Chapter 17. Forms of Commercial Enterprise

Rational commerce is the field in which quantitative reckoning first appeared, to become dominant finally over the whole extent of economic life.  The necessity of exact calculation first arose wherever business was done by companies.  In the beginning commerce was concerned with a turnover so slow and a profit so large that exact computation was not necessary.  Goods were bought at a price that was fixed traditionally, and the trader could confine his efforts to getting as much as he could in sale. When trade was carried on by groups it was necessary to proceed to exact bookkeeping in order to render and accounting.

The technical means of computation were crude, down almost to the beginning of the modern period. Our system of characters, with values depending on their position, was an invention of the Hindus, from whom the Arabs took it over and was perhaps brought to Europe by the Jews. But not until the time of the crusades was it really known generally enough to serve as a method of computation; yet without this system, rational planning was impossible. All peoples who used a literal system of notation like that of antiquity and of the Chinese, had to have in addition some mechanical aid to computation.  In antiquity and down to the late middle ages, the counting frame or abacus served this purpose.  As the column system made its way into Europe it was at first viewed as a disreputable means of securing an immoral advantage in competition, since it worked in favor of the competitors of the virtuous merchant who disdained its use.  Consequently, it was first sought to exclude it by prohibition.  Down to the 15th and 16th century, the position system of notation struggled for official recognition.

It is true that there was bookkeeping in antiquity, in the banking business.  The entries, however, were documentary in character; they were not designed as an instrument of control in connection with income. Genuine bookkeeping first arose in medieval Italy, and as late as the 16th century, a German clerk traveled to Venice to secure instruction in the art.

Bookkeeping grew up on the basis of the trading company.  The family is everywhere the oldest unit supporting a continuous trading activity, in China and Babylonia, in India, and in the early middle ages. The son of a trading family was the confidential clerk and later the partner of the father.  So, through generations one and the same family functioned as capitalists and lenders, as did the house of Igibi in Babylonia in the 6th century B.C.

The first form of group organization was occasional in character, the commenda. The continual participation in such ventures might gradually lead to a permanent enterprise. Permanent industrial enterprise developed with the spread of the commenda organization.  Accountability penetrated into the family circle due to business connections outside of the family.  Indeed, the prime mover in the separation of household and business accounting, and hence in the development of the early capitalistic institutions, was the need for credit.  As long as dealing were in cash only, business remained a family affair.  But as soon as transactions were suspended over a long interval, the question of guaranteeing credit intruded.  To provide this guarantee, various means were used.   The first was to make all members of a trading family liable for losses.  This joint responsibility grew out of traditional criminal liability: in the case of high treason the house of the guilty person was razed and his family destroyed as suspect. Eventually, however, the most effective means for securing credit, and the method that outlived all others, was separation of the property of the trading company from the private wealth of its associates.  This separation is found at the beginning of the 14th century in Florence.  The step was unavoidable because more and more non-family members belonged to trading units.  Out of the property of the firm evolved the concept of capital.