Friday, July 28, 2006

Faith Magazine July-August 2006

The Faith Magazine for July-August 2006 is now online. This issue is really outstanding. The editorial is on the impact of infallibility and the future of Catholicism. Fr Linus Clovis has finally got his talk on Slavery and the Gospel of Life onto paper. One of the sisters from St Cecilia's, Ryde has a first-rate article on Guéranger and Mgr Keith Barltrop piece on re-awakening the Catholic imagination is hard-hitting and very much to the point. Lots more - all available for free download.

I stole this post lock, stock and barrell from Fr Tim Finigan's excellent The hermeneutic of continuity website if you look at it you will also see were I got the "bones" of this one, initation is the ...

1 comment:

Michael Petek said...

Father Gary Coulter has an excellent article on usury in this month's issue of Faith. Read it, then read my comment below:

It is a pity that there are not more moral theologians around who are at the same time economists. As someone whose academic training is in the latter discipline only, I feel that Father Coulter's treatment of the subject of usury needs closer critical examination (July/August issue).

The central points Father makes about extrinsic titles is, firstly, that at times they may exist (and by implication, they may not) and, secondly, that the Church presumes that they exist.

To the first point, it might be retorted that the theoretical proposal of the existence of a particular kind of extrinsic title is logically unpersuasive. To the second, it is worth pointing out that presumptions can often be rebutted.

The extrinsic titles traditionally proffered are: the cost and loss incurred as a result of making the loan (damnum emergens); the foreclosure of options to make profitable investments (lucrum cessans); and risk of non-payment (periculum sortis).

The third is easily disposed of as a legitimate extrinsic title, for in a loan contract the lender is protected against risk by the existence of a claim on the assets of the borrower in the event of non-payment, and because the risk is obviated by definition as soon as the principal is repaid.

A modern economist would - or should - look askance at the second title and at Father Coulter's question-begging observation that the incurring of opportunity cost in moneylending establishes a title to compensation.

Opportunity cost is one of the first concepts learned by economics undergraduates. An investor is faced with a choice of three ventures, one attracting a return of zero per cent, the second a return of five per cent, and the third a return of ten per cent.

In opting for any one of these the investor must forego the returns on the other two. The opportunity cost of each is the return on the most profitable venture foregone. So in our example, the opportunity cost of either of the first two ventures is ten per cent for foregoing the third, and that of the third is five per cent for foregoing the second. That option represents the economically efficient allocation of resources, since it incurs the lowest opportunity cost.

Father Coulter asks us to accept that, if our investor were to opt to lend his money at zero return, he would be entitled to compensation at ten per cent. But in that case he would be rewarded for economic inefficiency and thus for sub-standard business conduct. For this reason Duns Scotus has the better argument than St Thomas at ST II II q78.a.2:

"If (the lender) does not wish to be injured, let him keep back the money he needs, because no-one forces him to do a merciful deed for his neighbour; but if he prefers to show mercy to the other, he is compelled by the divine law not to vitiate the divine law."

Next, Father Coulter proposes that the loss of the value of money over time due to the existence of a common rate of interest gives good title to compensation. However, it is difficult to argue why the holders of money, as distinct from other assets such as real estate, should be privileged in this way.

In the same place he argues that this common rate of interest has been established as the "price" for money by the numerous investment opportunities that exist nowadays. This point is controverted among economists. Lord Keynes denied that the rate of interest is the price of money, but a premium offered to savers to persuade them to hold illiquid assets.

Instead, he posited the idea of "liquidity preference": the preference of individuals and institutions to hold cash in the face of a future which to them is uncertain. The stronger the liquidity preference, the higher the rate of interest has to be in order to attract investors to less liquid securities which can be committed to longer-term industrial investments.

What remains of the extrinsic titles to interest is the first: costs necessarily incurred in the arrangement of a loan. However, this is not a title to interest levied as a fixed percentage of the principal, but to a fee for commercial moneylenders to cover the cost of staff, business premises and materials in the provision of a beneficial service, plus a reasonable entrepreneurial mark-up. It then assimilates to the title to remuneration for labour (stipendium laboris).

The title of stipendium laboris warrants a fee in relation to labour time spent in the arrangement of a loan. If all else is equal the fee will be the same for a loan of a million
pounds as for a loan of a thousand, unless the larger loan has to be arranged by an agent whose pay is higher by reason of greater expertise or seniority.

The case for extrinsic title to compensation based on periculum sortis or lucrum cessans as such is unpersuasive. In the first case the terms characteristic of a loan contract already protect the lender against loss of the principal. The second flies in the face of the first principles of economic theory, because if implemented it would reward economic inefficiency.

This leaves remuneration for work as the only legitimate title to compensation for moneylending. Compensation which is due only to those who lend money for a living and is not directly, if at all, related to the value of the principal.