Interest and Self-Interest
In the empires of usury the sentimentality of the man with the soft heart calls to us because it speaks of what has been lost. — Lewis Hyde
Our system of money and property contributes in many ways to the process of separation: of people from nature, from spirit, and from community. For one, the monetized life depends on distant, impersonal institutions and the anonymous specialists that compose them, rendering us less tied to our neighbors. Secondly, the nature of money transactions is closed, in contrast to open-ended gift-giving which creates obligations—literal ties that bind a community. Thirdly, by its very nature as an abstract representation of value, money creates the illusion that utility, the good, is something that can be counted and quantified. Fourth, the concept of property makes the world into a collection of discrete things which can be separated, sold off, and owned. To own something is to separate it out from the commons and subordinate it to oneself. Accumulation of property, and particularly money, represents an annexation of the wild into the domain of self, creating a perception of security that is not really there, separating the self even more from the rest of the world, and reinforcing the illusion that pieces of the world can be separated out and made mine.
Yet the original purpose of money is merely to facilitate exchange. On the face of it, exchange should bring people closer together, not separate them. In Chapter Seven I will describe a money system that will do precisely that: undo separation, build community instead of breaking it down, bring us closer to nature instead of distancing us. Such money systems already exist in embryonic form, and to understand what characteristics they need to have, it helps to understand what characteristics they must not have.
There are two central characteristics of present-day money that drive the conversion of social, cultural, spiritual, and natural capital into financial capital, and which are also bound up with our self-perception as separate beings in a universe full of discrete objects. These two, deeply interrelated, characteristics are scarcity and interest.
Scarcity and interest are products of the way modern-day money is created: it is lent into existence by banks. While this has been partially true for several hundred years, until 1971 there was (at least in theory) a commodity backing—gold—for the U.S. dollar, and therefore for other currencies pegged to the dollar. But since the dismantling of the Bretton-Woods system in 1971, currency has not been based on gold or any other commodity. The amount of new money banks can create by making loans is limited only by their own reserves (and ratio requirements and the discount interest rate). The total level of these reserves economy-wide is determined by the Federal Reserve (or outside the U.S., the central bank) through the purchase and sale of government securities.
Bernard Lietaer comments, “For a bank-debt-based fiat currency system to function at all, scarcity must be artificially and systematically introduced and maintained.” When a bank extends a loan, the borrower must pay it back with interest, which he competes with everyone else to procure from the limited amount of still-to-be-created money. Governments and their central banks must exercise careful control—through interest rates, margin reserve requirements, and, most important in the present era, purchase or sale of government securities on the open market—over the rate at which this new money is created. Theirs is a difficult balancing act between tightness, which creates more scarcity, intensifies competition, and leads to bankruptcies, layoffs, concentration of wealth, and economic recession, and looseness, which creates less scarcity, higher inflation, and increased economic activity, but at the risk of runaway inflation and complete currency collapse. In order to prevent the latter eventuality, money must be kept scarce, consigning its users to perpetual competition and perpetual insecurity.
The bank-debt fiat currency system is not the deepest source of scarcity and insecurity, however, because both are built in to the phenomenon of interest, which itself has deeper roots in our self-conception. The bank-debt currency system we have today is founded upon interest. That’s the motivation for banks to create money in the first place. Creating money is only a side effect, irrelevant to the commercial bank, of their main purpose of earning a profit. Another side effect is the necessity of perpetual economic growth and, consequently, the conversion of all common wealth into private monetary wealth described in previous sections.
Let’s trace how interest leads to scarcity, competition, and the necessity of perpetual growth. Since nearly all money in the economy is being lent out at interest through one mechanism or another (deposits, loans, etc.), it follows either (1) that some of these loans must end up in default, or (2) that the supply of money must grow. If I am to pay back a loan with interest, I must obtain that extra amount beyond the principal from somewhere else. If the money supply is not growing, then a percentage of wealth-holders corresponding to the prevailing interest rate must go bankrupt. In other words, if there are one thousand dollars in the world, and they are lent out at ten percent interest to ten people, then one must go bankrupt to supply the other nine with the money to pay back their loans after one year. That is how interest sets us in competition.
In the real world, of course, the money supply is not static, it grows. But that does not alter the underlying dynamic of scarcity and competition. At any given moment, we collectively owe more money than exists right now. Where will the new money come from? In today’s fractional reserve banking system, new money does not come from mining more gold and minting more coins. It appears every time a bank or other institution makes a loan. To whom will a bank lend money? Preferably to someone with “good credit”, which quantifies a judgment of one’s ability to compete for money and therefore to pay back a loan with interest. In today’s system, money does not exist without debt, debt does not exist without interest, and interest drives us to earn more and more money. Some of us can take the money from others, but collectively we must create new goods and services. That is ultimately what our employers pay us to do. Either as entrepreneurs or employees, lenders or borrowers, we participate in the conversion of social and natural capital into financial capital.
When new money is loaned into existence system-wide in amounts exceeding the ability of the economy to create new goods and services, the result is inflation. More money chases fewer goods. The currency will lose its value, an eventuality distasteful to those who hold lots of it (creditors, the rich and powerful). It would seem good for the rest of us, we who were once known as the “debtor class”, but unfortunately inflation is subject to powerful positive-feedback mechanisms that cause it to “run away” and collapse the currency. To prevent this, non-inflationary economic growth—an increase in the production of goods and services—is structurally necessary for today’s money system to exist. That is what drives the relentless conversion of life into money I have described in this chapter.
The need for growth, the built-in scarcity of modern money, the phenomenon of interest, and the pervasive, continual competitive basis of the modern economy are all related. Wherever money has landed, traditional gift economies have deteriorated as competition replaced sharing as the basis of economic interaction.
And for what purpose, this artificially induced competitiveness, this omnipresent scarcity, anxiety, and insecurity of modern life? We are, after all, living in a world of material plenty. As perhaps never before in human history, we have the capacity to easily fulfill all the physical wants of every human being on the planet. Ironically, our system of money, the very symbol of wealth, creates scarcity in the midst of this plenty. To what end? The purpose of money, after all, is first and foremost to facilitate exchange. Bernard Lietaer writes, “The current money system obliges us to incur debt collectively, and to compete with others in the community, just to obtain the means to perform exchanges between us.” In classical economics, the competition inherent in scarce money is thought to be a good thing, for it induces efficiency. But in a world of plenty, is efficiency really the highest good? No, especially when efficiency equates to the swiftness with which common wealth is converted to private capital.
The question to ask, then, is whether another kind of money system might serve the need of facilitating exchange (and certain other needs) without inducing the relentless incineration of social, cultural, natural, and spiritual capital that fuels economic growth today. For it would be wrong to pin the ultimate blame on money per se. Money as we know it developed in the context of our entire civilization; it is not only a cause but also an effect of our general economic system as well as our world-view, our cosmology, and our self-definition. Money as we know it embodies and reifies our deep cultural assumption that the world is amenable to cut-and-control: division into discrete pieces, objects, that may be labeled and transferred. Money scarcity grows from and reinforces the idea, implicit in the technological management of the world, that we must manipulate and improve upon nature in order to obtain the means of survival; it is linked to survival anxiety.
The phenomenon of interest boils down to the belief that “money costs money”. Interest is the price we pay, or extract, for the use of money, which in the present age of specialization equates to survival. Interest, therefore, encodes the belief that the means of survival are precious, rare, scarce, and therefore the objects of competition. Lending money with interest amounts to, “I will help you survive, but only if you pay me.” In a world of plenty, if you give someone food today, would you ask them to pay you back in even greater quantity tomorrow? It would be illogical and unnecessary in a world where survival, not to mention abundance, were not linked to labor, scarcity, and anxiety. Thus interest not only creates a mentality of scarcity, it also naturally arises from a mentality of scarcity.
The mentality of scarcity, which impels us to keep and hoard, is contrary to the mentality of the gift, which relaxes the boundaries of self and ties communities together. “[Modern man] lives in the spirit of usury, which is the spirit of boundaries and divisions.” A cardinal feature of an authentic gift is that we give it unconditionally. We may expect to be gifted in return, whether by the recipient or another member of the community, but we do not impose conditions on a true gift, or it is not really a gift. Clearly, lending money at interest is utterly contrary to the spirit of the gift.
Lewis Hyde identifies another universal characteristic of a gift, which is that it naturally increases as it circulates within a community, and that this increase must not be kept for oneself, but allowed to circulate with the gift. Interest amounts to keeping the increase on the gift for oneself, thereby withholding it from circulation in the community, weakening community for the benefit of the individual. It is no accident that many societies prohibited usury among themselves but allowed it in transactions with outsiders, who could not be trusted to recirculate a true gift back into the community. Hence the prohibition in Deuteronomy 23:20: “Unto a stranger you may lend upon usury, but unto thy brother thou shalt not lend upon usury.”
The ramifications of this injunction when combined with Jesus’ teaching that all men are brothers are obvious: interest is forbidden entirely. This was the position of the Catholic Church throughout the Middle Ages, and is still the rule in Islam today. However, starting with the merger of Church and state and accelerating with the rise of mercantilism in the late Middle Ages, pressure mounted to resolve the fundamental tension between Christian teaching and the requirements of commerce. The solution provided by Martin Luther and John Calvin was to separate moral and civil law, maintaining that the ways of Christ are not the ways of the world. Thus spirit became further separated from matter, and religion retreated another step toward worldly irrelevancy.
Interest also violates yet a third feature of gift networks, that the gift flows toward he who needs it most. Hyde explains,
The gift moves toward the empty place. As it turns in its circle it turns toward him who has been empty-handed the longest, and if someone appears elsewhere whose need is greater it leaves its old channel and moves toward him. Our generosity may leave us empty, but our emptiness then pulls gently at the whole until the thing in motion returns to replenish us. Social nature abhors a vacuum.
Interest, on the other hand, directs the flow away from the one with the greatest need, and toward the one with the greatest wealth already.
The imperative of perpetual growth implicit in interest is what drives the relentless conversion of life, world, and spirit into money. And yet because money is identified with Benthamite “utility”—that is, the good—this entire process is considered rational in traditional (neoclassical) economic theory. Quite simply, whenever anything is monetized, the world’s “goodness” level rises. Accordingly, such things as toxic waste, cancer, divorce, weaponry, and so forth count as “goods and services” and contribute to GDP, which is conventionally accepted as a measure of a nation’s well-being. The same assumption appears in the euphemism “goods” to describe the products of industry. The very definition of a “good” is anything exchanged for money.
In terms of conventional economics, it may actually be in an individual’s rational self-interest to engage in activities that render the earth uninhabitable. This is potentially true even on the collective level: given the exponential nature of future cash flow discounting, it may be more in our “rational self-interest” to liquidate all natural capital right now—cash in the earth—than to preserve it for future generations. After all, the net present value of an eternal annual cash flow of one trillion dollars is only some twenty trillion dollars (at a 5% discount rate). Economically speaking, it would be more rational to destroy the planet in ten years while generating income of $100 trillion, than to settle for a sustainable level of $3 trillion a year.
If this seems like an outlandish fantasy, consider that it is exactly what we are doing today! According to the parameters we have established, we are making the insane but rational choice to incinerate our natural, social, cultural, and spiritual capital for financial profit. Amazingly, this end was foreseen thousands of years ago by the originator of the story of King Midas, whose touch turned everything to gold. Delighted at first with his gift, soon he had turned all his food, flowers, even his loved ones into cold, hard metal. Just like King Midas, we too are converting natural beauty, human relationships, and the basis of our very survival into money. Yet despite this ancient warning, we continue to behave as if we could eat our money: William Greider tells of an East Asian minister who said his country’s forests would be more valuable clearcut and the money put in the bank to earn interest. Apparently, the effects of destroying the planet are of little concern to economists. William Nordhaus of Yale proclaims, “Agriculture, the part of the economy that is sensitive to climate change, accounts for just three percent of national output. That means there is no way to get a very large effect on the US economy.” Oxford economist Wilfred Beckerman echoes him: “Even if net output of agriculture fell by 50 percent by the end of the next century, this is only a 1.5 per cent cut in GNP.”
Must we, like King Midas, find ourselves marooned in a cold, comfortless, ugly, inhospitable world before we realize we cannot eat our money?
Because it builds exponentially, interest feeds a linearity that puts humankind outside of nature, which is bound by cycles. Subtly but inexorably, it drives the assumption that human beings exist apart from natural law. As well, interest drives a relentless anxiety by demanding always more, more, more, propelling the endless conversion of all wealth into financial capital. Part of this anxiety is encoded in the very word, “interest”, which implies that self-interest too is bound up in ever-lasting increase.
Interest is a necessary counterpart to the mentality of externalization. Like interest, externalization involves a denial of nature’s cyclicity by treating it as an infinite reservoir of resources and an infinite dumping ground for waste. Interest is also akin to fire, the foundation of modern technology. To keep it going requires the addition of ever more fuel, until the whole world is consumed, leaving but a pile of dollars or ash.
Money is a most peculiar kind of property, for unlike physical inventories of goods, “rust doth not corrode nor moths corrupt” it. Cash does not depreciate in value; on the contrary, in its modern, abstracted form of bits in a bank’s computer, it grows in value as it earns interest. Thus it appears to violate a fundamental natural law: impermanence. Money does not require maintenance like a plot of farmland to maintain its productivity. It does not require constant rotation of stock like a store of grain to keep it fresh. No accident, then, was money’s early and enduring association with gold, the metal most famously impervious to oxidation. Money perpetuates the fundamental illusion of independence from nature; financial wealth endures without constant interaction with the environment. Other forms of wealth are bothersome, because they require a continuing relationship with other people and the environment. But not money, which is now wholly abstract from physical commodities and thus abstract as well from natural laws of decay and change. Money as we know it is thus an integral component of the discrete and separate self.
It is a curious fact that most people are extremely unwilling to share their money. Even among relatives, sharing money is bound by strong taboos: I know countless poor families whose brothers, cousins, or uncles’ families are very wealthy. And how many friendships have disintegrated, how many family members have shunned each other for years, over issues of money? Money, it seems, is inextricably wrapped up in the very essence of selfishness—a clue to its deep association with self. Hence the intense sense of violation we feel upon getting “ripped off” (as if a part of our bodies were being removed) when from another perspective all that has happened is pieces of paper changing hands or bits turning on and off in a bank computer.
We do not usually share our money because we see it almost as part of our selves and the foundation of our biological security. Money is self. Meanwhile, conditioned by science and the origins of separation underlying it, we see other people as essentially just that, “other”. Mixing these two realms invites confusion and conflict. The problem is, the more of life we convert to money, the more territory falls into one of these dichotomous realms, mine or yours, and the less common ground there is to share life and develop unguarded relationships. The conversion of life to money reduces everything to an economic transaction, leaving us the loneliest people ever to inhabit the planet. The propertization of the whole world means that everything is either mine, or someone else’s. No longer is anything in common.
The violation we feel at being ripped off is much akin to the violation an indigenous hunter-gatherer must feel at witnessing the destruction of nature. When “I” is defined not as a discrete individual but through a web of relationships with people, earth, animals, and plants, then any harm to them violates ourselves as well. Even we moderns sometimes feel an echo of this violation when we see the bulldozers knocking down the trees to build a new shopping center. That is because our separation from the trees is illusory. The buried connectedness can be resisted through ideology, narcotized through distractions, or intimidated through the invocation of survival anxiety, but it can never die because it is germane to who we really are. The love of life that Edwin Wilson has named biophilia, and our natural empathy toward other human beings, is ultimately irrepressible because we are life and life is us.
The regime of separation has deadened us to the self-violation inherent in the despoliation of the planet and the degradation of its inhabitants. In an attempt to compensate for our lost sense of beingness, we transfer it to possessions and particularly to money, setting the stage for disaster. How? Because money (bearing interest) is an outright lie, encoding a false promise of imperishability and eternal growth. Identified with self, money and its associated “assets” suggest that if we stay in control of it, the self might be maintained forever, impervious to the rest of the cycle that follows growth: decay, death, and rebirth.
Obviously, there is a problem when something that does not decay but only grows, forever, exponentially, is linked to commodities which do not share this property. The only possible result is that these other commodities—the social, cultural, natural, and spiritual capital of this chapter—will eventually be exhausted in the frenetic, hopeless attempt to redeem the ultimately fraudulent promise inherent in money with interest.
The (interrelated) characteristics of scarcity and interest are not accidental features of our system that, if only someone had made a wiser choice, could be different. They are implicit in our Newtonian-Cartesian cosmology in which, by definition, more for me is less for you. As this cosmology rapidly becomes obsolete, hope is emerging for a transition to a new money system embodying a very different conception of self and world. Without such a transition, there is little hope that the current conversion of social, cultural, natural, and spiritual capital into money will ever abate.
 See Schenk, Robert. “From Commodity to Bank-debt Money” http://ingrimayne.saintjoe.edu/econ/Banking/Commodity.html, for a basic yet thorough description of the process by which money is created.
 Lietaer, p. ***
 Lietaer, p. ***
 Hyde, p. 139
 Hyde, p. 23
 The reason that an infinite amount of money can have a finite “net present value” is that it comprises a converging series.
 These quotes are taken from Adbusters Magazine, “Let us Eat Cake”, Issue #55, September/October 2004.