4/16/2023 0 Comments Non numeric pecunia![]() ![]() In the days of Solon the Athenian, of ancient Rome's agrarian laws, and of the Middle Ages, the creditors were by and large the rich and the debtors the poor. It did not notice at all that nineteenth-century capitalist innovations have wholly changed the composition of the classes of creditors and debtors. It considers government action designed to curtail the claims of the creditors as measures extremely beneficial to the immense majority at the expense of a small minority of hardboiled usurers. It abhors the former as ruthless exploiters and pities the latter as innocent victims of oppression. It identifies creditors with the idle rich and debtors with the industrious poor. Public opinion has always been biased against creditors. Over all species of deferred payments hangs, like the sword of Damocles, the danger of government interference. That there is, besides, something basically vicious in all kinds of long-term government debts, has been pointed out already. Empires may crumble and governments may be overthrown by revolutionaries who are not prepared to assume responsibility for the debts contracted by their predecessors. The particular uncertainty inherent in such loans concerns the life of secular power. It is furthermore customary to distinguish between private and public loans, i.e., loans to governments and subdivisions of governments. The particular uncertainty of the outcome of his lending consists in the uncertainty about these future proceeds. In acquiring a claim to a share in these future proceeds, the lender becomes virtually an entrepreneur, as in acquiring a claim to a share in the future proceeds of a business. The characteristic mark of the former class is that it enables the borrower to spend expected future proceeds. It is customary to distinguish between consumption or personal loans on the one hand, and productive or business loans on the other. The entrepreneurial component is present in all species of loans. There is, however, no need for economics to enter into a detailed scrutiny of the legal aspects involved in bonds and debentures, preferred stock, mortgages, and other kinds of credit transactions. The creditor is less exposed to loss and failure than the debtor only in so far as this legal and institutional framework makes it possible for him to enforce his claims against refractory debtors. The contracts which place the debtor and his fortune or the collateral as a buffer between the creditor and the disastrous consequences of malinvestment of the capital lent, are conditioned by laws and institutions. It is, moreover, codetermined by the legal and institutional setting. The entrepreneurial component included in the creditor's gross proceeds is determined by all those factors which are operative in every entrepreneurial venture. Net interest is a magnitude which only analytical thinking can extract from the gross proceeds of the creditor. If they earn any net interest at all, it is included in a yield which contains more than merely net interest. Gross interest can be reaped only by creditors who have been successful in their lending. The dictum pecunia pecuniam parere non potest (money cannot beget money) is meaningful in this sense, which, of course, differs radically from the sense which ancient and medieval philosophers attached to it. Capital as such does not bear interest it must be well employed and invested not only in order to yield interest, but also lest it disappear entirely. He has linked his fate with that of the debtor or with the changes occurring in the price of the collateral. He can be affected by changes in the market data concerning them. The creditor is always a virtual partner of the debtor or a virtual owner of the pledged and mortgaged property. Debtors, guarantors, and warrantors may become insolvent collateral and mortgages may become worthless. There can never be perfect safety either in moneylending or in other classes of credit transactions and deferred payments. His appraisal of this danger determines his conduct in bargaining with the prospective debtor about the terms of the contract. The lender is always faced with the possibility that he may lose a part or the whole of the principal lent. ![]() Every grant of credit is a speculative entrepreneurial venture, the success or failure of which is uncertain. The moneylender is always an entrepreneur. ![]() Among the components contributing to their determination there are also elements which are not interest. The market rates of interest on loans are not pure interest rates. ![]()
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