The suggestion that the need to wear helmets deters vast numbers of people from cycling, comes as a big surprise to me. Everyone I knew who cycled in the 1980s wore helmets anyway. It was just something you took for granted, like saet belts. Maybe it was different in the cowboy West.

But, as you conceded, this is off topic, so let’s leave it there.

By the way, it must have been a bitter disappointment when Garnaut didn’t put voluntary helmets at the top of his list of recommendations!

If your criterion for approving nanny-state impositions is whether they work, then we\u2019re in complete agreement.

Certainly the end objective is to deliver something that works. There’s a process involved in achieving that, and we spend most of our time partway through the process (since the world is a moving target, we expect to always be running behind the target, just to keep up). Observation of the nanny-state process typically shows a dislocation between what happens on the street and what happens amongst the legislators, plus a great reluctance to revisit old decisions. This is a recipe that regularly fails to reach a desirable end objective.

It is incredibly difficult to get the incentives structured such that a centralised authority will make reasonable decisions about activities they are not personally involved in. It is made even more difficult when that central authority must codify all their decisions, push them through various layers of “education” and enforcement, and in the process remove choices from the person who actually has their life on the line.

Part of this larger process is the chain of responsibility when a mistake is made and whether there is a strong connection between the decision-maker and the consequences of their actions. Committees and bureaucracy are designed specifically to isolate all concerned from any responsibility for their actions (as was demonstrated very clearly in the aftermath of WWII). I find this unsettling to say the least.

Should a fat person facing diabetes and ten years shorter lifespan be able to sue the state for making it more difficult for them to go cycling? Think about all the kids who grew up not being allowed to climb the “monkey bars” at school because of the danger of injury litigation, and all the councils ripping out park equipment for the same reasons. Don’t they deserve every right now to litigate because they grew obese after being deprived of what any child would do naturally?

I eagerly anticipate your reference/link re, bicycle helmets.

I love doing your google research for you!

Overall collection from WA perspective — http://www.cycle-helmets.com/
Eloquent summary of the problem — http://www.cycle-helmets.com/cycling_health_rissell.pdf
Bunch of stats — http://www.garnautreview.org.au/CA25734E0016A131/WebObj/D0852004ResponsetoIssuePaper5-ChrisGillham/$File/D08%2052004%20%20Response%20to%20Issue%20Paper%205%20-%20Chris%20Gillham.pdf
Mr Paul Gibson, NSW Parliament, showing a complete lack of understanding — http://www.parliament.nsw.gov.au/Prod/Parlment/HansArt.nsf/V3Key/LA20050504027
More stats (and references) — http://members.pcug.org.au/~psvansch/crag/nswstats.htm
Same stats, better graphics — http://www.cla.asn.au/Article/081125BikesHelmetPolicy.pdf

If you did your own research you might find a more balanced collection, given that various people have attempted to justify the government’s position. My summary is that helmets help a lot for low speed collisions, but bugger all at high speeds — thus you are vastly better off reducing your risk of a crash, than you are attempting to survive that crash. Factors such as where you go cycling, the attitude of drivers, the experience of the cyclist, visibility, road quality, cycle lanes (sans parked cars), speed limits, and number of cyclists in the group are far more significant influences to your survival than the helmet, but these are issues that government does not want to talk about, so they don’t. Being seen to be doing something is far more important than getting measurable results.

This has moved a long way from usury, but do please try pushing some of the following keywords into your favourite search engine: “tin whiskers” “lead free” RoHS avionics.

Get ready for a world of dissatisfaction when it becomes blindingly obvious that not only doesn’t the nanny state deliver working solutions, it can’t.

http://www.cochrane.org/reviews/en/ab005401.html

I won’t comment on all the issues you raise; I’ll let you do some more reading and pondering.

Just one thing: A positive theory of exchange value (price) isn’t incompatible with the idea that goods have psychic costs. Marshall put it this way in a famous passage:

The exertions of all the different kinds of labour that are directly or indirectly involved in making it; together with the abstinences or rather the waitings required for saving the capital used in making it: all these efforts and sacrifices together will be called the real cost of production of the commodity.

Marshall is notorious for couching his ideas in moral language — even more so than Smith. But the approach in both Smith and Marshall is fundamentally positive: psychic sacrifices are scarce resources, and the relative price of two goods reflects the quantities of those resources expended in producing them, which itself is a purely technical coefficient.

Thanks for doing that supplementary research on Islamic banking.

If your criterion for approving nanny-state impositions is whether they work, then we’re in complete agreement. I eagerly anticipate your reference/link re, bicycle helmets. A helmet once almost certainly saved my son from serious head injury, but I do realise that one incident is not the basis for a policy.

Im relation to your last point: I was using the word rentier in the technical sense of any people who derive income from property, including interest.

And no, I don’t want to defend St Thomas’ argument — I just want to understand why someone might think usury was immoral.

I’m not sure what to say about the concept of value. Terms like value and worth are often ambiguous. I’ve read accounts of the history of economics that trumpet marginalism as the solution to the age old conundrums of value but that’s only true if you interpret ‘value’ as ‘market price’.

Your comment that “fair price isnt to amenable to scientific enquiry” is interesting. Economists haven’t always made such a firm distinction between positive and normative. Adam Smith was a moral philosopher and and economist. I don’t think he saw the two as all that different.

His labour theory of value begins with this idea:

The real price of everything, what everything really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What everything is really worth to the man who has acquired it, and who wants to dispose of it or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people.

For Smith, Labour becomes the common metric of value — the original sacrifice. So, as you say, the idea of ‘real value’ or ‘real worth’ is actually a price — a price expressed in the currency of toil and trouble (or as the Bible puts it — the sweat of man’s brow).

I can imagine how this idea would have appealed to the early socialists. By inheriting wealth, a person was able to impose vast amounts of “toil and trouble” on other people and live off the proceeds. The idea of accumulation of wealth without labour would have seemed scandalous.

It’s not hard to see how you could weave the labour theory of value into an account of the just price of labour.

I admit, I’m still unsure about how the concept of value works in economics (eg welfare economics). Even in Smith I’m not sure how to interpret it.

More seriously, your slightly-glowing description of Islamic banking just sounds like western banking, only a century or so ago. So my take on it is: don’t worry, they’ll catch up one day.

Ill cheer all day long for mandatory bicycle helmets…

Last I checked the stats showed that the introduction of mandatory helmets merely reduced the number of people riding bicycles, but did not make the activity of cycling any safer (some even show a slightly increased risk per person-kilometer traveled). Presumably the increased danger was caused by all those people who no longer rode bicycles, now getting into cars and filling up the space on the road.

Sadly, nanny-state laws rarely get the follow up studies that are required to discover whether they were useful or not, and wouldn’t get reversed even if they were useless because of the career progress that might be infringed should we discover the wrong answer. Don’t get me started on lead-free solder and tin whiskers (but I’d be very interested if someone would examine the lead content of that Airbus wreak sitting on the bottom of the Atlantic).

By the way, given the statistics on toxo-plasmosis (many cat owners have plasmosis effects without being aware of it, including behavioral changes) there’s better evidence for passing a law banning cat owners from driving. Can you imagine the wailing?

I can also see the case for regulating loan sharks and prohibiting excessive leverage if it has the potential to cause system-wide dislocation. Id also be happy to see an increase in the wage share of global income at the expense of the rentier, until the reward for waiting becomes negligible but this applies, as Ive already argued, to interest income in general, including imputed interest, and not just to interest on lending.

As you point out, any system involving rents is not essentially different to loan sharking, so the best regulation possible is just to ensure that people who need to borrow/rent have as many options open to them as possible (and information about these options). I can’t see any system of property that doesn’t give strategic advantage to property owners. Otherwise, what would be the point of owning property if not to get some advantage out of it?

For people who are genuinely unable to manage money (and they do exist), government regulations won’t help them and will hurt everyone else by narrowing the available choices.

[1] Ignoring the sleight of hand; they use simple interest, not compound interest. In effect, a flat fee is agreed for the service and a schedule of fixed “rental” payments. It is very arguable, but maybe simple interest is more stable than compound interest (also, the fee cannot arbitrarily change as interest rates go up and down).

[2] They put great emphasis on understanding the purpose that the money will be put to, because the bank is effectively buying the goods. Thus the bank is more directly involved in the investment decision, and more directly involved in knowledge of the borrower and whether this investment is suitable for them (half bank, half investment adviser, half rich uncle, I guess).

[3] The situation in the case of a default is complex (because there are inevitably community religious figures involved) but the worst that can happen is the bank is left holding the goods and the borrower walks away (like the US housing market) possibly with grudges all round. In theory, it is rarely in the interests of the bank to be unreasonable to a defaulting borrower, unless the bank sees a lot of demand for those particular goods (which implies they got step [2] right).

I’ll make an effort to learn more. I’d be interested to know whether their sleight of hand also protects them from government interference (very valuable indeed).

…lending one of your coins involves no such sacrifice.

Assuming you would otherwise have left them in the box.

Using it means losing it.

As I said in the last comment, this is true if you spend it on consumption goods. Buy pigs, to use your example, and breed them, and you get it back.

St Thomas reasoned that the value of 100 silver pieces today was the same as the value of 100 silver pieces tomorrow. Lending them to someone else entailed no sacrifice.

Value in terms of what? Today’s goods or tomorrow’s? If you mean that the purchasing power of the $100 you have today over goods available in a years’ time is the same as its purchasing power over goods available today, then that’s just begging the question. It’s the same as assuming the money is kept in a box.

I take it that you’re not actually defending this argument, but rather your assessment of it as ‘interesting’. If your interpretation is right, I suppose it’s interesting as a window onto the medieval mindset. Apart from that, it just confirms the standard view that the major breakthroughs in economic reasoning occurred in the seventeenth century.

On your second point, about interest versus profit sharing, you may be right, although Aquinas might simply mean a share of anticipated profits. In any case, sharing the risk is the basis of the Islamic approach. My main point in the post was that this doesn’t mean that Muslims disapprove of interest in its technical meaning as the factor earnings of capital — which they obviously don’t.

I can’t quite reconcile your last two paragraphs. The classical economists distinguished between real value and market value, but these are both prices, i.e. exchange values (in different time frames), and neither has anything to do with justice. (This ‘positive’ concept of value predates Marshall.) Only Marx insisted on keeping the concepts separate. You’re keen to revive value as a distinct concept, but you don’t like Marx’s version. So what do you have in mind?

To avoid any confusion — modern economics doesn’t deny that there’s a realm of values beyond the market. Lots of things have great value but no price, because they’re not for sale: my mother, for example. Nor would an economist be caught in any contradiction if he said that a price was unjust or unfair. It’s just that the fair price isn’t to amenable to scientific enquiry.

As I understand it, St Thomas’ argument is based around the assumption that every good has a ‘just price’ or value. For an exchange to be a fair one the thing you give up must have the same value and the thing you gain.

If this is true then it’s impossible to make a just living from buying and selling goods. To do so, a trader would need to buy goods for less than their value and/or sell them for more than their value.

The idea goes back to Aristotle. In the Politics Aristotle wrote:

There are two sorts of wealth-getting, as I have said; one is a part
of household management, the other is retail trade: the former necessary
and honorable, while that which consists in exchange is justly censured;
for it is unnatural, and a mode by which men gain from one another.
The most hated sort, and with the greatest reason, is usury, which
makes a gain out of money itself, and not from the natural object
of it. For money was intended to be used in exchange, but not to increase
at interest. And this term interest, which means the birth of money
from money, is applied to the breeding of money because the offspring
resembles the parent. Wherefore of an modes of getting wealth this
is the most unnatural.

In the middle ages it would have seemed reasonable enough. If you put two pigs in a pen together, there’s a good chance you’ll end up with more than two pigs in a year’s time. But if you put 2 coins in a box and leave them for a year, you’ll end up with … 2 coins. So lending one of your pigs entails sacrificing the opportunity to breed piglets but lending one of your coins involves no such sacrifice.

Lending a horse entails a different kind of sacrifice. If you let someone else borrow it for a year you don’t get to ride it for a year. But in contrast to a horse, it’s impossible to use money and keep possession of it. Using it means losing it. This is why St Thomas says that lending money is more like lending food or drink.

St Thomas reasoned that the value of 100 silver pieces today was the same as the value of 100 silver pieces tomorrow. Lending them to someone else entailed no sacrifice. Money didn’t breed and you couldn’t use it for anything without using it up in the process. This meant that charging interest involved an unjust exchange.

You say that “Everyone, Aquinas included, seems to approve of interest being paid if the goods are invested”. But I don’t think this is right. I think St Thomas would have approved of buying shares in a business (or entering a partnership) but not of lending a business money at interest. He would not have had much sympathy for the plight of GM’s bondholders.

I think the biggest problem with St Thomas’ account is the idea of a just price. This is closely linked to other dubious ideas like the labour theory of value and surplus value.

Nobody bothers with these ideas much anymore. Since Marshall, economists have abandoned theories of value and contented themselves with theories of price. But it’s obvious that price and value aren’t the same thing. After all, St Thomas’ idea of unjust exchange depends on the possibility that values and prices can diverge.

Theocratic nonsense is correct though.

The only thing you can do with it is spend it and when you do that you consume the money.

That’s a bit of a non-sequitur, isn’ it, Don? Money can be spent on goods and services for consumption or investment, and the sacrifice on the lender’s part is the same whether the borrower consumes or invests. Therefore, the only basis for stating that interest is permissable in one case but not in the other, is what the borrower gains by having access to a given quantity of goods and services sooner rather than later.

Everyone, Aquinas included, seems to approve of interest being paid if the goods are invested, that is, a physical return is accrued. So how do we determine whether a borrower gains by consuming now rather than later? Can’t we accept his own willingness to pay interest, as evidence that he gains utilty by the transaction, and that the loan therefore provides a service, which the lender can justly ask payment for?

The only objection that could reasonably be made is that if the borrower is poor and desperate, it’s not fair to take advantage of this. But that’s nothing more than an objection to economic inequality in general. If there are people who are poor and desperate, rich people in general can help them in all sorts of ways, not just through interest free loans. [Update: In fact, an interest rate of zero is an arbitrary magnitude here: if justice demands some sacrifice on the part of the rich meney lender, why not a negative rate?] The fact that in primitive societies interest free loans probably were the most practicable form of charity to the respectable poor, is presumably the basis for the original antipathy to interest (as several commenters have observed).

Yes, the various holy books of the time were basically assembled from the legends and survival protocols of tribal desert people who’d learnt from bitter expereince. Ripping off others yer running with night and day could lead to festering enmities that would tear apart a tribe, especially when they’re already in each others faces 24/7.

Bit like the Jewish and Islamic prohibitions on pork. One pigout on a poorly roasted (not much firewood around) free range swine could see trichinosis ripping through the whole tribe.

The prohibition on charging interest predates the christian bible and the koran, it comes from the hebrew bible, on which the other two are obviously based.

This is an interesting point because if you read the book of Deuteronomy you’ll find that the prohibition on charging interest is limited to loans to fellow Israelites:

19 Do not charge your brother interest, whether on money or food or anything else that may earn interest. 20 You may charge a foreigner interest, but not a brother Israelite, so that the LORD your God may bless you in everything you put your hand to in the land you are entering to possess.

Following St Thomas medieval thinkers argued that Christians ought to regard all men as brothers and neighbours and, as a result, it was wrong to take interest from anyone.

I never really grasped what was so flash about Islamic finance, given that, as you say, there is obviously an implicit interest rate involved, and I thought one of the big consumer-rights things was mandating disclosure of implicit interest rates. Hey look, it’s the new shiny Islamic and, er, less-transparent finance!

Sounds like just what we need now.

People often say that you are better off buying a house than renting because rent is “dead money”.

But if rent for house is dead money then rent on the money to buy the house (interest) must also be dead money.

There are good arguments for borrowing to buy, but avoiding “dead money” isn’t one of them.

The intent of the prohibition in all of them is a plain and simple prohibition on ripping off poor people.

If I understand Brad Delong’s economic history correctly, up until somewhere around the 18th century almost everyone was living at purely subsistence level. A small minority of people were better off, and the prohibition applied to them, since they were the only ones in a position to be able to lend money (or grain, whatever).

The prohibition doesn’t make sense in a non-subsistence level economy.

Whats the ethical basis for a prohibition on usury?

St Thomas Aquinas drew on Aristotle for his argument against usury but the argument doesn’t depend on the idea of unearned income. After all, St Thomas had no problem with charging rent for things like houses.

St Thomas’ reasoning was that there is no value in holding money. The only thing you can do with it is spend it — and when you do that you consume the money. That makes it similar to food or drink. You can’t rent out a jug of wine, you can only sell it.

A house, land or horse is different. If you lend to someone you lose the use of the thing for a period of time. If you rent out a field, you miss out on the crops you could have grown.

Here’s the argument from Summa Theologica:

To take usury for the lending of money is in itself unjust, because it is a case of selling what is non-existent; and that is manifestly the setting up of an inequality contrary to justice. In evidence of this we must observe that there are certain things, the use of which is the consumption of the thing; as we consume wine by using it to drink, and we consume wheat by using it for food. Hence in such things the use of the thing ought not to be reckoned apart from the thing itself; but whosoever has the use granted to him, has thereby granted to him the thing; and therefore in such things lending means the transference of ownership. If therefore any vendor wanted to make two separate sales, one of the wine and the other of the use of the wine, he would be selling the same thing twice over, or selling the non-existent: hence clearly he would be committing the sin of injustice. And in like manner he commits injustice, who lends wine or wheat, asking a double recompense to be given him, one a return of an equal commodity, another a price for the use of the commodity, which price of use is called usury. But there are things the use of which is not the consuming of the thing: thus the use of a house is inhabiting it, not destroying it. In such things ownership and use may be made the matter of separate grants. Thus one may grant to another the ownership of a house, reserving to himself the use of it for a time; or grant the use and reserve the ownership. And therefore a man may lawfully take a price for the use of a house, and besides demand back the house which he has lent, as we see in the hiring and letting of houses. Now according to the Philosopher, money was invented principally for the effecting of exchanges; and thus the proper and principal use of money is the consumption or disbursal of it, according as it is expended on exchanges.

In the middle ages most lending would have been for consumption. But what about lending for trade or manufacturing where the borrower can make a profit? According to St Thomas:

… he who entrusts his money to a merchant or manufacturer in the way of partnership, does not transfer the dominion of the money to him, but it remains his: so that at his risk it is that the merchant trades with it, or the manufacturer works upon it: and therefore at that rate he may lawfully demand a share of the profits thence arising as from his own property.

Old Ezra may have been an anti-semite goldbug fruitcake but on song he was one hell of a poet.

And D2′s exegesis is bloody good as well. As you’d expect from a left-wing Welsh Oxonian stockbroker.