December 01, 2005
Bainbridge on Usury
Posted by Matt Bodie

Stephen Bainbridge has a thoughtful post about Catholic teachings on usury.  He's responding to recent pronouncements by the Pope against usury, and Andrew Sullivan's critiques of those pronouncements.  The good Professor then provides a very nuanced and detailed discussion of what is actually meant by "usury," reaching the conclusion that "Benedict likely was not condemning all lending of money at interest, but rather simply unjust or inequitable interest charges."

I guess my follow-up would be: doesn't that beg the question to some extent?  After all, what makes certain interest charges "unjust or inequitable"?  Yes, it certainly makes life a lot easier for the Catholic investor to know that not all interest-bearing transactions are prohibited.  But where does the Church draw the line?

As has been noted in some recent blog posts, we like to think that the capitalist system allocates wealth based in part on what people "deserve."  But economists have emphasized that the market allocates rationally, and it is enough to leave it at that.  If someone is willing to charge a high interest rate, and someone else is willing to agree to it, both parties must be better off, so we should enforce the contract.  If we start making distinctions -- such as prohibitions again "unjust" usury rates -- how do we operationalize those distinctions?

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"Both Matt Bodie and Kate Litvak take issue with my recent post on usury. Bodie asks:The good Profess ..." [more] (Tracked on December 4, 2005 @ 12:41)
» Usury Redux from ProfessorBainbridge.com ...
"Both Matt Bodie and Kate Litvak take issue with my recent post on usury. Bodie asks:The good Profess ..." [more] (Tracked on December 4, 2005 @ 12:42)
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