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The Origins of Value
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The Origins of Value

The Financial Innovations that Created Modern Capital Markets

William N. Goetzmann and K. Geert Rouwenhorst
Oxford UP, 2005
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Editorial Rating

7

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  • Overview

Recommendation

This beautifully illustrated coffee table book takes readers on a journey through the history of finance, with scenic stops to view the details of Babylonian loan agreements, the calligraphy of Chinese contracts, the currencies of John Law and even King Leopold II’s deathbed marriage to a prostitute. Numerous experts, including Niall Ferguson and Robert J. Shiller, contributed individual essays, so the style and general quality of the text varies from chapter to chapter. The cohesion of the overall content is to the credit of editors William N. Goetzmann and K. Geert Rouwenhorst. Currency-related art and photographs (more varied and noteworthy than you may think) dominates this cross section of financial history from the ancient Sumerians to the Silk Road to Versailles. getAbstract recommends this attractive volume to those interested in financial history and to any bank or brokerage that wants just the right book for visitors to peruse while waiting in the lobby.

Summary

Creative Finance

Contemporary finance abounds in fresh concepts, but for 4,000 years, financial innovation has depended on only a few fundamental ideas. Written financial contracts carved in cuneiform script on stacks of clay bricks are among the earliest documents. While they may seem to have little in common with modern capital markets instruments, they do share the following:

  • Recognition that time has monetary value – More than 3,000 years ago, the Mesopotamian civilization acknowledged the time value of money. They were the first to develop the concept of interest on a loan.
  • Recognition that claims may be contingent – Contemporary options contracts have antecedents in ancient Mesopotamia and in 17th century Holland.
  • Recognition that designated authorities, like governments, can assign a value to a financial instrument (like paper currency) – This is called negotiability. For early examples, look to China, where fiat money existed during the Song Dynasty. John Law presided over the ill-starred debut of paper money in Europe. And, something resembling Eurobonds existed as early as 1818.
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About the Authors

William N. Goetzmann teaches finance and management at the Yale School of Management. He directs the International Center for Finance, where K. Geert Rouwenhorst, also a Yale finance professor, is deputy director.

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