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07-Jul-2006
A Highly Recommended History of Finance Book, by Victor Niederhoffer

One of the best and most enjoyable ways to appreciate and navigate the world of markets today is to study its foundations and evolution. The highly recommended book The Origins of Value, by William Goetzmann and Geert Rouwenhorst contains a series of 20 essays that trace the history of finance from its origins in Sumerian and Roman times to today. Chapters on the origins of interest, the first corporations, the business and money used on the Chinese Silk Road and the Italian City States, the origin of bonds and stocks, mutual funds, conduct and returns in the Dutch East India Company, the innovations of John Law, the origins of the New York Stocks Exchange, Eurobonds, German Debt, annuities, and Fibonnoci's contributions, and King Leopold's finances and madness appear. The book considers these particular aspects of finance in the context of three principles, the transfer of value through time, the development of mediums for the transfer of uncertainty, and the ability to buy and sell to negotiate value.

There are numerous insights that I gained from this book about how things that we now take for granted were started and developed in a different time and place, but with uses very similar to today.

Every chapter is filled with fascninating facts about the structure and materials that we use today. Pictures, tables and maps illustrate how things actually looked and worked during that time. There are only 5 charts, but those are completely fascinating in that they show the prices, debt, equity, and dividends (incredibly high) of the Dutch East India Company, and moves in prices of equities and debt of big bank and insurance companies on the NYSE from 1790-1820.

The one criticism of the book is that it contains mainly facts and history, illustrations and examples and explanations. There is little of a grand framework of analysis to fit all the pieces together and provide a framework for how all the parts fit together. The authors' recommend The Rise of Financial Capitalism:International Capital Markets in the Age of Reason by Larry Neal for that. Along with Larry Harris's book, Trading and Exchanges, this book provides the ideal foundation for the study of markets and finance from the ground up.

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