The Ascent of Money: Episode One

Professor Niall Ferguson's lively new series investigates the story of money.

In the first episode,Dreams Of Avarice, Ferguson pointed to banks as the driving force behind empires. "The Ascent of Money has been an indispensable part of the ascent of man".

Five hundred years ago, the Inca Empire had no concept of money, and called gold "the sweat of the sun". In 1532, the Incas met Francisco Pizarro, a Spanish conquistador.

Pizarro and his fellow conquistadors discovered the Cerro Rico (rich hill) in what is now called Bolivia, where silver was plentiful.

Silver ore was ground up, mixed with mercury and shipped to Europe where it was made into coins.

However, Spain's empire was in decline. Silver declined as so much was mined to finance the Wars of Conquest, making it worthless. Money is only worth what others will give in exchange for it.

Clay tablets were used in Mesopotamia thousands of years ago, which Ferguson examines in a museum, remarking on the presence of a phrase promising to pay the bearer, which exists today on bank notes.

Today, money is traded even when it isn't seen, for example through foreign exchange dealers. Trust is essential, as the conquistadors failed to realise.

The root of credit is credo, Latin for I believe. Without this belief in borrowing and lending money, the economic history of the modern world would not exist.

In Pisa in 1200AD, business required complex calculations, while in China things were more advanced.

Leonardo of Pisa introduced the Fibonacci sequence and demonstrated why Arabic numerals were more useful than Roman numerals.

The new numerals made calculation much easier.

Venice became a hub of moneylending, inspiring Shakespeare to write the play The Merchant of Venice.

The transactions introduced by Leonardo of Pisa remain to this day.

Venetian Jews, like the fictional Shylock, who stayed for over a fortnight were made to wear a yellow hat and were confined to a special area.

Christian merchants, unlike Jewish merchants, were forbidden from lending money as it was a sin. Professor Niall Ferguson describes this as a major obstacle to the development of finance in Europe.

The seventh circle of Dante's vision of hell, painted by Domenico di Michelino on the dome of Florence's church of Santa Maria del Fiore, included moneylenders, where they were tortured while being weighted down with bulging purses.

Professor Niall Ferguson visits a modern day money lender, or loan shark, in Shettleston, Glasgow, where most people don't survive long enough to collect their pension.

One Glasgow loan shark's book reveals that he makes a £2.50 profit on every ten pounds he lends, a 25% profit.

Defaulting on your loan may leave you suffering grievous bodily harm, as even a single defaulter could be very costly. Others may be encouraged by the example and also fail to pay the lender back.

How did banks appear?

The Medici family were one of many Florence moneylenders who moved out to the suburbs and became respectable in society. Two became queens of France and one became Pope.

Prior to the 1390's, they were small-time thugs with many put to death.

Giovani di Bicci created the Medici Bank, which allowed the family to make money on foreign currency transactions. With commission, not interest, charged there was no sin.

During the 15th century, their bank was the most respected in Europe.

Earlier Italian banks had been vulnerable to defaulting, but the Medici Bank was made up of multiple interlocking partnerships independent of the rest. The network extended throughout Renaissance Italy as a result of this spreading of the risk.

Over generous loans to the rich caused the bank to suffer, however.

Modern banking:

Professor Niall Ferguson visits Memphis, Tennessee and has a look at the number of money making options, including the ability to sell your own blood.

In Memphis, cars are regularly repossessed, and United Auto Recovery sells 500 repossessed cars a week.

Bankrupts gather with lawyers to make a deal with their creditors. Between 1996 and 2006, there were over 1 million bankruptcy cases a year.

Some, including Buster Keaton, have gone on to later success.

Next week: a look at the bond market.

Watch The Ascent of Money on 4onDemand or on Channel Four on Mondays at 8:00pm.