The History of Credit

Abstract

It is easy to think of credit as a modern phenomena based around a culture of mortgages, credit cards, personal loans and so on, but credit granting has existed since prehistoric times. It ranks alongside prostitution and brewing as one of the ‘oldest professions’ and over the ages has probably generated as much controversy and debate as either. It is easy to imagine the concept of ‘I’ll pay you tomorrow!’ developing almost as soon as barter and trade evolved and it is likely that credit in a rudimentary form existed prior to the introduction of formal monetary systems. It has even been suggested that an understanding of debt and obligation may have been one factor that enabled early human societies to flourish (Horan et al. 2005). People began helping each other to hunt, lending tools and food to one another, caring for one another when they were sick and so on. These tasks were undertaken on the understanding that they created an obligation which would be reciprocated at some time in the future. This meant people were better able to overcome short term hardship, leading to greater survival rates and an increased population. It is also probable that one factor in the development of currency was a need to express debt in a standardized form (Einzig 1966, pp.362–6). The idea of lending on interest or usury¹ as it was traditionally known has origins of a similar age. Loans would be granted in the form of grain or livestock which had a propensity to reproduce and increase over time, and the lender naturally came to expect some share of the increase when the loan was repaid.