TURMEL: David Graeber's DEBT: The First 5,000 Years Chap11

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Chapter Eleven
AGE OF THE GREAT CAPITALIST EMPIRES
(1450 - 1971 AD)

"Eleven pesos, then; and as you can't pay me the eleven
pesos, that makes another eleven pesos- twenty- two in all:
eleven for the serape and the petate and eleven because you
can't pay. Is that right, Crisiero?"
Crisiero had no knowledge of figures, so it was very natural
that he said, "That is right, patron."
Don Arnulfo was a decent, honorable man. Other landowners
were a good deal less softhearted with their peons.
"The shirt is five pesos. Right? Very well. And as you can't
pay for it, that's five pesos. And as you remain in my debt
for the five pesos, that's five pesos. And as I shall never
have the money from you, that's five pesos. So that makes
five and five and five and five. That's twenty pesos.
Agreed?"
"Yes, patron, agreed."
The peon can get the shirt nowhere else when he needs one.
He can get credit nowhere but from his master, for whom he
works and from whom he can never get away as long as he owes
him a centavo.
- B. Traven, The Carreta

P308: THE EPOCH THAT BEGAN with what we're used to calling
the "Age of Exploration" was marked by so many things that
were genuinely new - the rise of modern science, capitalism,
humanism, the nationstate - that it may seem odd to frame it
as just another turn of an historical cycle. Still, from the
perspective I've been developing in this book, that is what
it was.
The era begins around 1450 with a turn away from virtual
currencies and credit economies and back to gold and silver.
The subsequent flow of bullion from the Americas sped the
process immensely, sparking a "price revolution" in Western
Europe that turned traditional society upside-down. What's
more, the return to bullion was accompanied by the return of
a whole host of other conditions that, during the Middle
Ages, had been largely suppressed or kept at bay: vast
empires and professional armies, massive predatory warfare,
untrammeled usury and debt peonage, but also materialist
philosophies, a new burst of scientific and philosophical
creativity - even the return of chattel slavery. It was in
no way a simple repeat performance. All the Axial Age pieces
reappeared, but they came together in an entirely different
way.

The 1400s are a peculiar period in European history. It was
a century of endless catastrophe: large cities were
regularly decimated by the Black Death; the commercial
economy sagged and in some regions collapsed entirely; whole
cities went bankrupt, defaulting on their bonds; the
knightly classes squabbled over the remnants, leaving much
of the countryside devastated by endemic warfare. Even in
geopolitical terms Christendom was staggering, with the
Ottoman Empire not only scooping up what remained of
Byzantium but pushing steadily into central Europe, its
forces expanding on land and sea.

At the same time, from the perspective of many ordinary
farmers and urban laborers, times couldn't have been much
better. One of the perverse effects of the bubonic plague,
which killed off about one-third of the European workforce,
was that wages increased dramatically. It didn't happen
immediately, but this was largely because the first reaction
of the authorities was to enact legislation freezing wages,
or even attempting to tie free peasants back to the land
again. Such efforts were met with powerful resistance,
culminating in a series of popular uprisings across Europe.
These were squelched, but the authorities were also forced
to compromise. Before long, so much wealth was flowing into
the hands of ordinary people that governments had to start
introducing new laws forbidding the lowborn to wear silks
and ermine, and to limit the number of feast days, which, in
many towns and parishes, began eating up one-third or even
half of the year. The fifteenth century is, in fact,
considered the heyday of medieval festive life, with its
floats and dragons, maypoles and church ales, its Abbots of
Unreason and Lords of Misrule.1

P309: Over the next centuries, all this was to be destroyed.
In England, the festive life was systematically attacked by
Puritan reformers, then eventually by reformers everywhere,
Catholic and Protestant alike. At the same time its economic
basis in popular prosperity dissolved. Why this happened has
been a matter of intense historical debate for centuries.
This much we know: it began with a massive inflation.
Between 1500 and 1650, for instance, prices in England
increased 500 percent, but wages rose much more slowly, so
that in five generations, real wages fell to perhaps 40
percent of what they had been. The same thing happened
everywhere in Europe. Why? The favorite explanation, ever
since a French lawyer named Jean Bodin first proposed it in
1568, was the vast influx of gold and silver that came
pouring into Europe after the conquest of the New World. As
the value of precious metals collapsed, the argument went,
the price of everything else skyrocketed, and wages simply
couldn't keep up.2
2. For a very small sampling of more recent debates over the
"price revolution," see Hamilton 1934, Cipolla 1967, Flynn
1982, Goldstone 1984, 1991, Fisher 1989, Munro 2003a, 2007.
The main argument is between monetarists who continue to
argue that increase in the amount of specie is ultimately
responsible for the inflation, and those who emphasize the
role of rapid population increase, though most specific
arguments are considerably more nuanced.

There is some evidence to support this. The height of popular
prosperity around 1450 did correspond to a period when
bullion- and therefore, coin- was in particularly short
supply.3
3. Historians speak of "bullion famines"- as most active
mines dried up, such gold and silver that wasn't sucked out
of Europe to pay for eastern luxuries was increasingly
hidden away, causing all sorts of difficulties for commerce.
In the 1460s, the shortage of specie in cities like Lisbon
had been so acute that merchant ships visiting with cargoes
full of wares often had to return home without selling
anything (Spufford 1988:339-62).

The lack of cash played havoc with international trade in
particular; in the 1460s, we hear of ships full of wares
forced to turn back from major ports, as no one had any cash
on hand to buy from them. The problem only started to turn
around later in the decade, with a sudden burst of silver
mining in Saxony and the Tirol, followed by the opening of
new sea routes to the Gold Coast of West Africa. Then came
the conquests of Cortes and Pizarro. Between 1520 and 1640,
untold tons of gold and silver from Mexico and Peru were
transported across the Atlantic and Pacific in Spanish
treasure ships.
The problem with the conventional story is that very little
of that gold and silver lingered very long in Europe. Most
of the gold ended up in temples in India, and the
overwhelming majority of the silver bullion was ultimately
shipped off to China. The latter is crucial. If we really
want to understand the origins of the modern world economy,
the place to start is not in Europe at all. The real story
is of how China abandoned the use of paper money. It's a
story worth telling briefly, because very few people know
it.

P310: After the Mongols conquered China in 1271, they kept
the system of paper money in place, and even made occasional
(if usually disastrous) attempts to introduce it in the
other parts of their empire. In 1368, however, they were
overthrown by another of China's great popular
insurrections, and a former peasant leader was once again
installed in power.

During their century of rule, the Mongols had worked closely
with foreign merchants, who became widely detested. Partly
as a result, the former rebels, now the Ming dynasty, were
suspicious of commerce in any form, and they promoted a
romantic vision of self-sufficient agrarian communities.
This had some unfortunate consequences. For one thing, it
meant the maintenance of the old Mongol tax system, paid in
labor and in kind; especially since that, in turn, was based
on a quasicaste system in which subjects were registered as
farmers, craftsmen, or soldiers and forbidden to change
their jobs. This proved extraordinarily unpopular. While
government investment in agriculture, roads, and canals did
set off a commercial boom, much of this commerce was
technically illegal, and taxes on crops were so high that
many indebted farmers began to flee their ancestral lands.4
4. Brook 1998. Needless to say, I'm simplifying enormously:
another problem was the growth of landlordism, with many
smallholders falling in debt to landlords for inability to
pay. As members of the ever-increasing royal family and
other favored families gained tax exemptions from the state,
the tax burden on smallholders became so heavy that many
felt forced to sell their lands to the powerful families in
exchange for tenancy agreements to free those lands from
taxes.

Typically, such floating populations can be expected to seek
just about anything but regular industrial employment; here,
as in Europe, most preferred a combination of odd jobs,
peddling, entertainment, piracy, or banditry.
In China, many also turned prospector. There was a minor
silver rush, with illegal mines cropping up everywhere.
Uncoined silver ingots, instead of official paper money and
strings of bronze coins, soon became the real money of the
off-the-books informal economy. When the government
attempted to shut down illegal mines in the 1430s and 1440s,
their efforts sparked local insurrections in which miners
would make common cause with displaced peasants, seize
nearby cities, and sometimes threaten entire provinces.5
5. Chinese historians count 77 different "miners' revolts"
during the 1430s and '40s (Harrison 1965:103- 4; cf. Tong
1992:60-64; Gernet 1982:414). Between 1445 and 1449 these
became a serious threat as silver miners under a rebel
leader named Ye Zongliu made common cause with tenant
farmers and the urban poor in overpopulated Fujian and
Shaxian, sparking an uprising that spread to a number of
different provinces, seizing a number of cities and
expelling much of the landed gentry.

In the end, the government gave up even trying to suppress
the informal economy. Instead, they swung the other way
entirely: they stopped issuing paper money, legalized the
mines, allowed silver bullion to become the recognized
currency for large transactions, and even gave private mints
the authority to produce strings of cash.6
6. Von Glahn (1996:70- 82) documents the process. Gernet
(1982:415- 16) documents how between 1450 and 1500, most
taxes became payable in silver. The process culminated in
the "single lash of the whip" method: tax reforms put into
place between 1530 and 1581 (Huang 1974, see Arrighi, Hui,
Hung and Seldon 2003:272- 73).

JCT: And David Astle's Babylonian Woe explains the woes
allowing private silver coinange would cause.

DG: This, in turn, allowed the government to gradually
abandon the system of labor exactions and substitute a
uniform tax system payable in silver.

JCT: Putting the bullion brokers in charge of money.

DG: Effectively, the Chinese government had gone back to its
old policy of encouraging markets and merely intervening to
prevent any undue concentrations of capital. It quickly
proved spectacularly successful, and Chinese markets boomed.
Indeed, many speak of the Ming as having accomplished
something almost unique in world history: this was a time
when the Chinese population was exploding, but living
standards markedly improved.7

P311: The problem was that the new policy meant that the
regime had to ensure an abundant supply of silver in the
country, so as to keep its price low and minimize popular
unrest - but, as it turned out, the Chinese mines were very
quickly exhausted.

JCT: Bingo, bullion brokers in charge.

DG: In the 1530s, new silver mines were discovered in Japan,
but these were exhausted in a decade or two as well. Before
long, China had to turn to Europe and the New World.
The conquest of Mexico and Peru led to the discovery of
enormous new sources of precious metal, and these were
exploited ruthlessly and systematically, even to the point
of largely exterminating the surrounding populations to
extract as much precious metal as quickly as possible. As
Kenneth Pomeranz has recently pointed out, none of this
would have been possible were it not for the practically
unlimited Asian demand for precious metals.
The massive inflation of silver-denominated prices in Europe
from 1500 to 1640 indicates a shrinking value for the metal
there even with Asia draining off much of the supply.8
By 1540, a silver glut caused a collapse in prices across
Europe; the American mines would, at this point, simply have
stopped functioning, and the entire project of American
colonization foundered, had it not been for the demand from
China.9
9. The value of silver in China (as measured in gold)
remained, through the sixteenth century, roughly twice what
it was in Lisbon or Antwerp (Flynn & Giraldez 1995, 2002).

This Asian trade became the single most significant factor
in the emerging global economy, and those who ultimately
controlled the financial levers - particular Italian, Dutch,
and German merchant bankers - because fantastically rich.

But how exactly did the new global economy cause the
collapse of living standards in Europe? One thing we do
know: it clearly was not by making large amounts of precious
metal available for everyday transactions. If anything, the
effect was the opposite. While European mints were stamping
out enormous numbers of rials, thalers, ducats, and
doubloons, which became the new medium of trade from
Nicaragua to Bengal, almost none found their way into the
pockets of ordinary Europeans. Instead, we hear constant
complaints about the shortage of currency. In England:
For much of the Tudor period the circulating medium was so
small that the taxable population simply did not have
sufficient coin in which to pay the benevolences, subsidies,
and tenths levied upon them, and time and time again
household plate, the handiest near money that most people
possessed, had to be surrendered.11
This was the case in most of Europe. Despite the massive
influx of metal from the Americas, most families were so low
on cash that they were regularly reduced to melting down the
family silver to pay their taxes.

P313: This was because taxes had to be paid in metal.

JCT: Which is why owning the metal used as money gave the
bullion brokers control of all economies.

DG: Everyday business, in contrast, continued to be
transacted much as it had in the Middle Ages, by means of
various forms of virtual credit money: tallies, promissory
notes, or, within smaller communities, simply by keeping
track of who owed what to whom.

JCT: In-head accounting.

DG: What really caused the inflation is that those who ended
up in control of the bullion - governments, bankers, large-
scale merchants - were able to use that control to begin
changing the rules, first by insisting that gold and silver
were money, and second by introducing new forms of credit-
money for their own use while slowly undermining and
destroying the local systems of trust that had allowed
small-scale communities across Europe to operate largely
without the use of metal currency.
This was a political battle, even if it was also a
conceptual argument about the nature of money. The new
regime of bullion money could only be imposed through almost
unparalleled violence - not only overseas, but at home as
well. In much of Europe, the first reaction to the "price
revolution" and accompanying enclosures of common lands was
not very different from what had so recently happened in
China:
thousands of one-time peasants fleeing or being forced out
of their villages to become vagabonds or "masterless men," a
process that culminated in popular insurrections. The
reaction of European governments, however, was entirely
different. The rebellions were crushed, and this time, no
subsequent concessions were forthcoming. Vagabonds were
rounded up, exported to the colonies as indentured laborers,
and drafted into colonial armies and navies- or, eventually,
set to work in factories at home.
Almost all of this was carried out through a manipulation of
debt. As a result, the very nature of debt, too, became once
again one of the principal bones of contention.

Part I: Greed, Terror, Indignation, Debt
No doubt scholars will never stop arguing about the reasons
for the great "price revolution"- largely because it's not
clear what kind of tools can be applied. Can we really use
the methods of modern economics, which were designed to
understand how contemporary economic institutions operate,
to describe the political battles that led to the creation
of those very institutions?

P314: This is not just a conceptual problem. There are moral
dangers here. To take what might seem an "objective," macro-
economic approach to the origins of the world economy would
be to treat the behavior of early European explorers,
merchants, and conquerors as if they were simply rational
responses to opportunities- as if this were just what anyone
would have done in the same situation. This is what the use
of equations so often does: make it seem perfectly natural
to assume that, if the price of silver in China is twice
what it is in Seville, and inhabitants of Seville are
capable of getting their hands on large quantities of silver
and transporting it to China, then clearly they will, even
if doing so requires the destruction of entire
civilizations. Or if there is a demand for sugar in England,
and enslaving millions is the easiest way to acquire labor
to produce it, then it is inevitable that some will enslave
them. In fact, history makes it quite clear that this is not
the case. Any number of civilizations have probably been in
a position to wreak havoc on the scale that the European
powers did in the sixteenth and seventeenth centuries (Ming
China itself was an obvious candidate), but almost none
actually did so.12
12. China had its own "age of exploration" in the early
fifteenth century, but it was not followed by mass conquest
and enslavement.

Consider, for instance, how the gold and silver from the
American mines were extracted. Mining operations began
almost immediately upon the fall of the Aztec capital of
Tenochtitlan in 1521. While we are used to assuming that the
Mexican population was devastated simply as an effect of
newly introduced European diseases, contemporary observers
felt that the dragooning of the newly conquered natives to
work in the mines was at least equally responsible.13
13. It's possible that they were wrong. Generally
populations did decline by 90 percent even in areas where no
direct genocide was taking place. But in most places, after
a generation or so, populations started recovering; in
Hispaniola and many parts of Mexico and Peru, around the
mines, the ultimate death rate was more like 100 percent.

In The Conquest of America, Tzvetan Todorov offers a
compendium of some of the most chilling reports, mostly from
Spanish priests and friars who, even when committed in
principle to the belief that the extermination of the
Indians was the judgment of God, could not disguise their
horror at scenes of Spanish soldiers testing the blades of
their weapons by eviscerating random passers-by and tearing
babies off their mother's backs to be eaten by dogs. Such
acts might perhaps be written off as what one would expect
when a collection of heavily armed men - many of violent
criminal background - are given absolute impunity; but the
reports from the mines imply something far more systematic.

When Fray Toribio de Motolinia wrote of the ten plagues that
he believed God had visited on the inhabitants of Mexico, he
listed smallpox, war, famine, labor exactions, taxes (which
caused many to sell their children to moneylenders, others
to be tortured to death in cruel prisons), and the thousands
who died in the building of the capital city. Above all, he
insisted, were the uncountable numbers who died in the
mines:

P315: The eighth plague was the slaves whom the Spaniards
made in order to put them to work in the mines. At first
those who were already slaves of the Aztecs were taken; then
those who had given evidence of insubordination; finally all
those who could be caught. During the first years after the
conquest, the slave traffic flourished, and slaves often
changed master. They produced so many marks on their faces,
in addition to the royal brand, that they had their faces
covered with letters, for they bore the marks of all who had
bought and sold them.
The ninth plague was the service in the mines, to which the
heavily laden Indians traveled sixty leagues or more to
carry provisions... When their food gave out they died,
either at the mines or on the road, for they had no money to
buy food and there was no one to give it to them. Some
reached home in such a state that they died soon after. The
bodies of those Indians and of the slaves who died in the
mines produced such a stench that it caused a pestilence,
especially at the mines of Oaxaca. For half a league around
these mines and along a great part of the road one could
scarcely avoid walking over dead bodies or bones, and the
flocks of birds and crows that came to fatten themselves
upon the corpses were so numerous that they darkened the
sun."14

JCT: Astle's Babylonian Woe has similar stories.

DG: Similar scenes were reported in Peru, where whole
regions were depopulated by forced service in the mines, and
Hispaniola, where the indigenous population was eradicated
entirely.15
15. One historian remarks: "By the close of the sixteenth
century bullion, primarily silver, made up over 95 percent
of all exports leaving Spanish America for Europe. Nearly
that same percentage of the indigenous population had been
destroyed in the process of seizing those riches" (Stannard
1993:221).

When dealing with conquistadors, we are speaking not just of
simple greed, but greed raised to mythic proportions. This
is, after all, what they are best remembered for. They never
seemed to get enough. Even after the conquest of
Tenochtitlan or Cuzco, and the acquisition of hitherto-
unimaginable riches, the conquerors almost invariably
regrouped and started off in search of more treasure.
Moralists throughout the ages have inveighed against the
endlessness of human greed, just as they have against our
supposedly endless lust for power.

What history actually reveals, though, is that while humans
may be justly accused of having a proclivity to accuse
others of acting like conquistadors, few really act this way
themselves. Even for the most ambitious of us, our dreams
are more like Sindbad's: to have adventures, to acquire the
means to settle down and live an enjoyable life, and then,
to enjoy it. Max Weber of course argued that the essence of
capitalism is the urge- which he thought first appeared in
Calvinism - never to settle down, but to engage in endless
expansion. Why the unrelenting drive for more and more and
more?

P317: Let us skip, then, from the beginning of Diaz's book
to its final chapter. Three years later, through some of the
most ingenious, ruthless, brilliant, and utterly
dishonorable behavior by a military leader ever recorded,
Cortes had his victory. After eight months of grueling
house-to-house warfare and the death of perhaps a hundred
thousand Aztecs, Tenochtitlan, one of the greatest cities of
the world, lay entirely destroyed. The imperial treasury was
secured, and the time had come, then, for it to be divided
in shares amongst the surviving soldiers.
Yet, according to Diaz, the result among the men was
outrage. The officers connived to sequester most of the
gold, and when the final tally was announced, the troops
learned that they would be receiving only fifty to eighty
pesos each. What's more, the better part of their shares was
immediately seized again by the officers in their capacity
of creditors - since Cortes had insisted that the men be
billed for any replacement equipment and medical care they
had received during the siege. Most found they had actually
lost money on the deal. Diaz writes:
We were all very deeply in debt. An order went out that
whatever price was placed on our purchases or the surgeon's
cures must be accepted, but that if we had no money, our
creditors must wait two years for payment.17

Spanish merchants soon arrived charging wildly inflated
prices for basic necessities, causing further outrage.

We are not dealing with a psychology of cold, calculating
greed, but of a much more complicated mix of shame and
righteous indignation, and of the frantic urgency of debts
that would only compound and accumulate (these were, almost
certainly, interest-bearing loans), and outrage at the idea
that, after all they had gone through, they should be held
to owe anything to begin with.

And what of Cortes? He had just pulled off perhaps the
greatest act of theft in world history. only a few years
later, he was reduced to pawning his wife's jewelry to help
finance a series of expeditions to California, hoping to
restore his fortunes. When those failed to turn a profit, he
ended up so besieged by creditors that he had to return to
Spain to petition the emperor in person.20
20. Most of the conquistadors had similar stories. Balboa
came to the Americas to flee his creditors; Pizarro borrowed
so heavily to outfit his expedition to Peru that after early
reverses, it was only the fear of debtor's prison that
prevented his return to Panama; Francisco de Montejo had to
pawn his entire Mexican possessions for an eight-thousand-
peso loan to launch his expedition to Honduras; Pedro de
Alvarado too ended up deeply in debt, finally throwing
everything into a scheme to conquer the Spice Islands and
China - on his death, creditors immediately tried to put his
remaining estates to auction.

If all this seems suspiciously reminiscent of the fourth
Crusade, with its indebted knights stripping whole foreign
cities of their wealth and still somehow winding up only one
step ahead of their creditors, there is a reason. The
financial capital that backed these expeditions came from
more or less the same place (if in this case Genoa, not
Venice). What's more, that relationship, between the daring
adventurer on the one hand, the gambler willing to take any
sort of risk, and on the other, the careful financier, whose
entire operations are organized around producing steady,
mathematical, inexorable growth of income, lies at the very
heart of what we now call "capitalism."

P319: As a result, our current economic system has always
been marked by a peculiar dual character. Scholars have long
been fascinated by Spanish debates that ensued in Spanish
universities like Santander about the humanity of the
Indians (Did they have souls? Could they have legal rights?
Was it legitimate to forcibly enslave them?), just as they
have argued about the real attitudes of the conquistadors
(Was it contempt, revulsion, or even grudging admiration for
their adversaries?)21
The real point is that at the key moments of decision, none
of this mattered. Those making the decisions did not feel
they were in control anyway; those who were did not
particularly care to know the details.

All of this helps explain why the Church had been so
uncompromising in its attitude toward usury. It was not just
a philosophical question; it was a matter of moral rivalry.
Money always has the potential to become a moral imperative
unto itself. Allow it to expand and it can quickly become a
morality so imperative that all others seem frivolous in
comparison. For the debtor, the world is reduced to a
collection of potential dangers, potential tools, and
potential merchandise.23 Even human relations become a
matter of cost-benefit calculation. Clearly, this is the way
the conquistadors viewed the worlds that they set out to
conquer.

P320 It is the peculiar feature of modern capitalism to
create social arrangements that essentially force us to
think this way. The structure of the corporation is a
telling case in point - and it is no coincidence that the
first major joint-stock corporations in the world were the
English and Dutch East India companies, ones that pursued
that very same combination of exploration, conquest, and
extraction as did the conquistadors. It is a structure
designed to eliminate all moral imperatives but profit.
The executives who make decisions can argue - and regularly
do - that, if it were their own money, of course they would
not fire lifelong employees a week before retirement, or
dump carcinogenic waste next to schools. Yet they are
morally bound to ignore such considerations, because they
are mere employees whose only responsibility is to provide
the maximum return on investment for the company's
stockholders. (The stockholders, of course, are not given
any say.)
The figure of Cortes is instructive for another reason. We
are speaking of a man who, in 1521, had conquered a kingdom
and was sitting atop a vast pile of gold. Neither did he
have any intention of giving it away - even to his
followers. Five years later, he was claiming to be a
penniless debtor. How was this possible?

Capital, then, is not simply money. It is not even just
wealth that can be turned into money. But neither is it just
the use of political power to help one use one's money to
make more money. Cortes was trying to do exactly that: in
classical Axial Age fashion, he was attempting to use his
conquests to acquire plunder, and slaves to work the mines,
with which he could pay his soldiers and suppliers cash to
embark on even further conquests. It was a tried-and-true
formula. But for all the other conquistadors, it provided a
spectacular failure.
This would seem to mark the difference. In the Axial Age,
money was a tool of empire. It might have been convenient
for rulers to promulgate markets in which everyone would
treat money as an end in itself; at times, rulers might have
even come to see the whole apparatus of government as a
profit- making enterprise; but money always remained a
political instrument.

P321: This is why when the empires collapsed and armies were
demobilized, the whole apparatus could simply melt away.
Under the newly emerging capitalist order, the logic of
money was granted autonomy; political and military power
were then gradually reorganized around it.

JCT: As David Astle explained. Once private money coinage
was allowed, power reorganized around it.

DG: True, this was a financial logic that could never have
existed without states and armies behind it in the first
place. As we have seen in the case of medieval Islam, under
genuine free-market conditions - in which the state is not
involved in regulating the market in any significant way,
even in enforcing commercial contracts - purely competitive
markets will not develop, and loans at interest will become
effectively impossible to collect. It was only the Islamic
prohibition against usury, really, that made it possible for
them to create an economic system that stood so far apart
from the state.

JCT: Prohibition against loansharking pays off.

DG: Martin Luther was making this very point in 1524, right
around the time that Cortes was first beginning to have
trouble with his creditors. It is all very well, Luther
said, for us to imagine that all might live as true
Christians, in accordance with the dictates of the Gospel.
But in fact there are few who are really capable of acting
this way: Christians are rare in this world; therefore the
world needs a strict, hard, temporal government that will
compel and constrain the wicked not to rob and to return
what they borrow, even though a Christian ought not to
demand it, or even hope to get it back. This is necessary in
order that the world not become a desert, peace may not
perish, and trade and society not be utterly destroyed; all
of which would happen if we were to rule the world according
to the Gospel and not drive and compel the wicked, by laws
and the use of force, to do what is right... Let no one
think that the world can be ruled without blood; the sword
of the ruler must be red and bloody; for the world will and
must be evil, and the sword is God's rod and vengeance upon
it.25

"Not to rob and to return what they borrow"- a telling
juxtaposition, considering that in Scholastic theory,
lending money at interest had itself been considered theft.
And Luther was referring to interest-bearing loans here. The
story of how he got to this point is telling. Luther began
his career as a reformer in 1520 with fiery campaigns
against usury; in fact, one of his objections to the sale of
Church indulgences was that it was itself a form of
spiritual usury.

P322: These positions won him enormous popular support in
towns and villages. However, he soon realized that he'd
unleashed a genie that threatened to turn the whole world
upside-down. More radical reformers appeared, arguing that
the poor were not morally obliged to repay the interest on
usurious loans,

JCT: In my Supreme Court cases against interest, I asked the
court for restitution of the interest before repayment of
the rest of the principal. http://SmartestMan.Ca/scc3

DG: and proposing the revival of Old Testament institutions
like the sabbatical year.
They were followed by outright revolutionary preachers who
began once again questioning the very legitimacy of
aristocratic privilege and private property. In 1525, the
year after Luther's sermon, there was a massive uprising of
peasants, miners, and poor townsfolk across Germany: the
rebels, in most cases, representing themselves as simple
Christians aiming to restore the true communism of the
Gospels. Over a hundred thousand were slaughtered. Already
in 1524, Luther had a sense that matters were spilling out
of control and that he would have to choose sides: in that
text, he did so. Old Testament laws like the Sabbatical
year, he argued, are no longer binding; the Gospel merely
describes ideal behavior; humans are sinful creatures, so
law is necessary; while usury is a sin, a four to five-
percent rate of interest is currently legal under certain
circumstances; and while collecting that interest is sinful,
under no circumstances is it legitimate to argue that for
that reason, borrowers have the right to break the law.26
26. In Luther's time the main issue was a practice called
Zinskauf, technically rent on leased property, which was
basically a disguised form of interest-bearing loan.

The Swiss Protestant reformer Zwingli was even more
explicit. God, he argued, gave us the divine law: to love
thy neighbor as thyself. If we truly kept this law, humans
would give freely to one another, and private property would
not exist. However, Jesus excepted, no human being has ever
been able to live up to this pure communistic standard.
Therefore, God has also given us a second, inferior, human
law, to be enforced by the civil authorities. While this
inferior law cannot compel us to act as we really ought to
act ("the magistrate can force no one to lend out what
belongs to him without hope of recompense or profit") - at
least it can make us follow the lead of the apostle Paul,
who said: "Pay all men what you owe."27
27. In Baker 1974:53-54. Paul is in Romans 13:7.

Soon afterward, Calvin was to reject the blanket ban on
usury entirely,

JCT: Sure a high rate of death in the death-gamble is bad
but Calvin says a low rate of death isn't so bad. Guess he's
getting slapped around upstairs.

DG: and by 1650, almost all Protestant denominations had
come to agree with his position that a reasonable rate of
interest (usually five percent) was not sinful, provided the
lenders act in good conscience, do not make lending their
exclusive business, and do not exploit the poor.28
28. He argued that the fact that Deuteronomy allows usury
under any circumstances demonstrates that this could not
have been a universal "spiritual law," but was a political
law created for the specific ancient Israeli situation, and
therefore, that it could be considered irrelevant in
different ones.

JCT: 5% death-rate isn't so bad.

DG: (Catholic doctrine was slower to come around, but it did
ultimately accede by passive acquiescence.)

JCT: The money-lenders got the Catholic church to cave.

DG: If one looks at how all this was justified, two things
jump out. First, Protestant thinkers all continued to make
the old medieval argument about interesse: that "interest"
is really compensation for the money that the lender would
have made had he been able to place his money in some more
profitable investment.

JCT: That's why Rothschild and Rockefeller have the right to
5% on their billions, they've forgoing consumption of
their billions and so should get rewarded for not spending
it all now.

P323: Originally, this logic was just applied to commercial
loans. Increasingly, it was now applied to all loans. Far
from being unnatural, then, the growth of money was now
treated as completely expected. All money was assumed to be
capital.29
29. And in fact, this is what "capital" originally meant.
The term itself goes back to Latin capitale, which meant
"funds, stock of merchandise, sum of money, or money
carrying interest" (Braudel 1992:232). It appears in English
in the mid-sixteenth century largely as a term borrowed from
Italian bookkeeping techniques (Cannan 1921, Richard 1926)
for what remained when one squared property, credits, and
debts; though until the nineteenth century, English sources
generally preferred the word "stock"- in part, one suspects,
because "capital" was so closely associated with usury.

Second, the assumption that usury is something that one
properly practices on one's enemies, and therefore, by
extension, that all commerce partakes something of the
nature of war, never entirely disappears. Calvin, for
instance, denied that Deuteronomy only referred to the
Amalekites; clearly, he said, it meant that usury was
acceptable when dealing with Syrians or Egyptians; indeed
with all nations with whom the Jews traded.30
30. Nations that, after all, also practiced usury on one
another: Nelson 1949:76.

The result of opening the gates was, at least tacitly, to
suggest that one could now treat anyone, even a neighbor, as
a foreigner.31
31. Ben Nelson emphasized this in an important book, The
Idea of Usury: From Tribal Brotherhood to Universal
Otherhood.

One need only observe how European merchant adventurers of
the day actually were treating foreigners, in Asia, Africa,
and the Americas, to understand what this might mean in
practice.