On the webiste of the Office of the President Elect, Change.gov, is found an open public discussion board. Last week I posted on that discussion board a posting summarizing my proposal that the economic recovery package should include debt relief for distressed consumer debtors, along with a link to a posting on this blog last September setting forth more details. Bradley MacLeod posted a response to my comment in which he questioned, among other things, the proposal to reinstitute some form of usury laws contained in my September posting on this blog. I attempted to post the following response to Mr. MacLeod's comments on usury laws on the Change.gov discussion board, but my response on that topic was deleted by the administrator of that discussion board. It should be noted that I do not criticize the Change.gov administrator for this decision, since the subject of usury laws was not mentioned directly in my post on that discussion board (though the subject was discussed in the blog posting referenced in it). However, I still wish to respond to Mr. MacLeod's comments on usury. The posting that was rejected by the Change.gov board's administrator is as follows:
Regarding your response to my proposal to re-institute some form of usury laws, please recognize that I'm approaching this as a historian, not as an economist. I observe that both ancient and relatively modern codes of laws, until the last 50 years or so, have quite often regulated usury. For instance, the Code of Hammurabi obviously contained some regulation of interest (as shown by the surviving fragment of paragraph 100 of the code), and also in its surviving parts regulated practices dealing with defaulting debtors (for instance, debt slavery was limited to four years). The Law of Moses forbade usury outright, at least among the Jews themselves, and also limited the period of debt slavery of a Jew to seven years. The Solonic Constitution of ancient Athens abolished all existing debts as of the date of its adoption and freed debt slaves, but at the same time created an honest timocracy. Table III of the Roman Law of the Twelve Tables dealt with the subject of "Debt," and, although a large part of the original code does not survive, it also appears to have regulated credit practices--though later departures from it led to the disenfranchisement and enslavement of the plebs and the Social Wars. European states, including England, from Roman times until fairly recent times, have regulated usury, when they had the power to do so. And all of the states of the United States, from colonial times until about the last 50 years, have regulated usury.
This long history of regulation must be based on some observation of legitimate harm done by usurious practices. I would submit that unregulated usury harms the economy, and the people, in just the way we are observing in the U.S. economy today. Regulated interest rates encourage lenders to limit risk, and discourage them from promoting debt. On the other hand, history has often demonstrated that unregulated interest encourages lenders, and those with large amounts of money to invest, to prefer much riskier loans, and to entice or even force the rest of us to borrow at high interest rates, secure in the knowledge that they will profit from those high interest rates until the bubble (inevitably) collapses and then will be able, in lieu of payment, to exercise much more control over their victims' lives. An economic downturn after a period of usury historically leads either to debt slavery (in one form or another) or slave revolt. That is the evil usury laws have been used to combat.
mischievious
