Why not ban usury?

Clayton:

I'm actually coming to the view that contracts that are based on compound interest per se are ill-formed contractual arrangements in that there is not actually a single, agreed price.

Isn't 5 % per annum a single, agreed price?

Clayton:

The cascading scale of defaulting prices upon non-payment implied in compound interest contracts are exploitative because a) they result in absurd sums very rapidly[1] and b) the terms of such instruments are invariably favorable to the wealthy, a sure sign that they are a symptom of the parasitic social order, not the natural social order.

It depends on the interest rate.

Clayton:

The underlying presumption of compound interest - that money is exponentially valuable in time - is actually false.

Is a commodity you can't use, exponentially less valuable in time as you can't use/invest it when someone else is borrowing it from you?

Clayton:

@Meistro: That's beside the point. The point is that what began as a $100 obligation balloons into absurd numbers, not because "that's what was agreed to" - of course people are free to negotiate any price they like between themselves - but because humans are extraordinarily bad at exponential arithmetic. Most people pay close to 2x the sticker price for an automobile because they buy it on credit... by the time you add up all the interest, the total purchase price comes out to nearly 2x.

But they do so in a society where the fiat-money is inflated, so if that car is an investment that enables them to be more productive immediately, that might not be so stupid, as the loan decreases relatively to their growing income as money is being inflated.

Clayton:

It may be true that people don't grasp the math of compound interest. But that just means they are signing up for a Darwin Award when they voluntarily agree to a complicated contract without sitting down to figure out what it actually says,

But how does it happen that such stupidity is so common? I'm not asking a question about population traits (why are so many people stupid) but, rather, how is it that this trait is so often expressed? For example, the willingness to commit petty theft is appallingly common. Yet there is actually not a lot of petty theft in absolute terms, compared to what there could be.

How do you know?

Clayton:

This is because petty theft is punishable. So would-be petty thieves are induced to calculate - in their own terms - the costs of indulging the urge to commit a petty theft.

Yet, somehow, stupid people are not being induced to calculate the true costs of compound interest loans which they are taking out for literally everything from houses

...with enough regulation to curtail supply in a given area, real estate prices will increase in value, so borrowing to invest in real estate might be profitable in a fiat-monetary system.

Clayton:

to cars, to boats, to televisions, to dental work, to breast implants, etc. Let me put it this way and let you ponder it: the modern system of consumer credit is subtly redistributive.

Clayton -

Clayton:

@Meistro: That's beside the point. The point is that what began as a $100 obligation balloons into absurd numbers, not because "that's what was agreed to" - of course people are free to negotiate any price they like between themselves - but because humans are extraordinarily bad at exponential arithmetic. Most people pay close to 2x the sticker price for an automobile because they buy it on credit... by the time you add up all the interest, the total purchase price comes out to nearly 2x. But they don't think it through, they just say "Oh, 8% isn't that much". But it isn't just 8%... it's 8% on 8% on 8% on 8% on 8% on $25,000 (annuitized over 5 years or however many years the loan is). Some States have laws to try to rectify this by giving the consumer the total package price, etc. but the fact is that that's like putting your finger in the crack of a leaking dam... the point is that everybody buys cars for that price, so of course, that's what the Joneses will pay to have a car. In other words, my view is that it's not an accident that things like car loans are the way they are. It's an interlocking, interconnected system. It's pure evil.

Clayton -

 

 

But that's why few debts are structured as zero coupons contracts.

Most real world contracts have a stream of coupons payed on pre-assigned intervals (usually of the same length) where the accrued interest since the previous coupon payment is payed, thus leaving only the principal. So you pay 8% over the principal every year and in the last year you pay the principal + 8%, and you have no exponential explosion. And this can go on for an infinite amount of time. Or you can structure so you pay the interest plus a part of the principal so that in a number of years all is payed.

This mode of payment seems to have worked well since the middle ages and perhaps contributed to the prosperity of the judeo-christian world, which lagged far behind the Islamic world before the Reinassance.

Even though this is a very complex process, the relative freedom to practice usury many relocated spanish jews encountered in the prostestant electorates of the Holy Roman Empire, as well as in the Habsbourg Netherlands and London, contributed to the advancement of these regions.