Taleb explains how debt ruins systems — in contrast to other, more flexible forms of financing:
You’re going to Aleppo, Syria, and Florence and you’re going to send me some silk. You trust me, and my correspondent in Aleppo would pay you the minute I get my silk — that kind of transaction. That’s called letter of credit, where you have debt conditional on some commercial transaction being completed. And it also allows people to finance some inventory, provided the buyer is a committed buyer. That kind of facilitation of commerce is how it all started — the letter of credit — and it developed very well.
Before that we had debt in society and it led to blowups in Babylon, and then they had to have debt jubilees. Then of course the Hebrews also had debt jubilees. And of course, they say neither a borrower nor a lender be. The Romans didn’t like debt. The Greeks didn’t like debt, except for a few intellectuals. Intellectuals for some reason, like Mr. Krugman, like debt.
Later on debt came back to Europe with the Reformation and it was mostly to finance wars. The industrial revolution was not financed by debt. California was not financed by debt; it was financed by equity. So debt is not necessary. You can use it for emergencies. Catholic societies — Aquinas was against debt and his statements were stronger than the Islamic fatwa against debt.
We have learned through history that debt in the form of leverage can blow things up. Debt fragilizes. Now what we have had in this economy is a growth of debt mostly financed indirectly by governments. Because if you blow up, we’re going to be behind you.