In this six-part series, historian Niall Ferguson tells the story of money and the rise, and sometime fall, of global finance.

Bringing context and understanding to the current economic crisis, he reveals how the history of finance has been punctuated by gut-wrenching crashes. Each episode shows how a big bang in the ascent of money has changed the course of history.

Why did the CEO of Goldman Sachs make £27 million last year, and you didn’t? What’s a hedge fund? Why are people in Europe rich and people in Africa aren’t? This series addresses these and other questions and last night’s episode, Human Bondage, focused on the history of bond trading.

The programme began by taking a look at the meteoric rise of Bill Gross in the financial upper echelons. He is the boss of Pimco, the world’s biggest bond trading company which manages a portfolio of bonds worth $700 billion. Trading in bonds is primarily how governments the world over make money and it’s this money that funds almost anything from wars to building projects.

The bond market though can also destroy investors and was responsible for bringing what once was a wealthy country – Argentina – to its financial knees, a subject that was looked at in more depth later in the programme.

Wars, Ferguson explained, have historically been funded by the bond market and in last night’s episode, he looked at the beginnings of the bond market during the Italian Renaissance and the mercenaries who were paid by the Italians to fight their battles for them. However, as is the wont of mercenaries – and one of the most famous and most revered at the time was Sir John Hopwood – they traded cities off against each other, causing those cities to be plunged into debt as they continually had to outbid each other to secure the services of these mercenaries.

So rather than tax their citizens – who were already paying cripplingly high taxes – the cities governments used a form of mandatory borrowing in which citizens would loan money to the government and in return, they were paid interest. These were the first government bonds and were effectively liquid assets in that the citizens could sell their bonds to other citizens should they wish to turn the bond into cash. This was the birth of the bond market.

However, Ferguson went on to reveal, in the 1500s, there were so many bonds issued that they became virtually worthless and were traded at only 10% of their true value but that meant that investors who had the ready cash to buy at this time, and hold onto their bonds until they went up in value, made a killing on them. This was the inception of the concept of interest on your invested money, and again, this principle is still what makes the bond market work.

We were then introduced to the history of the Rothschild family. In the 19th century, Nathan Rothschild became the ‘godfather’ of the bond market and was considered by governments of the time to be the most powerful man in the world. He effectively held the purse strings and could affect the bond market more than anyone else. He also founded the first London branch of what was to become the biggest bank in the world, Rothschild’s.

During the Battle of Waterloo, Nathan Rothschild was charged with gathering gold and silver that could be used by the Duke of Wellington as international currency, and in so doing, Rothschild made yet another small fortune. As the years progressed, Nathan and his brothers, who were all based in different European countries, bought and sold bonds and gold from each other, thus ensuring that when the value dropped in one area of Europe, but didn’t in another, they kept their money and raised yet more by trading in this way.

However, as the war concluded, Rothschild was left with a huge hoard of gold which was virtually worthless by then so in an attempt to parlay the gold into cash, in 1815, he bought massive amounts of British bonds. In 1817, when the prices of the bonds had risen by 40%, Nathan sold, making huge profits.

Later in the century, during the American Civil war, the Southern Confederacy approached Rothschild to ask for their financial backing however the Rothschild’s weren’t sure of a return and chose not to lend money. However, the Southern states quickly realised that the value of their cotton was more valuable than money and traded in bonds backed by cotton. In an attempt to effectively blackmail Britain into assisting with their funding, the Southern states embargoed exports of cotton to Liverpool.

However by 1863, other sources of the supply of cotton were found – in China and India for instance – so the value of the strictly controlled and much guarded cotton in the Southern states rapidly devalued, leaving the Confederacy with nothing to trade on.

Back to modern day bond markets, which were shaped by these historical events, we learned that Bill Gross began his vast business empire by trading with the money he earned as a professional black jack player. He is now considered to be one of the most powerful men in the world but even Gross could be broken by inflation. As inflation rises, the value of bonds drops, Ferguson explained, and can continue to drop until they are virtually worthless.

This scenario is what devastated Argentina and throughout the 20th century, it was on a rollercoaster ride of financial ups and downs, the most serious of which came to a head in 1989. Following massive Argentinian borrowing over the previous two decades, inflation began to sour out of control, so much so that the government ordered the closure of many banks while it tried to get on top of the situation.

This, and many other desperate attempts failed and Argentina now found itself financially stranded as other countries refused to lend to them. By April, the country quite literally ran out of money and the infrastructure of services ground to a halt. The Central Bank sought to answer this problem by printing more money, but instead of fixing the problem, this only exacerbated it.

In June, civil riots, looting and unrests led to ugly scenes on the streets of Argentina and the military were called in to restore order. This resulted in the deaths of at least fourteen people and a further demoralization of a country in turmoil. Once comfortably well off Argentinians were now forced to join huge queues in soup kitchens and to sell off anything of value just to buy bread.

However even in Argentina, bond trading is now yet again a growing and increasingly profitable market but in these times of global credit crunch, there is still some trepidation on the part of investors who are nervous that spiralling inflation could equal out their return on government bonds.

Nonetheless, bond trading continues to be a staple of the financial diet of governments who rely – just as they did in Italy centuries ago – on selling bonds to raise capital.

Next week, Niall takes us on a journey into the world of stocks and shares and compares this to the efficacy of buying bonds.

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I have to say, when I first saw this programme’s blurb I thought ‘oh yawn’, but despite a rather tedious first few minutes of introduction, the programme became more and more interesting.

The world of global finance, stocks, shares, bonds and so on has always been something of an enigma to me, and most often, I’ve assumed it doesn’t affect me on any tangible, day to day level, however I was wrong.

I also assumed that it was all way over my head and was pleasantly surprised to find that, thanks to Niall Ferguson’s straightforward narration, it wasn’t.

Just sixty minutes of this show have enlightened me about not only the very logical and actually quite simple world of finance, it did so in a way that didn’t patronise viewers with little or no knowledge of financial history – like me – and was instead an interesting walk through history as well as an explanation of the rudiments of global finance.

I don’t feel equipped to suddenly start trading in bonds or indeed anything more risky then eBay, but I do feel that I now have a greater understanding of it all so I’ll be keen to see next week’s show which is all about stocks and shares.

Hopefully, I’ll come away from that with a bit more knowledge than I have now… in fact, to be honest, when the words “in the financial markets today” are uttered on the news, my brain resorts to shutting it out and listens instead to birds tweeting or whichever song is my current favourite so maybe, just maybe, next time, I’ll be able to say, “Ah, yeah, that’s where Abraham Lincoln went wrong too…”