What debt looked like before the credit card

Three years, then free

The oldest surviving debt law is about limits. In the Babylonian code of Hammurabi, a man who could not pay might hand over his wife or child to work off the debt. Law 117 says they go free after three years.¹ Law 48 says that if a storm or drought ruins the crop, that year's debt and its interest are canceled.² A debt had a term, and an act of God ended it. Those are two protections that a modern credit-card agreement does not offer.

"The borrower is servant to the lender"

The book of Proverbs has the line everyone remembers: "the borrower is servant to the lender."³ Less remembered is its advice on guaranteeing someone else's debt. If you have done it, escape "as a roe from the hand of the hunter".⁴ A later book of wisdom is blunter about the other side. A lender "will hardly get back half", and "being surety has ruined many who were prosperous".⁵ Both sides of the transaction were understood to be dangerous, and the ancient advice was to avoid the whole thing.

A stick split in two

For seven centuries the English state recorded debts on wood. A tally stick was notched to show the amount and then split lengthwise. The creditor kept the longer piece, the "stock"; the debtor kept the shorter, the "foil". The two halves matched only each other, so neither side could alter the record.⁶ The Exchequer used tallies from about 1100. Tallies were issued for money owed to the crown and circulated as payment. In 1834 the accumulated sticks were burned in a stove under the House of Lords. The fire got out of control and destroyed most of the Houses of Parliament.⁶ The word "stock", as in stock market, is the creditor's half of a stick.

The debtors' prison

In England, for the eighteenth and nineteenth centuries, about 10,000 people a year were imprisoned for debt.⁷ Charles Dickens's father was one of them, held in the Marshalsea. The Debtors Act of 1869 is usually said to have abolished imprisonment for debt. It did not. It limited it. Committals fell from 9,759 in 1869 to 6,605 in 1870, and then rose again, to 11,427 a year by 1905.⁷ The United States ended federal imprisonment for debt in 1833; the states did so one by one, Kentucky first in 1821 and Virginia last in 1849.⁷

The lesson is not that the past was crueller. It is that debt was personal and visible. The lender knew the borrower, the debt had a face, and the consequence of not paying was a building everyone could see.

The year-end reckoning

Samuel Pepys, a senior naval official in London, spent the last day of 1666 paying his debts and making up his accounts. He recorded the year's takings, 2,986 pounds, down 573 on the year before; his spending, 1,154 pounds, up from 509; and his position: "I do find myself worth in money, all good, above 6,200l."⁸ Income, spending and net worth, in one diary entry, at the year's end, in a year of plague and fire. Pepys was not an accountant. He was a man who wanted to know where he stood, and the only way to know was to sit down and count.

Guarantees in writing

In 1677 Parliament passed "An Act for prevention of Frauds and Perjuryes", the Statute of Frauds. Among other things, it required that a promise to answer for another person's debt be in writing to be enforceable.⁹ Three thousand years after the Babylonian rule that a deposit without witness or contract carried no claim, English law reached the same conclusion about guarantees. Get it in writing, or it did not happen.

What changed with the card

Every arrangement in this chapter had a term, a face and a record the borrower could hold. The credit card, from the mid-twentieth century, removed all three. There is no term, because the balance revolves. There is no face, because the lender is an institution. And the record is kept by the lender and presented to the borrower, rather than the other way round. The old protections were not abolished. They were designed out, one product at a time. A household that keeps its own record of what it owes, and reads it at a fixed time, is doing by hand what the tally stick, the prison and the diary once did for it.