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07/21/2013

Beggar Thy Neighbor


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Seven years before the assassination of Julius Caesar, an acrimonious dispute broke out between Marcus Tullius Cicero, at the time the provincial governor of Cilicia, and Marcus Junius Brutus, a young provincial Roman administrator. The elder statesman chided the younger man for using his administrative post in Cyprus to earn ill-gotten gains at the expense of the local people. Cicero received reports that Brutus had been lending money in Cyprus at four times the maximum rate stipulated by Roman law. To make matters even worse, he did it anonymously through an agent who did not mind using strong-arm tactics to collect the debts. When Cicero brought the matter to his attention, Brutus ignored him and continued to lend money. When he finally returned to Rome, he did so a wealthy man.

The problem caused Cicero to coin a name for the practice which became a cornerstone of Roman law. The story was told innumerable times over the next 1,800 years. The Roman historians dutifully recorded it, and Adam Smith alluded to it in the Wealth of Nations. According to Roman law, simple interest was permitted, but compound interest was anathema. Compounding had been used in many ancient civilizations, but the Romans eventually made it illegal. By doing so, they also established a tradition that would create much confusion in the centuries to follow. They did not make all interest illegal, only compound or “accumulating interest.”

Prohibitions against excessive interest, or more properly usury, have been found in almost all societies since antiquity. Charging interest on loans is the oldest financial practice. It has also been decried almost from the beginning as predatory, with the lender seeking to take advantage of the borrower. Whether loans were made in cash or in kind, unscrupulous lenders were said to be practicing a beggar-thy-neighbor policy by ensuring that the borrowers were disadvantaged to the point of losing their collateral, or in extreme cases even losing their freedom or families. Charging simple interest was barely condoned, but charging compound interest was unscrupulous, immoral and rapacious. It was also practiced with near impunity.

–Charles R. Geisst is Ambassador Charles A. Gargano Professor at Manhattan College and the author of 19 books. Reprinted from Beggar Thy Neighbor: A History of Usury and Debt by Charles R Geisst with permission from University of Pennsylvania Press. © 2013.

This exerpt and article is reprinted courtesy of the University of Pennsylvania Press and was originally excerpted in MOAF's Financial History magazine.


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