CHAPTER XVII

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 which 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 an 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 and was still employed after the Arabic position digits had long been known. For 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 prohibitions, and even the highly developed Florentine cloth making guilds repudiated it for a time. But the abacus made dividing difficult, and it was ranked as an obscure mystery; the computations which have come down to us from the Florence of that time, which were carried through with literal notation, are wrong to the extent of three-fourths or four-fifths. On the grounds of this antipathy, the Roman numerals were still written for making the entries in the account books after the computations were actually carried out with Arabic figures. Down to the 15th or 16th century, the position system of notation struggled for official recognition.

The first books on computation usable by merchants come from the 15th century, the older literature, going back to the 13th, not being popular enough. Occidental bookkeeping was built up on the basis of familiarity with the position notation; the like of it had not been seen in the world and only foreshadowings are found in classical antiquity. The occidental world alone became the abode of money computation, while in the orient computation in kind has remained the rule; (the accounting in terms of grain certificates in Egypt will be recalled—above p. 58).

It is true that there was bookkeeping in antiquity, in the banking business—the Greek τραπεζται and the Roman argentarii. 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. ¹ 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. It is true that in this case the transactions concerned were not extensive and complicated like those of today, but were of a simple sort. It is characteristic that we hear nothing more of bookkeeping either from Babylonia or Indian trading houses, although at least in India the position numerals were known. The reason apparently is that there, as in general in the orient and in China, the trading association remained a closed family affair and accountability was therefore unnecessary. The trading association extending beyond the members of a family first became general in the west.

The first form of group organization was occasional in character, the commenda, already referred to. The continual participation in such ventures might gradually lead to a permanent enterprise. This evolution in fact took place, although with characteristic differences between southern and northern Europe. In the south the traveling merchant was regularly the entrepreneur, to whom the commenda was given, because in view of his year long absence in the orient he could not be controlled. He became the entrepreneur and received commendas from various parties, up to ten or twenty, accounting to each commendator separately. In the north, in contrast, the socius who remained at home was just as regularly the entrepreneur; he was the one who entered into relations with numerous traveling socii whom he provided with commendas. The traveling factor was regularly forbidden to undertake more than one commenda and this brought him into dependence upon the settled partner who thus evolved into a managerial functionary. The reason is found in the difference between the commerce of the south and the north. In the south the journeys involved notably greater risk since they led into the orient.

With the spread of the commenda organization, developed permanent industrial enterprise. First, accountability penetrated into the family circle due to business connections with tractators from outside the family, since an accounting had to be made for each separate venture even when the particular commenda pertained to a member of the family. In Italy this development went forward more rapidly than in Germany, the south again taking the lead over the north. As late as the 16th century the Fuggers would indeed admit foreign capital into their affairs, but very reluctantly. (The Welsers were more broad-minded in this regard.) In contrast, the association of outsiders in family business spread in Italy with increasing rapidity. Originally there was no separation between the household and the business. Such a separation gradually became established on the basis of the medieval money accounting while, as we have seen, it remained unknown in India and China. In the great Florentine commercial families such as the Medici, household expenditures and capital transactions were entered in the books indiscriminately ; closing of the accounts was carried out first with reference to the outside commenda business while internally everything remained in the “family kettle” of the household community.

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. The separation remained in abeyance as long as dealings were in cash only; but as soon as transactions were suspended over a long interval, the question of guaranteeing credit intruded. To provide this guaranty, various means were used. The first was the maintenance of the wealth of the family in all its ramifications, through maintaining the house-community even to remote degrees of kinship, an objective to which for example the palaces of the great commercial families in Florence owe their origin. Associated with this was the institution of joint responsibility of those who lived together; every member of the house-community was answerable for a debt of any other member.

Apparently this joint responsibility grew out of a traditional criminal liability; in the case of high treason the house of the guilty person was razed and his family destroyed as suspect. This idea of joint responsibility no doubt passed over into the civil law. With the permeation of outside capital and outside persons into the family business for the purpose of trade, it was renewed at irregular intervals. Out of it arose the necessity for an agreed allocation of the resources at the disposal of the individual for personal use and of the power to represent the house in external matters. In the nature of the case, the house-father could everywhere bind the family, but this joint responsibility nowhere developed to such lengths as in occidental commercial law. In Italy its root was in the household community and the stages in its development are the common dwelling, the common workshop, and finally the common firm. It was otherwise in the north, where the large family community was unknown. Here the credit requirement was met by having all the participants in the trading venture sign together the document establishing the responsibility. Then each participant was responsible for the group, usually without limit, though in the reverse direction the whole was not responsible for the parts. Finally, the principle became established that each participant was responsible for every other, even if he had not signed the document. In England the same result was achieved by the common seal or the power of attorney. After the 13th century in Italy, and after the 14th in the north, joint responsibility of all the members of a company for the debts of the firm as such was fully established.

The final stage in the development established as the most effective means for securing credit standing, and the method which outlived all the rest, separation of the property of the trading company as such from the private wealth of the associates. This separation is found at the beginning of the 14th century in Florence and toward the end of the same century in the north also. The step was unavoidable since to an increasing extent persons not members of the family belonged to the trading units; in addition it could not be avoided within the family itself when the latter came repeatedly to employ outside capital. Expenses for the family on one hand and personal expenses on the other were separated from business disbursements, a specified money capital being allocated to the business. Out of the property of the firm, for which we find the designation corpo della compagnia, evolved the capital concept.

In detail the development took various courses. In the south the field of its development was the great family commercial houses, not only in Italy but in Germany as well, as illustrated by the Fuggers and Welsers. In the north the course of development was through small-families and associations of small traders. The crucial fact was that the center of large money dealings and political money power lay in the south, as did also the bulk of the mineral trade and oriental commerce, while the north remained the abode of small capitalism. In consequence the forms of organization which developed in the two regions were quite different. The type of the southern commercial company was the commandite, in which one partner carried on the business and was personally responsible, the other participating through his investment and sharing in the gain. This development arose from the fact that in the south the traveling merchant holding the commenda was the typical entrepreneur, and when he took up a fixed abode he became the center of the permanent enterprise which took on the form of the commenda. In the north the relation was reversed. The sources from the Hanseatic region at first give the impression that there was no permanent enterprise but that the trade was split up into purely occasional ventures and into a number of inextricably confused individual transactions. In reality these individual ventures were permanent enterprises and are accounted for individually because the Italian (double entry) bookkeeping was not introduced until later.

The forms of organization are the Sendeve and the Wedderleginge. Under the first the traveling partner was given goods on commission, receiving a share in the gain; the latter was designed to enlist his interest in the business by ascribing to him a share in the capital of the transactions from which he was excluded.