Hostname: page-component-848d4c4894-4hhp2 Total loading time: 0 Render date: 2024-05-19T04:04:12.265Z Has data issue: false hasContentIssue false

Transforming usury into finance: Financialization and the ethics of debt

Published online by Cambridge University Press:  09 November 2023

Kate Padgett Walsh*
Affiliation:
Iowa State University, USA
*
Corresponding author: Kate Padgett Walsh, Catt Hall, Iowa State University, Ames, IA 50011, USA. Email: kpadwa@iastate.edu
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

This article examines the conceptual transformation of what was once considered usury into finance. To counter traditional arguments that usury was exploitative and unnatural, early modern theorists reconceptualized debt as a form of investment for both borrowers and lenders. Today, this ethical justification of debt as an investment underlies the rhetoric of finance and financialization. Close examination of the realities of contemporary financialized debt, however, reveal that much of this rhetoric is misleading and false. While the rhetoric of finance is unrelentingly oriented toward the future, the lived reality of debt is one of being constrained and haunted by the past. Relatedly, this rhetoric exhorts borrowing for investment, while finance has actually had the opposite effect of making consumer debt a necessity for the majority of Americans. Taken together, these realities of debt today contradict the rhetoric of finance as investment and undermine the ethical framework on which it depends.

Type
Article
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-No Derivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits noncommercial re-use, distribution, and reproduction in any medium, provided the original work is unaltered and is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use or in order to create a derivative work.
Copyright
© 2018 The Author(s)

References

Abolafia, M. (2010) The institutional embeddedness of market failure: Why speculative bubbles still occur. In: Lounsbury, M. and Hirsch, P.M. (eds.) Markets on Trial: The Economic Sociology of the U.S. Financial Crisis: Part B (Research in the Sociology of Organizations, Volume 30 Part B). Bingley: Emerald Group Publishing, 177200.Google Scholar
Albanesi, S. and Nosal, J. (2015) Insolvency after the 2005 bankruptcy reform. Federal Reserve Bank of New York Staff Report, no. 725. Available at: <https://www.newyorkfed.org/research/staff_reports/sr725.html>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Alliance for a Just Society et al. (2016) Unfair Deceptive, and Abusive: Debt Collectors Profit from Aggressive Tactics. Available at: <http://allianceforajustsociety.org/wp-content/uploads/2016/01/2016.01_Debt.Collectors_FINAL.pdf>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
ABI (2016) Total bankruptcy filings down 10 percent in calendar year 2015, commercial Chapter 11 filings register first year-over-year increase since 2009. American Bankruptcy Institute, 6 January. Available at: <http://www.abi.org/newsroom/press-releases/total-bankruptcy-filings-down-10-percent-in-calendar-year-2015-commercial>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Aquinas, T. (1975) Summa Theologiae: Volume 38, translated by Lefebure, M.. London: Blackfriars.Google Scholar
Aristotle (1999) Nicomachean Ethics, translated by Irwin, T.. Indianapolis, IN: Hackett.Google Scholar
Aristotle (2013) Politics, translated by Lord, C.. Chicago, IL: University of Chicago Press.Google Scholar
Association of Credit and Collections Professionals (2014) Collections Information. Available at: <https://www.acainternational.org/advocacy/industry-research-statistics>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Bacon, F. (1844) The Works of Francis Bacon: Volume 1, edited by Montagu, B.. Philadelphia, PA: Carey and Hart.Google Scholar
Bales, K. (2012) Disposable People. Berkeley, CA: University of California Press.CrossRefGoogle Scholar
Baradaran, M. (2015) How The Other Half Banks. Cambridge, MA: Harvard University Press.CrossRefGoogle Scholar
Bentham, J. (1818) Defence of Usury. London: Payne and Foss.Google Scholar
Callis, R.R. and Kresin, M. (2016) Residential vacancies and homeownership in the second quarter 2016. U.S. Census Bureau News, 28 July. Available at: <https://census.gov/housing/hvs/files/qtr216/qtr216hvspress.pdf>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Clarke, R.L. and Zywicki, T. (2014) Payday lending, bank overdraft protection, and fair competition at the Consumer Financial Protection Bureau. Review of Banking and Financial Law, 33: 235–81.Google Scholar
Davis, G.F. (2009) Managed by the Markets: How Finance Re-Shaped America. Oxford: Oxford University Press.Google Scholar
Douglas, A. (2010) The impact of the economic crisis on the world's poorest countries. Global Policy, 1(1): 118–20.Google Scholar
Durband, D.B. and Britt, S.L. (eds.) (2012) Student Financial Literacy: Campus-Based Program Development. New York, NY: Springer.CrossRefGoogle Scholar
Efrat, R. (2006) The evolution of bankruptcy stigma. Theoretical Inquiries, 7(2): 365–93.Google Scholar
Esposito, E. (2011) The Future of Futures: The Time of Money in Financing and Society. Cheltenham: Edward Elgar.CrossRefGoogle Scholar
Fasianos, A. and Kinsella, S. (2016) What drove up US household debt? Private Debt Project, n.d. Available at: <http://privatedebtproject.org/view-articles.php?What-Drove-Up-US-Household-Debt-18>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Federal Reserve Bank of St. Louis (2016) Federal debt: Total public debt as percent of Gross Domestic Product, 29 July 2016. Available at: <https://fred.stlouisfed.org/series/GFDEGDQ188S>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Fetter, D.K. (2014) The twentieth-century increase in U.S. home ownership: Facts and hypotheses. In: White, E.N., Snowden, K. and Fishback, P. (eds.) Housing and Mortgage Markets in Historical Perspective. Chicago, IL: University of Chicago Press, 329–50.Google Scholar
Foroohar, R. (2016) Makers and Takers: The Rise of Finance and the Fall of American Business. New York, NY: Crown Business Publishing.Google Scholar
Frankenhuis, W.E., Panchanathan, K. and Nettle, D. (2016) Cognition in harsh and unpredictable environments. Current Opinion in Psychology, 7: 7680.CrossRefGoogle Scholar
Fry, R. and Taylor, P. (2013) A rise in wealth for the wealthy; declines for the lower 93%. Pew Research Center, 23 April. Available at: <http://www.pewsocialtrends.org/2013/04/23/a-rise-in-wealth-for-the-wealthydeclines-for-the-lower-93>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Geisst, C.R. (2013) Beggar Thy Neighbor: A History of Usury and Debt. Philadelphia, PA: University of Pennsylvania Press.CrossRefGoogle Scholar
Goetzmann, W.N. (2016) Money Changes Everything: How Finance Made Civilization Possible. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Le Goff, J. (1982) Time, Work, and Culture in the Middle Ages. Chicago, IL: University of Chicago Press.Google Scholar
Graeber, D. (2011) Debt: The First 5,000 Years. Brooklyn, NY: Melville House.Google Scholar
Greenwood, R. and Sharfstein, D. (2013) The growth of finance. Journal of Economic Perspectives, 27(2): 328.CrossRefGoogle Scholar
Grotius, H. (1901) The Rights of War and Peace, Including the Law of Nature and of Nations, translated by Campbell, A.C.. New York, NY: M. Walter Dunne.Google Scholar
Guttmann, R. (2016) Finance-led Capitalism: Shadow Banking, Re-regulation, and the Future of Global Markets. Basingstoke: Palgrave Macmillan.CrossRefGoogle Scholar
Halpern, J. (2014) Bad Paper: Inside the Secret World of Debt Collectors. New York, NY: Farrar, Straus and Giroux.Google Scholar
Haiven, M. (2014) Cultures of Capitalization: Fictitious Capital in Popular Culture and Everyday Life. Basingstoke: Palgrave Macmillan.Google Scholar
Hendry, J. (2013) Ethics and Finance. Cambridge, MA: Cambridge University Press.CrossRefGoogle Scholar
Houle, J.N. (2013) Disparities in debt: Parents’ socioeconomic resources and young adult student loan debt. Sociology of Education, 87(1): 5369.CrossRefGoogle Scholar
Huffman, D., Maurer, R. and Mitchell, O.S. (2016) Time discounting and economic decision-making among the elderly. NBER Working Paper Series, no. 22438. Available at: <http://www.nber.org/papers/w22438>. Accessed 29 January 2018.CrossRef.+Accessed+29+January+2018.>Google Scholar
Jadlow, J.M. (1977) Adam Smith on usury laws. Journal of Finance, 32(4): 1195–200.CrossRefGoogle Scholar
Jimenez, D. (2015) Dirty debts sold dirty cheap. Harvard Journal on Legislation, 52: 41124.Google Scholar
Johnson, S. (2009) The quiet coup. The Atlantic, 9 May. Available at: <https://www.theatlantic.com/magazine/archive/2009/05/the-quiet-coup/307364>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Jones, L.E., Loibl, C. and Tennyson, S. (2015) Effects of informational nudges on consumer debt repayment behaviors. Journal of Economic Psychology, 51:1633.CrossRefGoogle Scholar
Joseph, M. (2014) Debt to Society: Accounting for Life Under Capitalism. Minneapolis, MN: University of Minnesota Press.CrossRefGoogle Scholar
Kant, I. (2001) Lectures on Ethics. Cambridge, MA: Cambridge University Press.Google Scholar
Karlitz, G. and Honig, D. (2010) Growing Money: A Complete Investing Guide for Kids. New York, NY: Price Stern Sloan.Google Scholar
Keys, B.J. and Wang, J. (2015) Perverse nudges: Minimum payments and debt paydown in consumer credit cards. Penn Wharton Public Policy Initiative, Book 25. Available at: <https://repository.upenn.edu/cgi/viewcontent.cgi?article=1018&context=pennwhartonppi>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Kolb, R.W. (2010) Ethical implications of finance. In: Boatright, J.R. (ed.) Finance Ethics: Critical Issues in Theory and Practice. Hoboken, NJ: Wiley & Sons, 2344.Google Scholar
Krippner, G.R. (2011) Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge, MA: Harvard University Press.Google Scholar
Landy, B. (2013) Household debt and the middle class stagnation. The Century Foundation, 29 January. Available at: <https://tcf.org/content/commentary/graph-household-debt-and-middle-class-stagnation>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Lazzarato, M. (2011) The Making of the Indebted Man, translated by Jordan, J.D.. Cambridge, MA: MIT Press/Semiotext(e).Google Scholar
Leicht, K.T. (2012) Borrowing to the brink: Consumer debt in America. In: Porter, K. (ed.) Broke: How Debt Bankrupts the Middle Class. Stanford, CA: Stanford University Press, 195217.Google Scholar
Littwin, A. (2011) The affordability paradox: How consumer bankruptcy's greatest weakness may account for its surprising success. William and Mary Law Review, 56(6): 19332023.Google Scholar
Martin, R. (2002) The Financialization of Daily Life. Philadelphia, PA: Temple University Press.Google Scholar
McClanahan, A. (2017) Debt, Crisis, and the Twenty-First-Century Culture. Stanford, CA: Stanford University Press.Google Scholar
Niedermeyer, E. (2016) Why the auto loan bubble is as important as the student loan bubble. The Federalist, 4 April 2016. Available at: <http://thefederalist.com/2016/04/04/why-the-auto-loan-bubble-is-as-important-as-the-student-loan-bubble>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Nietzsche, F. (1989) On The Genealogy of Morals, translated by Kaufmann, W. and Hollingdale, R.J.. New York, NY: Random House.Google Scholar
Nohria, N. (2016) Imagine an economy without Wall Street. Wall Street Journal, 2 June 2016. Available at: <http://www.wsj.com/articles/imagine-an-economy-without-wall-street-1464821303>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Nunez, S. et al. (2016) Online payday and installment loans: Who uses them and why? MDRC Report, June. Available at: <http://www.mdrc.org/sites/default/files/online_payday_2016_FR.pdf>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Olen, H. (2013) Pound Foolish: Exposing the Dark Side of the Personal Finance Industry. New York, NY: Portfolio.Google Scholar
Padgett Walsh, K. (2014) Consent, Kant, and the ethics of debt. Philosophy in the Contemporary World, 21(2): 1425.CrossRefGoogle Scholar
Peterson, C.L. (2012) Predatory lending and socially responsible investors. In: Baker, H.K. and Nofsinger, J.R. (eds.) Socially Responsible Finance and Investing: Financial Institutions, Corporations, Investors, and Activists. Hoboken, NJ: Wiley, 257–74.Google Scholar
Pew Charitable Trusts (2014) State payday loan regulation and usage rates. Pew Charitable Trusts, 14 January. Available at: <http://www.pewtrusts.org/en/multimedia/data-visualizations/2014/state-payday-loan-regulation-and-usage-rates>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Pew Charitable Trusts. (2015) The Complex Story of American Debt. Pew Charitable Trusts, 29 July. Available at <http://www.pewtrusts.org/en/research-and-analysis/reports/2015/07/the-complex-story-of-american-debt>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Philippon, T. (2013) Finance vs. Wal-Mart: Why are financial services so expensive? In: Binder, A., Lowe, A. and Solow, R. (eds.) Rethinking the Financial Crisis. New York, NY: Russell Sage Foundation, 236–46.Google Scholar
Philippon, T. (2015) Has the U.S. finance industry become less efficient? American Economic Review, 105(4): 1408–38.CrossRefGoogle Scholar
Prawitz, A.D. and Cohart, J. (2014) Workplace financial education facilitates improvement in personal financial behaviors. Journal of Financial Counseling and Planning, 25(1): 526.Google Scholar
Price, B.M. and Dalton, T. (2007) From downhill to slalom: An empirical analysis of the effectiveness of the BAPCPA (and some unintended consequences). Yale Law and Policy Review, 26(1): 135208.Google Scholar
Pufendorf, S. (1729) Of the Law of Nature and Nations, translated by Barbeyrac, J.. London: Printed for J. Walthoe, R. Wilkin, J. and J. Bonwicke, S. Birt, T. Ward, and T. Osborne.Google Scholar
Rajmil, L. et al. (2014) Impact of the 2008 economic and financial crisis on child health: A systematic review. International Journal of Environmental Research and Public Health, 11(6): 6528–546.CrossRefGoogle ScholarPubMed
Ratcliffe, C., McKernan, S.-M., Theodos, B. and Cancian Kalish, E. (2014) Delinquent debt in America. Urban Institute, 29 July. Available at: <http://www.urban.org/research/publication/delinquent-debt-america>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Sasson, R. (2016) Credit card debt: Reaching record highs. Timberline Financial, 21 April. Available at: <http://timberlinefinancial.com/credit-card-debt-reaching-record-highs/>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Schlagenhauf, D.E. and Ricketts, L.R. (2016) The quarterly debt monitor. In: In the Balance: Perspectives on Household Balance Sheets, 14 February. Available at: <https://www.stlouisfed.org/~/media/Publications/In%20the%20Balance/Images/Issue_14/ITB14Feb2016.pdf>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Scott, R.H. III. (2007) Bankruptcy abuse prevention and Consumer Protection Act of 2005: How the credit card industry's perseverance paid off. Journal of Economic Issues, 41(4): 943–60.CrossRefGoogle Scholar
Seneca (2011) On Benefits, translated by Griffin, M. and Inwod, B.. Chicago, IL: University of Chicago Press.Google Scholar
Short, K.S. (2015) Hardship, debt, and income-based poverty measures in the USA. In: Garner, T.I. and Short, K.S. (eds.) Measurement of Poverty, Deprivation, and Economic Mobility: Research on Economic Inequality, Vol. 23. Bingley: Emerald Group Publishing, 283–99.Google Scholar
Shub, G. et al. (2015) Global asset management 2015: Sparking growth with go-to-market excellence. BCG Perspectives, 7 July. Available at: <https://www.bcgperspectives.com/content/articles/financial-institutions-global-asset-management-2015-sparking-growth-through-go-to-market-strategy/?chapter=2#chapter2_section2>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Smith, A. (1937) Wealth of Nations. New York, NY: Modern Library.Google Scholar
The Student Loan Report (2017) Student loan debt statistics 2017. Available at: <https://studentloans.net/student-loan-debt-statistics>. Accessed 12 December 2017..+Accessed+12+December+2017.>Google Scholar
Sullivan, T.A., Warren, E. and Westbrook, J.L. (2001) The Fragile Middle Class: Americans in Debt. New Haven, CT: Yale University Press.Google Scholar
Sullivan, T.A., Warren, E. and Westbrook, J.L. (2006) Less stigma or more financial distress: An empirical analysis of the extraordinary increase in bankruptcy filings. Stanford Law Review, 59(2): 213–56.Google Scholar
Tabb, C.J. (1995) The history of the bankruptcy laws in the United States. American Bankruptcy Institute Law Review, 5(Spring): 551.Google Scholar
Tanner, K. (2016) Chained to the past. Gifford Lecture no. 2, University of Edinburgh. Available at: <https://www.giffordlectures.org/lectures/christianity-and-new-spirit-capitalism>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Thaler, R.H. and Sunstein, C.R. (2009) Nudge: Improving Decisions About Health, Wealth, and Happiness. London: Penguin.Google Scholar
Traub, A. (2011) Discrediting America. London: Demos. Available at: <http://www.demos.org/publication/discrediting-america>. Accessed 29 January 2018.Google Scholar
Vindagos, I. (2015) Deleveraging and recent trends in household debt. FEDS Notes, 6 April. Available at: <http://www.federalreserve.gov/econresdata/notes/feds-notes/2015/deleveraging-and-recent-trends-in-household-debt-20150406.html>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Wiersch, A.M. (2014) The cost of college: Student loan debt on the rise. Forefront: New Ideas on Economic Policy from the Federal Reserve Bank of Cleveland, 31 January. Available at: <https://www.clevelandfed.org/en/newsroom-and-events/publications/forefront/ff-v5n01/ff-v5n014501-the-cost-of-college-student-loan-debt.aspx>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Yardeni, E. and Johnson, D. (2017) Stock market briefing. Yardeni Research, 30 January. Available at: <www.yardeni.com/pub/ppphb.pdf>. Accessed 29 January 2018..+Accessed+29+January+2018.>Google Scholar
Yardeni, E., Johnson, D. and Quintana, M. (2016) U.S. flow of funds. Yardeni Research, 9 June. Available at: <https://www.yardeni.com/pub/fofchrt.pdf>. Accessed 5 December 2017..+Accessed+5+December+2017.>Google Scholar