Category Archives: Entrepreneurs

Coinucopia: Dealing with Multiple Currencies in the Medieval Low Countries

Enter the ghost: cashless payments in the Early Modern Low Countries, 1500-1800

by Oscar Gelderblom and Joost Jonker (both at Utrecht University)

Abstract: We analyze the evolution of payments in the Low Countries during the period 1500-1800 to argue for the historical importance of money of account or ghost money. Aided by the adoption of new bookkeeping practices such as ledgers with current accounts, this convention spread throughout the entire area from the 14th century onwards. Ghost money eliminated most of the problems associated with paying cash by enabling people to settle transactions in a fictional currency accepted by everyone. As a result two functions of money, standard of value and means of settlement, penetrated easily, leaving the third one, store of wealth, to whatever gold and silver coins available. When merchants used ghost money to record credit granted to counterparts, they in effect created a form of money which in modern terms might count as M1. Since this happened on a very large scale, we should reconsider our notions about the volume of money in circulation during the Early Modern Era.

URL: https://ideas.repec.org/p/ucg/wpaper/0074.html

Distributed by NEP-HIS on: 2015-11-21

Review by Bernardo Batiz-Lazo

In a recent contribution to the Payments Journal, Mira Howard noted:

It’s no secret that the payments industry has been undergoing a period of enormous growth and innovation. Payments has transformed from a steadfast, predictable industry to one with solutions so advanced they sound futuristic. Inventions such as selfie-pay, contactless payments, crypto currency, and biotechnology are just examples of the incredible solutions coming out of the payments industry. However, many payments companies are so anxious to deliver “the future” to merchants and consumers that they overlook merchants that are still stuck using outdated technologies.

The paper by Gelderblom and Jonker is timely and talks to the contemporary concerns of Mira Howard by reminding us of the long history of innovation in retail payments. Specifically, the past and (in their view) under appreciated use of ledger technology (you may want to read its current application behind Bitcoin inThe Economist Insights).

Gelderblom and Jonker set out to explain high economic growth in the Low Countries during the 17th and 18th centuries in a context of scarce media to pay by cash given low coinage, recurrent debasements and devaluations. Their argument is that scarcity of cash did not force people to use credit. Instead silver and gold coins were used as a store of value while daily transactions were recorded in ledgers while translated into a “fictional” currency (“a fictive currency, money of account or ghost money”, p. 7). This provided a common denominator in the use of different types of coin. For instance they cite a merchant house in Leiden transacting in 28 different coin types.

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Gelderblom and Jonker build their argument using different sources including a re-examination of relevant literature, probates and merchant accounts. Together they build a fascinating and thought provoking mosaic of the financial aspects everyday life in the Early Modern age. One can only praise Gelderblom and Jonker for their detail treatment of these sources, including a balanced discussion on the potential limitations and bias they could introduce to their study (notably their discussion on probate data).

Comment

The use of a unit of account in a ledger to deal with multiple currencies was by no means unique to the Low Countries nor to the Medieval period. For instance, early Medieval accounting records of the Cathedral of Seville followed the standard practice of keeping track of donations using “maravadies” while 19th century Kuwaiti merchant arithmetic of trade across the Indian Ocean and the Persian Gulf was expressed in Indian rupees [1]. Gelderblom and Jonker, however, go a step beyond using trends in probate data to explore whether there was widespread use of credit and also, extant literature to determine the scarcity of different coins and precious metals.

As part of their arguments Gelderblom and Jonker also question the “efficiency” of the so called “stage theory of money”. This echoes calls that for some time economic anthropologist have made, as they have provided empirical support questioning notion of the barter economy prior to the emergence of money and thus pointing to the illusion of the “coincidence of and wants” (for a quick read see The Atlantic on The Myth of the Barter Economy and for an in depth discussion see Bell, 2001). The same sources agree that the Middle Ages was a second period of demonetization. Moreover, systems of weight and measures, both being per-conditions for barter, were in place by the Early Modern period in Europe then a barter or credit economy rather than the gift economy that characterized pre-monetary societies was a possible response to the scarcity of cash. Gelderblom and Jonker provide evidence to reject the idea of a credit economy while conclude that “barter was probably already monetized” (p. 18) and therefore

“we need to abandon the stage theory of monetization progressing from barter via chas to credit because it simply does not work. … we need to pus the arguments of Muldrew, Vickers, and Kuroda further and start appreciating the social dimensions of payments”.(pp. 18-19)

I could not agree more and so would, I presume, Georg Simmel, Bill Maurer, Viviana Zelizer, Yuval Millo and many others currently working around the sociology of finance and the anthropology of money.

References and Notes

Bell, Stephanie. 2001. “The Role of the State in the Hierarchy of Money.” Cambridge Journal of Economics 25 (149-163).

[1] Many thanks to Julian Borreguero (Seville) and Madihah Alfadhli (Bangor) for their comments.

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Cold, Calculating Political Economy’: Fixed costs, the Rate of Profit and the Length of the Working Day in the Factory Act Debates, 1832-1847

By Steve Toms (Leeds University Business School)

URL: http://econpapers.repec.org/paper/pramprapa/54408.htm

The paper re-analyses the evidence presented by pro and anti-regulation interests during the debates on factory reform. To do so it considers the interrelationship between fixed costs, the rate of profit and the length of the working day. The interrelationship casts new light on the lobbying positions on either side of the debate. It does so by comparing the evidence presented in the debates before parliament and associated pamphlets with actual figures contained in the business records of implicated firms. As a result the paper identifies the compromise position of the working day length compatible with reasonable rates of profit based on actual cost structures. It is thereby able to reinterpret the validity of the claims of contemporary political economy used to support the cases for and against factory regulation.

Reviewed by Mark J Crowley

This paper was circulated by NEP-HIS on 2014-03-22 and its a follow up to that reviewed by Masayoshi Noguchi in an earlier post on the NEP-HIS blog (click here)

This second paper by Toms draws on a range of archival materials from both government and businesses to explore in detail the implications of legislative changes on British business during the industrial revolution.  It shows how the debates concerning the implementation of stricter working hours were contentious. Outlining the difficulties faced by the government and businesses to uniformly apply these new measures, particularly since businesses were exposed to different pressures according to their contribution to society, it shows how these factors further influencing the implementation and drafting of these measures.   By citing the debates of the anti-regulation bodies in Parliament, and also Parliamentary debates, it exemplifies how the interpretations of profit influenced the debates tabled by the Ten Hours movement – the pressure group created with a view to enshrine, in legislation, a maximum 10 hour working day.   This perspective in itself is new, particularly since it moves away from the traditional approaches adopted by trade union historians such as Alistair Reid and others who have examined the influence of unions in these disputes, but have examined them from the perspective of strikes (Reid, 2005).

 

Summary

Adopting a theoretical approach, especially in its examination of different interpretations of profit in the nineteenth century, this paper scrutinizes the range of factors that determined wages in nineteenth century factories, concluding that the reasons were much more complex than originally assumed.  In claiming that accounting manipulators were used as a major force in setting these wages, Toms shows how the considerations governing the decisions about wages were based on a range of accounting methods, although these methods at this time were not well-developed.  Furthermore, he claims convincingly that accountancy was poorly practiced in the nineteenth century, primarily owing to the apparent paucity of regulations governing the profession.   In adopting this approach, Toms highlights the two sides of the debate suggested by historians so far concerning the role of accountancy, that being: that it did not have an important role at all; or that it played a role that was sufficient to encourage competition.  By doing so, he has lucidly integrated the laissez faire ideology to elucidate the role of accountants in the policymaking process.

Working conditions at factories were often difficult and dangerous, the implications of which are discussed in detail in this paper

Working conditions at factories were often difficult and dangerous, the implications of which are discussed in detail in this paper

Pressures on workers and the arduous hours did result in greater pressure on government to develop measures to regulate working hours

Much of the debates concerning workplace rights have adopted either a policy history perspective (examining the efforts of the government to regulate the economy) or a social history perspective (examining the perceived improvement in rights for workers).  Yet a detailed analysis of the implications of company accounting on government policy decisions has not yet been undertaken.  While economic historians such as Nicholas Crafts have used econometrics as a method to try and explain the causes of the industrial revolution, (Crafts, 2012) little attention has been given to the implications of these changes in terms of workplace legislation on not only the workers themselves, but on the calculations affecting industrial output and their response to government intervention.  Through examining the role of prominent socialists such as Robert Owen, this paper highlights the complex nature of the debates concerning profits, loss and its correlation with productivity to show that while the pro-regulation movement sought to protect the rights of individual workers, the anti-regulation movement created an inextricable link between the reduction of profit and the justification for longer working days. Locating this argument within the debate concerning fixed costs, it demonstrates how the definitions and arbiters of profits, loss and value was a moveable feast.

Robert Owen's ideas to reform the system and ensure greater equality were especially influential

Robert Owen’s ideas to reform the system and ensure greater equality were especially influential

This approach to the data has led to a different account of the costs faced by businesses than has hitherto been suggested by historians, and while Toms is careful to claim that this does not resolve the conceptual disputes surrounding the practice of accounting in the nineteenth century, it does provide a platform for further debate and a re-examination of the figures.  For example, in the analysis of the Ashworth accounts, Toms claims that the adoption of a variable approach to costing of volume-based products shows an annual running cost of £2500 per year, £3800 less than Boyson concluded in his 1970 study.  In his analysis of profit, Toms concludes that there could be a 3 hour variable that would not have detrimentally affected the profitability of companies.  Claiming that profitability would be at last 10 percent with 58 hour or 55 hour working week, this challenges previous assumptions those longer working hours would yield greater profits.  However, he highlights that the only significant difference would be that if these figures were compared to the onerous 69 hour week, where the profit margins could be expected to rise by a further 5 percent, although the pro-regulation body, for the purposes of strengthening their argument, presented this variable as high as 15 percent.

The final part of the paper lucidly examines the impact of foreign competition.  Citing the increased costs of British production when compared with European counterparts, with Manchester reported to be 50 percent higher in terms of spinning production costs than Switzerland, Toms shows how superficially the justification for maintaining the British market was now becoming even more difficult.  However, a deeper analysis of the figures reveals a different story, and to illustrate the point, evidence from Mulhausen is juxtaposed with Lancashire to show how wages were on average 18 d per day higher in Lancashire, although their productivity was almost double that of their German counterpart, and concludes that in effect, the overseas threat to the British market was as substantial as originally assumed.

Critique

This paper is extremely ambitious in its scope and development, and has covered significant ground in its analysis.  Its conclusions are convincing and are based on deep theoretical and conceptual understandings of the accountancy process.  My only suggestion is that the final section of the paper examining the ideological theories of profit could be fleshed out more so as to fully contextualise the political, legislative and business developments at this time.  It may also be possible to connect these issues with the contemporary debates concerning ‘thrift’, and the development of commercial banking.  For example, the idea of thrift was widely debated with the growth of friendly societies, and the decision of the government to open a Post Office Savings Bank to enable workers to deposit their savings.  Therefore, was there any connection between contemporary ideas of profit and thrift, and if so, was there a common ideological strand that linked people together in terms of their perceptions of money and its role in the wider society?

 

References

Crafts, NFR., “British Relative Economic Decline Revisited: the Role of Competition”, Explorations in Economic History (2012), 49, 17-29

Reid, Alastair J., United We Stand: A History of Britain’s Trade Unions (London: Penguin, 2005).

 

La Deutsche Vida

Foreign family business and capital flight. The case for a fraud to fail

By Giovanni Favero, Università Ca’ Foscari Venezia (gfavero@unive.it)

Abstract:
The research here proposed is a micro-analysis of a business ending in bankruptcy in the aftermaths of the first oil shock, concerning the Italian subsidiary of a German wareenamelling group established in the town of Bassano in 1925. Following the budget reports and the interviews with the former entrepreurs, the company flourished until the 1960s, when managerial and entrepreneurial successions emphasized the growing difficulties deriving from growing labour costs. A tentative reorganization of the company was hindered in 1968 by union resistance and political pressures for the preservation of employment levels. In 1975 the board of directors decided to declare bankruptcy as a consequence of the huge budget losses. However, a subsequent inquiry of the Italian tax authority discovered an accounting fraud concerning hidden profits in 1974 and 1975. The fraud disclosure shows how historical conditions could create the convenience for performance understatement not only for fiscal purposes, but also in order to make divestment possible. However, it is also used here as an element to argue that business sources and the story they tell should not be taken at their face value, and that a different reconstruction of the company’s path to failure is possible. The literature concerning the missed recognition of opportunities is then mobilised in order to interpret the inconsistencies that emerge from the triangulation of business archives, press columns and interviews with union representatives and politicians. This allows to put back into perspective what results as an obsession of company management with labour costs, concealing the importance of other competitive elements, such as the increasing specialisation of the producers of home appliances. This ‘refractive error’ may be typical of businesses operating in (presumed) mature industries at international level, where wage differentials offer the opportunity to pursue quite literally exploitation much further.

URL: http://econpapers.repec.org/paper/vnmwpdman/63.htm.

Reviewed by Bernardo Bátiz-Lazo

This paper was distributed by NEP-HIS on 2013-12-15 and offers an interesting combination of business and accounting history around the long-term performance of the Italian assets of an Austrian family business (named Westens). The investment relates to a enamelling plant in the town of Bassano in 1925 (called Smalteria Metallurgica Veneta or SMV, today part of BDR Thermea). The Bassano plant was one of the largest factories of glazed products (for use in electric water heaters, bathtubs and heating products like radiators). Favero’s story takes us from its origins until the Westens leave the company in 1975. Activities, however, continued and by “the end of the 1970s the company focused its production in the heating sector… In the mid-eighties the company expanded into foreign markets. “[see further here].

Air photo of original factory (Source: http://www.baxi.it/storia/)

Air photo of original factory (Source: http://www.baxi.it/storia/)

The narrative gyrates around the Bassano plant, some three generations of Westens and an equal number of internal grown talent at the helm of SMV. Favero argues that the reason behind the origins of SMV and other similar investments in Central and Easter Europe by the Westens was to overcome growing protectionism and the end of Empire. However, the number of secondary references suggests the SMV case is relevant for Italian business history and perhaps, more could have been said about this. Nevertheless, we can follow the changes in corporate governance, the attitude of the family to foreign investments, the changing relationship between national branches and SMV’s “strategy” (a term used rather loosely by the author) as the 20th century progresses. Also how the plant was established on the basis of a then unique process of enamelling, a source of competitive advantage that also erodes as time goes by. Some discussion about the role of Chandler’s “first mover advantage” within family business would have been desirable here.

It is evident that Favero has had access to a large number of source material (including oral histories and fiscal authority memoranda and investigative papers). Yet the case is rather short and this result in the narrative progressing some time in jumps rather than a smooth flow. For instance, it is only until the end that we learn why the fraud was discovered five years after the original owners declared bankruptcy. Namely the intervention of the Italian government to maintain employment kept the plant (or the company, its not clear) afloat. There is also reference to some “bad blood” between the Westens and the Italians but we are not totally sure why and when. There are indications of growing tensions with unions and Favero tries to make a case about “management’s “obsession with labour costs”. We could also benefit from learning about the inconsistencies Favero between different sources. Perhaps an idea would be to add a timeline where one side maps changes in strategy, corporate governance or in the ruling family and the other side maps changes in the environment.

However, in its present form this makes a potentially useful teaching case in a world economic history, international business or globalisation course. Favero also claims the SMV case is part of a larger project looking at Westens’ investments in different countries. I certainly look forward to future instalments.

Giovanni Favero

Giovanni Favero

Knowing the Who: Identifying the effect of entrepreneurs on firms

Do entrepreneurs matter?

Sascha O. Becker (s.o.becker@warwick.ac.uk), CAGE University of Warwick

Hans K. Hvide (hans.hvide@econ.uib.no), University of Bergen, CEPR and University of Aberdeen

Abstract

Within the broad literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we …find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas, but we do find stronger effects for founders with high human capital. Overall, the results suggest that an often overlooked factor –individual entrepreneurs plays a large role in affecting firm performance.

URL: http://d.repec.org/n?u=RePEc:wrk:warwec:1002&r=his
Review by Beatriz Rodriguez-Satizabal

Promoting entrepreneurship has been fashionable since the 1980s and there are no signs of it going away. Messages about the importance of becoming your own boss, giving something back to the society, and be an active agent of the economy are there to be seen everywhere on a daily basis. Governments around the world are constantly discussing new ways to increase the number of entrepreneurs and we also see on a regular basis articles within broadsheet newspapers and the popular media trying to identify and challenge those who see themselves grow by creating firms and markets.

In this paper, distributed by NEP-HIS on 2013-01-28, Hvide and Becker question the outcomes of investments to promote entrepreneurship during the last 20 years: Do the entrepreneurs really deliver technological change? Is it sustainable for an emerging country to allow a growing number of entrepreneurs? Is the longevity of the firm related to the characteristics of the founder? Should entrepreneurs be employees in their firms?

The idea of the entrepreneur as an important agent is not entirely new. But studying the role of the entrepreneur within the firm and its effect over its performance has been neglected. In this regard evidence documented in this paper is a step towards a better understanding of the effect of the entrepreneur over the performance of the firm.

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Based on the assumption that the death of an entrepreneur has an immediate effect on the firm due to the changes in corporate governance that it implies, Becker and Hvide constructed a database of Norwegian firms consisting of incorporated, limited liability companies for the period 1999 to 2007. The authors identified a total of 500 firms where the founding entrepreneurs died, providing an opportunity to quantify whether entrepreneurs have a causal effect on firm performance or not.

As a result of a thorough statistical analysis, the authors find that the effects are large and strong. The entrepreneur shapes the firm and affects its growth patterns. Entrepreneurs matter because of the loss of human capital (but, interestingly, the effect could be also negative as higher performance takes place after death of the founder). Surprisingly, Becker and Hvide do not find any difference between small and large firms, family and non-family owned, nor between firms located in rural or urban areas. This last result is certainly, in my view, an open call to bring the individual characteristics of the entrepreneur to the study of the firm, which is a unit that needs the human capital factor to success.

This paper is a valuable contribution to those studying entrepreneurship because it positions the role of the individual deep into the nature of firm performance rather than having it as a separate unit. It calls our attention over the widely spread assumption that entrepreneurs also innovate within the organization (Schumpeter) and have effects in and out of it (Baumol). If entrepreneurs matter, then knowing the who, why and how must be part of the discussion on public policy to promote entrepreneurship. Moreover, when in emergent countries the close relationship between the successful entrepreneurs and the government still persists.