Arbitrage is one of the oldest forms of commercial activity. One of the earliest published definitions of the term arbitrage can be found in Wyndham Beaves's seminal Lex Mercatoria,1 first published in 1685, which trained several generations of European merchants until its last edition of 1803. One will be hard pressed to find a finance book today that has been in print for over a century. In the 1734 edition, Beaves writes about arbitrage:
ARBITRATION (a Construction of the French Word Arbitrage) in Exchanges has been variously defined by the several Authors who have treated of it.
One says it is a Combination or Conjunction made of many Exchanges, to find Out what Place is the most advantageous to remit or draw on.
Another describes it, by saying it is only the Foresight of a considerable Advantage which a Merchant shall receive from a Remis or Draught, made on one Place preferably to another.
A third construes it to be a Truck which two Bankers mutually make of their Bills upon different Parts, at a conditional Price and Course of Exchange.
According to a fourth, it is the Negociation of a Sum in Exchange, once or oftener repeated, on which a Person does not determine till after having examined by several Rules which Method will turn best to Account.
Lex Mercatoria, 1734, p. 387
Around that time also appeared in Basel the first book dedicated to arbitrage, J. Wiertz's 1725 oeuvre Traite des Arbitrages de Change,2 which discusses ...