zlacker

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

>>hgomer+(OP)
Depends on whom you ask, but this case had a major effect on removing restrictions:

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.

>>hgomer+(OP)
It depends (especially with inflation), and yes.

>>CamelC+K
So it's ok to have high interest rates with the hope it will cause unemployment in the hope that reduces inflation?

>>hgomer+D1
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.

>>hgomer+(OP)
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-sze...

https://gorogintezet.hu/wp-content/uploads/2022/08/15264.jpg

>>aprilt+f2
>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>.

>>hgomer+(OP)
This is a fair question. It is arbitrary, but usually over 20-30%.

>>hgomer+(OP)
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.

>>hgomer+D1
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.

>>fodkod+r3
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.

>>fdfgyu+eB
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+eB
The Bank of England quoted reason is explicitly to suppress demand: 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.

>>throwa+MM
Right.

>>hgomer+(OP)
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.

>>sidewn+PK
> 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

>>hgomer+(OP)
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=501...

[2]: (PDF) https://history.hanover.edu/hhr/18/HHR2018-fergus.pdf

>>ejstro+MX
Devaluing the new currency by adding lesser metals will also devalue existing currency that is "pure" as you aren't able to trust the value of the currency anymore, so the value of the existing pool of money will drop.

Its at a smaller scale, but it can be seen with counterfeit currency today. Cash-heavy businesses have to absorb whatever amount of counterfeits they accept, so they are really valuing your dollar at $0.99 if they might have to throw it out.