Introduction
In part 1 of The Ascent of Money, Harvard University’s Professor Niall Ferguson explains how the concepts of money and banking came into existence. He explains this in the context of the 2008 global financial meltdown. This part of the documentary lays the groundwork that will enable the narrator explain how the effect of bankruptcy of a few institutions could impact so heavily and widely on the financial system. The existence of banks in the financial system as a link between lenders and borrowers is critical to the survival of the concept of money. Yet the strength of the financial system is depicted in this documentary as the very weakness. This essay provides a summary of the documentary by Niall Ferguson known as The Ascent of Money.
First, Ferguson proceeds by giving a history of money. A long time ago, the Inca did not have the concept of money. Instead, they placed value on work. Labor was their unit of value. However, this would soon change. Franscisca Pizarro brought the concept of money to the Incas (The Ascent of Money 6:01). In what is modern-day Bolivia, Pizarro discovered silver mines where slave labor was soon introduced. Mining was done in poor environments where there were poor ventilation and inadequate space. The silver mined was to be used to mint silver coins, a version of money that exists to date. These silver coins were also shipped overseas, beginning what was one of the earliest, forms of foreign exchange. In Spain, so much silver was converted into coins to fuel war conquests that the value of these silver coins depreciated greatly. This was a form of inflation and a good lesson for Pizarro and those who used money at the time. Money was only as good as the value of what it could purchase. Money only worked if the people who used it placed enough faith on it. This introduces the next section of the documentary which explores trust in money.
Ferguson examines the concept of trust in money. Money could be anything as long as its users placed confidence on it. This is illustrated by an example of Ancient Mesopotamia, where people relied on clay tablets with the concept of “repayment of bearer.” This meant that the bearer of these tablets would be repaid a given amount of money. This concept of trust still exists today where trust is not placed on real “hard” objects such as gold, silver or clay but on virtual money represented using numbers on a screen. Money may be explained as “trust inscribed.” The Incas did not fully grasp this concept, and that is why there was tremendous inflation on their silver coins because they over produced, therefore, diminishing its value. For the money to be respected and trusted, it has to be hard to come by. Today, the entire financial system is based on trust. People trade in transfer of numbers, which are not backed by actual assets but only by faith. The concept of trust soon shifted to the idea of credit and loans.
The concept of loans and credit is just as fascinating as that of trust. Some of the earliest money lenders were found in ancient Rome. Trust was in short supply, and these lenders had to be very strict to ensure that their money was returned by the borrowers. To provide the convenience of a loan to a borrower, the concept of interest was birthed. The calculations of these money transactions were initially done using Roman numerals, but a scholar known as Leonardo of Pisa or Fibonacci soon introduced Arabic numerals to these calculations. This made it very easy to calculate interests on loans and other mathematical problems involving money. The concept of interest as it existed during this time is captured well in the Shakespearean play, The Merchant of Venice, where the name Shylock is repeatedly used. Shylocks were usually Jews, who were only allowed to operate in the ghettoes. An example of such ghettoes was in Venice. These Jews were tolerated rather than celebrated. The concept of interest was still discredited by many people at the time. They saw it as an opportunistic strategy by those who had money against those who didn’t. By law, these Jewish Shylocks would only legally operate within the confines of ghettoes. An example of these kinds of dealings still exists today where the lenders can go to extremes if borrowers default on their payments. Soon, however, interest was transferred from administration by shylocks into banks. This was the rise of the Medici Family.
The Medici Family started the banking system. Essentially, they started as foreign exchange agents. They would exchange currencies at a small commission. This enabled them to shift slowly into a lending system where interest was institutionalized and concealed. The Medici Family slowly rose into leadership positions through politics. However, some of them were violent individuals who treated their borrowers with no mercy. With the emergence of Giovanni Medici, they soon polished their act and became more professional than they had been before. They moved from being backstreet money lenders into elite bankers. Soon, the practice of banking and charging of interest became close to divinity. This is captured by a painting of one of the members of the Medici family washing the feet of Jesus Christ. The Medici Family learned their trade in elements such as spreading their risk and introducing different packages for their clients. However, the Medici’s still faced problems with some of their borrowers. This concept of banking was so elaborate that one may imagine that banks in modern times should have learned how to deal with bad debts. The recent financial meltdown confirms that banks have still not learned how to deal with borrowed money, particularly in the United States.
The American economy is based on borrowed money. There is a very sharp difference between modern-day America and the times of the Medici Family. This is because while the Medici Family and other lenders lent their money to the wealthy, who could pay back comfortably, the modern American money system is built on lending to the poor, who have difficulties paying back. This is the reason why one finds a bank giving a loan and using the borrowers’ salary for the following week as collateral. Poor decision-making on lending and borrowing has resulted in numerous cases of bankruptcy in the United States to the extent that items are often repossessed and auctioned. Ferguson calls it a cycle. However, the only hope for America is that the system is favorable for people to keep trying in business even after one or two failures. Henry Ford is an example of an individual who eventually succeeded, despite failing severally.
Conclusion
The Ascent of Money is a documentary by Harvard University’s Professor Niall Ferguson. He indicates that the context of his documentary is based on the 2008 global financial meltdown. He provides a history of money and how it was introduced to ancient Inca kingdoms by Franscisca Pizarro. The concepts of inflation, trust in money, credit and loan, interest and banking are explained through examples in history. Overall, this first part of the documentary sets the stage for further exploration of the concept of 4money in relation to the 2008 global financial crisis.
Work Cited
The Ascent of Money. Dir. Niall Ferguson . Perf. Niall Ferguson . YouTube, 2011. Film.
