Capital for All

Libertarians and conservatives love to talk about “equality of opportunity” vs. “equality of outcome.” Someone who puts in 60 hours/week of hard work starting up a business deserves more income than someone who puts in 30 hours/week in a low stress job and 30 hours/week smoking pot and watching television. The same goes for someone who works hard at producing something that others want vs. working hard on a project just because it is personally satisfying. Equal income is not equality.

An open market without guild requirements, undue licensing requirements or artificial regulatory overhead does much for equality of opportunity. There is much that can be done that increases both freedom and economic equality, while reducing the size of government. But even with these measures taken, there remains a glaring inequality of opportunity that is based on ancestry versus personal merit: access to capital.

The Bible addresses this in several ways, one of which is the Jubilee law which I have already covered. Land functions much like capital, and land can be mortgaged for capital. But the Bible calls for more.

1. At the end of every seven years thou shalt make a release. 2. And this is the manner of the release: Every creditor that lendeth ought unto his neighbour shall release it; he shall not exact it of his neighbour, or of his brother; because it is called the Lord's release. 3. Of a foreigner thou mayest exact it again: but that which is thine with thy brother thine hand shall release; 4. Save when there shall be no poor among you; for the Lord shall greatly bless thee in the land which the Lord thy God giveth thee for an inheritance to possess it: 5. Only if thou carefully hearken unto the voice of the Lord thy God, to observe to do all these commandments which I command thee this day. 6. For the Lord thy God blesseth thee, as he promised thee: and thou shalt lend unto many nations, but thou shalt not borrow; and thou shalt reign over many nations, but they shall not reign over thee. 7. If there be among you a poor man of one of thy brethren within any of thy gates in thy land which the Lord thy God giveth thee, thou shalt not harden thine heart, nor shut thine hand from thy poor brother: 8. But thou shalt open thine hand wide unto him, and shalt surely lend him sufficient for his need, in that which he wanteth. 9. Beware that there be not a thought in thy wicked heart, saying, The seventh year, the year of release, is at hand; and thine eye be evil against thy poor brother, and thou givest him nought; and he cry unto the Lord against thee, and it be sin unto thee. 10. Thou shalt surely give him, and thine heart shall not be grieved when thou givest unto him: because that for this thing the Lord thy God shall bless thee in all thy works, and in all that thou puttest thine hand unto. 11. For the poor shall never cease out of the land: therefore I command thee, saying, Thou shalt open thine hand wide unto thy brother, to thy poor, and to thy needy, in thy land. 12. And if thy brother, an Hebrew man, or an Hebrew woman, be sold unto thee, and serve thee six years; then in the seventh year thou shalt let him go free from thee. 13. And when thou sendest him out free from thee, thou shalt not let him go away empty: 14. Thou shalt furnish him liberally out of thy flock, and out of thy floor, and out of thy winepress: of that wherewith the Lord thy God hath blessed thee thou shalt give unto him. 15. And thou shalt remember that thou wast a bondman in the land of Egypt, and the Lord thy God redeemed thee: therefore I command thee this thing to day. 16. And it shall be, if he say unto thee, I will not go away from thee; because he loveth thee and thine house, because he is well with thee; 17. Then thou shalt take an aul, and thrust it through his ear unto the door, and he shall be thy servant for ever. And also unto thy maidservant thou shalt do likewise. 18. It shall not seem hard unto thee, when thou sendest him away free from thee; for he hath been worth a double hired servant to thee, in serving thee six years: and the Lord thy God shall bless thee in all that thou doest. --Deuteronomy 15

Wealthy Hebrews were expected to loan to the poor – at zero interest. Do note that this was zero interest using a hard money currency; i.e., no inflation. How much one was obligated to loan was not specifically mentioned. The prohibition on charging interest to countrymen was explicit. (Hebrews were allowed to charge foreigners interest, however.)

A zero interest loan is a form of charity and was understood as such. But by providing loans instead of gifts, charity monies could get stretched farther. It was possible to go beyond providing mere needs to helping the poor provide for wants and ambitions.

Any form of handout is subject to abuse. A person who fakes neediness is robbing from the truly needy. However, with loans such abuse is kept to a minimum. A person who takes largesse in the form of a loan to buy luxuries is in for trouble when it comes time to pay the loan back. In ancient times the terms were quite stern: to default on such a loan was to become an indentured servant for up to six years. Before condemning this system keep in mind:

1. Such lack of bankruptcy eliminated the need for collateral – rather important for the poor who need capital.
2. The indentured servants were to be treated as employees, not slaves.
3. At the end of the term of indenture, the servant was to be given capital on the way out.

Contrast this with the modern situation. Poor people have to pay extra interest in return for easy bankruptcy. This can mean that loans may not be available at all. Without the availability of loans for capital, a modern poor person needs to be a wage slave before getting the capital. In the Biblical system the capital came first and the wage slavery was bypassed if the capital was used wisely. Under the Biblical system you got the opportunity to stay independent and only had to work for someone else if you blew your chance.

Consider someone growing up in a modern housing project who has no savings, no credit history and little exposure to a work ethic. Under the Biblical system that person would have a chance to start up a farm or business using zero interest money. If that person were to fritter away that opportunity, spending the loan on fun instead of business, then that person would become a servant for a time, gaining continuous exposure to someone who does have a work ethic. Upon completion of that term, the person would get another helping of capital in return for labor done, another chance at independence with both free and clear money and lessons learned.

That said, there is much potential for abuse of a system allowing indentured servitude, so I do not advocate going all the way back to such a system. But we can learn from it.

References: Exodus 21:1-11; 22:25-27; Leviticus 25:35-55; Deuteronomy 15:1-18; 23:19-20; 24:6-13

Modern Applications:

Perhaps the closest modern application of this principle is the guaranteed student loan program. The nominal interest rates are low, and when inflation is factored in, the real interest rates are very low. The fact that student loans cannot be defaulted through bankruptcy has some analog to indentured servitude. The fact that such loans are only for education does target the monies to a form of capital improvement vs. luxury spending.

Alas, such laws are not much good for those who gain little from college. Most people are not academically inclined; either they learn better through doing or simply have limited learning capacity. Denying these people capital is regressive.

A program that mimics serving an indenture and then getting capital is the GI Bill. This was a very successful program: giving people scholarships after they experience the rigors of military service means they are likely to have better study habits. The down sides of such a program are that it requires a delay before going to college and that it does not benefit those who are not academically inclined.

A couple of possible applications of this principle for the modern world come to mind:

The first possibility would be a modification of bankruptcy law so that people could get low interest loans without collateral in return for more difficulty in declaring bankruptcy. In return for priority in payment, lenders would not be allowed to charge the outrageously high interest and penalties that credit card companies charge when payments go late. Such loans should be limited to those who can prove self-responsibility by means other than age, such as by living independently for a time without incurring debt or by doing a term of military service.

A second possibility would be to modify the citizen’s dividend mentioned in the previous section. Those going to college or starting a business could request an advance on their dividend. Then during their earning years, they get no dividend. The dividend would resume by retirement age, taking the place of Social Security. Once again, proof of self-responsibility would be a good idea before allowing this “loan.”