Hound55 — Roleplayer Guild

Compound interest…

The notion of compound interest, often unfavourably linked with the slave peoples with their absurd singular god beliefs, actually dates back to the Old Babylonian period.  Not terribly surprising really, the Babylonians kept excellent records for mortals.

To put this into context, the oldest surviving manuscript copy of the Babylonian Talmud dates back to 1342 BCE.  Compound interest?  We’re looking around 250-650 years earlier, back to somewhere between 2000 and 1600 BCE.

A=P(1+r/n)nt

A simple formula, for something so fundamental to economics and the building of modern civilization.

The agrarian age.  A farmer asks his established neighbour for some seed in order to grow crops.  The neighbour agrees to a loan with an accepted interest rate.  The farmer takes his newfound seed, plants and toils to maintain his crops.  Come harvest time, the seeds have yielded a grand increase, and the farmer repays his neighbour the principal with interest.

Likewise farmers with livestock could return equal numbers as well as interest from following generations, with enough time elapsed for breeding cycles.

It is not hard to see how similar loans charging interest could also affect mining, where tools can be used for greater yields.

For as much as the slave people of Yahweh are linked with interest, their own scripture didn’t allow it, at least amongst their own people.  They weren’t alone, Iranians also found such a thing to be dishonourable.  Many other civilizations, including the Romans and, yes, the aforementioned Babylonians limited interest rates to prevent predatory behaviour.

As for the Greeks, they had no credit limits but they forbade debts to be paid with personal servitude.

But I am not Greek...

So for all of the positive effects of compound interest, why such a negative outlook towards it from these mortals?

Well, that would be their own outlook towards what these mortals call “usury”.

Usury is lending purely for the profit made on the back of compound interest, and it’s heavily frowned upon historically as “predatory”, like I said before.

Let’s go back to that formula and walk you through it for the uninitiated mortal…

A=P(1+r/n)nt

Where A
 is the accumulated Amount, P
 is the initial Principal, r
 is the rate of interest, n
 is the number of compoundings per period, and t
 is the time in the number of periods.

For example, let’s use some big round numbers so that feeble mortal minds can wrap their heads around this, take $10,000 for 10 years, compounded with a 5% interest rate annually, would become $16,288.  But say it took longer than the initially thought 10 years to pay off?  Suddenly, over 30 years we’re looking at $43,219.

It’s easy to see why the Babylonians named it "şibāt şibtim" - interest on interest.

This painting here…

Portrays Luca Pacioli, or for precision’s sake Fra Luca Bartolomeo de Pacioli, a late fifteenth, early sixteenth Century Italian mathematician.  Often collaborated with a name you might be more familiar with - Leonardo da Vinci, and was a friar who is oftentimes referred to as "The Father of Accounting and Bookkeeping”.

...again, we’ll overlook the hubris of man that they can be responsible for the creation of concepts which are obviously the domain of the gods.

But he’s the mortal they attribute the double-entry system of bookkeeping, as well as interest’s “Rule of 72”.

In his Summa de arithmetica he presents the rule whilst discussing the estimation of time for an initial investment to double in value.  The rule number (which since then has often varied, sometimes 70, sometimes 69.3, such are the fickle nature of the mortal mind) is divided by the interest percentage per period, to obtain the approximate number of periods required for doubling to occur.

To use Pacioli’s own example, when interest is 6% annually, Pacioli says that 72 divided by 6 leaves you with a solution of 12, meaning it will take 12 years for the initial principal to be doubled.

So one can see that even an ownership of 1/72 can be of value to someone patient, given enough time…

As far as usury goes, it can be hard to charge the gods with predatory behaviour.  We send hurricanes that level houses and insurance companies wash their hands of our work, admitting it to be an act of god.

We can be hard to track down to take to claims court for property destruction.  I wouldn’t fancy a mortal’s chances taking us to claims court for usury.

But make no mistake.  Time is an immortal’s friend, perhaps in nobody’s case more than mine.  I will collect.

I will collect.
Hound55 Member

Create-A-Hero RPG GM, Blue Bringer of BWAHAHA!

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