Credit is not an artificial construct imposed by financiers or states. It arises because modern commercial life cannot function without it.

When Polonius tells Laertes in Hamlet, “Neither a borrower nor a lender be,” perhaps Shakespeare was speaking from family experience. In the early 1570s, his father, John Shakespeare, was accused in court several times of lending money at usurious rates. While, in modern terms, he settled one case, he was fined in another. It is unclear if these cases were connected to the decline of Shakespeare Sr’s business, but he managed to get into debt himself, echoing Polonius’ warning. Under the laws at the time, usury, the practice of charging interest on debts, was called “a vice most odious and detestable.”

Yet by the time Adam Smith wrote his Inquiry into the Nature and Causes of the Wealth of Nations two hundred years later, credit was an established element of commercial life. Smith devoted an entire chapter to “Of Stock Lent at Interest.” He noted that the borrower viewed the loan as capital, which could either be consumed or, more productively, used as capital for enterprise. In the intervening two hundred years, credit had become an economic institution.

The gap between these two pillars of British literature was filled with the development of English commerce from its medieval form to something we would recognize today. Part of that development was the realization that time does not always cooperate with our financial undertakings. Costs arrive today when income is expected tomorrow. Bridging that gap requires both credit and interest. Commerce worked that out, but explaining why required the development of economics.

Credit did not arise across the Western world because its societies were uniquely greedy or exploitative, nor because bankers somehow imposed a mechanism to extract rent from happily self-sufficient communities. It arose because advanced commercial life requires its existence. That moral hero, the entrepreneur, must often assemble labor and capital before a single unit is sold. Credit bridges the interval.

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