Nov

2

The origins of credit are in the financing of trading voyages, specifically in Venice. That was basically a way to invest capital in productive enterprises, as of course is any other form of credit extended with the intention of finding a profit by creating value. Credit for consumption is arguably equivalent to the second oldest form of credit which is financing wars by the kings, and that came later once the credit making machinery got deeper and more geographically distributed following the trade it was financing.

Credit for consumption is almost always a Ponzi scheme of sorts relying on the incomes of the borrowers rising with time, but once in a while it's not when the borrowers pay back and the lenders cease and desist for some rare reason. But as history has demonstrated, sooner or later lending for consumption (or wars by the kings) ends badly because the income streams always start falling or disappear at some point if you wait long enough.


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2 Comments so far

  1. Ed on November 2, 2012 3:59 pm

    Is there a history of credit text you could recommend?

  2. Ray Kumar on November 3, 2012 11:41 am

    "..Credit for consumption is almost always a Ponzi scheme of sorts relying on the incomes of the creditors rising with time.."

    Perhaps you meant "borrowers" and not "creditors" i.e. lenders?

    Otherwise, this doesn't make sense:
    "..once in a while it's not when the creditors pay up and the lenders cease and desist for some rare reason.."

    Not nitpicking, merely trying to understand an interesting insight.

    [Ed.: thank you, the text has been corrected].

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