Living in a debt based economy has a way of obscuring reality, perhaps especially when it comes to the basics of debt. So to get back to those basics, and right to the point, let’s look at 3 basic components of all debt:
- Something of value
- The lender’s past
- The borrower’s future
“The past” you ask? How can debt involve the past? Well, let’s say you hit me up for ten bucks. That ten spot doesn’t just pop into existence because you need it. No, In order for me to have it, it had to be earned at some point in the past. If I now lend it to you, with interest, I am in effect delaying the benefit of my past effort so that you may use it as a present benefit. Of course I don’t forgo that benefit for free, I charge you interest.
This loan, in essence, was a transaction. I exchanged, or sold, a piece of my past for a piece of your future, with a profit margin. This is debt in a nutshell and there are perfectly logical and good reasons, both for the lender and the borrower, to engage in such transactions.
The purchase of knowledge, (education) a modest home and transportation are excellent reasons a lender might “invest” in someone’s future. And the borrower, who uses the benefits of his future early, enables himself to profit from earning more for longer.
These kinds of transactions take place across the spectrum of scale everyday. Even government gets in on the action, only it plays out much differently there. While its transactions still have these three components, they become mixed up. The politician confiscates the pasts of some, sells the futures of others, invests that capital into his own political future through vote buying schemes, and then calls the whole thing compassion.