The Ascent of Money: A Financial History of the World

The Money Mountain tells the story of Spanish conquest and destruction of Inca Empire. The Inca society where “labour was the unit of value” and “the economy depended on harsh central planning and forced labour” was cash-free. Incas thoughts on gold and silver were of an aesthetic nature. The Spanish conquest led by Francisco Pizarro started in 1524. The Empire was completely destroyed in 50 years. Spain collected 13,420 pounds of gold and 26, 000 pounds of pure silver. Cerro Rico, the mountain of silver ore in Upper Peru. The mining works held there took an enormous amount of lives and crippled many of local Indians. When the populations of Indians decreased significantly, the black slaves from Africa took their place. The Spain got 45,000 tons of pure silver from this mountain.

Later the most ancient coins of the world (Athens, Rome) are described. The development of the Muslim world extracted precious metals and their alloys from Europe shortly after the Roman Empire collapsed. There were two ways to get precious metals into the financial system of Europe – a trade with Muslim countries and a war on them. The Crusades followed.

Coins of different composition, moulded in different countries also was a significant issue. The Spanish campaign in the South America solved this problem. As the enormous amount of money was spent by the Spanish crown, the Spanish “piece of eight” “became the words first truly global currency”. The rates of spending gold and silver by Spanish monarchs caused the “price revolution” in Europe (1540s-1640s) when the cost of food raised significantly. “Money is worth only what someone else is willing to give you for it.”

Clay tokens used in Ancient Mesopotamia five thousand years ago played the role of modern banknotes. “Money is not metal. It is trust inscribed.” The lending system existed in ancient Babylon.

Loan Sharks. In 13th century, the Italian mathematician Fibonacci improved the complex monetary system by introducing the ‘Indian method’ or Fibonacci sequence of numbers, and other eastern Ideas in his “Book of Calculation”, as well as introduction of Hindu-Arabic numerals. Turning Fibonacci theories into effective financial practice led Italy to become the most famous moneylender. Jewish usurers were the major moneylenders in medieval Europe because the lending money at interest was forbidden to the Christians by the Church. Jews could not lend money to other Jew but lending money to Christians was not forbidden. Life and activity description of Glasgow loan sharks follows.

The Birth of Banking. The rise of Medici house from a small-time gangster clan to one of the most powerful Houses of Europe starts from Giovanni di Bicci de’Medici. The principles of Medici banking system are described. The Medici banking system became a good example to banking systems of many of the North European countries. The Stockholms Banko found the practice of fractional reserve banking. The Bank of England got privileges from the government that allowed it to operate on a joint-stock basis and to issue banknotes. Two of the core definitions of modern monetary theory are M0 and MI.

The Evolution of Banking. The sufficient role in the industrialization of the Northern Europe in the 17th century was played by the banking system. The Evolution of The Bank of England reflected in rising of the transactions within the bank and division into a banking department responsible for Bank’s own commercial business and an issue department. The rise of commercial and new savings banks in the second half of the 19th century. “Most advanced economies followed the British lead when it came to regulation through a monopolistic central bank operating the gold standard”. The crisis of the Banking system in the USA in the first half of 20th century. Golden standard and the breaking the link between gold and dollar by Nixon in 1971.

Bankrupt nation. “The ability to walk away from unsustainable debts and start all over again is one of the distinctive quirks of American capitalism.” “Many of America’s most successful businessmen failed in their early endeavours”. The key components of the financial system are listed.

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