The true master
A parable about paper, interest and the four things of nature, about the right measure. With an honest test: what is right about the parable’s critique of interest, what is not, what is disputed and what dark history it has.
To close the section on philosophy, a parable, retold here in prose, and after it a test of the kind every teaching on this website deserves.
The parable
An old master invites his four best journeymen to dinner. Each plate holds one of the four things of nature, and each is wrapped in a sheet of paper that hides silver, gold and gemstones. If the journeymen want to taste everything they must trade, but nobody likes to trade something large for something small.
So the master makes a proposal: the journeymen may keep the treasures. He wants only the paper. From now on they are to trade with this paper, and for lending it he takes just a few per cent. Their property serves as security. The journeymen feast and trade, pay their percentages and are surprised in the end to find their pockets empty when it is time to repay.
One of them sees the flaw: when his pockets fill, someone else’s empty. There is no more paper than the master has handed out. So they cannot all pay back the interest. Something is always missing. In the end their property falls to the one who lent the paper.
The master replies only: whoever does not know the measure will be followed by strife. Everything had been there from the start. The journeymen had merely been blinded by greed, for the whole treasure had been carried by a simple sheet of paper.
An old question
The parable stands in a long tradition. Aristotle called money a measure that makes different things comparable: shoes and houses have nothing in common, but both have a price. Interest, by contrast, he held to be the most unnatural kind of gain, because money arises from money instead of from work or exchange. The Bible forbade the Israelites to take interest from one another, the medieval Church forbade it to Christians, and Islam forbids it to this day. The question whether money may multiply without anything real coming into being is thus old and serious (see Measure, number and weight).
What is wrong with the calculation
But the parable contains a calculation, and calculations can be tested. It runs: if there is only as much money as was lent, then not everyone can also pay the interest, and exactly the interest is always missing.
That sounds compelling but overlooks something simple. The master does not receive the interest in order to bury it. He buys bread from the journeymen, has them build him a house and pays for their work. So the interest flows back to the journeymen, and with it they can pay the next instalment. The same sheet of paper can change hands many times in the course of a year and make many payments. The parable confuses the stock of money, how much there is, with its flow, how often it circulates.
The cycle the parable overlooks. What the journeymen pay the master in interest he spends again on their work and their goods, and with it they pay the next instalment. Money is missing only if the master holds it back.
The thesis that “exactly the interest is always missing” is therefore regarded by economists as refuted in this simple form. In today’s monetary system too, in which banks create most money through loans, interest does not vanish from the world. It becomes the salaries of bank employees, payouts to savers and shareholders and taxes, and from there it flows on.
Where the parable is right after all
And yet the parable hits something if one looks closely at where the flaw lies. Money is missing when the master hoards it, when he keeps the interest instead of spending it again. Then the journeymen really do run out of paper, and their property falls to him. So it is not interest as such that is the poison but the lack of measure: accumulation without return. This is the same insight as in Paracelsus, that the dose alone makes the poison (see Paracelsus).
Still disputed among economists is a further question: whether a monetary system with interest forces the economy into constant growth. The Swiss economist Hans Christoph Binswanger argued so in his book The Growth Spiral, most experts see it differently. And as early as 1916 Silvio Gesell proposed a “free money” that loses value over time so that no one hoards it. The Austrian town of Wörgl tried out such a depreciating currency in 1932 and 1933 until the national bank demanded that it stop and the Administrative Court ended the experiment in September 1933. These questions can be seriously argued about.
A warning from history
Whoever deals with the critique of interest should also know its dark side. In 1919 Gottfried Feder published his Manifesto for breaking the bondage of interest, and “breaking the bondage of interest” became a point in the NSDAP party programme in 1920. Interest was made into an enemy image and identified with Judaism, in the distinction between “creative” and “grasping” capital. The parable itself contains nothing of this. But the pattern is alive to this day in many conspiracy narratives: something hard to see through, like the monetary system, is traced back to a group of secret string-pullers. Whoever knows this reads even harmless critiques of interest with more alert eyes (see Rhetoric).
The lesson
What remains is the core of the parable, and it is good. Real things, the four elements, have a measure. The paper that merely wraps them is a tool of exchange and worth nothing in itself if it does not circulate. It becomes dangerous when one mistakes the tool for the treasure and accumulates more than one needs. The master says it himself: whoever does not know the measure will be followed by strife.
And the test shows something more. Even a teaching with a good core can contain a wrong calculation. One need not reject it for that, but one should separate the calculation from the wisdom (see Chance and pattern).
Sources and further reading
Sources
- Holger Ullmann, tetraktys.de, since 2010
- Aristotle, Nicomachean Ethics V 5, 1133a (money as measure) and Politics I 10 (interest)
- Exodus 22:25 and Deuteronomy 23:19 to 20 (the prohibition of interest)
- Silvio Gesell, Die natürliche Wirtschaftsordnung durch Freiland und Freigeld (The natural economic order), Les Hauts-Geneveys 1916
- Gottfried Feder, Das Manifest zur Brechung der Zinsknechtschaft des Geldes (Manifesto for breaking the bondage of interest), Munich 1919
- Programme of the NSDAP of 24 February 1920, point 11
Further reading
- Hans Christoph Binswanger, The Growth Spiral. Money, Energy, and Imagination in the Dynamics of the Market Process, Berlin 2013
- Bank of England, Money creation in the modern economy, Quarterly Bulletin 2014 Q1