Photo by Francesco Alberti
Last fall, Pope Leo made an address in which he stated that “[t]he phenomenon of usury points to the corruption of the human heart,” condemning the practice as bringing crisis to families and enslaving the poor and powerless. Though it is almost never discussed today by those who comment on matters public and political (they are afraid to offend their captors), usury is among the defining features of our entire social, political and economic system.
Recent court cases have put a spotlight on usury and state laws meant to combat it. Earlier this month, for example, the Fourth Circuit denied an attempt by the lender TitleMax to stop a consumer protection lawsuit, opening the way for a Pennsylvania government agency to pursue over $50 million in penalties for the unlawful practice of usury. In one of the instances covered by the case, TitleMax issued a loan of $7,751.39 to a Pennsylvania man, charging an interest rate of over 132%, with the result that his interest on the loan was over $33,000. He took out the loan in Delaware, but under Pennsylvania’s usury law, the interest on the debt would have been less than $1,000.
A case out of Colorado, currently before the Tenth Circuit, implicates a similar fight over a state usury law that sets a cap on interest rates; the case involves state-chartered banks partnering with fintech companies to give personal loans all over the country. These banks and companies argue that they have a right to export interest rates applicable and legal within their own states, and that Colorado’s local usury rules cannot apply. One of the implicated banks, FinWise Bank, approved loans with interest rates of 160%, legal in Utah, for example, but a felony in Colorado.
Importantly, one need not accept the Pope’s Christian faith in order to oppose usury as a social relationship of unjust, exploitative power. And it is a relationship of power rather than one of mere economics, as if the latter exists in a sphere separate from the former. It may surprise some that one of American history’s most ardent and consistent proponents of free markets and individual liberty was also one of its greatest critics of usury. The anarchist Benjamin Tucker set forth to confront “a most momentous question,” the question of who receives “the surplus wealth that labor produces and does not consume.” For Tucker, usury was the key characteristic of capitalism, but it was the result of political power, not economic relationships of free and voluntary exchange.
The utilitarian philosopher Jeremy Bentham famously wrote a lengthy Defence of Usury near the end of the eighteenth century. For Bentham, usury was not a proper subject of legal prohibition, because, he argued, free adults should be able to engage in whatever kinds of economic activities and exchanges they like. Yet Bentham reckoned only half of the whole story, much like those who still today misguidedly defend capitalism on the grounds of freedom and strong individual rights. They are not sufficiently careful to keep context; their mistake is to believe that the relations described by this apparently innocuous term, relations of domination and coercion, emerge from conditions of mere voluntary exchange for mutual benefit. But it would be very strange indeed for such an authoritarian arrangement to grow up out of libertarian ideals and means. In fact, historically, the usurious conditions of our system of political economy, whatever called, are right in line with bygone systems of power and privilege, with those of feudalism and mercantilism, for example.
Defenders of capitalism seem to be able to apply the much-vaunted economic law of supply and demand to everything but capitalism itself. The defenders of usury are not liberal in any meaningful sense; they deploy the language and concepts of economic rights and freedom in the service of a system that is akin in its actual, material dimensions to forced labor. That is, they stand liberalism on its head and make it a cynical, ideological cover for what is actually a program of political extraction and indentured servitude. This state of affairs passes unremarked upon because the right wing of our current politics says that this is a system of freedom with which the state must not interfere, and the left wing of our politics insists that only the state can hold capital at bay. Both of these narratives are fundamentally confused, preventing a proper understanding of the system’s history and dynamics.
To wrap a violent system such as capitalism in the language of freedom and “free markets” is a high crime, based on the confusion of useful idiots and the malice and contempt of the ruling class, always shrinking relative to the size of the population, always distancing themselves from the people. Very few of today’s liberals have cared to notice what Benjamin Tucker and other anarchists did, because they are often members of a class of laptop “professionals” who serve to protect the power of that ruling class. This is sadly among the major structural reasons that Donald Trump was able to pull the wool over the eyes of so many in the working class. Liberalism on its face became less about justice, freedom, and equality than about protecting the unearned social prestige of the puppets of a billionaire ruling class—a class that has never had any use for free markets and uses the state however and whenever it can.
If the objective and mechanism of actual free markets might be something like equilibrium and the efficient allocation of resources, then capitalism historically has meant the endless and auto-reproductive accumulation of surplus value. If free markets would mean that rent, interest and profit always tend toward a zero value, then capitalism means they must always grow and accumulate without end or limit. If free markets would mean no barriers to market entry and infinite substitutes of products and services, then capitalism has always seen high, state-manufactured barriers and deep structural and legal moats around powerful capital.
If the role of the law in a free market is to play the exogenous and neutral referee, then in capitalism it is to be an endogenous and active architect of legal inequality. If in a free market, information and ideas cannot be owned and belong to humanity as a natural birthright, then in capitalism they are made the exclusive property of a privileged few through so-called intellectual property rights. And if participation in any organization or firm is fully voluntary in free markets, then under capitalism, participation is structurally coerced by extra-economic violence (peasant dispossession and land monopoly, police and private security attacks on strikers, etc.). If risk in free markets is borne by those who create it, then in capitalism it is foisted through the state onto the population at large, with only benefits concentrated. In short, these systems, freedom and capitalism, are opposites, if we care to take the historical record at all seriously. In genuine free markets, the presence of usurious profits itself acts as an immediate signal and spur to eager competitors. Capitalism is a system that outlaws competition, as Tucker once said. Capitalists work “by abolishing the free market,” not working fairly within it.
A free market is measured, in the final analysis, by one’s right to leave it, as a truly voluntary system could only be one it is possible to exit at will. In our political and economic system, the state prohibits, or limits, or licenses, or otherwise meddles with any shred of a possibility of independent survival or self-sufficiency. Its laws cover everything and draw power to organized capital and corporate special interests. Subsidies, privileges, restrictions and professional licenses give the individual no power and no choice but to participate in a centralized, financialized corporation economy that is fully the creation of state power. Even the most cursory examination of the history of the corporate system reveals that its reason for being was and remains the prohibition of free-market competition for the benefit of a small privileged class.
Participation being mandatory for survival, there is no free market as such, and the relationship between the individual and the corporate system is not in the nature or form of a real contract. It is a relationship of political capture and submission. Defending capitalism with the language of pure economics or liberal freedoms is a ridiculous and cynical narrative for a ridiculous and cynical system. We must notice again what Tucker did, that liberty and equality—and thus libertarianism and socialism—are natural complements. Perhaps it would be appropriate to adopt Bentham’s defense of usury in a free-market system. But we don’t have such a system. We have capitalism.
