A short history of debt

A short history of debt – And what we can learn from it

by Josh Biggs in Finance on 23rd March 2019

Although debt is often associated with the modern world, it actually has a history as long as humanity. And whether we like it or not, people will always need debt. Getting the car of our dreams or moving into our first, second or third home, getting the education we think that will help us thrive, all these are based on debt – one way or another. Approximately 80% of American households have a form of debt. While the biggest amounts are connected to mortgages, 30% of said households have credit card debt. More than 20% of the debt comes from student loans. This might seem like a novelty, but the truth is, money, originally, was not physical money. It was virtual. Below is a short history of debt and the way it developed over time, from carved sticks (literally!) to online debt and debt management solutions.

#1. Using the money you don’t possess is not a new concept

A short history of debtIn fact, evidence that attests the use of virtual money dates as far back as 3,500 BC. Expense accounts, bar tabs, all these can be traced back to the dawn of humanity. Only around 600 BC coins were invented. Until then, people used different ways to keep track of money and expenses. For instance, at inns, innkeepers used long sticks where they would mark each beer drank by a customer, and only after the stick was covered in marks, the customer had to pay. This is one of the oldest forms of debt. The tally stick method is very similar to modern bank debt and loan.

For the longest part of human history, money was a simple accounting tool. Only recently, it has become something that people carry around with them and purchase things using it. David Graeber treats the matter in detail in his 2011 “Debt: The First 5,000 Years” book.

#2. Coins emerged to meet the need of paying government military operations

Well, even if the credit system functioned for thousands of years effectively, a method of paying government military soldiers was necessary. And for a very long period of history, coins were exclusively used by the military, regular people still using the good-old credit method.

Coins appeared as a need to standardize all the pieces of precious metals that were used to pay the military with the official seal. In return, people in the kingdom had to pay back their rulers a certain amount of coins – for taxes – that were used to, you guessed it, pay back and potentially feed the military.

#3. The concept of freedom is tightly knitted to debt

Just like in modern times, debt has created a handful of problems for those having it. Evidence of interest-bearing loans was found in Ancient Mesopotamia. During those times, poor farmers borrowed from officials or merchants. Merchants and official would take away all their goods and even family members as debt peons. To avoid complete social disarray, ancient civilizations would periodically organize general amnesties. All peasants were given back their goods and families. The freedom concept is tightly related to this phenomenon, where peasants would win back their freedom from debt and debtors.

#4. Democracy emerged as a reaction to debt-related rebellions

Because peasants quickly learned that revolts and rebellions would write off their debts, this became a common occurrence in Greece and Rome. The Solomon reforms that led to the Athenian democracy were carefully tailored to ensure a proper balance of power and prevent debt-related rebellions and avoid power abuse from the kingdom.

#5. Debt and religion are also connected, surprisingly

Because debt was such a hot topic, the big western religions felt the need to also clarify some things. The words for debt and sin were the same in a series of religions. But the greatest minds of the era felt the need to clarify that debt is not an accurate measurement of one’s morality.

In Ancient Chinese Buddhism, we find early traces of investment capital. Surprisingly enough, Buddhist monasteries were the first to go into the lending business.

#6. Modern European banks are sleeping in bed with war-making states

And this is how modern banknotes appeared. In Europe, banks lent money to governments and emperors in their war affairs since the middle ages. In 1694, the consortium of London Merchants lent £1.2 to King William II to help him lead a war in France. They have received, in exchange, the right to call themselves the Bank of England and offer loans out of the money Willian II owned them as banknotes. Fun fact: that debt has never been paid off. If it had, the modern British currency system wouldn’t exist.

A short history of debt#7. Getting out of debt is different today

While traditionally, revolutions were the only way to get out of debt, the modern banking system offers the borrower more flexibility. Of course, banks don’t monopolise of the market as they previously did. Alternative solutions for those struggling with crippling debt have emerged. Repayment plans tailored to consumers’ needs have been developed recently. These allow easy payment on low monthly rates, complete confidentiality and security. While on a similar plan, debtors don’t have any right to search for or harass the client, but this site offers way more information on the topic.

#8. Criminals have offered to pay off personal or national debt on numerous occasions

While Jesse James, “Pretty Boy” Floyd and Pablo Escobar don’t seem to have a lot in common, debt is bringing them together.  “Pretty Boy” Floyd is notorious for his bank heists, but also for destroying mortgage papers and freeing people of crippling debt. Jesse James offered to pay the debt of a woman he was staying with. After the woman paid the debt collector and she received the receipt, he robbed him and took back his money.

Escobar took things up a notch. He offered to pay off the $20 billion foreign debt Colombia had at the time to avoid extradition to the US.

Debt is inherent to societies. While we can’t escape the prospect of debt, we can learn how to properly manage it in civilized and easy fashion. Fortunately, today we don’t need revolutions to be able to pay off debts, like we needed throughout history.

Categories: Finance