A Brief History and Introduction to Finance

Introduction to Finance

Have you ever asked yourself when did finance first appear in history or how it was born? Probably we will never know, but the only thing that we know for sure is that it is a very ancient concept that goes back to the ancient civilizations.

The concepts of borrowing and lending and the calculations of interest were concepts that our antecessors created and mastered through the centuries. We exactly do not know when the first contracts appeared, but the oldest ones date from the age in which written language appear.

In Mesopotamia there are some ruins called the ruins of Uruk. Here in the early 1920’s a German archeologist found, after digging and digging into Inanna Temple, many small tokens which had the shape of the commodities of daily life, like animals, food, jars, clothes etc. This discovery at the beginning did not mean much or the experts couldn’t find a meaning for them, but after many years of study, they got to the conclusion that it was a system of accounting that the priests of the temple managed. These tokens were kept inside a sort of clay envelope called bullae and in order to know what was inside, they made inscriptions on them to identify the contents. These findings told the experts that the tokens kept inside the bullaes were in fact contracts that kept the records of the goods given and the type of payment for them. But as the parties of these contracts can not be identified and the experts can not determine the terms and time in which they were arranged, it is difficult to call them financial instruments. Some time later, around the year 3000 BC the Uruk civilization invented and started using pictographic tablets with an abstract numeric system similar to the one we use nowadays.

When this civilization started growing, the need to have contracts for lending and borrowing things or time became a need. When people live in a small village where everybody knows everybody, the lending is not a problem as you know your neighbors. But when it starts growing some neighbors will be strangers and if you lend something to a stranger, then you need a type of agreement. And interests in the good lent were born as a way of encouraging people to lend what other people needed. It made the action more attractive, as the lenders were going to benefit from the service requested by a stranger.

We have to understand that the first idea of interest was born in a type of society where money was not the currency used. These people were shepherds and their most valuable possessions were their cattle. So the idea of interest came as a very natural one. For example if a person was going to lend another person some cattle for a year, during that year the cattle will have offspring, so the natural thing to ask in return was the cattle lent plus some of the offspring at the end of the year. This whole process is the incipient form of the finance system we know today.

So Finance is a whole system that was not invented by modern civilization. It appeared as a need for human kind and it is the result of the evolution of society. Great civilizations such as the Greeks or the Babylonians have shaped our modern society and how the finance system works. They are the ones who developed the concept and left their heritage for us to understand the roots of our own modern civilization.

 

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