The program “Ascent of Money” describes the influence of the development of money and financials on the world’s economy and the people’s life. The program consists of four parts discussing the history and events that have to be seen in the context with money or other financial terms. The presenter of the facts and history is Dr. Ferguson, a professor at Harvard University.
The first part “From Bullion to Bubbles” starts with the Incas who had a lot of silver and gold. When the Spanish conquerors arrived in South America they started mining of gold and silver because they gave it a value, while the Incas saw no worth in it. Shipping coins of gold and silver to Europe helped the Spanish to fund their wars and conquers. But money has only the value that somebody is giving to it and people who trust this promise. With the increasing amount of silver and gold in Europe the value decreased because people lost trust in it. The introduction of money led to a new kind of business: lending money. In Scotland emerged loan sharks with giving loans on high interest rates to other people which was a great deal for them. In Italy it was prohibited by the Christian theology to lend money on interests. But Jews who were discriminated and segregated could lend money on interests to others so they were tolerated in the society but had to stay in their “Ghettos”. The Medici family in Florence (Italy) was also conducting lending. They officially did not lend money on interest they just did currency exchange due to the different currencies in Italy. Charging each transaction of exchange with a commission they could make long-term deals that were similar to lending. Later the Medici’s preserved money for others and did also not pay interests – they paid a “risk bonus” to the owners of the money. This way the Medici’s became the most powerful family in Italy. The city states of Italy were fighting against each other in the 14th and 15th century. To fund the combats and the contract fighters they collected money with emitting bonds to their citizens. But an increasing number of bonds let to brake-up of the bonds what caused higher interest rates and hence the bond market dominated all other interest rates. Later in the Netherlands the Dutch East India Company was founded and made money with the import of spices from India. To share the risk of and to fund the long and risky journeys to India stock shares were emitted to led citizens participate in the profits of the business. Shares could not be given back but could be sold to other investors while the prices were regulated by supply and demand. John Law was a Scottish man that absconded from London because of a conviction to go into jail. After a period in the Netherlands he moved to France where the king had problems with the public debts and deficit. He “invented” bank notes that are not covered with coins but with titles and other assets. That helped France flourishing the economy and to reduce deficit. John Law founded the Company of the West which had the monopoly on the trade with Louisiana. People were invited to buy stock shares to participate in the profit. With this money the French public debts were transformed into shares of this Mississippi Company which value increased. In this way he built a stock market bubble which endangered the French state and had to leave France.
In the second part “Bonds of War” Dr. Ferguson describes the Rothschild as a powerful family from France. They traded gold on different locations like London, Paris, Rome and earned money with price differences through selling and buying. Bonds were emitted to finance states or companies and seemed in times of economic troubles as a safe investment: when the investment is placed one gets his money and the interests back after an agreed period of time. Especially in times of war bonds were emitted by governments/states to refund the costs. In the Civil War the Southern States gathered cash with bonds that were secured with cotton. As long as it seemed to be a victory for the Confederated the bonds increased in value but with the conquest of New Orleans by the United States the South lost control about their important harbor to trade cotton. Also China, India and Egypt emerged as cotton producers what expedited the decrease of the bonds value. The need for money forced the Confederated to print money what led to inflation what is a great problem for bond owners: their interest earnings are reduced. Today states still emit bonds which are bought by private persons, banks or other countries. Similar to share of stock bonds cannot be given back but they can be sold at the bond market for a current price that somebody wants to pay. The prices are influenced by specific events like battles, rumors and huge sales/purchases what brings power to some people to influence prices. Ferguson mentioned that in aristocratic society like the Victorian Britain political power was interlinked with property and other assets. Property in the meaning of Dr. Ferguson could nearly be everything one could own: money, a house, titles, stock shares or any other assets. But property is not as safe as most people think. In the thought of never-ending wealth the aristocracy came to an end through borrowing much more than their income was and much more than they had as security. Investments in foreign countries were because of the long distances very risky because they depended on the foreign government what led to colonization in the 19th century. But the beginning of the 1st World War had shown that the world is not as safe as new financial and economic developments of former years let it seem to be.
The third part “Risky Business” is about the origins of insurances and the effects of Hurricane Katrina to New Orleans. A flood caused by broken bund after Hurricane Katrina had passed New Orleans without any destruction flooded wide areas of New Orleans.
- Quote paper
- B.Sc. (Bachelor of Science) Sarah Dorst (Author), 2010, Literature Review: The Ascent of Money: A Financial History of the World, Niall Ferguson, Munich, GRIN Verlag, https://www.grin.com/document/174087