So this piece on the history of debt from TripleCanopy is awesome. I know that “history of debt” is one of those phrases that perhaps only interest the nerds, but there is some mind-blowing stuff in here about how we’ve rationalized the use of money and state power, so give it a chance. Plus it totally blows up the false history that leads to an obsession with the gold standard, which I find comforting. An anecdote:
There is one puzzling aspect of this equation: The IOU can operate as money only as long as Henry never pays his debt. This is precisely the logic on which the Bank of England—the first modern central bank—was founded. In 1694, with public finances weak and the state’s monetary and credit systems precarious, a consortium of English bankers made a loan of £1.2 million to King William III. In return they received a royal monopoly on the issuance of banknotes. Practically, this meant the bankers had the right to advance IOUs representing a portion of the king’s debt to any inhabitant of the kingdom willing to borrow from them, or willing to deposit his own money in the bank. The effect was to monetize the royal debt. This was a great deal for the bankers, who charged the king 8 percent annual interest on the original loan and, simultaneously, charged clients who borrowed money interest on that same debt. But the arrangement could only work for as long as the original loan remained outstanding. Which is why, to this day, the loan has never been paid back. It cannot be. If it ever were, the entire monetary system of the United Kingdom would cease to exist.