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20200126 William – Money Changes Everything



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The man idea of this book is to review development of financial technology from the earliest known records and artifacts all the way to contemporary complex and highly mathematized financial tools and demonstrate how it impacted functioning of various complex societies. It is also aims to demonstrate importance of careful and sophisticated approach to financial technology necessary not just for society’s effective functioning, but for its very existence.



Here author presents the view that finance is the main method of resource allocation that lays in foundation of great many important human activities.

Finance has four key elements:

  1. It reallocates economic value through time;
  2. It reallocates risk;
  3. It reallocates capital; and
  4. It expands the access to, and the complexity of, these reallocations.

Author briefly discusses each of these functions and then looks at finance’s impact on culture, development of civilization, knowledge acquisition, and finally hardware and software that it is based on. Author also presents various perspectives that he uses to look at finance in this book:

  • Investor perspective
  • Researcher perspective
  • Empirical perspective
  • Cultural perspective


  1. Finance and Writing

Author starts with earliest historical artifacts of writing found in Mesopotamia and demonstrates that they closely related to financial transaction records, contracts, and accounts maintenance.

  1. Finance and Urbanism

Here author uses one of such artifacts: the Warka Vase to discuss link between religious and economic sides of worshipping and culture. He then looks at Babylonian samples of writing, demonstrating the use of compound interests, financial planning, borrowing and lending, and other financial activities.

  1. Financial Architecture

Here author looks at archeological evidence demonstrating spatial impact on cities where financial activities led to development of special districts where such activities were concentrated. Author uses specific documents to review activities of individuals in areas of debt and risk, trade financing, and joint ventures. Author also discusses government interference into financial activities, specifically periodic forced debt forgiveness and other methods of robbery that made finance high-risk enterprise.

  1. Mesopotamian Twilight

Here is author summarizes the first part of this book: The primary goal of Chapters 1–4 is to document the early development of the hardware and software of finance. This includes the first appearance of financial contracts, as well as the development of financial mathematics and financial thought. A secondary goal was to show the integral role these played in Mesopotamian society. Finance developed out of the need for intertemporal contracting, which was the economic foundation of the first cities. It also made possible the organization and intensification of long-distance trade. While such trade existed in societies with less financial architecture, the toolkit in the ancient Near East included a silver-based monetary system, equity-like partnerships, and a legal system of enforcement that was evidently robust and flexible enough to allow even small, combative city-states to access prestige goods and metals from afar.

  1. Athenian Finance

Here author looks at Western financial tradition starting at the beginning: “The classical civilizations of Greece and Rome developed sophisticated financial economies based on money and markets. The Greeks invented banking, coinage, and commercial courts. The Romans built on these innovations and added business corporations, limited liability investments, and a form of central banking. Unlike the ancient cities of Mesopotamia, which were primarily organized around the redistribution of local produce and secondarily around long-distance”. Author mainly discusses finance as it was used in support of trade, especially high-risk long distance overseas trade, but also land privatization and mining rights. He assigns high importance to the fact that trade disputes were resolved by jury trials with hundreds of jurors, which required very high levels of financial literacy.  

  1. Monetary Revolution

This chapter is about invention of money coinage and specifics of Athens that differentiated it from other ancient societies: unique form of governance unlike temple based forms of Sumerian city-states and high dependence on trade even for food supplies that made it necessary to establish distributed financial system resulting in independent decision making and democratic form of government.

  1. Roman Finance

This is somewhat continuation of Greek traditions, only much more dependent on local slavery based agriculture and heavy use of debt. Author discusses here archeological discoveries that allowed much better understanding of Rome business model that by then included shareholders and limited liability. The Roman form for this was publican societies based on private property that was dominant form of resources control. Finally author discuses link between wealth and political power, which in Rome was quite direct: senator who lost wealth would lose his place in senate.


  1. China’s First Financial World

This chapter is very brief description of financial history of China, demonstrating that China developed pretty much the same financial technology as the West, but its use was concentrated not in the hands of private citizens, but in the hands of sophisticated bureaucracy, with the state controlling just about everything. Author also stresses importance of paper money invention that occurred in China long before recreated elsewhere.  Author also discusses in some detail philosophical foundation of Chinese attitude: potentially attributable to the Jixia Academy collection of essays called the Guanzi.

  1. Unity and Bureaucracy

Here author moves to Confucius and his teachings, especially in regard to finance and “principal-agent” problems, which could be resolved by indoctrination of agent in such way that would assure internal drive to do right thing by principal. It includes also sophisticated method of bureaucrats’ selection and severe punishment for failure or corruption. Author looks in details at use of money in their various forms in Chinese society and also at western point of view on Chinese financial innovations.

  1. Financial Divergence

This is a look at the diversions between Chinese and Western development not only in finance, but also in key industries of early industrial age that made industrial revolution reality in the West, but absent in China. The main point: big organization bureaucratic system makes individuals dependent on superiors, consequently limiting innovation to their judgment, while private business that relies on market would be open to any innovation that owner wants to try.


Here is how author defines key points of this part: ”I argue that the fragmentation of European states was the stimulus for a variety of creative, somewhat independent financial experiments. The fragmented political economy of Europe fostered the development of investment markets; the reinvention of the corporation; extra-governmental banking institutions; complex insurance contracts on lives, property, and trading ventures; and a sophisticated tradition of financial mathematics, reasoning, and analysis. These innovations, in turn, changed human behavior. I argue that they altered attitudes toward risk and chance, leading on the one hand to probabilistic thought and calculation and on the other hand to unbridled speculation that fueled the world’s first stock market bubbles. Europeans ultimately turned themselves and the rest of the world into investors. The key stages in Europe’s development are first, the emergence of financial institutions; second, the development of securities markets; third, the emergence of companies; fourth, the sudden explosion of stock markets; fifth, the quantification of risk; and finally, the spillover of this system to the rest of the world.

  1. The Temple and Finance

In this chapter author traces development of European banking system, starting with Templars who provided financial support for pilgrimage and crusades to Jerusalem.

  1. Venice

Here author reviews commercial empire of Venice: “The creation of a market for financial securities in Venice in the twelfth century represents a watershed in European history. It began the practice of deficit spending by the state, financed by the issuance of liquid debt. Finance became one of Venice’s key instruments of power in its rise as a mercantile empire. Its financial architecture was every bit as important as its bricks and mortar.

  1. Fibonacci and Finance

This is about the next development of finance – its quantification with development of double entry bookkeeping, notion of net resent value, and business education that allow massive expansion of trade.

  1. Immortal Bonds

This chapter is about finance development that led to expansion of business transactions timeframe beyond limits of individual human life.

  1. The Discovery of Chance

This chapter discusses emerging understanding of probabilities that led to development of such financial tools as insurance, annuities, and other forms of risk management. Author also discusses probabilities in China where no mathematics of chance was developed.

  1. Efficient Markets

This is about development of efficient market ideas in late XIX century that led to such developments as options market and in late XX century application of complex mathematical models like Black-Scholes formula. Author discusses in some detail mathematization of finance.

  1. Europe, Inc.

Here author moves a bit from discussing specifically financial area to forms of business organization – specifically European forms of limited liability corporations. He specifically looks at the oldest existing corporation: Honor del Bazacle formed in 1372 in Toulouse.

  1. Corporations and Exploration

This chapter is about a chain of event that transformed the world: use of corporate form to explore world in order to discover new lands, gold and other goods, and markets. Private business corporations of Europe, only slightly supported by governments, conducted the world exploration. These corporations, while privately financed, nevertheless had their own armies and navies, which colonized nearly all the planet.

  1. A Projecting Age

This is detailed description of one of such enterprises linked to famous English writer Defoe. It included raising money via subscription to deferred payment plans, investment in some type of usually monopolistic operation that would become ongoing concern with liquid participation via external trade of shares. Here is author’s note about this:” Broken down by industry, these new British firms included companies for mining, salvage, fishing, forestry, agriculture, textile and mechanical manufacturing, overseas trade, infrastructure, real estate, leasing, and finance. Ever since 1623, when England enacted the Statute of Monopolies, an inventor had the exclusive right to profit from a novel invention. The new financial market after 1688 married capital with creativity and intellectual property rights. Perhaps because they were engines of innovation, joint-stock companies grew dramatically in importance relative to the rest of the economy. The historian William Robinson Scott estimated that in 1695, they represented 1.3% of the national wealth of Great Britain, but by the end of 1720, this had grown to 13%.

Author also reviews here the bubble phenomenon and attempts to rule it in by regulations such as British “Bubble Act” of 1720.

  1. A Bubble in France

This chapter looks at one specific and very large instance of bubble that developed in France by John Law in early XVIII century and then burst. However author states that not all bubbles were created equal and compares two of them:” What was missing from the Mississippi Bubble, in contrast to the South Sea Bubble, was the wellspring of innovation. France had its projectors, with plans for public works and trading companies, but there seems to be no evidence that any other shares were seriously traded in the Rue Quincampoix. Law apparently had no successful competitors for the public appetite for share investing. The creation of a share market appears to have been a means to an end—a method for building the Mississippi Company out of investor cash, rather than an institution used to channel resources to innovation.”

  1. According to Hoyle

This is about Insurance Corporation in Rotterdam created in response to British “Bubble law” that prevented limited liability for British companies. It started boom of public companies in Netherlands, some of which become prominent in financing Atlantic trade. Author discusses this trade and its impact on bubble formation in some details including regulation that it prompted. At the end of chapter author points out that financial technology developed during this period was widely used later in XIX and XX centuries to finance massive infrastructure projects.

  1. Securitization and Debt

This is about the next step in development of finance – securitization. It starts with discussion of Dutch mutual funds, then moves to American land banks and notes how much American founding fathers and their families were linked to land speculation, which somewhat explains readiness of Dutch and French investors finance American revolution, at least partially. Author also discusses financial implications of French revolution and ends the chapter by reflecting on European financial innovations that made countries of his continent very distinct from others like China.


Here is how author defines his objectives in this part: “In Part IV we will see the reassertion of earlier amoral characterizations of finance and a seductive argument against the fundamental principles that support financial technology, including private property and entrepreneurial freedom. This reinvigorated dialectic over the role of finance in society comes to a crescendo in the early twentieth century and literally breaks the world in two.”

Author also discusses here globalization, worldwide access to equity financing and global debt.

  1. Marx and Markets

Here author briefly discusses Marx, his failed theory of labor-based value and huge influence Marx’s ideas have despite their complete failure to explain reality and predict future developments. Author then discusses Hobson’s “Imperialism”, and Suez Canal as example of early stages of globalization and violent reaction of Egypt’s population to it.

  1. China’s Financiers

Here author moves to similar event of imperialistic intervention in China with Opium wars, revolution, railroad construction, and China’s initial moves to be part of global capitalist system, using example of Shanghai stock exchange in 1920s as an example.

  1. The Russian Bear

The “Russian” chapter discusses capitalism development in Russia and its disruption by first WWI and then by revolution. Author kind of links to it Ayn Rand and her objectivism, even if she left Russia as young woman and her ideological development mainly occurred in America despite very strong hate for communism typical for any thinking person with real live experience with consequences of this ideology.

  1. Keynes to the Rescue

This chapter is another very brief description of ideology, this time dominant on the West.

  1. The New Financial World

This chapter looks at financial world of XX and early XXI centuries, discussing financial instruments like bonds and stocks, funds, and financing of construction and infrastructure in America. The chapter ends with discussion of great depression and its legacy.

  1. Re-Engineering the Future

Here author moves to massive government intervention in resource allocation and distribution in form of Social security and multitude of other programs.

  1. Post-War Theory

The final chapter is about mathematization of finance with computers and various technical approaches to investment and financial management including optimal investment portfolio, indexation, sovereign funds, institutional investment, and public/government business ownership.


Here author restates his objective to review historical development of financial technology and its interaction with development of complex societies. Here is how author completes this book:” History is interesting in its own right, but it is also important as a measure of the present and a guide for the future. As the world moves toward a collective global civilization with a greater proportion of its population participating in complex society, financial tools need to keep up. The lessons from our collective financial past take on more relevance. History has shown us financial mechanisms for risk sharing and intertemporal transfers and how variations in these tools can be adapted to different kinds of societies. We are free to repurpose past successes and learn from past failures about what to avoid. The experience of five millennia of financial innovation, however, suggests that finance and civilization will forever be intertwined.“


I generally agree that finance or, more precisely, resource allocation across time and space with corresponding risk management, is foundation of human civilization. The history of financial technology is interesting, but much more significant is that its role in the near future will probably be even more important than it was in the past. It is because the future most probably will contain automated production of goods and services, making it impossible for anybody to be self-sufficient and survive outside of financial networks. This means that much more complex financial systems will be developed based on much more complex models aiming at continuing evolutionary optimization of resources allocation via process of individual competitive decision making at various levels and localities. Then, as it is now, the top down all-knowing modeling of socialist type would not be possible due to infinite level of complexity, albeit in primitive suboptimal form that could exist only if supported by massive state intervention. It remains to be seen whether ideological and moral development of humanity will move in the direction of integrated market resource allocation with minimal restriction or in direction of socialistic type of top down resource allocation with its inherent inefficiencies.

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