Werner Sombart, Der Moderne Kapitalismus, Chapter X, “The Birth of the Capitalist Enterprise,” translated by Kenneth S. Most

III. The Business as Accounting Entity: The ratio (account)

1. The historical development of accounting. — The introduction of accounting was of the greatest significance for the full development of the capitalistic enterprise.

We know that the artisanal organization of medieval trade (and anything like bookkeeping was unthinkable for other branches of business life) found its expression in an incomplete and highly personalized bookkeeping. The sparse and confused collection of notes which characterizes the German trade books of the 14th and 15th centuries had, as sole object, to recall to the memory of the business manager particular events and conditions in his business. The books were memoranda in the most primitive sense of the word.

The public household was the place where an organized or “objective” bookkeeping, comprehensible to third parties took root.

Naturally, the Italian city communities took the first steps. From the 13th century on, perhaps even earlier, orderly business management starts to appear. Inventories of movable and real property are taken, the tavole delle possessioni in Florence, in two copies; special officials (notai) are appointed to provide annual reports on the public debt (Milan, Pisa, Florence) . Strict supervision of communal receipts and payraents is introduced. In 1225 the Milanese Podesta orders a monthly check on the government cash and requires officials to submit monthly accounts. All statutes contain bookkeeping regulations: the Breve pisano of 1286, for example, requires two separate books, one for receipts and one for payments; in Venice monthly audits and surprise cash checks shall take place. Balance sheets were constructed for the Italian states in the 14th century: we have them for Florence from the years 1336-38, for Treviso from 1341, for Rome from 1358, for Milan from 1463.

An earlier accounting regulation was forced upon the papal household, thanks to its extraordinarily high receipts, and also on the French and English royal households .

In the private profit sector the bankers were probably the first to keep accounts systematically, because of special features of their business. The laws of cities such as Pavia, Piacenza, and Novara, indicate the exactitude of their accounts. In the 14th century, city administrations were told to keep their books in the manner customary in banking circles. What was that? and how did bookkeeping grow into a highly organized system?

The history of accounting must begin with the sentence: in the beginning was the account: the ratio. We rightly refer to the study of bookkeeping, even today, as accounting, and both the French and Italian languages use this word: accounting, to designate the whole subject of bookkeeping: comptabilité , ragioneria . What is true of the entire system is true to an even greater extent of its beginnings; accounting grew by means of constructions using accounts; by putting them into accounts, the writer of an unanalyzed and personalized collection of notes broke them into two parts and built them into a firm sequence of thoughts, on which all subsequent accounting could be based.

We can accept on the basis of the evidence available to us that accounting constructions were developed in 13th century Italy, and that, in France in the 14th century, real accounts were to be found side by side with personal accounts, which originally existed on their own. [Evidence cited.]

The second step in the development of accounting was double-entry: the German Doppik or the French loi digraphique , whereby every item is recorded on opposite sides of two accounts, so that one account is debited with the same amount with which the other is credited, on which double-entry bookkeeping, la partita doppia, la comtabilité a parties doubles is based. Through double-entry bookkeeping, the entire accounts of a business are tied together, as a bundle of sticks with string.

The time when this step was attained appears to have been the second half of the 14th century. The city administration of Genoa was already keeping its books of account on the double-entry basis in the year 1340, and according to H. Sieveking, the old account books of Soranzo, which fall within the 14th century, were kept on the double-entry basis. It is well known that double-entry bookkeeping was later known as the “Venetian style,” and we can deduce from this that it first saw its construction (or use?) in Venice.

However double-entry, the loi diagraphique, characterizes accounting, the use of this principle does not suffice to complete the system. True, the essential nature of double-entry bookkeeping, which undoubtedly consists in following the complete circular flow of capital through a business and measuring and recording it, is not apparent until the system of accounts is complete. We know that this is not the case until, side by side with the other accounts, a profit and loss account and a capital account enter the picture, to which the balances of the other accounts are carried; without this, the accounts remain disconnected. The circular flow of capital which double-entry bookkeeping is designed to embrace can only be shown in full when these accounts are put in place: from the capital account to the transaction accounts through the profit and loss account and back into the capital account.

Historically, this completion of double-entry accounting took place in two steps: the first led to the introduction of the profit and loss account; the second, finally, to the creation of a capital account. The Soranzo ‘s new ledger, which belongs to the 15th century, has a profit and loss account but no capital account; the account book kept by Andrea Barbarigo in 1430/40 has a capital account at the end.

Here, not only are the goods accounts regularly closed to the profit and loss account, as in the Soranzo’s new ledger, but the profit and loss account is also formally closed out to the capital account: the accounts of 1430 and 1432 feed the account of 1434. The balance of this account is credited to the capital account “Andrea Barbarigo.”

In the beginning of the 15th century, then, came the first scientific system of double-entry bookkeeping, in the theoretical framework of which all subsequent practical achievements were to be fully accomodiated. The system of Fra Luca (Pacioli) published in 1494, which has kept its fame in spite of all researches into the history of accounting, earned for him the title of first bookkeeping theorist, il primo autore di ragioneria .

[Bibliographical note, in which Sombart points out that Pacioli’s double-entry did not grow out of single-entry bookkeeping, the latter being a crippled version of the former, and of later date.]

Even though the system of double-entry bookkeeping was virtually complete in Pacioli’s version, it was far from being the highly-developed and organized system we know today. One shortcoming, visible in Pacioli and in the 16th century writers, was overcome simply through practice: the process of balancing the books; only by means of this process can the latent interrelationship of the individual accounts be made manifest. Pacioli does not mention balancing or annual closing. Simon Stevin (1608) was the first to require that the books be closed annually, besides at the merchant’s death and when the business was liquidated. Even with this, however, a real problem remained.

This real problem, it is known, is that the profit or loss calculated from the balances of the other accounts is fictitious and not true, because two conditions have been disregarded which materially affect the size of the actual profit or loss: 1. the fact that during the accounting period, part of the overheads cannot be exactly determined; 2. the fact that, from the moment of their entry into the business, values may (and in most cases do) diminish. If profit or loss is to be accurately determined, then all values must be reported as at the moment of balancing, and this is the purpose of the inventory. “Thus, the final trial balance is dependent upon an operation external to the book-keeping system, namely, the inventory.”

If the bookkeeping theorists of the 17th century called for the books to be closed annually, and a yearly balance sheet, it was for essentially bookkeeping purposes; as in the case of de la Porte, it was a purely mechanistic function or, as Schär correctly states, “an accounting trick, an equivalence of identities.” When was the need for an inventory recognized? It was long thought that the idea of a closing inventory appeared about the end of the 17th century — at the same time — otherwise the French Ordonnance of 1673 could not have made such an inventory a legal obligation.

Article VIII of Title III of the Ordonnance lays down, in fact: Seront aussi tenus tous les Marchands de faire dans même delai de six mois, inventaire sous leur seing de tous leurs effets mobiliers et immobiliers, et de leurs dettes actives et passives, le quel sera recollé et renouvellé de deux ans en deux ans.

It is tempting to ascribe this idea to the two Savarys, who were known to have fathered the 1673 Ordonnance de Commerce, and who provide a very detailed commentary on this regulation in their scientific works, Le parfait negociant and Dictionnaire de commerce.

On closer examination, however, it appears that the view that the two Savarys, in their works or through the provisions of the 1673 law, saw the closing inventory as a complement of double-entry bookkeeping, is false. The inventory which they called for and for which an exact valuation was required, applied only to retailers, who did not keep double-entry books and for whom this inventory was designed to act as a substitute. The usage of the time restricted the word “marchands” to retailers, and the Savarys always refer expressly in their works to “marchands en detail.” Businesses which kept double-entry books retained the purely accounting balancing operation: the opening balance sheet, when the books were closed, at the end of the year, was buried by the new balance sheet: it took the place of the inventory: quand un marahand ou negociant tient ses livres en parties doubles, le bilan d’entreé lui sert d’Inventaire , qu’il porte au commencement du nouveau Journal et du nouveau grand livre . (J. Gavary, Dictionnaire de Commerce , 2, 438.)

Nor do we find in the 18th century a requirement to ascertain values by taking an inventory. Not even Büsch requires an inventory but leaves goods in the balance sheet at their purchase prices. G. H. Buse (1804) compares the quantities in inventory with the differences between purchases and sales, but uses purchase prices only.

Can it be true that the age of early capitalism ended without establishing the idea of a non-accounting inventory as a necessary element in the complete system of double-entry bookkeeping? The question will have to be answered by research specifically directed to that end. We are content here to have established that the system of double-entry bookkeeping was fully developed during the early capitalist period. Let us see what basic significance this new form of business organization had for the creation and expansion of the capitalistic enterprise.

2. The Significance of Accounting in the Development of Capitalism. — Order increases our strength, not least in economic affairs. “Order and clarity increase the desire to save and to acquire wealth. A person who manages his affairs badly feels well in the dark; he does not want to add together the bills he owes. The good manager finds nothing more pleasant than to check the totals of his growing wealth daily. Not even an unfortunate accident frightens him, for he knows immediately the advantages which he can place on the other side.” This generalization is applicable to all economic conditions; to the farmer as well as to the craftsman, to the capitalistic enterprise as well as to the housewife. The conviction that order strengthens the economic mind leads to the vivid realization that the very special organization of businesses through accounting is inherent in the development of capitalism. It is hard to imagine capitalism without double-entry bookkeeping: they belong together like form and content. And we may well question whether capitalism found in double-entry bookkeeping a tool with which to apply its forces, or whether the spirit of double-entry bookkeeping first gave birth to capitalism.

Double-entry bookkeeping! No textbook of this science or art can fail to quote the proud words (not Goethe’s, however) of Wilhelm Meister’s brother-in-law: “It is one of the most beautiful discoveries of the human spirit and every good housekeeper should introduce it into his economy.” I believe that one can truly understand this observation of Werner the businessman only if one does not read the second phrase: “Every private household would do well to use double-entry bookkeeping,” but rather understands him to explain double-entry bookkeeping as one of the most grandiose and consequential inventions — rather creations — of the human spirit. If its significance is to be correctly understood, it must be compared with the “knowledge” which scientists have built up since the 16th century, concerning relationships in the physical world. Double-entry bookkeeping came from the same spirit which produced the systems of Galileo and Newton, and the subject matter of modern physics and chemistry.

By the same means it organizes perceptions into a system, and one can characterize it as the first cosmos constructed on the basis of mechanistic thought. Double-entry bookkeeping captures for us the cosmos of an economic, more precisely, a capitalistic world by the same means that later the great natural scientists used to construct the solar system and the corpuscles of the blood (or captures us, which means the same thing). Double-entry bookkeeping is based on the methodological principle that all perceptions will be manipulated only as quantities, the basic principle of quantification which has delivered up to us all the wonders of nature, and which appeared here for the first time in human history in all its clarity. Without too much difficulty, we can recognize in double-entry bookkeeping the ideas of gravitation, of the circulation of the blood, of the conservation of energy and others which the physical sciences have discovered. And even — I would say — on a purely aesthetic plane we cannot regard double-entry bookkeeping without wonder and astonishment, as being one of the most artistic representations of the fantastic spiritual richness of European man.

More important to us here is to measure the influence which the new system had on the course of European economic life. I would like to put this thought into the foreground: that because of double-entry bookkeeping, conditions were created which permitted the essential ideas of the capitalistic economic system to be fully developed: the creation of wealth and the idea of economic rationality.

The idea of creation of wealth is developed in double-entry bookkeeping to the point where the “wealth producing sum,” that is, the amount invested for the purpose of obtaining profits, is separated from all natural objectives of human welfare. In double-entry bookkeeping there is only one objective: the increase of a sum of money, expressed in purely quantitative terms. He who buries himself in double-entry bookkeeping forgets all quantities of goods and work, forgets all the organic limitations of the necessity to satisfy human wants, and satisfies himself solely with the idea of wealth: he cannot do otherwise if he is to understand this system: he may not see shoes or ships, corn or cotton, but only sums of money which grow bigger or smaller.

[Quotation fromi Seidler.]

This manner of looking at things first led to the concept of capital. One can thus say, that prior to double-entry bookkeeping there was no such category as “capital,” and that without it, capital would not exist. We can in fact define capital as the property of wealth which a double-entry bookkeeping system embraces.

In close connection to this lies another thought: that it led to the first full rationalization of economic life, insofar as one of the external signs of this rationalization is the tendency to make people accountable for all stages of the economic process. Here we see the close relationship between the overriding wealth-creating principle and rationality; both dissolve the economic world into figures, one to state its objective as the increase of wealth, the other to aid in its achievement. How very much accountability is affected by double-entry bookkeeping is obvious: the latter recognizes no economic processes outside the books of account: quod non est in libris, non est in mundo: to get onto the books, a thing must be capable of expression in terms of money. But money is represented by figures, so that every economic process must correspond with a figure; production and consumption become calculation. In accordance with this viewpoint, auxiliary expressions, are created. Thus we see the class of concepts known as “exchange value” take shape, which are handled extensively only within the framework of an accounting system.

But rationalization of the economy is aided toward the other two directions in which, as we have already seen, it seeks to operate: double-entry bookkeeping serves also the purposes and plans of management.

It has been correctly pointed out that it provides the first full insight into the shortcomings which may affect an economic organization, so that it is also a condition precedent for a progressive, systematic improvement of the operations of a business. Through the separate treatment of the individual departments of an undertaking, every single element of success or fortune can be shown in the various accounts. It has also been correctly remarked that the far-reaching planning activities of the undertaking are also assured by its bookkeeping. “L’importance de la Comptabilité consiste non seulement dans l’etude de l’activité écouleé d’une entreprise, mais encore dans les indications qu’elle fournit pour la direction future. D’aprés l’observation et l’étude des causes et consequences des évenements accomplis, elle donne la possibilité de préjuger l’activité future et de trouver des bases sures pour raisonner les actions a venir.” (L. Gomberg , La science de la comptabilité et son systéme scientifique , 1901), p. 36).

In pursuing its objectives,, it creates the conceptual framework, or helps to create it, with the aid of which we are accustomed to grasp the nature of a capitalistic economy: the classes of fixed and circulating capital, costs of production and other concepts arise from the use of the basic ideas of double-entry bookkeeping, and without them would probably not have arisen, or would be much less clear; the scientific equipment of micro- and macro-economics, insofar as they relate to capitalist economies, has (often unconsciously) been taken over, in great part, from the storehouse of double-entry bookkeeping.

As double entry bookkeeping first created the concept of capital, so it simultaneously created the concept of the capitalistic enterprise as that economic organization, that institution, whose object is the evaluation of a particular capital. Indeed, here at the birth of the capitalistic enterprise, the creative cooperation of double-entry bookkeeping appears most obvious. We have established that the essence of the capitalistic enterprise as an assemblage of property must be seen to lie in the separation of the business from its owners. The book-keeping system substantially aids this separation of the business.

It operates this separation in two respects; by liberating the accounts and with them the management of the business from the person of the businessman, and by ordering them in accordance with purely material considerations. The preparation of the accounts becomes objective and mechanized. Objective because the procedure is generalized and made independent of the accidental characteristics of the businessman’s person; made representative, customary, so that wherever it may be used, it is comprehensible to all. In the trade books of the Middle Ages only the proprietor of the business could (and should) find his way; every qualified person can understand a systematically kept set of books. For this reason, the founders of double-entry bookkeeping laid down the principles of clarity and comprehensibility . Thus, Luca Pacioli in Chapter 12: “Close each journal entry by drawing a line from, the end of the last word of the explanation of the entry to the figures obtained. You will do the same in the Memorandum, drawing a single diagonal line through each entry in this manner, “/,” showing that the item has been entered in the Journal. Should you not wish to draw this line through the entry, mark through the first letter at the beginning of the entry, or the last letter at the end. In any event, use some sign by which you understand that the item has been transferred to the Journal.

“Although you may use various expressions and signs, you must nevertheless attempt to use those common to other businessmen, so that you will not appear deficient in the usual business customs.”

[From the translation by R. Gene Brown and Kenneth S. Johnston, New York, McGraw-Hill Book Co., Inc. (1963).]

Moreover, by means of double-entry bookkeeping, accounting is net only made objective, it is mechanized. Once begun, accounting can be carried on in a particular direction. Schär characterises this feature of double-entry bookkeeping well, saying that it converts accounting into an “automatic system.” (Zwangoläufiges System).

As business management ceased in this way to be a highly personal affair, in the place of personal management we find the substitution of impersonal management; the business replaces the entrepreneur as an independent entity, moved by its own internal laws. Further, it does so in two senses: in that the business, represented by its capital, appears as an entity, through its incorporation in the accounting system; and in that the person of the entrepreneur is shown clearly to be separate from the entity “the business,” and appears more as its creditor than as its owner.

The separation of the business by means of its accounts is the essential contribution of double-entry

bookkeeping, and is often stated to be so. Particularly happy is Gomberg’s phrasing, which I again use: En organisant la comptabilité d’une entreprise quelconque, on ne poursuit pas le but de déterminer le revenu de son propriétaire, du capitaliste lui-même, qui peut avoir des gains et des pertes provenant des sources étrangéres a l’entresprise en question; mais on veut raisonner sur l;avantage de l’exploitation de l’entreprise donnée. (p. 66.)

Il ne faut done pas confondre l’ebtreorise avec le capitaliste, son proprietaire. Ces deuxsont separés par la comptabilité, qui considére le proprietaire de l’entreprise comme une personne tierce, comme son créancier pour le capital qu’il lui a remis.

“Entrepreneur and enterprise are separated from, each other by double-entry bookkeeping”: that is the kernel of the matter. [Sombart considers the juridical aspects of this separation.]

[Sombart examines the etymological origins of the word Firma (firm) and its Italian counterpart, Ragione . The Latin ratio meant “account” as in Cicero: par est ratio acceptorum et datorum.]

This etymology is no more than a welcome confirmation of the view represented here: that book-keeping produced the concept of the independent business and that the capitalistic undertaking developed from this accounting entity.

The very illuminating close relationship between the development of the legal concept of the firm and the development of accounting appears to be also demonstrable with reference to the wide dissemination of a legal rule attributable to Bartolus: in deciding questions of liability, the court may examine the business books of account. This view was confirmed by all subsequent Roman law jurists, including those of the 16th century. This practice meant that legel, opinion necessarily kept step with bookkeeping practice, and was materially aided thereby in arriving at the concept of the independent business.

3. The growth of systematic business management. — We have up to now traced the development of the system of double-entry bookkeeping, and established that it was essentially completed by the beginning of the 16th century, but that certain complementary details were probably not introduced before the end of the early capitalist period. From this, however, we know nothing about its application in practice. We would particularly like to have information on this question: to what extent, and how thoroughly, did business management operate, during the last centuries of the early capitalist period, in conformity with the teaching and instructions of business theorists?

We could only give a definitive answer to this question if we had statistical data concerning the books of account actually kept by businessmen. These we do not possess. We cannot even find enough typical examples of bookkeeping practice to infer from them the general state of bookkeeping in their time. Most of the business account books which have survived belong to the 15th and 16th centuries — perhaps two dozen in all — and 17th and 18th century account books have been made available until now in extremely small numbers.

So for the time being, until more authentic source materials are supplied to us — and it is hoped that business historians will soon make good the omission — we must rely on interpreting signs in order to decide on businessmen’s knowledge of the art of business management and its application in the new capitalistic undertakings.

The picture which emerges from carefully examining the evidence is somewhat as follows: the fact that most of the well-kept account books known to us from the 14th and 15th centuries are Italian is certainly no accidental result of research into business history; Italy was at that time, without any doubt the leading mercantile community. We need only compare the Italian account books of those centuries with contemporary German examples in order to determine the disparity between these two countries. Generally, the Italian mind was further along the road to rationalization and mechanization. We can see how the modern state began to take shape in Italy in the Middle Ages. We can assume that a taste for the exact and calculating mind took deeper and deeper root in Renaissance man. Recall that the beginnings of land surveying and town planning can be traced to the Italian republics in the 14th century, that statistical method began to take shape there, that official measurements of time made tremendous steps forward in this period.

The history of measuring time and the growth of the use of clocks provides us with evidence of the variety of causes underlying modern life. While the precise division of time, which undoubtedly influenced rationalization, was originally the exclusive achievement of the religious community — in the Middle Ages it was necessary to measure time and divide it up only in the monasteries, which alone had clocks, had to have clocks — the modern division of time (into equal equinoctial hours) which permitted complete rationality, in contrast to the church and monastic division of time (into canonical hours, that is the variable hours of antiquity) was the work of modern princes. It was they who, set upon achieving improvements in city administration, particularly in Italy, wanted public striking clocks, which were invented at the beginning of the 14th century, and striking clocks were only possible if the day was divided into equal hours. Thus, the invention led to a change in mental attitudes; striking clocks, and with them the modern method of dividing up time , were imposed by the laity upon the churches and monasteries, on which (because the church tower was usually the best place to put them) they first appeared.

[Sombart lists the places where clock towers appeared in the 14th century, with dates.]

We are particularly interested in seeing how the art of accounting developed and expanded. This will serve on the one hand as an expression of the general attitude of businessmen, and on the other hand, as a thermometer for measuring the state of business management techniques, which resulted from the combination of bookkeeping and commercial arithmetic. These were separate subjects, so that the development of accounting required a simultaneous development of commercial arithmetic and its dissemination among businessmen, which must have taken place through school instruction. It is therefore important to establish that in Italy, at a relatively early date, i.e., by the 14th century, arithmetic was taught in schools. Giov. Villani informs us that in Florence in 1340, 8-10,000 boys and girls were learning to read, and 1,000 to 1,200 boys in six schools were learning arithmetic.

[Sombart provides the bibliographical references and discusses the authenticity of the estimates.]

In Paris there were also numerous primary schools in the Middle Ages , which were attended by several thousand pupils in the 15th century.

What did they learn in arithmetic lessons? We can answer: essentially the contents of the Liber abacci of Leonardo of Pisa. This book taught the four basic operations underlying commercial arithmetic, and also the rule of three, and contained a large quantity of examples concerning matters of interest to businessmen: weights, coinage, dimensions, exchange equivalents, etc.

[Sombart lists the relevant chapters.]

To this the following centuries saw the addition of the abacus, and in Italy in the 15th century pupils were already being taught interest and discount calculations. About the end of the century, the final version of the rule of three made its appearance.

We must beware of drawing exaggerated conclusions concerning the level of businessmen’s education from the level of the extensive and intensive development of arithmetic and systematic business management at the time. Even in Italy, throughout the entire Middle Ages and later well into the period of early capitalism, patriarchal systems flourished, even in large businesses. We know a great deal about the clans and their thoroughly uncapitalistic business administration. Even the manner in which the books were kept was often rough and ready. The books of the Soranzo and the Barbarigo are full of inaccuracies, discrepancies, obscurities. It appears to have been the exception to have a well-kept set of books. According to bookkeeping experts, such an exception is provided by the account books of Giac. Badoer. (G. Brambilla, Storia della ragioneria Italiana , (1901) pp. 55 et seq.)

Sometimes anecdotes provide the best picture of the general attitude or style of a period. Thus, I would like to introduce here a few words from, the family records of the Albertis which appear to me to throw light on conditions in the business community of Florence during the late Middle Ages.

Leon Battista recounts:

Maestro Benedetti Alberti was fond of saying: it suits the efficient businessman to have ink always on his fingers. He explained that it is the duty of every merchant, as indeed, of every businessman who has transactions with many people, to write everything down, every contract, every receipt and every payment, and to check so often, that he seems always to have pen in hand.

From this anecdote we learn:

  1. that it was not a universal custom among the business community of Florence to keep books.
  2. that the head of a “world-wide” trading concern kept his books himself, at least in part.
  3. that he was as clumsy as a schoolboy who writes with ink for the first time, and gets it on his fingers.

This picture is confirmed when we learn that Domenico Manzoni, who re-worked Pacioli’ s chapters on bookkeeping and amplified them with numerous examples, had a collection of twelve lettering models in his mercantile library, in the year 1564.

We must also remember that the Arabic numerals introduced by Leonardo of Pisa had to fight a lengthy battle before they overcame. I recall that even in 1299, the use of Arabic numerals was forbidden. As late as the 16th century we can still find Latin numerals used in theoretical works on bookkeeping as well as in many Italian books of account. It has been correctly pointed out that Latin numerals did not render double-entry book- keeping impossible, but it cannot be denied that they placed severe restrictions on the free evolution of the principles of accounting and on accountability in general.

If, then, we see in Italy only a slow dissemination of systematic (i.e., capitalistic) business management, it will be well to place its beginning and growth in other countries appreciably later in time. We know that in the 16th century German merchants were still learning arithmetic in the Italian cities; they even brought book-keeping a la Venezia back with them. But these are merely particular cases. Knowledge became more general when German writers published books on double-entry bookkeeping and the related commercial arithmetic. This took place during the 16th century. But the first works of this kind to appear in Germany, such as those of Magister Henricus Grarnmateus (1518), of Joann Gottlieb (1531) etc., are well behind Luca Pacioli in their systemization . Only gradually were the heights of the Italian theory attained and its application was correspondingly slow. Account books of the 16th and 17th centuries provide evidence of our halting development of business accounting. Adam Riese’s country seems, however, to have taken over the leadership in this field of learning in the 16th century.

In the other countries north of the Alps, the new system, of bookkeeping and commercial arithmetic made slow but steady progress.

The books of Andr. Ryff (end of the 16th century) and the account books of Froben and Episkopius show that double-entry bookkeeping was as yet unknown in Switzerland. Ryff admits that his agents, and the necessity to settle accounts with them periodically, imposed upon him the need to keep books rigorously. On the other hand, Geering asserts that by the beginning of the 17th century, all large trading concerns in Switzerland kept their books in the Italian style.

In England, the first author of a text on double-entry bookkeeping was Hugh Oldcastle (1543). But James Peele, in the preface to his 1569 book on accounting, remarked that the art was new in England and that businessmen and their apprentices took lessons from him.

At any rate, throughout the 16th century business life in England was also virtually untouched by these changes. We find in the books, even of the great trading companies of the time, a quite medieval and artisanal type of record-keeping. Improvement is noticeable at the beginning of the 17th century; for example, the concept of capital enters into the books of account, doubtless under the influence of those merchants who came into contact with Italians, as members of the Levant Company.

What some bookkeeping conditions were like even at the beginning of the 18th century can be seen from the following story: Zetner of Strasburg was invited to England by an industrialist “who had a large manufactory of woollen goods in Exeter, to obtain an accounting from the manager of the factory, who had nob submitted one for twenty years” (Zetners Reissjournal, E. Reuss (1912) p. 75) .

The new art first found entry into Holland and France through a translation of Luca Pacoli into Flemish and French, by Jan Ympyn (1543).

Holland developed its own culture in the field of bookkeeping theory and practice. The pathbreaking bookkeeping works of the northern Netherlands were the 1583 publication by Nicolaas Petri Van Deventer, Practique om te leeren reeckenen, cypheren ende boekhuden (met die Regel coss) ende geometrie, seer profitelycken voor alle coopluyden, and in 1588, Boeckhouden op de Italiaensche maniere . The best known Dutch teacher of this subject is Simon Stevin, whose Hypomnemata Mathematica appeared in 1605-8 as an aid to the Prince of Nassau’s educational schemes.

In the 17th century, more than 60 books on accounting were published in the Dutch language. [Sombart notes that the growth of foreign exchange banking and currency arbitrage in Holland stimulated interest in bookkeeping, in order to be able quickly and accurately to calculate profit or loss. The Dutch produced specialist tests on this subject before anyone else.]

Leadership in commercial arithmetic, which certainly lay in Italy at the start, was now taken over by Holland. Holland was the exemplar, not only for all middle-class virtues, but also for arithmetical precision. In the 18th century for example, the discrepancy between the American and Dutch arts of commerce was noticed. Benjamin Franklin tells the story of the widow of one of his associates, a Dutch woman by birth; how she sent him regular and exact accounts which her husband (an American) when alive, never did. “… the knowledge of accounts” he adds, “makes a part of female education” in Holland [Memoir, I, p. 150 (1833)].

From what we know of French account books of the 16th and 17th centuries, the state of the art of book-keeping there was extremely variable; the number and types of books of account differ from case to case.

[S. mentions French sources, one of which (Maillefer) acknowledged double-entry as a novelty in the middle of the 17th century.]

In the 17th century, however, France apparently became, with Holland, the country in which commercial arithmetic reached an unusual degree of advancement. [In a note, S. complains of the absence of decisive evidence and hopes that his efforts will stimulate historical research in this area.] We may conclude this from the unusually large number of excellent “businessmen’s books” in the French language, such as the Savarys’ , the two Ricards’, and so on.

We may also take as a sign of highly developed business techniques the fact that France was the first country in Europe to enact legislation urging every businessman — wholesale as well as retail — to keep books of account.

The Ordonnance of 1673, Title III, Article I, states: Les negociants et marchands tant en gros qu’ en detail auront un Livre qui contiendra tout leur Négoce, leurs lettres de change, leurs dettes actives et passives, et les deniers employés a la dépenses de leur maison.

They were admonished, not obliged. L’Ordonnance enjoigne aux Marchands et Negocians d’avoir des Livres sur les quels ils écriront toutes leurs affaires; neansmoines ils ne eront point forcez d’en avoir, cela dependra de leur volonté. There was only an indirect element of force in that an accusation of fraudulent bankruptcy could be refuted with books of account. Thus comments Savary, father of the Ordonnance (Le parfait negociant, I, p. 248).

To be legally recognized, books of account had to be certified by a consul or mayor. Les livres des Negocians et Marchands tant en gros qu’en détail, seront signés sur le premier et dernier feuillet, par l’un des Consuls dans les villes oú il y a jurisdiction consulaire et dans les autres par le maire ou l’un des Echevins, sans frai ni droits, et les feuillets paraphés et cottés par premier et dernier de la main de ceux qui auront été commis par les Consuls ou maire et échevins, dont sera fait mention au premier feuillet (Article II, line 3).

These provisions undoubtedly represent a step forward in the direction of organized business management, which however already existed in France, since before the Ordonnance of 1673 it was the custom for wholesalers to keep books of accounts, as Savary assures us (Le parfait negociant, I, p. 249).

Again, we must recall that we refer only to the beginnings of accounting. For what the Ordonnance calls for, and what Savary found to be “nothing new” in France, was a simple journal, in which all business transactions were set down in chronological order. Of course, some businesses also kept double-entry books; but certainly not the majority.

Did England then become, not only the greatest trading nation, but also the most advanced country in business management techniques? We do know that at the beginning of the 19th century, German businessmen looked to Holland and England as the countries of advanced commercial training, which at that time appears to have reached its apogee within Germany in the city of Hamburg. One knowledgeable observer of the 1830s wrote the following words on the relationship of these countries to each other:

To such free and clear views of business affairs as have Englishmen, businessmen through and through, the Hamburger arrives rarely, or late; that decisiveness, independence which the former displays, the latter is almost completely lacking in this connection. In spite of this, one can hold up the commercial accuracy of the Hamburger as an example to the rest of Germany; it is almost equal to that of the Dutch, although significantly more generous than the fearful Mynheer (Lud. Schleicher, Das merkantilische Hamburg (1838) p. 75)

Hamburg did most in the 18th century for the cultivation of the arts of business, of which Joh. Büsch was the outstanding representative.

If we survey the entire period of early capitalism we arrive at the conviction that throughout the whole of Europe, business techniques began to be based on new principles, that everywhere and in consequence of this, capitalistic enterprises arose, but that in no case before the second half of the 17th century had more than a small proportion of firms taken the steps which led away from unsystematized and highly personalized management, so that the general type of business, even in the last centuries of early capitalism, represents a transitional phenomenon. We shall be confirmed in this viewpoint when, in the following chapter, we study the development of capitalist forms of business enterprise

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