A recent discussion led to the question of credit. Why do we use it? How the heck did it ever develop? Who came up with the idea?
These are simple questions. You may consider them odd in 2014 because the use of credit is so fully saturated in the purchasing climate of today’s economy. One could easily argue the entire world’s economy would collapse without the ability to give someone else a chunk of money with the promise that it will be repaid down the road.
We don’t think about these things that often. We accept as a given that use of credit card implies we can afford the product or service we’re plunking the plastic down on the counter for.
As people, businesses and governments get further into debt, it’s not so true that everything is affordable and money will be paid back to the lenders (or the entity extending credit) in the coming years. Many individuals, countries, corporations and different levels of government have gone deeper in debt with borrowing, with some filing for bankruptcy because they got in too far. The crash of August 2008 was implicitly tied to too much money being loaned out to too many people and organizations that couldn’t pay it back on time.
We borrow and use credit because we can. It’s there. People extend us money. As ubiquitous as credit has become, it’s always there, sniffing around, looking for someone new to approach. So how’d it get started?
Think about the first guy who said, “Okay, I’ll give you five camels , but you have to dig ditches for me for the next two years. I need a trough from the river to my farm, and trenches to irrigate my fields. When you finish that, we’ll call it square.”
The ditch digger is giving up two years of his life, so he can get five camels to provide tourist rides and create his own small business. The problem is, the ditch digger won’t be around to build his business because he’ll be the indentured servant working for the farmer and come home so exhausted each night that he’ll just grunt to his wife and kids, ask for a glass of grog and chow down on some meat mush.
In the meantime, the five flea-laden camels he got in “trade” will grow weaker in that two year period due to lack of care because his wife is busy with the kids, and the kids are too young to feed and groom the newest livestock. He will sell them back for way less to the guy who initially sold the camels to him. Maybe he’ll get a goat in return. So he’s done two years of hard labor – six days a week, 12 hours a day -- for a goat.
Trading has always been and likely always will be about a “fair exchange.” We are willing to pay something back in the future at an increased rate because the money someone lends to us today (or extends to us through the use of a credit card) looks necessary and like a good deal at the time.
We look for fair exchanges, but someone benefits more than the other. That’s just the way it goes.
Things would be very different in the world if it was always about fair exchanges. What one person values though, another may not. One individual is willing to use massive credit to add some swag to his life. Others want will spend it on experiential living – nice vacations, restaurants or a new sports car.
We go into debt because we want something and don’t have the means to pay for it. If too many of us put off those purchases, the economy crashes. So maybe the moral is to borrow one camel first and see how that works out before you go onto the second.
These are simple questions. You may consider them odd in 2014 because the use of credit is so fully saturated in the purchasing climate of today’s economy. One could easily argue the entire world’s economy would collapse without the ability to give someone else a chunk of money with the promise that it will be repaid down the road.
We don’t think about these things that often. We accept as a given that use of credit card implies we can afford the product or service we’re plunking the plastic down on the counter for.
As people, businesses and governments get further into debt, it’s not so true that everything is affordable and money will be paid back to the lenders (or the entity extending credit) in the coming years. Many individuals, countries, corporations and different levels of government have gone deeper in debt with borrowing, with some filing for bankruptcy because they got in too far. The crash of August 2008 was implicitly tied to too much money being loaned out to too many people and organizations that couldn’t pay it back on time.
We borrow and use credit because we can. It’s there. People extend us money. As ubiquitous as credit has become, it’s always there, sniffing around, looking for someone new to approach. So how’d it get started?
Think about the first guy who said, “Okay, I’ll give you five camels , but you have to dig ditches for me for the next two years. I need a trough from the river to my farm, and trenches to irrigate my fields. When you finish that, we’ll call it square.”
The ditch digger is giving up two years of his life, so he can get five camels to provide tourist rides and create his own small business. The problem is, the ditch digger won’t be around to build his business because he’ll be the indentured servant working for the farmer and come home so exhausted each night that he’ll just grunt to his wife and kids, ask for a glass of grog and chow down on some meat mush.
In the meantime, the five flea-laden camels he got in “trade” will grow weaker in that two year period due to lack of care because his wife is busy with the kids, and the kids are too young to feed and groom the newest livestock. He will sell them back for way less to the guy who initially sold the camels to him. Maybe he’ll get a goat in return. So he’s done two years of hard labor – six days a week, 12 hours a day -- for a goat.
Trading has always been and likely always will be about a “fair exchange.” We are willing to pay something back in the future at an increased rate because the money someone lends to us today (or extends to us through the use of a credit card) looks necessary and like a good deal at the time.
We look for fair exchanges, but someone benefits more than the other. That’s just the way it goes.
Things would be very different in the world if it was always about fair exchanges. What one person values though, another may not. One individual is willing to use massive credit to add some swag to his life. Others want will spend it on experiential living – nice vacations, restaurants or a new sports car.
We go into debt because we want something and don’t have the means to pay for it. If too many of us put off those purchases, the economy crashes. So maybe the moral is to borrow one camel first and see how that works out before you go onto the second.
