The term ‘mortgage’ has its origins in the fourteenth century in Europe. It is a combination of two words ‘mort’ meaning death and ‘gage’ meaning pledge. Its original spelling was ‘morgage’ and to this day the pronunciation remains ‘mawrgij’ though the spelling has changed to add the letter ‘t’. The literal meaning of the term will be ‘death pledge’ which should be understood as the person who has given mortgage keeping his/her word even after death. Needless to say the origins of practice of mortgaging are to be found in money lending activity. In the feudal societies of the medieval period of Europe there was tremendous stratification. As is normally the case with stratification there was a creation of hierarchy which was based in economic equality of some kind or another. Since the economy of feudalism depended mainly on land, it was therefore the main component along which stratification happened. In this stratified society the basis for creation of a hierarchy was the ownership or the lack of land.
Normally all hierarchically organized societies produce economic inequality and are therefore revolve around the notion of ‘class’ which comes into being as the most popular denominator in producing haves and the have-nots. The usual understanding of the relationship between the haves and the have-nots believes that the have-nots have a necessity for the haves but no vice versa. Not only is this partially correct but a blind acceptance of the proposition gives a totally incorrect understanding of the relationship.
In order to understand this better, an imaginary situation can be taken into consideration. The situation, however imaginary, is to be considered a proper representation of the reality that it seeks to portray. Money or the lack of it is the main characteristic that divides people into either the haves or the have-nots. The have-nots have to approach the haves for loans whenever there is a requirement of money for them. The sources of the requirement could be myriad. It could be because a farmer needs money for the acquisition of tenancy rights, or because the farmer needs money to save a standing crop in a situation of adversity or also because the farmer needs to take care of his family in difficult circumstances. Typically, a person in this position used to approach the have to ask for a loan that would help in tiding over a crisis. Here in lies the crux to the understanding of a mortgage.
A person with no money approaches another with money and asks for a loan. The first question that comes to the mind of the loaner is the one that pertains to the means required by the loanee to clear his dues in time. The main question concerns itself with how the loanee would repay the loan over a period of time. At such times, having small property could be handy. One pledges or mortgages a small quantity of gold or land, the equivalent of the money that one requires. The basic underlying principle of this mortgage is that when repayment is satisfactorily carried out the mortgage is lifted and gold or papers to a land are returned back to the original owner. In the event of non repayment of the dues, the loaner who has the mortgaged articles can claim the same as repayment.
With European society switching over from feudalism to capitalism one can see an accompanying change in the way in which mortgages were handled. This change was very gradual and took a long time to become what it is today. In modern capitalist Europe (and the United States of America, which is for all practical purposes and extension of the spirit of European capitalism) one would see that more and more institutions such as banks have replaced the private money lender who kept the mortgages. However, this did not lead to the abolition of the concept or practice of mortgaging. Banks lend money to the loanees after firmly establishing that there are enough paths for the loanee to repay the loan. This now goes to the extent of financing huge industries and not just individuals alone. Most of the trade in the world today happens in the form credit, where mortgages come into play in one way or another.
The advantages that mortgages have produced in society can be seen not just in tidying over a crisis but also in the building of social wealth. The main disadvantage has been when borrowers have been imprudent in seeking money in exchange for a mortgage. That is the time when people have been left without a job or property or both. Off late, the world has been a witness to a financial recession or economic depression. One of the reasons that everyone talks about is the subprime housing crisis in the United States of America that has triggered of the global recession. The main problem with subprime housing is that loans had been given to people without establishing if they were in a position or had the means to repay their loans. It basically means that there were no proper or firm mortgages in place at the time of lending. A large number of people were simply not in a position to repay which essentially means that with no effective mortgage money has been spent without the possibility of recovery.
This is demonstration of the two sidedness of the concept of mortgage. While in the past, mortgaging was equated to extortion, today people find that without proper mortgaging problems of loan recovery arise. One can assume therefore that mortgages are necessary, not necessarily in the best sort of way, but nevertheless necessary when it comes to the management of social wealth. |
