To be old-fashioned about it, lending at interest is usury, which has been condemned by the Catholic Church. Essentially, according to St. Thomas Aquinas, usury can be equated to theft, because it is the sale of something that doesn't exist. Money exists for its consumption: we use money as a medium of exchange. Like I consume wine when I make use of it (sometimes too much!), to properly use money is to use it up. Were I to sell that wine to another, but not use of the wine, which I would sell in a separate transaction, I would, in effect, sell that wine twice. This is much the same as usury: by lending at interest, I am "selling" the money, for which I charge a fee, e.g., interest. But I also demand the money back, in the form of repayment. So I have sold the money, but not its use. Were I to lend freely, I could freely ask for the money back.
The essential idea is that money, which has only a contingent value, is not real in any sense. We agree that George Washington has a value, but that value is not real, because it is based on common consent. A produced good is real in itself. A pot has value (and perhaps the other kind of pot as well), a dish has value, a tool has value, based on its utility. Food has a value. Land has a real value, apart from any "real estate bubble", in that the soil can be tilled, trees can be chopped down, water can be drawn. Land can produce real goods.
Wall Street is based on the principle of usury. By investing, we give use of our money, and we expect it back. But what happens if that company fails, or uses the money you "lent" them, in the form of buying shares, poorly? You then are stuck with paper, not money, and no one believes that your paper has any value. No one wants that piece of paper, and its value plummets. Now the question is where does real value lie? In tough times only commodities
are considered safe investments: real goods with real value. Corn, oil, agricultural products. Now, when a lot of people want to buy something that is in a limited amount, the price goes up. And when the price for corn goes up, the price for a lot of other things go up. Same for oil. If you remember the spike in oil prices in the early part of this year, a lot of people started to scream about corn-based ethanol. Everyone rushed to buy corn. And the price of corn skyrocketed. And poorer countries starved. This boom and bust cycle goes directly to usury. As does the present crisis.
Banks lend money that has been deposited, and pays a modest stipend to the owners of that money for its use. By depositing your money into the bank, you are making a loan to the bank, and can expect that money to be repaid. But what happens when the lender to whom the bank lent your money doesn't pay off the loan? The bank owes you money and can't pay. Banks start to panic, and begin to call in all the loans it made, to pay back its depositors, who are now wondering what will happen to their cash. This is what led to the Great Depression.
Wow. Maybe the Church knew what it was talking about, all those years ago.
If we go with the idea that value can only be found in that which produces something real, or supplies some need, then we must look to actual goods (as opposed to money, which is a symbol intended as a common medium of exchange). Land has value, as mentioned above. In the Medieval Age, peasants owned their land, and had more rights to it than I do. A peasant was never taxed on his land, only on its production. A peasant could never be thrown off his land by the local baron, and could be censured by the Church were a baron to make the attempt. There is a story of a baron who spent Christmas Eve on his knees, in the snow, outside the doors of the Bishop's home, begging forgiveness (Imagine a Pope exercising such influence – George Bush doing public penance? Nancy Pelosi and Ted Kennedy in hair shirts, scourging themselves? The mind boggles).
Distributism can be understood as a humane system of economics. If everyone were to own land sufficient for their needs, they would have real property, and thus real wealth. If I can't farm, I can rent my land to a neighbor in exchange for a percentage of his yield, and I can provide services to others in exchange for other items. Yes, it bears the mark of barter economy, and it does rely on a smaller political scale. We would have to return to the village, where we would be forced to know and communicate with our neighbors. Horrors.
Imagine the scene, though. A village with a centrally placed church, guided spiritually by their pastor, all the citizens of the village spending their days working in trades or agriculture, greeting each other, communing in times of plenty, providing solace in times of woe, surrounded by small freeholding farms. Each family produces what it needs, shares what is extra. Christian charity would certainly bloom richly in such soil.
But I am too much of a cynic to allow myself this vision. This would assume that all people are motivated by charity, and not by greed, that we see ourselves realistically, in the light of humility, not obscured by the shadow of pride. To make this work men would have to stop being politicians and start being human beings, and there is bloody little chance that will ever happen.