Financing Relationships and Financial Transactions

Financial activity is based on a relationship between two supposedly autonomous parties, one of whom has temporarily idle liquidity and the other a plan to make use of it. Aristotle condemned what he called ‘chrematistics’, i.e. self-enrichment by hoarding wealth, especially species money. This, he said, was particularly damaging because it withdrew means of payment from circulation. The central argument in similar strictures down the centuries, particularly in the New Testament parable of the talents, was that accumulation of money (as a specific form of liquid wealth) reduced liquidity, which in turn could have an adverse impact on prosperity, growth and prices. In the seventeenth century Quesnay showed that the purpose of money was to irrigate the economic fabric, like blood in the human body. Without it, the economic circuit was disrupted and the creation of wealth would suffer. People were thus encouraged to make idle monetary resources available for both economic and moral reasons. Of the many kinds of financing, two deserve special attention: credit (with debt as its counterpart) and participation in investment projects.