Until the debt is settled,
the borrower pays the seller interest at an agreed rate. Bankers enter
the picture, providing capital and collecting interest on their loans.
Where credit is abundant and relatively cheap, borrowers spend beyond
their incomes, hoping to pay later when the loan falls due. Borrowing
and over-spending are among human frailties. They are also forms of
risk-taking or gambling. Who knows whether the banker who promises to
pay on demand will be alive and doing business next week when his
promise to pay is presented for settlement? When the promise to pay is
issued by a government which decides the value of currency, and accepted
by that government as payment for taxes and other obligations, it is
more readily acceptable than paper issued and guaranteed by an
individual money lender or banker.
Each civilization has had a background of simple use economy--food
gathering, animal husbandry, agriculture--in which most of the people
produced what they needed and consumed what they produced. Such an
economy employs money rarely.
In a money economy those who have cash use it to pay their bills or
settle their accounts.
Those who buy on credit pay interest to money lenders. The money
lenders, later the bankers, make their profits by helping others to
spend beyond their own means. The money-lender also accepted loans from
others, promising to pay them back at a later date, and giving the
lender a piece of paper, specifying the amount of the loan.
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