A Theory of Interest-Rate Power V3

5,000 Years of Exploitation from Lambs to Algorithms

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Chapter 1   The Origins of Interest: Natural Proliferation and Institutionalized Extraction

1.1   From Lambs to Silver—The Birth of the Interest Concept

Around 3000 BCE, in the Fertile Crescent of Mesopotamia, humanity’s earliest interest-bearing lending practices emerged. Vast numbers of cuneiform tablets preserved to the present day record Sumerian loan contracts. On the Entemena Cone (c. 2400 BCE), housed in the Louvre, interest-bearing loans are already mentioned. Interest-bearing lending appears to have been a uniquely Sumerian invention: no comparable evidence has been found in other contemporaneous Bronze Age civilizations.

The original concept of interest arose from an exceedingly plain observation—all things naturally reproduce. Plant a single seed; by harvest, hundreds will have grown. Lend out a ewe; when lambs are born, repay in kind. This logic receives striking confirmation from linguistics: the Sumerian word “mas” (interest = lamb), the Ancient Greek “tokos” (interest = calf), and the Latin “capital” derives from “caput” (a head of livestock).

Once silver became the medium of lending, the “natural proliferation” logic encountered a fundamental challenge—silver does not “breed.” Research by the Biblical Archaeology Society has shown that the Sumerians used sexagesimal arithmetic to calculate fractions: the standard commercial loan rate was set at 1 “shekel” per “mina” per month (i.e., 1/60). The standard rate in Ancient Greece (decimal) was 1/10 = 10%; in Rome (duodecimal), 1/12 = 8.33%. As Hudson noted, the apparent decline in interest rates from 20% to 10% to 8.33% was merely an incidental artifact of each region’s numeral system.

1.2   The Dual-Origin Debate over Interest

The traditional “naive productivity theory” (Heichelheim) holds that interest originated in productive lending. Economic historian Hudson argues, by contrast, that the typical form of interest-bearing debt was debt owed to palaces and temples—interest was a purely monetary charge, and most agricultural debts arose as arrears; agricultural interest was typically charged only after a “due date” had been missed. Ancient rulers recognized the distinction between productive and consumer lending: debt jubilees forgave only consumer debts; commercial loans were exempt from amnesty.

1.3   A Direct Response: Distinguishing the Economic Function from the Power Function of Interest

Before advancing the critical argument, it is necessary to address head-on the case for the legitimacy of interest. Mainstream economics offers at least four justifications: (1) time-preference compensation—interest compensates lenders for the “sacrifice” of deferred consumption (Böhm-Bawerk); (2) opportunity cost compensation—lenders forgo the opportunity to deploy funds in alternative investments; (3) risk pricing—interest compensates for default risk; (4) marginal productivity of capital—capital, once deployed in production, generates additional value. In scenarios of voluntary lending, these functions do indeed play a positive role—corporate financing to expand production, individual mortgages to acquire assets, startup capital for entrepreneurs. Homer and Sylla, in A History of Interest Rates, observed that cultures permitting moderate debt financing have generally been the most prosperous. The expansion of the subprime mortgage market did genuinely enable homeownership for families who might previously have been unable to obtain loans. In these contexts, interest rates more closely resemble “price signals” than “instruments of power.”

1.4   The Exploitation Spectrum: A Two-Dimensional Analytical Framework

This paper proposes a two-dimensional “exploitation spectrum” framework along two axes: (1) intensity of value extraction—ranging from total appropriation (slavery) to partial extraction (interest) to time-delimited extraction (wage labor); (2) exit costs—ranging from completely non-exitble (slavery) to difficult-to-exit (debt traps) to exitble (the right to resign from an employment contract). Within this framework, interest/usury occupies a unique position: its value extraction intensity can approach or even exceed that of wage labor (payday loans at 400% APR), while its exit costs can approach those of slavery (80% of payday loans are rolled over within 14 days).

In Volume III of Capital, Marx observed that once Roman patrician usury had utterly ruined the plebeians and smallholders, this form of exploitation reached its terminus, and a pure slave economy took its place. Article 117 of the Code of Hammurabi directly records the mechanism by which interest slides into slavery: a debtor could sell wife and children into bondage to satisfy a loan obligation, with freedom restored only after three years. An important qualification, however, is warranted: the exploitative potential of interest is structural, and its actual manifestation depends on the institutional environment—bankruptcy laws, consumer protections, interest rate caps, and other countervailing forces can substantially suppress its exploitative character.

Chapter 2   A Global Moral Consensus

2.1   The Greco-Roman Philosophical Tradition

Plato (Laws, Book V, §742) and Aristotle (Politics, Book I) held that interest violates the nature of things. Aristotle argued that “tokos ek nomismatos” (money begetting money) is the most unnatural form of wealth acquisition. Cato compared charging interest to murder. Notably, the Athenian trapezitai were already practicing risk-differentiated interest rates—12% for ordinary loans, up to 30% for maritime trade—demonstrating that even in the society with the most vehement moral condemnation, market-based interest rate practices operated beneath the surface.

2.2   The Abrahamic Traditions

Judaism (Deuteronomy 23:20–21, the “Deuteronomic double standard”), Christianity (sustained prohibitions from the Council of Nicaea in 325 CE through the Fifth Lateran Council in 1515, Aquinas’s “double charge” and “selling time” arguments), Islam (the Qur’anic prohibition of “riba” in 2:275 and 3:130; Prophetic traditions extending the curse to all participants)—the three Abrahamic faiths arrived at the same moral conclusion through different logical paths.

2.3   An In-Depth Analysis of Eastern Traditions

The Chinese tradition of interest critique warrants deeper analysis. According to Peng Xinwei’s A Monetary History of China, lending practices emerged after the appearance of private property. Han-dynasty bamboo slips from Zhangjiashan (the “Statutes of the Second Year”) stipulated that officials ranked 600 shi and above who engaged in usury were to be summarily dismissed. Wang Mang’s reform classified loans into “consumer lending” (36% annual interest) and “productive lending” (10% annual interest)—one of the world’s earliest legislative distinctions between two types of loan interest. The Song dynasty’s prohibition against “compounding interest into principal” directly targeted compound interest. The Ming dynasty’s “prohibition on illegal interest” stipulated that total interest could never exceed the principal.

The role of Buddhist monasteries in financial history deserves particular attention. From the Wei-Jin and Northern and Southern Dynasties through the Sui and Tang periods, monasteries developed “perpetual treasuries” (changsheng ku) and “inexhaustible treasuries” (wujin zang)—essentially monastic lending institutions. Although Buddhism doctrinally condemned usury, its monasteries in practice became significant lenders. This contradiction reveals the enduring tension between moral critique and financial practice.

Chapter 3   The Evolution of Interest Rate Authority: From Oracles to Algorithms

3.1   Mathematics Determines Interest Rates (c. 3000 BCE – 300 BCE)

Each civilization adopted the unit fraction of its numeral system directly—Sumerian 1/60 (20% annual rate), Greek 1/10 (10%), Roman 1/12 (8.33%). How does this demonstrate a power relationship rather than mere administrative convenience? The key lies in asking: who benefits from this “convenience”? In Sumer, the temple priests who set interest rates were simultaneously the largest lenders—pricing authority and revenue rights were concentrated in the same entity. That rates remained unchanged for 1,200 years bore no relation to borrowers’ actual repayment capacity—this stability is itself a hallmark of power.

3.2   Legally Mandated Ceilings (1750 BCE – 500 CE)

The dual character of the Code of Hammurabi: it was at once a borrower protection law and a confirmation of institutionalized extraction rights. The Justinianic tiered interest rate system in Rome (8% for bankers, 6% for ordinary citizens) marked the direct linkage of interest rate authority to hierarchical status.

3.3   Religious Prohibitions and Financial Innovation (c. 500 – 1500 CE)

The result of medieval Europe’s blanket prohibition on interest was not the elimination of interest but its transformation from “visible” to “invisible.” Church bans gave rise to a series of ingenious financial innovations. In Florence, three tiers of banks emerged: the lowest-ranking banchi a penello, essentially licensed usurers who treated each 2,000-florin city fine as a cost of doing business; the middle-tier banchi a minuto, upscale pawnbrokers; and the top-tier banchi grossi—the great banking houses of the Bardi, Peruzzi, and Medici. Medieval loan rates ran approximately 15% in stable periods, rising to 40% during wartime—but because of church bans, these rates had to be disguised as exchange-rate differentials, “gifts,” or profit-sharing arrangements.

The key innovation of the Medici Bank (founded 1397) was its corporate structure—each branch was an independent legal entity, so bad debts at one branch could not destroy the entire enterprise. The invention of the bill of exchange was the crowning achievement of medieval financial innovation: it concealed interest within exchange-rate differentials between cities, nominally framing the transaction as currency exchange rather than lending. The papacy itself was profoundly dependent on these financial services—popes denounced usury while making extensive use of credit provided by Florentine bankers. This era displays the most ironic feature of interest rate power: moral prohibitions not only failed to eliminate interest but actively spurred the creation of more complex and more opaque financial instruments—power was strengthened through concealment.

3.4   The Central Bank Era and the LIBOR Scandal (1694 to the Present)

The Bank of England was established in 1694, with the first national interest rate set at 8%. The Taylor Rule of 1992 “scientized” interest rate decisions—yet every parameter in the formula is a human choice.

Chapter 4   Core Thesis—Interest Rate Decision-Makers Are the External Manifestation of Power

4.1   Five Core Capacities of Governance—Cross-Era Triangulation

The power to price time: Ancient—Sumerian 20% interest rate unchanged for 1,200 years. Modern—the Bank of England managing the economic cycles of the Industrial Revolution. Contemporary—the Federal Reserve suppressing rates to near zero for seven years after 2008.

The power to allocate resources: Ancient—Babylonian differentiated rates directing urban-rural resource allocation. Modern—Britain’s rate reduction to 4% in 1716 stimulating economic prosperity. Contemporary—the European Central Bank’s negative rates reshaping eurozone resource allocation.

The power of life-and-death adjudication: Ancient—Article 117 of the Code of Hammurabi: a debtor could sell wife and children into slavery. Modern—the Bardi-Peruzzi bank failure triggering the Florentine Great Depression. Contemporary—approximately 7 million American families losing their homes in 2008.

The power to wage war: Ancient—palaces financing military campaigns through lending. Modern—the Bank of England raising £1.2 million in 1694 to finance war against France. Contemporary—the U.S. national debt system making sustained military expenditure possible.

The power to manufacture and harvest crises: Ancient—Roman usury destroying smallholders, whereupon the slave economy took their place. Modern—the Panic of 1907 giving rise to the Federal Reserve System. Contemporary—subprime originations rising from 1.1 million in 2003 to 1.9 million in 2005, with default rates soaring from 5.6% to 21%.

4.2   A Critique of “Independence”—With a Discussion of Countervailing Forces

A 2026 CEPR study: politicians broadly dislike high interest rates, and populist governments can extract rate concessions from “independent” central banks. A 2021 World Bank paper: central bank independence may increase inequality. EconoFact analysis: from 1933 to 2016, U.S. presidential pressure influenced Federal Reserve activities on multiple occasions.

Countervailing forces, however, are equally real. The evolution of bankruptcy law, the establishment of the Consumer Financial Protection Bureau, interest rate cap legislation, anti-predatory lending regulations—all represent institutional resistance by society against interest rate power. This paper’s argument is not that interest rate power is unchecked, but that this contest has never concluded in 5,000 years.

Chapter 5   The Modern Credit System—The Perfected Upgrade of Exploitation

5.1   Credit Scoring: Classification Situations and Moralization

Fourcade and Healy (2017, Socio-Economic Review) argue that credit scoring creates “classification situations”—scores based on individual behavior generate differentiated life chances with powerful stratifying effects. These processes tend toward a new moral economy of judgment—unequal outcomes are experienced as morally “deserved” statuses. The NYU Review of Law and Social Change has noted that low credit scores are largely traceable to structural causes, and that vast interest rate differentials facilitate the formation of a “financial underclass.”

5.2   Payday Loans: The Extreme Case of Contemporary Usury

5.3   The Triple Self-Reinforcing Loop

Loop One (Poor → Expensive → Poorer): 80% of payday loans are rolled over within 14 days; borrowers are trapped in a cycle of compounding fees.

Loop Two (Rich → Cheap → Richer): A 2025 Bankrate study quantified the precise cost of this loop: a subprime borrower with a credit score of 620 pays approximately $3,400 more per year for financial products than a prime borrower with a score of 700—a cumulative difference of approximately $17,000 over five years and more than $100,000 over thirty years. Experian’s Q4 2025 data shows that among new auto loans, “super prime” borrowers (credit scores of 781+) receive an average rate of 4.66%, while “deep subprime” borrowers (300–500) pay an average of 16.01%—a spread exceeding 11 percentage points. For the same loan, the poor may pay more than three times the interest paid by the wealthy. Urban Institute data: in 1963, the wealthiest families’ wealth was 36 times that of middle-income families; by 2022, it had grown to 71 times. As of January 2026, the combined net worth of America’s 12 wealthiest billionaires exceeded $2.7 trillion. Differentiated interest rates are one of the core mechanisms driving this persistent widening of the gap.

Loop Three (Intergenerational Transmission): A 2024 Duke University study: interest rate declines and widening educational investment gaps exhibit a “lockstep” relationship. The poor are constrained by “borrowing constraints”—rate declines do not improve their access to credit.

5.4   Islamic Finance: A “Natural Experiment”

Islamic finance is humanity’s only large-scale operational “interest-free” financial system, now exceeding $2 trillion in scale. Core substitute instruments include mudarabah (profit-sharing), musharakah (joint venture partnership), and murabaha (cost-plus-markup sale). Critics, however, note that murabaha is, in economic effect, highly similar to conventional interest. The lesson of Islamic finance is twofold: it demonstrates that an “interest-free” system is technically feasible; but it also demonstrates that power relations can persist through changes in nomenclature.

Chapter 6   The Three-Step Upgrade of Governance—From Chains to Algorithms

6.1   Structural Convergence of Interests—Not Deliberate Design

The “three-step upgrade” model should not be interpreted as the deliberate design of a conspiratorial cabal. The abolitionist movement was driven by genuine moral conviction; the spread of education was a joint product of the Enlightenment and industrialization; the expansion of the credit system followed the internal logic of financial capitalism. What this paper argues is the structural convergence of interests among the three: the emancipation of slaves created a “free labor market”; education raised the productivity of “free” labor; the credit system expanded the mode of extraction from direct wage exploitation to ubiquitous financial exploitation. Each step possesses its own independent historical logic, but their cumulative effect constitutes a system more efficient than any deliberate design could have produced.

6.2   Step One: Liberating the Body

A 2022 article in the Harvard Law Review, “Contracting for Debt,” argues that debt capitalism originated in slavery, transitioning from using enslaved Black people as both labor and collateral to placing emancipated Black Americans in debt. Under sharecropping, each plantation became “its own banking system.”

6.3   Step Two: Training the Soul—Quantitative Evidence

Foucault’s “docile bodies”: modern power does not repress the body but productively shapes it. Key evidence from Duke University (2024): over a period of 40–50 years of declining interest rates, the educational investment gap between rich and poor steadily widened—wealthy families, perceiving higher returns on “human capital” investment, increased educational spending. The poor were constrained by “borrowing constraints”—rate declines did not improve their access to credit.

The causal chain linking education to interest rate inequality is now empirically supported. An empirical study of 142 employees found a significant positive correlation between educational attainment and FICO credit scores (regression coefficient B = 17.84, p < .01), meaning that each increment in educational level raises the FICO score by an average of approximately 18 points. It should be noted that the FICO scoring formula does not itself use educational attainment as a direct input variable—the association is indirect: educational attainment affects income level, income level affects repayment capacity, repayment history builds credit history, credit history determines credit score, and credit score determines interest rate. The complete intergenerational transmission chain is: educational attainment → income → repayment capacity → credit score → interest rate → disposable income → next generation’s capacity for educational investment. This indirect but robust transmission chain makes the education system, in practice, the “upstream sorting mechanism” for the credit-interest rate stratification system.

6.4   Step Three: Encoding Difference

Fourcade and Healy (2013): “In the neoliberal era, classification systems no longer merely reflect existing class positions; they actively create new class positions.” Credit scoring transforms economic inequality into moral evaluation—high scorers are “responsible”; low scorers are “unreliable.” Inequality thereby acquires moral legitimacy.

6.5   DeFi: A Possible Step Four?

In DeFi protocols (e.g., Maker/DAI), interest rate setting still relies on “governance voting”—voters have shifted from central bank officials to token holders, but token distribution is highly concentrated among “whales.” A 2024 governance proposal contained 10 interest rate modifications and “consumed substantial resources, resembling the Federal Reserve’s approach to interest rate management.” Even when technically “decentralized,” the authority to determine interest rates still gravitates toward the most capital-rich participants.

Chapter 7   Conclusions and Reflections

7.1   Core Findings

(1) The economic function of interest rates is real, but the authority to set them is political. This paper maintains this core distinction throughout—interest rates are not purely “power code” but dual carriers of both economic and power signals. Under conditions of voluntary lending, robust market competition, and comprehensive consumer protections, interest rates can function as efficient price signals; but under conditions of information asymmetry, borrower coercion, and absent institutional protections, interest rates become instruments of power extraction. Five thousand years of history demonstrate that the latter scenario is far more prevalent than the former. (2) The moral critique of interest is a cross-cultural consensus that has never prevented the persistence of interest rate power—the very “coexistence” proves that interest rate power serves structures deeper than moral norms. (3) The modern credit system has transformed exploitation from “visible” to “invisible,” from “externally imposed” to “internalized as personal responsibility.” (4) The “three-step upgrade” is the product of structural convergence of interests, but its cumulative effect is more efficient and enduring than any deliberate design.

7.2   Addressing an Important Piece of Counter-Evidence

The core finding of Homer and Sylla’s A History of Interest Rates poses a potential challenge to this paper’s thesis: interest rates gradually decline as a civilization rises in international standing, bottom out at the civilization’s zenith, and rise as it declines. The more technologically advanced the economy, the more interest rates tend to fall. Economic historians attribute this long-term trend to “the progress of civilization”—improvements in social stability, increases in market efficiency, and enhanced credit security. If interest rates do indeed tend to decline over the long arc of history, does this not suggest that market competition and institutional progress are genuinely diminishing the power dimension of interest rates?

This paper’s response is twofold. First, a decline in the absolute level of interest rates does not equate to a decline in the power function of interest rates—the degree of concentration of decision-making authority has not dispersed as rate levels have fallen. Sumerian 20% rates were determined by temple priests; today’s near-zero rates are determined by the 12 members of the Federal Reserve Board of Governors—the concentration of power may have actually increased. Second, Homer and Sylla themselves note that the extreme volatility of 20th-century interest rates reflects “political and economic excesses”—which demonstrates precisely that when power factors intervene, rates can diverge from any “natural trend.” Civilizational progress can compress the equilibrium level of interest rates, but power intervention can push rates away from equilibrium at any moment. The two coexist rather than being mutually exclusive.

7.3   Theoretical Contributions

(1) A two-dimensional “exploitation spectrum” framework (intensity of value extraction × exit costs) that positions interest within a unique zone between slavery and wage labor, providing an operationalizable taxonomy for interest forms across different historical periods and institutional contexts. (2) A “three-step upgrade” model grounded in structural convergence of interests (liberating the body → training the soul → encoding difference), revealing that the evolution of governance modes from slavery to financial algorithms is not a conspiracy but a structural product. (3) A distinction between the economic function of interest rates (the legitimacy of price signals) and the power function (the political nature of extraction instruments), avoiding both the simplistic stance of wholesale rejection of interest and the naive stance of wholesale acceptance of rate “neutrality.” (4) A multi-layered, complementary analytical framework synthesizing Marx (class analysis at the macro-institutional level), Foucault (analysis of discipline and self-surveillance at the micro level), and Piketty (empirical validation of r > g), providing a methodological model for interdisciplinary research on interest rates.

7.4   Limitations and Unresolved Questions

Principal limitations: a grand narrative spanning 5,000 years inevitably sacrifices detailed precision for certain historical periods; the “three-step upgrade” model takes the Atlantic world as its prototype, and its applicability in non-Western contexts—China (which did not undergo a Western-style abolition of slavery), India (the caste system’s different relationship with debt), and Africa (the distinctive forms of debt during the colonial period)—requires further examination; the “natural experiment” of Islamic finance has received only preliminary analysis.

Unresolved questions include: will AI-driven credit assessment exacerbate or alleviate interest rate inequality? Is a “debt jubilee” possible in the age of digital currencies? Is democratic control of interest rates feasible—as Monnet (2024) and Downey (2024) have asked from the perspectives of history and democratic theory, respectively? Have institutional forces of resistance—from ancient debt jubilees to modern bankruptcy protections and the Consumer Financial Protection Bureau—ever fundamentally altered the structure of interest rate power, or have they merely mitigated its worst consequences at the margins?

LEECHO Global AI Research Lab · 이조글로벌인공지능연구소

Interdisciplinary Exploratory Paper · July 2026 · V3

Co-authored with Claude Opus 4.6 · Anthropic