Transcript: The Origin of Credit

NIALL FERGUSON: There was one huge possibility created by the emergence of money as a system of mutual trust—a possibility that would revolutionize world history.

It was the idea that you could rely on people to borrow money from you and pay it back at some future date.

That’s why the root of “credit” is “credo”, the Latin for “I believe.”

Without the invention of credit, the entire economic history of our world would have been impossible.

Because we take it for granted, we tend to under--estimate the extent to which our entire civilization is based on the borrowing and lending of money. No, it doesn’t literally make the world go round. But it does makes vast quantities of people, goods and services go round the world from Babylon to Bolivia.

The provision of credit has underpinned the transformation of a planet of subsistence farmers into a globalized economy worth tens of trillions of dollars.

The idea has been with us for centuries. But nowhere was the credit business further advanced by the 16th century than Venice.

And the home of literature’s most notorious moneylender: Shylock, in William Shakespeare’s The Merchant of Venice.

BASSANIO: May you stead me? Will you pleasure me?

Shall I know your answer?

NIALL FERGUSON: Crucially, Shylock’s only prepared to lend the money if Bassanio’s friend, the merchant Antonio, is providing the security:

SHYLOCK: Three thousand ducats for three months and Antonio bound.

BASSANIO: Your answer to that.

SHYLOCK: Antonio is a good man.

NIALL FERGUSON: By “good,” Shylock doesn’t mean virtuous, he means “good” for the money he’s about to lend Bassanio; In other words, creditworthy.

BASSANIO: Have you heard any imputation to the contrary?

SHYLOCK: Oh, no, no, no, no: my reason in saying that he’s a good man is to have you understand me that he is sufficient.

SHYLOCK V/O: Three thousand ducats. I think I may take his bond.

NIALL FERGUSON: With any loan things can go wrong. Ships can sink. And that is precisely why anyone who lends money to a merchant—if only for the duration of an ocean voyage—needs to be compensated. We usually call the compensation “interest”: the amount paid to the lender over and above the sum lent or “principal.”

Overseas trade of the sort that Venice depended on couldn’t operate without such transactions. And they remain the foundation of international trade to this day.