How Bonds Shaped the Course of Human History

Robert Brokamp (0:03)

How Bonds Built the Modern World this week on the personal finance edition of the Motley Fool Hidden Gems Investing Podcast.

I'm Robert Brokamp, though I go by the nickname of Bro. And let's face it, many people find bonds boring. After all, there's a reason Ian Fleming gave his fictional spy the last name of Bond. He called it, quote, the dullest name I've ever heard.

However, dig into the history of bonds and you will find that it is a centuries-long story of wars, empires, innovations, fear, greed, and an interesting cast of characters. Here to talk to us about the intersection of human history and bond history is Robin Wigglesworth, the editor of the Financial Times finance blog, Alphaville, and the author of a fascinating and dare I say, rollicking new book, A Fabulous Debt, the epic story of how bonds built the modern world. Robin, welcome to the show.

Robin Wigglesworth (1:00)

Thanks for having me on, bro. I've been looking forward to it.

Robert Brokamp (1:02)

So your book covers many ways that bonds funded big events and developments over the course of history. But I have to say that my first impression after reading, particularly the first third or so of the book, is that bonds funded a lot of wars or defense, depending on how you look at it. This includes the very first bond market in Venice. So let's start with that story. Tell us about how bonds got birthed in Italy.

Robin Wigglesworth (1:27)

Yes, I can't remember which Greek philosopher that first said that war is the mother and father of all invention. But it's certainly true for pretty much everything. But certainly in the financial realm, war has been brought out the worst and the best in human ingenuity.

So Venice, this is the 12th century. Venice is a weird city. Have you been there, bro?

Robert Brokamp (1:47)

I have, indeed. It's beautiful. And I was just struck at how, frankly, very focused on mercantilism.

And it occurred to me reading your book that that's been that way for centuries.

Robin Wigglesworth (2:00)

Well, so I visited once when I was an effectless student, essentially, and I wish I appreciated the history more because it's a unique city.

It was found by refugees fleeing the Vandals, basically some Vizigoths, some German barbarians. And they settled where they settled because nobody else wanted it. It was a swampy hellhole. It had zero natural resources, no farmland, no nothing. So they were left to peace there. And they realized they had to live off their wits. And the Venetians became really the Mediterranean's most brilliant merchants, the traders.

And they were well positioned between East and West. So they had no natural resources, but they were very smart, they were very cunning, very driven, very ambitious. And they were perfectly positioned between East and West. So they were technically part of the Byzantine Empire, basically Constantinople, today's Istanbul. But they're also part of Italy, of course, and they owed some fealty to the Pope. But essentially their only loyalty was to money. They liked making money. And it was one of those rear places where there was lots of social mobility as well. So there's doges who rolled the town that you could literally go within several generations, go from being a slave to being the head of the city. If you were good enough at business, that's really the only thing that mattered. But this really annoyed everybody else in Europe at the time. These are these nouveau riche uppity merchants, nobody likes merchants, right?

So they ended up in war with Constantinople at one point, their liege, and they needed a ton of money to fight that war. Wars are very expensive. More money than they could just borrow from the local banks, or really banks in the way that we understand, but local money lenders. They were called banks or banky because of the wooden tables they had.

They therefore forced everybody in the town to pay a proportional wealth tax, essentially. So they assessed everybody's wealth and made them pay a forceful loan to the government to soften the blow. It was a republic. So to soften the blow, they made it a loan, paid 5 percent a year, and made the receipts tradable, and that was the crucial bet.

Robert Brokamp (4:13)

Yeah, because loans have been around for centuries before then. It was the tradable part that was important because it then became a financial asset. And you had people with both liabilities and assets that were the key to its success, and it gave a sense of, especially the more affluent people, feeling like they had a stake in what was going on.