The History of Finance and Capital Markets: A Documentary Approach
Proposal for a Yale College Course
William N. Goetzmann
Yale School of Management
The course will explore the history of finance and capital markets from antiquity to the modern times. It will focus on innovations in the technology of finance: the
Mesopotamian origins of the use of interest rates, the mathematical development of compound interest calculations, the beginnings of paper money and related instruments, the appearance of bond markets in the Late Middle Ages, the origins of mutual funds in
Northern Europe, the development of government bond markets, financial innovations associated with the American Revolution, the globalization of capital before World War
1 and the political consequences of unfettered capitalism.
Through the course the students will be introduced to mathematical methods and algorithms used historically to solve financial problems, from Mesopotamian mathematical tablets to Chinese problems to medieval calculations to the mathematical advances of the enlightenment.
The course will take advantage of Yale collections in financial history at the Yale
Babylonian Collection and the Beinecke Rare Book Library. Students will have a chance to study documents in the newly formed SOM/Beinecke History of Finance Collection.
Enrollment will be limited due to space constraints .
The structure of the course will closely follow the volume edited by Goetzmann and
Rouwenhorst: The Origins of Value. Additional references by volume contributors will be added to the reading list, including journal articles.
Requirements: Students will write two brief descriptions of documents in their area of interest, and a term paper analyzing some feature of capital market history in depth, using primary documentary material if possible. Students are encouraged to use primary data available, including market databases. The descriptions will be used for an on-line exhibition based on the course.
Pre-requisites: None, although preference is given to students with reading knowledge in another language, as many of the primary sources are not in English. Some facility with mathematics is desirable.
Class meetings: The course will meet once a week, occasionally in the Beinecke, or the
Yale Babylonian Collection.
1

Books for the Course:
Optional: Bernstein, Peter, 1998, Against the Gods, The Remarkable Story of Risk , Wiley.
DeSoto, Hernando, 2000, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else , Basic Books.
Feis, Herbert, 1930,
Europe, the World’s Banker
, Reprint, 1975, Augustus Kelley
Publishers. Or: Niall Ferguson, The Cash Nexus.
[G&R] Goetzmann, William and K. Geert Rouwenhorst, 2005, The Origins of Value: The
Financial Innovations that Created Modern Capital Markets , Oxford University Press
Optional: Hobson, J.A., 1902, Imperialism. University of Michigan Press.
Lenin, Vladimir Il'ich 1917, Imperialism: The Highest Stage of Capitalism . Free on the
Web.
Optional: MacKay, Charles,1842, Extraordinary Delusions and the Popular Madness of
Crowds .
Geoffrey Poitras, 2000, The Early History of Financial Economics, 1478 – 1776 , Edward
Elgar.
Optional: Polanyi, Karl, Conrad Arensberg and Harry Pearson,1957, Trade and Market in the Early Empires , Regency Press.
William G. Roy, 1999, Socializing Capital , Princeton Press.
Optional: Robert Shiller, The New Financial Order.
Princeton University Press.
Optional: Sigler, Laurence, 2003,
Fibonacci’s Liber Abaci
, Springer. Paperback.
Sylla, Richard and Sidney Homer, A History of Interest Rates . Rutgers University Press;
3rd Rev edition
2

Week 1 : Introduction to the course. Overview of finance. Introduction to the cognitive, social and biological foundations of finance. The foundation for quantitative reasoning and financial contracting. Foundations of decision-making under uncertainty, and exchange. Numbers and tools for quantification and prediction.
Reading:
G&R Introduction
Chen Keith, with Marc Hauser, Frances Chen & Emmeline Chuang, 2003, “ Give Unto
Others: Genetically Unrelated Cotton-Top Tamarin Monkeys Preferentially Give Food to
Those Who Altruistically Give Food Back
,”
Proceedings of the Royal Society , November.
Background resources:
Chen, Keith, Venkat Lakshminarayanan & Laurie Santos, 2005, “ How Basic are
Behavioral Biases? Evidence from Capuchin-Monkey Trading Behavior
,” Yale ICF
Working Paper.
K Peng, I Choi, 2001, “Culture and Systems of Thought: Holistic Versus Analytic
Cognition”
Psychological Review .
Goetzmann, William, 1997, “Borrowing in Babylon.” Draft
Ifrah, Georges, 2000, The Universal History of Numbers , Chapters 1 – 13.
Kahneman, Daniel; Tversky, Amos; "Prospect Theory: An Analysis of Decision under
Risk" Econometrica , Vol. 47, No. 2. (Mar., 1979), pp. 263-292.
Marshack, Alexander, 1972, The Roots of Civilization: The Cognitive Beginnings of
Man's First Art, Symbol and Notation Moyer Bell Ltd; Rev&Exp edition, 1991.
Marshack, 1989, Evolution of the human capacity: The symbolic evidence , Yearbook of
Physical Anthropology, 1989.
McBrearty, S. and A.S. Brooks, 2000, “The Revolution that Wasn’t: A New
Interpretation of the Origin of Modern Human Behavior, “
Journal of Human Evolution ,
Nov;39(5):453-563.
Meninger, Karl, 1992, Number Words and Number Symbols : A Cultural History of
Numbers , Dover reprint.
Quicktime Movie Clip: Tamarins playing games (Tamarins play a repeated game, pulling to provide the other with food).
3

Week 2: Beginning of accounting and financial instruments in Mesopotamia. Origins of notation and writing. Evidence for financial systems. Mesopotamian traders. Loan forgiveness. The debate over private and public economies.
Reading:
G&R chapter 1. (Van De Meiroop)
Homer and Sylla chapters on ancient interest rates
Hallo, William, Ulla Kasten, Martin Shubik, 2005, “
The Emergence of Economic
Institutions in Mesopotamia
” The Museum of Money and Financial Insitutions.
Background Resources:
Dercksen, J.G., ed. 1999, Trade and Finance in Ancient Mesopotamia , Nederlands
Historisch-Archaeologisch Instituut Te Istanbul.
Goddeeris, Anne, 2002, Economy and Society in Northern Babylonia in the Early Old
Babylonian Period (ca. 2000 – 1800 B.C.), Uitgeverij Peeters and Department Oosterse
Studies.
Hudson, Michael and Marc Van de Mieroop, eds. 2002, Debt and Economic Renewal in the Ancient Near East , CDL Press.
Van De Mieroop, Marc. Society and Enterprise in Old Babylonian Ur . 1992. Berlin:
Dietrich Reimer Verlag.
Mattessich, Richard, 2000, The Beginnings of Accounting and Accounting Thought ,
Garland Publishing.
Nissen, Hans, Peter Damerow and Robert Englund, 1993, Archaic Bookkeeping,
University of Chicago Press.
Polanyi, Karl, Conrad Arensberg and Harry Pearson,1957, Trade and Market in the
Early Empires , Regency Press.
Schmandt-Besserat, Denise, 1992, Before Writing , Volume I. University of Texas Press.
Slotsky, Alice, 1997, The Bourse of Babylon , CDL Press. Centuries of spot commodity prices, available on-line .
Yale Babylonian Collection. Selected texts and interpretations.
4

Week 3 : Mesopotamia and Ptolemaic Egypt. Mathematical interlude: compound interest , calculations from the Berlin tablet. Students will learn some basics of
Babylonian mathematics and the approach to compound interest rates used in the Ancient
Near East. Late Babylonian financial claims: the Murasu archives. Documents relating to loans, mortages and banking from Ptolemaic Egypt. Property rights, legal definitions of land claims.
Reading:
Selections from Neugebauer, O. The Exact Sciences in Antiquity . 1969. New York: Dover
Press.
Optional: Stolper, Matthew W. Entrepreneurs and Empire . 1985. Leiden: Nederlands
Instituut voor het Nabije Oosen. Stolper, Matthew W. Entrepreneurs and Empire . 1985.
Leiden: Nederlands Instituut voor het Nabije Oosen.
Van De Mieroop, Marc. Society and Enterprise in Old Babylonian Ur . 1992. Berlin:
Dietrich Reimer Verlag.
Optional: Maclennan, Hugh, 1935, Oxyrhynchus: An Economic and Social Study .
Adolph H. Hakkert.
DeSoto, Hernando, 2000, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else , Basic Books.
Background Resources:
The Oxyrhinchus Papyri On-line index of the texts.
Keenan, James G., 1997, Demotic and Greek Texts from an Egyptian Family Archive in the Fayum (fourth to Third Century B.C.) Oriental Institute Publications volume. 113.
Financial papyri at Yale: http://beinecke.library.yale.edu/papyrus . Search under subject
= bank. Search other ancient papyri via Perseus .
5

Week 4 : China: Guanzi, Silk Road Finance, Paper Money, Eat Meets West. Early coinage in China, Monetary theory and management in Warring States period.
Development of contracts in ancient China, development of secured lending, paper financial technology and development of paper money. Role of finance in Chinese society. Preview of 19 th
century developments. Chinese financial mathematics.
Reading:
G&R Chapters 3,4 and 5 (Hansen, Hansen, Von Glahn)
Background Resources:
Hansen, Valerie, Negotiating Daily Life in Traditional China : How Ordinary People
Used Contracts, 600-1400, Yale University Press.
Richard Von Glahn, 1996, Fountain of Fortune: Money and Monetary Policy in China,
1000-1700 , University of California Press.
Lien-sheng Yang, 1952, Money and Credit in China.
Ping Xinwei A Monetary History of China 2 vols ., 1994 reprint.
W. Allyn Rickett, translator, Guanzi: Political, Economic, and Philosophical Essays from Early China , selected chapters to be identified.
Shen Kangshen, John N. Crossley, Anthony W. -C. Lun , Nine Chapters on the
Mathematical Arts, The Nine Chapters on the Mathematical Art : Companion and
Commentary, selected problems for analysis.
Goetzmann, China Chapter. Draft.
Beinecke Library: Great Ming Universally Circulating Banknote.
Yale Numismatics Collection: Comparison of earliest coins: Greece, India, China (if feasible).
6

Week 5: Finance in the Middle Ages. Fibonacci and Financial Revolution. Students learn how Fibonacci calculated. Present value calculations, business entities.
Italian bonds and government debt. Monti di Pieta and usury laws. Foreign exchange for concealing interest.
Reading:
G&R Chapters 7,8 (Goetzmann, Pezzolo)
Sigler. Laurence, 2003,
Fibonacci’s Liber Abaci
, Springer. Paperback.
Geoffrey Poitras, 2000, The Early History of Financial Economics, 1478 – 1776 , Edward
Elgar. Chapters up to 1600.
Munro, John, 2003, “The Medieval Origins of the Financial Revolution: Usury, Rentes and Negotiability,”
The International History Review 25(3) 505-562.
Sylla and Homer, chapters on Medieval Interest Rates.
Background Resources
M. Boone, K. Davids, P. Janssens (eds.), 2003 , Urban Public Debts: Urban Government and the Market for Annuities in Western Europe , Brepols.
Munro, John, 2003, “The Medieval Origins of the Financial Revolution: Usury, Rentes and Negotiability,”
The International History Review 25(3) 505-562.
Kohn, Meir, The Origins of Western Economic Success: Commerce, Finance, and
Government in Pre-Industrial Europe , Unpublished, available on his website .
Swetz, Frank, 1987, Capitalism and Arithmetic, The New Math of the Fifteen Century.
Egmond, Warren Practical Mathematics in the Italian Renaissance.
Mueller, Reinhold, The Venetian Money Market.
M. Boone, K. Davids, P. Janssens (eds.), 2003 , Urban Public Debts: Urban Government and the Market for Annuities in Western Europe , Brepols.
Source material for research on Tuscan families, taxes and investments from David
Herlihy’s Computer files
. Castato Study data .
Yale Beinecke Collection/ Personal collection Monte di Pieta bonds.
7

Week 6 : The origins of the corporation. Roman shares and markets. Medieval corporate structures. Origins in the Middle East. Evolution of entities in early modern times. Some theories about the firm. History of corporate governance outside of
European models. Family-based finance and the development of the corporation in
China. Some theory about corporate financial securities: priority claims, bankruptcy, the share as discounted future value of cash flows. Some theory about economic definitions of profits and return on capital.
Reading
G&R Chapter 2, 9 (Malmendier and Neal)
Hansmann, Henry, Kraakman, Reinier H. and Squire, Richard C., "Law and the Rise of the Firm" (January 2006). ECGI - Law Working Paper No. 57/2006 http://ssrn.com/abstract=873507
Goetzmann, William and Elisabeth Koll, “The History of Corporate Ownership in China:
State Patronage, Company Legislation and the Issue of Control.” In Mork, Randall, ed.
A
History of Corporate Governance Around the World , National Bureau of Economic
Research, 2005.
Homer and Sylla, chapter on interestrates in the classical world.
Background Resources
John Micklethwait, Adrian Wooldridge, 2003, The Company : A Short History of a
Revolutionary Idea.
Larry Neal, The Rise of Financial Capitalism : International Capital Markets in the Age of Reason.
Yale Beinecke Collection: Dutch East India Company bond. Keyeserliche Company
IPO and how stock issuance worked.
Homework Due:
Choose a Chinese, Mesopotamian, Egyptian or other ancient financial document and write a two-page analysis of it. Include a description of the object. How it was made, when it was made, its provenance, language, age and relevant references. Explain the financial problem it solved.
8

Week 7: The first modern financial market. The Amsterdam Exchange, Futures
Instruments, Short-selling and the Le Maire Affair. The Dutch East India Company,
The glorious revolution and British Finance. What are puts, calls, short-sales, future instruments? Continent claims in finance.
Reading
G&R Chapter 11 (Gelderbloom and Jonker)
Homer and Sylla, chapter on 17 th
Century to 18 th
Century interest rates.
Background Resources
Marjolein ‘t Hart, Joost Jonker , Jan Luiten van Zanden (Eds), 1997,
A Financial History of the Netherlands , Cambridge University Press.
J.C. Riley, 1980, International Government Finance and the Amsterdam Capital Market,
1740-1815 , Cambridge University Press.
Larry Neal, 1990, The Rise of Financial Capitalism : International Capital Markets in the Age of Reason.
Joseph de la Vega, Confusiones de Confusiones .
James Tracey, 1985, A Financial Revolution in the Hapsburg Netherlands: Renten and
Renteniers in the Country of Holland , University of California Press.
James Tracey, 1990, The Rise of Merchant Empires: Long Distance Trade in the Early
Modern World: 1350 -1750 .
Weidenmeir, W.D., 2000, “The Market for Confederate Cotton Bonds,” Explorations in
Economic History , January.
Yale Beinecke Collection: early stock futures and options certificates.
9

Week 8 . Mathematical interlude. Perpetuity formula, Bernoulli and compound interest.
De Witt, De Moivre, Halley and Nicholas Bernoulli and the valuation of annuities and the invention of probability calculus. The puzzle of negative numbers as debts.
Securitization and the origins of mutual funds. Lotteries as investment. The history of mutual funds from Dutch origins to British companies to American trusts and regulated investment companies. Why is securitization an important financial innovation. A preview of the modern market for securitized products: mortgage-backed securities: how they work and why they are important.
Reading
G&R Chapter 10, 12, 15 (Goetzmann & Rouwenhorst, Poterba, Rouwenhorst)
Bernstein, Peter, Against the Gods : the Remarkable Story of Risk .
Background Resources
Weir, David, 1989, Tontines, Public Finance and Revolution in France and England,
1688-1789., Journal of Economic history, 49 , 95-124.
Weir, David and Francois Velde, 1992, “The Financial Market and Government Debt
Policy in France, 1746-1793,” Journal of Economic History 52 1-39.
Reading to be announced on modern securitized market: (Fabozzi).
Alter, G and J.C. Riley, 1986, “How to Bet on Lives: A Guide to Life Contingent
Contracts,”
Research in Economic History .
Yale Beinecke Collection, 1648 Perpetuity, miscellaneous tontines and related materials from the history of insurance.
10

Week 9: French finance. John Law. The Bank, the plan, the crash. Financing the
Perspectives on John Law as an innovator. Details of the scheme. French Revolution: inflation. How inflation for the first time robbed savers. Assignats and the idea of securitizing property. Tontines and how they worked.
Reading:
G&R chapter 13 (Murphy)
Weir, David, 1989, Tontines, Public Finance and Revolution in France and England,
1688-1789., Journal of Economic history, 49 , 95-124.
Weir, David and Francois Velde, 1992, “The Financial Market and Government Debt
Policy in France, 1746-1793,” Journal of Economic History 52 1-39.
Mackay, Charles, 1841, Extraordinary Popular Delusions & the Madness of Crowds ,
Chapter on John Law.
Background Resources:
Antoine Murphy, John Law, Innovative Theorist and Policy Maker
Beinecke Library: The Great Mirror of Folly
Velde, Francois,
John Law’s System
. Unpublished manuscript, downloadable from his website.
Sunk in Lucre’s Charms: South Sea Bubble Resources in the Kress Collection
François Crouzet, 1987,
La Grande Inflation .
Howard J. Shakespeare, 1986 , France, The Royal Loans 1689 – 1789 , From
Booneshares.
11

Week 10 : American financial innovation. American experiments with land banks and paper money. Financing the revolution. Origins of the New York Stock Exchange.
Early history of the dollar. Public goods origins of American corporations.
Reading
GR chapters 6, 14,16 and 17 (Goetzmann & Williams, Shiller, Downing and Sylla)
William G. Roy, 1999, Socializing Capital, Princeton Press.
Background Resources
Baldwin, Simeon E. “ American Business Corporations before 1786 .” American
Historical Review 8 (April 1903): 449-65.
Goodwin, Jason, Greenback: The Almighty Dollar and the Invention of America .
Davis, Andrew MacFarland. “
A Connecticut Land Bank of the Eighteenth Century
.”
Quarterly Journal of Economics 13 (October 1898): 70-84.
Udo Hielscher, 2003, Financing the American Revolution . Museum of American
Financial History.
Anderson, William, The Price of Liberty: The Public Debt of the American Revolution.
William Graham Sumner, 1898, Robert Morris: The Financier and the Finances of the
American Revolution, Vol. 1 (Paperback Reprint).
Materials on Benjamin Franklin’s Will.
John Law, Essay on a Land Bank.
Beinecke Library The New York Shipping and Commercial Lis .
Yale ICF collection of historical NYSE prices .
12

Week 11: Globalization: 1870 – 1930. Lessons from market integration. Revolutionary response. Yale projects on Russian and Chinese capital markets. King Leopold’s bonds.
The use of time-series data and graphs to understand diversification and investment.
Exploring financial imperialism, its technologies and its consequences.
Reading:
Herbert Feis, 1930,
Europe, the World’s Banker
, Reprint, 1975, Augustus Kelley
Publishers.
Or:
Ferguson, Niall, 2002, The Cash Nexus: Money and Power in the Modern World , 1700-
2000, Basic Books.
Vladimir Il'ich Lenin, 1917, Imperialism: The Highest Stage of Capitalism
Hobson, J.H., Imperialism.
Background Resources
Kuhlmann, 1983, China’s Foreign Debt, 1865-1982.
Booneshares .
Macdonald, James, 2003 , A Free Nation Deep in Debt: The Financial Roots of
Democracy , Farrar Strauss and Giroux.
Bordo, Michael D., Barry Eichengreen and Douglas A., Irwin, 1999, “ Is Globalization
Today Really Different than Globalization a Hundred Years Ago
?” NBER Working
Paper No. W7195
Bordo, Michael D., Eichengreen, Barry J. and Kim, Jongwoo, " Was There Really an
Earlier Period of International Financial Integration Comparable to Today?" (September
1998). NBER Working Paper No. W6738. http://ssrn.com/abstract=132348
Chancellor, Edward; Devil Take the Hindmost: A History of Financial Speculation.
Lowenfeld, Henry , 1909, Investment and Exact Science .
Goetzmann, William N., Li, Lingfeng and Rouwenhorst, K. Geert, "Long-Term Global
Market Correlations" (February 22, 2002). Yale ICF Working Paper No. 00-60; AFA
2003 Washington, DC Meetings. http://ssrn.com/abstract=288421
Goetzmann and Ukhov, 2005, “ British Investment Overseas 1870-1913: A Modern
Portfolio Theory Approach
” forthcoming,
Review of Finance .
13

Goetzmann, Ukhov and Zhu, 2000, “
China and the World Financial Markets 1870-1930:
Modern Lessons From Historical Globalization
,” Forthcoming, Economic History
Review.
Edelstein, Michael, 1982, British Foreign Investment in the Age of High Imperialism.
Ukhov, Andrey, 2003, “
Financial Innovation and Russian Government Debt Before
1918
” Yale ICF Working Paper No. 03-20.
Charles Trzcinka and Andrey Ukhov, 2005, “ Financial Globalization and Risk Sharing:
Welfare Effects and the Optimality of Open Markets
,” working paper.
Obstfeld, Maurice and Taylor, Alan M., "Globalization and Capital Markets" (March
2002). NBER Working Paper No. W8846. http://ssrn.com/abstract=305072
ICF Collection of Financial Securities. Bonds of Russia, China.
Yale ICF Shanghai Stock Exchange Project.
Historical price data on securities, 1870-
1930’s.
Yale ICF St. Petersburg Stock Exchange Project . Historical price data on securities from
1869-1917.
Yale ICF London Stock Exchange Project.
Historical price data on securities, 1869 -1930, including world bond markets, world equity issues and domestic securities.
Samples of historical securities from the age of global capital markets: www.numistoria.com
Beinecke/ICF history of finance collection. On-line Exhibit , Link to searching the collection.
14

Week 12: Financial Economics in the 20 th
Century. Development of statistical methods of diversification: James Tobin/Harry Markowitz model and the foundation of modern finance. Rediscovery of international investing. History of the Equity Risk Premium.
Reading
Peter Bernstein, 2000, Capital Ideas: The Improbable Origins of Modern Wall Street ,
Basic Books.
Goetzmann, William N. and Ibbotson, Roger G., "History and the Equity Risk Premium"
(April 6, 2005). Yale ICF Working Paper No. 05-04. http://ssrn.com/abstract=702341
Background resources
Brown, Stephen J., Goetzmann, William N. and Kumar, Alok, "The Dow Theory:
William Peter Hamilton's Track Record Re-Considered" (January 23, 1998). http://ssrn.com/abstract=58690 . Also Journal of Finance Version.
Cowles 3 rd
, Alfred and Associates, Alfred, 1939 , Common Stock Indexes, Second Edition,
Principia Press Inc, Bloomington, Indiana Available from the Yale ICF at SOM.
Markowitz, Harry, Portfolio Selection: Efficient Diversification of Investments .
WRDS database on American Stock Returns from 1926.
Ibbotson Analyzer database of asset classes.
Homework Due:
Write a description of one security from the 19 th
or 20 th
Century. Address the following questions in your analysis. Who printed it, how and why? What legal rights did the instrument represent? How was it physically used? What entity issued it? Where was the entity located? Where was the security traded? What happened to the issuing entity?
What happened to the claim represented by the security? What problem did this instrument solve?
15

Week 13: Promise and Threat of Finance: International financial architecture. World
Bank, IMF. Keynes and creation of World Bank. Doctrine of odious debt. Investor responsibility. The future of innovation. Role of endowments and pensions. Social security challenges and experiments. Privatizations: Russian and Chinese experience.
Opportunities for using financial tools to solve real problems.
Reading:
G&R Chapter 21 (Harms)
Background Resources:
Easterly, Michael, ,2002, The Elusive Quest for Growth: Economists' Adventures and
Misadventures in the Tropics , MIT Press.
Goetzmann, William N., 2000, " Democracy Before Debt ," NYT ad.
Adams, Patricia and Probe International, Odious Debts , Earthscan, 1991.
Kremer, Michael and Seema Jayachandran, 2002, “
Odious Debts
” Brookings Institute.
Simon, John, Powers and Gunneman, 1972, The Ethical Investor , Yale University Press.
Yale Law School Lowenstein Clinic Report on the Sudan
Robert Shiller, 2004, The New Financial Order, Princeton Press.
16