But why “interest”? Why make a general theory of human motivation out of a word that originally meant “penalty for late payment on a loan”?
Part of the term’s appeal was that it derived from bookkeeping. It was mathematical. This made it seem objective, even scientific. Saying we are all really pursuing our own self-interest provides a way to cut past the welter of passions and emotions that seem to govern our daily existence, and to motivate most of what we actually observe people to do (not only out of love and amity, but also envy, spite, devotion, pity, lust, embarrassment, torpor, indignation, and pride) and discover that, despite all this, most really important decisions are based on the rational calculation of material advantage—which means that they are fairly predictable as well. “Just as the physical world is ruled by the laws of movement,” wrote Helvétius, in a passage reminiscent of Lord Shang, “no less is the moral universe ruled by laws of interest.”57 And of course it was on this assumption that all the quadratic equations of economic theory could ultimately be built.58
The problem is that the origin of the concept is not rational at all. Its roots are theological, and the theological assumptions underpinning it never really went away. “Self-interest” is first attested to in the writings of the Italian historian Francesco Guicciadini (who was, in fact, a friend of Machiavelli), around 1510, as a euphemism for St. Augustine’s concept of “self-love.” For Augustine, the “love of God” leads us to benevolence toward our fellows; self-love, in contrast, refers to the fact that, since the Fall of Man, we are cursed by endless, insatiable desires for self-gratification—so much so that, if left to our own devices, we will necessarily fall into universal competition, even war. Substituting “interest” for “love” must have seemed an obvious move, since the assumption that love is the primary emotion was precisely what authors like Guicciadini were trying to get away from. But it kept that same assumption of insatiable desires under the guise of impersonal math, since what is “interest” but the demand that money never cease to grow? The same was true when it became the term for investments—“I have a twelve-percent interest in that venture”—it is money placed in the continual pursuit of profit.59 The very idea that human beings are motivated primarily by “self-interest,” then, was rooted in the profoundly Christian assumption that we are all incorrigible sinners; left to our own devices, we will not simply pursue a certain level of comfort and happiness and then stop to enjoy it; we will never cash in the chips, like Sindbad, let alone question why we need to buy chips to begin with. And as Augustine already anticipated, infinite desires in a finite world means endless competition, which in turn is why, as Hobbes insisted, our only hope of social peace lies in contractual arrangements and strict enforcement by the apparatus of the state.
The story of the origins of capitalism, then, is not the story of the gradual destruction of traditional communities by the impersonal power of the market. It is, rather, the story of how an economy of credit was converted into an economy of interest; of the gradual transformation of moral networks by the intrusion of the impersonal—and often vindictive—power of the state. English villagers in Elizabethan or Stuart times did not like to appeal to the justice system, even when the law was in their favor—partly on the principle that neighbors should work things out with one another, but mainly, because the law was so extraordinarily harsh. Under Elizabeth, for example, the punishment for vagrancy (unemployment) was, for first offense, to have one’s ears nailed to a pillory; for repeat offenders, death.60
The same was true of debt law, especially since debts could often, if the creditor was sufficiently vindictive, be treated as a crime. In Chelsea around 1660,
Margaret Sharples was prosecuted for stealing cloth, “which she had converted into a petticoat for her own wearing,” from Richard Bennett’s shop. Her defense was that she had bargained with Bennett’s servant for the cloth, “but having not money sufficient in her purse to pay for it, took it away with purpose to pay for it so soon as she could: and that she afterwards agreed with Mr Bennett of a price for it.” Bennett confirmed that this was so: after agreeing to pay him 22 shillings, Margaret “delivered a hamper with goods in it as a pawn for security of the money, and four shillings ninepence in money.” But “soon after he disliked upon better consideration to hold agreement with her: and delivered the hamper and goods back,” and commenced formal legal proceedings against her.61
As a result, Margaret Sharples was hanged.
Obviously, it was the rare shopkeeper who wished to see even his most irritating client on the gallows. Therefore decent people tended to avoid the courts entirely. One of the most interesting discoveries of Craig Muldrew’s research is that the more time passed, the less true this became.
Even in the late Middle Ages, in the case of really large loans, it was not unusual for creditors to lodge claims in local courts—but this was really just a way of ensuring that there was a public record (remember that most people at the time were illiterate). Debtors were willing to go along with the proceedings in part, it would seem, because if there was any interest being charged, it meant that if they did default, the lender was just as guilty in the eyes of the law as they were. Less than one-percent of these cases were ever brought to judgment.62 The legalization of interest began to change the nature of the playing field. In the 1580s, when interest-bearing loans began to become common between villagers, creditors also began to insist on the use of signed, legal bonds; this led to such an explosion of appeals to the courts that in many small towns, almost every household seemed to be caught up in debt litigation of some sort or other. Only a tiny proportion of these suits were ever brought to judgment, either: the usual expedient was still to rely on the simple threat of punishment to encourage debtors to settle out of court.63 Still, as a result, the fear of debtor’s prison—or worse—came to hang over everyone, and sociability itself came to take on the color of crime. Even Mr. Coward, the kindly shopkeeper, was eventually laid low. His good credit itself became a problem, especially as he felt honor-bound to use it to help the less fortunate:
He also dealt in merchandise with loose partners, and became concerned much with persons of declining circumstances, where neither profit nor credit could be got; and he gave uneasiness to his wife, by his frequenting some houses of no good character. And she was a very indolent woman, and drew money privately from him, and his circumstances became so burdensome that he daily expected to be made a prisoner. Which, with the shame of forfeiting his former reputation, it drew him into despair and broke his heart, so that he kept to his house for some time and died of grief and shame.64
It is perhaps not surprising, when one consults contemporary sources about what those prisons were like, particularly for those who were not of aristocratic origins. Mr. Coward would surely have known, as the conditions at the most notorious, like Fleet and Marshalsea, caused periodic scandals when exposed in parliament or the popular press, filling the papers with stories of shackled debtors “covered with filth and vermin, and suffered to die, without pity, of hunger and jail fever,” as the aristocratic roués placed in the elite side of the same jails lived lives of comfort, visited by manicurists and prostitutes.65
The criminalization of debt, then, was the criminalization of the very basis of human society. It cannot be overemphasized that in a small community, everyone normally was both lender and borrower. One can only imagine the tensions and temptations that must have existed in a communities—and communities, much though they are based on love, in fact, because they are based on love, will always also be full of hatred, rivalry and passion—when it became clear that with sufficiently clever scheming, manipulation, and perhaps a bit of strategic bribery, they could arrange to have almost anyone they hated imprisoned or even hanged. What was it that Richard Bennett really had against Margaret Sharples? We’ll never know the back-story, but it’s a pretty safe bet that there was one. The effects on communal solidarity must have been devastating. The sudden accessibility of viole
nce really did threaten to transform what had been the essence of sociality into a war of all against all.66 It’s not surprising then, that by the eighteenth century, the very notion of personal credit had acquired a bad name, with both lenders and borrowers considered equally suspect.67 The use of coins—at least among those who had access to them—had come to seem moral in itself.
Understanding all this allows us to see some of the European authors considered in earlier chapters in an entirely new light. Take Panurge’s encomium on debt: it turns out that the real joke is not the suggestion that debt ties communities together (any English or French peasant of the day would have simply assumed this), or even that only debt ties communities together; it is putting the sentiment in the mouth of a wealthy scholar who’s really an inveterate criminal—that is, holding up popular morality as a mirror to make fun of the very upper classes who claimed to disapprove of it. Or consider Adam Smith:
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.68
The bizarre thing here is that, at the time Smith was writing, this simply wasn’t true.69 Most English shopkeepers were still carrying out the main part of their business on credit, which meant that customers appealed to their benevolence all the time. Smith could hardly have been unaware of this. Rather, he is drawing a utopian picture. He wants to imagine a world in which everyone used cash, in part because he agreed with the emerging middle-class opinion that the world would be a better place if everyone really did conduct themselves this way, and avoid confusing and potentially corrupting ongoing entanglements. We should all just pay the money, say “please” and “thank you,” and leave the store. What’s more, he uses this utopian image to make a larger point: that even if all businesses operated like the great commercial companies, with an eye only to self-interest, it wouldn’t matter. Even the “natural selfishness and rapacity” of the rich, with all their “vain and insatiable desires” will still, through the logic of the invisible hand, lead to the benefit of all.70
In other words, Smith simply imagined the role of consumer credit in his own day, just as he had his account of the origins of money.71 This allowed him to ignore the role of both benevolence and malevolence in economic affairs; both the ethos of mutual aid that forms the necessary foundation of anything that would look like a free market (that is, one which is not simply created and maintained by the state), and the violence and sheer vindictiveness that had actually gone into creating the competitive, self-interested markets that he was using as his model.
Nietzsche, in turn, was taking up Smith’s premises, that life is exchange, but laying bare everything (the torture, murder, mutilation) that Smith preferred not to have to talk about. Now that we have seen just a little of the social context, it’s difficult to read Nietzsche’s otherwise puzzling descriptions of ancient hunters and herdsmen keeping accounts of debts and demanding each others’ eyes and fingers without immediately thinking of Casimir’s executioner, who actually did present his master with a bill for gouged eyes and severed fingers. What he is really describing is what it took to produce a world in which the son of a prosperous middle-class reverend, such as himself, could simply assume that all human life is premised on calculated, self-interested exchange.
Part III:
Impersonal Credit-money
One reason that historians took so long to notice the elaborate popular-credit systems of Tudor and Stuart England is that intellectuals of the time spoke about money in the abstract; they rarely mentioned it. For the educated classes, “money” soon came to mean gold and silver. Most wrote as if it could be taken for granted that gold and silver had always been used as money for all nations in history and, presumably, always would be.
This not only flew in the face of Aristotle; it directly contradicted the discoveries of European explorers of the time, who were finding shell money, bead money, feather money, salt money, and an endless variety of other currencies everywhere they went.72 Yet all this just caused economic thinkers to dig in their heels. Some appealed to alchemy to argue that the monetary status of gold and silver had a natural basis: gold (which partook of the sun) and silver (which partook of the moon) were the perfected, eternal forms of metal toward which all baser metals tend to evolve.73 Most, however, didn’t feel that much explanation was required; the intrinsic value of precious metals was simply self-evident. As a result, when royal advisors or London pamphleteers discussed economic problems, the issues they debated were always the same: How do we keep bullion from leaving the country? What do we do about the crippling shortage of coin? For most, questions like “How do we maintain trust in local credit systems?” simply did not arise.
This was even more extreme in Britain than on the Continent, where “crying up” or “crying down” the currency was still an option. In Britain, after a disastrous attempt at devaluation under the Tudors, such expedients were abandoned. Henceforth, debasement became a moral issue. For the government to mix base metal into the pure eternal substance of a coin was clearly wrong. So, to a lesser extent, was coin-clipping, a near-universal practice in England, which might be thought of as a kind of popular version of devaluation, since it involved secretly shaving silver off the edges of coins and then pressing them down so they seemed like they were still the original size.
What’s more, those new forms of virtual money that began to emerge in the new age were firmly rooted in these same assumptions. This is critical, because it helps explain what might otherwise seem a bizarre contradiction: How is it that this age of ruthless materialism, in which the notion that money was a social convention was definitively rejected, also saw the rise of paper money, along with a whole host of new credit instruments and forms of financial abstraction that have become so typical of modern capitalism? True, most of these—checks, bonds, stocks, annuities—had their origins in the metaphysical world of the Middle Ages. Yet in this new age, they underwent an enormous efflorescence.
If one looks at the actual history, though, it quickly becomes clear that all of these new forms of money in no way undermined the assumption that money was founded on the “intrinsic” value of gold and silver: in fact, they reinforced it. What seems to have happened is that, once credit became unlatched from real relations of trust between individuals (whether merchants or villagers), it became apparent that money could, in effect, be produced simply by saying it was there; but that, when this is done in the amoral world of a competitive marketplace, it would almost inevitably lead to scams and confidence games of every sort—causing the guardians of the system to periodically panic, and seek new ways to latch the value of the various forms of paper back onto gold and silver.
This is the story normally told as “the origins of modern banking.” From our perspective, though, what it reveals is just how closely bound together war, bullion, and these new credit instruments were. One need only consider the paths not traveled. For instance: there was no intrinsic reason why a bill of exchange couldn’t be endorsed over to a third party, then become generally transferable—thus, in effect turning it into a form of paper money. This is how paper money first emerged in China. In Medieval Europe there were periodic movements in that direction, but for a variety of reasons, they did not go far.74 Alternately, bankers can produce money by issuing book credits for more than they have on cash reserve. This is considered the very essence of modern banking, and it can lead to the circulation of private bank notes.75 Some moves were made in this direction as well, especially in Italy, but it was a risky proposition, since there was always the danger of depositors panicking and making a run, and most Medieval governments threatened extremely harsh penalties on bankers unable to make restitution in such cases: as witnessed by the example of Francesch Castello, beheaded in front of his own bank in Barcelona in 1360.76
Where bank
ers effectively controlled Medieval governments, it proved safer and more profitable to manipulate the government’s own finances. The history of modern financial instruments, and the ultimate origins of paper money, really begin with the issuing of municipal bonds—a practice begun by the Venetian government in the twelfth century when, needing a quick infusion of income for military purposes, it levied a compulsory loan on its taxpaying citizens, for which it promised each of them five percent annual interest, and allowed the “bonds” or contracts to become negotiable, thus, creating a market in government debt. They [the Venetian government?] tended to be quite meticulous about interest payments, but since the bonds had no specific date of maturity, their market prices often fluctuated wildly with the city’s political and military fortunes, and so did resulting assessments of the likelihood that they would be able to be repaid. Similar practices quickly spread to the other Italian states and to northern European merchant enclaves as well: the United Provinces of Holland financed their long war of independence against the Hapsburgs (1568–1648) largely through a series of forced loans, though they floated numerous voluntary bond issues as well.77
Forcing taxpayers to make a loan is, in one sense, simply demanding that they pay their taxes early; but when the Venetian state first agreed to pay interest—and in legal terms, this was again interesse, a penalty for late payment—it was in principle penalizing itself for not immediately giving the money back. It’s easy to see how this might raise all sorts of questions about the legal and moral relation between people and government. Ultimately, the commercial classes in those mercantile republics that pioneered these new forms of financing did end up seeing themselves as owning the government more than they saw themselves as being in its debt. Not only the commercial classes: by 1650, a majority of Dutch households held at least a little government debt.78 However, the true paradox only appears when one begins to “monetize” this debt—that is, to take government promises to pay and allow them to circulate as currency.
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