Ascent to Money Questions

Abraham Lugo

Economics

1. What empire 500 years ago had no real concept of money? What was the unit of value in this empire?

The Inca Empire had no real concept of money. The unit of value in the empire was labor.

2. What had driven the Conquistador Francisco Pizarro across the Atlantic Ocean in 1532? How many ounces of silver were extracted from South America over 250 years of Spanish rule?

The search for wealth and money. Over 2 billion ounces of silver were extracted during the Spanish rule.

3. Why was the gold and silver from the New World unable to halt Spain’s economic decline in the 16^th and 17^th century? What did the Spaniards “never get” (about money)?

They dug up so much silver that the metal itself had lost an extensive amount of value. They did not get that money was only worth what other people would give in exchange for it.

4. While dollar bills may say “In God We Trust”, what are we trusting the US Treasury Secretary not to repeat? What did the Conquistador’s fail to see about money?

To not repeat Spain’s mistake in producing too much of the money that it would be worth less than the paper that they are printed on. The Conquistador’s failed to see that money was about trust and faith.

5. What huge possibility was created by the emergence of money as a system of mutual trust? What does “credo” (the root of the word credit) mean in Latin?

It was the idea that you could borrow money from people and pay it back at some future date. Credo means I believe in Latin.

6. Why were financial transactions so difficult in Northern Italy during the Middle Ages? How did Leonardo “Fibonacci” of Pisa help reform this financial system?

Financial transactions were difficult because the land was split into multiple feudal states, there was very little trust between people, and because they used the Roman numerical system which was ill suited for the complex mathematical equations used for money transactions. Leonardo helped reform the financial system in Northern Italy by introducing Arabic numerals into the system, thus making all kinds of equations much easier.

7. What Italian City state became the great money-lending laboratory? What does Shakespeare’s fictitious resident of this city Shylock use to determine whether he will lend money to someone? (What does he mean when he says a person is a “good man”)?

It was Venice that became the great money-lending laboratory. Shylock would lend the money only if the merchant was prepared to provide the security. When he says that he is a good mean, it means that he is credit worthy.

8. Why (in the Italian City States) did anyone who lent money to a merchant for an overseas voyage need to be compensated? What do we call this compensation?

They needed to be compensated because anything could go wrong in the duration of the voyage, such as a ship sinking. We call this compensation ‘interest’.

9. Why were Jews tolerated in the City of Venice? Why did Christian merchants need to use Jews in order to lend money?

Because they were the only ones that could charge interest on their loans. Christian merchants needed Jews because they were forbidden to charge interest on loans, and was considered a sin.

10. In what Italian City State does the key financial service of providing credit move out of the ghetto and into the banks? What family caused this?

It was in the Italian City State of Florence. The family that caused this was the Medici family.

11. Prior to the 1390′s, what were the Medici most notable for in Northern Italy? How did Giovanni Medici make the family’s activities “legit”?

They were most notable for the low violence. There was no interest, only deduction from currency to currency.

12. What crucial lesson in finance did the Medici learn? How did the Medici spread their risks and reduce their exposure to defaults on loans?

Bigger and more diversified banks allowed for a way for spreading the risks. Focused also on currency trading rather than lending.