To understand modern economic history, you really need to understand just a single word. The word is growth. For better or worse, in sickness and in health, the modern economy has been growing like a hormone-soused teenager. It eats up everything it can find and puts on inches faster than you can count.
In 1500, annual per capita production averaged $550, while today every man, woman, and child produces on the average $8800 a year. What accounts for this stupendous growth?
What enables banks—and the entire economy—to survive and flourish is our trust in the future. This trust is the sole backing for most of the money in the world.
In the new system [in the modern era] based on trust in the future…people agreed to represent imaginary goods—goods that did not exist in the present—with a special kind of money they called ‘credit.’ Credit enables us to build the present at the expense of the future. It’s founded on the assumption that our future resources are sure to be more abundant than our present resources.
The problem in previous eras was that no one knew how to use it [credit]. It was that people seldom wanted to extend much credit because they didn’t trust that the future would be better than the present. They generally believed that times past had been better than their own times and that the future would be worse, or at best much the same.
The idea of progress is built on the notion that if we admit our ignorance and invest resources in research, things can improve.