Delanceyplace.com 8/5/08-The Invention of Interest

In today's excerpt--interest on loans. Though loans have sometimes been portrayed as an evil aberration, they have been a central part of civilization from the beginning of history. Loans, with interest, appear to have originated in Mesopotamia almost as early as cities themselves, perhaps as early as 3200 B.C.E. The ancient word for interest appears to have come from the word for "lamb," and early interest rates were between 20 and 33 percent:

"The idea of repaying more than one borrowed is not self-evident and has often been criticized as unnatural in world history. Aristotle in the fourth century B.C. attacked interest as follows:

" 'The most hated sort [of wealth], and with the greatest reason, is usury, which makes a gain out of money itself, and not from the natural object of it. For money was intended to be used in exchange, but not to increase at interest.' ...

"The Sumerian word for interest was 'mas,' a term also used to indicate a lamb. While this dual usage may have been a mere coincidence, a logical connection between the two meanings can be established. In the agricultural system of Iraq, in the distant past as well as in modern times, a tenant could graze animals on the fields he rented. As his herd expanded, partly because of the landlord's investment in the land, this increase was taxed and the tenant had to hand over a small number of lambs. Similarly, an advance of silver or barley could be considered the use for which the creditor charged a fee, to be paid when the advance was returned. Interest thus originally resembled a grazing fee, which was due because the growth of a herd, to be paid with lambs.

"A remarkable aspect of interest rates throughout Mesopotamian history was their constancy when officially stated. From the early second millennium a number of royal decrees exist that always proclaim a 20 percent interest rate for silver loans, and a 33.3 per cent rate for barley loans. The Laws of Eshunna, from the early eighteenth century, state in a concise way: 'Per 1 shekel of silver (180 barleycorns) will accrue an interest of 36 barleycorns (i.e., 20 percent); per 300 silas of grain will accrue an interest of 100 silas (i.e., 33.33 percent).' "

Marc Van De Mieroop, "The Invention of Interest," from The Origins of Value, Edited by William N. Goetzmann and K. Geert Rouwenhorst, Oxford, Copyright 2005 by William N. Goetzmann and K. Geert Rouwenhorst, pp. 23-24.