The Authority of the Bond Market (AOM2)

Callista Wilson 
Mr. Roddy 
Global Politics and Historical Contexts

The bond market directly relates with economic power and development (social, environmental, and political) because governments usually need more funds than they collect as tax, and bonds allow people to invest with limited risk and support world economies at the same time. Resultantly, bonds support economic power and development because the money people lend may be directly used for sustainable infrastructural projects, or for systems such as healthcare, education, and human rights services, which lift people up, and lead to social power: the ability to raise standards in international politics and define the prospects of other countries to achieve more equality and better living standards. Further, people see bonds as more secure than investing in stocks or property because those can change in value whereas bonds do not, and only lose value in cases of  inflation (which interest usually accounts for). 

In terms of political power resulting from war, the bond market can shape conflicts by providing the money to develop weapons and pay for combat equipment. This is reflected in the initial creation of bonds and their role in determining the wars of Tuscany in the late 14th century. More specifically, the government sold bonds so they could pay mercenaries to fight on their side, and increase the power of their city-states in terms of the land, wealth, and resources they controlled. As a more recent example, the American Civil War in the late 19th century, was more influenced by bonds than many people may realize. This was because the Confederates were relying on European bankers to purchase their bonds so that they could fund the war. This reliance hurt English textile workers because the Confederates used cotton as collateral and to pay off bonds, so they limited their exports to raise the value of cotton abroad, and allow less cotton to pay back their bonds. This made cotton more scarce and hurt factories until they formed deals with other traders. Ultimately, the bond market shaped the outcome of the Civil War, as the Rothschilds (prominent European bankers) decided not to invest, and in the end, the port of New Orleans was captured which blocked the Confederate’s income, imports, and exports. Overall, although the bond market seems to operate in the shadows, it is an underlying force behind the ability of governments and people to provide for each other, and the ability of nations to shape the world through their interactions.   

Reference: 

Ferguson, Niall. The Ascent of Money: a Financial History of the World. Penguin Books, 2019.

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