Comments on: Adrian Rogers: What one person receives without working http://wherestheinterest.com/2009/02/05/adrian-rogers-what-one-person-receives-without-working/ ...We Want To Know Thu, 16 Dec 2010 11:17:25 -0500 http://wordpress.org/?v=abc hourly 1 By: Murray Rothbard http://wherestheinterest.com/2009/02/05/adrian-rogers-what-one-person-receives-without-working/comment-page-1/#comment-110 Murray Rothbard Wed, 11 Aug 2010 05:20:47 +0000 http://wherestheinterest.com/?p=176#comment-110 Usury laws are another form of price control tinkering with the market. These laws place legal maxima on interest rates, outlawing any lending transactions at a higher rate. The amount and proportion of saving and the market rate of inter- est are basically determined by the time-preference rates of individuals. An effective usury law acts like other maxima—to induce a shortage of the service. For time preferences—and therefore the “natural” interest rate—remain the same. The fact that this interest rate is now illegal means that the marginal savers—those whose time preferences were highest—now stop saving, and the quantity of saving and investing in the economy declines. This results in lower productivity and lower standards of living in the future. Some people stop saving; others even dis- save and consume their capital. The extent to which this hap- pens depends on how effective the usury laws are, i.e., how far they hamper and distort voluntary market relations. Usury laws are designed, at least ostensibly, to help the borrower, particularly the most risky borrower, who is “forced” to pay high interest rates to compensate for the added risk. Yet it is precisely these borrowers who are most hurt by usury laws. If the legal maximum is not too low, there will not be a serious decline in aggregate savings. But the maximum is below the market rate for the most risky borrowers (where the entrepreneurial component of interest is highest), and hence they are deprived of all credit facilities. When interest is voluntary, the lender will be able to charge very high interest rates for his loans, and thus anyone will be able to borrow if he pays the price. Where interest is controlled, many would-be borrowers are deprived of credit altogether.7 Usury laws not only diminish savings available for lending and investment, but create an artificial “shortage” of credit, a perpetual condition where there is an excessive demand for credit at the legal rate. Instead of going to those most able and efficient, the credit will therefore have to be “rationed” by the lenders in some artificial and uneconomic way. Although there have rarely been minimum interest rates imposed by government, their effect is similar to that of maxi- mum rate control. For whenever time preferences and the nat- ural interest rate fall, this condition is reflected in increased sav- ings and investment. But when the government imposes a legal minimum, the interest rate cannot fall, and the people will not be able to carry through their increased investment, which would bid up factor prices. Minimum interest rates, therefore, also stunt economic development and impede a rise in living standards. Marginal borrowers would likewise be forced out of the market and deprived of credit. To the extent that the market illegally reasserts itself, the interest rate on the loan will be higher to compensate for the extra risk of arrest under usury laws. To sum up our analysis of the effects of price control: Directly, the utility of at least one set of exchangers will be impaired by the control. Further analysis reveals that the hid- den, but just as certain, effects are to injure a substantial num- ber of people who had thought they would gain in utility from the imposed controls. The announced aim of a maximum price control is to benefit the consumer by insuring his supply at a lower price; yet the objective result is to prevent many con- sumers from acquiring the good at all. The announced aim of a minimum price control is to insure higher prices for the sellers; yet the effect will be to prevent many sellers from selling any of their surplus. Furthermore, price controls distort production and the allocation of resources and factors in the economy, thereby injuring again the bulk of consumers. And we must not overlook the army of bureaucrats who must be financed by the binary intervention of taxation, and who must administer and enforce the myriad of regulations. This army, in itself, with- draws a mass of workers from productive labor and saddles them onto the backs of the remaining producers—thereby benefiting the bureaucrats, but injuring the rest of the people. This, of course, is the consequence of establishing an army of bureau- crats for any interventionary purpose whatever. Usury laws are another form of price control tinkering with the market. These laws place legal maxima on interest rates, outlawing any lending transactions at a higher rate. The amount and proportion of saving and the market rate of inter- est are basically determined by the time-preference rates of individuals. An effective usury law acts like other maxima—to induce a shortage of the service. For time preferences—and therefore the “natural” interest rate—remain the same. The fact that this interest rate is now illegal means that the marginal savers—those whose time preferences were highest—now stop saving, and the quantity of saving and investing in the economy declines. This results in lower productivity and lower standards of living in the future. Some people stop saving; others even dis- save and consume their capital. The extent to which this hap- pens depends on how effective the usury laws are, i.e., how far they hamper and distort voluntary market relations.
Usury laws are designed, at least ostensibly, to help the borrower, particularly the most risky borrower, who is “forced” to pay high interest rates to compensate for the added risk. Yet it is precisely these borrowers who are most hurt by usury laws. If the legal maximum is not too low, there will not be a serious decline in aggregate savings. But the maximum is below the market rate for the most risky borrowers (where the entrepreneurial component of interest is highest), and hence they are deprived of all credit facilities. When interest is voluntary, the lender will be able to charge very high interest rates for his loans, and thus anyone will be able to borrow if he pays the price. Where interest is controlled, many would-be borrowers are deprived of credit altogether.7
Usury laws not only diminish savings available for lending and investment, but create an artificial “shortage” of credit, a perpetual condition where there is an excessive demand for credit at the legal rate. Instead of going to those most able and efficient, the credit will therefore have to be “rationed” by the lenders in some artificial and uneconomic way.
Although there have rarely been minimum interest rates imposed by government, their effect is similar to that of maxi- mum rate control. For whenever time preferences and the nat- ural interest rate fall, this condition is reflected in increased sav- ings and investment. But when the government imposes a legal minimum, the interest rate cannot fall, and the people will not be able to carry through their increased investment, which would bid up factor prices. Minimum interest rates, therefore, also stunt economic development and impede a rise in living standards. Marginal borrowers would likewise be forced out of the market and deprived of credit.
To the extent that the market illegally reasserts itself, the interest rate on the loan will be higher to compensate for the extra risk of arrest under usury laws.
To sum up our analysis of the effects of price control: Directly, the utility of at least one set of exchangers will be impaired by the control. Further analysis reveals that the hid- den, but just as certain, effects are to injure a substantial num- ber of people who had thought they would gain in utility from the imposed controls. The announced aim of a maximum price control is to benefit the consumer by insuring his supply at a lower price; yet the objective result is to prevent many con- sumers from acquiring the good at all. The announced aim of a minimum price control is to insure higher prices for the sellers; yet the effect will be to prevent many sellers from selling any of their surplus. Furthermore, price controls distort production and the allocation of resources and factors in the economy, thereby injuring again the bulk of consumers. And we must not overlook the army of bureaucrats who must be financed by the binary intervention of taxation, and who must administer and enforce the myriad of regulations. This army, in itself, with- draws a mass of workers from productive labor and saddles them onto the backs of the remaining producers—thereby benefiting the bureaucrats, but injuring the rest of the people. This, of course, is the consequence of establishing an army of bureau- crats for any interventionary purpose whatever.

]]> By: Scott http://wherestheinterest.com/2009/02/05/adrian-rogers-what-one-person-receives-without-working/comment-page-1/#comment-108 Scott Sun, 02 Aug 2009 02:25:00 +0000 http://wherestheinterest.com/?p=176#comment-108 Usery does not exist. As long as neither party lies about the contract and both parties enter into the contract freely and force to collect the debt. Limiting what people charge for credit only limits credit availability to people that need it the most. Or forces them to enter the black market. Usery does not exist. As long as neither party lies about the contract and both parties enter into the contract freely and force to collect the debt.

Limiting what people charge for credit only limits credit availability to people that need it the most. Or forces them to enter the black market.

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