Video

Did Finance Make Civilization Possible?

From the dawn of recorded history, as people gathered into complex urban settlements and began recording transactions and accounts, the growth of civilization has been tied to financial innovation. In his new book, Money Changes Everything, Prof. William Goetzmann traces this millennia-long relationship and argues that financial thinking has fundamentally changed the shape of human society.


Finance can be viewed through many lenses. A glance at the rhetoric of the current U.S. presidential campaign illustrates the range of opinion about the role of finance in society. Bernie Sanders, for example, said in a debate last year, “The greed and recklessness and illegal behavior of Wall Street, where fraud is a business model, helped to destroy this economy and the lives of millions.” He proposes reigning in finance by breaking up the big banks and pursuing criminal prosecutions related to the 2008 financial crisis. Another candidate, John Kasich, said in a Republican debate, “I was a banker, and I was proud of it. And I traveled the country and learned how people make jobs.” He wants to roll back some of the regulations in Dodd Frank and opposes closing the carried interest loophole.

In his new book, Money Changes Everything: How Finance Made Civilization Possible, William N. Goetzmann, Yale SOM’s Edwin J. Beinecke Professor of Finance and Management Studies and director of the International Center for Finance, adopts what may be the broadest possible frame to understand the role of finance in society, tracing the relationship from the emergence of civilization itself in the Bronze Age through the global financial institutions of the 21st century.

“Complex civilization is something that has been built on complicated financial tools,” says Goetzmann. It hasn’t always been an easy relationship, he says, but it has been an indispensable one.

Doubtful? The fact that you’re reading right now is actually one piece of evidence Goetzmann could muster to make his case. Nearly all of the earliest examples of written language were accounting documents. In his book, Goetzmann describes the theory that the earliest known writing evolved from small clay tokens that were used to keep track of transfers of commodities like loaves of bread, sheep, and milk into and out of the temple in Uruk, a city in Mesopotamia.

Goetzmann points out that Bronze Age societies made use of complex financial concepts. One example is a clay cone describing a border dispute between two ancient cities. In it, the winner of the war imposes war reparations on the loser, and calculates the amount using compound interest. Goetzmann says this shows that finance was already ingrained in society. “It’s a way of expressing a legal obligation in the language of finance,” he said. He added that finance provided the “frame of reference and understanding about the relationship between peoples and between cities.”

Other chapters in the book cover the emergence of money in ancient China, the blossoming of new mathematical techniques in middle ages Italy, the birth of the corporation, and the democratization of stock investing in the first half of the 20th century. Across examples and eras, Goetzmann sees a universal impulse: “When cultures get complex enough and intensified enough that they need to open up and reach out and become, in some sense, global beings, finance is one of the tools they use to do that.”

Recurring questions pop up across centuries as well as across continents. Goetzmann points out that one of the factors in the American Revolution was colonial chafing over British restrictions on the financing of western expansion through collateralized lending and land speculation. One can hear an echo of this foundational dispute in the 2008 crisis, which involved collateralized lending and real estate speculation.

Goetzmann acknowledges that finance has caused crises and contributed to problems like inequality. But he argues it has unlocked the potential of civilization and even changed the way the human mind works by forcing us to think more analytically and meticulously about the future. “If you didn’t have finance, you wouldn’t be able to save for the future. We wouldn’t have pension funds, we wouldn’t have 401Ks… We really need it, and the place we need it is in this long-term planning for our collective financial future.”

Edwin J. Beinecke Professor of Finance and Management Studies & Director of the International Center for Finance