Money is the proverbial oil to our economic machinery. It is the substance that allows for our complex economic system, the fluid that allows for the exchange of property and wealth that we so take for granted. But it was not always that way. Money and Finance have a history and evolution just as does any other topic of study, but it was not until the Industrial Revolution that money truly took its current form.
One of the first coins circa 500 BCE Lydia
One of the first coins circa 500 BCE Lydia


From the beginning, money and exchange were important. In the first civilizations a system of barter and trade allowed for more specialization and efficiency, as not every person had to labor directly for their food. As civilizations progressed so did money, with complex systems of coinage appearing around the 5th or 6th century BCE. Coins with fixed value allowed for the easy transfer of wealth between locations and were hedged by the value of the precious metals they were made of; because of its utility this monetary technology spread across civilizations. However, the truly revolutionary development due to this was in banking. Although loans probably predate the invention of currency, currency streamlined the process and laid the foundation for modern money lending.

Although the practice of money lending continued over the next thousand years, regulation that frowned upon usury and general economic stagnation led to North Italy in the Early Middle Ages being the next stage for financial development. These merchants could get around laws against usury and became early forms of investment bankers, lending to farmers based on their grain output and even developed a secondary market for grain debt. What this allowed for was an even faster rate of economic growth as wealth that would usually sit idle suddenly went to promoting business and other economic activity. Other developments such as money exchange and money transfer also promoted economic development through the more efficient allocation of resources, and promoted the growth of complex multinational trade that had been before limited by insecurity.
An aerial photo of the London Stock Exchange, one of the first formal stock exchanges
An aerial photo of the London Stock Exchange, one of the first formal stock exchanges


As the Industrial Revolution grew in size and scope, new financial instruments were created to match the increased complexity of the economic activity they encouraged. Formal stock exchanges grew out of informal hotchpots used to mitigate risk and furthered the capabilities of venture capital. At this time too, did the first semblances of corporatism emerged from early forms of state-capitalism. State backed and chartered firms like the British East India Company gave way to the rise of the modern joint stock company in the mid 19th century with legislation passed in Britain that repealed the requirement of government charter and allowed for Limited Liability, an advance that The Economist newspaper said "[t]he economic historian of the future. . . may be inclined to assign to the nameless inventor of the principle of limited liability, as applied to trading corporations, a place of honour with Watt and Stephenson, and other pioneers of the Industrial Revolution."

To be sure, the Industrial Revolution and the following Great Divergence were due to a number of complicated and interconnected factors that verge on Chaos Theory in their complexity and breadth. However, amongst the various factors that facilitated the great economic awakening, financial advancement must be represented equally. Just as the Roman Empire could not have existed without its expansive roads, finance was the framework that allowed for the Industrial Revolution to occur, and is a factor as easily overlooked as it is misunderstood. The banker is often the easiest to vilify and blame, but in reality he was the unrealized hero of the day, working in the background to ensure the future economic good. It is about time that he got his fair due.



Works Cited
The Ascent of Money. Perf. Niall Fergeson. PBS, 2009. Online. Www.pbs.com. Web. 15 Feb. 2012.
Eagleton, Catherine, Joe Cribb, Elizabeth Errington, and Jonathan Williams. Money: A History. Buffalo, NY: Firefly, 2007. Print.