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Lecture 5

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University of Guelph
ECON 2720
B Ferguson

Lecture 13 February 3, 2014 10:28 AM Medieval Fairs - The largest and most popular trading fair took place in Champagne, France - The prince made sure that the law was upheld and business law was followed by all traders at the fair - After one of the counts of Champagne died the city was absorbed by France, and tariffs were imposed on foreign traders, especially if there was a conflict between France and certain are a trader came from - Traders stopped coming because this fair was unfair, and eventually the fair stopped - During the 12th and 13th century business was changing, and Italy became a capital for trading and entrepreneurship - It isn't too long until dominance moves from Italy to the Netherlands - The greatest innovation that came out of Italy was double entry bookkeeping - Single entry bookkeeping was fine for small family businesses, but as businesses began to grow a better form of accounting was needed - Double entry bookkeeping means any transaction needs to be entered twice in a book, and this promotes transparency and makes it harder for fraud to occur - Financers in Florence would found a partner to go on a trading trip for several months - The problem about this was the financer had unlimited liability, and had no idea what his partner was doing across the continent - There was no form of communication between them and if the trader lost all his money the financer would be on the lie for it - Under a "commenda" agreement, the financer would only be liable for the part of the transaction he was aware of - The trader would carry unlimited liability, and the financers liability was only for the amount he had invested into the trader, so he was not legally liable for the traders mistakes - This is the oldest for of limited liability partnership that we have record of - As the commenda partnership was introduced, often more than one financier would invest in a trader - This meant that people that weren't extremely rich could invest some extra cash in trading, instead of funding a complete voyage - When the voyage was done the profits would be split and the partnership would dissolve, unless the financers wanted to continue investing in this particular trader - Because it was safer for investors, this practice expanded quite a bit - For the first time in human history, multinational companies began to merge, and they were known as "supercompanies," but there only a few of them - It was said that one of these companies had even more employees than the Vatican - The largest trading took place in wool that was manufactured in England, and trading it was done by Italians - They set up "offices" in cities all across Europe, which made the multinational - They weren't modern day corporations, but they were set up as very large partnerships - These partnerships needed bookkeeping to be accurate in all these different offices so money could be sent where it needed to be - An internal banking system was set up in this large trading company so money could be transferred - The Vatican became aware of this and wanted a piece of the profits - Gold was not allowed to be exported from England, so instead wool is exported to Italy and sold for gold, and then that gold was used to pay the Vatican and sold for gold, and then that gold was used to pay the Vatican - These supercomanies dominated the grain and wool trade, and became merchant bankers Lecture 14 February 5, 2014 10:32 AM Supercompanies and the Black Death - Partnerships with traders were not long term investments, they were only meant to last as long as one voyage - It wasn't like a corporation where investors buy and sell shares, it was strictly a one time, short term investment, but the investor could choose to invest in another venture with the same trader - Supercompanies went out of business all at one time because King Edward III borrowed massive amounts from these companies, and then refused to pay them back - One of the Supercompanies would dissolve its partnership and then instantly form a new partnersh
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