The idea of using a finger puppet as a gag was first utilized from Paul Harris' book by Bob Farmer. Bob called it "The creation of life". 

Derek Dingle used Bob's gag to "explain" the vanish of a coin, and that routine appeared in one of the New York Coin Symposium books back in the 1980's.

Derek's routine was then popularized by Michael Ammar when he performed this feat on Letterman and renamed it 'Little Hand'. 

Since then Alex Ng, Kevin Ho, Roddy McGhie & Dave Bonsall all have their own work on this gag.