6 The World Financial Review July -August 2016 Analysis Usury in the 21 st Century By Richard Westra Capitalism Neoliberal deregulation commenc- ing in the closing decades of the 20 th century put into play a global inancial system which operates as a reincarnation of ancient usury. I nveighing against usury in the feudal era was most often associated with interest on lending. Yet the scourge of usury ran far deeper. First, in a society of staid hierarchical relations where wealth was bound to peasant agriculture, money lending corrupted rulers leading to inces- sant war. Second, the role of money was its exchangeability for consump- tion goods. The idea that money might be held “idle”, to be used as “capital”, to make money, was viewed as Satanic. 1 Money only made money through expro- priation or beggaring one’s neighbour. Third, usurers were indifferent to how lent funds were used and loan repayment was set arbitrarily, often exacting such a high cost as to ruin the borrower or force borrowers to strive for the ruin of others. Fourth, even banks in the feudal era functioned like usurers catering to war ambitions of monarchs. Creation of the Bank of England initially served that purpose, its “chartering” simply giving the bank’s wealthy investors the right to beggar others. 2 With the rise of capitalism, money making money emerged “God-like” as the new social goal. But the speciic way money makes money and its social impact is qualitatively different than in precapitalist economies. First, money is made through the circuitous route of capitalist investment in production centered activity, the subsequent sale of material goods, and then reinvestment of money as proit. Capital, hence, takes the form of money, productive capital, and commodities. However it is none of these separately. Second, money invested as capital no longer makes money through expropriation. Rather money makes money by systematically aug- menting value with material goods pro- ducing activities. It is this nexus between production and value augmentation or proit making which secures growing prosperity in capitalist economies. Consolidating of industrial capitalism reset inance on new material foundations as commercial or “relationship” banking. With the capitalist economy organised in self-regulating markets, populated by private businesses operating across a complex division of labour, commercial banking plays a vital “capitalist-social” role. Stemming from the variant invest- ment horizons and cash low patterns of private irms, as well as the requirement that in the course of business cycles irms maintain depreciation and contingency funds, money is necessarily withdrawn from the capitalist circuit of proit making and held “idle” in commercial banks. This idle money, added to by individ- ual savings, is placed in demand or time deposits and becomes the basis of bank lending. Banks proit on the difference between interest paid to depositors and lender’s interest which borrowers pay to banks. Differing from usurers, commer- cial banks do not lend their own money. Instead, their role is one of inancial inter- mediation. The network of commercial banks under the umbrella of the central bank constitutes the money market. Further, unlike usury, interest rates are set according to “rational” market forces of supply and demand for funds. The capitalist social role played by commercial banks entails banks taking in idle funds generated across the economy and channeling them where they are needed. Idle money is thereby more rapidly converted into capital increasing the magnitude of productive investment in operation. Commercial credit in the discounting of bills of exchange hastens the ability of businesses to purchase production inputs and sell commodities hence increasing the eficiency of capi- talist proit making. The “relationship” dimension derives from the fact that principal and interest are owed to the bank originating the loan thus mandat- ing banks assess the creditworthiness of borrowers and what funds will be used for. If commercial banking fails to play its part in converting idle money into capital deployed in determinate income producing activity the economy is certain to turn delationary. Idle Money becomes the Devil’s Playground Banking and inance in major capital- ist economies largely crystallised in this mold until the inal decades of the 20 th century except for one modiication. That stemmed from the rise of large Banks profit on the difference between interest paid to depositors and lender’s interest which borrowers pay to banks. Differing from usurers, commercial banks do not lend their own money. Instead, their role is one of financial intermediation.