The advent and use of money have been a revelation in the world. In fact, the significance of money has outweighed its limitations. The use of money has contributed to the development and globalization of the world. Despite many upheavals, money has transcended to become one of the most important means of exchange in the world. Money has been called variously in different countries over the past centuries. These include dough, cash, and bread, among others. This paper will identify and analyze the three most significant events in the history of money. In addition, the paper will reflect on my thinking about money and on how my thinking has changed during the term.
One of the most important themes in the history of money is the advent of companies. Companies enabled numerous shareholders to pool their resources for a common purpose of investing. The advent of joint-stock corporations, as well as limited liability corporations, spurred the ascent of money. The former refers to a situation where investors own capital while the latter refers to a situation owners are protected in case of failure.
Companies had the affluence to span continents for profits. This created what is known as stock, part of the company that is bought based on its potential. This innovative element ensured companies are run efficiently to increase their stock market prices. Stock valuation ensured that companies are kept on the edge. However, the stock market is also an environment on its own. Decisions that lie with potential investors may vary. Moreover, fear may grip investors when stock prices fall thereby causing them to sell-off.
Uncertainty can lead to the fall of companies, which can also cause financial bubbles. For instance, shares can rise to unsustainable levels thereby causing a crash. In most cases, insider investors reap from naive investors in the event of a financial bubble. The stock market has five main stages namely displacement, euphoria, mania, distress, and revulsion. Only insiders have adequate knowledge of the stage at which the stock of a company can be.
In other words, most speculative buyers lose out. Therefore, these naive investors are usually ripped off indirectly without knowing. The stock market can be interrupted by events such as wars or revolutions. In essence, prevailing political events also affect the stock market as well as company performance. This is possible because prevailing political conditions can raise inflation, which in turn can lower stock prices. However, stocks are much better than bonds.
It has been proven that most governments tend to fail to honor their promises on bonds. On the other hand, companies tend to give dividends to their investors with the probability of a capital increase. Nonetheless, the return on capital is more volatile than the return on bonds. Moreover, companies have higher chances of going bankrupt than sovereign states. The first central bank in the world initiated the stock market in the Netherlands. Nonetheless, after the bubble, the fall of VOC coincided with the fall of the Dutch empire. Moreover, a stock market bubble in France also led to financial catastrophe leading to revolution. Stock bubbles have been witnessed at such a scale that it has contributed to world depression in the past.
Of Human Bondage
The second most significant event in the ascent of money is the creation of bonds. In fact, the advent bond market is considered the second most significant revolution in the history of money after the advent of the credit system. During Clinton’s time as president, the bond was touted as the single most important economic stimulus in the United States. In most cases, multinational corporations or governments borrow money from the public through the issuance of bonds.
Bonds have created a mountain of debt for governments as seen in Japan’s case. Of great concern is the fact that the bond market decides the face value of bonds, which may arise, thereby increasing government debts. Bond issuance began some eight centuries ago in Northern Italy but has evolved to about $18 trillion in international trade. Moreover, the domestic bond has reached high levels of about $50 trillion as observed in Japan’s case.
The bond market affects everyone. For instance, retirement benefits are usually invested in bonds. Additionally, it sets lasting interest rates for countries. That is when prices for bonds decrease then interest rates increase. This can have painful repercussions for citizens. In essence, such a move can lead to a decline in capital as well as an increase in mortgage rates. Essentially, the bond market is the foundation for every other market since it affects the value of every commodity in the market.
Moreover, it influences every fiscal policy in a country with its ability to increase the cost of borrowing. Eventually, the government can opt to raise taxes or default on bonds, or cut expenditures. It should be noted that all these decisions have repercussions on citizens. Essentially, the introduction of bonds helped city-states in Italy to succeed in waging wars between them. Moreover, the bond market helped build Rothschild banks to rank among most the powerful institutions in the world.
Furthermore, the American civil war was a testament to the significance of the bond market. Indecisive actions led to the South’s fall because they could not continue with their cotton-backed bonds. Moreover, the Rothschilds did not invest in their bonds. Ultimately, they lost the war as financial repercussions crept in. Moreover, investing in government bonds to finance the German war ended up in national insolvency. In fact, the notion that the bond market has lost its value is a fallacy since what has reduced inflation in most countries is reduced cost of goods due to technological advances. In essence, the creation of the bond market has transformed the history of money. The bond market is in fact, one of the most significant events in the history of money.
Safe as houses
The third most significant event or theme in the history of money is the advent of property. This term has been utilized spontaneously to mean ownership of assets such as land, homes, or real estate, among others. In the past, property ownership came with big tittles and political mileage. However, those who own properties now have fewer powers and titles. In fact, most property owners are currently from the general population.
Moreover, during aristocracy, male members of the elite owners inherited properties. In the early nineteenth century, landowners chose 370 of the 450 members of parliament in England. It should be noted that although aristocrats do not have political influence in England now, land ownership is still monopolized by few people. For instance, two-thirds of the land in Britain is owned by just 189, 000 families. Property has been seen to entice lenders more than anything else does because it does not disappear. In this regard, a borrower pegs the risk of losing property on salary while the lender pegs risk on the property. This is unfair to borrowers since they have a higher risk of default than lenders.
People like the third Duke of Buckingham owned numerous acres of land yet he still found himself in debt. The Duke’s fall was an indication of a new order, the democratic era in British history where a regular job was considered more important than an inherited title. This was quite clear when the Duke’s son became the chairperson of London and North Western Railway Company despite owning thousands of acres of land.
America is credited with creating a property owner’s policy. The advent of mortgages revolutionized property ownership. Yet it had its challenges especially during depressions that led to auctioning of homes. The FHA did well to revive property ownership by granting insurance cover for mortgage lenders. Moreover, the FHA formulated structures for long-term mortgages. This prospect revitalized property ownership in the United States and the world at large. In essence, the advent of property ownership was a significant event in the history of money.
Money has become the most important asset in the world. Almost every meeting or event discusses the use of money. Money has made it possible for the world to become globalized. However, the advent of money has also come with its implications. For instance, the elite has structured ways of swindling the rest of the population. The three main events that have defined the history of money include the advent of the bond market, the introduction of the stock market, and the beginning of property ownership. At the beginning of the term, I thought that money is everything. I also thought that those who have it in plenty do not have loans since they do not need it. However, I have learned that one has to be a better manager of his money to avoid becoming bankrupt.
I have also learned the various dimensions of money. These include bonds, stocks, and property. Out of the three, I have learned that property is the safest. However, I have also learned the risks associated with using the property as security for the loan. Initially, I thought that bonds were issued to benefit society. Now I know that this is not the case. In fact, bonds are issued to help governments or companies that issue them.
That is, they are issued not in the interest of buyers but in the interest of borrowers. Additionally, I have learned that the stock market defines a company’s viability and success just like the bond market defines a country’s interest rates. Additionally, I have learned that the inflation rate is a factor of the stock market while the long-term interest rate is a factor of the bond market. Furthermore, I have learned that recessions come because of poor fiscal policies leading to a fiscal bubble. The study of the history of money has revitalized my thinking about money.
The three most important themes/events in the history of money include the creation of bonds, the instigation of companies (stock market), and the initiation of property ownership. These three themes/events have revitalized fiscal policies in all governments. In fact, they have helped shape international monetary policies across the globe. Nonetheless, it is worth noting that the three have their risks, especially the bond market that is unpredictable due to its high volatility. This course has enabled me to learn important tips on the risks associated with each of the investment methods. Moreover, I have learned to appreciate crucial landmarks made by these events/themes in the ascent of money.