Origins of Financial Systems

Our current financial system is the product of years of trial and error from countries across the globe, with different ideas and experiments being tried and discarded in an effort to produce a network of wealth that would make trading easy. Below are the origins of the most common elements of finance.

Currency

Before currency standardization purchases were made by bartering. This was very complex as each item in a market would have a different value in relation to other items. It wasn’t long before trade focused on small, valuable objects like shells, beads, and metals, simplifying transactions. The first coins were used as religious objects, eventually making the crossover to currency somewhere between 700-400 B.C.E. in India, China, and the Mediterranean. Originally struck for private owners, it would take some time before these coins came in standard sizes, establishing a currency with a set value.
Paper currency can be traced back to bank I.O.U.s created to allow customers to move large sums of money without having to carry bags of coins. The first nationally recognized paper currency was the "flying money" created around 800 C.E. by China's Tang Dynasty. These government issued papers were used as payment for supplies and could immediately be converted to coin at government agencies. Knowing their value, traders used these slips as money instead of cashing them in. The Song Dynasty (960-1279 C.E.) made these notes readily available to the general populous while at the same time banning the issue of private I.O.U.s. This was the first true paper currency.

Banking

Banking started in temples before standard currency was established. These religious buildings would have safes and storehouses in which people could keep their goods or loan out temple property with an agreement that it would be paid back with interest. Buddha even addressed these issues, teaching monks how to run and maintain temples using these investments. The Roman Catholic Church was the dominant banking institution throughout the Middle Ages despite rules against usury.
Secular banking institutions sprung up in Italy during the Renaissance, run by wealthy trading families. The first modern bank was London's Royal Exchange, founded in 1565. It took the ideas of the Italian banks, combining several institutions to create a single financial alliance.

The Corporation

The idea of the corporation can be traced back to ancient Rome and India. These early corporations were formed to give organizations identities outside of the people who ran them, allowing them to continue after the founders had died. The most common entities to be incorporated were churches as they could exist for hundreds of years. The oldest existing corporation is Stora Kopparberget, literally "Great Copper Mountain," formed in 1347 to mine copper in Sweden.
The first multinational corporation was the Dutch East India Company. The company was given a twenty-one year monopoly on all Dutch trade with Asia and had no set end to the charter; previous companies would only be formed for the duration of a single sea voyage. The company continued to do business for almost two centuries after its formation. It was also the first company to offer shares of stock.

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