http://viking.som.yale.edu/will/finciv/chapter1.htm#babylon The Idea of Interest What gave the ancient Sumerians the idea of charging each other interest? Linguistic evidence provides a clue. In the Sumerian language, the word for interest, mash, was also the term for calves. In ancient Greek, the word for interest, tokos, also refers to the offspring of cattle. The latin term pecus, or flock, is the root of our word "pecuniary." The Egyptian word for interest, like the Sumerian word, is ms, and means "to give birth." All of these terms point 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. If cattle were the standard currency, then loans in all comparable commodities would be expected to "give birth" as well. The idea of interest seems to be a natural one for a pastoral society, but not so for other types of economies. Ancient Sumerian society, in particular, the people of Uruk, "the city of sheepfolds," appears to have been the perfect setting for the evolution of the practice of lending money at interest. It was a pastoral society in which wealth, as measured by livestock, "begot" wealth. It had a system for recording contractual obligations, and a numerical system that could specify particular quantities of goods. It had a concept of the present versus the future. Indeed sometime during the Sumerian period, the Mesopotamian calendar was developed, and this allowed a mathematical link between lunar months and solar years. Perhaps an even more fundamental tool was the Mesopotamian ability to symbolize goods and quantities. The Uruk accounting system made it easy for the Sumerians to imagine owning and exchanging quantities of goods. Even the act of wrapping the tokens up in a clay envelop implied ownership of them. Perhaps finance began in the ancient Near East because, for the first time it was possible to symbolically represent units of wealth. Borrowing in Babylon By the reign of the famous Babylonian king Hammurabi, about 1792-1750 B.C., an extraordinary literature had developed from the early utilitarian cuneiform script. Cuneiform texts record creation myths, poetry and even dramatic performances. Despite the versatility of cuneiform writing, however, the bulk of the half-million surviving documents from the ancient Near East continued to be economic texts. Ancient Akkadian, the language of the semitic peoples who succeeded the Sumerians around 2,500 B.C. and who adopted the cuneiform script as their own, is by far the largest of all the dead languages, in terms of surviving documents, as well as vocabulary. The ongoing Akkadian dictionary project at the University of Chicago is long past 20 volumes at last count! Unless you are an economist, however, most of these texts are of little interest. Writing in the ancient Near East was not only a by-product of economics and finance, but for most of its early history, remained closely associated with them. Nine out of ten tablets are accounting records. Of these, a considerable number are mortgages, land deeds, loan contracts, promissory notes and partnership agreements. In the centuries following the Uruk period, mathematical and astronomical knowledge advanced dramatically. The well-educated Babylonian of the third millennium B.C. learned enough geometry to calculate the area within a triangle, enough astronomy to calculate the wandering of the planets through the ecliptic, enough algebra to solve a problem of how much grain to use to sow his fields, and enough about logarithms to be able to calculate compound interest!
Debt is Good -- But For Whom? Second Millennium Ur may have been an early hothouse of capitalistic enterprize, but what of the borrowers mired in debt? The government may actually have preferred them this way. A study by the economist M. Darling of the rural economy of the Punjab in modern times suggests a disturbing thing about human nature -- people work harder and produce more when they are in debt. Darling found that crop yields for farmers in debt typically exceeded yields from unencumbered farmers. Farmers in the Punjab may have faced foreclosure, but for the ancient inhabitant of Ur, the motivation was even greater. Debtors were often forced to sell themselves into slavery. It is difficult to escape the conclusion that, while the first loan contracts and the legal system that enforced them may have been good for the Mesopotamian economy, they made life miserable for the working man and woman. If lending began, as historian Paul Millet believes, as a process of neighborly reciprocity in rural societies, then it evolved into something quite different. In Babylonian times, short-term debt was a tool used to extract taxes from the population, and to increase the productivity of temple lands. It is almost as though the government had found a way to extract the residual "goodwill" from the economy, by allowing individuals to shift financial obligations into the future. Lending in ancient Ur was mostly for emergency purposes -- where the government created the emergency! The other side of the coin is that certain entrepreneurs such as Dumuzi-gamil achieved economic upward mobility through borrowing. Thus, while the system was harsh on the populace, it encouraged creative and productive enterprise. For those with the imagination to exploit it, the financial system of Ur offered limitless possibilities.