April 11th to 12th, Unirule Master Thoughts Class(2014) 5th session was held in Beijing. This session was joined by Professor CHEN Zhiwu from Yale University and Professor LEI Yi from Chinese Academy of Social Sciences.

On the morning of April 11th, Professor CHEN Zhiwu spoke on “What Is Finance?” Many people misunderstood the meaning of financing. If we make a comparison between a society with financial system and one without, perhaps we’d get a better understanding of finance. Even though problems come with the financial market, so do personal rights and freedom to choose, which makes a completely different story.

Finance in the narrow sense refers to banking, insurance companies, securities, stock market, bond market, future market, and the options market, etc.. Finance in the broad sense refers to a variety of transactions. Professor CHEN Zhiwu used examples such as the option to raise kids for old ages, the old virgins in Guangzhou, and the bond between women to live together and rely on each other in Guangzhou, in order to illustrate the inter-temporal transactions. However, credit may become a big issue in such transactions. Professor CHEN shared his observation of the development over the last three decades in China and mentioned the transition from a society of acquaintances to a society of strangers. In the past, people relied on friends when they moved to a new place, but now transactions can be conducted via money. The transitions in this sense has led the bank to issue more notes, otherwise, the changes in the social structure will lack the support of money. As the demand for money increases, modern finance has made the “invisible finance” more visible.For example, in the past, people depended on the support of their relatives and friends for financial causes, but now more interpersonal credit system has been established, such as the insurance companies and the pension system.

Such changes has made money more and more important. The monetisation has greatly enlarged everyone’s freedom. In the past, people had to carry quilts and food when they traveled. Now that everything can be bought with money, the freedom of people is enlarged. What’s more, the monetisation has also lifted people from their social status. In the past, only party cadres could enjoy the comfortableness of the first class trains coaches, but now with payment of money, such convenience can be enjoyed by anyone.

Professor CHEN Zhiwu also introduced the financial history of the US. The US was not highly monetised as many people may have perceived. The monetisation level was rather low 200 years ago with 95% of the US population was engaged with agrarian production which required little inter-temporal transactions. The main guarantee of people’s life was religious, meaning the church. Finance soared in the last 100 years to what it is today. In the beginning of the 1980s, America embraced a golden age for finance. From 1980 to 2007, the financialisation level of the US doubled. Horizontally speaking, this financialization process took place in most of the countries in the same period, which created countless opportunities for business.