MONEY PRINCIPLES THROUGH THE AGESApr 02, 2019
What History can teach us about the Rules of Lending
(and what happens when you break them)
Long before Bitcoin was a twinkle in a mysterious techie’s eye, people have been designing systems for commerce and trade, and inventing what we now know as money. Over time, these activities, through trial and error (lots of error), have built a financial system which operates on principles developed thousands of years ago.
It’s surprising how little the fundamentals have changed.
Take, for example, the notion of needing to exchange some kind of security if you’re borrowing money. It acts as protection for the lender, if the borrower comes up short.
And it was a principle developed thousands of years ago.
Greece is the word
Source: National Debt Clocks
They’ve got a long history of defaulting, starting back in the fourth century BC, where 13 Greek city states borrowed funds from the Temple of Delos. All but two cities didn’t pay the funds back and the temple lost around 80% of its money.
Shortly after, in around 330 BC, providing security for loans became a thing. The Greek city of Cyme offered its public colonnades to secure a loan, and when they defaulted, its citizens were barred from using them for shelter from rain or sun.
Imagine trying to police that.
A pound of flesh
Fast forward to around 1600 AD when an up and coming writer by the name of William Shakespeare, wrote a ‘comedy’ called the Merchant of Venice.
The character, Bassanio, needed to borrow 3,000 ducats to help him woo a young lady he was keen on. He eventually borrowed the funds from a bloke named Shylock. But he didn’t have anything to give up as security for the loan, so his friend Antonio, a wealthy merchant, agreed to go guarantor. Shylock didn’t ask for any interest but did insist that if Bassanio didn’t pay back the loan, Antonio must pay in a “pound of flesh” i.e. death.
That’s the definition of a very good mate. And a very foolish deal.
I won’t spoil the ending for you, but what’s interesting is that during those times, Christians were forbidden from charging interest on loans. It was called “usury” and considered a sin.
“You may charge interest to a foreigner, but to your countrymen you
shall not charge interest, so that the Lord your God may bless you in all
that you undertake in the land which you are about to enter to possess.”
The only reason Shylock could get away with it, was because he was a Jew (“a foreigner”).
And according to Dante, there was a special part of the 7th circle of hell, that was exclusively set aside for usurers.
Some might say modern day banks belong there too.
Modern day ninjas
Remember what happened right after 2007? The Global Financial Crisis (GFC). While it may not have been the sole reason behind it, NINJA loans were certainly a major contributing factor. Many of them went into default, and with no security there were huge losses.
A bit like a Shakespearean tragedy.