In 16th-century Venice, commerce depended on financiers willing to underwrite risky endeavours. Why, then, is Shylock portrayed as such a villain?

Niall Ferguson, National Post Published: Wednesday, December 10, 2008

Shakespeare's play The Merchant of Venice is based on a story in a 14-century Italian book called Il Pecorone (The Dunce), a collection of tales and anecdotes written in 1378 by Giovanni Fiorentino. One story tells of a wealthy woman who marries an upstanding young gentleman. Her husband needs money and his friend, eager to help, goes to a moneylender to borrow the cash on his friend's behalf. The moneylender, like Shylock a Jew, demands a pound of flesh as security, to be handed over if the money is not paid back.

As Shakespeare rewrote it, the Jewish moneylender Shylock agrees to lend the lovelorn suitor Bassanio three thousand ducats, but on the security of Bassanio's friend, the merchant Antonio. As Shylock says, Antonio is a "good" man -- meaning not that he is especially virtuous, but that his credit is "sufficient." However, Shylock also points out that lending money to merchants (or their friends) is risky. Antonio's ships are scattered all over the world, one going to North Africa, another to India, a third to Mexico, a fourth to England: " ... his means are in supposition: he hath an argosy bound to Tripolis, another to the Indies; I understand moreover, upon the Rialto, he hath a third at Mexico, a fourth for England, and other ventures he hath, squandered abroad. But ships are but boards, sailors but men: there be land-rats and water-rats, water-thieves and land-thieves, I mean pirates, and then there is the peril of waters, winds and rocks."

That is precisely why anyone who lends money to a merchant, if only for the duration of an ocean voyage, needs to be compensated. We usually call the compensation interest: the amount paid to the lender over and above the sum lent, or the principal. Overseas trade of the sort that Venice depended on could not have happened if its financiers had not been rewarded in some way for risking their money on mere boards and men. But why does Shylock turn out to be such a villain, demanding literally a pound of flesh -- in effect Antonio's death -- if he cannot fulfill his obligations?

The answer is of course that Shylock is one of the many moneylenders in history to have belonged to an ethnic minority. By Shakespeare's time, Jews had been providing commercial credit in Venice for nearly a century. They did their business in front of the building once known as the Banco Rosso, sitting behind their tables -- their tavule - and on their benches, their banci. But the Banco Rosso was located in a cramped ghetto some distance away from the centre of the city.

There was a good reason why Venetian merchants had to come to the Jewish ghetto if they wanted to borrow money. For Christians, lending money at interest was a sin. Usurers, people who lent money at interest, had been excommunicated by the Third Lateran Council in 1179. Even arguing that usury was not a sin had been condemned as heresy by the Council of Vienna in 1311-12. Christian usurers had to make restitution to the Church before they could be buried on hallowed ground. They were especially detested by the Franciscan and Dominican orders, founded in 1206 and 1216 (just after the publication of Fibonacci's Liber Abaci).

The power of this taboo should not be underestimated, though it had certainly weakened by Shakespeare's time. In Florence's Duomo (cathedral) there is a fresco by Domenico di Michelino that shows the great Florentine poet Dante Alighieri holding his book the Divine Comedy. As Dante imagined it in Canto XVII of his masterpiece, there was a special part of the seventh circle of Hell reserved for usurers:

"Sorrow ... gushed from their eyes and made their sad tears flow; While this way and that they flapped their hands, for ease from the hot soil now, and now from the burning snow, behaving, in fact, exactly as one sees dogs in the summer, scuffing with snout and paw when they're eaten up with gnats and flies and fleas. I looked at many thus scorched by the fiery flaw, and though I scanned their faces with the utmost heed, there was no one there I recognized; but I saw how, stamped with charge and tincture plain to read, about the neck of each a great purse hung, whereon their eyes seemed still to fix and feed.

Jews, too, were not supposed to lend at interest. But there was a convenient get-out clause in the Old Testament book of Deuteronomy: "Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury." In other words, a Jew might legitimately lend to a Christian, though not to another Jew.

The price of doing so was social exclusion. Jews had been expelled from Spain in 1492. Along with many Portuguese conversos, Jews who were forced to adopt Christianity by a decree of 1497, they sought refuge in the Ottoman Empire. From Constantinople and other Ottoman ports they then established trading relationships with Venice.

The Jewish presence in Venice dates from 1509, when Jews living in Mestre sought refuge from the War of the League of Cambrai. At first, the city's government was reluctant to accept the refugees, but it soon became apparent that they might prove a useful source of money and financial services, since they could be taxed as well as borrowed from. In 1516, the Venetian authorities designated a special area of the city for Jews on the site of an old iron foundry which became known as the Ghetto Nuovo ("ghetto" literally means casting). There they were to be confined every night and on Christian holidays. Those who stayed in Venice for more than two weeks were supposed to wear a yellow "O" on their backs or a yellow (later scarlet) hat or turban. Residence was limited to a stipulated period on the basis of condotte (charters) renewed every five years.

A similar arrangement was reached in 1541 with some Jews from Romania, who were accorded the right to live in another enclave, the Ghetto Vecchio. By 1590 there were around 2,500 Jews in Venice. Buildings in the ghetto grew seven storeys high to accommodate the newcomers.

Throughout the 16th century, the position of the Venetian Jews remained conditional and vulnerable. In 1537, when war broke out between Venice and the Ottoman Empire, the Venetian Senate ordered the sequestration of the property of "Turks, Jews and other Turkish subjects." Another war from 1570 to 1573 led to the arrest of all Jews and the seizure of their property, though they were freed and had their assets returned after peace had been restored.

To avoid a repetition of this experience, the Jews petitioned the Venetian government to be allowed to remain free during any future war. They were fortunate to be represented by Daniel Rodriga, a Jewish merchant of Spanish origin who proved to be a highly effective negotiator. The charter he succeeded in obtaining in 1589 granted all Jews the status of Venetian subjects, permitted them to engage in the Levant trade -- a valuable privilege -- and allowed them to practise their religion openly.

Nevertheless, important restrictions remained. They were not allowed to join guilds or to engage in retail trade, hence restricting them to financial services, and their privileges were subject to revocation at 18 months' notice. As citizens, Jews now stood more chance of success than Shylock in the Venetian law courts. In 1623, for example, Leon Voltera sued Antonio dalla Donna, who had stood security for a knight who had borrowed certain items from Voltera and then vanished. In 1636-37, however, a scandal involving the bribery of judges, in which some Jews were implicated, seems once again to have raised the threat of expulsion.

Though fictional, the story of Shylock is therefore not entirely removed from Venetian reality. Indeed, Shakespeare's play quite accurately illustrates three important points about early modern money-lending: the power of lenders to charge extortionate interest rates when credit markets are in their infancy; the importance of law courts in resolving financial disputes without recourse to violence; but above all the vulnerability of minority creditors to a backlash by hostile debtors who belong to the ethnic majority.

For in the end, of course, Shylock is thwarted. Although the court recognizes his right to insist on his bond -- to claim his pound of flesh -- the law also prohibits him from shedding Antonio's blood. And, because he is an alien, the law requires the loss of his goods and life for plotting the death of a Christian. He escapes only by submitting to baptism. Everyone lives happily ever after --except Shylock. - From The Ascent Of Money by Niall Ferguson. Copyright © 2008 by Niall Ferguson. Reprinted by arrangement with The Penguin Press, a member of Penguin Group (USA) Inc.

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