The German word "Schuld" means both guilt and debt. Nietzsche argues this linguistic coincidence conceals a historical identity: the moral category of guilt is a transformation of the material category of debt. When a debtor could not repay, the creditor was entitled to exact suffering as compensation. The infliction of suffering produced a pleasure that stood in place of the unpaid debt.
This equation, suffering for debt, is primitive and brutal, but it underpins the entire moral edifice of obligation, punishment, and conscience. Before there was inner guilt, there was outer punishment; before there was conscience, there was the enforced creditor. The history of law and punishment is the history of how these external relations were gradually internalised as moral feeling.
Nietzsche is explicitly hostile to moral philosophers who present conscience as something given and pristine. Every concept in the moral vocabulary, duty, sacredness, obligation, carries with it the buried smell of blood from the contracts that created it. Even Kant's famous categorical imperative, for Nietzsche, reeks of cruelty.
The Second Essay also contains Nietzsche's analysis of punishment, arguing that it has no single origin but has been overlaid with competing and contradictory meanings throughout history.