Why study Business under a Historical Perspective?

● Termodinamic Paradigm vs Mechanistic-Newtonian Paradigm; all phenomena

are not reversible;
● Basically, the dynamic process of economy (and finance) itself takes on an
essential historical character; i.e. a path-dependent sequence of economic changes
influences the eventual outcome (our past choices lock in our present
chances)>>>QWERTYnomics (technical interrelatedness, economies of scale,
quasi-irreversibility of investment);
● Entrepreneurship is related to the process of economic change and the study of
economic change lies at the earth of economic history;
● After semi-oblivion, resurgence of BH related to social change>>neoliberalism
1980’
● History is important to understand things when they unravel; more than
flowcharts and equations, understand where entrepreneur comes from, where firms
come from>> Economic History pulls together all the aspects of economy (social,
cultural, quantitative,…) and allows a comprehensive account of economy; BH not a
separate subset of general history but a particular perspective on history generally.
● History doesn’t teach anything, but punish hardly who doesn’t grasp its lesson
>>The four most dangerous words in economic history are “This time it’s different”
(Sir John Templeton); >>i.e. the ignorance of financial history is one of the cause of
recent crisis…no experience and knowledge of how Business worked…

Despite their centrality in modern economic development, the entrepreneur and

(to a lesser extent) the enterprise remain a largely elusive phenomenon, difficult to
categorize and structurally reluctant to be interpreted through mathematical
equations. Economic theory and the entrepreneur have never been good travel
companions (J.S. Metcalfe), and for a long time, the enterprise itself has been
represented by the mainstream as something like a black box.

For this reason, the course intends to offer a historical contextualization that allows
translating the vague theoretical representations that have often been made of
these two subjects, in real and concrete protagonists of the economic and social life
of the modern development. The objective is, therefore, to grasp - thanks to an
inductive approach - the real complexity of the evolution of business and
entrepreneurship from the first pre-industrial organizational forms until the
twentieth century.

The ideas and elaborations of business theories are gradually reviewed and adapted
through a reciprocal process of correction and proposition, conducted both on the
basis of the dialectical relationship with contemporary social, institutional and
technological factors, and on the basis of the reconstruction of the links between
micro and macro dynamics, related to the wealth of the nation.

Moreover, its strongly comparative perspective - centred on the leading

macro-regions of the world economy (Europe, USA, Japan and China) - is the
fundamental element for the full emergence and discussion of possible patterns of
growth, continuity and change in businesses and entrepreneurship. So, after a few
conceptual insights, necessary to define the boundaries of the analysis, the lessons
address the origin and evolution of business from the modern age, to then focus on
the international comparison of types, performance and governance during the last
two centuries, and to close with some "historical" reflections on the convergences
and divergences of the current business world.

Double-entry system:

● The double-entry method of bookkeeping began with the development of the

commercial republics of Italy
● Summa de arithmetica, geometria, proportioni e proportionalità (Luca Pacioli,
1494)
● In the late 18th and early 19th centuries, the Industrial Revolution provided an
important stimulus to accounting and bookkeeping.

Guilds:

● Urban craftsmanship was traditionally concentrated in the production of high

value-added items
● Guilds organized specialized activities of the same type (eg goldsmiths)
● Regulation of the quantity, quality and price of the goods produced
● Resolution of disputes between members
● Control of the training process of future members (apprenticeship)

Home manufacturing and putting-out system:

Pre-Industrial Europe:
● primary sector 80-90% GDP, 70% of the working population.
● Some phases of manufacturing transferred in the countryside, under the control
of the ‘merchant-entrepreneur’.
Advantages:
● Low cost of rural labor
● High production flexibility
 Few examples of large companies:

● The great pre-industrial factories, often protected by the state through privileges
and monopolies, were the exception.
● Often they combined centralized manufacturing and home-making: only a part
of the workers were employed in centralized establishments, while the remaining
part worked at home.
● The available technology did not allow to achieve significant economies of scale.
● Centralized factories:
○ Arsenale di Venezia: it was created around the early 12th century due to the
need to give more development to shipbuilding, a strategic activity for Venice. The
number of workers reached the average daily quota of 1.500-2.000 units
○ Manufactures royales: eg. Manufacture Royale de glaces de miroirs (1665) 🡪
Saint-Gobain
● Commercial companies (East India Company, 1600)

The revolution of numbers

The expansion of commercial activities led merchants to develop new accounting

techniques

● Leonardo Fibonacci (mathematician), Liber Abaci (1202)

● From Roman numbers to Arabic numbers
● Arabic numbers were easier to write and to sum.
● Mathematics in Europe did not exist before

The Primacy of Italian Banking

The inefficiency (limited mining, drainage to East, debasement) of payments in

kinds led to the substitution for it by BoE and of bank money.

The Bill of Exchange was a powerful innovation of the Italians in the 13th century
that economized on the need to clear books face to face, or to make payments in
bulky coin, plate, or bullion, which were vulnerable to theft, by clearing or cancelling
a debt owed in one direction by one owed in the other, or more accurately, by one
owed in another.

A bilateral case:
 if A in Florence bought goods from B in Bruges, he would often pay for them by
buying a bill of exchange drawn by C in Florence, who had sold goods to D in
Flanders. C draws a bill on D and collects his money by selling it for local currency to
A, usually indirectly through an exchange dealer. A sends the bill to B in payment for
his goods, and B collects from D when the bill matures. Goods move from B to A
and C to D, payments run from A to C and D to B. If D were unable to pay, the bill
would be protested and the transaction undone.

Bills were originally assignable, or salable, but not actually negotiable because the
bearer did not have the right of recourse against previous holders unti negotiability
became general in the early 17° c.

Credit was involved in dealing in bills even when the request for payment was
ostensibly at sight.

BoE gave cover to bankers evading usury laws by hiding interest charges in
exchange rate adjustment tha governed foreign exchange transactions.

BoE can be considered as the genotype of the instrument of credit, providing a

paper including a promise of payment.

Indeed BoE circulated as money substitutes, partially playing and forerunning the
role of paper money, and economizing on the need to move species between
countries.

Double-entry bookkeeping contributed to developing banking, as well business,

and fostered the sharp and clear division of personal assets and firm assets. What is
it?

The merchant Bernardo Cotrugli said in the XV c: “Poiché tutte le cose nel mondo
sono state create con un certo ordine, allo stesso modo devono essere
amministrate”. «Since all things in the wordl has been created according to an order,
all thing must be managed with the same order»

Matthäus Schwarz, bookkepeer of the Fuggers firm in the XVI c, defines it as a

magic glass through which it is possible to see all the reality

According to W. Sombart its use marks the birth of capitalism. DEB was already in
use in XIII-century Genoa, but Luca Pacioli theorized its at the end of XV c in the De
Re Aritmetica.
 >>>improves detection of errors, accuracy of financial statements,

● In Genoa invention of Double-entry bookkeeping by the mid-XIII c.>> Casa di San

Giorgio
● The accounting system was refined and spread thanks to Luca Pacioli, Summa
de arithmetica (1494)
● The basis of modern accounting system
● Rationalization of the firm management
● Every operation is registered into 2 sections (debits/credits) Every entry to an
account must have a corresponding opposite entry to a different account. The
left-hand side is debt, the right-hand side is credit.
● Separation of the family management to the firm management

In 16th-17th centuries Europe Banking was dominated by the Republic of Genoa

Bankers who provided funds to the Spanish Empire to finance struggle with the
Dutch. They were the leaders of the so-called “Repubblica Internazionale del
Denaro”, that gathered the main bankers of the countries and ruled the money
movement all over Europe.

At the same time, in Italy public banks were founded to manage fiscal revenues
and to issue public debt, mainly in the form of backed securities. They were not
discount or lending banks!!

Mercantilism

The drain of species from Europe in the Middle Ages and the resulting shortage of
money (due to the bullion famine against the trade volume increase) led to a
doctrine favouring measures to safeguard the national money supply that came to
be known loosely as mercantilism. A comparable doctrine existed in the field of food.

The devices used were mainly and varied: prohibition against the export of species
and efforts to enforce it against rampant smuggling; the requirement that exporters
bring back gold or silver in payment for part of their foreign sales.

The State had to act as a merchant: to sell much more than to buy in order to
maintain bullion inside the country (Portugal, Spain) or to have a trade balance in
advance (England, France).
 The fear of depression in commerce and agriculture and unemployment, resulting
from losses of species, began to lessen with the gain of silver from America.

Church authorities condemned the professional usury, but not the cambist-bankers
or the merchants who lent and traded in capitals in order to guarantee production,
and thus were engaged in an activity that was useful for society as a whole.
The productive potential of money lent, not the profit made, was, according to him,
the discriminating factor between legitimate interest and usury.

News elaborations allowed justifying money transactions “objectively” rather than

“subjectively”. Money started to be considered as commodity: this was finally given a
full conceptual basis that distinguished between its material aspect and its
intangible function.

Money, in short, was an indispensable instrument for tradesmen and a source of

income for enterprising bankers and merchants. At the beginning of 17° c, in
Northern Italy wealth was compared to a flow that had to propel the economy in the
same way rivers feed the sea.

Moving away from a perspective, which legitimized interest on loans depending on

the social status of the parties involved, it adopted a vision that was based on the
idea that money was a commodity and wealth depended on circulation.

- Money is like muck, not good except it be spread (BACON, SIR FRANCIS (1561-1626)
>>> Harvey, De Motu cordis>>>

Management achievements:

● Rules to calculate costs (workforce, arms, sails…), no more approximation

● Notion of cost as form of monitoring over the activity of the Arsenale
(inflow-outflow, manmonth)and as way to inform government
● Production of data and information to ameliorate the process and amend
shortcoming
● How to manage work in progress for facing war emergence

Partnerships

● Bank and mercantile enterprises

● New Partnerships that aimed at increasing
○ 1. liquidity
○ 2. profits
 ○ 3. sharing the risk linked to long-distance trade

1. Societas (The Romans)

2. Compagnia (Bardi, Peruzzi, Medici, merchant bankers)
3. Accomandita = Limited partnership (1408 Florence, The Medici)

Business enterprises

Societas (Roman age)

● long-term ventures
● Equity derived from the contribution of capital and labor
● Each member was liable for the enterprises debts
● Partners had to have a very high confidence (loyalty, honesty…).
○ Many of these partnerships were family ventures

Compagnia (XIIth. c.)

It displaced the societas

● Partners liability remained unlimited

● Family members
● Anticipated the family capitalism (see The Rotschilds, The Lehman Brothers,
modern multinationals)
● capital structure was more flexible:
○ the value and terms of each partners’ contribution was precisely stated,
(this element attracted investments outside narrow family groups). This made it
easier for potential investors to diversify their holdings among a variety of enterprises

It was financed by
● corpo (equity)
● sopracorpo (additional money beyond their basic equity, time deposits accepted
from outsiders,…)
● Interest rates: 5-10% (Florentine bankers up to 20%)

Società in accomandita (Limited or Silent Partnership) Limited Partner vs General

Partner,>>>initially to finance oceanic explorations (14th-15th cc)), later to finance
high-fixed cost manufacturing (as in Milan) (16th c.).

Via limited partnership agreements, merchants were given more opportunities to

plan their business activities through the availability of a larger amount of working
capital (in this case “risk capital”), without sudden credit restrictions, for the entire
life of the company, set up initially for 5/7 years and renewable for further similar
periods financial flexibility

The primacy channels of international commerce began to change radically in the

fifteenth century because of oceanic discoveries. The advantages enjoyed by the
Italian city-states as 'entrepôts for trade between Europe and the East started to
falter as explorers charted new routes around Africa.

First the Portuguese, then the Genoese Columbus and the Venetian Cabot founded
new lands. The zenith of this movement was reached in 1519-22 with the Spaniard
Ferdinand Magellan’s global circumnavigation.

The extended economic horizons opened by the increase in geographic knowledge

created a favorable environment for development of innovative organizations
capable of carrying out large-scale, long-distance trading activities. Foremost in this
regard was the joint-stock-company, which while appearing at many European
centres, reached maturity in England.

Combining the feature of the Maona partnership (partnership of investors to

manage purchased shares of city-state revenues (as in Genoa) or to finance
individual voyages (as in Venice)) and of the regulated company (royally chartered
association of independent merchants who collectively enjoyed a monopoly of trade
with particular foreign markets), the modern JSC paradigm developed starting from
1600.

The Medici

XIV-Vth c.

Organized in compagnia
anticipated the modern merchant banking
Founder: Giovanni di Bicci (1369-1429) and his son Cosimo (1389-1464)
Relationship with the papacy
Rulers of the Republic of Florence
Lorenzo il Magnifico (1449-1492) (Cosimo’s grandchild): prince
● Initial equity of 10,000 florins
● Equity + deposits:
The magnitude of their operations was expanded by deposits

Branch structure
 ● Branches throughout Italy and Europe
● The branch in Rome= constituted by deposits. It served the requirements of the
papacy
● The ability to shift deposits between branches by means of bills of exchange
provided the Medici with opportunities in money
● The leading banks increased their capacity for diversifying risk>>>the first
definition of E
● Diversification resulted from the decision of their business: trading and financing
activities
● They also reduced potential trading losses by dealing in a wide range of
commodities
● Wool, cloth manufacturing, mining and marketing in alum (key ingredient in
dyeing)
● Large liquidity = loans to princes, kings and popes

New modes of communication and business:

● The Medici branches spread in 11 cities: Rome, Naples, Avignone, Bruges,

Barcelona, London, Paris…
● Improved bookkeeping and accounting techniques provided information that
strengthened management
● interoffice correspondence

Branches were mutually supportive

This was advantageous in competing with traders who had to rely on the goodwill
on independent agents

By providing reliable payment agencies for bills of exchange in distant lands , the
affiliates enhanced the liquidity and the competitiveness of their common banking
enterprise

● Centralized decision making: these firms became more conditioned by political

rather than market considerations in their business strategies
● The Bardi bankers for instance made loans to the kings of
● France and Naples. This ensured the indulgent supervision of their trading
activities in these countries.
● This was true in England, where the Bardi and Peruzzi shared a monopoly over
wool exports after they made large loans to Edward II and then Edward III.
 NB: These firms eventually failed because of political rather than business
problems.

● In 14° c. both Bardi and Peruzzi grew less liquid and more highly leveraged:
○ lower returns on equity
○ limited investment opportunities
○ growing uncertainty about the solvency of their most important clients
○ the Peruzzi partners began to withdraw their equity or to reinvest their
capital as deposits paying fixed interest
● By 1335 the Peruzzi was entirely financed by debt.
● Soon the outbreak of the Hundred Years’ War (1337) led to the banishment of the
Bardi from Florence because of the financial assistance they had provided Edward III
● 1343: the Peruzzi Company closed
● 1346: the Bardi did the same

With the collapse of the Bardi and Peruzzi Edward III turned to the Staple company
(1248) of London (woolen trade) to finance his military campaigns in France.

The king granted the Staple the right to collect the customs on wool exports in
return for additional loans.

● The Medici tried to avoid those errors (they for instance prohibited their branch
managers from making loans to princes, directing them instead on business
endeavors.
● Exposures to loss were minimized by organizing each branch as a separate
partnership
● During the early years of a new venture they often used the
● Later leaders - Piero di Cosimo and Lorenzo accomandita = limited partnership.
Risk only on direct investment.
● After the new business became established they reverted to the traditional
compagnia.

Lorenzo il Magnifico (1449-1492): trained as humanists rather than as businessmen,

and their interests were more directed toward politics and diplomacy

● The decline of the London branch began with the outbreak of the War of the
Roses (1455 – 85) . The firm was unable to collect their claims on noble clients who
were casualties of the fighting.
● They also began to extend loans to Edward IV in return for special export licenses
and immunities from export tolls (to export English wool).
● The credit to the king had grown far in excess
 ● The branch of London collapsed
● The net assets of London was transferred to the books of Bruges branch
● Soon all the branches collapsed
● The decentralized structure enabled the Medici to seal off the impact of local
catastrophes
● Charles VIII king of France invaded Italy (1494) to seize control of the Kingdom of
Naples.
● On his march he also captured Florence and confiscated all the properties of the
Medici clan, forcing the firm into bankruptcy.

Double-entry bookkeeping contributed to developing banking, as well business,

and fostered the sharp division of personal assets and firm assets.

The usury laws of the Church did not so much cut down the amount of lending and
borrowing as complicate them by necessary to disguise the state of affairs. Usury
belongs less to economic history than to the history of ideas, since it neither stopped
usurers nor shackled economic advance. Along the 13th-16th c lending at acceptable
interest was progressively allowed in Italy and in England.

By the mid 15th c. with the aim of providing financial assistance to poor people in
the form of no-interest loans, secured with pawned items (used as collateral), the
Monte di Pietà (pawnshop) movement began in Perugia by Bernardino da Feltre, a
Franciscan monk. The Monti were devoted to providing consumer credit for the
poors, in order to avoid their recourse to the Jewish loans. Their assets were
constituted of donations, legacies and deposits of rich people. The movement
spread first through Italy and later in other parts of Europe.
In 1515 Leone X allowed the Monti to apply a low interest rate (5%) for their loans in
order to tackle governance costs.

Over the 16th-18th c, some Italian Monti acted as a commercial bank lending to the
ruling and entrepreneurial class.

Risk Management

TRANSACTION COSTS CATEGORIES

Search and Information
Bargaining
Enforcement
RISK CATEGORIES
Objective risk >>> institutional environment, physical environment, market
conditions
 Subjective risk

Cantillon (1697-1734) and risk

The term ‘entrepreneur’ appears to have been introduced into economic theory by
Richard Cantillon, The Essay on The Nature of Trade in General (1755), an Irish
‘economist’ of French descent. According to Cantillon, the entrepreneur is a
specialist in taking on risk, ‘insuring’ workers by buying their output for resale before
consumers have indicated how much they are willing to pay for it. The workers
receive an assured income (in the short run, at least), while the entrepreneur bears
the risk caused by price fluctuations in consumer markets. RC is the link btw Petty
and Quesnay, Smith

Beginning with the first decades of the 16th century, the principal states of
northern Italy faced the problem of long-term public debt by introducing
innovations that notably increased collection of money and tied financial capital to
the state organization.

Although with some differences, there was the progressive substitution of the
emission of bonds for compulsory loans. These backed securities were: freely
subscribed, the interest was guaranteed by a fixed fiscal source, there was no set
time for the return of capital, they were marketable, they could be inherited and
exempt from confiscation and taxes. This kind of debt did not constitute the only
form used by these states to obtain money. The difficulties of sorting out the
stratified typologies is well known; beside the short-term loan or floating debt, there
was the sale of offices, pensions, forced advance payments and even rewards, but
quite soon all these types of short-term debt began to be converted into the new
solution. The earmarking of future tax income for interest payment on the bonds
issued, connected to their transferability, set up a public funded debt, thus
long-term arrangements in this form became prevalent.

Furthermore, investments in public debt constituted a means of redistribution and

strengthening of assets that implicated the subscribers in the decision making
processes of their governments and helped to maintain political stability throughout
the 17th century, as is the case of the Duchy of Milan.

On the model of the Banco della Piazza di Rialto (Venice), one of the earliest public
banks, in 1609 the Bank of Amsterdam began its activity to ease clearing between
merchants.
 This marks the shift of the financial primacy to the northern Europe countries
windowing on The Channel

In due course, all kinds of financial transactions came to be handled at fairs, not
only foreign exchange but real estate, banking, early forms of insurance, lotteries.

Fairs flourished at various times and places>>>Champaigne, Geneva, Lyons,

Besançon finally to Piacenza, where it developed into a Genoan fair purely trading in
foreign exchange and reached one of the foremost apogee of financial speculation.

First at Bruges - and then in the second half of the 15th c. in Antwerp - trade
became permanent, year around.

A bourse was built in 1531, patterned after the square in Bruges, called Burse, where
the Italians had done their trading. Sir Thomas Gresham, Queen Elisabeth’s Royal
Exchanger, was stationed in Antwerp from 1551 or 1552, and later built the Royal
Exchange in London as a bourse for trade in international paper.

Foreign merchants and dealers were sometimes organized into ‘nations’ within
which they had rights as in the Germano Fondaco dei Tedeschi in Venice.

Rise in the Demand for Money and Credit in the 16th-17th

Centuries

In the 16th and 17th C, there was a continuous and increasing rise in the demand for
money and credit:
● To expand domestic and international shipping and trade
● To finance wars
● To service the expansion of the national debt which was no longer the King’s
debt but the nation’s
● in some countries, to rebuild or to enlarge the cities (i.e. London after the big fire
of 1666)

The Golden Age of the Netherlands

● Conventionally from 1584-1702.

● Refers principally to Dutch economic power (dominance in trade), but also to
Dutch art, science and written culture.
 ● Associated with the policy of ‘toleration’ in the United Provinces, which
welcomed refugees from the Spanish Netherlands (today’s Belgium), Iberia
(especially Sephardic Jews and conversos), and after 1685 the Huguenots.
● Patrician oligarchies ruled the cities. Like England, the Dutch had blended elites.
The nobility and the mercantile classes intermingled, c.f. Dirck Pesser.

Key Events: A Chronology

● Eighty Years War (1568-1648)

○ Dutch Revolt (and Black Legend)
○ Birth of the United Provinces in Union of Utrecht (1579); reaction to Union
of Arras
○ Antwerp falls in 1585
● Twelve Years Truce (1609-1621)
● Dutch East India Company (1602)
● The Black Plague (1635-1637)

Rise of the New Urban Elites

● Dated from the waves of internal immigration in the wake of the Dutch Revolt.
Antwerp declined in importance.
● Rise of Amsterdam. Cosmopolitan community. New construction in baroque
style. Walled gardens along an Italian model.
● Perception (& probably reality) of a shift in cultural values. Decline of communal,
corporate values commensurate with a rise of individualistic, trading bourgeoisie.

Religious Strife & Toleration

● Importance of the Dutch Reformed Church, which was Calvinist.

● Arminians (Remonstrants) were a significant minority, even after the Synod of
Dordrecht (1618-1619).
● Contra-Remonstrants intrigued against them, but overall plurality religious
plurality.
● Some measure of anti-Catholicism because of war with Spain.
● Anabaptism and Judaism were tolerated.

Dutch Science

● Partly a result of furnishing safe haven to refugees who brought their skills.
● Descartes, Spinoza, and Huygens.
● Masters of optics (invented binoculars and compound telescope).
 ● Marvelous engineers as well. The dams, dikes and swamp drainage projects were
“modern marvels.”
● Very high degree of literacy accompanied by flourishing book trade.
● Interest in botany (especially humanist botany) flowed out of this.

Constitutional Structure

● Confederation of seven provinces and some common lands (about 20%).

● Holland, Zeeland, Utrecht, Overijssel, Gelre, Friesland and Groningen. Plus
Drenthe.
● Government by States-General. Met in the Hague. Each province sent
representatives. The provinces had provincial states-general. Stadtholder served as
executive. The House of Orange-Nassau ruled over Holland & Utrecht.
● Constant struggle between Republicans and Orangists for political power.

The Dutch Economy and the “Dutch Disease”

● Center for entrepôt trade. Built 400-500 ships between 1625-1700. Dutch
developed the international law of merchants.
● Baltic trade made it possible for the Netherlands to import foodstuffs and instead
focus on capital intensive proto-industry. Dutch West India Company captured
Spanish silver in 1628.
● High labor rates attracted immigration.
● By mid-century, interest rates were flowing and capital began to look abroad for
returns.

Dutch Financial Institutions

● Chamber of Assurance (1598)

● Bank of Amsterdam (1609)
● Public Exchange Bank (1609). Called the Wisselbank.
● Lending bank (1614). Meant merchants could borrow on bills of exchange &
contracts.
● Commodities Exchange (1618)
● Bottom Line: The state borrowed cheaply and commercial credit was freely
available to both domestic and foreign merchants.

Dutch East India Company

● Established in 1602. Based on a two decade monopoly on Asian trade.

● First joint-stock company. Lasted until 1800.
 ● Prior to the VOC, companies were set up only for a single voyage to limit liability.
● Had offices in each major port city (Amsterdam, Delft, Rotterdam, Enkhuizen,
Middleburg and Hoorn).
● Triangular trade. (Japan, India/China, Netherlands. Bullion, spices, textiles,
flowers).

The first Joint Stock Company

● Dutch merchants wanted to gain the control of the Asian spice trade from
Portugal and Spain
● European craved spices (cinnamon, cloves, mace, nutmeg, pepper..), to flavour
and to preserve food
● For centuries these commodities had come overland from Asia to Europe along
the Spice Road, but with the Portugal discovery of the route to East India via Cape of
Good Hope, new business opportunities opened up.

Tulips: Some Botany

● Indigenous to mountainous regions of Central Asia and Caucasus. Supposedly

the word means ‘turban’ in Turkish, but a very doubtful attribution.
● Reproduce by buds/offshoots (asexual) and by seeds (sexual) reproduction. They
can ‘clone’ themselves.
● Tulips grown from seeds take 5-7 years to flower. From buds, one or two seasons.
● Broken Tulips: mosaic virus. Two variants: aphids (plant lice) or fungi. Second kind
causes the pattern.
● Although the Dutch did not know why or how, some suspected that these plants
were diseased. They were right, and exotic tulip buds are more likely to die.

The VOC: the invention of the company (JSC)

● Risky trips
● Dutches employed around 14 months to reach the Indias
● 12 out of 22 ships retruned safely
● merchants began to pool their resources
● By 1600 there were about 6 East India companies. The Dutch States-General
proposed to MERGE the companies into a SINGLE entity.

VOC (1602)

Vereenigde Nederlandsche Geoctroyeerde Oostindische Compagnie

United Dutch Chartered East India Company
 VOC enjoyed a monopoly on all Dutch trade east and west

Innovations:

● lasted for a fixed period (21 years)

● Investors were allowed to withdraw their money at the end of just 10 years, when
the first general balance was drawn up
● Subscription to the Company’s capital was open to all residents of the United
Provinces
● Merchants, artisans and even servants rushed to acquire shares

VOC = 6.45 millions guilders of capital

Government – sponsored enterprise. Aim: overcoming the rivalry between the
provinces
70 directors , who were also themain investors

English East India Company, (1600) raised 820,000 guilders

Ownership of the Company was divided into shares

Payment in instalments (1603-05-06-07…)

Stock ledger= all stock-holders’ names were entered at the time of purchase

Mandatory periodic accounting provided information about its financial position (it
lowered asymmetric information)

Limited liability

Shareholders stood to lose only their investment in the company and no other
assets in the event it failed

No guarantee of returns

At the beginning no commercial success, trade networks had still to be set up the
dividends had originally to be paid in spices, rather than cash

1612: VOC would not be liquidated as announced at the beginning.

Shareholders who wanted their cash back could sell shares to another investor
 JOINT-STOCK COMPANY
STOCK MARKET
(1608)

liquid market

Amsterdam Exchange Bank (Wisselbank) - 1609

● It was created in order to remedy the confusion of the numerous types of money
in the market and to provide merchants with effective money. Its functions:
● accepting deposits
● Reimburse such deposits
● exchange

● Dutch bankers started to accept VOC shares as collateral for loans: link between
the stock market and the supply of credit
● The Company’s charter was renewed in 1622: managers would no longer be
appointed for life but could serve only 3 years at a time
● All of the Company’s net profits were distributed to the shareholders
● When capital expenditures were called for, the VOC raised money not by issuing
new shares but by issuing debt in the form of bonds
● By the 1650s the VOC had established a lucrative monopoly on the export of
cloves, mace and nutmeg. it became the major conduit for Indian textile exports
● VOC: world’s first big corporation = able to combine economies of scale with
reduced transaction costs = pooling information between multiple employees and
agents
● Business boomed = 1650s-1760s

Regular dividends

● 8 times the original investment, implying an annual rate of return of 27%

● This experience clearly demonstrated that high returns were achievable through
the formation of complex administrative organizations capable of managing
operators of great scale and scope.
● 1794 : the VOC fall down
● VOC decline : Rise and fall of VOC = rise and fall of the Dutch Empire
● Not a financial bubble! (i.e. Mississippi bubble, SSC bubble, etc.)
● The ascent of the VC stock price was gradual, spread over more than a century. It
took more than 60 years to fall back down
 Modern capitalism: the company

● Modern capitalism : made possible by the invention of one of the most

fundamental institutions: the company.
● It is the company that enables thousands of individuals to pool their resources for
risky, long-term projects that require the investment of vast sums of capital before
profits can be realized.
● The Company evolved effective means for concentrating substantial capital that
consisted of liabilities of varying maturities supported by a permanent core of
transferable equity shares. Its strong, permanent capital base in turn gave the firm
sufficient financial flexibility to be able to exploit economies deriving from an
increased scale of operations and a broader scope of trading activities.
● The creation of an effective administrative structure for coordinating and
controlling far-flung business ventures yielded other competitive advantages,
including the reduction of agency, information, transportation and other transaction
costs

Transferable shares enabled promoters to tap potential investors: their solicitations

were not restricted to narrow kinship groups. The use of transferable shares
enhanced the liquidity of their investment holdings that could be sold out without
incurring the costs of a formal liquidation of the enterprise.

The set up of an effective administrative structure for coordinating and controlling

far-flung business ventures yielded other competitive advantages, including
reduction of agency, information, transportation and other transaction costs.

The establishment of more geographically dispersed administrative networks

provided more valuable proprietary flows of information about economic and
political conditions in major markets than existed earlier.

The business prospects of the EIC were further enhanced by the forging of mutual
beneficial relationships with the nascent English national state.

Five developments shaped the financial policies of the EIC in the first century:

1. 1-the duration of enterprise financing shifted from short term to the long term as
the scale and scope of trading operations grew.
2. 2-corporate financial arrangements became more responsive to investors’ need
for information on the company financial condition.
 3. 3-the ending of ecclesiastical ban on usury allowed trading companies to collect
more capital through leverage.
4. 4-the liquidity of shareholders' investments rose in parallel with the growth of
secondary markets.
5. 5-corporate and public finance were placed on a firmer footing by development
(late 17th c) of mutually supportive methods for funding its activities.

The Financial Revolution in England

The Financial Revolution in XVIIIth England and the Origin of Modern Public
Finance

-1688 Glorious Revolution>>redefined the relationship between the individual and

society; new framework of law and governance that reduced the potential for the
arbitrary exercise of state power;
with Prince of Orange Fin Financial Innovations crossed the English Channel

-1689 Bill of Rights>

mercantilism defined the purpose of government as the preservation of individual
liberties, property and a competitive marketplace (D. Defoe)
England became the first constitutional Monarchy >>>Parliament held the fiscal
power
>>by enhancing the credibility of the state's commitment to preservation of these
rights, the FR bolstered the revitalization of both public and private finance.

Key Features:

1) 1694 Bank of England > Project of William Paterson adopted by Charles Montagu,
Chancellor of the Exchequer
marriage of convenience between the business community of the City (confident
that it could run such a bank profitably), and the Whig gov, desperately short of the
very large amount of cash need to struggle against Louis XIV> to manage the
expanding public debt = increases of war expenses GB vs F
2) Tonnage Act : tax in order to pay the 8% interest rate of £ 1,200,000 that was the
capital subscriptions of the Bank.
3) Monopoly of the issue of banknotes = a form of promissory notes
4) Long-term public debt = annuities
5) Nationalization of fiscal system = end of tax-farming = broadening range of taxes
6) Promissory Notes Act (1704) it enabled the full negotiability of goverment bonds
and corporate shares>>rise of secondary market
7) National Accounting and Budget 1696
 Monetary Rationalization by overtaking the money of account system: adoption of
metallic standard 1717 = Gold Standard
8) London Stock Exchange
shift in the geopolitical balance of Europe by 1680s led to decline of Amsterdam
and to the London emergence
New Public Debt Instruments as the primary investment veihicle>>surpassed
corporate shares and spurred the continued development of
> impersonal and anonymous financial market
> trade on margin and by use of put and call options
9) Standardization of public debt contracts and the vast expansion of the
outstanding amounts provided a strong basis for steady market growth, too.
10) Conversion of PUBLIC DEBT into
● SHARES EQUITY
● engraftment
● swap

The emergence of the

Joint stock company (1600) and their influence on Law’s
system

● Dutch merchants who wanted to gain the control of the Asian spice trade from
Portugal and Spain
● European craved spices (cinnamon, cloves, mace, nutmeg, pepper..), to flavour
and to preserve food
● For centuries these commodities had come overland from Asia to Europe along
the Spice Road, but with the Portugal discovery of the route to East India via Cape of
Good Hope, new opportunities opened up.

A misleading use of the JSC: the John Law’s scheme

● JL (1671-1729) was born in Edimburgh

● Son of a successful goldsmith
● He swiftly frittered away his patrimony in a variety of business ventures and
gambling
● He fought a duel with his neighbour. The latter accused Law to live with his
mistress in the same building where he also lived. Law, in the duel, killed him. Law
was sentenced to death. He escaped from prison and fled to Amsterdam.

Amsterdam was the world capital of financial innovation at that time

 However he was an economist and mathematician
He was tutored in monetary affairs by his London landlord and mentor, Thomas
Neale who was Master of Mint and adviser of Charles Montagu of the Bank of
England.

In 1705 he wrote a pamphlet extolling the use of paper money entitled “Money and
Trade Considered” = his central idea was that the bank should issue interest bearing
notes that would supplant coins as currency

Combine the properties of a monopoly trading company (see i.e. VOC) with a public
bank that issued notes in the manner of the Bank of England

CONFIDENCE= confidence alone was the basis for public debt

With CONFIDENCE banknotes would serve just as well as coins

‘I have discovered a secret: how to make gold out of paper’

(His ambition was to create a bank that issued paper money)

The Mississippi Bubble

● Law proposed his plan to kings, but it was always rejected (too risky)
● France = desperate financial situation = had huge fiscal problems
● Enormous public debt created by the wars of Louis XIV
● The government was on the brink of its third bankruptcy
● Engravement = public debt = >> equity (joint stock companies)

1715: law’s proposal = creation of a new bank = Banque Générale : isssued notes
payable in specie (gold or silver)

1717: BG notes should be used in payment for all taxes

● Law’ s ambition was to revive economic confidence in France by establishing a

public bank, on the Dutch model (Wisselbank), but with the difference that this bank
would issue PAPER MONEY
● Money was invested in the bank, therefore the government debt would be
consolidated
● Paper money would revive French trade and with it French economic power!

The Mississippi Company

 Law proposed to take over France’s trade with the Louisiana territory (wholly
undeveloped stretch of land, crossed by the Mississippi river)

1717: a new Company of the West=

Compagnie d’Occident =
it was granted the monopoly
of the commerce in Louisiana for
25 years;
Capital was fixed at = 100 million livres
Shares = 500 livres each
Frenchmen were encouraged
to buy shares with billets d’état (issue by the Banque Générale)
These were to be retired and converted into 4% rentes

1718: the government granted privileges to the Company that aimed at increasing
the appeal of its shares.
It was awarded the right to collect all the revenue from tobacco.

1718: the Banque Générale became the

Banque Royale

the first French central bank

To increase the appeal of its notes these could be exchanged for écus de Banque
(fixed amount of silver) or the livres tournois (a unit of account)
Transition from coinage to paper money
Meanwhile the Company of the West continued to expand
1719: the Company took over the East India and China Companies: = Company of
the Indies (Compagnie des Indes), better known as the

Mississippi Company

Law took control over the collection of

● indirect tax farms and later direct tax farms
● the Company lent 1.2 billion livres to the crown to pay off the entire royal debt
(company-state)
The French economy had been in recession in 1716. Law’s expansion of money
supply with banknotes provided a stimulus
Moreover:
Law tried to convert
public debt = >> equity = SWAP
 of the trading company (a privatized, tax gathering and monopoly trading
company)
Law was interested in allowing further monetary expansion, which his own bank
could generate

● June:1719: The company issued new shares of higher price (daughters)

● July 1719: other new shares (granddaughters)

Law justified the higher price with the promise of FUTURE PROFITS from Louisiana
Rosy vision of the colony as a veritable Garden of Eden

In reality = sweltering, insect –infested swamp!

● 80% of people who went there died of starvation or tropical diseases
● Investors who wished to acquire the new shares were assisted by the Banque
Royale
● The Bank allowed shareholders to borrow money using their

SHARE = COLLATERAL => share PRICE ROSE

Share price => 9,000 livres (Oct) => 12,500 (Dec)

EUPHORIA => MANIA => BUBBLE

NB: The word millionaire was first coined.

● Louis XIV: ‘L’état, c’est moi’

● Law : ‘L’économie, c’est moi’
● however Law’s system = unsustainable (artificial supply of money and credit)
● The Mississippi share began to decline 12,500

=> 7,900

Extraordinary increase in note circulation caused by Law (total money supply)

(banknotes and shares was 4 times larger than the gold and silver coinage that
French had used)
=> High inflation

Some people began to revert payment in gold and silver

Gov = intervention = artificial measures

 Banknotes were made legal tender

The Mississippi bubble had burst!

1720 Law had to escape : He left France with next to nothing and died in Venice
Great Britain = South Sea Company>>South Sea Bubble

2 different outcomes:

● France = all kinds of joint stock companies were forbidden

● England = Bubble Act (1720) = allowed only those jsc that obtained the
permission by the Parliament (private enterprises were still encouraged)

The watershed of 1720 had different repercussions on the development of finance

in France and England.

In F this disruption delayed the growth of broad, impersonal securities markets

until the 1830s and installed a profound distrust of all speculative activities due to
the combined impact of the collapse of the national currency and the inability of
major trading companies to maintain their market value.

In E investors had greater opportunities to reduce risk by allocating their capital

among investment securities of many business institutions.

Whereas the English Parliament intervened to uphold sterling, the French

Government did not provide any monetary guidelines for support.

The failure of these solution marks the end of this first epoch in business and
finance and the transition to new ideas about how best to fund affairs of
state>>>long-term debt and adequate revenue base for paying current
interest>>>high debt levels could be replaced only gradually

Problems associated with agency relationships in large enterprises in this

period>>in F general retreat from experimentation, in E tight restrictions
● to blend the objectives of private groups and the state revealed vulnerable
because of the failure of financial market could affect negatively the state finance
● the emerging financial community in London would learn much about the
potential for a wide range of public and private purpose
● New financial markets established and dedicated to funding the activities of the
national state were transformed in the nineteenth century to support a great
industrial expansion. New investment opportunities cantering primarily in
manufacturing and transportation required vast agglomeration of capital.

In the meanwhile….the birth of economics, as a science

Hume, David : Scottish Philosopher (1711-1776):
he anticipated the Theory of Quantitative Money
● Treatise of human nature (1739-40).
● Essays, moral, political and literary (1758).
● He criticized the mercantilists (exports must exceed imports)
● Theory of the balance of trade>>exports in reality rise the inflow of money in a
nation and so prices rise, the price of exported goods as well. This discourages
exports and takes the balance of trade at its original equilibrium.
● >>>Neutrality of money: Hume pointed out the classical dichotomy between
nominal variables (goods prices, nominal output), that are measured in currency
units, and real variables (goods prices by goods, real output) that are measured in
physical units; the monetary changes affect nominal variables but not real variables,
a change in the stock of money impinges only nominal variables in the economy
such as prices, wages and exchange rates but no effect on real (inflation-adjusted)
variables, like employment, real GDP and real consumption >money is a cloak
Economics as a Science (A. Smith, The Wealth of Nations, 1776) was born killing
money, removing/erasing it from economy, raising the ‘veil of money’

England = First Industrial Revolution

England = First Industrial Revolution (1760-1830)

Parliamentary action spurred economic growth and industrialization indirectly in

Great Britain>>but confluence of factors – hot mix of elements ranging form the
possession of raw materials to the availability of markets

>>standard currency, legal system, system of taxation (mainly upon landed wealth,
not capital which could be used to build up industry)
>>capital accumulation remained possible through the formation of
unincorporated companies>>network of kinship and friendship, often based on
localities, were of prime importance in lending and investment>>Prevalence of
partnerships, family businesses, small firms>>>Country banks (that got capitals from
the farmers’s incomes) from just a handful to over 600 from 1750r to 1810.

Simple products such as cotton textiles, iron hardware, and the like
● Coal substituted wind and water as energy source for industry
 ● Steam engine (SE) = Improvements in steam engine (J. Watt, 1781) (thermal
energy of steam is converted to mechanical energy). The SE transformed two
leading manufacturing sectors: textile and iron
● Pig iron
● Britain= world’s leading industrial economy
● SE revolutionized also transportation (ships, locomotives)
● Centralization of work in factories appeared in some sectors and didn’t in others
● Centralization of work in factories appeared in some sectors and didn’t in others
● Factories cuts transportation costs associated with the putting-out system;
better supervision over the employees; use of new technology water-powered and
steam-powered machinery
● 2/3 of the GB cotton textile mills of the 1850’ still employed fewer than 50 workers.

The age of canals and railroads 1775-1900

● Last quarter of 18° c. = great economic expansion = change of corporate finance

● A growing body of scientific knowledge was used to develop improved products
and manufacturing processing (free from the Malthusian trap = Population, when
unchecked, increases in a geometrical ratio. Subsistence increases only in an
arithmetical ratio. )
● New forms of business organization and management were created to enhance
productivity by more efficient coordination and control of ec affairs
● Elimination of ‘distortive impediments’ to free trade

1830s = first railways

● The advent of regular rail service made possible the establishment of

high-volume manufacturing units
● First example of large-corporate enterprise (U-Form, hierarchical structure,
division of managers and ownerships/stakeholders)
● 1830 = Liverpool-Manchester
● = vast expansion in British railway mileage
● 1840: 2,000 => 1840: 12,000
● Progress in transportation + manufacturing = increased investments in
productive assets
● New patterns of ec thought facilitated change = eclipse of mercantilist policy,
advent of LAISSEZ-FAIRE and FREE TRADE doctrines (A.Smith)
● International ec specialization in order to ensure maximum output
● 1819 = return to Gold Standard (currency was convertible into gold)
● 1826: liberalization of laws controlling the formation of the
joinst-stock-companies (Bubble Act 1720)
 ● Industrialization was further advanced by more efficient concentration of capital
in business units
● 1833: Parliament abrogated the trade monopoly privileges earlier granted to East
India Company
● 1844: Bank Charter Act = strengthened the position of the central bank. The Bank
Act prevented the Bank of England from increasing its note issue above a specific
limit
● 1846: repeal of the Corn Laws (Robert Peel, Prime Minister)
● FREE TRADE advanced, protectionism curtailed

Railroads = the world’s most capital-intensive industry

Financial markets = had emerged to facilitate the sale of gov bonds
They slowly became accessible to corporate securities , because of the quasi-public
nature of the first issuing entities = canal and railroad companies
The early railroads and canals in Britain and USA were viewed as public
improvements whose establishment was vital to enhancing the local economy.
Prominent local leaders encouraged promoters of new lines to serve their towns
and to persuade their neighbours to support these projects by purchasing the
securities of these companies.
Gov played key role in helping to establish early railroads and canals
Britain= strict reconditions imposed by the Parliament = acquiring charter for
establishing railroads augmented public confidence.
(see: governmental oversight of corporate affairs dating back to the South Sea
Company scandal)
USA = gov provided assistance to the early canal and railroad construction
(purchase and guarantee of securities, land grants, …)
Railway bonds had much resemblance to gov bonds
Railroad tariffs = compared to tax imposed on local communities for vital
transportation services
This association with the public good created an aura of economic stability
Helped these railroad companies gain acceptance among investors during a period
when the primary opportunities for holding financial assets remained limited to
public debt , to mortgages or – in Britain – to securities of a jst in trade , banking and
insurance
Problem of collecting information = paucity of reliable information sources =
heightened the risk of loss due to adverse selection
Capital raising was broadened by personal contacts; respectable financiers were
often able to fund their new ventures by mobilizing the savings of well-to-do friends
and associates
The role of the individual mobilizer of capital and his place within a social group
were crucial
 Early investment banks gradually began to market corporate securities (i.e
Rotschild, Baring…)
Even after the investment bankers began to develop these markets in earnest,
public trust in their activities was often eroded by suspicions of self-serving use of
privileged information and relationships to build personal fortunes.

Expansion

● 1825= legal prohibitions restricting the use of jsc were abrogated

● 1840’s = Railway mania and bubble
● Collapse of investment banks
● For raising funds = recourse to the market = no intermediaries (=banks)
● Creation of an anonymous wide market

From euphoria to bubble: The railway mania

From euphoria to bubble : The railway mania

(1840s England)

● 1820: first steam engine appeared= greeted with a mixture of enthusiasm and
scepticism (oppositions from peasants,canal owners, landlords). Despite widespread
hostility the early history of railways was marked by two outbreaks of speculative
enthusiasm
● 1825:first railway fever, opening of the first steam railway (Stockton-Darlington). 6
railway acts were passed by the Parliament.
● 1831: second rf, opening Liverpool-Manchester. This railway soon paid 10%
dividends and the market value of its shares = +2.
● The opposition of landlords diminished as they discovered that land lying
adjacent to railway lines rose.
● Role of PRESS: journals and pamphlets = publicized the advent of railways =
revolutionary = focused on the ec benefits of railway transports (up to 14 weekly
papers in 1845)

1835 = railway fever

To establish a railway was not complicated :
● it required only a few local dignitaries to organise themselves into a committee,
for them to register the company provisionally
● Raise money from the public by advertising subscriptions for shares
● Employ an engineer to survey the route
● Apply to Parliament for a railway bill
 ● Once a company was provisionally registered , the subscription certificates for its
shares - on which only 1/10 of the capital had been paid – could be traded in the
market . The only check to the process was the examination by Parliament.
● Need for new public direction, regulation
● 1844: Railway Act (W.E. Gladstone: President of the Board of Trade)
● Railway Department was created to examine the new lines (no new real
restrictions)

1844: MANIA

● Ec situation was favourable

● Low interest rates
● Series of good harvests, corn was cheap and plentiful
● Railway construction costs had fallen , railway revenues were rising rapidly = 10%
dividends
● Speculative interest
● 1845: 16 new railways schemes were projected
● Over 50 new companies had been registered
● Originally = speculation= many of the promoters of the new railways appeared
interested only in their own personal profit
● numerous advertisement in newspapers for railway proposals, soliciting
subscriptions from public
○ List of provisional committeeman (promoters)
○ Benefits of the proposed line
○ Promise of a final dividend of at least 10%
○ If the subscription was successful , the committeeman retained a large
allocation of stock for themselves and their friends and released only a few shares in
the market
○ stock price was artificially increased by agents in the stock market
○ Once the shares were trading at a premium , the promoters offloaded their
retained shares at a large profit
● No intervention by the Parliament to hinder the mania (i.e. rising interest rates)
● R. Peel: ‘Direct interference on our party with the mania of railway speculation
seems impracticable’ (laissez-faire politics)
● The mania was particularly strong in the provinces = the extension of the railway
network away from the metropolitan centres. London had long been connected by
rail with the other major trading and manufacturing towns
● Northern speculation was facilitated by the establishment of the Exchange Bank
= provided loans against the collateral of railway shares = market became liquid
● Many of the speculators contracted obligations beyond their means
 ● They signed the subscription documents in the HOPE of selling the share at a
premium in the market (among subscribers Anne and Emily Brontë)

1845 : The bubble burst

● May 1846: the gov passed an act enabling the dissolution of railway companies
with the assent of ¾ of the shareholders
● July 1846: 8 companies had already advertised dissolution meetings
● By early October 1847 low levels of bullion led the Bank of England to announce it
would no longer make advances on public securities.
● The ‘week of terror’ began

The Banking Revolution (1835-1865)

Emergence between 1835 and 1865 of a “new bank” which represented a seismic
change in savings and financial participation by the populations of Europe:

This joint-stock, deposit, and investment banking vehicle (fostered also by

Saintsimonian legacy) presaged the onset of unprecedentedly large capital
accumulations demanded by a rapidly-industrialising European society in the
half-century before the FWW.

While private bankers lost ground as domestic deposit institutions (for instance in
Britain as a whole) they redoubled their commitment to international activities,
which strengthened financiaries in the City, in short-terms acceptances.

The New Banks

banques nouvelles: - They were JSCs

Taxonomy:

● Deposit Banks (short-terms operations: L: sight deposits… A: Acceptances,

discount) an innovation itself
● Investment Banks (long-terms operations: L: joint stock, bonds, … A: corporate
shares)
● Universal Banks (short/long-terms operations: L: joint stock and deposits, … A:
Acceptances, discounts, corporate shares) >>>mixed banking D+I

The Emergence of Central Banking (1844-onward)

 With the widespread diffusion of commercial banks in the JS form, the issues
related to stable money-market conditions increased.

The BoE came to the rescue of the South Sea Bubble and at a punishing price in
order to dispose of a dangerous rival. Its recognition of its responsibilities in
preventing financial crises in the public interest took more time. There was a lag in
understanding the need to have the money supply inelastic in the long run but
elastic in the short.

The lender of last resort function reached full flower under the Bank Act of 1844.
Overtrading produced incidents in 1847, 1857 and 1866,

In his rationalization of the way the London market worked, Lombard Street,
Bagehot called on the BoE to lend freely in a panic, although at a high discount rate
in order to impose a penalty on borrowers and discourage those whose liquidity was
manageable.

Lo sviluppo economico moderno: una svolta epocale.

Modern economic development: an epochal turning point

Simon Kuznets (1966) coined the term MEG (modern economic growth) to describe
the epoch beginning in the late 18th century characterized by the systematic
application of science to the processes of production and social organization.

An epochal innovation affecting every sphere of human life

What is “economic growth”?

It is the increase in the production of goods and services (total or per person) by a
given unit of observation over a given time span.

● Units of observations: usually “countries” but larger or smaller areas are

considered
● Time span: usually the year but longer or shorter time intervals are considered

1. Advent of banking
2. Birth of bond market
3. Rise of jsc = limited liability corporation
 The liability was limited to the money that they had used to buy a stake in the
company

Managers are disciplined by vigilant shareholders

Issues stand out

Is it legitimate to strive for one a-spatial and a-temporal typology of

entrepreneurship?

To what extent can the roles of the entrepreneur and capitalist be separated?

Is risk-bearing an entrepreneurial function or is it borne by the capitalist?

How in practical terms can we make the distinction between entrepreneurship and
management?

To what extent is it useful to use the term ‘entrepreneur’ as synonymous to the

word ‘firm’?

What is the relationship between entrepreneurs and their environment and more
specifically what is the impact of the social environment on entrepreneurship?

How is entrepreneurship connected with change?

Is a growing supply of entrepreneurship a necessary condition for economic

growth, particularly as less developed countries are concerned?

Are entrepreneurs a disequilibrating force disturbing previous equilibrium or are

they agents ‘seizing upon’ a disequilibrium situation and working to restore
equilibrium?

Do entrepreneurs cause change or do they simply recognize that change has

occurred?