Financial systems, risk management, and entrepreneurship: historical perspectives

Economic historians find that the most successful economies of history tend to be ones that early in their modern histories developed sophisticated financial systems that subsequently sustained their development and growth. Financial economists are finding the same association of financial development and growth across a wider range of countries and levels of economic development in recent decades. This essay argues that more sophisticated financial systems not only mobilize more capital and allocate capital more efficiently than do less developed systems. By offering more sophisticated methods of managing and reducing risks than primitive financial systems, modern financial systems, perhaps paradoxically, also promote higher levels of risk taking and entrepreneurship.