Шеметев Александр Александрович : другие произведения.

Alexander A Shemetev Monetary relations - as the most ancient and natural experience of mankind

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    Many of you believe that the financial analysis arose only in the twentieth century, or in the Renaissance, or in the ancient civilizations, or in the ancient world ... .. But it is not so! Financial analysis appeared together with monetary interrelationships and the rudiments of banking relationships. It appeared in the Primitive society....
   Alexander A. Shemetev (copyright protected)
  PhD (finance), MBA, MACFM /Master in Anti-Crisis
  Financial Management/,
  Master in Linguistics
  
  

Monetary relations - as the most ancient and natural experience of mankind

  
  
  Many of you believe that the financial analysis arose only in the twentieth century, or in the Renaissance, or in the ancient civilizations, or in the ancient world ... .. But it is not so! Financial analysis appeared together with monetary interrelationships and the rudiments of banking relationships.
  
  It is widely believed that the "grandfathers" of the current financial relations date back to the ancient times and the ancient world. Appearance of the first rudiments of the financial affairs of Eurasia occurred at about 3600 year BC; - In the course of archaeological excavations uncovered cuneiform tablets in Mesopotamia, which kept records of accounts on the analysis of economic activities of temples - the first "grandparents" of modern commercial companies. The community"s Center of the society of those times was usually a temple itself. Therefore it is not surprising that the temples date us back to the emergence of financial analysis. At about 3600 year BC there were found the first cuneiform tablets, which had a recorded data about such important for that period things as grain, oil and meat produced in the community; - and also a data to whom and how much grain, meat and oil should be given and according to which and what terms and conditions.
  
  Temples then bought goods and sold goods, store goods to sell them more expensive then, in the future, and the temples even gave the first loans. In general, temples lent out the then nobility or a state in those times. As the basis for loans and deposits temples used grain, precious stones and metals. Availability of storage facilities to store grain and valuables allowed temples to attract monetary equivalents - deposits. Sanctity of the place together with troops and walls for many centuries preserved temples as the safest refuge of wealth. Cyclicity of agricultural crops, together with the seasonal nature of the main sectors of the ancient world"s economy, gave rise to the rate of interest - an uneven crop value in space and time. Thus, during the agricultural works season, whilst getting a harvest, the prices for grain, figs, flax, peas, straw, oil and meat fell down, and in times after planting and after crop failures - the prices grown rapidly.
  
  In the centers of trade prices were more market-based than in some communities. Different regions produced different goods. So there was irregularity in prices in time and space, that was, and there was a need for the rate of interest. If a man could not pay its debts (and totally most ancient societies were not matriarchal at all) - he was deprived of whole family"s property and, often, freedom - then a family could become slaves. Temples, and not only of Babylon ones, and also of ancient Egypt, India, Greece and other countries, involved, we can say, banking. The peculiarity of the Babylonian temples was a deposit interest rate - the fee for storage of valuables, secured by a clay tablet.
  
  The flowering of the financial affairs has occurred in Greece. In the ancient world, mainly in Greece, in the middle of 5 century BC, there appeared "ergasterias" (slave workshops) that were beginning a mass, for those times, production of goods. It started an abundant trade of "policies" (independent ancient Greek cities) with the cities, especially in the Mediterranean basin.
  
  Each region had its own currency, which often was not taken in the basic "policies". To trade, the money was needed to be changed in each region. In the 5 - 4 cc. BC, in Greece, there was a term "Trapezit" - actually "a currency exchanger". "Money-changers" have always sought to win and overcome the state to accept their terms, and sometimes they actually succeeded in it. The famous philosopher Aristotle said that in 4 BC in "Bizatsium" (the future of Constantinople / Istanbul) there was a monopoly on the exchanges of coins. Gradually, the term "Trapezits" - "Bench moneychangers" - took in ancient Greece a nature and significance of a state financial institution; upon such institutions the Government effected payments and accepted contributions of taxpayers. This institution was called the "Τραπεξαι βασιλιkαι", and it was the first prototype of the state central bank. It is still unknown exactly when the bank account has appeared. But recently, a papyrus of 6 century BC was found; the papyrus called "a Trapezit" of Egyptian scribe whose name is Apiona; and the responsibilities of this "Trapezit" included both normal duties of "Trapezits" and also keeping an account book of operations (Johnson, 1974). Gradually, the state sought to abolish the activity of "Trapezits", saving them only one role - as money changers. Then appeared the term "Katallakt" - a money changer for smaller coins ("numias"). In the Roman tradition, the money changers were called "Argentarias", who had the right to change coins, to lend money for bail or commitment, to consider debts, to be intermediaries in exchanges the capital to be engaged in trade, to do trade, in particular, the purchase and sale bread, to conduct cash transactions in behalf of clients (G. Preisike, "Aegypten", 1980).
  
  But this is a classic look at the history of the emergence and the emergence of finance.
  
  People at all times were interesting: How to increase and how to keep their wealth? In fact, the rudiments of money and banking relationships actually existed in the primitive society. So, Angel Norman conducted a study of the island Ual (Caroline Islands" Group), and he found that the existence of financial relationships and the first rudiments of banking relationships may exist in a primitive society. Moreover, A. Norman goes further and points out that banking in a primitive society positively influence the development of culture, science, ethics, communication and commerce. Recent studies on the island of Ual (Caroline Islands" group) showed the existence of an analogue exchange "Fay". "Fay" - is a limestone disc, extracted and processed at the island Barbeltual (about 600 km. south from Ual), the disk has the average size from 30 cm to 3.5 meters. Ual has a definite place to store these rocks (an analogue to a bank vault).
  
  Moreover, the owner, at settling a bargain, doesn"t have a necessity to divide the rock into pieces - just a special mark is enough to be made at Fay after the deal; the mark affirms what part of Fay belongs to whom. Fay"s Storage Location is not a point of interest within the people. Thus, nobody has ever seen with their eyes the wealth of the richest family at the island - a giant Fay sank to the bottom of the sea many centuries ago, but there were witnesses who claimed that their Fay was huge, and, because of these testimonies, the family is still regarded as the richest on the island.
  
  "Bank" of this primitive society - is not so much a cash vault, but a single record store, where it is written by whom and by what a share of wealth is owned. The need for Fays" extraction developed navigation, cartography, mathematics, basic mechanics (levers and "sails") and trade. It is this influence to be exerted by a, perhaps, the first in the history of the Earth "grandfather" of banks, the influence to the people of this primitive tribe is - the development of public relations, science and culture (honesty and ethics). It is possible that banking relationships and banks on the Ual island are evidence that the beginnings of banking were already in the primitive society, and an evidence they were among the first, or the very first, prototypes of banks in the Earth's history.
  
  The origins of the island Ual"s people is a mystery. Tentatively, today it is known that these people belong to the Micronesian group of tribes, some of whom migrated from ancient Africa and Madagascar. It is possible that the rudiments of financial and banking relationships at the Ual island are the first in the world, and it is possible that at this island we can find the world's first "grandfather" of modern banks, which, however, had a tiny impact to the development of banking in Europe.
  The theory is itself interesting, the theory of the banking and financial relations" existence in a primitive society. At Ual, a size of money (of Fays) was the deciding factor. The more a Fay was - the richer the family was considered. The biggest Fays stored in a single location on the island. Owner of a Fay at settling a bargain, for example, a bargain of small amounts, was not needed to divide the Fay into pieces at making a deal; including cases when the value of deal was defined with a part or with a whole Fay. Large Fays are virtually non-transportable, taking into account a fact that until the early 20th century there were no roads at the island due to overgrown jungle. In this case, the payee was quite satisfied with a fact that from the deal"s moment he was an owner of a Fay or of its part. The vast majority of Fays remained lying at the territory of the former owner (during the lifetime of generations), even without any records on it; - to a new owner and to his family it was enough to have an opinion about the fact the Fay or its part from a certain moment belongs to them. All of this suggests the presence of the rudiments of financial and banking relationships may give a rise to the business interrelations ethics, which can be seen even today on the Ual islan.
  
  The high level of business ethics, on the one hand, and, on the other hand, a trade relations caused by the rudiments of banking relations within the islanders can be testified by the next case. In 1898, the Government of the Kaiser's Germany bought the Caroline Islands. Ual was an island, overgrown with jungle, with here and there little trails. The German Government decided to start building roads. But it was obviously their own workers were far not enough, it was decided to attract the islanders. However, the natives resisted, citing the fact that if there is a path, then why do we need an extensive road? The German Government challenged with a difficult issue - fining the islanders had no sense - massive boulders - Fays - are not easy to be even moved and, of course, there were no sense to transport the Fays to Germany, where the Fays are virtually useless. In addition, it would be necessary the work of all local residents and of all the local soldiers to draw even one Fay to the port. In the end, the governments choose the following scheme. It sent a special agent who marked all of the Fays at the island as an owned by the Kaiser German Government"s property, and so nationalizing the National Bank of the Ual island - the actual location and store of large part of Fays. In fact, residents of the islands became a bankrupt in an instant, and they immediately set to work to build the roads to regain at least a part of their former wealth. Soon they constructed the first wide paths and the first roads in the jungle. After that, another governmental agent was sent to the island, and he erased all property tags from Fays; after this event the island"s population begun a national holiday. This story tells about the priority value of Fays as the national currency of this primitive society, as well as about the importance of analogue of the first in the history of the Earth's primitive "central bank". This case shows that the basis for these primitive people"s motivation is exactly the monetary relations.
  
  In addition, the presence of the rudiments of banking relationships is closely linked to the development of science at the Ual island. So, to bring a boulder weighing several tons from the island Barbeltual where the quarry is, to the island Ual - the final destination, a remote distance of almost 600 km. should be crossed to get from Barbeltual to Ual (or back from Ual to Barbeltual), - such a complex thing to say and especially to do actually requires a very well developed science.
  
  First, one needs to develop navigation. To overcome such a way one should have a solid boat that could carry a cargo of a large weight even in severe storms (only typhoons themselves are far enough, every year in average one can calculate up till 25 typhoons; Ual - is the epicenter and the homeland of typhoons in the world). In addition, the Caroline Islands are surrounded by coral reefs. Because of all the mentioned, to swim from Ual to Barbeltual - a distance of almost 600 km. - With a heavy cargo taking into an account the threat of storms and typhoons, as well as reefs and sharks, - it all is a real challenge to a primitive man as like as to the primitive science of navigation!
  Secondly, for these purposes the development of navigation as a science is necessary - orienting using the stars" positions skill.
  Thirdly, the orientation using the stars" positions, in its turn, is virtually impossible without the development of an elementary astronomy - the science, which calculates the location of the boat among the luminaries.
  
  Fourth, one needs to develop basic mechanics - for loading and uploading the Fays using primitive instruments for vertical and horizontal positioning (like tree trunks).
  Also the mechanics is necessary for the production of primitive analog cables - Fays were brought on a separate raft, which should be tied to the boat with a rope. It was invented in a case of storm to chop off the cable the sunken raft not to sink together with the boat and, therefore, with the team.
  
  And fifthly, you need a developed system of social relations and social ties. High level of business ethics - is one of the evidences of this. In this primitive society, a word would be appreciated as well as the wealth itself, like the Fays; it indicates the integrity and ethics of the population. Proof of this may be the most famous at the island story. A friend and conductor of Angel Norman named Fatumak told the story of the richest family on the island. It is surprising that none of the members of this family ever touched and ever seen even a small part of this family"s fortune - all is kept upon the word of honor for many centuries.
  
  The wealth of this family was a huge stone Fay, whose size is passed in the legends at the island. This is the biggest Fay in the island's history; many years ago it was mined and processed in the very ancestor of this family at the island Barbeltual. Fay was put upon a raft and brought home to the island Ual. On the way back the boat got into a typhoon and the team was forced to over-chop a rope to stay alive. Fay, along with a raft, drowned. But witnesses described of seeing Fay and testified that the Fay was of a colossal size and of a great quality, as well as they testified the fact that the Fay was lost through the fault of the owner. Later, the islanders decided that the fact that the wealth of the family drowned does not mean anything at all, because the Fay actually exists somewhere on the seabed. Thus, the purchasing power of the stone has remained the same as if the rock was lying against the wall of its owner! This example demonstrates the high level of social organization of this society. Due to the rudiments of banking and monetary relations that existed in this unique historical perspective, inside a primitive society, we can say it certainly gave a lot to the development of science, social relations, trade relations, banking relationships, commodity-money relations and the development of business ethics, which played a key role in the development of the island.
  
  Financial and banking relations are the true phenomenon of human civilization, as well as of some pre-civilization, even primitive societies. These relations produce the technology's strongest accumulation of monetary funds in the narrow sense, and finance in the broader sense; and these relations played the role as the leading accelerator of human culture, social relations and cognitive human activity; these factors primarily affect the level of scientific development, social and ethical relations in any society. Why is this so?
  
  Almost every achievement of science and culture, even in prehistory, is associated more with a collective activity, either with expensive (for a given period) researches or specialists. Financial relationships allowed to conduct such studies, literally, by financing and encouraging them.
  
  Financial relations developed independently in many ancient and even some primitive societies. Thus, even in apparently pre-civilization Great Zimbabwe, which had little army, had also the rudiments of financial relations. Great Zimbabwe was inhabited by about six months of the year when the selected harvest and thousands of tribes in South Africa met in this place together for trade and exchange. In the remaining six months the city was virtually uninhabited. In particular, at this point the Arab travelers, who traded with the city in the "active season". Money, for temporary residents of Great Zimbabwe, was seashells. And, for a beautiful shell, extracted by an Arab navigator from the Indian Ocean, some residents were willing to exchange a significant portion of the annual harvest of the tribe. Since the Great Zimbabwe gathered itself for a certain time, all the other tribes, including the primary, then so, primitive tribes started to enter monetary and financial relations. Then, primitive tribes had been interested to retain part of the loot from hunting or from apiculture and to exchange them for some beautiful shell.
  
  But how is to estimate a shell or a Fay? How would you, dear reader, know, which part of the crop should be given for one or for other Fay or shell? How would you compare one Fay with the others, and one seashell with another? How would you, dear reader, know who is the richest: the one who has more Fays/shells, or the one who has these Fays and shell more beautiful and bigger? Does one need to show all the wealth everyone to recognize it, or is it enough to have a virtual wealth accepted by the all-consent and all-recognition that such wealth of virtuality exists in reality?
  These issues are not only interested in those primitive or almost primitive tribes, but also these are the issues of interests of a modern human today! Only instead of Fays and shells we have the same in its essence virtual currency - paper or electronic. Fay of a nation no one has ever seen, but everyone knows that it is huge, that is why the receipts for a part of this "Fay" are being widely accepted in a turnover by all members of society "on faith". No one needs to ask someone to get the "Fay" from the bottom of the sea and to demonstrate it to everyone on a constant basis.
  Once a society loses its faith to the value of the "Fay", the national money begin to depreciate themselves rapidly, and the society - starts to decline.
  By coincidence, the very "big" note in the world in 100 trillion dollars is used in today's Zimbabwe, and it depicts a large rock, reminiscent of unhewn Fays.
  In today's world the financial analysis has a purpose to help to earn and to save money for a company. In an environment where all the economic agents behave themselves fully financially feasible, there is no crisis, neither in a company nor in a state, the crisis becomes simply not an event to be happened.
   Postwar Hungary: janitor sweeps money, thrown away like garbage, from the streets [Postwar Hungarian newspapers]
  

Postwar Hungary: janitor sweeps money, thrown away like garbage, from the streets

   Note: 100 trillion dollars, the Bank of Zimbabwe [The Reserve Bank of Zimbabwe]
  

Note: 100 trillion dollars, the Bank of Zimbabwe

  Of course, we know few about finances in other primitive societies, since the notion "primitive" means the absence of writing, and oral history does not live long. There are chances that not only the tribes of Barbeltual, Ual and Great Zimbabwe, but also the tribes from other areas had their own beginnings of monetary, financial and even banking relations.
  
  The wealth is analyzed by mathematics even in a primitive society, and more so nowadays. If primitive people from Ual had an access to modern technologies, they would accurately measure the size, shape, weight, volume, diameter, financial cost, the change in value over time, depreciation and other settings of Fays. But they did not have such an opportunity - the people used simple algebra and their own inner intuition: a giant Fay at the bottom of the sea is more expensive than any other Fay upon their land; and a big one Fay worth far more than a small one; ugly one Fay (that has of an irregular shape) is cheaper than a beautiful one (that means correct in all spheres), and so on. Similar to what we have today, people from Ual used recordings at an analogue of "the central bank of the island", making notes directly on stored there fairies (or making records on clay tablets, as it was in the Great Zimbabwe). Just today we have a real central bank, and the recordings are to be done mostly electronically.
  In primitive society every neighbor wanted to know about the wealth of another neighbor. Some people were able to read and write the cost of Fays. Such people can be compared with modern financial analysts. Other people determined the value of a Fay with their naked eyes, trusting their inner "financial intuition". Each neighbor wanted to know: how much richer is his or her neighbor, and neighbors? How many Fays do they have? How much do the Fays cost? And how, therefore, thou needs to get some Fays from Barbeltual to become rich and buy thyself, for example, a house? Also today the people who own companies, they tend to earn much advanced and more modern "Fays", and they also seek to know: Who are their competitors and how they're doing? Who their friends (suppliers, banks, investors, creditors, debtors, ....) are? And how they're doing? And if they can pay off the debts? Also, whether the company itself is capable to pay off debts?
  
  However, to make a Fay, a primitive man from Ual had to go to and to achieve Barbeltual - the only known habitat of the material for Fays. However, the primitive man quickly got the idea that one person can not even get big and good Fays; and, of course, one single person has quite little opportunities even to nig the boulder and to deliver it back to the Ual! This requires a team! And this team must be special: an astrologer for navigation at sea, strong porters and miners for mining and carving Fays, a specialist on the ropes, levers and marine bends, a builder of the raft, an expert appraiser of the potential cost of a Fay (after all, one shouldn"t hollow a boulder out without knowledge about its potential value first) and someone else ....
  
  But how to motivate someone from Ual to go for more than 600 kilometers out through the sea; how to motivate someone to get the Fays, and to help bring them back?! It means also that the ownership for the hollowed Fays shouldn"t be extinguished by payment of "team"s salary."
  Today, the companies have very similar questions. How to find a place where the finances actually "live"? How to get some finances? What experts are needed? Where to get them? How to motivate a staff? How to measure the potential revenue from the "development of the financial field"? How to save a Fay? How to calculate wages and shares of workers and owners of the joint venture? How to take into account the financial resources ...?
  Moreover, Fays" mining within the tribes of the island Ual is associated with a risk: the team and Fays can not to return back! Risk has traditionally assumed by the breadwinner who wins a Fay. Depreciation of risk was provided by business traditions and business ethics: if the Fays were sunk, and the team would survive and would be able to get to Ual, the "sunken treasure" owner would have a risk not to lose his sunken treasure in reality. Just recollect the story of the wealthiest family at the island! As well as it was in a primitive society, risk management - is the weakest position of any company! In a primitive society there were risks to get lost, to go astray, to get into trouble or in a storm, to get back with the not much valuable Fays, to fail to trim properly a Fay, and so on. Today there are modern equivalents of these primitive risks: a risk not to understand what merchandises are to be required by which customer (who is a core revenue generator); a risk to invest an unprofitable investment project; a risk to make an unprofitable investment project from a primary profitable one; a risk to lose a business due to force majeure; a security risk; a risk of lack of profits; a risk to lose a wealth (of a bankruptcy of a joint venture); a risk of a profit non-maximization, ....
  Money, financial relations, and even the rudiments of the banking relationships - these are not to be the modern inventions of civilization! Moreover, for the presence of this type of relationships there is no need in civilization at all - they are natural, and they occur even in conditions when a human lives fully inseparable from nature itself. Financial and banking rights, thus, in the opinion of the author and his concept, can be compared with the natural rights of human. Financial and banking commitments - these are themselves the natural rights of another person to get someone"s income. There is no natural right without a natural obligation! In finances and banks the natural rights of one person end themselves where it began the natural financial and banking rights of another person.
  Financial analysis - this is probably one of the oldest sciences, peculiar to human since the days of primitive society, but to recall the history of its occurrence - you need to have a great memory! In any case, financial analysis may exist among the primitive tribes, as it existed and exists among the tribes of the Ual and Barbeltual islands, as it also existed until 17 century AD within the tribes who gathered in the Great Zimbabwe for millenniums before.
  Bankruptcy of not only individuals, but even States - is also not an obligatory attribute of civilization. Recollect, though, a story told by Angel Norman, a winner of the Nobel Peace Prize, an author of more than 100 publications on economics and finance, recall the story about how the entire primitive tribe went bankrupt in one evening, when the government of the Kaiser's Germany, seeking to motivate the local tribes to build roads, privatized All the Fays of all the inhabitants at the island, and it also privatized the analogue of "the central bank of the island Ual"! It happens! On whether a primitive tribe is an analog of state - it is an issue that goes beyond economics and finance to the direction of political science, because in the book I"m about to write, we together with you will not take it under consideration. We simply recognize the existence of bankruptcy in a primitive society. Incidentally, in the primitive society there existed a primitive analogue of the audit - after the return of all the Fays, the inhabitants of the island, before to start the national holiday, they audited all the Fays to be sure their primary value to be preserved and to be sure them not to belong to the Kaiser"s Germany government anymore.
  Financial analysis as a science has been developing rapidly today. Once the author of this paper read a scanned reprint of one of the first scholarly books on finance; the book was published in 1914 in the United States. Its volume was only 12 pages and this book was a bestseller.
  Over the 97 years that have rapidly elapsed since the publication of that book, the tools of financial analysis are some expanded, and, in a geometrical progression at that! Because of that fact my future book will be a bit more than 12 pages - so, please, preserve your patience! The mastering of modern techniques of complex financial analysis requires a lot of diligence and patience!
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