Niall Ferguson treads backwards on the path laid down by money and exposes the true story behind the birth of Finance from its origins in ancient Mesopotamia to its evolution into a complex system: something he refers to as Planet Finance. Not only does Niall Ferguson prove that financial history is an essential backbone behind all history, he shows that financial history is in fact the foundation of human progress. Money has been a part of human activity for a long time. However, it comes with its own complicated problems and plays a dominant part in our lives
Money throughout the ages has caused wars, created empires and has lead to their collapse. The Inkan empire was a relatively communist society that had no concept of money and lived through barter. After being defeated by the Spanish, they discovered the Inka's massive reserves of precious metals which could in turn be turned into money. This lust, which the Inkan's never understood, made the Spanish rich beyond their dreams. However, this would also be their downfall. Due to the increase in money supply , the value of money declined causing hyperinflation that was devastating to the Spanish economy.
This is due to the fact the money is only worth the value that people place on it, hence when the supply increases, it becomes less valuable. Paper money is an example of this, however intangible money is the new kind of money which is based on mutual trust through the banking system . Without the introduction of credit, our economic history would be impossible.
Fibonacci introduced various ways in his books to Europe relating to finance that improved their arithmetic abilities which in turn revolutionised their economy, for example, explaining to the Europeans how Arabic numerals are superior to Roman numerals. Moreover, Interest was a concept introduced by Shakespeare's money lender as a compensation for the risk of lending money which is a crucial part of economies today. Thus, this concept faced adversity since it was considered sin by many religions, especially Christianity. Today, the concept of Shakespeare's character is portrayed more accurately by clandestine activists such as loan sharks, which is illegal.
The Medici family started the banking systems and were one of the most powerful in Europe. They did their business by sitting behind tables on benches dealing with finance, just like the Jews. The Medici however only became legitimate after the started converting currency for a particular fee. Their success came from decentralisation and diversification that spread out risk and lead to unprecedented profits. Thus the main difference bewteen banks and loan sharks are the cost to borrowers and the risk taken by the lenders which is diminished with modern day banking. The Medici were the first to introduce a respectable way of banking.
However, bad debts have always played a role in banking problems, faced also by modern bankers making defaulting on debts very easy in the United states since they lend to almost anyone leading to more defaulting. In return, those who default need to file for bankruptcy in order to settle the debt. However, this is not seen as a disaster in the United States as according to American capitalism, risk takers are given more chances in order to promote entrepreneurship. Moreover, filing for bankruptcy does not wipe out a debt, only reschedules it.
Later, the rise of Bonds came to be. A government often spends more than it generates so to make up that gap they send bonds that fills in the financial hole. Today governments and businesses use bonds to borrow money which may be enormous in value. This all started when various governments were severely indebted throughout history. To counter this , citizens were to lend to governments and earn an interest in return. The bond market was invented to pay for wars, however later it would be setting interest rates for everyone, rising in power. Niall Ferguson traces the origin of modern bonds back to Northern Italy where the bonds were sold by sovereign city states to their wealthy inhabitants.
Nathan Rothschild, an experienced gold smuggler, had various contacts all around and he used them to transport gold. By smuggling and transporting gold all over Europe for the British, who wanted it to fund their war against Bonaparte, he raised 1.2 million GBP and got a fine commission for it. Rothschild then bought all the gold he could after Napoleon escaped from Elba as he believed that the price of gold would touch the sly as it would be required to fund another long war. However, Napoleon suffered a great defeat in the battle of Waterloo which fought the gold price from going high. However, his luck turned when he bet on a surge in British government bonds, also renowned as ‘Consols', and earned around 600 million GBP in profits. From then on, Rothschild held a monopoly in the finance of Europe, serving as the middle man between governments issuing and demanding bonds. Later on in time, as the American civil war broke out, the South depended on their bonds as always to finance and fund their wars. But as the Confederate South was known to be a bad credit risk, it had to face many challenges in raising the money. Even the Rothschild did not care to invest in them. However, a very resourceful move on the Confederates was that they issued bonds just like they used to, but right after the next crop harvest, the bonds could be cashed in or converted into cotton, which would be sold at pre-war price. In addition, a ban was pu