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Banks Bookkeeping and Rise of Commercial Capitalism

Banks Bookkeeping and Rise of Commercial Capitalism

Discussion of Essay XV, “Banks, Bookkeeping, and the Rise of Commercial Capitalism,” in Sprezzatura by Richard Jackson Essay XV of Sprezzatura provides a clear and concise description of the development and rise of banking, accounting, and capitalistic practices. The author, Richard Jackson, begins the short essay with a brief history of the Vivaldi brothers’ voyage to the West Indies in 1291.

The remainder of the essay is organized chronologically and spans from the late 11th century–when Genoa tried to extract control of the Mediterranean, through the early 1400’s where the Venetians became the “masters of all the gold in Christendom” (D’Epiro, 110-111), to the 16th and 17th centuries, when control of commerce moved North of the Alps to more centralized regions of Europe. Jackson seems to focus more attention on actual events and practices that took place during this time period as opposed to focusing on specific people in history.

The three most important aspects of this essay were the funding of the Renaissance, the creation and uses of the commenda, and the development of double-entry bookkeeping. The growth of Italian banking procedures gave rise to other European countries to start taking advantage of the innovation. Italians soon became bankers to the kings and popes across Europe, helping finance both France and England in the Hundred Years’ War, as well as gathering “…tithes as far away as Greenland, where the tribute was paid in sealskins and whalebone” (D’Epiro, 106).

Soon Italian banks—specifically the Medici Bank of Florence—began to expand throughout Italy and other parts of Europe creating massive amounts of profits, which in turn helped financially support the Renaissance, a cultural movement revolved around the flowering (or rebirth) of literature, art, science, and religion. The commenda, literally translating to the English word “commendation”, was the direct result of the Italian business mindset.

Italian businessmen mastered the elaborate methods of raising capital, diversifying risk in an investment portfolio, and gathering market information. The commenda was known as the contract used for raising capital; it bound a “stay-at-home” capitalist and a traveling merchant together on a specific “investment” voyage. If said voyage was successful, the capitalist would receive (in general) ? of the profit while the traveller would receive the remainder.

Some voyages were more successful than others, and upon a failed voyage the entrepreneur would lose his capital, while the traveller lost his wages (D’Epiro, 107) The commenda allowed for entrepreneurs to invest in several different voyages at once, therefore minimizing investment risk through the use of diversification (a law that we still use in modern day investment practices). Without the exploitation of the commenda, many of today’s business practices would not be nearly as understood or widely used.

Another major stepping stone that Italians laid down for modern day business practices was the method of double-entry bookkeeping. This form of accounting is widely accepted throughout any business entity today. Double-entry bookkeeping tightly follows a set of laws in which a credit and a debit must be recorded for every business transaction. These credits and debits were recorded in a ledger and “in larger enterprises, separate ledgers were kept for each account, including God’s, where charitable contributions were recorded like any other business expense” (D’Epiro, 110).

This simple contribution by the Italians is the most significant and relevant to modern day business. Throughout time, investors and businessmen have changed the way business is done, whether it be via the enhancements of electronics and cyberspace or the stock exchange itself; however, the one thing that remains from long ago is the ingenious development of the basic principles of accounting. As for a usually mundane topic for most, Jackson made the topic of banks, bookkeeping, and capitalism fairly interesting with his clear and lively writing style.

The way Jackson easily compared the two periods in history made for a simple read and understanding of how business operated before the 16th century. The most effective and intriguing aspects of this essay was the author’s use of modern day examples and quirky little facts in explaining the Italian methods of commerce, which makes the reading more enjoyable. For example, when describing the most well-known business textbook of the time, Jackson provides an excerpt from the manual by Pegolotti, talking about the road to China: “Among his tidbits of advice:

Let your beard grow long and take along a woman, preferably one who speaks the Tartar language” (D’Epiro, 110). I had no idea that business practices were so old, and being a business major, this really captivated my attention. I was under the impression that banks, loans, investments, and personal checks were fairly new operations—I didn’t know they dated back way before the Renaissance! ——————————————– [ 1 ]. D’Epiro, Peter, and Pinkowish, Mary Desmond, Sprezzatura: Fifty Ways Italian Genius Shaped the World. New York: Anchor Books, 2001. pp. 106-111