Bassanio seeks out Shylock, a Jewish moneylender, for a loan of three thousand ducats on the strength of Antonio's credit. Shylock is hesitant about lending Bassanio the money. He knows for a fact that Antonio is a rich man, but he also knows that all of Antonio's money is invested in his merchant fleet. At the present time, Antonio's ships are bound for distant places, and therefore vulnerable to many perils at sea. Yet he says finally, "I think I may take his bond." He refuses Bassanio's invitation to dinner, however; he will do business with Christians, but it is against his principles to eat with them.
When Antonio suddenly appears, Shylock (in an aside) expresses contempt for him, saying that he hates Antonio because he is a Christian, but more important, he hates Antonio because Antonio lends money to people without charging interest; moreover, Antonio publicly condemns Shylock for charging excessive interest in his moneylending business. Finally, though, Shylock agrees to lend Bassanio the three thousand ducats. Antonio then says that he — as a rule — never lends nor borrows money by taking or giving interest. Yet because of his friend Bassanio's pressing need, Antonio is willing to break this rule. The term of the loan will be for three months, and Antonio will give his bond as security.
While Bassanio and Antonio are waiting to learn the rate of interest which Shylock will charge for the loan, Shylock digresses. He tells them about the biblical story of how Jacob increased his herd of sheep. He calculates the interest which he will charge and announces: "Three months from twelve; then, let me see; the rate." Shylock then accuses Antonio of having repeatedly spit upon him and called him a dog. And now Antonio and Bassanio come asking him for money. Yet they pride themselves that Antonio is a virtuous man because he lends money to friends, with no interest involved. Is this loan, Shylock inquires, a loan to be arranged among "friends"? On the contrary; this is not to be regarded as a loan between friends, Antonio asserts. In fact, Antonio says, Shylock may regard it as a loan to an enemy if he wishes. Then, surprisingly, Shylock says that he wants Antonio's friendship, and to prove it, he will advance the loan without charging a penny of interest. But in order to make this transaction "a merry sport," Shylock wants a penalty clause providing that if Antonio fails to repay the loan within the specified time, Shylock will have the right to cut a "pound of flesh" from any part of Antonio's body. Bassanio objects to his friend's placing himself in such danger for his sake, but Antonio assures him that long before the loan is due that some of his ships will return from abroad and that he will be able to repay the loan three times over. Shylock insists, at this point, that the penalty is merely a jest. He could gain nothing by exacting the forfeit of a pound of human flesh, which is not even as valuable as mutton or beef. The contract is agreed to, and despite Bassanio's misgivings, Antonio consents to Shylock's terms.
This scene has two important functions. First, it completes the exposition of the two major plot lines of the play: Antonio agrees to Shylock's bond — three thousand ducats for a pound of flesh; and second, and more important dramatically, this scene introduces Shylock himself. In this scene, Shakespeare makes it clear at once why Shylock is the most powerful dramatic figure in the play and why so many great actors have regarded this part as one of the most rewarding roles in all Shakespearean dramas.
Shylock enters first; Bassanio is following him, trying to get an answer to his request for a loan. Shylock's repetitions ("Well . . . three months . . . well") evade a direct answer to Bassanio's pleas, driving Bassanio to his desperately impatient triple questioning in lines 7 and 8; the effect here is similar to an impatient, pleading child badgering an adult. Throughout the whole scene, both Bassanio and Antonio often seem naive in contrast to Shylock. Shylock has something they want — money — and both Antonio and Bassanio think that they should get the loan of the money, but neither one of them really understands Shylock's nature.
In reply to Bassanio's demand for a direct answer, Shylock still avoids answering straightforwardly. Shylock knows what he is doing, and he uses the time to elaborate on his meaning of "good" when applied to Antonio. Only after sufficient "haggling" does he finally reveal his intentions: "I think I may take his bond." At Antonio's entrance, Shylock is given a lengthy aside in which he addresses himself directly to the audience. Shakespeare often uses the devices of asides and soliloquies to allow his heroes and, in this case, his "villain," a chance to immediately make clear his intentions and motivations to the audience — as Shylock does here.
Shylock's declaration of his hatred for Antonio immediately intensifies the drama of the scene; the audience now waits to see in what way he will be able to catch Antonio "upon the hip" and "feed fat the ancient grudge I bear him." Then Shylock is called back from the front of the stage by Bassanio, and he pretends to notice Antonio for the first time. Their greeting has ironic overtones for the audience, which has just heard Shylock's opinion of Antonio. There then follows a debate between Antonio and Shylock on the subject of usury, or the taking of interest on a loan — permissible for Shylock but not for Antonio, according to Antonio's moral code.
In making Shylock avoid committing himself immediately to lending Antonio the money, Shakespeare is building a dramatic crisis. For example, Antonio's mounting impatience leads to increased arrogance; he compares the moneylender to the "apple rotten at the heart." Still, however, Shylock does not respond; he pretends to muse on the details of the loan, producing from Antonio the curt and insolent remark, "Well, Shylock, shall we be beholding to you?" Only then does Shylock begin to answer directly, and he does so with calculated calm. "Signior Antonio," he says, "many a time and oft / In the Rialto you have rated me." His words are controlled but carry a cold menace that silences Antonio at once. At the phrase "You call me misbeliever, cutthroat dog," Shylock reveals to us that Antonio did "void your rheum upon my beard / And foot me as you spurn a stranger cur / Over your threshold!" This is a vivid dramatic change, climaxing in his taunting lines: "Hath a dog money? Is it possible / A cur can lend three thousand ducats?"
In Shylock's earlier aside ("I'll hate him [Antonio] for he is a Christian"), the audience was inclined to pigeonhole Shylock as the "villain" of this drama; anyone who hates a man simply because he is a Christian must logically be a villain. Yet now, in this speech, there is much more depth and complexity; we are given a most revealing glimpse of a man who has been a victim, whose imposition of suffering on others is directly related to his own suffering. Shakespeare is manipulating us emotionally; we have to reconsider Shylock's character.
After Shylock regains control of himself and skillfully leads Antonio toward the sealing of the bond, he says that he "would like to be friends" with Antonio. This gives him the excuse to make light of the bond, but a bond sealed "in merry sport" — a bond where a pound of flesh can "be cut off and taken / In what part of your body pleaseth me." Here, Shakespeare has the difficult problem of making us believe that Antonio is actually innocent enough to accept such a condition; after all, Antonio is probably fifty years old and a wealthy merchant; he is no schoolboy, and this "merry sport" of a bond is absurd. Clearly, to us, Shylock's interest is not only in money in this case, but Antonio does not realize this, nor does he realize or fully understand the depth of Shylock's hatred of him. He is therefore unable to be persuaded that this bond is dangerous. To him, the bond is merely a "merry bond." And thus Shylock is able to rhetorically ask Bassanio: "Pray you tell me this: / If he should break his day, what should I gain / By the exaction of the forfeiture?"
Shakespeare has set up a situation in which a man has put his life in the hands of a moral enemy and the outcome depends on fortune — that is, whether or not Antonio's merchant ships survive pirates and the high seas. Antonio and Shylock are diametrical opposites. Shylock is cunning, cautious, and crafty; he belongs to a race which has been persecuted since its beginnings. As a Christian, Antonio is easy-going, trusting, slightly melancholy, romantic, and naive. Shylock trusts only in the tangible — that is, in the bond. Antonio trusts in the intangible — that is, in luck. Here, Shylock seems almost paranoid and vengeful, but on the other hand, Antonio seems ignorantly over-confident — rather stupid because he is so lacking in common sense.