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Alright
Get ready to dive in because today we're tackling a topic
That's well let's just say it's a bit driyer than usual
But trust me
It's full surprises
It's interest rates right
You got it interest rates
We're going way back
Talking about ancient civilizations
Economic clashes
The whole shobang
I have a feeling
These excerpts
You've got aa history of interest rates by sydney homare are going be pretty eliminating sydney homer
The man
The myth
The legend
He wasn't just analyzing fixed income
He was connecting the dots between interest rates and well pretty much everything right
Absolutely his work is like a master class in how societies have grappled with debt risk and the very nature of money for centuries okay so buckle up
Everyone we're going deep
But first where do we even begin with something as well ancient as interest rarates
You might be surprised to learn that our journey starts way back around two thousand bc in ancient babyon babylon home with the hanging gardens and oh
At stone financial regulations
You're not kidding about those regulations
The code of hamarabi
One of the earliest known sets of written laws actually laid out specific rules for loans and interest strates talk about
Taking your finances seriously so what kind of rules are talking about
Think of it as an early attempt to bring some order to lending they set maximum interest stries for different types of loans
For instance for grein loans
The max was awapping thirty three point three percent
Wow
Thirty three point three percent on grain that seems a bit steep infor ancient times
What about say silver for silver
Which is obviously more to viable the maximum right was lower around twenty percent
Okay
So they had some kind of system in place
But how do we know it wasn't just you know a suggestion
Did they have babablonian an sharks breaking neiccaps uh um
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So very question and unfortunately the history ical record on enforcement isn't know with crystal clear
Well we can say is that these law show real concern about the descabililizing effects of cheque interest rates right so even back
Then it was about more than just the money
It was about maintaining order the stability
The lshshow bang speaking of which what else can you tell me about babloonian finances
Did they have like banks on every corner
Maybe not banks in the modern sense
But their financial systems were surprisingly sophisticated
We're talking alone
No deposiits transfers
And that even had a kind of proto international transaction system
Wow international transactions in ancient babblon
That's well like
What did that look like clay tablets flying across the desert
Pretty much imagine merchants using these clay tablets to guarantee trabments ts for goods ship across vast distances
It was all about building trust and facilitating trade in the time
Without you know instant wire transfers that esincredible really put things into perspective
Okay
So we've expllored world of babylonian banking
Where does our interest raraventure ture us next let's hop over to ancient greece
It's the era of philosophhy democracy and believe it are not some major financial novvancient greece land of soccties
Plato to and uh sky high high interest rates
That's right
We can't forget about the interest rates
But before we get into that
We have to talk about one of the biggest game changes in financial history
The invention of cointage in lidia
Around the seven century
Bc coconage you mean those things we find in our pockets and occasionally used to buy stuff seems pretty basic to me
What was so revolutionary about that
Think about it before cointage you were stuck with a barter system
Need a new cherit
But all you've got our sheep good luck with that negotiation coins provided a standardized portable and divisible form of currency
A revolutionized trade and finance um so suddenly loans and interest become a whole lot easier to manage
When you're not trying to calculate on the other hep to cherit exchange rate
So how did this new financial landscape plyout in inincrease
It's a classic case of unintended consequences
On the other hand
Cointage made credit more widely available
But on the other hand
It also made it easier for lenenders to charge really high interest rate
So how we talk things sometimes as high as ten percent per month
Ten percent per month
Okay
Now those babyononigregreen lmbs are looking like a pretty good deal
Whether any rules in place to protect barrowers from these insane rates
You hitting on a key point
Which is that financial innovation doesn't always equal ethical lending practices
While there were laws against debt
Slavery falling a deep debt could be ruinous
So a cautionary tae from ancient times
That still resonates today
But hey
Speaking of risky business
Didn't the ancient greeks have a bit of a thing for shall we say adventurous loans
Involving ships
You're talking about maritime loans
And they were as risky as they sound picture this you're emerchant with a ship full cargo heading out into the middle eranean storms pirates you name at the risks were huge so to offset that risk
You could take out of maritime long so basically insurance for these high stike sea voyagprecisely lenders were essentially betting on the fate of the ship and its precious cargo
If it made it safely the returns could be massive
Sometimes with interest rarates as high as get this one hundred percent
Hundred percent are you ious ous ssay
It's like bigger than any lottery
When i can imagine okay we've tackled babylonian banking brave the high seas with the greeks
Where to next on our interest rate audassy our last p in the ancient world takes us to the heart of the roman empire
Now the romans they had a very different relationship with finance compared to the greeks
Oh
How so weren't they known for their impressive roads and orchidects
Surely
Those must tain some serious financial wizarery to pull off
You're right
Their infrastructure was phenomenal
But for the roman elite activities like manufacturing commerce and finance
Those were often seen as well bit it below them
You know they view themselves as a society built on agriculture in military might and those other things were often left to foreigners interesting
So while the babylonians embraced regulation and the greeks dove had first into financial innovation
The roms were kind of like like um not our thing in a way
But
But they
They couldn't escape the importance of finance
Entirely just like the bablonians
They understood that ruunaway interest rates could destabilizze society
So they implemented their own regulations especially during the roman republic to avoid aa roman debt crisis imagine make sense
But if they weren't big fans of finance
How did they manage the economic make engine of well an empire
That's where things get interesting
Rome was incredibly diverse
And they relied heavily on foreigners ers especially greeks for their financial expertise
It was an an ly form m outsourcing
Outsourcing
And maybe a little irony
Using the skills of the very people
They thought were a bit too obsessed with money
Love it 啊
Okay
Before we move on any juicy roman interest raate stories
We should know about remember
How we were talking about cities
Getting into that trouble
Yeah
The romans weren't immune to that
There's a story about the city of scene
Which actually had to mortgage their public colonade
Hold on they mortgage their shade structure
Things must have been rough what happened
Did they at least get to keep their public shade unfortunately
No no
They ended of defaulting on alone
And the citizens have scene lost their beloved colonade touch
That's a tough break
But it goes to show that even in ancient room debt could have some pretty serious consequences
And we're back diving deeper into the fascinating world of interest rates
We've just explored ancient times
But now we're entering a period
Where things get a whole lot more well as to say morally complicated to middle ages
Right struggle a clash between money and morals
Exactly because when we talk about medieval europe
We can't ignore the elephant in the room
Or should i say the church in the markeplace
The catholic church had some pretty strong opinions on money lending
Didn't it put a milably
The church's condemnation of usory as a sin was a game change from medieval finance okay so no more one hundred percent maritipe and loans or cities pointing off their shade structures
How did lending even work
If charging interest was considered well seninful
It was a time of great moral wrestling for sure
On the one hand of the church declaring usory as a sin against justice
Exploding the vulnerable in all that
And let's not forget the bibible
Itself condemns the practice
But on the other hand
The need for credit that didn't just disappear
So sounds like people had to get creative
Did they find ways to let say then the rules a bit
You could say that think of it this way well outright interest was a no go
People still found ways to structure loans and investments to generate some well let's call it profit without sin
Profit without sin
I like it do you have any examples of what that actually look like in me
The mideval lowdown imagine you're wealthy merchant right you want to lend money to someone
But charging interest as a big no no so instead
You might ask for a sure of the profits from whatever venture they're using your loan for your partner
Now sharing the risk and hopefully ly rewards
Ds h so like venture capitalists and tunicx
But that also sounds like it could lead to some sticky situations
What if one party felt like they were getting a raw deal
You're right
It wasn't all we smooth sailing disputes were bound to happen
But here's the thing
对对对对
It wasn't just about religious doctorand it had a real impact on legal and economic practices
Merging guilds and local courts had to develops sophisticated ways to handle these conflicts after all trust and a sense of fairness are pretty essential for a healthy economy
When do you say absolutely
And i'm guessing those medieval merchanins weren't just relying on handshake deals
Ian what other financial tools did they come up with during this period
Even with all these religious restrictions
This error saw some really clever financial innovations take ennuties for example
I nuutice as in like those things
My grandma's always talking about
Didn't know they exited back that no
They've been around for a while
Yeah
Imagine you are farmer in the middle ages
You've just had an amazing harvest more grain than you know it to do with so like eating the jackpot right right to party
What you could
Or you could be smart and use extra cash to buy anannuity
Think of it like an early form of financial security
It would guarantee you a steady stream of income over time kind of like a medieval pension plan
Okay
That's pretty clever
Especially in those days
When a bad harvest could spell disaster
But what about trade medival europe was no stranger to international diserce
How did they handle payments with those pesky user laws in place
That's where bills of exchange come in to play
Bills of exchange sounds a bit
Like i don't know evil travelers checks or something not a bad comparison imagine this you're emerchant in say floence
And you need to pay a supplier in brushes
Which is miles away sending bags of gold through banded invested forests
Um a safe fe adooption
So you'd go to a banker influence hand over your gold and get a bill of exchange
It's basically a promise story note that could be exchanged for cash in brushes
Ah so kind of like a medieval wire transfer sasafer and defintely tely efficficent than than holing around suacks of gogouh these bills of exchange
They must played a crucial role in facilitating trade
During this time they absolutely did
And they also show how even within these religious constraints
The need for credit and well let's call it flexible finance always found the way human ingenuity you've got a love
You said it
But ingineuity aside this period also saw the rise of some major financial centers
Right the wall streets of medieval europe
So to speak what we're some of the hot spots back
Then get ready for a world into a first first p
But specifically those buzzling city states like venefforrence in janua
They weren't a centres of arton culture
They had surprisingly sophisticated financial systems in place suitily home of amazing posta
Michael
Engelal's
David and wait for it government bonds
He heard right government bonds see these italian city states
They were pioneeers in developing public finance
They need a ways to fund wars build fancy new bridges
You know like like stuup
So what did they do
They started issuing government loans
Government loans uh
But weren't those considered a bit well force at times
It very it
Sometimes they were more like hey
Want to lend the city bonds have even throw w some interest payments
It was away for a wealthy citizens to show their support
While also you know making little little something on the side civic duty meets financial savy a tae as old as time
But did these medievval bonds have like fluxtuating interest rates like the ones we see today
Absolutely just like with modern bonds
The interest rates on these loans reflected how risky it was to lend to that particular government engagge in a costly war facing some political turmoil
Well those interest rates were going up
It's all about supply demand and a healthy dose of risk assessment
It's fascinating healthy financial mechanisms even from centuries ago still have egoes in our modern world
But we've got government bonds create tive lending practices
International trade booming
But where there any big names were finance nal rock stars
Who left their mark on this era
Oh
Absolutely created meet et the fuguguthe fufuguers
I'll be honest
That doesn't acactly stream financial dynasty
But i'm intrigued who were these mysterious money movers
The fuggers were a german merchant family
And let me tell you
They were a rock sters of fifteenth and sixteen century finance
These guys were masters of diversification financing everything from silver minds and central europe to those daring expeditions to the new world
Okay
So we're talking serious players
The global market
What was their their secret sauce
How did they become so influential connections
My friend they built this vast network of agents and contact spanding across europe
They're always gathering information sniffing out opportunities plus they were shrewweren't afraid to take risks invest in ventures
That others wouldn't touch
So they were basically the venture capitalists of the renaisonance backing risky ventures and riaping the rewards talk about high risk
High rewards strategy
But their enclues didn't stop it just finance did it
Oh
No no no
When you're swimming in that much wealth
You tend to attract a certain level of try we say political influence
They had the ear of emperors
Popsy hshbang the fugguers masters of not just money but power dynamics
As well it's an incredible story um ambition
And it shows how even within the uh let's say creative interpretions of religious doctor and individuals and families
Could a mass incredible wealth and influence through financial innovation
But as we'see see dance between religion ant finance is far from over
And were back for the final leg of our inteinterest ate journey
We've gone from ancient bablon to the rise of medieval finance years
But now we're stepping into a world
That feels a bit closer to home
Think global trade financial centres buzzing with activities the sixteen than seventeen centuries
Where are we starting our exploration of this transformative era get ready to experience the antork exchange
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It was the place to be for merchants and finance years from all every europe
They traded everything
Their government bonds
Shares and trading companies
You name it so like the wall street of its day
A whole wind of deals and unguessing
Maybe bit of us taking to oh
Absolutely
It was a hobit of speculation
Yeah
But here's the inteinterething maysed all that activity interest rates were actually trending downwards in amsterdamam another major financial hub rates
Sometimes dip is as low as two percent
Can you believe that two percent there's 're practically unheard of these days
What was driving those low rates
It was a sign of confidence in the dutch economy and the emergence of some really innovative financial instruments
Innovation is great
But we'seen how that can somelead to shall we say a bit of trouble
I'm thinking of a little something called two limania
Uah Yes
Two lipmania in the sixteen thirties
It's the ultimate cautionary tae picture ture this the ththerlands two of little bulbs
Those seemingly innocent flowers become more valuable than houses
More valuable than houses
Ses 're 're ddding withdrove people such such well irrational heights it was speculation gone wild
People were buying these toobs for their gardens
They were hoping to get rich
Quick betting on the price of those bols going up and up
But like all bubbles it eventually burst
And i'm getting a lot of those would be two libp tycoons lost their shirts in the process
It just goes to show human nature and markets
They can be a volalittle mix
But ammits the boos bursts
There were some some more shficant developments happening institutions that laid the groundwork for our modern financial system
Yesutime of the birther's central banking the bank of england established sixty ninety four thousand epivitmomoment the bank of england
The grandandia central banks
What was its main role in those early days
Think of it is the government's money manager and a guarding of the currency
They would lend money to the government and in return
They got to issue bank notes
Which circulated its currency
So they helped fund the government
And essentially controlled the money supply
Sounds like a pretty powerful position to be it was a game changer for sure
And it marked the start of this fascinating
And often complex relationship between governments
Central banks
And those all important interest strates the relationship
That's still going strong today
But as we move into the nineand and twenty of centuries
Things get even more
Shall we say eventful wars
Revolutions
Economic pevils
How do those impact the world of inteintestrates the wild ride wars meant governments needed to borough heavily
Often driving interest strates up
But then you have something like the industrial revolution
Which led to huge economic growth and sometimes lower rates as capital became more abundant
So much of it comes down to those fundamental forces
Supplying
Demand
Risk and opportunity
But it's not always the big dramatic events that shake things up right economic downunity
They can be just opportortity take the great depression for example
The great depression which stararted nineteen
Twenty
Twenty nine that was a global catastropy um as businesses struggled and unemployment sky rocketed
Demand for credit plummeted and guess what interest rates followed suit dropping shsharply a arck reminder
That interest rates are nected to the real world
Experiences of everyday people for better or worse
It seems like they're constantly being pulled this way in that by a million different factors
So as we reach the end of our deep dive
What are some of the key take away
You hope our listeners will walk away
With the biggest one is that interest rates are much more than just numbers
They reflect the hopes
Fears and the economic realities of their time by understanding their history
We gain it deeper understanding of how our financial world works
And maybe
Just maybe a glimpse of what the future might hold beautifully put we've covered a lot of ground from those ancient babalonian contracts to the rise of modern central banking and everything in between
But one things for sure the story of interest strates
It's far from over who knows what new chapters away
As technology continues to reshape our financial landscape
Hatra joining us on this deep dive
Everyone
It's been a wild ride through history
