‘Hell is where I am.’ This is the demon Mephistopheles’ answer when he appears suddenly before Doctor Faustus, the protagonist of Christopher Marlowe’s famed play, and Faustus asks if he has been suddenly transported to hell. ‘Wherever I go, I’m still in it,’ Mephistopheles explains.
I know that you haven’t yet read this dark tale of how Faustus sold his soul to Mephistopheles. The reason I have not introduced you to it before is not because of its macabre and disturbing narrative. After all, the fairy tales of the Brothers Grimm, which you have read, are much worse when it comes to gore and unpleasantness. No, the reason is that it is all about a concept that is truly inappropriate for children: debt.
Here’s what happens in Marlowe’s tale: Mephistopheles approaches Doctor Faustus with a tempting proposal. He’ll offer him twenty-four years of absolute power and limitless pleasure on the condition that Faustus promises to surrender his soul to him afterwards. Faustus thinks about it and decides that twenty-four years of omnipotence and bliss are enough, and that Mephistopheles can do as he pleases with his soul when the time is up. So he agrees. Mephistopheles smiles and asks him to sign a contract, which Faustus signs not in ink but in his own blood.
People have always created debts. When one neighbour helps another out in a moment of need, the latter expresses his thanks, saying, ‘I owe you one.’ Without having to sign a contract, both of them recognize that in due course the good deed will be reciprocated, settling their moral debt. But this kind of solidarity is different from debt as we understand it today in two ways: first, because of the contract, and second, because of something called interest.
A contract turns an informal agreement such as ‘Lend me a hand today, and I’ll lend you a hand tomorrow’ into a legal obligation with specific terms that take the form of exchange values, often but not always expressed in money. Within that contract, known as a loan agreement, it is most often the case that whoever receives the loan (the debtor) will eventually pay the person giving the loan (the creditor) something extra in addition to repayment of the loan itself, usually more money. This particular form of profit derived from the giving of loans is called interest. So, here is the difference: in the context of solidarity, the incentive to help someone is the experiential value that you receive from doing the right thing, the warm inner glow you feel when you offer to help, just like when you helped Captain Kostas with his stuck anchor. But in the case of a loan agreement, of a legal contract, your incentive is to earn some surplus exchange value in return: to profit from the payment of interest.
In Doctor Faustus’ case, Mephistopheles was not interested in solidaristic exchanges. Sick and tired of dragging people who deserved damnation to hell against their will, the demon wanted to snare a far greater prize: a good person who freely chooses their eternal torment. He does so by indebting the good doctor in a free and fair agreement. As the clock marches second by second to midnight at the end of Faustus’ twenty-four years of bliss, the doctor naturally sinks deeper and deeper into despair and regret at the contract he had signed, realizing the terrible ‘interest’ he must pay.
The story of Faustus and his debt to Mephistopheles is important because it reflected people’s worries at a time when their societies were transforming from societies with markets into market societies. It is no coincidence that Marlowe wrote his play in the sixteenth century, back when exchange values first began, little by little, to prevail over experiential values. In a story that illustrates the relationship between free choice, a binding contract, debt and interest, the play reflects beautifully the emergence of the profit motive in early modern Europe and the anxiety it caused.
That’s why I’m telling you that the story of Faustus and Mephistopheles is no fairy tale; it marks a painful moment in human history, the moment when debt and profit partnered up.
Let’s see how this happened.
In the age of feudalism the production of a surplus – which, as we saw in Chapter 1, is a prerequisite for the existence of an economy of any sort – went specifically as follows:
PRODUCTION → DISTRIBUTION → DEBT–CREDIT
To explain: first serfs worked the land and produced goods (PRODUCTION). Then the feudal lord sent his sheriff to extract his share, forcibly, if necessary (DISTRIBUTION). Finally, after he’d enjoyed what he’d taken, the lord sold any goods that were left over for money, which allowed him to buy things, pay for services and issue loans (DEBT–CREDIT). But as soon as land and labour were commodified, the Great Reversal occurred: instead of the distribution of surplus coming after production, distribution began before production had even started. How was this possible?
Recall that in England the serfs had been kicked off the land and replaced by sheep. Former serfs then rented land from landowners and supervised the production of wool and crops that could be sold for profit, so that they could pay rent to the landowner and wages to the few labourers they hired. In other words, those former serfs organized the production process like small-scale entrepreneurs, renting plots from landowners and hiring the manual labour of other landless serfs.
But to set this process in motion, these new small-scale entrepreneurs needed some money to begin with – to pay wages, get seeds and of course pay their rent to the lord – before they had produced any goods. As the former peasant turned entrepreneur never had enough money to pay for all this before his wool crop was sold, he had to borrow. Who lent him the money? Very often it was the lord himself, or local loan sharks, who then charged him interest. At any rate, debt came first.
And since the amount of money paid to waged workers as wages, the amount of rent paid to the lord, the sums to be paid for raw materials and tools were all determined and agreed even before production had begun, the distribution of the entrepreneur’s future revenues was largely decided in advance of their existence – in fact, the only person who did not know how much he would end up with, after everyone else got paid, was the entrepreneur himself. In brief, distribution now preceded production.
This is how the Great Reversal took place, turning debt into the primary factor and the essential lubricant of the production process. This is also how profit became an end in itself – for without it the new entrepreneurial class could not survive. Think about it. If the price of wool suddenly plummeted or some natural disaster reduced output, they would not only starve but end up with unpayable debts. As the expiry of their loan agreement approached, they would sink deeper and deeper into despair. Unable to repay the loans and interest they owed, they would end up slaves to their debt obligations. Just like Doctor Faustus!
In the feudal system, as we have seen, serfs produced without supervision, simply keeping whatever remained after the landowner took his share. Wages had not been invented, profit-seeking was not a matter of survival, and debt was not a substantial issue for the majority. Consequently, wealth simply accumulated in landowners’ grand houses and castles. Those in power amassed further wealth not through investment, commerce and profits but by looting other feudal lords or peoples, by conceiving plots that would bring them closer to the king’s inner circle, by fighting foreign wars and so on. This was how they secured the power and glory they dreamed of. Profit didn’t even exist as a concept in their minds.
However, with the arrival of business enterprises intent on making profits, a new source of wealth was created. Imagine water flowing from a tap into your bathtub. This is the money coming in to your business. Now imagine the bath plug has not been put in properly. The water flowing out is what you are spending to keep the business going. As long as the volume of water from the tap is greater than the volume of water draining out the plughole, the level of water in the tub will rise. The greater this difference between the water flowing in and the water flowing out, the greater the profit; the higher the water level rises in the tub, the more wealth is accumulated.
In the feudal system the dominant position of the aristocratic class was assured by their political, military, legal and customary advantages. Rarely was there any incentive to improve their technologies so as to increase productivity and increase the rate of wealth accumulation. In contrast, nothing and no one could or wanted to guarantee the emergent entrepreneurs their survival. Indeed, the prevailing political, legal and customary system was geared against them. This is why the only way they could ensure their survival was to profit. And because, unlike an aristocrat, anyone could become an entrepreneur – assuming they were willing and able to take on the necessary debt – every entrepreneur was immediately set against every other in a mortal competition for resources, clients and survival.
Whoever could sell at the lowest price would attract the most clients. Whoever paid their hired workers the least would stand to gain the most. And whoever could increase the productivity of their labour fastest would win both races at the same time. New technology could confer competitive advantage, and entrepreneurs had every incentive to take it up. This is more or less how inventions like James Watt’s steam engine, which transformed workshops into factories, first came to be used.
Of course, the technology came at a price. To buy it, very often more money had to be borrowed. With additional debt came greater potential for profit but also a faster route to ruin should things go wrong. As the entrepreneurs’ debts, profits and angst grew and grew, the competition between them became fiercer and fiercer. They had to pay their workers as little as possible, lest they end up bankrupt. Incredible new wealth thus grew side by side with burgeoning debt and deepening poverty. While the rich got richer, the bankrupt were ushered into the hell of the workhouse, and masses of workers faced ever harsher working conditions.
Do you see now how debt, not coal, was the real fuel that powered the engine of the Industrial Revolution, generating mountains of wealth for a few and unspeakable misery for the rest? In market societies all wealth is nourished by debt and all of the unimaginable riches created over the past three centuries ultimately owe their existence to debt.
Debt, as Doctor Faustus shows us, is to market societies what hell is to Christianity: unpleasant yet indispensable.
Returning to Faustus, you should know that the version of the story which most people read these days – and the one most performed in theatres – isn’t Marlowe’s play The Tragical History of Doctor Faustus but Faust, a much later version written by the German poet Goethe. While Marlowe wrote his play at the very end of the sixteenth century, Goethe wrote Faust at the dawn of the nineteenth. The basic difference in the two versions of the story is fascinating – at least from the perspective of the economy.
One difference is that in Marlowe’s version Doctor Faustus conjures up Mephistopheles because he feels unconvinced by God and the scriptures. His is a religious, a philosophical rebellion. In contrast, Goethe’s Faust is motivated by something baser: a crass desire for personal power for its own sake. The second and more important difference concerns the ending. In Marlowe’s version, as I told you, once his twenty-four years are up, Doctor Faustus begs, cries and pleads to be released from his contract with Mephistopheles, but to no avail. At the stroke of midnight repulsive apparitions appear, who amid thunder and lightning carry him off to hell. Goethe, on the other hand, spares Faust this fate.
Instead of sending his hero to hell, Goethe allows him to achieve redemption through good deeds and wholesome intentions. Realizing his mistake before his time is up, Faust performs acts of public service and so, when Mephistopheles arrives to claim his interest, God’s angels intervene. Singing, ‘He who strives on and lives to strive / Can earn redemption still,’ they take Faust to heaven instead.
Allow me to suggest one explanation of these differences. Do you know what today’s money brokers – financiers and bankers and the like – call the repayment of a debt, including interest? They call it redemption as well. Is this a coincidence? Not in the slightest. The question of debt has been a religious one for a long time. Perhaps you’ve heard that Islam prohibits the collection of interest to this day, at least formally. Exactly the same held true for Christianity when Marlowe was penning his play. Like some Muslims today, Christians back then considered collecting interest on debt a sin, which they called usury. This is why the audience watching Marlowe’s play, convinced that redemptions of interest-bearing loans were sinful, absolutely demanded that Doctor Faustus be punished, since he hadn’t hesitated to offer Mephistopheles the ultimate form of interest: the surrendering of his soul. But by the time Goethe was writing, things had changed.
And they had changed because, as we have seen, the transition from societies with markets to market societies that had taken place between Marlowe’s era and Goethe’s relied largely on debt and interest. The Industrial Revolution would simply not have happened without the suspension of the dogmatic rejection, and legal prohibition, of charging interest on debt. The stigma attached to the charging of interest was simply incompatible with the commodification of land and labour and with the Great Reversal. It had to be overturned – and so it was.
The Protestants, who broke away from the Catholic Church in the sixteenth century, played a crucial role in this reversal. Protestantism emerged in opposition to the Pope and the cardinals’ monopoly of God. Protestants insisted that anyone could speak personally with the divinity, unmediated by an authoritarian, stifling Church. Suddenly, the person, the individual who is the director of his own affairs, became the pillar of that reformed Church. And who was the ideal example of this newly empowered, autonomous person? In an era when exchange value and the profit motive were triumphing, Protestantism’s iconic hero was none other than the merchant, the entrepreneur. Unsurprisingly, the new Protestant ethic embraced interest-bearing loans and profiteering as part of God’s plan.
The fact that Protestants and Catholics engaged in over a hundred years of war demonstrates what a violent societal shift this was. Thus, by the time Goethe’s audiences were being edified by performances of his Faust, Europeans were far more forgiving to the indebted, as long as they paid up the original sum plus the interest due.
In a sense, Goethe’s story of Faust was the inverse of Charles Dickens’s story of Ebenezer Scrooge in A Christmas Carol. In Dickens’s famous morality tale the penny-pinching Scrooge accumulates and saves wealth for his entire life, collecting mountains of interest but spending only the bare minimum. At the end of the story, when the Ghost of Christmas Yet to Come shows him his own death, how no one mourns for him and how a poor couple indebted to him rejoice at his demise, he sees the light, opens his coffers and begins to spend, spend, spend, enjoying his life for the first time by spreading happiness to everyone around him. If you think about it, Faust does the exact opposite. Rather than accumulating interest and rejecting the pleasures of life, he enjoys life to its full for twenty-four years, agreeing to pay a sizeable amount of interest in return.
Which of the two, Scrooge or Faust, do you think was more in step with the needs of the new market society that had come about by the time Goethe was writing? Faust, of course. Why? Because if we were all Scrooges – misers who saved all our wealth without borrowing or spending – then the economy of market societies would come to a complete standstill.
It is to this phenomenon that we shall now turn.