History of Finance

 

The origin of finance can be traced to the beginning of state formation and trade during the Bronze Age. The earliest historical evidence of finance is dated to around 3000 BCE. Banking originated in West Asia, where temples and palaces were used as safe places for the storage of valuables. Initially, the only valuable that could be deposited was grain, but cattle and precious materials were eventually included. During the same period, the Sumerian city of  in Mesopotamia supported trade by lending as well as the use of interest. In Sumerian, "interest" was mas, which translates to "calf". In Greece and Egypt, the words used for interest,  and respectively, meant "to give birth". In these cultures, interest indicated a valuable increase, and seemed to consider it from the lender's point of view. The Code of Hammurabi (1792–1750 BCE) included laws governing banking operations. The Babylonians were accustomed to charging interest at the rate of 20 percent per year. By 1200 BCE, cowrie shells were used as a form of money in China.

The use of coins as a means of representing money began in the years between 700 and 500 BCE. Herodotus mentions the use of crude coins in Lydia around 687 BCE and, by 640 BCE, the Lydians had started to use coin money more widely and opened permanent retail shops. Shortly after, cities in Classical Greece, such as Aegina, Athens, and Corinth, started minting their own coins between 595 and 570 BCE. During the Roman Republic, interest was outlawed by the Lex reforms in 342 BCE, though the provision went largely unenforced. Under Julius Caesar, a ceiling on interest rates of 12% was set, and much later under Justinian it was lowered even further to between 4% and 8%.

The first stock exchange was opened in Antwerp in 1531. Since then, popular exchanges such as the London Stock Exchange (founded in 1773) and the New York Stock Exchange (founded in 1793) were created.

Finance arose as a study of theory and practice distinct from the field of economics in the 1940s and 1950s. It began with the works of Harry Markowitz, William F. Sharpe, Fischer Black, and Myron Scholes.

Particular realms of finance, such as banking, lending, and investing have been around in some form since the dawn of civilization.

The financial transactions of the early Sumerians were formalized in the Babylonian Code of Hammurabi around 1800 BCE. This set of rules regulated ownership or rental of land, employment of agricultural labor, and credit.

Yes, there were loans back then, and yes, interest was charged on them. Rates varied depending on whether you were borrowing grain or silver.

Cowrie shells were used as a form of money in China by 1200 BCE. Coinage was introduced in the first millennium BCE. King Croesus of Lydia, which is now Turkey, was one of the first to strike and circulate gold coins around 564 BCE. Hence the expression “rich as Croesus.”

A Brief (and Fascinating) History of Money.”

Coins were stored in the basement of temples in ancient Rome because priests and temple workers were considered to be the most honest and devout to safeguard assets. Temples also loaned money, acting as financial centers of major cities.

Early Stocks, Bonds, and Options

Belgium claims to be home to the first exchange, with one in Antwerp dating back to 1531. The East India Co. became the first publicly traded company in the 1600s as it issued stock and paid dividends on proceeds from its voyages.

The London Stock Exchange was created in 1773 and was followed by the New York Stock Exchange less than 20 years later. The London Exchange had been around since the 1570s as the Royal Exchange.

The earliest recorded bond dates back to 2400 BCE. It was a stone tablet that recorded debt obligations that guaranteed repayment of grain.

Governments began issuing debts to fund war efforts during the Middle Ages. The Bank of England was created to finance the British Navy in the 1600s. The United States began issuing Treasury bonds to support the Revolutionary War nearly a century later.

The early practice of options is outlined through an anecdote by the philosopher Thales in Aristotle’s 4th-century philosophical work, “Politics.” Thales preemptively acquired the rights to all olive presses in Chios and Miletus, believing that a great harvest of olives was on the horizon in the coming year. Both forward and options contracts were integrated into Amsterdam’s sophisticated clearing process by the mid-17th century.