The idea of “equity” in property emerged in 16th-century England and spread like a virus. It lies behind democracy and the credit crunch and will determine China’s futureby Andro Linklater / December 16, 2009 / Leave a comment
Published in January 2010 issue of Prospect Magazine
I live in an ancient farmhouse in Kent that boasts a cat slide roof, a chimney stack leaning like the tower of Pisa, and a living room whose ceiling is supported by an immense wooden beam low enough to stun anyone taller than a jockey. In other words, it looks like a quintessential English country cottage.
But quaint though the roof, chimney and beam now seem, these three elements are evidence of a revolution in human affairs. Looking at them, I can recreate the events of almost 500 years ago, like a detective surveying a murder scene.
For sometime in the early 16th century, my predecessor in the house was infected by a radical new idea, one that changed him so profoundly that he altered the shape of the building to reflect the new way he thought about himself and his neighbours. And like a mental epidemic, this idea then spread from southeast England and gradually extended across the country. Two generations later colonists carried it to North America. From there the contagion spread to the Pacific, and around the globe from Nova Scotia to New Zealand. It is now so deeply embedded in our psyches that it is hard to recognise the pervasiveness of its influence.
The new idea was easily described—that land itself could be an individually owned, tradeable commodity—but its origins were old and complex. Land ownership rights began to be recognised under the common law as early as the 12th century; a market for land existed in the 14th century, and in some exchanges cash payments were involved; and the practice of fencing off individual parcels of ground, the enclosure movement, began in the 1480s. During the course of the 16th century, however, one crucial element was created that linked all these elements together in a single financial nexus. An almost imperceptible change in mortgage law introduced the principle of fairness, or equity, to deals that involved lending money against the collateral value of a chunk of earth. Today, anyone who has a mortgage is aware of the concept, if only through the small-print warning on the agreement that begins: “Your property may be at risk…” But that phrase encapsulates a near 500-year-old principle of momentous significance. It not only underpins the modern mortgage market, it shapes societies around the world—from the abandoned sub-prime mansions of Arizona at the heart of our current economic crisis, to the aspirant property owners of Shanghai who may yet bring us out of it.