wallet/docs/usury.md

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title:
    The Usury problem
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# Usury in Christianity

The Christian concept of usury presupposes that capitalism was divinely
ordained in the fall, and that we are commanded to use capital productively
and wisely.

This is quite different from the communist concept of usury, which is that
making money on a mortgage is sinful, because only labour is productive
and capital is unproductive.  The communists rejects interest, and all return
on capital, full stop.  Not that it matters, since communist money is
worthless, and no one has any productive property under communism.

Christians are allowed to make money from loans made for productive
purposes, provided the loan actually turns out to be productive –
Christians are allowed to profit from capital goods, and allowed to profit
from loans made to create capital goods.  If the loan turns out to be a bad
use of capital, if it turns out to be an unproductive use of capital, the
lender has to share the pain with the borrower.  The lender gets back the
house in the housing slump, and the cattle in a drought.

Credit card debt, however, is unlikely to be productive.  And missed payments
are not productive either, and should not become a profit centre for someone
who lends money to short time preference people who probably should not be
borrowing.

The old Christian concept of usury is that you can lend money at interest
against productive property, but not against the person.  If you lend against
the person, the debt is erased by full repayment without interest, and if you
charge interest, not recoverable against the person, only against his credit
rating.

So, you lend money to the peasant to buy some cattle, the cattle produce more
cattle, and you get some of the extra cattle, or, more conveniently, a fixed
amount of money per year for the peasant’s use of that cattle, or the
mortgagor’s use of that house.  The loan is secured by productive property,
not secured against the person, and you are entitled to some of that
production.

And if things don’t work out, he is free and clear if he returns the cattle or
the house.

# Usury in Islam

The Islamic ban on usury is similar to the Christian ban, but their frame is
rather that the lender shares the risk, rather than that the lender is charging
rental on a productive property.  The dark enlightenment frame is game
theoretic, that the lender often knows better than the borrower what is a
bad loan for the borrower, and should not have incentive to trap the
borrower in a bad loan, but all these different frames amount to the same
thing in the end -- if the loan goes well, the borrower winds up paying
back more than he borrowed, and if it goes badly, both parties suffer the
consequences.  If you finance your house from Dubai Islamic Bank, and
the house appreciates, it is exactly the same as if you financed your house
from Bank of America.  The difference happens if the bank lends into a
housing boom, and then there is a housing slump.

If you lend money to buy a house in the middle of a housing boom, you
collect interest on the mortgage, but then there is a housing slump, the
mortgagor returns the house in good order and condition, but in the middle of
housing slump, the mortgagee is sol under the old Christian laws, and the mortgagor, though now houseless, is free and clear of debt.

# How everything went to hell

Well, lenders did not like that.  They wanted their money even if things did
not work out, and they wanted to be able to lend money to someone to throw a
big party, someone who probably did not understand the concept of compound
interest, and then own that someone.

And the Jews of course operated by different rules, and Kings would borrow
from the Jews, and then give the Jews exemption from the Christian laws, so
that they could lend money against the person to Christians.

## Term Transformation

And then, things got messier with fractional reserve banking.

People want to lend short and borrow long, borrow money with fixed schedule
for paying it back in many years, and lend money with the proviso that they
can have it back at any time, money on deposit.

And so, the magic of term transformation.  The banker takes in ten thousand
gold pieces on deposit, returnable on demand at low interest, and lends out
nine thousand gold pieces on land, on cattle, and on conspicuous consumption,
at rather higher interest.

The banker hopes that not everyone will try to withdraw at the same time.

And, since the banker does not want to find himself in the real estate
business when there is a slump in real estate prices, or the cattle business
when there is a drought, he lobbies against the Christian rules on usury,
and in favour of the Jewish rules.  If you buy a house on a mortgage, and the
price falls below the mortgage, he wants to sell the house over your head,
*and* then go after you for the difference.

Since it is rather dangerous to move gold around, and safer to move
ownership of gold around, people, instead using gold pieces as money,
start using banknotes as money, bits of paper backed by claims against real
property, if the lending is more or less Christian, and claims against real
people, if it is not all that Christian.

## Leading to fiat money

And then, one day it rains on everyone, and everyone hits up the bank at
the same time for the money they had stashed away for a rainy day, and
you have a financial crisis.

And, under the rules the bankers lobbied for, the angry depositors can take
all their stuff, *and* give the bankers a horsewhipping.

So the bankers rush to the government, and say, “financial crisis, bailout”

And then instead of banknotes backed by claims against property, you get
government notes backed by claims against taxpayers.

And here we are.  Jewish rules, fiat money.

# Cryptocurrency and Usury

Well, how does cryptocurrency address this?  It is backed by absolutely
nothing at all.

No, not quite nothing at all, for what it is backed by is the that cryptocurrency
can be owned more securely than anything else, and moved across the
world at the speed of light, making it very useful as money.  You own
crypto currency by having the secrets that control it, which are harder for
governments or bad guys to find, and a lot easier to transport through
airports.  What it is backed by is that it is a form of property right that is
easy to defend, and a form of property that is easy to move around.

Now it is probable that if cryptocurrency successfully replaces the dollar,
the same story will begin again from the beginning, only with crypto
currency in place of gold, but we are starting out from a clean slate.  You
cannot lend cryptocurrency against the person, because you cannot *find*
the person.  So when, in the future, people start borrowing and lending in
crypto currency, the Christian rules will be inherently in effect when the
process starts all over.

So, clean slate.  Keeping it clean may well turn out to be difficult.

But gold was inconvenient and dangerous to move around, so people
preferred to move claims against bankers around.  So, it will prove a lot
easier for people to hang onto cryptocurrency, rather than leaving their
gold with the bankers, so the pressure to repeat the story that happened
with gold will be considerably less.