Equity and Debt and Usury

Equity holders are the owners of a company or a collection of assets. They not only possess and use the assets, but they have ownership of those assets. As such they are due the fruits of those assets.

Debt holders are a different sort. Suppose I loan my axe to a guild of lumber jacks. The axe is owned by me, but it is currently in the possession of the guild and they use it. As it is owned by me, I can charge for its use, because I can no longer use it. However, I have not transferred ownership of the axe and expect its return. So, with debt holders of a corporation, there is a claim against the property of the corporation.

This claim provides a due for the use of the property. However, this claim is not the same as equity holder. The equity holder owns and uses his property. The debt holder owns something he allows someone else to use. The debt holder justly demands something in return for the use of a thing, but he is not owed the fruit of the use, but only a rent for the use.

Let us clarify some definitions. To possess is to have control over and to dispose as one sees fit. I possess my property because I have control over and I can dispose of it. However, I also possess something that is borrowed, because I have control of it and use it. Possession then refers principally to the use of a thing.

Ownership is related to possession but not identical. I may own something that I do not currently possess. I own the equipment that I lent, but it is not in my possession. Further, the thief possesses something that he does not own. So, ownership does not imply use but implies a claim on the thing.

Somethings can be separated from their use and others cannot. I can lend an axe and expect its return after it is used. Its use does not imply the thing is consumed. Its use is distinct from its being. However, sugar ceases to be when it is used. Therefore, I can transfer the use of something like an axe out of my possession while maintaining my ownership and thus charge for its use. However, I cannot transfer possession of sugar in its use without also transferring ownership, because for sugar to be used is for it to cease to be. To transfer use is to transfer ownership in this case, because the user causes the thing to cease to be where after ownership is dissolved. Hence, in such cases I transfer ownership of the thing and can only charge for thing itself and justice demands that I cannot charge over the value of the thing itself.

This would seem to make corporate bonds unjust as I am loaning money which is the same sort as the sugar above. However, in the case of a corporation, I am purchase the axe for them when I engage in a corporate bond. I have a property claim against the corporation which justifies my charging interest and expecting regular payments. If I purchase a person a house, I can justly expect payment of rent on the house, because I have a property claim against the house which they use. In these cases, I have exchanged my money for capital which I have a claim against and the debtor uses.

However, if I loan someone money with only a promise of its return, rent on this cannot be justified. For what am I charging? What property do I have a claim against? My claim is only against the man’s promise, which is not something that exists which I can collect rent against. Nor do I purchase a claim against the man himself, since he cannot be property. Nor do I have a claim against “time value” or “opportunity costs” because these are not real assets. They are unreal/potential/counterfactual by definition. In this case I cannot justly collect rent and to do so is called usury.

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