“Heroes and Villains of Finance provides a fascinating and insightful guide to the personalities and developments that have transformed finance and continue to do so. Anyone trying to understand where finance is now, how it got there and where it might go should read this book.”
Dr Stephen Davies, Institute of Economic Affairs
“An exciting, informative ride through the big ideas and even bigger personalities that have shaped the world of finance.”
Sam Bowman, The Adam Smith Institute
“This delightful book provides a punchy reminder that, whilst we should rightly celebrate the longevity of the vision of the heroes of finance like Adam Smith, the potential downsides of financial innovation have always been with us which we are inclined to forget.”
Professor Mike Wright, Professor of Entrepreneurship at Imperial College London and ranked #1 worldwide for publications in academic entrepreneurship
This edition first published 2015
© 2015 A Baldwin
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Library of Congress Cataloging-in-Publication Data
Baldwin, A.,
Heroes and villains of finance : the 50 most colourful characters in the history of finance/A. Baldwin.
pages cm
Includes bibliographical references.
ISBN 978-1-119-03899-3 (paperback)
1. Finance—History. I. Title.
HG171.B36 2015
332.092′2—dc23
2015006402
A catalogue record for this book is available from the British Library.
ISBN 978-1-119-03899-3 (paperback) ISBN 978-1-119-03901-3 (ebk)
ISBN 978-1-119-03900-6 (ebk) ISBN 978-1-119-03902-0 (obk)
Cover design: Wiley
Cover image: © Ollyy/Shutterstock
c.624–546 BC
Bertrand Russell once famously said that “Western philosophy begins with Thales”. Does Western finance also? Although more renowned for his philosophy and mathematics, the pre-Socratic Greek philosopher Thales was an active figure in business in his town of Miletus. Known as one of the seven sages of Greece Thales of Miletus provides us with the earliest known example of what we now know as options trading . . .
. . . One autumn, Thales predicted that favourable weather the following year would result in an above average harvest and so during the winter he negotiated with local olive press owners for the option to exercise the right to use a number of olive presses in Miletus the following year. When spring arrived, his weather forecast proved correct, upon which he exercised his ‘options' before proceeding to rent out the olive presses at a much higher price than what he paid.
With this, the ‘option' was born.
Whilst today, the ‘option' industry has developed into a vast, complex market, its underlying reasoning remains the same as it was when Thales conceived it: an instrument that grants the holder the right (but not the obligation) to engage in a specific transaction, at a specific time, for a specific price.
c.370–283 BC
As the ‘pioneer economist of India', Chanakya was one of the earliest and greatest contributors ever to the development of economics and political science. Living c. 370–283 BC, Chanakya was a professor of political science at the Takshashila University, and was later to become the chief architect of the Mauryan empire.
Often referred to as the ‘Indian Machiavelli', Chanakya compiled many of his economic and political ideas into his book Arthashashtra, which due to its harsh political pragmatism is widely considered a precursor to Machiavelli's The Prince. Standing as arguably the first systematic book on economics, the Arthashashtra discusses numerous theories, such as monetary and fiscal policies, welfare and ethics, economic management, international relations and war strategies. Many of the topics that Chanakya introduced in the book are still prevalent in modern economics.
Chanakya believed in the power of an autocracy for effective management of an economy, with a solid legal system needing to be observed in order for an economy to thrive.
Perhaps the first person to visualize the concept of a ‘nation', Chanakya's teachings offer a bureaucratic framework for the management of a society. Chanakya taught that ‘artha' (sound economies) has paramount importance for the duties and obligations of a king.
Legend has it that one night whilst working Chanakya was visited by a Chinese traveller. Chanakya immediately extinguished the oil lantern that he was working with and lit another. When the Chinese traveller asked if it was an Indian custom to do so, Chanakya is said to have responded “No my dear friend. There is no such custom. Actually, when you entered, I was working. It was an official work, pertaining to my empire, my nation. The oil filled in that lamp has been bought from the money from the National Treasury. Now, I am talking to you. This is a personal and friendly conversation, not related to my nation; so I cannot use the lamp now, as it will lead to wastage of the money of the National Treasury. Hence, I extinguished that lamp and lit this other lamp, since the oil in this lamp has been bought from my personal money.”
“TAXATION SHOULD NOT BE A PAINFUL PROCESS FOR THE PEOPLE. THERE SHOULD BE LENIENCY AND CAUTION WHILE DECIDING THE TAX STRUCTURE. IDEALLY, GOVERNMENTS SHOULD COLLECT TAXES LIKE A HONEYBEE, WHICH SUCKS JUST THE RIGHT AMOUNT OF HONEY FROM THE FLOWER SO THAT BOTH CAN SURVIVE. TAXES SHOULD BE COLLECTED IN SMALL AND NOT IN LARGE PROPORTIONS.”
Chanakya FROM THE ARTHASHASTRA
c.1119–1314
The Knights Templar were a medieval Christian military organization, officially endorsed by the Catholic Church to provide a pivotal role in protecting pilgrims on their journey to visit the Holy Lands.
Despite the traditional imagery of the Knights Templar, the military face of the organization was actually relatively small; the vast majority of the organization existed to support the knights and to manage the financial infrastructure of the network.
Whilst the Templars themselves were sworn to poverty, due to their extensive sponsors (comprised of nobility and royalty across Europe), within the organization they controlled vast amounts of money throughout Europe.
However, what most people don't realize, aside from the images of swords, horses and crusades, is that the Knights Templar were actually the pioneers of multinational banking.
Many aristocratic figures wishing to participate in the Crusades would entrust the Templars with their wealth whilst they were away. In return, the Templars would issue a ‘letter of credit' for the pilgrims. The vast network of Templars stretching across Europe and to the Holy Lands allowed the system to function efficiently. The pilgrims would deposit their valuables with a local Templar before departure, receiving a document indicating the value of their deposit, which they would then use upon arrival in the Holy Lands to retrieve their funds. In addition, by not carrying their wealth on their person whilst travelling, the Pilgrims were less susceptible to being robbed. Essentially, this was an early form of banking, and was quite possibly the first formal system to support the use of cheques.
As a result, the vast network of Templars was able to acquire large holdings of land across Europe and the Middle East, build churches and castles, and engage in various import and export activities. With up to 20,000 members at its peak, they even had their own fleet of ships. The network they developed, and the way in which they operated, is widely regarded to be the first example of a multinational banking corporation.
c.1320–1382
Undoubtedly one of the greatest economic thinkers of the middle ages, the European roots of the quantity theory of money originate from the workings of Nicole Oresme.
Born in Normandy (France) around 1320, Oresme studied theology, and eventually rose to become Bishop of Lisieux, and chaplain and advisor to King Charles V.
Oresme lived throughout a period of great financial upheaval in France; unlike the contemporary relative stability of many Western currencies, French monarchs freely manipulated their currency for personal gain. For example, between 1295 and 1305 the value of the French currency was reduced by 80%, subsequently to return to its original value in the following decade and then to fall once again the next decade.
Thus, much of Oresme's work deals with his concerns about the persistent, aggressive and arbitrary changes to the value of money resulting from successive devaluations by the French ruling classes for their own personal gain.
As the author of the first independent, comprehensive economic thesis, Oresme represents a key milestone in the development of early economic literature.
ORESME'S LEGACY WAS SEALED WHEN HE OUTLINED THAT THE RULING MONARCH HAD A DUTY TO THEIR NATION TO ACT AS PROTECTOR (AS OPPOSE TO OWNER) OF THEIR NATIONAL CURRENCY
LAYING THE FOUNDATIONS FOR SUBSEQUENT FREE-MARKET ECONOMISTS TO BUILD UPON ULTIMATELY ORESME BELIEVED THAT THE PRODUCTION OF MONEY SHOULD BE LEFT TO THE FREE MARKET.