Tips for Students: Adventures in the History of Finance

The following article shares highlights and insights from one of our Expert Series events, which are exclusive for Young Scholars and their parents.

They say money makes the world go round. But when we tell the story of humankind’s most earthshaking inventions – art, music, technology – we often forget about finance. When were banks and stock markets invented, and why? In this talk, we explored why banks and stock markets evolved the way they did. We discovered how the history of finance runs through the veins of wars, explorations, trade routes, tragedies, and epic scams – and met some colorful characters along the way.

The need to record debts and deals spurred the invention of writing itself in ancient Mesopotamia over five thousand years ago. Banks evolved from safe places to stash valuables to more complex institutions, which lent money, moved it around, and tried to identify people who could be trusted to repay loans.

In the late middle ages and early Renaissance, Europe saw the emergence of crucial financial innovations like joint stock companies, bills of exchange, and the world’s first true stock markets. Together, these inventions helped enable great expansions in global trade and exploration. This financial history is – of course –inextricably woven through other crucial historical phenomena, from financing great artworks and spurring technological innovation to social upheaval triggered by servicing heavy war debts, to investors who financed ships bearing enslaved people. As the financial system grew more complex, timely access to information became ever more important – a fact unlucky investors soon discovered during the world’s first major stock market crash, 1720’s infamous South Sea Bubble.

Banks and stock markets, like any human institutions, are subject to evolutionary pressures and changing cultures. Understanding how they emerged and evolved can shed light on why they are the way they are today.

Highlights

• Over history, money has been physically represented by metals, paper – even, on the Micronesian island of Yap, gigantic stones too heavy for one person to lift!
• For hundreds of years, the British government kept essential financial records on willow branches called “tally sticks”. When they got rid of them, they accidentally burned down Parliament.
• Europe’s Renaissance wasn’t just in art, but in finance, with great leaps forward in international banking, and the emergence of the first true stock markets. Yale University is still collecting interest on a Dutch “perpetual bond” issued in 1648!
• Financial crises and stock market bubbles have been around for centuries. As early as 1720, the South Sea Bubble demonstrated the perils of gambling on the stock market, and the importance of regulation.
• Swashbuckling ex-soldier and con artist Sir Gregor McGregor (1786-1845) arrived in London, seeking investors for “his” resource-rich South American kingdom of Poyais. The only problem? It didn’t exist, except for a swamp.
• The history of finance can help you build a fuller picture of history as a whole. When you read history, think about the money. How was this war paid for? Were these people in debt when they decided to invade their wealthy neighbors? How are powerful people and organizations financing themselves? And how does that impact the choices they make?

Things students can do to explore this topic further

• The BBC’s Tim Harford has a terrific podcast, 50 Things That Made the Modern Economy, a veritable buffet of finance history, ancient and modern.

• Gresham College in the UK, which offers free online expert lectures on a huge variety of topic, has some especially good talks about finance history, including Edward Chancellor’s engaging Ghost of Scandals Past: A Short History of Financial Scandals and Dr. Helen Paul’s upcoming March 2021 online lecture, The South Sea Bubble of 1720.
• Finance history is still in the making! Older students may be interested in shocking (and sometimes appalling) tales of more recent financial corruption and finagling, like Oliver Bullough’s book Moneyland and Tom Wright and Bradley Hope’s Billion Dollar Whale. (Please note: these two books were written for adult audiences and parents may want to review them for suitability ahead of time.)
• If you’re searching for college courses on finance or economic history but don’t find them in the history department, be aware economics departments sometimes offer them.

Additional Resources 

• Khan Academy’s short video lessons offer a great grounding in basic concepts in economics and finance, including introductions to how modern stocks, bonds and interest rates work.
• Visit Dr. Denise Schmandt-Besserat’s site to learn more about her research on ancient Mesopotamian tokens, and how trade and finance spurred the invention of writing.
• To learn more about 19^th-century scam artist Gregor MacGregor and his imaginary country, I recommend The Land That Never Was: Sir Gregor Macgregor And The Most Audacious Fraud In History by David Sinclair.
• There are a lot of accessible, pacey, opinionated ‘pop history’ nonfiction books about the history of finance and money – often with a hefty dollop of opinion. A couple of especially interesting ones:
  • Money: The Unauthorised Biography by Felix Martin
  • The Ascent of Money: A Financial History of the World by Niall Ferguson
• Check out Kristin Aguilera’s article in Bloomberg, A History of Wall Street’s Women: Echoes about challenges more recent female finance pioneers had to overcome.

Authored by: August Siena Thomas, M.A.
Bio: Currently based in Scotland, August Thomas is the author of the spy novel Liar’s Candle. A former Fulbright Scholar to Turkey, she has Master’s degrees from the University of Edinburgh and Bogazici University in Istanbul, where she studied history. She is also a Young Scholar alumna and was a Davidson Fellows Scholarship recipient.