(College/University/Institute)
Leonardo Pisa
Prior to the introduction of modern concepts for calculation, various mathematical operations would have required proficiency in the use of the abacus. However, in 1202, Leonardo da Pisa, an Italian math expert, released a book entitled “Liber Abaci,” or “Book for Calculation.” The book revolutionized the methods of calculating figures by establishing useful approaches in using the Arabic numbers 0 to 9 to the Western world. Though the book did not find immediate acceptance in the West, in the end it revolutionized the areas of commerce, finance, research, science and technology. Furthermore, da Pisa’s work laid the basic foundations for the subjects of arithmetic, algebra and other areas in the field.
Before this time, people would record the numbers in Roman numerals and then have another person who is proficient with an abacus to tally the numbers for them. The abacus was fundamentally a board engraved with lines where the estimator would move pebbles on the board, making for an inefficient and cumbersome method of accomplishing calculations. The initial release of the Liber was an extremely complicated and vague book that proved difficult for people to understand. Recognizing this dilemma, da Pisa published a simplified adaptation of the work that could be understood by the businessmen and merchants in Pisa. The work soon was being spread across the world. The work laid the groundwork for the disciplines of accounting, “double entry bookkeeping,” and finance. In this light, people were motivated to establish their own businesses given that these did not have to pay other people to keep their books for them (NPR, 2011).
Giovanni di Cosimo de’ Medici and the Medici family
One of the most powerful financial institutions in the 15th century Europe, the Medici Bank was also the financial repository of the Roman Catholic Church. In addition, the bank maintained branches in the largest financial hubs in Europe such as Lyon, London, Bruges, Avignon and Geneva. In 1393, Giovanni di Bicci de Medici assumed control over the bank branch in Rome that was under the ownership of one of the Medici’s cousins in Florence. After four years, Giovanni relocated the bank’s center for operations to Florence; this is also regarded as the year of the establishment of the Medici Bank.
Immediately after, the bank established as system of establishing branches that were independent of the main bank by retooling the system of accounts. These systems allowed the “mother bank” to be insulated from insolvency if the branches experienced financial debacles in the area where these were located. In 1429, Giovanni passed away, leaving the operations and control of the bank to one of his sons, Cosimo.
The Medici Bank was structured as a partnership; the Medici family became the single largest capitalist in the main company. In turn, the main company took the main control of the branches and this operated in the same manner as a modern day holding business. Under Cosimo’s time, the Medici Bank became the biggest financial house of its time. Moreover, the bank started taking in time deposits that was bigger than the capital of the bank. Compared to some of the exchange houses at the time that were mainly engaged in money transfers, the Medicis were engaged in lending. However, the Medicis were eventually ousted from their high social position; the Medicis are, withal, one of the primary examples wealthy families obtaining political and economic power (The Medici Family).
Francisco Pizarro
Francisco Pizarro launched an “expedition,” or more properly termed as an invasion, against the Inca Empire for its vast gold hoard for the Spanish Crown. On the verge of defeat, the Inca monarch, Atahuallpa, offered to bribe Pizarro for his freedom-to fill the room where the emperor was being detained with gold once and with silver twice over. Though the emperor did fulfill his part, Pizarro still executed the prisoner; this touched off a wave of plundering the wealth of the Inca Empire by succeeding Spanish invasions. However, the ultimate legacy of the Spaniard was not one of conquest, but for the rapacious covetousness of the West for the resources of the New World.
The contribution of Englishman Sir John Hawkwood was also borne out of the wars that were waged between the city-states of Pisa, Siena, and Florence. Rather than wage these wars themselves, the leaders would hire mercenary forces to attack rival states. One of these “condotierri” was an Englishman, Sir John Hawkwood. The monetary toll in waging wars devastated the economies of the city-states. Exhausting every viable funding source, Florentines soon realized that the only resource left for them to use were themselves. Wealthy citizens were forced to lend money to the government; in return for these forced loans, the citizens were given interest on their “investments.” One critical feature of these instruments is that these can be sold to others; this was the beginning of bonds instrumentalities in the financial system (Ferguson, 2008, pp. 70-71).
John Law of Edinburgh
The son of a Scottish goldsmith, John Law became engaged in the banking industry. However, after being sentenced to death for killing in a duel, Law escaped to the Continent. Law studied the operations of the United Dutch East India Company as well as the Amsterdam Exchange Bank. Law conceptualized the principle that banking institutions would accept shares in a company as collateral for loans and there was a possibility that banks can acquire additional shares. Hence, there was a new dynamic between lenders and the markets, a new interaction that bedazzled Law. Here, Law proffered the concept that wherein the use of paper money can help in rejuvenating the economy of a country.
Law’s objective was for the complete withdrawal of metals as currency, but owing to stories of poor colonists telling of tales of hardship rather than vast gold mines, and that the trade in the colonies was insignificant, the perception of people towards Law’s enterprise began to change. Law averred that mortgages and loans were essential in the efficient workings of an economy; if a merchant would be able to obtain credit several times the collective assets of the trader, then this would be beneficial for a country’s market. Law established a public trading company that secured money against gold and silver stores. With governments constantly changing gold and silver prices, a fixed price was a welcome development for traders. However, owing to rising inflation, paper money was soon rejected and the people reverted back to metal money (National Bank of Belgium, 2012).
The Dutch East India Company
The “Vereenigde Oost-Indische Compagniewas (VOC), or the Dutch East India Company, was regarded as the first multinational company; in addition, the VOC was the first publicly traded company. The VOC bridged the East and the West and was given unrestricted freedom by the Dutch government in conducting its affairs. The license given to the VOC could be compared to the conduct not only of a monopoly in business, but to that of an independent country. This license was one of the main reasons why the VOC was extremely successful in its enterprise; the other was its sheer viciousness in conducting business. The VOC would resort even to plundering and ransacking other ships while usurping the agency of English traders. This practice led to wars with the English; eventually, the English abandoned its claims and shifting its attention to Southeast Asia. Its sheer barbarity in the spice trade in the East Indies changed the prevailing international commercial arena and ushered in the first steps towards globalization.
Without the factor of the manner of operation that the VOC practiced, the process of globalization would have proceeded on a more deliberate and slower pace, and transnational companies would have established and built in a different manner. In addition, the VOC also helped in forging the historic and economic operations in Europe. However, the organization of a monopoly to effectively exploit the resources in the East did not prove to be an efficient system; the financial resources needed to ensure the operation of the monopoly oftentimes resulted in a deficit for the company’s stakeholders (Texas Christian University, 2015).
Nathan Rothschild
The founder of arguably one of the largest banking concerns in the world at the time, Nathan Rothschild and the Rothschild family found their wealth in the securities market. The main driver for this enterprise was, again, war. The war between France and Britain was not only a conflict between two nations; it was also a battle between two national financial systems. The French system under Napoleon was founded on taxing the conquered states; the British, on the other hand, were founded on debt. The family fortune, according to some accounts, was built on the speculation on the Battle of Waterloo. By purchasing a large amount of bonds ahead of the rise in the prices, Rothschild was able to parlay the difference into the vast family fortune The British exploited Rothschild’s ability to run gold in evade Napoleon’s embargo around England. Though moving such large amounts of gold were risky, the substantive commissions were enough to justify the enterprise (Ferguson, 2008, pp. 80-81).
In the course of the British war against Napoleon and France, Rothschild lent the government vast sums of money to its allies by way of an extensive network of agents and messengers that ensured the delivery of the funds to the English forces in Spain and in Portugal. In the course of the war, a recurring need to send funds to execute the war would soon arise; Rothschild facilitated the conduct of the war by sending the needed funds in a universally acceptable format-gold guineas. However, Portuguese money traders refused to accept the gold, leaving London with no recourse but to ship the funds in cash (Wilson, 2011).
Robert Wallace and Alexander Webster
Two Presbyterian ministers, Robert Wallace and Alexander Webster, and their friend, Professor of Mathematics Colin Maclaurin, are credited with the creation of the first modern day “insurance fund.” The fund was framed along the lines of accounting and financial principles rather than on commercial gambling. Given the decrepit health and welfare status of the English at the time, the two immediately recognized a most vulnerable population in the country-the orphans and widows of ministers.
Under the 1672 Law of Ann, the families of deceased ministers of the Church of Scotland received six months’ stipend during the year that the minister died. After the money is spent, the families face impoverishment and starvation. Webster and Wallace developed an ingenious plan to stave off this possibility. Instead of levying on the ministers a yearly premium to be used to facilitate the needs of the families of the deceased ministers, the amount can be collected and then invested for profit to enlarge the amount in the fund. The returns of the investment can then be used to fill the financial needs of the widows and orphans plus the premiums that were traditionally given to the same.
The “Fund for a Provision for the Widows and Children of the Ministers of the Church of Scotland” or the “Scottish Minister’s Widows Fund” was the first such instrument and its establishment was a breakthrough in many ways. The fund not only founded a template for the ministers of the Scottish church, but also for the modern day where people seek to protect their families from the threats of premature deaths (Ferguson, 2008, pp. 193-195).
References
Ferguson, N (2008) The ascent of money: a financial history of the world. City of Westminster: Penguin Books
Medici Family “The Medici Bank” Retrieved 2 July 2016 from <http://www.themedicifamily.com/The-Medici-Bank.html
National Bank of Belgium “John Law: financial genius or charlatan?” Retrieved 2 July 2016 from <http://www.nbbmuseum.be/en/2012/01/ohn-law-financial-genius-or-charlatan.htm
NPR (2011) “Fibonacci’s ‘numbers:’ the man behind the math” Retrieved 2 July 2016 from <http://www.npr.org/2011/07/16/137845241/fibonaccis-numbers-the-man-behind-the-math
Texas Christian University (2015) “The rise of transnational corporations: how the Dutch East India Company defined globalization” Retrieved 2 July 2016 from <http://faculty.tcu.edu/jlovett/US_econ_hist/Paper/Sample-Statement-2.pdf
Wilson, H (2011, February 4) Rothschild: history of a London banking dynasty. The Telegraph Banks and Finance
Zarathustra, W (2011) “Gold, money, and inflation” Retrieved 2 July 2016 from <http://www.businessinsider.com/gold-money-and-inflation-2011-4
