It is clear that pricing can be unjust and unjust pricing as a business practice is widespread. Christian economics holds that pricing can be unjustly high, unjustly low, and that rapid changes in pricing can be unjust. And one of the most notorious practices of unjust pricing occurs within captive markets. Unfortunately, current amoral capitalistic economic theories support unjust prices (though these theories do not refer to them as unjust since everything done by a business is amoral, that is, it is neither right nor wrong, it is just business). Unjust prices violate two of the most basic principles of Christian economics: ’good is to be done and promoted, and evil is to be avoided’ and ‘love your neighbor as yourself’. When will Christians wake up and realize that the economic philosophy and principles that they are following are not Christian? Christians engaged in business must consider what they are doing in the context of Christian principles and not in the context of amoral capitalist principles. People in business actually cheat customers through unjust pricing but don’t consider it cheating because capitalistic economic theories say that it is an acceptable business practice. It is not.
Is capitalism and Christianity compatible? Yes, they are—but not the form of capitalism prevalent today. Christians must be a light to the world, the business world, and help Christianize capitalism, its philosophy and its principles.
Interest, the Price of Money
Money, like other goods, is bought and sold. The price of money is called interest, though there are also other prices such as late fees, over-limit fees, special handling fees, etc. The price of money like all other goods and services can be unjust. There can be unfairly high interest rates and monetary fees, excessive interest rates and monetary fees within captive markets, and extreme shifts in interest rates and monetary fees—all of which negatively impact the economy.
Banks and other financial institutions borrow money from people, from other banks, and from other financial institutions. This price that the bank or other financial institution pays for money represents its cost, similar to the cost that a distributor pays for the goods that it sells. The bank or financial institution then sells the money that it has bought at a higher price generating a profit. The difference between the cost of money that the bank pays and the price that it sells the money for is called its gross profit. After subtracting its operating expenses, its marketing expenses, its general expenses and its administrative expenses; the remainder is called net profit. Subtracting taxes from net profit gives what is income for the bank or financial institution. Banks and financial institutions are corporations which currently have the sole goal of profit maximization within the context of current amoral capitalistic economic theories. Could banks and other corporations seek a maximum profit within the constraints of a Christian economics system where business actions are moral and subject to Christian principles? Certainly! Obviously, the profits would be maximized subject to moral and Christian constraints and would be less than the profits realized without any moral constraints whatsoever.
The price of money (interest) must be fair to both buyer and seller. The price of money (interest) must be the balance point between benefits to the buyer and benefits to the seller. In order for the price of money to be fair, it needs to be set within the context of all the costs and expenses within an individual’s budget. Interest cannot be so high that it reduces an individual’s ability to pay other necessary expenses. Nor can interest be extended out over such a long time that the individual is prevented from being able to retire.
The cost of money to a bank over the last 10 years, that is the price that a bank pays for money, has varied between zero and 2 percent, with the current price being approximately 1 percent. The current interest rates that consumers are paying for money that they are buying from banks and other financial institutions range from 4 to 600 percent. Mortgage rates range from 4 to 8 percent. Auto loans, furniture loans, and household goods loans range from 4 to 18 percent. Credit card loan rates range from 12 to 36 percent. Personal loan rates range from 20 to 600 hundred percent. All of these rates do not include the additional price of money associated with late fees, over-limit fees, loan origination fees, special handling fees, etc.
The financial institutions are paying 1 percent for money that they are buying and then turning around and selling that money for 6 percent, 12 percent, 24 percent, 36 percent, and even 600 percent. Since banks and financial institutions operate with little expenses and overhead, the profit margin that they are realizing is immense. Many consumers are being financially crushed by these exceedingly high and unfair interest rates and enslaved by the terms of the unjust contracts that they are coerced into. Consider the rapid growth and prevalence of payday loans stores, title loan stores and personal loan stores. 25% of the people in the US have negative or zero wealth, that is, their liabilities (what they owe) exceed their assets (what they own). 25% of the US population equals approximately 79 million people. These 79 million people struggle financially. And millions of these people are prey to the unjust interest rates of payday loans stores, title loan stores and personal loan stores. Many credit card interest rates are also unjust. In fact, it is doubtful whether any interest rate in excess of 12 percent can be justified as moral and certainly not in conformance with Christian principles. Many home owners are now trapped in mortgage contracts with high interest rates and are not able to refinance because of the restrictions by the banks. In fact, the vast majority of people who have had their homes repossessed lost their homes because the banks would not allow modifications to their loans?
Why are most interest rates and loan contracts unfair? Most interest rates and contracts are unfair because there is no balance between the benefits to the consumer and the benefits to the financial institutions. The economy thrives on consumption ; the consumption of the 315 million people comprising the working class and not the consumption of the minority capitalist class. Anything that constrains or limits the ability of the working class to buy homes, buy cars, buy furniture, buy appliances, buy food, buy healthcare, buy an education, or buy any other goods and services constrains, limits and reduces the activity of and the growth of the economy. If the constraints on the working classes’ ability to consume are great enough (as they are today), then there is minimal growth in the economy.
Most people think that inflation, an aggregation of price changes, can be controlled by the Federal Reserve System controlling the price of money to its member banks. That is not true. Only by government oversight and management can prices and inflation be controlled. Price management and interest rate management are first of all the responsibility of the owners of the businesses and banks. They have an obligation to the other members of the US economy not to set prices which are unjust and harmful to the economy. Of course, while most people will act responsibly, there are always people who will not. That is why the various levels of government through consumer protection agencies and the court systems need to oversee pricing and interest rates and correct unjustly high, unjustly low and extremely volatile prices and interest rates including the interest rates of the Federal Reserve Corporation. The various interest rates of the FED must have limits and sudden and extreme changes must be controlled.
Banks, mortgage companies and all other financial institutions also pursue a strategy of price maximization within virtually all markets through the deceptive practice of pseudo-risk. Banks, mortgage companies, and financial institutions use pseudo-risk to increase the interest rate or price of money both on new loans as well as existing loans? While there is a correct notion of risk which can be used as a basis for charging a slightly higher rate of interest, the current practice of assessing risk is unjust because it exaggerates risk for the sole purpose of charging a higher rate of interest, and in many cases a significantly higher rate of interest. Again, while objectively unjust, the individuals engaged in this practice or scam (for all practical purposes, it is a scam) do not consider it unjust since current economic theories hold that business practices and actions are amoral, that is, they are neither right nor wrong. But is should be clear that these practices are both unjust and un-Christian (contrary to Christian principles).
The current means of assessing risk is based on the credit ratings of the major credit bureaus and there are serious problems both with the scoring process and the credit bureaus themselves. There are