Introduction
History of money is characterized by many themes, some of which have an important impact on the way people perceive and value money. Some of the most important themes include real estate investments, investments in stock exchange, and risk management policies. This essay reveals some of the underlying aspects of these themes that might change readers’ perspectives on the history of money.
The real estate industry
Real estate investment has become one of the most important drivers of economies in many countries globally. Such importance has been attributed to individuals’ perception of ownership of houses and land. Proper shelter is one of the human being basic needs and, therefore, the real estate industry meets this need.
People consider investments made on land and houses as safe because the value of houses and land tend to appreciate with time. Another aspect that has made real estate attractive is the ease of gaining access to credit facilities. Financial lenders are willing to give credit since the recovery of money after failing to repay the loan is easy.
It is important to note the real estate industry has gone through historical changes in many countries, partly due to both political and economic changes. For instance, homeownership in the history of Britain determined whether one would participate in elections or not. Therefore, the issuance of title deeds was done with more caution and political motives.
In the case of America, economic policies from different political regimes have brought about drastic changes in the ownership of houses. During the great depression, the then President Franklin Roosevelt made policies that allowed more people to own houses by revising mortgage policies and making credit accessible. Later in 2003, the George Bush administration enacted more laws that further allowed more people to own houses and afford the mortgage.
However, access to a loan for mortgage realized through the enactment of the US government laws has had challenges associated with loan management, fraud, and reckless investments. For instance, loan management and the associated cost in the Saving and Loans Association led to the financial crisis of the year 2008.
As more and more people access mortgage and own houses, the investment in real estate has had a fair share of challenges making it not as safe as it is popularly believed. Throughout the world, fraud has blemished the real estate industry with stakeholders, and sometimes the governments suffering severe losses.
Therefore, people should spread their investment and divide their wealth across a wide range of assets as opposed to investing too much in real estate. This will not only spread investment risks but also cut on the cost associated with mortgaging and loan management.
Risk management
Human beings have been exposed to risk throughout history and subsequently, risk management is a prerequisite aspect that should have special consideration in resource allocation processes. Therefore, the apportionment of finances to insurance is a major theme in the history of money.
The growth of insurance
Mitigation and cover from risks have evolved from old school methods practiced by people in major parts of the world to the modern private and government insurance.
Insurance in the ancient world
Though in the ancient world people did not have the modern form of insurance, their responses to loss occurrences have a close connection to modern methods relating to addressing losses resulting from risks. For instance, if a disaster had occurred in the past, people that were not affected had a moral obligation of coming together and giving assistance to those that were unlucky and suffered a loss. It is apparent that this is still done in most developing countries, especially in rural Africa.
Modern insurance
The formal practices of insurance we have today can be traced to the Enlightenment era in Europe. Thisera had radical changes in commerce in most European countries.
At the commencement, modern insurance was mainly private where individuals signed contracts with the insurance company for risk covers. Britain has a rich history of such insurance, with many policies including fire policies having originated from London.
However, private insurance could only cover those who had finances to pay for the premiums. Consequently, governments introduced national insurance, which covers those who cannot afford insurance and other risks not covered by private insurance due to their high costs.
Nature of insurance
Though calamities are unpredictable, they are not random. This realization brought revolutions in modern insurance, especially private insurance. The realization came with standards and measures that are the bases and principles of insurance. These measures include probability, which is the likelihood of occurrence of losses related to risks, the insured life expectancy, and inferences among others. With these factors being the basis of insurance, entering into an insurance contract has been made easier while payouts are predictable and precise, the insurance industry has exponentially grown throughout the world.
As mentioned earlier, there is a need for state or national insurance due to limitations the private insurance has. With the inability to cover all groups of people especially those who cannot afford premiums while some events are considered as uninsurable by private insurance, the state becomes an important risk management alternative.
As opposed to private insurance where payment of premiums is voluntary, state insurance gets its funds from involuntary taxation. During budgeting processes, governments allocate some revenues to provide universal coverage. Therefore, state insurance is a tool that a government can use to promote social equity and simultaneously cover uninsurable risks.
State insurance success has been varied in different countries. For example, it thrived in Japan, especially in the 20thcentury, covering a significant number of citizens. However, the success was not as much in Britain, which on the other hand embraced private insurance more than state insurance. The differences in success can be attributed to the diverse cultures and social differences in these countries. In the 21st century, state insurance faces, among other challenges, demographic dynamics, and its high cost that make it relatively unsustainable.
In conclusion, it is imperative to note that risk management has been done differently in other parts of the world and at various times in history. Each of the methods used was appropriate depending on the history or the social-cultural makeup of the communities. However, none of this method can be universally accepted as the absolute global way of managing risk. For example, while state insurance had succeeded in Japan in the 20th century, it was faced with challenges in Britain. Therefore, every nation and all people should use the method that is most appropriate to them in risk management.
Stock exchange markets and the history of money
Investing in the stock market is one of the major aspects of the history of money. Individuals throughout the world buy stocks of public companies with the aim of improving their earnings. Prediction of shares performance in the stock market has been a major tool used by investors to determine when to buy stocks and from which company to buy.
However, the stock market is prone to manipulations with the possible creation of “bubbles”. It is a situation where the values of shares are exaggerated and are set higher than their actual values with the aim of attracting investors.
John Law’s influence on stock value manipulation
John Law was a Scottish entrepreneur who influenced the French stock market in the 18th century. This was a period that France had tough economic times due to its participation in war and having an expansive colonial territory in Mississippi. The French government bought many commercial ideas from Law, which included the use of paper money in place of gold.
However, the downfall came with the manipulation of stock values. For instance, the Mississippi Company’s share value rose drastically attracting many investors from across Europe. However, devaluation of shares was in the offing with too much paper money in circulation leading to high inflation.
Since the Law’s bubble, other cases in the world have been reported, including the United Kingdom’s South Sea Bubble.
Other cases where the stock market collapsed included the black Tuesday of October 1929, which culminated in the Great Depression that affected the US economy with a considerable number of banks going bankrupt.
It is evident, therefore, that though investing in the stock market is lucrative, the industry faces a number of challenges, which include bubble and burst creations, which could have serious losses to investors and negative effects on the countries economy.
Conclusion
The themes, real estate investment, risk management, and investing in stock exchange have influenced the reflection and the view people have about money. However, a critical study on these themes and their historical development will reveal some of their aspects not commonly known. For instance, real estate investment is faced with uncertainties and great loan-related losses. This opposes the popular belief that real estate investment is safe. Secondly, risk management has been practiced for a long time yet there is no universal method of covering risks. Therefore, individuals and states should look for the most appropriate method for them. Lastly, investment in the stock market should be done with great caution, since the system is prone to manipulation that could result in great losses to both investors and economies.