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Wednesday, August 24, 2011



This present paper focuses on the diffusion of wu-wei (an ancient Chinese concept of political economy) throughout Europe, between 1648 and 1848. It argues that at the core of this diffusion process were three major developments; firstly the importation and active transmission of wu-wei by the Low Countries, during the seventeenth century. It is revealed that the details of Chinese expertise entered Europe via the textual diffusion of Jesuit texts and the visual diffusion of million of so-called minben-images, during the ceramic boom of the seventeenth and eighteenth centuries. Thus, the hypothesis is advanced that the diffusion of wu-wei, co-evolved with the inner-European laissez-faire principle, the Libaniusian model.
In the second part it is shown that the intellectual foundation of Europe’s first economic school, Physiocracy, is a direct replica of the imported Chinese economic, agrarian craftsmanship of wu-wei; subsequently it is denied that the indigenous European Libaniusian ideology can be considered the intellectual master-model of Physiocracy and his founder Quesnay.
Thirdly, it is argued that Switzerland can be identified as the first European paradigm state of wu-wei. The crystallization process of wu-wei inside Europe ultimately ended with the economic-political reorganization of the new Eidgenossenschaft in 1848, in which Chinese agrarian wu-wei was institutionally combined with the traditional Swiss “commercial wu-wei”. In due course, this alpine paradigm enabled the endogenous Libaniusian model to verify and reflect upon its own theory of commercial society. Additionally, this third focus also demonstrates that the later development of Europe’s laissez-faire doctrine has to be seen as a Eurasian co-production – without wu-wei, Europe’s pro-commercial ideology would have never sufficiently matured.

Blaise Pascal (*1623–†1662), French philosopher1
This essay will explore the impact of inter-Eurasian webs of interconnections on Europe’s political economy from 1648 to 1848. I will start with the assumption that there has never been an autonomous civilization in history, which proved capable in providing continuous development inside a framework of political or economical autarchy. Furthermore, I claim that to assure an extensive, successful era of peace and prosperity, civilizations have to draw on ‘useful knowledge’ from other centers of civilization. In nature, as in history, there can be no knowledge without contact – human knowledge is continuously reborn by the forces of contact, ever changing, evolving towards ever more complexity.2 I will try to spell out a vision of global history that is based on investigating the European effects of such Eurasian exchanges of complexity. In 1991, the historian W. H. McNeill stressed, “the principal factor promoting historically significant social change is contact with strangers possessing new and unfamiliar skills.”3 My focus is therefore on the diffusion of such a ‘new and unfamiliar skill’, to be precise, on a particular skill of Chinese state craftsmanship. This Eastern expertise in `good government´ is best described as wu-wei, a rough approximation of what is a complex concept of Chinese political economy, governance and religion, originating from a period before the Han Dynasty. It is best translated, as action by non- action or doing nothing, yet there is nothing that is not done. What exactly does this mean?
The Chinese character  無  is literally translated as no or without, the character為 as doing or action. However, the axiom  無為  translates not into complete absence of activity or doing nothing, but what it does mean is lesser activity, or doing less. The Huai Nan Tzu, an influential treatise on political philosophy from the early Western Han Dynasty (206 B.C.– 9 A.D.) defined無為 as follows:
“What is meant […] by wu-wei is that no personal prejudice [private or public will,] interferes with the universal Tao [the laws of things], and that no desires and obsessions lead the true course […] astray. Reason must guide action in order that power may be exercised according to the intrinsic properties and natural trends of things.”4
Thus, by relying on無為the state does less, yet everything is accomplished in accordance to the needs of the state. The philosophical core of this later political concept was formulated during the Shang Dynasty (~1500– ~1050 B.C.), as Slingerland’s recent book Effortless Action confirmed.5 Yet wu-wei only became a central component of classical Chinese political theory one thousands years later – as the political unit of China turned into the wu-wei Empire.

Roger Ames’s comments on the Huai Nan Tzu6 illustrated how the doctrine of doing less developed into a political modus operandi, after the chaotic Warring States period (475– 221 B.C.) of the Eastern Zhou Dynasty (771– 221 B.C.).7 During the eclectic Han period, ‘action by non-action’ was firstly adapted as a political instrument to rule over the Empire in a peaceful and harmonious way. The result was that wu-wei was quintessentially transformed into a policy of wu-wei erzhi (literally: ‘order and equilibrium will be achieved without ruler’s intervention’).8 Thus, the principle wu-wei became the “[…] appropriate description of the ideal Confucian ruler: one who reigns but does not rule”.9
To understand in which specific political context the principle of ‘doing nothing, yet there is nothing that is not done’ was adapted; we have to raise the following points. Drawing partly on Ames and Hall’s work on the ancient Confucian philosopher Mencius’s egalitarian ideology minben (meaning: the ‘people/ peasantry as the foundation’)10 and Broadbent’s work on China’s utilitarian nongben (meaning: Chinese agricultural fundamentalism)11, Kent Deng revealed that the ideology of minben (i.e. the ‘mandate of heaven’ rooted in the people) had been an integral part of the post-‘Warring States’ implementation process of wu-wei erzhi.12 Furthermore, as Deng demonstrated, it is possible to identify a prosperous nongben–minben paradigm, based on wu-wei erzhi  throughout the Tang Dynasty (618– 906 A.D.), one of China’s most prosperous and glorious periods.13 Thus, wu-wei has to be recognized as a laissez-faire instrument of Chinese political economy whose rationale was to serve China’s agricultural economy, i.e. to assure the welfare of minben. Indeed, China’s system of nongben did ‘marginalise’ the interfering state and hence relied on wu-wei erzhi for assuring its economic prosperity.
The overall objective of this paper is thus to deal with the historical process of wu-wei’s diffusion inside Europe. The process lasted for approximately two hundred years (from 1648 to 1848) and has to be seen as the assimilation of an advanced concept of Eastern economical governance that ultimately transformed Europe’s economies and the political outlook of the modern political unit to a considerably extent. To trace back the European history of wu-wei I am going to focus on three geographical areas that proved essential in transforming pieces of Eastern knowledge into European practice: the Low Countries, France, and Switzerland.
If the amount of literature on the history of wu-wei inside China is to be considered sparse, serious research on wu-wei inside Europe can be considered even sparser. Nevertheless, let us turn now to the literature on wu-wei, concerning our three geographical areas of interest, and to the issue, how this essay may add to the current research; first, we will look at the Low Countries. During the 17th century, millions of Chinese art products were diffused all over Europe by the Low Countries; and as the studies by Christiaan Jorg14 and Julia Curtis15 have repeatedly stated this import-boom   of Chinese images and products was crucial for Europe’s understanding of China. Both authors made clear, that the diffusion of Chinese artefacts and styles inside the Low Countries reached such a level of sophistication during the 17th century, that one is hardly able to compare it to the widespread intellectual hollowness of the later Chinoiserie craze throughout Europe. Only some authors have dealt with Chinese influence on the Low Countries beyond the world of ceramics. Lewis A. Maverick’s ‘A possible Chinese source of Spinoza’s doctrine’16 inspired by the original research by Ch’ên Shou-yi17 was one of the first studies to stress the closeness between Confucianism and European philosophy, during the 17th century. Yet, there exists no detailed study on how wu-wei entered the Low Countries during the 17th century; this paper seeks to correct this.
Almost all the literature on wu-wei in France concentrates on François Quesnay’s role, while the broader Eurasian network of the Physiocratic School is mainly neglected. During the late 1930s, Ly Siou Y and Edgar Schorer were the first to deal with possible influence of wu-wei on Physiocracy.18 The first text, which convincingly portrayed Quesnay’s Sinophilsm, is Maverick’s ‘China – A model for   Europe’19 but it was only with a paper by Briger Priddat that a detailed evaluation of the wu-wei behind France’s Physiocracy arrived, in 1984.20 Priddat, relying on Schwarz’s translation of wu-wei, “to let it grow”21, concluded that the system of Physiocracy indeed corresponds to the principle of ‘tun/ ohne/ tun’ i.e. wu-wei.22 Thus, Physiocracy’s claim “[…] that free trade would lead to a natural distribution of [agricultural] produce […]”23 is directly linked to Quesnay’s belief in the universal morality of agri-culture (i.e. nongben). The productive branches of industry and trade (the Industrie,- und Handelszweige), writes Priddat, form only minor parts of the all embracing ordre naturel which Quesnay imagined as a tree, which he called économie. For Physiocracy, ‘good government’ is therefore based on ‘letting the branches grow’ (s’étendre en liberté)24 i.e. Practising wu-wei erzhi. Consequently, it is this variant of the laissez-faire maxim in which the basis of Physiocracy’s ‘moral philosophy’ is to be located. Priddat’s work made clear that the wu-wei of the complete économie has to be considered central to Physiocracy; Quesnay’s call for free trade in agricultural products constitutes merely a logical sub branch of this greater structure. 25
New research by Clarke and Hobson on wu-wei in France, equally re-acknowledges the significance of the principles for Quesnay’s theories.26 However, both authors fail to explain what the diffusion of wu-wei actually means for European  history. Simply to state, that wu-wei translates into French as laissez-faire, does not clarify the stages of wu-wei’s transformation process inside Europe.27 Both authors fail additionally to locate Switzerland as the supreme centre of wu-wei in Europe, after Quesnay.
Thus, the third part of this paper tries to investigate how the wu-wei of the Physiocrats spread to Switzerland and ultimately produced the first wu-wei paradigm state inside Europe. No study so far did link the Chinese principle of wu-wei to Switzerland’s specific type of agricultural-alpine-commercial economy. The development of European Physiocracy is generally believed to have stopped soon after Quesnay’s death; I argue otherwise. This paper will try to analyse how the import of wu-wei did actually re-enforce the political-economical consolidation process of 19th Switzerland, and how wu-wei came to be at the centre of the ‘new Eidgenossenschaft’s’ political economy.


Christian Gerlach



1 Pensées, No. 822, in: Blaise Pascal, Oeuvres Complètes, ed. and with notes by Louis Lafuma (New York 1963).
2 Eric J. Chaisson, Cosmic Evolution: The Rise of Complexity in Nature (Cambridge, Mass. 2001).
3 William H. McNeill, The Rise of the West (Chicago 1963; 1991 printing), p. xvi.

4 As quoted in: John M. Hobson, The Eastern Origins of Western Civilisation (Cambridge 2004), p. 190.
5 Edward G. Singerland’s, Effortless Action: Wu-wei as Conceptual Metaphor and Spiritual Ideal in Early China (Oxford University Press 2003).

6 Roger T. Ames, The art of rulership: a study in ancient Chinese political thought (Honolulu 1983).
7 For a different approach on wu-wei of the Han Dynasty, see: Michael Loewe, The cosmological context of sovereignty in Han times (Bulletin of the School of Oriental and African Studies, Vol. 65, Issue 02, June 2002, pp. 342- 349).
8 Gang (Kent) Deng, The premodern Chinese economy: structural equilibrium and capitalist sterility (London 1999), p. 258.
9 Ames, The Art of Rulership, p. 29.
10 David L. Hall/ Roger T. Ames, Thinking through Confucius (Albany 1987).
11 Kieran Broadbent, A Chinese/English dictionary of China's rural economy (Slough 1978), p. 104.
12 Deng, The premodern Chinese economy, pp. 90, 92, 258.

13 Ibid., p. 92.
14 Christiaan J. A. Jorg, Interaction in Ceramics: Oriental Porcelain & Delftware (Hong Kong Museum of Art and Urban Council, Hong Kong, 1984); Christiaan J. A. Jorg, Chinese Porcelain for the Dutch in the Seventeenth Century: Trading Networks and Private Enterprise, in: The Porcelains of Jingdezhen.

Colloquies on Art & Archaeology in Asia, no. 16, ed. Rosemary E. Scott (Percival David Foundation of Chinese Art, London, 1993), pp. 183-205.
15 Julia B. Curtis, Chinese Porcelains of the Seventeenth Century: Landscapes, Scholar's Motifs and Narratives (China Institute in America, New York, 1995).
16 Lewis A. Maverick, A possible Chinese source of Spinoza’s doctrine, in: Revue de littérature comparée, Vol. 19, No. 3, July-September, 1939, pp. 417- 428.
17 Ch’ên Shou-yi, Sino-European cultural contacts since the discovery of the sea route, in: Nankai social and economic quarterly, Vol. VIII, No. 1, April 1935.
18 Ly Siou Y, Les Grands courants de la pensée économique chinoise dans l’antiquité… et leur influence sur la formation de la doctrine physiocratique (Paris 1936); Edgar Schorer, L’influence de la Chine sur la genèse er le development de la doctrine physiocrate (Paris 1938).

19 Lewis Adams Maverick, China, a Model for Europe, 2 Vols., (San Antonio, 1946).
20 Briger Priddat, Ist das “laisser-faire”-Prinzip ein Prinzip des Nicht-Handelns? Über einen chinesischen Einfluss in Quesnay’s “Despôtisme de la Chine“ auf das physiokratische Denken (Diskussionsschriften aus dem Institut für Finanzwissenschaft der Universität Hamburg, Nr. 16/ 1984).
21 Laudse, Daudesching, E. Schwarz (ed), (Munich 1980) p. 137.
22 Priddat, “Laisser-faire”-Prinzip, p. 31.
23 Douglas A. Irwin, Against the Tide – An Intellectual History of Free Trade (New Jersey 1996), p. 65.
24 Ibid., p. 31.
25 Ibid., pp. 31- 33.
26 John James Clarke, Oriental enlightenment: the encounter between Asian and Western thought (New York/ London 1997); John M. Hobson, The Eastern Origins of Western Civilisation (Cambridge 2004).
27 Hobson, Eastern Origins, p. 196; Clarke, Oriental, p. 50.



Monday, August 15, 2011



On 21-22 June, 2007 an international Round Table “Caucasus – Perspective of Intercultural
Dialogue” took place at Ivane Javakhishvili Tbilisi State University, Georgia. The Round Table
was organized by UNESCO Chair in Intercultural Dialogue (Ivane Javakhishvili Tbilisi State
University), in co-operation with the Georgian National Commission for UNESCO in the
framework of UNESCO’s “Caucasus Project”.
The event was held with the financial support of  Division of Cultural Policy and Intercultural Dialogue, Culture Sector, UNESCO.
The Caucasus – region of comparatively  small size and extremely diverse population,
especially needs to identify and develop tools and methods, regarding intercultural competences
to facilitate intercultural dialogue. The region is facing challenge of globalization, therefore it is
important to have a balance between tradition and modernity. The Round Table could be
regarded as a step forward to understanding the specifics of the region as well as a good starting
point for the cooperation on the regional and inter-regional levels.

The Round Table brought together the representatives  of the UNESCO Chairs in
Intercultural and Inter-religious Dialogue as  well as governmental and non-governmental
organizations from Armenia, Azerbaijan,  Georgia, Kazakhstan, Moldova and Russian
Federation. The Division of Cultural Policies and Intercultural Dialogue, UNESCO, represented
by Mr. Bernard Jacquot, actively participated in the meeting.
The Round Table was inaugurated by professor Nino Chikovani, head of the UNESCO
Chair in Intercultural Dialogue, Tbilisi State University. The participants were welcomed by
professor Giorgi Khubua, the rector of Ivane Javakhishvili Tbilisi State University, Mr. Bernard
Jacquot, Division of Cultural Policies and Intercultural Dialogue, UNESCO, Mrs. Ketevan
Kandelaki, Secretary-General of the Georgian National Commission for UNESCO, Mrs.
Svetlana Sahakian, Department of  International  Relations and Cooperation with Diaspora,
Ministry of Culture and Youth Affairs (Armenia), Mr. Asif Usubeliev, Head of the Scientific Methodological Sector, Ministry of Culture and Tourism  (Azerbaijan).
 The Round Table centred on three sessions:
1. Regional approach: the Caucasus example;
2. Good practices and methodologies in the promotion of intercultural dialogue;
3. The network  of UNESCO Chairs – perspective for a common programme and potential co-operation.
The participants came to the agreement on  further co-operation and implemented Final

Caucasus:  Experience of Intercultural Dialogue and Research Perspectives 
Contemporary political and scientific interest towards the Caucasus was mainly drawn by
the post-Soviet regional conflicts. Not often the Caucasus is referred as the multicultural,
multi ethnic and multi confessional region, with the history, which, like the past and present of the
other similar regions, was determined by the valuable experience of the peaceful coexistence,
collaboration and dialogue between different ethnic groups, cultures and religions.
Could we talk about the real practice of intercultural dialogue in the Caucasus? Is there a
regional resource for fruitful intercultural dialogue?
The problem can be seen at least from the two perspectives: factual and methodological
approaches. Let’s start from the first one.
Intercultural dialogue, as a permanent process, has been existed in the Caucasus during the
whole history of the region; the dialogue is perceived here not only as the contact, but exactly the
dialogue, in terms of awareness and understanding of the other. This was the objective process,
determined not by the ethno-cultural characteristics of the Caucasians, or by purposeful policy of
the regional ruling elites, but rather by the socio-cultural reality, influenced by the geographical
location of the Caucasus. The same processes of intercultural dialogue can be observed in each
multicultural and multi confessional areas, e.g. the Balkans, the South-Eastern Europe in whole,
Central Asia. It should be noted as well, that the political history of the above mentioned regions
is characterized by the dozens of similarities, be it the Middle Ages, the period of totalitarian
states or the post-communist era. Furthermore, each of these regions stress the fact of existence
at the crossroad of cultures, serving as a hallmark for their history, as well as the experience of
the intercultural dialogue, reflected in their cultures.

Several examples. Professor of philosophy Ferid Mukhich admits that the role of Balkans
in the world history was mainly determined  by its geographical location. It was not only the
crossroad, but the bridge at the same time; not only the main street but also the central site for
the meetings of civilizations of the three continents. Hardly can we name any other place with so
many conflicts and disturbances, as well as the fruitful and creative  contact and collaboration
between the people with different lifestyles and cultural experiences (Мухич 2003: 143). I think
the Balkans may be easily replaced here by the Caucasus.

“The cultural and historical legacy served as a basis for sharply expressed cultural
corridors, which may be observed in our homeland for the centuries long period” (Пырванов
2003: 36), _  Bulgarian politicians refer to the results of existence at the crossroad for the
history and culture of their country.
Generally, culture is interpreted as the complex system of the methods and tools for the
adaptation to the environment. It is a set of  answers to the challenges. According to another
definition it is a structure of the standardized answers to the similar challenges.

How the environment can be characterized in the case of the Caucasus? What kind of
challenges can be observed? In a geographical and cultural sense, the region has served both as
bridge and barrier to contact between the North and the South, the East and the West. It used to
be a crossroad and meeting point for the different cultures and civilizations. Generally, traffic is
intensive at the crossroads at any time. This is true for our region as  well, characterized with
ordinary migration processes, trade links, diplomatic missions, as well as with refugees’ flows.
As a result, ethnic, linguistic and confessional image of the Caucasus, like the natural landscape
of the region, is quite diversified and colorful. The Caucasus represents a mosaic of cultures,
confessions, ethnic groups and languages. Caucasian peoples belong to the four language groups:
Caucasian, Indo-European, Turkic and Semite. Followers of three major religions are found here:
Christianity, Islam in both its versions, and Judaism.
Under these circumstances, the existence and survival of the peoples of the region was only
possible in conditions of dialogue with each other and with the wider world. It must be stressed
that the dialogue of cultures was of a stable character in relation with the unstable and constantly
changing political realities. Exactly the dialogue of cultures served as a basis for the formation of
adaptive mechanisms, contributing to the coexistence of different peoples and traditions.  
The concept of United Cultural Space is quite  often used regarding the Caucasus and other
similar spaces. We think it is the most appropriate concept, fully expressing the results of
intercultural dialogue. The terms –  Caucasian, Balkan, Baltic, etc. – designate not only the
geographical space, but they refer to the identity with one particular cultural entity as well. These
entities are best described in terms of diversity, cultural pluralism and unity. The concept of
“Unity in Diversity” fits best with the sense  of the Caucasus, as well as for the resembling
cultural spaces.
As we have already mentioned, the process  of intercultural dialogue was the everyday
practice of general life, rather being the result of purposeful policy. Nevertheless, we should
admit that the usual process of dialogue quite   often was used as a tool for achieving of the
political goals (e.g. cultural rivalry with the great neighborhood, political unification of the region,
etc.) Obviously, the centuries long practice of intercultural dialogue does not imply constant 6
peaceful coexistence. Neither the forms of dialogue were unchangeable for the course of time.
However, the interrelation of the Caucasian  cultures can be termed as a good practice of
intercultural dialogue. I hope, our  presentations will describe this practice and its particular

Recently intercultural dialogue has been understood and ‘analyzed as the sociocultural
phenomenon. There does not exist the accepted definition of the concept. In November 2006, the
following definition of the term was offered by the Council of Europe: intercultural dialogue is a
process that comprises an open and respectful exchange of views between individuals and groups
with different cultural backgrounds, which leads  to a deeper understanding of different world
views and practices.
It appears necessary today to respond to the need for a deeper and more structured dialogue
of cultures. The dialogue currently was formed as a new paradigm of security, having different
reasons in its foundations. Contemporary processes are too rapid and prompted, while the world
itself is too small and interconnected. Thus we  can hardly hope for self regulation of cultural
processes (among them intercultural dialogue can be listed as well). The main paradigm of our
time is intensive relations between various individuals and groups. As professor of Political
Sciences Ghasan Salame admits, migrations, tourism, transformed during the past century from
an individual adventure into large mass movement, information technologies always take us to
face with “the Other”, who “is everywhere and there is no efficient way to avoid him”. And the
last but not the least: as a result of globalization the various groups of individuals and ongoing
processes in the world have become more  and more interrelated. On the other hand,
“globalization paradoxically triggers cultural and social disintegration while pushing for deeper
and deeper financial and economic integration. People invent new frontiers, new borders, and
new distances in order to differentiate, to insulate, and to separate themselves from those who
become too close for comfort” (Salame: 2007). Development of the modern world does not leave
any space for the closed and self-sustained cultural entities. It requires for dialogue between
different cultures and civilizations.
All these processes were accompanied by the  significant and fundamental changes in the
world politics and on the world political map. The new problems were raised as a result of
dissolution of the USSR and the Cold War. First of all these processes were connected with the
deepening of the process of political disintegration and with the raise of the new conflicts on the
post-soviet space, among them in the region of  the Caucasus. In scientific literature these
conflicts are evaluated as ethno-conflicts, stressing the importance of religious factor and seeking
for historical foundations of the conflicts. The old hurts are often recollected. Breaking of the old
identities was followed by the identity crisis and the process of search for new identities. Quite
often the process of search has the shape of attempt to rebuild protective fences around the old
collective identities, in spite of the fact that the process is drawn in the fundamentally different
The ongoing changes have taken us to the need of their management. In order to manage
successfully you have to know what to manage. You should know the substance of the process.
In this case, one should be aware of not only with the existing reality, but also with the historical
experience. That’s why the dialogue of cultures (and cultural interaction in general) was
transformed into the subject of scientific and practical interest not only in the multiethnic
societies, but in the wider world as well.
Besides, quite often, nowadays we mention “Culture Matters”, thus we have become more
and more aware of the fact, that culture plays a crucial role in functioning of each aspect of the
society. The success or failure of particular projects and aims are significantly determined by the
culture. Although, it should be noted as well that  “culture has become a language in which
conflicts, even when caused by non-cultural factors, are now often expressed” (Salame: 2007).
We are trying to perceive intercultural dialogue – the real practical process – theoretically.
We try to settle with its rules and norms, to determine its relations with the concepts of identity,
conflict, etc. Exactly this is the novelty, and thereby the main hardship and difficulty lies in it.
By means of intercultural dialogue we are trying to find answer to the specific problem: is
the renewal of group identity really possible without confrontation with others, when the contact
is too close and the process itself is fueled as a result of constant collision with the other?

The several crucial factors should be taken  into consideration while dealing with the
successful dialogue of cultures. These factors include, but are not restricted to:
Knowing why people from other cultures behave the way they do – and especially knowing
that their behavior makes sense to them even if it makes none to you – is the first and most
important step in successfully crossing cultures Graig Storti states (Storti: 2001).
As Ahmed Jalili, permanent representative of the Islamic Republic of Iran at UNESCO
admits, the question is the basis of dialogue. If we do not accept the priority of question over the
answer, the real dialogue, new knowledge, perceptions and understandings will be inaccessible
for us. Knowledge is a discussion over the confronted viewpoints. Questions make the whole
specter of opportunities apparent, while dominant sense makes dialogue impossible (Джалили
2003: 59).
The dialogue can not start from the problems  dividing us. Exactly the substance, which
makes us united, serves as a basis for dialogue. As rabbi Arthur Shnaier admitted, God gave us,
humans, not only the sense of memory, but the capacity to bury things in oblivion  (Шнайер
2003: 23).We should accept the predominance of rationality and scientific method over the
emotive one (Dialogue: 2007).
The theme of dialogue should be determined clearly. Dialogue is not about everything. It is
desirable dialogue not to be in relation with fundamental convictions of particular cultures, for if
we wish to establish common ground for dialogue at the level of basic convictions, somebody’s
basic convictions become the measure, taking us to the misunderstanding, serving as a basis for
false universalism, which can arise true differences (Appadurai: 2007). Only those topics should
be selected, which are really suitable and affordable for the dialogue.
We should not hope for a complex and full understanding; it is an impossible standard
because of the culture, language and history that divide individuals and communities. Dialogue is
a form of negotiation and negotiation cannot be based on complete understanding or a total
consensus across any sort of boundary of difference (Appadurai: 2007). We should remind here
the determination of dialogue offered by Martin Buber, referring dialogue as an effective method
of communication, rather than as a necessarily purposeful attempt targeted towards particular
Arjun Appadurai offers that to reduce this risk of misunderstanding we have to choose our
words carefully, to pay attention to language and translation, and try to imagine the mental
assumptions of the other party,  in short we try to find the best ways to cross the boundaries
between the speaker and listener (Appadurai: 2007).
Nobody of the participants of dialogue is able to pretend to be entitled to speak in the name
of the whole culture or nation. Such temptation can be determined by the perception of culture as
monolithic and homogeneous unity, existing in  a particular geographical area. But it’s an
extremely oversimplified scheme for representing complex structure of culture.
In the framework of each culture there do exist various controversial, debatable issues.
Dialogue demands for exact calculation of what to bring from the internal debates into dialogue
with the other. If you bring in too much internal debate, your position looks weak, if you bring it
too little, you look authoritarian  and incredible. The risk is that we can make a wrong choice
(Appadurai: 2007).
Selecting the participants of the dialogue plays a crucial role as well. We should never try
to make involved in dialogue as much people as possible. But rather we should select for the
right one for right time.
Let me think, that current meeting brings together such kind of people. The participants of
our Round Table can share their experiences, serving as a necessary precondition for successful
dialogue. Promotion and advancement can be achieved through dialogue,  if you are ready to
open your mind and try to know as much as possible about the other. Thus, dialogue is an active
learning process. As Dieter Senghaas admits, intercultural dialogue these days requires, above
all, expanding the intellectual  horizon regarding history and a  globally oriented comparative
analysis (Senghaas).

Nino Chikovani
Professor, Head of the UNESCO Chair of Intercultural Dialogue,
Tbilisi State University ,Georgia

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Storti G. Old World / New World: Bridging Cultural Differences: Britain, France, Germany
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“Dialogue with the Other: Rationale and Principles. The Abu   Dhabi Declaration on the
Arab position toward Cultural Dialogue and Diversity”. Expert Meeting  Towards
Mainstream Principles of Cultural Diversity and Intercultural Dialogue in Policies
for Sustainable Development. 21-23 May 2007, UNESCO, Paris.

SOURCE https://www.facebook.com/pages/%CE%95%CE%9D-%CE%91%CE%98%CE%A9%CE%A9i-%CE%9F%CE%A1%CE%95i-%D0%A1%D0%B2%D1%8F%D1%82%D0%BE%D0%B9-%D0%9C%D0%BE%D0%BD%D0%B0%D1%81%D1%82%D1%8B%D1%80%D1%8C-%D0%98%D0%B2%D0%B5%D1%80%D1%81%D0%BA%D0%B0%D1%8F-%E1%83%A1%E1%83%90%E1%83%A5%E1%83%90%E1%83%A0%E1%83%97%E1%83%95%E1%83%94%E1%83%9A%E1%83%9D%E1%83%A1-%E1%83%A1%E1%83%9D%E1%83%9B%E1%83%AE%E1%83%94%E1%83%97%E1%83%98/194165573981024?sk=wall



Sunday, August 07, 2011



Just how long have surety bonds been around? Thousands and thousands of years, say historians. One stone tablet written in cuneiform characters was discovered in 1889 during an archaeological dig at Nippur, in Mesopotamia, now present-day Iraq. The bond dates back to 2400 B.C. and the reign of the Babylonian King Dungi who ruled for 58 years.

The bond was drawn up by a professional scribe or notary and included the names of four witnesses who then impressed their seals onto the tablet. Typically these types of tablets were executed in duplicate and triplicate by the scribes and served as binding legal agreements.

This particular bond guaranteed the payment of grain by the principal and the surety bond guaranteed reimbursement if the principal failed to make payment. Corn was the currency of that time period.

The tablet was discovered by a group of men, including several professors from the University of Pennsylvania and a photographer, who traveled to Nippur on behalf of the university. It was the first university-sponsored American expedition ever to work in Mesopotamia.

Work continued at Nippur until 1900 and resulted in the discovery of more than 30,000 cuneiform tablets of literary, historical, grammatical and economic importance, including this surety bond.

The excavated objects are now housed at the University of Pennsylvania Museum of Archaeology and Anthropology, Philadelphia, PA.

SOURCE  http://www.ermunro.com

In the past, wars were often decided by bond markets.

I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody – James Carville

When a government wants to raise money without increasing taxes or disposing of assets, it sells bonds to investors. Bonds are a promise to pay interest, usually a fixed amount at set intervals, and to return the investor's capital on a specified date.

Bonds are popular with many investors, particularly banks, insurance companies and pension funds, largely because their returns are certain (assuming that the borrower doesn't decide to renege on its debts).

Bonds are traded on the world's markets, often in massive volumes, with much of the trade on the London Stock Exchange being in gilts (British government debt) and corporate debt.

Diamonds may be a girl's best friend but pessimists prefer bonds!

A brief history

Today governments sell bonds largely to raise money for spending on public services and service their existing debts. But bonds were invented for a far more sinister purpose, waging war in medieval Italy.

By the 13th century, the Italian peninsula had been largely split between many City States such as Florence, Tuscany, Sienna and Venice. These were independent kingdoms and tended the habit of feuding with each other, mostly over trade, with disagreements occasionally leading to war.

But these wars were different from those in the rest of Europe because the City States preferred to hire mercenaries rather than maintain standing armies.

The most famous of these mercenaries was Sir John Hawkwood, a former soldier in the English army who carved out an extremely lucrative second career fighting for (and against) the likes of Florence, Milan, Padua, Pisa and even the pope (medieval Italy has a complex and fascinating history).

Waging war in this manner is extremely expensive (the likes of Hawkwood weren't cheap) and it became increasingly difficult to finance a war through taxation. So to make up the shortfall the City States started to sell selling bonds to their wealthier citizens, having managed to get around the Church's laws against usury by having the interest payments were classified as "compensation."

If the bond sales stopped, so did the wars.

SOURCE  http://www.fool.co.uk

The History Of Bail Bonds
Bail laws in the United States grew out of a long history of English statutes and policies.   During the colonial period, Americans relied on the bail structure that had developed in England hundreds of years earlier.  When the colonists declared independence in 1776, they no longer relied on English law, but formulated their own policies which closely paralleled the English tradition.  The ties between the institution of bail in the United States is also based on the old English system.   In attempting to understand the meaning of the American constitutional bail provisions and how they were intended to supplement a larger statutory bail structure, knowledge of the English system and how it developed until the time of American independence is essential.

In medieval England, methods to insure the accused would appear for trial began as early as criminal trials themselves.  Until the 13th century, however, the conditions under which a defendant could be detained before trial or released with guarantees that he would return were dictated by the local Sheriffs.x    As the regional representative of the crown, the sheriff possessed sovereign authority to release or hold suspects.  The sheriffs, in other words, could use any standard and weigh any factor in determining whether to admit a suspect to bail.  This broad authority was not always judiciously administered.  Some sheriffs exploited the bail system for their own gain.  Accordingly, the absence of limits on the power of the sheriffs was stated as a major grievance leading to the Statute of Westminster.xi

The Statute of Westminster in 1275 eliminated the discretion of sheriffs with respect to which crimes would be bailable.  Under the Statute, the bailable and non-bailable offenses were specifically listed.xii  The sheriffs retained the authority to decide the amount of bail and to weigh all relevant factors to arrive at that amount.  The Statute, however, was far from a universal right to bail.  Not only were some offenses explicitly excluded from bail, but the statutes' restrictions were confined to the abuses of the sheriffs.  The justices of the realm were exempt from its provisions.

Applicability of the statute to the judges was the key issue several centuries later when bail law underwent its next major change. In the early seventeenth century, King Charles I received no funds from the Parliament.   Therefore, he forced some noblemen to issue him loans.  Those who refused to lend the sovereign money were imprisoned without bail.  Five incarcerated knights filed a habeas corpus petition arguing that they could not be held indefinitely without trial or bail.  The King would neither bail the prisoners nor inform them of any charges against them.  The King's reason for keeping the charges secret were evident: the charges were illegal; the knights had no obligation to lend to the King.  When the case was brought before the court, counsel for the knights argued that without a trial or conviction, the petitioners were being detained solely on the basis of an unsubstantiated and unstated accusation.  Attorney General Heath contended that the King could best balance the interests of individual liberty against the interests of state security when exercising his sovereign authority to imprison.  The court upheld this sovereign prerogative argument.xiii

Parliament responded to the King's action and the court's ruling with the Petition of Right of 1628.  The Petition protested that contrary to the Magna Carta and other laws guaranteeing that no man be imprisoned without due process of law, the King had recently imprisoned people before trial "without any cause showed."  The Petition concluded that "no freeman, in any manner as before mentioned, be imprisoned or detained..."  The act guaranteed, therefore, that man could not be held before trial on the basis of an unspecific accusation.  This did not, however, provide an absolute right to bail.  The offenses enumerated in the Statute of Westminster remained bailable and non-bailable.  Therefore, an individual charged with a non-bailable offense could not contend that he had a legal entitlement to bail.

The King, the courts and the sheriffs were able to frustrate the intent of the Petition of  Right through procedural delays in granting the writs of habeas corpus.  In 1676, for example, when Francis Jenkes sought a  writ of habeas corpus concerning his imprisonment for the vague charge of "sedition," it was denied at first because the court was "outside term," and later because the case was not calendared; furthermore, when the court was requested to calendar the case it refused to do so.  In response to the rampant procedural delays in providing habeas corpus as evidenced by Jenkes Case,xv  Parliament passed the Habeas Corpus Act of 1677.  The act strengthened the guarantee of habeas corpus by specifying that a magistrate:

 shall discharge the said Prisoner from his Imprisonment taking his or their Recognizance, with one or more Surety or Sureties, in any Sum according to their discretion, having regard to the Quality of the Prisoner and Nature of the offense, for his or their Appearance in the Court of the King's bench...unless it shall appear...that the Party (is)...committed...for such Matter or offenses for which by law the Prisoner is not Bailable.xvi

By requiring early designation of the cause for arrest, the Habeas Corpus Act provided a suspect with knowledge that the alleged offense was either bailable or not.  The Statute of Westminster remained the primary definition of what offenses would be eligible for bail.

Although the Habeas Corpus Act improved administration of bail laws, it provided no protection against excessive bail requirements.  Even if a suspect was accused of a bailable offense and therefore was entitled to some bail, he could still be detained if the financial condition of release was exorbitantly high.  As evidence of this abuse reached Parliament, it responded with the English bill of Rights of 1689.  In the Preamble, the bill accused the King of attempting "to subvert...the laws and liberties of the kingdom: in the "excessive bail hath been required of persons committed in criminal cases, to elude the benefit of the laws made for the liberty of the Subjects."xvii     The Bill of Rights proposed to remedy the situation by declaring "that excessive bail ought not to be required."xviii  Thus, the precursor of the Eighth Amendment in the U.S. Constitution was drafted to prevent those accused of bailable offenses from unreasonable bail requirements.  It did not alter the categories of bailable crimes found in the separate Statute of Westminster and certainly did not guarantee a right to bail.

The language of the English Bill of Rights was only one part of the bail system developed through many years of English law.  As Caleb Foote has explained and this analysis recounts, English protection against unjustifiable detention contained three essential elements: first, offenses were categorized as bailable or not bailable by statutes beginning with Westminster I which also placed limits on which judges and officials could effect the statue; second, habeas corpus procedures were developed as an effective curb on imprisonment without specific changes; and third, the excessive bail clause of the 1689 Bill of Rights protected against judicial officers who might abuse bail policy by setting excessive financial conditions for release.  English law never contained an absolute right to bail.  Bail could always be denied when the legislature determined certain offenses were unbailable.  Most of the history of bail law after Westminster I was an attempt to improve the efficiency of existing law and especially to grant the suspect a meaningful chance to satisfy bail conditions when he had committed those offenses that the legislature had declared bailable.

In colonial America, bail law was patterned after the English law.  While some colonies initiated their own laws which were very similar to English statutes, others simply guaranteed their subjects the same protections guaranteed to British citizens.  When the colonies became independent in 1776, however, they could no longer simply insure the protections of English law.  Accordingly, the colonies enacted specific bail laws.  Typical of the early American bail laws were those enacted in Virginia perpetuating the bail system as it had evolved in England.   Section 9 of Virginia's Constitution in 1776 declared simply that "excessive bail ought not to be required…"xix  This constitutional provision was supplemented in 1785 with a statute which eliminated judges; discretion to grant bail by specifying that: those shall be let to bail who are apprehended for any crime not punishable in life or limb...But if a crime be punishable by life or limb, or if it be manslaughter and there be good cause to believe the party guilty thereof, he shall not be admitted to bail."xx  Thus the Virginia laws closely paralleled the English system.  Statutes defined which offenses were bailable while the Constitution protected against abuses of those definitions.  In fact, the clause in the Virginia Constitution was identical to the one in the English Bill of Rights which had been included to prevent judges from unreasonable holding those accused of bailable offenses by setting bail so high as to be unobtainable.  Other State constitutions similarly proscribed excessive bail for bailable offenses in order to prevent this method of thwarting the bail laws passed by the legislatures: for example, section 29 of the Pennsylvania Constitution of 1776 provided that "Excessive bail shall not be exacted for bailable offenses."xxi

With James Madison designated to prepare an initial draft for Bill of Rights n 1789, the Virginia constitution, often referred to as the Virginia Bill of Rights, became the model for the first ten amendments that passed congress in 1789 and were ratified in 1791.  The Eighth Amendment in this Bill of Rights was taken virtually verbatim from Section 9 of the Virginia Constitution and provided that "Excessive bail shall not be required..."   The only comment on the clause during the congressional debates was made by the perplexed Mr. Livermore:   "The clause seems to have no meaning to it, I do not think it necessary.   What is meant by the term excessive Bail…!"xxii

Indeed, it seems the drafters thought relatively little about the meaning of the bail clause; the clause was so rooted in American and English history that to most, the meaning was obvious.  Like the identical clause in the English Bill of Rights and the Virginia Constitution, the Eighth Amendment bail provision was intended to prohibit excessive bail as a means of holding suspects accused of offenses deemed bailable by Congress.

The bail clause in the Eighth Amendment was only one part of the American bail structure.xxiii  As in England, the American system also includes guarantees against imprisonment without informing the suspect of his crime.   The Sixth Amendment to the Constitution, like the English Habeas Corpus Act of 1678, insures that when arrested, a man "be informed of the nature and cause of the accusation" thereby enabling him to demand bail if he has committed a bailable offense.  The final part of the American bail structure and the element upon which the Constitution provisions are based is the statutory codification of justice officials' power concerning bail and the categorization of crimes into bailable and nonbailable offenses.  The Constitution merely guarantees that excessive bail may not be employed to hold suspects who by law are entitled to bail; similarly the Sixth Amendment enables prisoners to know if they are in fact entitled to bail under the law; it does not give them any right to bail already existing in the law.  Thus, the legislature and not the constitution is the real framer of bail law; the constitution upholds and protects against abuse of the system which the legislature creates.  This principle was well understood by the Framers of the Bill of rights.  In fact, the same Congress that proposed the Eighth Amendment also formulated the fundamental bail statute that remained in force until 1966.  This was accomplished in 1789, the same year that the Bill of rights was introduced, when Congress passed the Judiciary Act.  The Act specified which types of crime were bailable and set bounds on the judges' discretion in setting bail.   Following the tradition of State laws developed during the colonial period which in turn were based on English law,xxiv the Judiciary Act stated that all noncapital offenses were bailable and that in capital offenses, the decision to detain a suspect before trial was left up to the judge:

 {U}pon all arrests in criminal cases, bail shall be admitted, except where punishment may be by death, in which cases it shall not be admitted but by the supreme or a circuit court, or by a justice of the supreme court, or a judge of a district court, who shall exercise their discretion therein, regarding the nature and circumstance of the offense, and of the evidence, the usages of law.xxv

The sequence of events in the First Congress pertaining to American bail policy is critical to an understanding of the Framers of the Eighth Amendment and the Judiciary Act of 1789.   Only a few days after final passage of the Bill of Rights in Congress on September 21, 1789, and before its final adoption, the First Congress passed the Judiciary Act of 1789 on September 29, 1789.  In fact, these two legislative measures were debated almost concurrently.  Considerable debate time was consumed in the House of Representatives over the issue of which should be enacted first, the bill creating a federal judiciary and federal judicial procedures or the amendments to the Constitution.   Eventually Madison's point of view that the Bill of Rights should take precedence so that "the independent tribunals of justice will consider themselves...the guardians of those rights"xxvi prevailed.  But the same day the House completed the Bill of Rights it proceeded to perfect the Judiciary Act of 1789 which was already approved by the Senate.  The two legislative proposals passed each other going and coming between the House and the Senate.  This historical footnote illuminated significantly the context in which these measures were debated.  They were almost considered simultaneously.  Often representatives argued that changes in one measure were unnecessary because the other provided ample protection for vital rights.xxviii

This context suggests strongly that the First Congress acted very purposefully in substantially adopting the English system of tripartite protection against bail abuses.  The Eighth Amendment prohibition against excessive bail meant that bail may not be excessive in those cases where Congress has deemed it proper to permit bail.  The Congress then enacted the Judiciary Act defining what offenses would be bailable.  Habeas corpus protection was afforded by Article I of the Constitution.

The argument that the excessive bail clause guarantees a right to bail by necessary implication and that the provision forbidding excessive bail would be meaningless if judges could deny bail altogether in some cases is clearly not valid in this historical context.  The same Congress which drafted the Eighth Amendment enacted the Judiciary Act which specifically denied a right to bail to individuals charged with capital offense.

In the context of its legislative history, the Eighth Amendment is illuminated by reading it in conjunction with the Judiciary Act of 1789.   The First Congress adopted the Amendment to prevent judges from setting excessive bail in cases prescribed as bailable by Congress.  The same legislators then enacted a bill prescribing which offenses would be bailable.  The Eighth Amendment, therefore, is not self-executing.  It requires legislation creating legal entitlements to bail to give it effect.  Recognizing this, the First Congress provided almost simultaneously the legislation that gave the Amendment effect.  The First Congress did not choose a strange legal arrangement; it chose precisely the system most familiar to these former English citizens.  The First Congress recognized that the Amendment was not intended to limit congressional discretion to determine the cases for which bail would be allowed, but was designed to circumscribe the authority of courts to ignore or circumvent that congressional policy with excessive bail requirements.

The Judiciary Act of 1789 did not differentiate between bail before and after conviction.  Not until 1946 in the Federal Rules of Criminal Procedure was this distinction clearly made.  Rule 46 made the 1789 Act's language the standard for release, but left release after conviction pending an appeal or application for certiorari to the judge's discretion regardless of the crime.

In 1966 Congress enacted the first major substantive change in federal bail law since 1789.  The Bail Reform Act of 1966 provides that a non-capital defendant "shall...be ordered released pending trial on his personal recognizance" or on personal bond unless the judicial officer determines that these incentives will not adequately assure his appearance at trial.xxviii  In that case, the judge must select the least restrictive alternative from a list of conditions designed to guarantee appearance.  That list includes restrictions on travel, execution of an appearance bond (refundable when the defendant appears), and execution of a bail bond with a sufficient number of solvent sureties.  Individuals charged with a capital offense or who have been convicted and are awaiting sentencing or appeal are subject to a different standard.  They are to be released unless the judicial officer has "reason to believe" that no conditions "will reasonably assure that the person will not flee or pose danger to any other person or to the community."

The 1966 Act thus created a presumption for releasing a suspect with as little burden as necessary in order to insure his appearance at trial.   Appearance of the defendant for trial is the sole standard for weighing bail decision.  In noncapital cases, the Act does not permit a judge to consider a suspect's dangerousness to the community.  Only in capital cases or after conviction is the judge authorized to weigh threats to community safety.

This aspect of the 1966 Act drew criticism particularly in the District of Columbia where all crimes formerly fell under the regulation of Federal bail law.  In a considerable number of instances, persons accused of violent crimes committed additional crimes while released on their own personal recognizance.   Furthermore, these individuals were often released again on nominal bail.

The problems associated with the 1966 Bail Reform Act were considered by the Judicial Council committee to study the Operation of the Bail Reform Act in the Distract of Columbia in May 1969.  The committee was particularly bothered by the release of potentially dangerous noncapital suspects permitted by the 1966 law and recommended that even in noncapital cases, a person's dangerousness be considered in determining conditions for release.  Congress went along with the ideas put forth in the committee's proposals and changed the 1966 Bail Reform Act as it applied to persons charged with crimes in the District of Columbia.  The District of Columbia Court Reform and Criminal Procedure Act of 1970 allowed judges to consider dangerousness to the community as well as risk of flight when setting bail in noncapital cases.  The 1970 Act contained numerous safeguards against irrational application of the dangerousness provisions.  For instance, an individual could not be detained before trial under the act unless the court finds that (1) there is clear and convincing evidence that he falls into one of the categories subject to detention under the act, (2) no other pretrial release conditions will reasonably assure community safety, and (3) there is substantial probability that the suspect committed the crime for which he has been arrested.   This last finding was an overzealous exercise of legislative precaution.  The Justice Department testified that the burden of meeting this "substantial probability" requirement was the principal reason cited by prosecutors for the failure over the last 10 years to request pretrial detention hearings under the statute.   Such a standard also had the effect of making the pretrial detention hearing a vehicle for pretrial discovery of the Government's case and harassment of witnesses.   Moreover, the District of Columbia Court of Appeals in its Edwardsxxix decision strongly suggests that the probable cause standard consistently sustained by the Supreme Court as a basis for imposing "significant restraints on liberty" would be constitutionally sufficient in the context of pretrial detention.

 xii Edw. 1. C. 15 In additional to capital offenses, the list included "Thieves openly defamed and known" those "taken for House-burning feloniously done," or those taken for counterfeiting and many other non-capital offenses.
 xiii "Five Knights Case" or "Proceedings on the Habeas Corpus" brought by Sir Thomas Darnel. 3 St. Fr. 1 (1627).
 xiv William Duker, "The Right to Bail: An Historical Inquiry" 64, 42, Albany L. Rev. 33 (1977).
 xvi 81 Car. 2 c. 2.
 xvii W. & M. st 2 c. 2 preamble clause 10.
 xviii 1 W. & M. st. 2 c. 2. Rights clause 10.
 xix 7 American Charters 3813 (F. Thorpe ed.. 1909)
 xx 12 Va. Stat. 185-86 (W. Hening ed.. 1823)
 xxi 7 American Charters 3813 (F. Thorpe ed..1909)
 xxii 1 "Annals of Congress" 754 (1789).
 xxiii Caleb Foote, "The Coming Constitutional Crisis in Bail." 113 Pennsylvania L. Rev. 959. At 968 (1965). Hermine Herta Meyer, "The Constitutionality of Pretrial Detention,: 60 Georgetown L. Rev. 1139 (1972).
 xxiv Duker. Supra note 14 at 77-83
 xxv The Judiciary Act of 1789, 1 Stat. 73, 91.
 xxvi 1 "Annals of Congress" 428, 462 (1789)
 xxvii Id. At 448.
 xviii the Bail Reform Act of 1966, 18 U.S.C. 3146 et seq.
 xxix United States v. Edwards, No. 80-294 (D.C. App. May 8, 1981) (slip opinion). Petition….

SOURCE  http://www.southern-california-bail-bonds.com

History of Bonds At A Glance

History of the United States’ Bond Market:

The history of bonds in the United States consists of multiple periods of issuance. The predominant bond markets in the United States are issued in the forms of corporate bonds, municipal bonds, and government bonds issued by the United States Treasury.

Bonds are issued by financial institutions and government bodies to raise money through the issuance of a “promise.” For a fee, an individual or corporation will purchase a bond from an issuing agency; the issuing agency will use the money to fund a project or carry-out an objective. In turn, the investor will receive his or her payment back plus interest once the bond reaches its maturity date.

The Beginning of the U.S. Treasury Bond Market

The United States Treasury began issuing bonds to help fund World War I. The efforts in the war were financed through an increase in taxation and through the sale of war bonds, known as “Liberty Bonds.” Individual citizens would purchase these liberty bonds from the government; citizens would pay the government a fixed rate in a loan format. After the government received payment they would promise repayment after the bonds matured.

Through the sale of Liberty Bonds, the United States government amassed over $21 billion dollars of debt that were paid out following the war. The surplus gathered from the issuance of the bonds; however, were not enough to cover the debt from the war, so the bonds were rolled over into bills (matured in less than one year), notes (matured in less than ten years) and government-issued bonds (matured in more than 10 years.) These bonds, notes, and bills were subsequently paid down regularly until borrowings increased during the Great Depression.

Changes in the United States Debt Market

Up until the great Depression, the United States Treasury Department issued subscription bonds, which were exchanged through the delivery of a coupon to the public and a maturity price of par. During this time, demand for foreign bonds grew exponentially, forcing the Treasury Department to institute an auction of notes.

The auction format enabled the yields in each maturity were used by the public to incorporate a risk-free investment strategy. As a result of this formation, other forms of bonds (such as municipal and corporate bonds) developed through a synthetic yield in proportion to credit considerations.

The Rise of Bonds

As the debt of the United States’ government grew, foreign governments became holders of the United States’ debt. The deficits, which rose during World War II and the Vietnam War, spawned a debt market and the increase of debt-related trading instruments between government bodies.

In the early 1980s, bond yields rose exponentially due to the increases in commodity prices, expanding deficits, and labor wage increases. Bond yields rise, because the market anticipates rising amounts of future debt; the need for funding becomes so dire that the issuing agencies will increase yields to spark investments. As a result of this, the yields of corporate credits will also rise, but are viewed as riskier investments when compared to government-issued bonds, which are guaranteed.

The Creation of Bond Derivatives

To better control risk, the financial markets instituted more-complex bonds, known as derivative securities. These instruments are legally created trusts that separate the maturity payment of the bond from the coupon. As a result, the interest rates attached to the bond have a singular value, separate from the bond itself. Thus, when interest rates rise, the interest-only portion of the bond will rise, while the principle of the bond will decline because the instrument is unlikely to be called early and the yield to maturity is re-set at the new interest rate. In turn, the corpus portion of the bond will be further discounted to reach a market yield; these forms of investments are complex and are typically combined with other securities to mitigate risk but maintain an expected return.

SOURCE  http://finance.laws.com/