Why does Iago believe he should have Cassio's job in Shakespeare's Othello?

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At the beginning of the first scene in Shakespeare's Othello, Iago is complaining bitterly to Roderigo that Othello has chosen someone other than Iago to be his lieutenant, his second-in-command.

Iago tells Roderigo that he had arranged for well-placed Venetian citizens ("three great ones of the city") to speak to Othello on his behalf. Othello wouldn't see them, Iago says. Othello made overblown excuses to avoid seeing them and told them that he has already chosen a lieutenant: Michael Cassio.

Iago provides information about his own qualifications for the position by explaining Cassio's shortcomings to Roderigo.

Iago says that Cassio is a Florentine, not a Venetian, implying that Cassio has mixed loyalties to Othello and Venice.

Iago considers his own military experience far superior to Cassio's. Iago says that Cassio has no experience commanding men on the field of battle and implies that Cassio can't even control his own wife.

Cassio is schooled ("a great arithmetician"), whereas Iago is not. Iago mocks his schooling and military training as being limited to a theoretical study of Roman military exploits—"the bookish theoric, / Where in the toga'd consuls can propose / As masterly as he."

Iago says that Cassio talks a good game, militarily, but has no experience to back it up.

In contrast, Othello has seen Iago's military skills firsthand, in battles at Rhodes and in Cypress, as well as other campaigns in Christian and non-Christian countries alike. Even though Iago has much more training and experience than Cassio, Othello chose Cassio, whom Iago calls the bookkeeper ("this contercaster"), implying that he knows nothing but debits and credits.

Iago finds himself stuck, seemingly forever, as "his Moorship's ancient": Othello's ensign and flag-bearer.

Iago seems to be resigned to Othello's decision and to the current state of affairs in the military.

IAGO. Why, there's no remedy. 'Tis the curse of service,
Preferment goes by letter and affection,
And not by old gradation, where each second
Stood heir to the first. (1.1.34–38)

However, Iago is by no means as accepting of the situation as he says.

RODERIGO. I would not follow him then.

IAGO. O, sir, content you.
I follow him to serve my turn upon him... (1.1.41–43)

In time, Iago will take revenge on Cassio and Othello for Othello's choice of Cassio as his lieutenant.

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Many scholars consider Iago to be one of Shakespeare's most raw and sinister portrayals of evil, and one of the things that make him so terrifying is that we, as the audience, never really get a convincing reason as to why he does the things that he does. If he only had a lust for power, that would be one thing. Men doing terrible things for positions of power, such as Hamlet's Claudius and Macbeth's titular character, is not at all a foreign concept in Shakespeare's works. However, such is not the case with Iago. His desire for higher office seems distantly secondary to his pure, venomous, and often humorously unexplained hatred for Othello.

Iago has been Othello's battle companion and friend for many years, always maintaining a facade of honesty and integrity. Perhaps he feels that his efforts are being overlooked by Othello due to his passing over Iago for the promotion to lieutenant, in favor of Cassio. After all, Iago claims that he certainly has more battle experience than Cassio. Another explanation could be that this perceived slight makes Iago paranoid that Othello does not trust him as much as he thinks. Perhaps Iago's facade of honesty is not at convincing as he had previously been certain. Whatever the case, it is this event that finally sets Iago actively against Othello and creates the action of the play.

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First, as Iago explains to Roderigo, he has had more experience than Cassio on the battlefield. Iago says that he has fought and proven his worth:

At Rhodes, at Cyprus, and on other grounds
Christian and heathen

Second, Iago believes he should get the job not only on the basis of his experience, but on the basis of seniority. He believes he should have been next in line and was unfairly jumped over. As he tells Roderigo, he plans to get revenge for how he has been treated.

We don't know if what Iago says is true or not, but it is amply clear from the play that Iago has a huge chip on his shoulder. There is no doubt he is smart, clever, and able to lay a trap, given how he deceives the people around him, most of whom are hardly stupid. Somewhere along the way, however, in some deep way, he seems to have felt his talents and worth were overlooked. He carries a deep-seated anger and sense of injury within him, and it comes out in what the poet Coleridge called "motiveless malignancy," or a desire for spite that seems disproportionate. We know, too, that he is racist. He can't seem to get over the fact that Othello, a black man, is his commander and the spouse of a beautiful white woman, and this contributes to his sense of injury.

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Iago is a very difficult character to understand, because although he spends lots of time talking to the audience, he never makes it very clear what his motivation is for doing anything. (Indeed, the poet and critic Samuel Taylor Coleridge refers to Iago's nature as "motiveless malignity," which is to say that he is evil and destructive for no apparent reason.) We know that Iago considers himself worthy of the lieutenant's post: "I know my price, I am worth no worse a place." We know that he considers Cassio incompetent for the position because Cassio "never set a squadron in the field" and "mere prattle without practice / Is all his soldiership." We don't know for a fact what Iago thinks his qualifications are, but we can infer from what he says about Cassio that Iago's battlefield experience makes him more qualified for the position in his own eyes.

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Iago is a complex and duplicitous character. That means we can never fully trust what he says, even when he is speaking a soliloquy. Part of his belief that he deserved the promotion is grounded in his own sense of entitlement.

He does, however, give a clear account of why he thinks he is better qualified than Cassio in the first scene of the play. 

The first and most explicit reason why he believes that he deserves the promotion is that he is senior to Cassio and has been serving longer. Next, Cassio is a Florentine rather than a Venetian. Also, Cassio is a "bookish theoric" rather than someone who has substantial battleground experience. Iago mentions that he has served in far more places than Cassio and had given proof of his skill as a soldier in that service while Cassio is basically untried. 

Finally, Iago believes in the value of an older tradition "where each second / Stood heir to the first" and he does not feel Othello should simply have the right to choose his own lieutenant "by letter and affection."

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