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March 16, 2014

The Ascent of Money: A Financial History of the World

Have you ever thought about the Ascent of Money?

Money can be an elusive element in the society around us. This ever present aspect of our lives can be the source of happiness, a measure of success, or the cause of major frustration and stress. Money is a part of our daily lives whether it includes buying or selling services, borrowing and lending, investments, and many other actions that permeate our daily lives. It has become commonplace to carry currency in our wallets or purses, whether in the form of cash or electronic cards, but have you ever considered the history and evolution of currency as we know it? In Niall Ferguson’s book, The Ascent of Money, the history of finance and trade is explained. In a particularly interesting section of the book, the evolution of currency is closely examined

The section starts with the story of the Inca Empire, which existed about five hundred years ago, and essentially functioned without currency. While the Incas did find value in precious metals like silver and gold; labor was the typical unit of trade. Their Empire closely resembled a Communist society, but failed after an explorer named Francisco Pizarro discovered the land and desired to monetize the precious metals that were found in abundance there. This great empire is now the land of Peru.

During Pizarro’s conquest, he and his army were able to collect over 13,000lbs of gold and 26,000lbs of silver. Shortly after Pizarro’s death, an Indian named Diego Gualpa discovered a mountain that contained solid silver ore, and made a decision that would change economic history. The mining of the silver in this area was a strong industry and lasted nearly two centuries. Of course, his natural response to finding such large amounts of metal, particularly silver, was to manufacture coins and currency.

Even before silver was discovered in Peru, currencies were made from several different materials including clay, bronze, silver, gold, and any other material that held value for trade. Unfortunately, whether with precious metals or with the modern dollar, the intrinsic value of any currency fluctuates with its availability in the market. For example, if a market is flooded with currency, the value of that currency tends to drop due to its high level of availability.

Currency has come a long way from clay tablets and coins made of silver. Now on a daily basis trades occur with a currency that is not even tangible.  With electronic transfer of funds, investments and purchases can occur internationally in a matter of minutes. Goods and services can be purchased online without either party making contact with cash. Ferguson reminds us that in the end we are always placing our trust in another party to deliver quality goods and services that meet our expectations. No matter what the form of currency may be, there is a certain level of faith involved when an individual is expected to pay their debts, deliver products, and offer the consumer a quality experience.

For more info on the history of money and finance, check out Niall Ferguson’s book, The Ascent of Money: A Financial History of the World

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