Money Changes Everything: How Finance Made Civilization Possible
You have 144 highlighted passages
You have 117 notes
Last annotated on May 11, 2016
INTRODUCTIONRead more at location 133
Note: INTRO@@@@@@@@@@@@@@@@@ NESSUNA CIVILTÀ SENZA UNA FINANZA SOFISTICATA...LA MACCHINA DEL TEMPO... MOBILITÀ SOCIALE... ASTRAZIONE E CONCRETEZZA... EMERGENZA... PIÙ RICCHEZZA PIÙ CONTRATI... FAMIGLIA E FINANZA...URBANIZZAZIONE E ANONIMATO... Edit
Finance is often regarded as an abstract, mathematical subject that occasionally calls attention to itself by dramatic crises or as a symbol of excess.Read more at location 134
Finance played a key role in the development of the first cities, the emergence of classical empires, and the exploration of the world.Read more at location 135
writing was invented in the ancient Near East specifically for recording financial contracts.Read more at location 137
Finance was integral to the first complex models of time and risk.Read more at location 138
The golden age of Athens owes as much to financial litigation as it does to Socrates.Read more at location 138
Rome’s legendary wealth could not have sustained itself over the centuries without complex financial organization.Read more at location 139
Chinese civilization developed its own financial tradition that enabled rulers to hold together a vast empire.Read more at location 140
Finance was an important co-factor in the Industrial Revolution.Read more at location 143
twentieth century, capital markets democratized investing and stimulated novel solutions to major social problems: social security, sovereign funds, and personal savings accountsRead more at location 143
finance has also created problems: debt, market bubbles, devastating crises and crashes, exploitative corporations, imperialism, income inequality—to name only a few.Read more at location 146
Like other technologies, it developed through innovations that improved efficiency.Read more at location 148
The power of finance to effect such important transitions in world history is that it moves economic value forward and backward through time.Read more at location 150
A mortgage is so commonplace that it is hard to fully appreciate it. A homebuyer can suddenly conjure up a fortune he or she does not have.Read more at location 152
By the same token, a person worried about retirement can actually buy future living money today—usually at a significant discount.Read more at location 154
technological structure that is able to express and enforce commitments that extend over decades and in some cases over centuries.Read more at location 156
In essence, financial technology is a time machine we have built ourselves.Read more at location 157
It also changes the way we think. Finance has stretched the ability of humans to imagine and calculate the future.Read more at location 159
civilizations demand sophisticated tools for managing the economics of time and risk.Read more at location 163
China is an important part of this book precisely because it faced civilization’s complex challenges of economic time and space in its own way.Read more at location 166
first paper securities—printed money that Marco Polo saw and used in China centuries before printing emerged in Europe.Read more at location 169
finance has vastly improved our species’ ability to reduce existential risks and to allocate resources through time to foster growth.Read more at location 174
The biggest of these is whether the intertemporal balance—the trade-off between current and future generations—can be preserved.Read more at location 176
Finance has four key elements: 1. It reallocates economic value through time; 2. It reallocates risk; 3. It reallocates capital; and 4. It expands the access to, and the complexity of, these reallocations.Read more at location 185
The example of the mortgage above demonstrates the first key element: reallocation of economic value through time.Read more at location 190
Second, finance reallocates risk. Reallocation through time means that financial contracts must cross the barrier of uncertainty that separates present and future.Read more at location 193
For example, life insurance contracts can shift the risk of mortality from a single household to a large institution, which, in turn, can diversify by pooling it together with many other contracts.Read more at location 196
Third, finance reallocates capital. The stock market, for example, allows the flow of investment into productive enterprises.Read more at location 197
Fourth, finance expands the access to and complexity of these reallocations.Read more at location 200
finance provided an increasingly richer set of intertemporal contracting possibilities.Read more at location 200
this complexity challenged the very boundaries of written language’s ability to specify them.Read more at location 202
The virtue of such complexity is that it expands the contracting “space” between parties—that is, the number of dimensions along which they can negotiate.Read more at location 203
When you do this, you are able to arrive at agreements that simpler systems might not.Read more at location 204
There are two broad reasons for shifting money to the present: consumption and production.Read more at location 209
Consumption loans can be used to reduce risk. In an uncertain world, sudden expenses arise. Financial contracts allow you to borrow or pledge against the future to mitigate negative shocksRead more at location 211
extreme circumstances, such as crop failure or a sudden illness, an emergency loan is a way to put food on the table and provide medicine to the sick—itRead more at location 212
They do not simply smooth economic shocks between the present and future; they make a different kind of future possible.Read more at location 217
By the same token, finance allows productive use of human ingenuity. Without finance, the only people who could start a business would be those who already had money to do so.Read more at location 221
In this sense, finance broadly disseminates the economic advantages of wealth—itRead more at location 223
democratizes access to productive capital and removes the natural constraintsRead more at location 224
The use of finance for consumption and production also has potential problems. Consumption loans have been criticized as promoting profligate behavior and exploiting desperate borrowers.Read more at location 225
Productive loans can lead capital astray; easy money can fuel foolish projectsRead more at location 226
Consumption and production use current capital; investment provides that capital. It is the basic technology for saving for the future. That is why pension funds hold stocks and bonds and other financial assets.Read more at location 233
The rate of return on the investment can be thought of as the price of time.Read more at location 239
For example, if the interest rate is too low, investors may prefer to spend their cash now rather than save it. If the interest rate is too high, producers may forgo projects, because their expected return on borrowed capital is insufficient to repay the loan.Read more at location 240
Investors are connected to today’s consumers and producers through financial institutions and markets.Read more at location 243
When financial markets crash, investors can curtail the flow of capital to enterprise.Read more at location 244
Demographics are fundamental to the equation. As the world’s life expectancy grows, the need to save grows as well.Read more at location 245
Finance not only intermediates the present and the future, it also intermediates between the young and the old.Read more at location 246
This is fine in a world of low-hanging entrepreneurial opportunities, but as the growth of emerging economies slows down to the pace of mature economies, the question of where future growth will come from looms large.Read more at location 248
It is easy to think about finance as an abstraction—after all, the notion of transcending time is fundamentally abstract.Read more at location 252
Society has long struggled with placing finance in a moral and cultural context.Read more at location 253
it creates the potential for social mobility and social disruption.Read more at location 255
In some sense, the most basic intertemporal economic institution is the family.Read more at location 256
Likewise, a reciprocal gifting commitment among family, friends, or members of a community fulfills the same function as a financial loan.Read more at location 257
In this sense, financial contracts were not entirely new. Rather they substituted for, and often improved upon, traditional intertemporal mechanisms.Read more at location 260
At times, culture has lashed back at finance—particularly around financial crises.Read more at location 262
For example, some of the earliest ad hominem attacks on financiers were by Babylonian political leaders consolidating authority.Read more at location 263
The first stock market boom in eighteenth-century Britain was criticized in part because female investors were making money in a traditionally male-dominated realm.Read more at location 264
Because finance is a potentially destabilizing force, society has often sought to place bounds on it.Read more at location 266
restrictions on financial contracting is the implicit—and reasonable—supposition that rules are needed to prevent the financially adept from exploiting those less sophisticated—andRead more at location 269
It can focus economic power, shifting it quickly from place to place. It can be both a weapon of war and an instrument of peace.Read more at location 275
finance emerged in the first civilizations; reasons complex financial instruments are less frequently part of the toolkit of traditional cultures.Read more at location 277
The hallmarks of civilization are urbanism; social specialization; sophisticated symbol systems; and complex, multidimensional interactions.Read more at location 278
In a city you not only interact with family and long-term acquaintances. You also interact with people for whom traditional reciprocal relationships do not work.Read more at location 286
Financial markets allow strangers to exchange value through time more efficiently than traditional reciprocity arrangements do. They do not require shared belief systems or cultural norms, simply a structure for documentation and enforcement.Read more at location 289
Civilization not only requires contracting among many different types of economic agents, but it also requires flexibility to respond to complex, multidimensional problems. Financial contracts allow an enormous variety of novel payoffsRead more at location 292
Complicated lives require interaction, planning, and commitment in many different dimensions over a variety of unknown future outcomes.Read more at location 298
One important way that humankind learned about the boundaries of the world was through merchant voyages requiring money and time—underwritten by investors hopeful of a future profit.Read more at location 301
Columbus had to wait patiently for the funding of his first transatlantic voyage,Read more at location 305
His contract with the Spanish crown was extraordinarily complex: he received not only political favors but also 10% of future revenues from transatlantic trade. He also negotiated an option to invest up to 1/8 share of any commercial enterprise organized to exploit his discoveries. Without this intertemporal contracting, he might never have set sail.Read more at location 306
Financial problems stimulated the development of writing, recording, calculation, and printing.Read more at location 309
some of humanity’s most important mathematical innovations, including the discovery of logarithms, the mathematics of probability and uncertainty, and the ability of mathematics to express an infinitely long series and to divide time and the process of change into infinitesimally small intervals.Read more at location 310
Markets taught people about such things as the limitations of the capacity for reason and the dangers of miscalculation.Read more at location 313
Not only did financial architecture challenge traditional institutions, it also challenged traditional conceptual frameworks for dealing with the unknown.Read more at location 316
Cultural notions of chance and fortune are embedded in a rich set of symbols, myths, and moral valences.Read more at location 317
The hardware is constituted by such things as financial contracts, corporations, banks, markets, and monetary and legal systems.Read more at location 320
On an even deeper level, finance is a system of thought; a means of framing and solving complex problems about money, time, and value. In essence, this is the softwareRead more at location 322
This book highlights historical episodes in the development of both financial hardware and software.Read more at location 324
Financial solutions improved the capability of humankind to create cities, to explore new worlds, to expand and equalize economic opportunity, to control risk, and to provide for an uncertain future. But at times financial innovation has created serious disequilibria in and across societies;Read more at location 328
inventors and users of financial tools. Sometimes we know these people, but often they are anonymous.Read more at location 333
techniques were invented to make money, not to make their inventors famous. In fact, usually when we know a lot about financial innovators, it is due to a disaster.Read more at location 335
For example, the visionary banker John Law is still known for the collapse of his innovative Mississippi Company designed to rescue France from bankruptcy in the years leading up to the bubble of 1720.Read more at location 336
Ultimately, finance is personal and concrete, not abstract and theoretical.Read more at location 341
Much of this book unfolds from research by archaeologists, classicists, historians, economists, and mathematicians.Read more at location 343
For example, we would not understand the birth of finance in the ancient Near East without Professor Denise Schmandt-Besserat of the University of Texas, who discovered the origins of cuneiform writing—along with the origins of financial contracts.Read more at location 346
We owe a lot to the Shanghai financier and monetary historian Peng Xinwei 彭信威, who devoted his life to Chinese financial history before disappearing in the Cultural Revolution.Read more at location 348
A third perspective is empirical: the world of things and places.Read more at location 351
For finance, this means coins, documents, correspondence, and places where these things were made and exchanged.Read more at location 352
My personal view is that the trajectory of technological innovation has been mostly upward and will continue to be so. The financial solutions we have in the world today are generally life improving.Read more at location 365
The problems they created have been serious at times, but as a global society, we seem to make progress in dealing with them.Read more at location 367
Would the world have been a better place without the discovery of loans, banks, bonds, stocks, options, capital markets, insurance, and corporations? Perhaps, but I doubt it.Read more at location 367
The argument in this book is that financial technology allowed for more complex political institutions, enhanced social mobility, and greater economic growth—in short, all the major indicators of complex society we call civilization.Read more at location 369
Skyscrapers in the 1920s were financed with new investment instruments,Read more at location 7682
Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market.Read more at location 7684
American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation,Read more at location 7687
I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.1Read more at location 7692
Her seminar that day at Harvard Business School was a lesson in how Americans adopted stock market investing. The hand grenade was from the First World War. It was a reminder that much of American attitudes toward investing emerged in the wake of the Great War.Read more at location 7701
As post-war Russia in the 1920s marched toward a Marxist state, Americans moved vigorously in the opposite direction with a distinctive American kind of idealism and fervor.Read more at location 7703
investing by American households increased significantly only during the First World War. The US government issued savings bonds to finance the American war effort, and these were purchased, in part, as a matter of patriotic duty.Read more at location 7706
While Russians were being trained in the 1920s to reject the bourgeois idea of money and savings, Americans were introduced to a sophisticated new world of capital markets by brokers and bankers who saw retail investing as a new profitable area of marketing.Read more at location 7711
Although the New York Stock Exchange has operated since 1792 and the nineteenth century is replete with colorful stories of Wall Street speculators and railroad magnates, the United States was a net importer of capital until the twentieth century.Read more at location 7713
Americans were cognizant of how British capital markets underwrote British imperialism in the Victorian eraRead more at location 7716
Julia Ott points out that investment in American companies in the 1920s became a means for self-improvement, self-reliance, and personal empowerment. For the price of a share, an investor became a voting partner in a giant companyRead more at location 7718
These themes did not emerge spontaneously in American society; rather, they were carefully nurtured by Wall Street—particularly through the promotional activities of the New York Stock Exchange.Read more at location 7720
In contrast to the popular pre-war notion of a Wall Street dominated by insiders like Daniel Drew, Cornelius Vanderbilt, and J. P. Morgan, the New York Stock Exchange in the 1920s emphasized fairness.Read more at location 7724
investing suddenly became a national pastime.Read more at location 7729
Most of Henry Lowenfeld’s studies of global diversification in London used bonds to illustrate a sound investment policy.Read more at location 7732
The Foreign and Colonial Government Trust was fashioned to capture high average bond yields, not capital appreciation of shares.Read more at location 7733
One thing made bonds less safe in the modern era: they carried the risk of inflation.Read more at location 7735
The hyperinflation in Germany after the First World War horrified the world.Read more at location 7736
