Capitalism and the Jews

Jerry Z. Muller

• Publisher: Princeton University Press
• Year: 2010
• Print ISBN: 9780691153063, 9780691144788
• eBook ISBN: 9781400834365
• Topic: History
• Subtopic: Economic History
• Index: History

How the fate of the Jews has been shaped by the development of capitalism

The unique historical relationship between capitalism and the Jews is crucial to understanding modern European and Jewish history. But the subject has been addressed less often by mainstream historians than by anti-Semites or apologists. In this book Jerry Muller, a leading historian of capitalism, separates myth from reality to explain why the Jewish experience with capitalism has been so important and complex—and so ambivalent.

Drawing on economic, social, political, and intellectual history from medieval Europe through contemporary America and Israel, Capitalism and the Jews examines the ways in which thinking about capitalism and thinking about the Jews have gone hand in hand in European thought, and why anticapitalism and anti-Semitism have frequently been linked. The book explains why Jews have tended to be disproportionately successful in capitalist societies, but also why Jews have numbered among the fiercest anticapitalists and Communists. The book shows how the ancient idea that money was unproductive led from the stigmatization of usury and the Jews to the stigmatization of finance and, ultimately, in Marxism, the stigmatization of capitalism itself. Finally, the book traces how the traditional status of the Jews as a diasporic merchant minority both encouraged their economic success and made them particularly vulnerable to the ethnic nationalism of the nineteenth and twentieth centuries.

Providing a fresh look at an important but frequently misunderstood subject, Capitalism and the Jews will interest anyone who wants to understand the Jewish role in the development of capitalism, the role of capitalism in the modern fate of the Jews, or the ways in which the story of capitalism and the Jews has affected the history of Europe and beyond, from the medieval period to our own.

CHAPTER ONE

THE LONG SHADOW OF USURY
Capitalism and the Jews in Modern European Thought

Jews and capitalism have long been linked in the European mind. Ever since the Middle Ages, Jews were associated in the Christian West with the handling of money. It is no wonder, then, that the intellectual evaluation of an economy in which money played a central role was often intertwined with attitudes toward Jewry. Jews in Christian Europe were permitted by the church to engage in the stigmatized activity of lending money at interest precisely because they were regarded as outside the community of shared values.

For a variety of intellectuals in modern Europe, Jews served as a kind of metaphor-turned-flesh for capitalism. Some intellectuals argued that only a society in which the reality of shared community was dead would encourage the self-interested economic activities of which moneylending was the paradigm. Many intellectuals regarded Jews as the agents of the creative destruction characteristic of capitalism. They differed in their evaluation of both capitalism and of the Jews depending on how they valued the creativity unleashed by capitalism compared to its destruction of traditional forms of life and inherited privilege. Thus thinking about capitalism and thinking about the Jews often went hand in hand. Hovering above these evaluations was the specter of usury.

To our ears, the term usury is likely to sound archaic—a long-discarded conceptual relic of the ancient and medieval past. And so it sounded to many eighteenth-century ears as well. From John Calvin in the sixteenth century through Francis Bacon in the early seventeenth, lending at interest came to be increasingly portrayed as legitimate and necessary, if in need of restriction. John Locke inveighed against the possibility and desirability of setting a legal limit on the rate of interest in Some Considerations of the Consequences of the Lowering of Interest, and Raising the Value of Money of 1691. By the time we reach the age of David Hume, Adam Smith, and Jeremy Bentham in the eighteenth century, the legitimacy of lending at interest is taken entirely for granted, with attention devoted to the question of whether there were compelling social reasons for capping the interest rate, and to the broader exploration of the monetary and nonmonetary causes of interest fluctuations.¹

But the concept of usury did not so much disappear as go underground. For usury provides one of the most long-lived paradigms for the condemnation of market activity. It combines a core propositional content with a penumbra of symbols, images, and associations that recurred not only in the eighteenth century, but in the nineteenth and twentieth as well. Indeed, its shadow extends into the twenty-first century.

The use of usury as a paradigm of stigmatization takes two forms. In the more moderate form, usury is employed to characterize a stigmatized form of an otherwise permitted activity. This usage of the terms grows out of medieval scholastic attempts to distinguish legitimate forms of trade from the illegitimate activity of usury. It became a term of opprobrium for those sorts of market activity that the speaker sought to condemn.

The more radical usage of the paradigm of usury was to suggest that the lending of money at interest was no different from any other form of commerce; and since the traditional condemnation of usury was morally correct, commerce itself stood condemned. This is the form that the stigma takes in its most powerful modern embodiment, Marxism. Indeed the usury paradigm provides what might be called the “deep structure” of Marx and Engels’s condemnation of the market. That is to say, the condemnation of usury provides the historical origins and the conceptual underpinnings for their condemnation of capitalism. Though this may sound like an implausible claim, it was recognized by Marx and Engels themselves.

Usury was an important concept with a long shadow. It was significant because the condemnation of lending money at interest was based on the presumptive illegitimacy of all economic gain not derived from physical labor. That way of conceiving of economic activity led to a failure to recognize the role of knowledge and the evaluation of risk in economic life. It thus led to a pattern of thought quick to condemn, first, finance, and sometimes commerce more generally. And because the lending of money in medieval Europe had been linked to the Jews, that condemnation of commerce was often linked to anti-Semitism. Conversely, as we’ll see, there has often been a link between philo-capitalism and philo-Semitism, with the Jews regarded as particularly valuable because of their commercial competence.

We find such a positive linkage between the Jews and commerce in the great work of Enlightenment social science, Montesquieu’s Spirit of the Laws of 1748. For Montesquieu, commerce had positive effects on culture and character. He famously asserted that “commerce combats destructive prejudices, and it is almost a general rule that wherever there are gentle manners (moeurs douces), there is commerce, and that wherever there is commerce, there are gentle manners. Therefore, one should not be surprised if our mores are less fierce than they were formerly. Commerce has spread knowledge of the mores of all nations everywhere; they are compared to each other, and from this comparison arise great advantages.”²

Montesquieu drew a direct line between the stigmatization of usury and economic backwardness. He regarded the decline of commerce in the Middle Ages as one of the great misfortunes of European history. And he attributed that misfortune to the interpretation of usury by medieval Catholics theologians. “We owe all the misfortunes that accompanied the destruction of commerce to the speculations of the schoolmen,” he wrote. For in their infatuation with the newly rediscovered philosophy of Aristotle, the Scholastics had condemned indiscriminately the taking of interest, a practice, Montesquieu thought, that was a necessary part of commerce. “Whenever one prohibits a thing that is naturally permitted or necessary, the people who engage in it are regarded as dishonest.” The result was to make commerce appropriate only for those outside the faith—the Jews—and to turn them into tools of exaction by princes, who in turn oppressed the Jews. Montesquieu attributed the rise of civilization and good government in modern Europe to the Jews. For by creating bills of exchange, Jews managed to make their valuables intangible, putting their wealth beyond the oppressive hand of princes. Deprived of the ability to gain income by squeezing the Jews who in turn had squeezed the populace, princes were forced by circumstances to govern more prudently, since only good government would bring prosperity. That in turn set the stage for the rebirth of European commerce, and with it the beginning of the decline of prejudice and the rise of a more gentle, less ferocious way of life.³

Let us recall what usury meant and why it was condemned by the Catholic Church. Most classical writers saw no economic justification for deriving income from the merchant’s role of buying and selling goods. Since the material wealth of humanity was assumed to be more or less fixed, the gain of some could only be conceived as a loss to others. Profits from trade were therefore regarded as morally suspect. But of all forms of commerce, none was so suspect and so reviled as finance, the making of money from money. Aristotle regarded the lending of money for the sake of earning interest as unnatural. “While expertise in exchange is justly blamed since it is not according to nature but involves taking from others,” argued Aristotle, “usury is most reasonably hated because one’s possessions derive from money itself and not from that for which it was supplied. For money was intended to be used in exchange, but not to increase at interest… . So of the sorts of business this is the most contrary to nature.”⁴ With the recovery of Aristotle’s thought in the High Middle Ages, the condemnation of usury would come to occupy a central place in the economic writings of Christian theologians and canon lawyers.

This practice, which Aristotle had considered blameworthy, Christian theologians found sinful. “You may lend with interest to foreigners, but to your brother you may not lend with interest”—this verse from the twenty-third chapter of the Book of Deuteronomy had prohibited Jews from lending with interest to one another, but allowed them to lend to non-Jews. Medieval Christian and Jewish theologians strove to define the meaning of the terms brother and stranger and to provide contemporary applications. By the twelfth century, Christian theologians had concluded that the term brother applied to all men, and that the lending of money at interest was always sinful.⁵ Usury was expressly forbidden by the Second Lateran Council in 1139.

In time, the term usury was applied to virtually any economic activity that was deemed immoral. The influential twelfth-century collection of canon law, the Decretum of Gratian, discussed the problem of sale under the general heading of usury; and the moral stigma of usury was extended to other types of contracts, especially those connected with the buying and selling of grain.⁶ On a more popular level, the fable of the usurer’s demise and passage to hell was a stock genre of the Middle Ages and one that appears in Dante’s Inferno.⁷

From 1050 to 1300, new agricultural surpluses in Europe made greater commerce and urbanization possible, and that made the economic function of lending money more important. Even as theologians adapted to the rise of an urban, commercial economy by defending private property and partially legitimating trade, the opposition of the church to usury intensified.⁸ Thomas Aquinas, the greatest of the Scholastics, cited both Aristotle and Roman precedents to argue that money was sterile by nature. That “money does not beget money” became central to scholastic economic doctrine.⁹ From Aquinas through the eighteenth century, Catholic casuists remained vitally concerned with distinguishing profits that were usurious and hence illicit from legitimate profits.¹⁰

The renewed emphasis on the prohibition of usury led to a clash between religious claims and economic developments. The church struggled against usury by Christians, while moneylending was more necessary than ever to the expanding European economy. A mortal sin of theology became a mortal necessity of commercial life. “Those who engage in usury go to hell; those who fail to engage in usury fall into poverty,” wrote the Italian wit, Benvenuti de Rambaldis da Imola, in his fourteenth-century commentary on Dante’s Divine Comedy.¹¹

One method by which the church resolved this dilemma, beginning in the twelfth century, was to prevent the evil of Christian usury by allowing Jews to engage in that forbidden economic activity. For Jews were not subject to the prohibitions of canon law, and were condemned in any case to perpetual damnation because of their repudiation of Christ. Pope Nicholas V, for example, preferred that “this people should perpetrate usury than that Christians should engage in it with one another.”¹²

Thus began an association of moneymaking with the Jews, an association that would further taint attitudes toward commerce among Christians and that, as we well shall see, would continue to cast its shadow into the Age of Enlightenment and beyond. In Passion plays, the negotiations between Judas Iscariot and the Jewish leaders of his day were portrayed as bargaining among typical medieval Jewish moneylenders.¹³ So closely was the reviled practice of usury identified with the Jews that St. Bernard of Clairvaux, the leader of the Cistercian order, in the middle of the twelfth century referred to the taking of usury as “Jewing” (iudaizare), and chastised Christian moneylenders as “baptized Jews.”¹⁴ In order to protect Christian moneylenders who provided them with funds, the kings of France and England created the legal fiction that these moneylenders (both lay and clerical) were to be considered Jews for legal purposes, and hence were under exclusive royal authority.¹⁵ In central Europe, Christian moneylenders were disparaged as Kristen-Juden, and in the sixteenth century were chastised as wielders of the Judenspiess, the “Jews’ skewer” of usury.¹⁶ This symbolic identification of the forms of capitalism considered most unseemly as “Jewish” would have a long life.

As Montesquieu noted, the special role of moneylender made Jews both indispensable to the political authorities—who provided them with toleration and protection—and odious to parts of the Christian population. Jews were often brought in to meet economic needs, especially those of the monarch, for whom they were indirect tax collectors. In medieval Europe, the nobility and the clergy were exempt from royal taxation. These groups borrowed money from resident Jews and repaid their loans at substantial rates of interest. Much of the money that the Jews accumulated in this fashion made its way into the royal treasury, through royal taxes on the Jewish community or various forms of confiscation. The Jewish moneylender thus acted like a sponge, sucking up money from untaxable estates, only to be squeezed by the monarch. The interest rates charged by Jews were in keeping with the scarcity of capital in the medieval economy and the high risks incurred by Jewish moneylenders, whose loans were often canceled under public pressure, and whose assets were frequently confiscated. High by modern standards, these rates often ranged from 33 to 60 percent annually.¹⁷

Within western Christendom, then, the image of commerce was closely connected to that of the Jew, who was regarded as avaricious, and as an outsider and wanderer, able to engage in so reviled an activity as moneylending because he was beyond the community of shared faith.

During the Reformation, “usury” remained a stigmatized category, especially for Martin Luther. Luther’s economic thought, reflected in his Long Sermon on Usury of 1520 and his tract On Trade and Usury of 1524, was hostile to commerce in general and to international trade in particular, and stricter than the canonists in its condemnation of moneylending.¹⁸ John Calvin took issue with the scholastic view of money as sterile, and permitted the lending of money up to a fixed maximum rate of 5 percent, though he remained hostile to those who lent money by profession, and banished them from Geneva.¹⁹ The Dutch Reformed Church followed a similar policy, sanctioning interest up to a fixed maximum, while excluding bankers from communion until the mid-seventeenth century.²⁰ In Protestant England, too, a similar distinction was drawn in the course of the seventeenth century between legal usury up to a fixed maximum rate of interest, and illegal usury.²¹

In Catholic countries, usury was condemned in both canon and civil law until well into the eighteenth century, and remained an object of obloquy even later. Pope Benedict XIV reaffirmed the prohibit...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Contents
• Introduction: Thinking about Jews and Capitalism
• Chapter One - The Long Shadow of Usury: Capitalism and the Jews in Modern European Thought
• Chapter Two - The Jewish Response to Capitalism: Milton Friedman’s Paradox Reconsidered
• Chapter Three - Radical Anticapitalism: The Jew as Communist
• Chapter Four - The Economics of Nationalism and the Fate of the Jews in Twentieth- Century Europe
• Acknowledgments
• Notes
• Index