The Origins of Value

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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