In Aristotle’s 4th-century philosophical work Politics, the early practice of options is outlined through an anecdote by the philosopher Thales. Believing a great future harvest of olives in the coming year,
Thales pre-emptively acquired the rights to all olive presses in Chios and Miletus.15 Regarding options on an exchange, both forward and options contracts were integrated into Amsterdam’s sophisticated clearing process by the mid-17th century.16
Advances in Accounting
Compound interest—interest calculated not just on principal but on previously accrued interest—was known to ancient civilizations (the Babylonians had a phrase for “interest on interest,”
which basically defines the concept). But it was not until medieval times that mathematicians started to analyze it in order to show how invested sums could mount up: One of the earliest and most important sources is the arithmetical manuscript written in 1202 by Leonardo Fibonacci of Pisa, known as Liber Abaci, which gives examples comparing compound and simple interest.
The first comprehensive treatise on book-keeping and accountancy, Luca Pacioli’s Summa de arithmetica, geometria, proportioni et proportionalita, was published in Venice in 1494.17 A book on accountancy and arithmetic written by William Colson appeared in 1612, containing the earliest tables of compound interest written in English. A year later, Richard Witt published his Arithmeticall Questions in London in 1613, and compound interest was thoroughly accepted.
Towards the end of the 17th century, in England and the Netherlands, interest calculations were combined with age-dependent survival rates to create the first life annuities.
Types of Finance
Public Finance
The federal government helps prevent market failure by overseeing the allocation of resources, distribution of income, and stabilization of the economy. Regular funding for these programs is secured mostly through taxation.18
Tax Policy Center. “What Are the Sources of Revenue for the Federal Government?” Borrowing from banks, insurance companies, and other governments and earning dividends from its companies also help finance the federal government.
State and local governments also receive grants and aid from the federal government. Other sources of public finance include user charges from ports, airport services, and other facilities; fines resulting from breaking laws; revenues from licenses and fees, such as for driving; and sales of government securities and bond issues.
Corporate Finance
Businesses obtain financing through a variety of means, ranging from equity investments to credit arrangements. A firm might take out a loan from a bank or arrange for a line of credit. Acquiring and managing debt properly can help a company expand and become more profitable.
Startups may receive capital from angel investors or venture capitalists in exchange for a percentage of ownership. If a company thrives and goes public,
it will issue shares on a stock exchange; such initial public offerings (IPO) bring a great influx of cash into a firm. Established companies may sell additional shares or issue corporate bonds to raise money. Businesses may purchase dividend-paying stocks, blue-chip bonds, or interest-bearing bank certificates of deposit (CDs); they may also buy other companies in an effort to boost