It always intrigued me how can people justify NOT CHARGING interest for a loan, seems like the reason is "tunnel vision" exclusively looking at the matter from the point of view of the party who borrows the money.
But looking from the point of view of the one who loans the money, without interest there's only risk and no reward. I mean like when I'm lending an amount of money to someone with no interest, all I can hope is that they might repay them back (uncertain). And most likely I'll have to go through the trouble of incentivizing them to return my money, another cost on my side with no benefits since I can only hope to get back what I already had. So I have some money now, lend them and temporarily lose them, then go through great lengths of effort and stress to get them back and at the end all I can hope for is that I'll have what I already had. Probabilistically this is a certain losing position, by pure statistics some money will get "lost". I'm locking myself into a loss.
Really as a loaner, how do you justify lending money with no interest? What's in it for you?
Is it? Historically (think 1200) families would go through boom bust cycles over generations. When the kids are teens and the parents still working they have lots of labor. Fast forward 10-20 years and all but one kid (almost always a son) has left home, that kid is now a parent supporting a couple babies and a wife, plus the now grandparents are nearing the end of their life and not physically capable of doing much but still eat - now there is one person working to produce food. Remember too that food doesn't store very well. In this environment when you have extra food you lend/give it with no interest expecting to be paid back in 20 years when the situation changes for both of you (now you are the grandparent unable to work while they are the parent with hard working teens at home).
Of course for this to work out you need a relatively static society. Which was the case for several thousand years (in that time almost everyone was disrupted by some war or other disaster and so some family ended up overall a winner, but for most it was the safe bet)
... eh ... you lend money to someone for example if they need to buy food, and don't have the money, because you don't want them to starve? You take the risk because it might hurt their pride if you where to give them the money?
Charging for interests means that you are making profit of others poverty want want. This gives you incentive to promote desperation and desire.
If you lend w/o [edit]interest[/edit], you won't encourage lavish spending, but encourage a solution to the root cause of the poverty, so that you won't have to do it again? Instead you'll be promoting good, which a lot of people like doing just for the sake of it.
This is why Christianity and Islam forbade usury.
Sorry if this comes across as facetious, but do I really have to spell this out, are you human or an AI?
> "you lend money to someone for example if they need to buy food, and don't have the money, because you don't want them to starve? ... Charging for interests means that you are making profit of others poverty"
Let's not confuse commerce and charity, and within commerce let's not confuse lending with usury. Charity is gifting money with no expectation of anything in return, lending is temporarily transferring money for a mutually beneficial purpose, while usury is extortionate and exploitative. I would have thought your example of a starving person would come under old fashioned charity, but if not then lending isn't necessarily unreasonable.
I see where you're coming from, what you've failed to address however is the point I'm making about lending by interest, would give an incentive to create both want and lacking.
If you're not allowed to profit from lending, very few people would lend money for luxury goods, for instance.
Giving to the starving person could be lending if you expect that person to eventually pay you back. Maybe it didn't rain on the other side of town so you give food to the families farming there so that they live - expecting that eventually it won't rain on your side of town and they will give you food so you can live.
It's one example of when someone would want to lend w/o interest.
Yes you might not be poor and want to build a house, what does that have to with whether there is a point for anyone anywhere to lend without taking interest?
I don’t really buy it. Even a little bit of interest is 100% necessary for the creditor to break even. Statistically a debtor defaults. That loss is subsidized by the debtors who honor their agreement. Also: defining what “breaking even” actually means (and how to get there) is not a straightforward task. Currency inflation/deflation (past, present, and future), laws, penalties, enforcement, repossession, tax, fees, middlemen, statistics, “acts of God”, and general operating costs.
Creditors DO provide a service and interest rates exist on a sliding spectrum. This is just a debate over math and magnitude.
If you read the glorified "islamic zero-interest finance" here's how it works: you wanna buy a house so you borrow the money from the bank but the bank buys the house in your place and then sells it to you in periodic installments ... at a higher price of course. The house is yours after you finish paying the price that the bank asks for it. "No interest" though.
How is this different from interest? It's precisely what interest is. So phony.
Reminds me the old story about ultra-orthodox Jews who are prohibited by the Talmud from working or traveling during Shabbat (Sunday), except travel on water. So what they did when they needed to take the train on this day? They'd carry a basin and a bottle of water with them, seat down, take their shoes and socks off and put their feet into the basin then pour the water from the bottle in it. Voilà, commandment obeyed, traveling on water! No interest!
That is really interesting, thank you for the information, I've been curious about this as well. In mathematical terms I suppose that would be the equivalent of fixed-interest loan with a fixed length more or less.
Also see special jew-elevators with a Shabbat-mode so that they always go up and down by every level so that you can use them without operating them, meaning that you can take the elevator on a Shabbat without tricking a gentile into pushing the button for you (1).
I was under the impression that Shabbat was on a Friday or Saturday. (nitpicking of course).
(1) So that they can go to hell instead of the jew, or whatever?
IANAJ but I've been curious about Middle East religions.
> So that they can go to hell instead of the jew, or whatever?
Anyone who follows https://en.m.wikipedia.org/wiki/Seven_Laws_of_Noah is an OK chap apparently, probably not as cool as a Jew but I guess not to burn either? Shabbath stuff is only important if you are a Jew.
> meaning that you can take the elevator on a Shabbat
If you are really strict and not disabled you would not use elevator even with this workaround.
> I was under the impression that Shabbat was on a Friday or Saturday
Outside of Israel some places switched to Sunday because otherwise too few people care.
If you assume that you are out to break even, and not to try to reach another objective.
If it's about putting someone through education, then maybe it isn't about immediate short term financial gain.
Obviously you are correct that someone trying to make profit by lending will need to charge more money than they lend in a way or another.
My point is that if you have people out to gain profit from lending people money, they would wan't people to want things that they don't necessarily need.
If someone's starving, I'll just gift them the money/food they need. I'm not going to set the expectation that they must return it to me. If I need to lie about the nature of the gift to ensure they'll accept it, so be it, but a gift's a gift, not a loan.
On the other hand, if I'm loaning someone money, it's almost certainly related to some commercial venture, and I reasonably expect to be paid for the risk I'm taking with that person.
> If someone's starving, I'll just gift them the money/food they need. I'm not going to set the expectation that they must return it to me. If I need to lie about the nature of the gift to ensure they'll accept it, so be it, but a gift's a gift, not a loan.
Some people would refuse that out of pride, so you might as well spare their honor and lend it to them in some cases, but yeah sure.
> On the other hand, if I'm loaning someone money, it's almost certainly related to some commercial venture, and I reasonably expect to be paid for the risk I'm taking with that person.
Wouldn't a more appropriate instrument for investing in a commercial venture be to buy shares in their company?
Maybe you feel like lending them the money so that they don't have to feel like a beggar, and so that you don't have to feel superior to them.
I wouldn't say it's lying, it's more like accepting the risk that you won't get it back.
> On the other hand, if I'm loaning someone money, it's almost certainly related to some commercial venture
Would you loan maybe family or friends money for something that would be good for them lets say an education? Or would you support the government doing the same?
>> you lend money to someone for example if they need to buy food
Well go ahead and lend them poor people your money to buy food. There's no shortage of such people in every area of the globe, including where you live.
Do you do that? How much money do you give consistently, on a regular basis, to someone in need? I'd wager zero, but of course, it's easy to preach. For your information I do give regularly quite a consistent amount by myself on top of the =~ 50% the state rips of from me in taxes, most of which go to social security. There's never enough supply of free give as there's demand for it.
>> This is why Christianity and Islam forbade usury.
>> Sorry if this comes across as facetious, but do I really have to spell this out, are you human or an AI?
Well that was before capitalism was a thing. Again, I urge YOU, not "the rich" or "others" to practice what you preach.
Did I touch a nerve? Sorry, I didn't mean to upset you! You said you where intrigued with why people lend without interest, and I answered, why are you being so offensive, or shall I say defensive, when I'm literately delivering what you asked for?
>> Do you do that?
I also happen to believe that if you do good deeds it's better to keep it to yourself. As to not promote inflated egos.
My point isn't that me personally would be a fantastic person who is a saint, which I'm not but rather that usury has negative effects, which doesn't really have anything to do with whether I'm a person that reaches your standards or not.
>> How much money do you give consistently, on a regular basis, to someone in need? I'd wager zero, but of course, it's easy to preach.
Are you misrepresenting my argument on purpose? I was talking about the drawbacks of usury here, not about the benefits of giving gifts. Isn't that obvious?
Regardless, wouldn't it be better to teach a man how to fish, so to speak? My aim with helping people wouldn't be to put them into perpetual dependency upon, me to give others the impression, that I'm a very generous man, but rather to _actually_ help them out of their situation, does that make sense to you?
>> For your information I do give regularly quite a consistent amount by myself ..
Good on you, I'm happy to hear that!
>> on top of the =~ 50% the state rips of from me in taxes, most of which go to social security. There's never enough supply of free give as there's demand for it.
As far as your views on taxes, we're probably more or less in agreement on that subject!
I mentioned something tangential to that here "...but encourage a solution to the root cause of the poverty...". If I lend money to someone, w/o benefiting or being able to take something in return, it would be in my interest, to steer him away from bad decisions, thus making life better for him or her, given that he or she wants to do that.
If you let me elaborate, I see one of the benefit of donations from individuals and organisations as being that it would encourage a solution to the root cause of the poverty, (through the individual being grateful to an individual instead of seeing themselves entitled to income), rather than having a socialist government opening up an infinite poverty hole, that'll only grow the more you feed it.
>> Again, I urge YOU, not "the rich" or "others" to practice what you preach.
What I was "preaching" in this instance was not to commit usury, not giving to the poor, which you seem to be a bit confused about, and I do not do that, so you don't have to worry about that.
A lot of muslim countries have 0% APR by law, so the statement that that was before capitalism isn't really true?
"Lends at interest, and takes profit; shall he then live? He shall not live. He has done all these abominations; he shall surely die; his blood shall be upon himself.."
-- Ezekiel 18:13
“If you lend money to any of my people with you who is poor, you shall not be like a moneylender to him, and you shall not exact interest from him.
-- Exodus 22:25
"You shall not charge interest on loans to your brother, interest on money, interest on food, interest on anything that is lent for interest."__
-- Deuteronomy 23:19
Did they change the bible when capitalism was introduced?
I'm not a theologian, perhaps you have studied the bible more carefully than me, and can tell me if there is a broader context that would give a different view that I'm missing here, if that's the case please enlighten me, but this seems quite clearly against usury to me.
Hey....you don't give anything then .... if all you do is pay taxes....you benefit from that...don't even pretend you don't. are you ignorant and selfish? you need people...society needs people....
..you need what money does....you are so wounded.....by having so much money...that you cannot even fathom the good that money is better off not in your hands.....you really need millions of dollars every year? why....are you so unhappy you busy but your happiness???
seriously...you are out of touch of reality and humanity...money has enslaved you and others...that is why you should get rid of it....
I'm not saying that this is your opinion, but how can there be money without a state to protect it? The people protecting the value of money would need to be fed and given resources somehow. Meaning that without the US taxpayer paying money to the US government, the US dollar would be absolutely worthless, since there's no army, police and so forth, there to protect it, right?
Bitcoin and the like might be a possible exception of course.
It's worse in an environment with inflation. Let's say I lend you money at no interest for a year, and let's say inflation is X%. Even if you faithfully pay me back the full amount in a year, then I still have lost money. I need to collect X% interest just to break even.
The CEO of Chevron gave an excellent presentation on CNBC once where he showed why commodity markets will always be volatile.
Taking oil as an example, he illustrated that demand growth is very stable, effectively indexed to continous GDP, but supply is very 'lumpy' & because oil sites (& even oil states) tend to go online/offline in discrete steps.
The same phenomenon applies to metals, agricultural goods and other fuel sources.
Unfortunately I can't find the Youtube clip of this interview
> interest is what causes ups and downs in economies.
That is an extraordinary claim.
If government set or controlled allowable interest rate or set it to zero there would be no business cycle? The downturn in 2020 was caused by interest?
The link between interest rates and the business cycle is a core tenet of Austrian economics. The boom bust cycle is made worse by government policies mispricing time preferences, ie setting the interest rate to the wrong value.
Unfortunately people often oversimplify the Austrian stance to take it to mean boom/bust only exists due to interest.
But interest aside, the activity of lending itself exacerbates boom/bust because people depending on the money lent out coming back to them are at a higher risk of default, and if they default, they put more people at risk...
If anything the generic austrian stance too generous. Their knee jerk anti state stance leaves some weird window of the state being able to manage things if it were only smart enough.
It comes down to "relative smartness". How smart is the state compared to the complexity of the economy?
Centrally planned economies tend to be "simplified" by placing strict restrictions on what types of trade are allowed. Can't have people behaving unpredictably!
Let's be honest though the market is often really stupid so the bar is low for the state. And see, you have made my point about the "if only the state were smart enough" thesis.
The point is, markets should be more independent of the state for other reasons that have nothing to do with any given outcome. (Though I'd claim that some subset of desired outcomes, like income inequality reduction would still come to pass).
> The boom bust cycle is made worse by government policies
Government meddling does make it worse. Governments fighting the business cycle is perverted and should not be the task of government. Paul Volker rediscovered the business cycle and wrote a book about it.
Interest rates naturally vary across time, space, lenders, and borrowers. Leave rates to the free market and have government enforce anti-discrimination.
The natural market price. Just like people / businesses decide what they are willing to pay for a good, they can decide what price they are willing to pay to lend / borrow money. Not sure where it goes no true Scotsman.
Currently our interest rates are set by the government.
Austrian theory says this leads to the business cycle in the following way :
Businesses want to borrow money and it's cheap to do so. This signals that it is a good time to invest, there is excess capital (otherwise people would be competing more for scarce capital, pushing interest rates higher). If there is indeed excess capital that's fine, it is a good time to invest. But if there was not excess capital (rates were set artificially low, sending a bad signal), these are bad investments. When the truth comes out (rates start raising, or demand for your goods drops), all the bad investments become apparent at the same time. Capital is now so expensive I am losing money on these investments.
> Just like people / businesses decide what they are willing to pay for a good, they can decide what price they are willing to pay to lend / borrow money
You mean like... now?
Banks, non bank financial institutions and individuals are free to choose what interest rates they set, to set interest rates for a sector they thinks is at risk well above market levels or to cease lending activity altogether. The fact they choose to lend at low rates is because market participants are pretty bad at predicting the future and market dynamics encourage cutting credit prices, not because the government forces them to lower rates (it doesn't)
And the reality of banking timescales is that a shortage of capital available at a price isn't a nice little hint to change lending activity, it's a signal that since they can't borrow any more to meet obligations they'd best stop honouring depositors' withdrawals. Which is why we have central banks stepping in to make capital available, and before they did that we didn't have stability, we had a lot more ordinary people losing their savings to bank failures and more volatile business cycles.
No, they're not. There's a reason that when the federal funds rate started going up last year, mortgage rates(and other borrowing) have went up in lockstep with each fed rate rise. Rather than being forced to lend according to the capital available to them, banks have a giant bucket of cash they can borrow and profit from, but only by lending it out with interest higher than what they borrow at. This pushes everyone to lend money at the same rate, or no one will take their offer. Sure, the sectors and risks are taken into account, but the base price is basically = fed_fund_rate + my_cut + risks
You're making an argument which while correct runs in precisely the opposite direction to the OP's (i.e banks' choice to lend too much at too low rates is somehow forced upon them by the Fed)
Yes, the base interest rate acts a floor on interest rates (individuals and banks are entitled to choose to lend below the Fed funds rate. It just unprofitable to do so. It would be even more and profitable to do, so if the Fed didn't exist). They don't set a ceiling on it, so market participants do choose their own rates, and are entirely free not to get their risk assessments wrong and lend at too low a rate (which Austrians claim to be the primary driver of business cycles). The herd behaviour to lend money at low markups above the base rate is a problem of market dynamics, not a problem of lack of market freedom.
In the absence of central banks, the banking sector still competed to lend at the lowest rate, was not blessed with any more insight into whether a particular industry had too much capital flowing into it or a particular loan was a bad one, business cycles were still a thing and banks went bust more often.
The irony is that with freer money money might actually be more expensive. And a lot of the destabilizing dynamics exist because money is cheap, at the same time that people must participate in the gulag casino to stay afloat
No there isn't. What you consider to be "right" encodes a lot of individual preferences as to what you'd like it to be (and a presumption that your prescriptive action would have the effects you desire).
Perhaps a better society would have higher employment, perhaps a better society could afford for one spouse to stay at home and take care of the kids, perhaps a better society would have lower income disparity, perhaps a better society would have more innovation, perhaps it would have more ecological conservation. It's impossible for a single economic lever to square the circle on all of those outcomes for everyone.
Free markets are not one dollar one vote. I don't know where you got that idea from. Each person has a schedule of preferences, and a dollar may mean something different to two different people, or even one person from one day to the next.
The other half of your premise is also completely mistaken. Voting power is not linear in number of votes you get.
Interest(and by extension Credit) does cause momentary fluctuations in the economy. But saying they are the main factor in economy growth/degrowth is not right. Here's a good video (by Ray Dalio) that goes into detail.
Copying myself: The link between interest rates and the business cycle is a core tenet of Austrian economics. The boom bust cycle is made worse by government policies mispricing time preferences, ie setting the interest rate to the wrong value.
> the existence of interest is what causes ups and downs in economies
You arent even making as extreme of a claim. You’re saying interest rates and business cycles are linked. Not that interest rates are what cause ups and downs in the economy. Think about it: if that were true, and we removed interest rates, the economy couldnt go down? Its an absurd claim.
Centrally managed interest rates moderate the business cycle. It's one of the key activities of a central bank.
And it's easy to verify. Look at the business cycle in the US before and after the creation of the Federal Reserve, for example. Under the Fed, we had the Great Depression and 2008, and relatively mild recessions other than that. Compare that with the 19th Century.
Thomas Aquinas described usury as the unlawful attempt to charge someone for the use of time itself.
Aristotle called it the "unnatural birth of money from money".
Religions who ban usury (now or in the past) only did so for "one's own kind", sometimes leaving theological ambiguity as to whether you are allowed to charge those of a different faith. We might call it hypocrisy.
To Artistotle, we would say today that his notion of the "barrenness" of money is illogical - other assets that don't bear "offspring", such as houses and land, could generate rent, so too could money.
> Aristotle called it the "unnatural birth of money from money"
In a Malthusian economy, i.e. zero real growth, a condition which characterizes most of antiquity, this makes sense. Rulers borrowing to take a calculated risk usually meant conquest, i.e. violently taking others' stuff.
The economic and moral calculus changes in a positive-sum game, where risk can increase the size of the pie for all. So some of this variance may be explained by whether the thinker lived in a stable or growing era.
> other assets that don't bear "offspring", such as houses and land, could generate rent
Financial yield traces its roots directly to crop yield. (The grain markets in Ancient Rome are a great example of markets working without stable conceptions of money and banking [1].)
> Religions who ban usury (now or in the past) only did so for "one's own kind"
Not the case for islam, it's banned for all, regardless of being an 'in-group' or 'out-group'.
And the closest financial instrument similar to charging interest that's allowed is basically the lender buying it and selling shares of the thing to you at a markup with installments, meaning that they are sharing the risk with you.
>To Artistotle, we would say today that his notion of the "barrenness" of money is illogical
From my perspective Aristotle is spot on. In fact, you just keep listing more examples how he is correct. All those things you listed can only generate an income by having another person pay for it. The house is dead, the people living inside it generate the income that pays your rental payments.
But a house is not consumed during its ordinary use. The point of the Aristotelians is that money is more like a bottle of wine: You can't simultaneously charge for its use and expect to get it back, because whenever you use it, it's used up (hence, "usury").
A house is absolutely consumed in ordinary use. It is just a slow process. Paint fades over time, the roof needs repairs. It is generally seen as worthwhile to keep a house in good repair (except in Japan where they sometimes rebuild new every 20 years - I'm not sure how this works but it might be insightful to look at this exception). I've seen houses that have been abandoned (generally a farm that sold out to a larger farm and so the house isn't needed) - in just a few years the house is clearly falling apart just because of a few little maintenance issues not being taken care of.
A car need to be consumed in ordinary use. There are people still driving the car they bought new in 1968 (or whatever year), and the car looks and drives like it is less than a year old. However the amount of labor required to keep a car at this level isn't generally seen as worth it and so the average car is about 12 years old and obviously not like new at that age.
In modern society money isn't "used up". Quite the opposite. The act of lending money actually creates more money since every $1 minted lives on the balance sheets of banks many times over.
Ezra Pound says “a charge for the use of purchasing power, levied without regard to production; often without regard to the possibilities of production.”
Of course, Ezra Pound was a proper and proud fascist.
The definition of "usury" isn't as straight forward as 'charging interest'. Even in the time of Jesus of Nazareth charging interest was not unheard of (Matthew 25:27; Luke 19:23), and opportunity cost was recognized in the Middle Ages (see Paris, 1200 by Baldwin).
We tend to focus on lending money for commercial purposes, but in the ancient world most folks were probably peasant farmers, and they generally needed to borrow / be lent to because the crops failed: charging them interest in their hour of need would be against the virtue of charity.
That's still pretty much how agriculture works today.
You borrow from the landlord, the rich or the bank, to pay for seeds, fertilizer, machinery, energy, labor etc and pray you don't get hit by weather, pests, disease, market price fluctuations. If all goes well you pay it back.
If it doesn't govt steps in, to the keep you(ie the banks and rich people) afloat. See the size Farming Subsidies and Protections world wide.
I like to think the parable of jesus overturning the money changers' tables was because they were the equivalent to payday loans. here's money to pay for new goats/lambs with the promise that you pay me back in full plus some meat for my family vs here's some money for 3 goats and 3 lambs in the promise that you pay me back in full plus 4 goats and 4 lambs or it'll be a real shame if my nephew has to come and pay a visit.
The problem isn't that there isn't a common-sense distinction between the extremes; it's attempting to define the crossover point (presumably for the purposes of a "bright line" rule in law/policy/norms). Defining how much interest should qualify as usury is a classic "paradox of the heap" [0]; which may be a reason by some faith traditions simply forbade lending at interest altogether.
An interesting alternative to consider, is money that intentionally depreciates value at a fixed rate ("demurrage" [1]). In theory, this would incentivize lending at zero interest (assuming relative price stability for real goods, which is easier said than done).
> An interesting alternative to consider, is money that intentionally depreciates value at a fixed rate ("demurrage" [1]).
This is exactly property of coins (gold, silver or copper). Even without debasement (like clippage) they were loosing value as they were worn out as a result normal usage. Money changers were exchanging worn out/damaged/clipped coins at current market value minus some comission.
> jesus overturning the money changers' tables was because they were the equivalent to payday loans
Jesus apparently didn't appreciated that a Jew coming from say Alexandia or Gallile had been bringing a bunch of coins of different origin, issuance, often clipped or destroyed by use... Charging 4-8 percent (kolbon) for exchanging used and foreign coins into new shekels required by Temple wasn't excesive. It is on par on charges for foreign purchases by today's banks.
Temple services (purification, healing) were on the other hand prohibitively expensive while Jesus provided them for free...
The funny thing to me was that Jesus was only like 17 or so when he did this, if memory serves. It always seemed to me like a tantrum thrown by a teenager getting praised for being an asshat. Prior to that, he was a dick to his stepdad by essentially telling him "you're not my real dad". And these were the events canonized, so what other kinds of things were left out that these were the ones that were selected as the high notes?
He would have been in his 30s by any reading of the bible. (Luke 3 clearly says about 30, and also is clearly the start of his ministry)
Historically there were many Jewish people not happy about this happening in the temple. I doubt Jesus was the only one driving them away from time to time, they just kept coming back to the temple.
The rest of your post is just made up based on trying your best to interrupt things in the worst possible light it is not more reasonable than believing anything else.
The subject here is chasing the money changers out of the temple which the NIV also says would have happened after he was 30. There was a short incident where he said things like you said when he was 12, but that is a different situation.
How much interest you charge, and if you are doing it say to help people trough university, so that they can benefit society and or humanity, versus if you want people to promote people getting lavish people houses, wanting them to fail so that you can get other peoples houses.
Sorry, I will buy the book, I stopped reading after "It’s striking that the earliest narratives of unmanageable debt and organised human violence coincide.". The definition of striking is: "attracting attention by reason of being unusual, extreme, or prominent.". It is not unusual that resources (land, money, etc) are linked with wars and violence.
I will never make this comment if it not were because it is a curated content in the "London Review of Books".
Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window. If they don't have that information, they can't have time preference. Lenders will be reluctant to lend at "market clearing" interest rates and consistently demand a premium giving the rise to usury.
However, usury can't be banned, because the concept of lending is about bringing money from places with low utility to places with high utility. Strangely enough, this means any ability of money to save transaction costs and facilitate gets priced into interest. We are even further away from the time preference theory at this point. The real question one should ask, if lending brings money to the poor, which is a good thing, why does it flow to back to the rich? Why doesn't an overabundance of wealthy people willing to lend for nothing appear?
I would venture to guess that people are largely poor because they've been thoroughly exploited by the rich, and short-term greed is allowed to take precedence over higher-utility outcomes.
That's a popular Marxist narrative, and conveniently puts on the blame on "them", but I don't think it's true. Plus, pretty much everyone on this site are "the rich" by world standards, so look to yourself, oppressor-(wo)man!
My observation is that a lot of people are poor because they lack the ability to make money, generally because they don't have any skills. I lived in a city that was pretty poor, and there was no interest in education and no real thought that one could better oneself by learning skills. One girl I met was "homeschooled", which meant that she was unsupervised and did whatever she wanted, which was not learn anything. She was borrowing from her future to do nothing now. When all you have to offer is unskilled labor, you are going to be poor.
I also knew a couple who were also quite poor, but they had a small shop (which they lived in), and were augmenting it through drop shipping businesses advertised on TikTok. The shop was not successful, but between the two of them, their other businesses were doing okay. These people were poor, but they did not have the poverty mindset of the others.
> Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window. If they don't have that information, they can't have time preference. Lenders will be reluctant to lend at "market clearing" interest rates and consistently demand a premium giving the rise to usury.
If everything required perfect knowledge to be actionably modeled, humans wouldn't do anything. At the very least, markets wouldn't clear.
In practice, the realized price of time preference is typically a fraction (or multiple) of its full value, proportionally reflecting the uncertainty involved in its estimation. This is true of all factors involved in the pricing of any marketable asset, not just time preference and not just loans.
>Time preference theories of interest are unsatisfactory, because for them to make sense, lenders must have perfect knowledge about the future and be perfectly aware of competing usages of money at any point in the lending window.
This is just wrong. Time preference doesn't require lenders to have perfect knowledge, it also describes how two lenders with access to similar (necessarily incomplete) information about the future would behave differently due to different time preferences.
But looking from the point of view of the one who loans the money, without interest there's only risk and no reward. I mean like when I'm lending an amount of money to someone with no interest, all I can hope is that they might repay them back (uncertain). And most likely I'll have to go through the trouble of incentivizing them to return my money, another cost on my side with no benefits since I can only hope to get back what I already had. So I have some money now, lend them and temporarily lose them, then go through great lengths of effort and stress to get them back and at the end all I can hope for is that I'll have what I already had. Probabilistically this is a certain losing position, by pure statistics some money will get "lost". I'm locking myself into a loss.
Really as a loaner, how do you justify lending money with no interest? What's in it for you?