Sign of times

UPDATE 21/12/2008: The Estonian language version of this article just got published in Postimees.

Business papers and magazines, such as FT, Economist and WSJ have long published book columns and whole sections dedicated to culture in general. So it surely must be a sign of times that London Review of Books published a 3-page article on hedge funds – this is in addition to a long article on sub-prime crisis a few issues back, which, by the way, got translated by Märt Väljataga and published in Estonian cultural monthly Vikerkaar in November. I think that just a year or two ago it would have been fair to say that most readers of either LRB or Vikerkaar couldn’t have cared less about credit default swaps or consensus trades.

debtOn a related note – Margaret Atwood (so far mostly known as a novelist and poet) recently published a book titled Payback: Debt and the Shadow Side of the Wealth which is pretty much a transcript of her CBC Massey Lectures of 2008. In those she deals with a concept of debt in the broadest sense- what does it mean to be in debt to someone, how does it come to pass and what does it entail. I do have the book but so far I’ve only managed to read the introduction and about a half of the first chapter. However, by now I must have read at least ten different reviews of Payback – try googling “atwood payback” and you see for yourself that the thing is all over the place. It has been reviewed by Economist and Bookforum, and everyone inbetween. Although it is probably safe to assume that a new book by Atwood would have gotten attention no matter what, her timing could have hardly been better. Of course, there was no way for her to know what will happen in 2008 (or, at the very least that it will happen in 2008) when she sat down to write the lectures a few years ago. However, in retrospect it is very clear and obvious that debt has completely permeated the modern society to the extent that we don’t even notice it until the moment the supply suddenly ends.

In that regard it is interesting to notice the resurgence of the ethic debate on lending – apparently this is one of the major points of Atwood’s book as well. I did a short interview about a year ago for the morning program of the Estonian Television where I was asked to briefly talk about Islamic finance. Namely, Qur’an explicitly prohibits charging the interest, which to most Westerners (at least to those who have any training or interest in economics) seems rather odd, as it is effectively imposing what they see as a religious ethical constraint on an underlying financial reality (that being a time value of money). However, Europe has its own very difficult history with interest and lending. The original Latin word for interest was usura, which initially stood for a fee charged both for changing and using the money. In medieval Europe this was a very serious sin – so serious that in Dante’s Commedia usurers are placed in the inner ring of the hell’s seventh circle, together with only blasphemers and sodomites. The medieval Christian theology had two main arguments against charging the usura: (1) interest was seen as a fee that was taken for time, which however did not belong to a man rather than the God, and (2) St. Thomas Aquinas argued that taking interest was “double charging”, like selling a bottle of wine and then asking money for drinking it. This is actually quite a natural line of thought as long as one treats money simply as a measure of value and having no value of itself. It was this change of thinking – that money could be seen as a commodity like any other – that made possible the finance and economy as we know it today. However, this shift of perception in turn only became possible due to major changes in medieval culture and ethics that a famous historian Jacques le Goff has described in his fascinating book Your Money or Your Life: Economy and Religion in the Middle Ages. Already by 18th century usury was seen as a vice rather than sin, so that Jeremy Bentham was able to publish his Defense of Usury which a few centuries ago would have been as shocking as advocating the benefits of rape. And when Ezra Pound took a stand against interest his Cantos in early 20th century it was not on grounds of any perceived moral injustice rather than because business investments were in his view taking away the money that had traditionally been used for artistic patronage.

By early 21st century the morals of charging interest seems to be striking back. Of course, the ethical dimension has never really disappeared – if anything, it had only became latent. There are usury laws in the United States, stating upper limits on interest rates that can legally be charged. And even where loan-sharking has been legally tolerated, it has carried a social stigma akin to prostitution and gambling. However, now there seems to be something more than that. There are fierce public debates about morality of SMS-loans in several European countries, debates that seem to be spilling over also to high-cost consumer loans and credit cards. Quite regardless of even whether the interest is high or not, there’s a growing concern about immorality of lending money at any cost to a person who is likely unable to pay it back – which was the root of the US sub-prime crisis. I think it would be a mistake to dismiss those discussions, articles in literary magazines and newspapers, and books like Atwood’s Payback as something that is, at best, happening at the margins of global finance and having no real impact on how the markets work. As le Goff has argued, it was the emergence of the concept of purgatory that made it possible to pursue a career in finance in medieval Europe without becoming an outcast and forfeiting one’s hope for eternal life – something that initially appears to have nothing at all to do with money or banking. So it may well be that the foundations of the economic world order for the next few centuries are being debated right now without most of us even noticing.

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