The Reality
Risk is a relatively modern term. The romans diddn’t even have a word for it. The closest word they had for their reality was “periculum” which translates to danger. This was how the ancients saw reality. Some things, or some situations were dangerous and others were benign but there was no attempt at calculating their probabilities within these realities. Why bother. They had the Gods to explain fortune and misfortune. As commerce and banking progressed throughout western civilization and with the adoption of a numbering system that accommodated for zero value we started calculating probabilities. Global commerce depended on it. Extended trade routes were expensive and required borrowed money and the lending of money necessitates compensation, not only for time, but also for the probability of success. Such situations begged the question of what the LIKELIHOOD of success of a given endeavor would be in order to assign an appropriate compensation to the lender. Up to this point, dangerous endeavors were funded by the wealth of sovereigns who simply gambled with the wealth of nations for glory. With the rise of banking, lenders expected to have predictable outcomes for the application of their wealth. Thus began the new reality of risk as a business model.
Everything Worthwhile is Risk &
Risk is Everything
The Evolution
By the 15th century, the medici had already become quite powerful in banking. By the time columbus set sail, the first Bank of medici had been operating for a century. The evolution of finance from that “hail mary” voyage to the wealth of the european trading companies of the 16th and 17 centuries required complex calculations of probability. It’s not mere coincidence that the preference or roman numerals faded during the same time period. Distributed commerce required management of probabilities. How many ships that set sail were likely to return with cargo? Would the likely value of the return exceed the cost of the operation? These were questions that weren’t asked when the benefactor was a sovereign who was playing with “other people’s money”. as the complexity of global trade increase, so did the demand for advanced calculations and, again, not as a matter of coincidence, the 17th century saw the rise of mathmaticians such as pascal and fermat to accommodate the new demands.
… Manage it!
