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Interest Rates, Risk and Rulers

Most people are comfortable with the concept of earning interest on capital. They conclude that it is natural for money to be invested in financial instruments that will generate a return. Throughout history the idea that banking is based upon a justifiable relationship that money deserves to accrue that magical reward, called interest - has driven the behavior of societies and the fate of nations. Is there anyone who is immune to the effects of usury? Obviously not. Individuals know all too well the reality that your money is not really yours. Currency is nothing more than a payment on obligations that you must fulfill and provides the means to satisfy needs that we all share.

How curious that mankind accepts that surplus, saved money has an intrinsic claim to earn additional funds, over and above it's own value. Few beliefs exist that are more readily accepted than the idea that banking based upon the concept that interest, is a rightful method for conducting economic commerce. But by what law of nature can we demonstrate that this practice is inherent to society?

Banking originated in Ancient Mesopotamia where the royal palaces and temples provided secure places for the safe-keeping of grain and other commodities. Receipts came to be used for transfers not only to the original depositors but also to third parties. Eventually private houses in Mesopotamia also got involved in these banking operations and laws regulating them were included in the code of Hammurabi. Money changing developed when coinage was established as a convenient way to store and transfer known value.

But the inspiration for the word for interest arose out of the pastoral economies of the Sumerians, Egyptians and Greek societies.  The term points to the derivation of interest rates as the natural multiplication of livestock. If you lend someone a herd of thirty cattle for one year, you expect to be repaid with more than thirty cattle. The herd multiplies -- the herder's wealth has a natural rate of increase equal to the rate of reproduction of his livestock.

As urban communities developed the need to exchange different goods and services evolved. The origins of finance are often associated with the ancient city of Uruk, in Sumerian during the Hammurabi era 1792 - 1750 B.C. The example of a transaction by a merchant, Dumuzi-gamil illustrates how the practice worked. Most of the loans from second millennium Ur do not quote interest rates per month or per annum, but simply state the amount of interest due. Most loan contracts used the lunar calendar, and quoted the sum plus interest due at the end of the month. Interest payments were not thought of as rates per unit of time, but fixed prices for the use of the money, whether it be for a long or a short period.

Since this example of the charging of interest dates back to antiquity, why not just accept that paying interest is natural? The lesson of this background in not that lending with the expectation of a premium return is normal, but that the urge to extract a gain not from your own labor, ingenuity or risk taking - dated back to ancient times. The key question that deserves scrutiny is why is it legitimate for accumulated capital to earn money for the mere lending of the use of that cash? No other single element in economic intercourse weighs more heavily upon the success or failure of a venture than the availability of funds to finance the enterprise. Just the mere access to capital is not enough. Consideration for the cost that will be extracted for its use, is the ultimate price that will be paid to conduct business.

Most sound thinking people will acknowledge that all people are not equal in ability, talent, motivation and circumstance. So too, does this reality apply to admittance to the chambers of the lender. We have all heard of the Golden Rule: Those that have the gold, make the rules. Well, today it should be modified that those who control the lending process decide who gets to play the financial musical chair game!

Inflation is nothing more than the systemic devaluation in the value of the purchasing worth of the currency. But becoming obligated to pay interest is the guaranteed separation from the fruits of your labor, determination and willingness to accept the risk of conducting business. Once upon a time a businessman could borrow at prevailing interest rates and have a reasonable expectation that a profit could be achieved, that the interest could be paid, and the underlying loans could be retired. Today, capital is available from the modern day Dumuzi-gamil's that  hawk, hype and tout their schemes from their lavish Wall Street district suites.

Earning interest encourages reliance upon your own capital, and reduces the will to engage in business. Owing interest creates partners in your endeavors that have claims greater than your own to fairly earned profits. Enslavement is the ultimate reality to a system based upon debt, where interest reigns as the measure of who rules. The human condition is one long sad tale of debt incurred under the penalty of compound interest. The status quo is protected in order that the servicing of the interest, can be enforced.

Life is a risk and should be admitted as a struggle. Accepting the efficacy of interest as a normal part of life only deepens the conflict. We all have unwanted partners, the State, in our finances. Rewarding the lender on top of the excessive expropriation that government steals is madness. The tradition of paying interest to use capital is sheer lunacy. Lenders of capital could be compensated for the use of funds with a share in the equity of business ventures. Let them bear their proportion of the risk and not add to the peril of a venture, with the cost of debt service. Civilization has been achieved through the creative inspiration and daring of the few. The work of its erection has been built on the backs of the many. And it has been attained not because of the charge of the money changers, but in spite of their trade. The world needs to liberate themselves from their addiction. Interest causes bondage, even if your reside in a palace . . .

SARTRE

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Value is not intrinsic; it is not in things. It is within us;
 it is the way in which man reacts to the conditions of his environment.
Ludwig von Mises

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