The Monkey's Paw (Part II)

The Blessing and the Curse of Interest

Review

The paradoxical nature of interest was the subject of last week’s essay, The Monkey's Paw (Part I). It’s simultaneously a critical civilizational building block and a dangerous source of societal instability. That’s why the taking of interest is ominously warned against virtually across the board in every religious tradition on the planet, even as it is the basis for the global financial system that we all depend upon. The dual nature of interest, or usury as it’s known in religious contexts, invites a comparison with the trope of cursed monkey’s paw, which grants wishes at a terrible price.

We left off with the invention of interest by the Mesopotamians of the ancient Near East. In order for the first cities to spring up, surplus resources needed to be moved to where they were needed. In order to start up a new farm, for example, enough grain is needed to plant and to feed farmers for the six months between planting and harvesting. Local temples facilitated the distribution of this startup capital. They would loan out grain surpluses to would-be farmers, who would then pay back this loan, plus a little extra to keep the temple in business. That extra grain, paid back over and above the amount borrowed, was crucial for the system to work. It was used to feed temple functionaries who kept track of the debts and to bolster stockpiles that could be loaned out in the future. The time gap between the planting and harvesting seasons was a problem that was solved by the advent of interest.

Private Citizens

By inventing the dangerous double-edged sword of interest-taking, the Mesopotamians had solved one problem but created another. Storm clouds gathered on their horizon when private citizens started getting into the lending game. Those who found themselves sitting on grain surpluses realized they could passively multiply their wealth by lending it out and collecting interest. What a deal! But unlike the temples, these private lenders were in the game for pure profit. When war or famine caused crop failures and prevented farmers from repaying their debts, it was harvest time for the creditors. They could seize land and even family members, who went into service as debt-slaves to pay off the loans (the association between debt and freedom was very literal in those days). When the well-heeled began to realize that foreclosure was far more profitable than merely collecting interest, predatory lending was born. Then as now, interest is crucial for building societies. But it also generates ever-increasing financial separation between rich and poor that is an ever present threat to societal stability. 

The Stars

On the one hand, interest is an indispensable tool for building up societies. The penniless can, for a price, bring anticipated future value into the present by borrowing from wealthy investors seeking to passively multiply their wealth. But on the other hand, to use this tool is to play with fire. When wealth passively attracts more wealth, inequality spirals out of control and societies tend to burn. For owning property, the already wealthy are rewarded with even more property. It works like gravity. Massive dust clouds in space coalesce into stars because all those dust particles are ever so slightly attracted to one another. These particles end up sticking together, combining their gravity, and becoming even more attractive to other dust particles. Every star in the night sky was gradually built by this positive feedback loop, particle by particle, until they became raging gravity infernos like our sun. The condensation of the stars out of dust is the cosmic version of the rich getting richer. It’s no wonder Albert Einstein remarked that compound interest is the most powerful force in the universe. There is always a point of no return where too great a proportion of society’s wealth becomes owed to the already wealthy because of the exponential mathematical model of interest. The poor no longer have any incentive to play by the mathematical rules. That’s when the chaos starts. 

The Water Cycle

A tiered society pops into existence the minute some people begin making a living collecting interest off of their property instead of off of their labor. In Group A we have people who want to get new businesses off the ground. In Group B we have people with the resources to make it happen. Group B facilitates economic growth by providing their surplus to Group A. For a price, that is. Group B gets a cut of the proceeds from whatever business venture Group A is involved with. New entrants into the system are obliged to pay dues to the already established. It’s a classic pyramid scheme, where old investors are paid off by new entrants. With the advent of interest, the wealthy are economically elevated above the rest of society. Economic classes are created. One class gets to become passive franchisees in everyone else’s enterprises by dint of having control of wealth at the start of the game. They get to extract wealth from the economic class below them because they have control of the startup capital. 

Let us now draw a second analogy to drive the point home. Remember the water cycle from elementary school? The basic idea is that ocean water evaporates and the vapor becomes clouds. The clouds drift over land and fall as rain. The rain water then forms streams, streams merge into rivers, and rivers flow back into the ocean to start the cycle again. The inevitable flow of water downhill from the mountains to the seas mirrors the way the mathematical logic of interest inevitably drives a flow of wealth from the poor to the already-wealthy.   

The apocalyptic endgame of interest-taking becomes obvious with this metaphor. There is no corresponding mechanism that resets the interest-driven accumulation of wealth in the way that evaporation resets the water cycle. Without any form of redistribution, the wealthy simply get wealthier until society destroys itself. The monkey’s paw of interest brings us the miracle of modern society, but at a terrible cost.

In the next part of this essay, we’ll explore the ways in which the cursed nature of interest has historically been dealt with, and how prohibitions on interest taking made their way into Christianity. Come back next week, dear reader!