By Martin Dickson

Credit is sometimes considered a modern invention, but is in fact as old as human civilisation.

Loans at interest may be said to have begun when the neolithic farmer lent seed to a cousin and expected more back at harvest time, as Sidney Homer and Richard Sylla point out in their classic History of Interest Rates. The recorded history of several great civilisations started with the elaborate regulation of credit.

Hammurabi, the Babylonian king of about 1800 BC, gave his people their earliest known formal code of laws, including the maximum rate of interest, set at 33{1/3} per cent per annum for loans of grain and 20 per cent for silver.

Ancient Greece and Rome regulated credit and when Brutus attempted to charge the city of Salamis 48 per cent for a loan. Cicero reminded him the legal limit was 12 per cent.

In the Middle Ages, the use of credit was curtailed by Christian prohibition of usury - where more repayment was demanded than the sum given - but Italian bankers developed sophisticated markets in bills of exchange, currencies and deposit banking.

The credit of the best merchants and of free towns was much better than that of medieval princes, who could not bind their subjects to pay their debts.

Their credit was thus ephemeral, depending on youth, good health and military success. Emperor Frederick II (1211 to 1250) usually paid 30 to 40 per cent interest to his creditors.