Stakes Higher Than Finance: Shylock and the Central Bank

The dramatic heart of the play, Merchant of Venice, centers around a deal that turns a bad financial decision into a matter much more serious than money. In a situation where the titular merchant, Antonio, seeks to help out a friend in a time of social need, Shylock the moneylender gives him a loan of three thousand Ducats with no interest. While it helps Antonio fulfill the bond of obligation to his dear friend Bassanio, it comes at great cost. Shylock is entitled to one pound of Antonio’s flesh if he fails to repay the loan within three months. Antonio is certain that the ship that bears his money will come back shortly, and that he has no need to worry about the life-ending risk. His ship does not come in on time, and what seemed to be a normal and beneficial risk ends up having the potential to kill him. The fundamental problem with the central bank is that we are convinced we are being offered a reasonable financial return, but the risk is far more than financial. Just as Antonio bears an existential risk for financial stability, America has forfeited her very survival for the “stability” provided by the Central Bank. 

The contract with Shylock and our contract with the Central Bank were both entered into under the assumption that there would be no cost on top of repayment. Antonio agrees to the terms with a massive downside risk to avoid present payments, a classic example of selling the future for the present. Antonio saw the certainty of his friend not benefiting from the money as greater than the risk-weighted potential of his own death. We myopically valued the risk of bank runs as far greater than the decline and institutional stability that we would receive from having a Central Bank. We both merely saw the risk in front of us and assumed that the objectively far greater risk in the future would not matter given its apparently low probability. However, if we had thought more deeply about the incentives behind a Central Bank, it would have been much easier for us to recognize the vast institutional damage that we were risking for some short-term comfort.…