Saturday, April 4, 2009

A Crisis of Credit

There is a strange idea abroad, held by all monetary cranks, that credit is something a banker gives to a man. [Or or government gives to a bank, or to an auto company.] Credit, on the contrary, is something a man already has. He has it, perhaps, because he already has marketable assets of a greater cash value than the loan for which he is asking. Or he has it because his character and past record have earned it. He brings it into the bank with him. That is why the banker gives him the loan. The banker is not giving him something for nothing.

--Henry Hazlitt, Economics in One Lesson



Harold said...

Interesting quote. I have this book--really need to start reading it.

Realist Theorist said...

J.P.Morgan, testifying at the "Pujo Committee" Congressional Hearings:

Untermyer: Is not commercial credit based primarily upon money or property?

Morgan: No, sir. The first thing is character.

Untermyer: Before money or property?

Morgan: Before money or anything else. Money cannot buy it.


Untermyer: If that is the rule of business, Mr. Morgan, why do the banks demand, the first thing they ask, a statement of what the man has got, before they extend him credit ... He does not get it on his face or character?

Morgan: Yes; he gets it on his character ... Because a man I do not trust could not get money from me on all the bonds in Christendom.

For more on Morgan, check this out

Doug Reich said...

Perhaps more than any other book, Economics in One Lesson, taught me how to properly think about economics. The "simple lesson" is incredibly simple once you understand it but like many true principles, not so simple to uncover in the first place. There is hardly any primary issue in economics that can not be understood by reference to it, and it can demolish many or all of the fallacies that form the core of disastrous policies being thrust upon us on a daily basis.

Beth, thanks for keeping Hazlitt at the forefront of our thinking!