Sorry, just realised I didn't answer the first part.

It's necessary because it allows people to cooperate over long distances without personal relationships. I can lend resources to a guy on the other side of my country and be reasonable sure I'll get them back again (plus a bit extra for the time) without even knowing his name.

This means that resources flow very efficiently from people earning them to people who can use them. So economies which allow for borrowing and lending make more stuff than economies that don't.

In peacetime that means more necessities and luxuries to support a larger population. In wartime that means more vehicles and weapons.

All other things being equal, the nation with the fitter economy wins.