The chapter “Dreams of Avarice” of the book “The Ascent of Money” explores different stages of development of money functioning in the world by relating them to corresponding historical events.
The first part of the chapter presents information about the historical backgrounds of money ascent. The history of using precious metal as a medium of exchange dates back to Ancient Greece times. The ancient Mediterranean appears to be the place where the monetary system finds its origins. After the region faced the lack of silver, certain attempts, including crusading, were taken to deal with the crisis.
The conquest of the Inca Empire described as an example of a moneyless society appreciating precious metals for their aesthetic qualities let the Europeans find a new source of precious metal. The discovery of a mountain of solid silver-ore has made the Spanish crown “rich beyond the dreams of avarice”. However, the abundance of silver became a resource curse. These historical events illustrate the fact that the value of the precious metal is not absolute.
Formation of money concepts based on sources other than precious metals began in Mesopotamia, where clay tokens were used instead of coins. The current prevalence of paper money proves the fact the main aim of the money is to provide a promise to pay. The foundation of borrowing and lending systems in the ancient world led to the development of credit concepts we use nowadays.
The next part of the chapter helps to discover the origins of the modern system of loans. Its history dates back to the early thirteenth century and originated in Italy, where the practice of lending money for interest started though was considered a sin. The development of the network of moneylenders caused the evolvement of loan sharks. This term refers to the people offering loans at tremendously high-interest rates.
While illustrating the potential weakness of moneylenders with the help of certain examples, the chapter shows their potential power by presenting an example of the rise of the Medici, considered one of the first European bankers. The family managed to achieve the transfiguration of finance and make the transition from financial success to hereditary status and power. These historical events illustrate the fact that in finance small is seldom beautiful.
The Italian banking system became the model used by North European nations to achieve success in the upcoming centuries. The creation of Amsterdam Exchange Bank, the Stockholms Banco, and the Bank of England brought many innovations that contributed to the development of the modern banking system in the Western world. The financial revolution that relied on the invention of the banking system is considered one of the precedents of the industrial revolution. The nineteenth-century witnessed the number of foundations of influential national banks in France, Germany, Japan, and other powerful countries. The twentieth century brought innovations related to the liberation of bank-created money from a precious metal anchor.
The chapter helps to understand that the existence of money plays a vital role in the development of the world community. The analysis of the history of the banking system proves that credit and debt are essential building blocks of economic development. Studying the information presented in the chapter helps to discover how the historical events related to the development of the monetary system and the evolution of banking have contributed to the ascent of money.