway to further vice. What instead should have happened at the time was further support of the Temperance Movement, even through legislation. The law cannot create virtue, but it can clear the way for it.

The parallels to sports gambling are obvious, even if it does not quite effect the same percentage of society as Prohibition did in the 1920s. There should be no laws prohibiting sports betting, but instead the aim should be towards forming and fostering the virtue of temperance, even if this requires oversight and rules that limit the amount of gambling a person may engage in.

Death of Taxes?

April 14, 2018Catholic Social Teaching, Church and State, Economics, MoneyTax Day, Taxes and Catholicismtwowingstogod@gmail.com

Is there a day in the year that strikes more dread in the working man’s heart than April 15^th; the day when the tax man cometh to fill his coffers? Dread indeed. Unless, that is, the man is in the middle class and has received the latest tax break. Or he is a wealthy man who has discovered loop holes in the tax code that greatly reduce his overall payment. Or he is a poor man whose low wages have earned him a tax credit. The only constant in the tax code is that it is guaranteed to change, shifting the burden from rich to poor to middle class and back again, subject only to the fiscal attitude of the ruling party and administration. In fact, the shifting of the tax burden is arguably the most hotly contested political debate of our times. Yet with all this talk of deciding who should find taxes the most taxing, there is little discussion of taxes themselves. Determining whether the distribution of the tax burden is just presupposes that taxes themselves are just, something that is far from self-evident. Therefore, with the IRS watching over us, it is enlightening for us to examine taxes in general.

Administrative Taxes

In our day and age there are essentially two types of taxes. As the name suggests, administrative taxes are those that are collected for the administration of the State. This includes the costs associated with maintaining public safety (like police and military), the building up and upkeep of public properties (like roads, courthouses, parks, etc.) and as remuneration for the work of civil servants (like lawmakers, judges, etc.). In essence, administrative taxes are collected to fund legitimate governmental functions. There may be reasonable debate as to which functions are considered legitimate, but these functions must always conform to the principle of subsidiarity which keeps the arms of Big Brother from over-reaching. Only tax systems within this context of a limited government (not in the Libertarian sense) can be considered just. As a State moves away from a limited government the tax system will move accordingly towards injustice.

Redistributive Taxes

Most of us intuitively grasp that administrative taxes are necessary and in justice each man ought to pay his share. What an individual man’s share is can legitimately be debated, but administrative taxes are just in principle. But this debate tends not to be as hotly contested as the debate over the second type of taxes—redistributive taxes. It is here that social welfare programs exist and every man is fighting for his favorite pet program. Redistributive taxes take from one man and give to another, necessarily setting up an inequality in the tax burden and pitting rich versus poor.

Most of the debate today centers around how to justly allocate the payment of these types of taxes. Yet no one really asks whether these taxes are just in themselves. They are not unjust simply because of the inequality. In order to see this we must first speak briefly about private property.

Private property is not just about owning, but also about using. A man has a right to own his own property and use it in any manner that he sees fit, provided he uses it in accord with the moral law. But this right is not absolute. Assuming he is able to fulfill his own needs and those whom he has care for as well as having enough to maintain his station in life, a man has an obligation to give to the man in absolute need from his superfluity. Our tax code recognizes this to a certain degree in the way in which it grants deductions that adjust for absolute needs and those of one’s station in life. These deductions are meant to target the rich man’s superfluity, but end up instead leading to further injustice.

First, the obligation is towards a man who is in absolute need. In other words, our obligation to help the poor extends no further than those who are destitute. We may (and should) give freely to those in need, even if they are not destitute, and hopefully not just from our superfluity, but this constitutes a move from strict justice to to love of neighbor. Such giving cannot be codified in any way as it must be done freely and not by force, even if it is the force of civil law.

The obligation also rests with the individual himself. Although he may freely choose to transfer that obligation to something like a charitable organization, only he can determine exactly how much of his property is superfluous. Herein lies the primary injustice of any tax system that is redistributive in nature—there is no formula that can be applied to determine exactly how much of a man’s property is superfluous. There are too many variables. Should the man who helped to pay to replace his neighbor’s leaky roof (which is not a “deduction”) really pay more taxes than the miser who only gave to “tax deductible” organizations even if he paid significantly more to help his neighbor?

This exposes another problem with redistributive tax systems—it discourages face to face giving and encourages faceless giving. Most certainly I am my brother’s keeper, but now it is Big Brother who controls what I give. Society as a whole suffers because real bonds between individual occur when a man gives of his property directly to another person in need. It also leads to an institutionalizing of envy because the poor begin to see the rich as stealing from them and look to the State to play Robin Hood.

We have heard much recently about the need for a “tax overhaul.” Unfortunately, this just means looking at how our current tax system distributes its burden. What becomes obvious after discussion here is that what is truly necessary is an examination of taxes in general. We have institutionalized injustice and any society in which this occurs will eventually crumble.

The Economic Third Way

June 28, 2017Catholic Social Teaching, Church and State, Economics, Money, VirtueCapitalism, Distributism, Pope Francis, Socialismtwowingstogod@gmail.com

When Pope Francis visited with a group of workers and business people in Genoa last month, he praised their entrepreneurial spirit. Praises flowing from the mouth of someone who has been so critical of Capitalism came as a shock for many people, including those in the media. Someone who criticizes Capitalism must be a Socialist, or so the reasoning goes. The Holy Father must be a closeted Capitalist or a secret Socialist. While his criticisms of Capitalism receive more airtime in the West because it the predominant economic model, that he might be neither a Socialist nor a Capitalist is a priori eliminated. The problem of hearing the Pope is that many of us are stuck in what I would call an either/or fallacy. We assume that there are only two mutually exclusive players in the economic game and we must choose one or the other.

The Church for her part has chosen neither Socialism nor Capitalism. Pope Leo XII’s Encyclical Rerum Novarum is considered the foundational document for the modern day corpus of what would become the Church’s Social teaching. In it condemns Socialism for its exploitation of the “poor man’s envy of the rich” and says it is clear that socialism “must be utterly rejected” (RN, 15). Expanding on the same thing, forty years later, after Socialism had bound its test subjects, Pius XI said Socialism “cannot be reconciled with the teachings of the Catholic Church” (Quadragesimo Anno, 117). This criticism has continued down to our own time with St. John Paul II, in Centesimus Annus, his encyclical marking the 100^th Anniversary of Rerum Novarum, says Socialism in all its forms is doomed to fail because it makes a fundamental error in anthropology by denying that man is a free being that exercises his freedom in the world through the acquisition and use of private property (CA, 13).

With such a clear condemnation of Socialism, many would conclude that the Church is pro-Capitalism. Scouring the Magisterial documents however, one would be hard pressed to find a single endorsement of Capitalism in the form that it takes in the West. At best the Church is cautiously Capitalistic, a stance which best finds expression in Pope St. John Paul’s aforementioned encyclical Centesimus Annus:

“If by ‘capitalism’ is meant an economic system which recognizes the fundamental and positive role of business, the market, private property and the resulting responsibility for the means of production, as well as free human creativity in the economic sector, then the answer is certainly in the affirmative, even though it would perhaps be more appropriate to speak of a “business economy”, “market economy” or simply “free economy”. But if by ‘capitalism’ is meant a system in which freedom in the economic sector is not circumscribed within a strong juridical framework which places it at the service of human freedom in its totality, and which sees it as a particular aspect of that freedom, the core of which is ethical and religious, then the reply is certainly negative.” (John Paul II, Centesimus Annus, 42)

This short history lesson is not so much meant to trace the development of the Church’s teachings on modern economic models, but to show that the Church supports neither Socialism nor Capitalism directly. John Paul II’s definition quoted above is a far cry from what most of us would label as true capitalism and explains why he is tempted to give it a different name. He will not fall into the either/or trap and is inviting us to do the same. But in order to see that there might be a third option, we must look more closely at the two in terms of strengths and weaknesses.

The Centrality of Private Property

Notice that the condemnation of Socialism and the caution of Capitalism both make reference to the central moral ideal of all valid economic models, private property. Grasping this concept and its importance helps us to more objectively evaluate the competing economic models. This term remains elusive for many of us, stymying any real discussion. Private property does not refer so much to having a lot of money (just a medium of exchange) or to owning your own home, but has to do with the control of wealth.

When we speak of “property” we are referring to those things that have economic value attached to them. Property is the collection of things that can be used and exchanged for other things of economic value. Of critical importance on the question of property is who controls that property. Private property simply means that wealth is in the hands of private individuals.

The Church praises those models that protect and promote private property and condemns those that don’t because private property is bound up closely with man as a free creature. In fact, private property is how man exercises his freedom in the economic realm. Private property keeps man free from the control of others and enables him to do those things that are both needed and wanted for his and his family’s fulfillment. But freedom in the economic realm is not just freedom from restriction, but the best system would be one in which his economic activity contributes to his freedom for his own perfection. Freedom actually increases when virtue grows. With this in mind we should not just look at the system that has the least amount of restrictions but also that which is best suited to increase the man’s virtue.

A concrete example might help to see why private property is pivotal. Suppose a man needs food for his family. In which of these three systems is the man best able to exercise his own personal freedom?

The Three Economic Ways

First we have the system in which the man waits in a bread line so that those in authority can give it to him. The State, or more accurately a group of men acting in the name of the State, determine how and how much bread the man will consume because they own all the means of making the bread. The man is assigned some task to contribute to society, although there is no proportion in the amount of work or energy the man himself expends to obtain that bread. Each person receives strictly according to need. Lacking such an incentive, he will do the minimum amount of work. In this system, which is called Socialism, man is obviously not free to accumulate wealth, but he also has no incentive to grow in virtue and thus his growth in freedom. The man trades security for freedom.

Second, we have the system in which the man works for another man or, as is usually the case, group of men, who give him a wage in exchange for his labor on the capital they provide. He can exchange some portion of this wage in a grocery store for the food he needs. The man is free in the sense that he is not compelled to work for another. He is compensated for his work and thus has an incentive to work well. But he also works at the service of another man’s capital and lives perpetually under the fear of losing his job and his family starving. Without any capital of his own to generate wealth, this fear greatly limits his freedom and he will submit to greater and greater demands from the capitalist, who acts solely based on the profit motive. We call this system Capitalism.

Certainly if one had to choose between the first and the second, the second is far superior. But is there another option, perhaps a middle-ground of sorts? Imagine the system in which the man has sufficient private property and capital where he is able to work as say a craftsman of some sort and trades some of the wealth he generates from the fruit of his labor (either directly or through the exchange of money) for food. This man is not merely a “small business owner” in the second system, but works within a system of nothing but “small business owners.” He lives more freely than in the second system as well. He no longer depends on the Capitalist for an allowance, but depends only (or at least mostly) on his own hard work and use of his allotment of capital. This will motivate him towards excellence, increasing his freedom, especially knowing that those “who don’t work, don’t eat.” He is also more secure than in the first case without any tradeoff of his freedom. This system has been dubbed Distributism because it assures the diffusion of private property into the greatest number of hands.

Notice how this third option closely parallels what John Paul II described as the ideal, although he does not use the term “Distributism.” When people first hear this name, they assume it is essentially like Socialism, which properly understood is Re-distributism. Distributism consists in a free market and does not involuntarily take from the rich to give to the poor. The State owns no property and produces nothing (except where necessary for public works, defense, etc.) but does help to limit the amount of private property an individual might own, especially when it encroaches on the ownership and use of others.

For example, suppose a town might not have a butcher and the people must visit the butcher in the town over. Sam the Butcher could open a second butcher shop in that town or he could help train a new butcher (or help an existing butcher) so that he might meet the demand and make a profit. The State could heavily tax Sam for the new butcher shop to the point where it does not make it worth it and it could incentivize Sam to help by way of tax cuts. Notice that the State in such a system actually helps to form the virtue of its citizens by punishing vice (greed) and rewarding virtue (love of neighbor). Just like a good government is one in which the people are (morally good), so too a good economic system is one in which the people are good.

By its fruit, you shall know it—this is at the heart of the current Pope’s criticism of Capitalism. He looks at the fruit and questions the tree. Does this mean he is a Socialist? I don’t know. But I do know that it doesn’t mean he has to be. There is a Third Way.

On the Idolatry of Money

May 6, 2017Money, Spiritual Life, Virtue, WorkIdolatry of Moneytwowingstogod@gmail.com

The strange thing about idols is that they usually travel in our blind spots. We may very well be aware of their dangers, but fail to see that we have succumbed to them. This is true especially when it comes to the idolatry of money. We may agree, for example, with Pope Francis that “the worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money,” but think that it is the greedy rich people’s problem and not necessarily our own. The plank is firmly implanted in our own eye and unless we submit ourselves to some self-examination we may remain permanently blinded to what has always been viewed as one of the Seven Capital Sins.

The Role of Money in Exchange

A word first on the reason many of us our blind to this particular vice. St. Thomas Aquinas, building on the economic teachings of Aristotle, thought that the marketplace was governed by two different types of exchanges which he called natural and unnatural. A natural exchange was one in which one good was traded for another. This might be a barter system or a money as medium of exchange system. A cobbler needs to feed his family and so he might trade a pair of shoes for a cow or he sells the shoes so that he could buy the cow. In either case the end of the cobbler’s transaction was to obtain a cow. It may be that he chooses to save the money so he can purchase the cow later, perhaps when business is slow, but his purpose is always clear—to obtain something he needs to feed his family.

An unnatural exchange, on the other hand, is one in which money ceases to be a medium of exchange but instead becomes the end. The cobbler sells the shoes with the goal of making money and to get rich. He does not have any particular end in mind, even if it is to save for some future hardship.

What also makes an exchange unnatural is when one or both participants has an irrational end in mind. All exchange should be governed by needs and rational wants. The needs are obvious but a rational want represents something that may not be strictly needed but is a reasonable thing to purchase. A second pair of shoes may be a reasonable want, a tenth pair, not so much.

When a commodity is the end of an exchange there is a certain protection against greed. One may desire only so many things. There is only so much room to store them. There are only so many loaves of bread we can eat. There are only so many pairs of shoes we can wear. Our desire may be unreasonable, but there is a natural limit to how much we will desire.

Money is completely different. Our desire for money is infinite. There is no natural limit on how much we can desire. For the rich, their “net worth” becomes merely a game to see how high they can go. This, of course, only happens when money becomes an end instead of a means. When we see it merely as a means to purchase those things we need and rationally want, we will be satisfied with only a certain amount.

Love of Money as a Capital Sin

Scripture tells us that the “love of money is the root of all evil” (1 Tim 6:10) and Tradition labels it as one of the Seven Capital Sins. The latter are not sins in the classical sense, but more like motivations that gives rise to the actual sins in our lives. Objectively speaking one may commit the sin of murder, but the personal motivation is always rooted in one of these seven capital sins. We may murder because of wrath or we may murder to grow rich. The act is the same, but the motivation differs.

Understanding this helps us to root out the actual sins in our lives. When our motives change, our acts change. Love of neighbor will only replace love of money when we see it for what it is. Watch yourself over the next few weeks and see how often money motivates you; not by money as being able to purchase things that you need or rationally want, but just the idea of having more money. Whenever I do this exercise I am always surprised by how easily I have fallen into the trap again.

Covetousness, that is a love of money, remains hidden to most of us because it is woven into the fabric of the culture. Our economy is structured such that money is the end. It is not about producing goods that people need and rationally want, but creating a desire for consumption. Advertisers try to convince us we need something. This is all motivated by a love of money. Most people work, not because it provides for needs and rational wants and fulfills them as persons, but because they want to be rich. When you are swimming in water, it is hard not to get wet. The first step is to recognize that the water is what is making you wet and find ways to stay out of the pool. Examining our motivations and ways that we personally contribute to the culture of consumption will help to purify us from this dangerous idol.

What also makes money a particularly deadly snare as an idol is the fact that it can rob us of our trust in God. Money is usually a sign of security for most of us. After all, money can buy all the things we need, or so the thinking goes. Money contributes to the lie that man lives on bread alone. It is not without accident that when religious fervor was stirred in the hearts of Americans during the Second Great Awakening that the motto In God We Trust first appeared on coins. It is a stark reminder that our security is in God and not in money. Our Lord called the poor in spirit, those who put their trust in God and not in money, as blessed.

On Borrowing Tissues and Pens

July 10, 2015Catholic Social Teaching, Moneytwowingstogod@gmail.com

In his 2009 Encyclical, Caritas en Veritate, Pope Benedict XVI pointed out the need to protect “the more vulnerable sectors of the population…should be protected from the risk of usury and from despair. The weakest members of society should be helped to defend themselves against usury, just as poor peoples should be helped to derive real benefit from micro-credit, in order to discourage the exploitation that is possible in these two areas.” What is particularly compelling about this statement is his mention of usury. Unfortunately, his call fell mostly upon deaf ears because of the ambiguities surrounding usury itself. Put simply, most do not understand what usury is and because of that assume that it simply means “charging a high rate of interest.” What is clear is that, if the weakest members of society should be helped to defend themselves against usury, then usury itself is something that all need to be defend themselves against because it is a social evil.

One of the sources of confusion associated with usury is the fact that it requires that some important distinctions be made. It is not simply charging interest, nor is it charging a high rate of interest. The distinction requires more nuance than that. But without making these distinctions the prohibition becomes nonsensical.

As usual when a nuanced understanding of an issue is required, we can turn to St. Thomas. He addresses the sin of usury in the Summa Theologiae (II-II, q.78, a.1) by making a very important distinction. It is a distinction we make all the time, but without thinking about it. When we need a tissue, we may ask “can I borrow a tissue?” But the lender does not expect us to give the same tissue back to them. Why? Because the tissue is consumed once we use it. But if we ask to “borrow a pen” then the lender expects the pen back because it is not consumed when we use it. With this distinction in mind, St. Thomas says that in general goods that are borrowed/lent can fall into the two categories above: those that are consumed with their use and those that are not (which we call productive goods).

Now assuming that we really meant that we were merely looking to borrow the tissue (i.e. we were going to compensate the lender for it) then understanding this distinction between the two types of goods is important. This is because in the first case to charge for the tissue and to charge for its use is to charge for what is essentially the same thing. This price for a consumable product’s use is called usury. On the other hand, because the pen is not consumed by its use and one may both borrow and return it, then it is just to charge for its use because of the “cost” to the lender (e.g. wear and tear on the pen, personal loss of not having the pen, transportation costs, etc.). So then usury is not merely interest, but to charge for the use of product that is consumed in its use.

To understand this more fully, there is another important point that St. Thomas makes. He says that every transaction (including borrowing and lending) must be to the mutual advantage of both parties. In other words, neither party should shoulder an unfair portion of the burden. When the transactional burden is greater for one of the parties then this constitutes an offense against commutative justice. This is the basis of the Church’s just price theory. It applies here because if paying more for something than it is worth or selling a thing for less than it is worth is unjust, then there can be fees associated with borrowing. The lender should never end up in an inferior position than he would have been had he not made the loan. He should be compensated to make up for damage or loss of profit. This compensation is considered to be the interest.

To summarize then, Usury consists in the “intention of gain” while interest is a compensation for loss. This of course leads us to probe interest a little deeper to help understand the line between just interest and usury. Borrowing from the laws of Ancient Rome, legitimate interest has been thought to come from two sources. There are the immediate costs (dammum emergens) as well as the loss of forgone profits (lucrens cessans). It seems to be common sense that if the lender can demonstrate the ability to use the funds in a productive way then there is nothing inherently unjust about including both under “costs” for the lender. Of course coming up with a precise number is not always clear, but it is certainly legitimate to include some compensation for lost profits.

What would this look like? While it could get complicated, a simple example from which we could apply the principles would look like this: Suppose Joe goes to Ed and asks to borrow $10000. Ed says he was planning on investing the $10000 in Microsoft but that he would loan him the money if when Joe repays the loan to Ed he would pay him the principal plus any costs in making the loan (like hiring a lawyer to write the terms of the contract) and the return on $10000 for Microsoft over the period of the loan (even if it is a loss). Those additional fees are both legitimate. Notice however that the terms must be explicit so as to best capture the actual losses that the lender would incur in lending the money. He must not make a profit in the strict sense from Joe.

While what I said makes sense with tissues and pens, it is not clear that money is a consumable good. After all the whole argument against usury hinges on the assumption that money is not a productive asset. People invest money all the time and increase their wealth. Doesn’t this make it a productive good?

Properly understood, money is a fixed medium of exchange and can only be sold (lent) for its fixed price. Owning money means simply that one has the right to use the money to buy something. In other words, ownership and use cannot be separated. Once money is lent, the borrower is now the owner. So it is not the money itself that produces new wealth but instead it what it is exchanged for that produces new wealth. As a medium of exchange in and of itself money bears no fruit. Now we see that it is important that we make the distinction between lending and investing. Investment of capital in a business differs from a loan of money in that you are not loaning the money but instead the commodities the money can buy. This, in turn entitles the lender to a share in the productive fruits of the venture or charge a “fee” for their use (since they are part owner of them). Obviously an investor shares in the trade risks and thus can share in the profits or the losses. This mutual sharing in the risk is what separates an investment from a usurious loan.

Given all that has been said, let’s look at an example of a usurious loan. Suppose Joe now approaches Bank A for a Home Mortgage for his $100000 home. Bank A charges him an “Origination Fee” to cover their cost in lending. So far, so good. But that is not all they also charge him an interest rate of 5.25% over 15 years. All of this is usury.

Properly understood, a typical home mortgage is really the bank purchasing the property and reselling it to the buyer at a higher price paid at a future date. But the total price that the homeowner pays ($199,000) has nothing to do with the actual price of the home in 15 years. The borrower almost always pays significantly more than the just price—meaning the price of the home at the time of payoff, even if one added in costs associated with lending.

Now the bank could claim lucrens cessans for money that could have been invested in something else. This may be a legitimate cost (again if explicitly detailed out) but not in the United States. With the fractional reserve lending practiced by the banks, the money that they lend does not actually exist. They artificially create the money to supply the loan and then once it is paid off it ceases to exist. Therefore banks can neither claim lucrens cessans for money that otherwise would not have existed nor a loss due to due to inflation because but for the loan the money would not have existed and upon repayment it ceases to exist. It literally is as if money grew on trees and the banks operate on pure profit. They can never lose, even when someone defaults (assuming that the number of defaults does not threaten their fractional reserve).

The Father of Modern Economics, John Maynard Keynes, saw the wisdom of the Church’s teaching on usury and interest. He is quoted as saying,

“I was brought up to believe that the attitude of the Medieval Church to the rate of interest was inherently absurd, and that the subtle discussions aimed at distinguishing the return on money-loans from the return to active investment were merely Jesuitical attempts to find a practical escape from a foolish theory. But I now read these discussions as an honest intellectual effort to keep separate what the classical theory has inextricably confused together, namely, the rate of interest and the marginal efficiency of capital. For it now seems clear that the disquisitions of the schoolmen were directed towards the elucidation of a formula which should allow the schedule of the marginal efficiency of capital to be high, whilst using rule and custom and the moral law to keep down the rate of interest.”( JM Keynes, General Theory).

If he, who is no friend of the Church can see its wisdom, then perhaps we too might benefit from examining this teaching once again.

Two Wings to God

"Faith and reason are like two wings on which the human spirit rises to the contemplation of truth"Pope St. John Paul II