Press "Enter" to skip to content

Setting The Records Straight For The Economic Benefits Of Money Lending

There are a set of economic benefits of money lending, which is a process of offering money to people in exchange of interest. This interest or usury as the economists term as has only economic benefits. However, money lenders and sometimes even the modern economists have a different set of views for this usury or interest on loans. Nevertheless, they do not usually attempt to establish a moral or a philosophicaldefense to their position. The modern economists usually have different ideology for it such as:

  • They either reject such a philosophy completely or
  • Adopt the split between the moral and practical aspect of money lending
  • Accept the notion that charging interest or usury is practical.

Though all economists may not possess the same notion but at the least they consider it to be either immoral oramoral.

If you consider the idea of the modern philosopherson money lending you will find that they do not have any interest regarding this topic at all. There are several reasons to it such as:

  • They believe that it partly requires dealing with reality and
  • They believe that it is evil when it comes to capitalism and self-interest and everything that is in between.

To a man, the philosophers of today accept self-sacrifice to be the physical standard of labor and morality that acts as the source of wealth. That means they sum up money lending to all its extent to be unquestionably unjust and do not consider it to be worthy enough for having a debate.

Therefore, with such variances, it is time to set the idea, belief and record of money lending straight, starting from the basics.

Uniting morality and productiveness

Whether it is lending money through those interest-loving money lenders of the past or the modern traditional banks and online money lenders such as other, there is a distinct relation between morality and productiveness when it comes to money lending.

Established in the ancient days by Aristotle, usury was condemned then when productiveness and morality was connected. It was considered immoral. However, later on it was found that it was based on the erroneous belief of his that such a practice was unproductive.

Since the days of Aristotle everyone,including the contemporary philosophers and economists disconnected productiveness from morality.

  • They typically condemned usury based on altruistic or biblical grounds.
  • They said it was immoral or amoral.

However, with passage of time, people thought that there is an immediate need to view both morality and productiveness so that these two can be unified to find some strings that can establish a connection between the two as a means to real-world success.

The key economic points

In order to have a clear and better understanding of the economic aspect you will need to know a few key economic aspects first. If you condense and combine these main economic points or the past millennium with the new moral theory then:

  • You will be able to follow the relation and have a concise indication of morality of self-interest
  • This will in turn help you to upholdthe morality aspect of self-interest and
  • Relate it to the virtue of personal profit.

The most crucial economic aspect to know at this point is the proper defense of interest or usury. This includes understanding a lot of different things that include:

  • A clear and correct understanding of the reason as to why these money lenders charge such interest or usury on the sum of money offered as a loan and most
  • The significant reason as to why they do so even if the environment is considered to be absolutely riskfree and noninflationary.

After thorough research by several institutions it is found that the primary reason as to why these lenders charge interest on the money they allow people to borrow from them is that they typically believe that their money had other alternative uses. It is this opportunity that they let go or sacrifice to help out the borrower. That means, by foregoing their opportunity to use their money for alternative purposes they forego the opportunity to earn profit or benefit for them

  • It is this loss of profit and their inability to put their money in other sources to make more money encourages them to charge the same amount in the form of usury or interest from the borrowers. Sounds perfectly reasonable!
  • Longer the time for which such money is lent out, longer is the time they are deprived of using the consumer goods that the borrowers buy with their money or their inability to make money from alternative money making sources. Therefore, higher is the rate of interest charged by the money lenderson the amount of money lent out to the borrowers to balance their ‘postponement’ or sacrifice. Sounds logical once again!

Economists and philosophers suggest that this interest is charged by the money lenders because:

  • They believe that this is the best way and more profitable approach to put their money to the best possible use over the period of the loan
  • This is much more productive as compared to any other alternative uses that they might have put the same amount of money for the same amount of time.

That means, to them this interest they earn is the gratitude of the borrowers for being able to use their money in the times of their need. This is benefit of lending money on interest for both the money lender as well as the borrower.

Summing it up

Therefore, charging interest on loan by the money lenders seems to be the best way to use their capital and make more money. The lender typically calculatesthe rate of interest in advance based on the likelihood as well as the unlikelihood of being repaid all of the money lent out, the capital plus the interest.

If the lender is less convinced,higher isthe interest rate charged. This high interest rate keeps the money lenders motivated to take higher risks with a projection to the future.