The Development of Finance

Recently, finance has developed into an academic discipline because of mathematics as well as economics and physics. There have several steps in order to create finance into the discipline it is today. Thanks to several economists, their contributions have helped immensely with the reputation of finance.

We all know that money is a huge fascination in today’s society, and without it I honestly do not know where we would be. We always seem to want more; we can never settle with what we have. Although finance has recently become a recognized academic discipline, its roots go back centuries (Chance, Peterson 447). For awhile now, “economists studying finance have taken the body of knowledge about how human beings behave when faced with uncertainty and translated it into mathematical descriptions of the way people obtain and invest funds” (Chance, Peterson 447). So, with the advancement in our technology, finance has increasingly become an empirical science (Chance, Peterson 447).

Alfred Marshall, a professor of political economy at the University of Cambridge, published a book in 1890 (Chance, Peterson 447). He had discussed in his book “how the present value of an anticipated future benefit could be ascertained” (Chance, Peterson 447). The logic behind this was that money in the bank grows a considerable amount when the interest is compounded (Chance, Peterson 447). Similar calculations also apply to the price of stocks. In 1939, economist John Burr Williams argued that the appropriate price for a stock is the present value of all future dividends paid to its owner (Chance, Peterson 447). This opened up other gateways. In 1959, Myron Gordon took Williams’ notion further, “assuming that dividends increase gradually at a constant rate” (Chance, Peterson 447). This is also known as the Gordon model. Many financial analysts still use this model to determine the value of certain stocks (Chance, Peterson 447). As you can see, just a few of these economists have contributed a significant amount in order to recognize finance as an academic discipline.