The Invention of Credit: A Historical View
While Modern Monetary Theory, leverage, and command-side economics might appear to be recent inventions of a hyper-globalized society, their basis is as old as human society itself. While there is no precise intellectual history of credit, it dates back at least 5,000 years. But, let’s not get ahead of ourselves: what is credit?
In its most simple form, credit is the physical exchange of goods under the virtual promise that one party will compensate the other at some later date. Even toddlers have some basic understanding of this (even if it is hard to resist the urge to eat that marshmallow). Plus, credit’s popularity in the ancient world, antedating standardized systems of currency and coins, makes sense. Unlike physical money, credit is light and can never be stolen.
Physical money introduces a slew of interrelated problems into a society: the possibility of theft, questions of policing, predatory lending systems, centralized regulation, spoilia, and competing systems of value.
This is not to say that exchanges, transactions, and markets are only modern concepts—they are not. Rather than ticket boards of fluctuating prices, markets in the ancient world were modelling on a credit system, especially a system conducted among friends. For instance, local innkeepers would often serve alcohol and rent rooms on a tab system––only after the harvest season were they paid for their services.
Lending systems themselves date to Sumer where interest rates remained fixed for most of 2,000 years at 20%. However, this seemingly stable system did lead to unresolved social issues. In years with poor harvests, farmers would become increasingly indebted to the wealthy, unable to pay back their interest and forced to surrender their farms. Rather than defaulting or being relocated to debtor’s prisons, these people simply gave up on the society, electing to become semi-nomadic raiders (Hudson).
As a result, it became normalized for leaders to wipe clean the debts of all of their citizens and declare a general pardon (or “freedom” in its etymological sense of “returning to the mother”), so that all the workers could reunite with their families. Even the Biblical prophets enacted a similar debt forgiveness system called the Jubilee wherein every seven years, all debts were similarly forgiven. In economist Michel Hudson’s words, “[these] rulers restored economic balance and social order by intervening to annul the overgrowth of unpayable debts. This gave the debt system much greater stability in Sumer and Babylonia than would be the case in subsequent economies.”
From its origins, money was virtual (rather than physical) and understood to undergird contextual social interactions, rather than replace them. Systems of credit have been transhistorically implemented to simplify economic transactions and orient them towards collective action. Rather than an uncompromising financial law, these societies were governed by a praxis to provide for their citizens––who had viable alternatives to live otherwise.
Work Cited
Hudson, Michael, and Marc Van de Mieroop. Debt and Economic Renewal in the Ancient Near East. CDL Press, 2002.
Last Fact Checked on May 25th, 2021.