History of Finance, Capital and Debt

Fantastic Article on the History of Finance, Capital and Debt

Karl: So when we look over the history of this era and its battle between credit and the ruling elite, the challenge was to maintain land ownership within your community and keep your people there, making sure that they had some share in the benefits of working together. This sort of independence of people being able to live off their land seems to have become a battle between democratic principles and creditors.

Michael: That’s basically so. Early common law had blockages against the things that creditors could foreclose on – the widow’s ox, the blacksmith’s anvil and basic tools of one’s trade and self-support. If you were a creditor and wanted to get somebody else’s land, you needed a legal stratagem.

In Babylonia and neighbouring Indo-European speaking communities such as Hurrian-speaking Nuzi, customary land tenure rights were only transmissible within a family or clan. The aim was to enable kinship units to supply their basic needs. The creditor’s stratagem was to get himself adopted by the debtor as number one son, as his heir. When the debtor died, the number one son, the creditor, would inherit most of the land, as if he were part of the kinship-based community. A Babylonian proverb reflects this practice: “A creditor has many relatives.” These subterfuges that creditors used are much like the small print that bank lobbyists write into today’s bankruptcy laws to stack matters in their own favor. Creditors and Wall Street have always been subtle in finding end runs around laws, obeying the letter of the law but changing the spirit of the law.

Saint-Simon founded a school of reformers in France that realized that in order to industrialise the nation, catch up with England and overtake it, it had to move banking beyond its medieval stage. Instead of making lending to businesses in exchange for interest payments – which can force them into bankruptcy when sales turn down, bank loans should really be made on the basis of profit sharing.This is how commercial loans were made back in Babylonian times. Saint-Simon’s idea was to make banks more like mutual funds. Their fortunes would rise orfall with those of their business clients.

The main country that adopted this industrial banking principle was Germany as well as other central European countries. Their banks invested in their customers as stock owners as well as acting as creditors. They acted basically as the forward planning arm of industry, working with governments to promote export sales abroad.

Until World War I most futurists, from Karl Marx to regular businessmen, expected banks to take the lead in planning society. But after Germany lost World War I, the world reverted to Anglo-American banking. This was basically short-term hit and run. Banks still don’t make loans for industrial development. They do lend for raiders and mergers to take over companies, and also to ship exports. But they’re not set up to actually fund industrial capital formation. So society has fallen back in the last hundred years to the opposite of what classical economists and what 19 ^th-century futurists expected banking to become.

http://www.unz.com/mhudson/finance-capital-and-usury-through-the-ages/