1.1 What the House Exists to Accomplish
My sons, before you learn how to buy cloth, insure a ship, judge a bill of exchange, choose an agent, or recover money from a prince, you must understand what the House itself is for.
Many young merchants answer too quickly: the purpose of a merchant is to make a profit. This is incomplete. A single venture may be undertaken for profit. A merchant house (casa) must be conducted for profit, endurance, credit, and the advancement of the family together. A gain that damages any of the latter three may prove more costly than a loss.
The House is not one voyage, one warehouse, one partnership, or one account. It is the whole body of our affairs: our capital, our agreements, our claims upon others, their claims upon us, our correspondents, servants, knowledge, and above all our name.
You must therefore distinguish between the profit of a transaction and the prosperity of the House. A cargo may promise an excellent margin and still be foolish if it requires nearly all our available money, heavy borrowing, one ship, and one buyer. A House is not well governed merely because it earns much in a favorable year. It is well governed when it can survive an unfavorable one.
The House should aim at five things: preserving capital; earning a proper return on it; remaining able to satisfy obligations when due; increasing credit and reputation; and passing the business to the next generation in stronger condition than it was received.
If one of these is neglected for long, the others suffer. Capital without profit wastes away. Profit without liquidity produces failure. Wealth without credit isolates the merchant. Credit without prudence tempts him to borrow until he is ruined. A fortune without orderly succession is merely an inheritance waiting to be divided.
Translator note: The author’s word rendered here as “House” is generally casa. In this context it means much more than a physical household. A Genoese casa could encompass the family, its commercial enterprise, capital, partnerships, agents, and reputation. It is closer to “merchant-banking house” or “family firm” than to the modern word “company.”
Do not measure success only by the profit shown in the books. Ask how much has actually been received, how much remains in doubtful debts, how much is represented by goods that may have fallen in value, how much depends upon rulers who promise readily and pay slowly, and how much capital is concentrated in one city, commodity, ship, debtor, or political outcome.
A profit that cannot be turned into money may be worth less than a smaller profit already in the chest. Likewise, a modest trade repeated safely several times in a year may be preferable to a speculation promising twice the return but occupying capital for eighteen months.
Every undertaking must therefore be judged in relation to the whole House. If we already have much money at risk in Spain, an otherwise excellent Spanish transaction may be refused. If our warehouses are full of wool, cheap wool is not necessarily a bargain. If a king owes us a great sum, we should hesitate before lending him another. The merchant who judges each transaction separately sees only pieces on the board. The head of the House must see the board.
The House must also preserve options. A correspondent in Antwerp may yield little this year and become invaluable next year. A capable factor in Naples may cost more than an ordinary clerk but open opportunities unavailable to others. A small participation in a new trade may be worthwhile because of what it teaches.
Not every useful expenditure produces an immediate return. We sometimes spend to acquire knowledge, accept a small transaction to begin a relationship, refuse a profitable one to preserve confidence, hold cash because disturbance is expected, or maintain an office because its information benefits the whole House. These are not contrary to profit. Properly understood, they are part of earning profit over many years.
Do not seek to take everything from every man. A supplier who earns fairly from us will show us goods before others. A broker paid promptly will bring information. A captain treated justly will prefer our cargo. A customer treated reasonably in scarcity may remain with us in abundance.
Negotiate firmly. Know the market. Know the other man’s alternatives and your own. Put agreements in writing and enforce what matters. But distinguish firmness from greed. The best transaction is often the one after which both parties wish to deal again.
For this reason I prefer a regular business we understand to a spectacular opportunity we do not. Men who become rich suddenly attract attention. Men who become poor suddenly are more numerous, though less discussed. Survival is the foundation upon which every fortune is built.
1.2 The Reputation, Capital, and Continuity of the Family
A merchant has two principal forms of capital: money and credit (credito). Of the two, credit is harder to acquire and easier to lose.
By credit I mean not only what other men are willing to lend us, but the judgment made when our name is mentioned. Will these men pay? Do they keep their word? Are their accounts orderly? Do they honor an agreement when circumstances turn against them? Are their goods what they say they are? Do they stand behind their agents?
This judgment travels farther than we do. A merchant in Madrid may accept our bill because he knows the name of the House. A seller in Palermo may consign goods to our factor because another merchant has spoken well of us. Thus a reputation acquired in Genoa becomes capital elsewhere.
If an obligation is ours, pay it. If there is a dispute, identify the dispute precisely; do not invent objections merely to delay. If payment cannot be made on the agreed day, speak to the creditor before that day arrives. A temporary shortage is a commercial problem. Secrecy about the shortage turns it into a problem of confidence.
The family name also joins the actions of men who may imagine themselves separate. If a brother behaves dishonestly in Naples, our credit may suffer in Genoa. If a cousin uses the family name for foolish speculation, creditors may suppose we stand behind him. If an agent cheats a supplier, the supplier will judge us by how we respond.
Translator note: Early modern credito encompassed both financial credit and personal credibility. Without modern credit agencies or limited-liability corporations, the reputation of the people behind a merchant house was itself a major economic asset.
Money must be guarded with equal care. The capital (capitale) of the House is not merely the coin in the cash chest. Some lie in goods, debts owed to us, partnerships, ships, deposits, and claims that may not mature for months or years. Against these stand our own obligations.
Never count what is owed to us without counting what we owe. Nor value every claim at its written amount. One thousand lire due next month from a prosperous merchant is not equal to one thousand promised at an uncertain date by a troubled nobleman. A warehouse of merchandise is not worth what we paid simply because the books say so. Ask what it can be sold for now.
Inherited capital is not a prize. It is a responsibility. I received not merely money from my father, but relationships, knowledge, obligations, papers, and a name that opened doors. Your duty is not merely to enjoy these things but to hand them onward.
For this reason the family and the House cannot be entirely separated, but neither should they be confused. Household expenses—houses, clothing, ceremonies, servants, marriages, dowries, education, charity, and hospitality—may be legitimate without being expenses of trade.
Keep the accounts distinct. If a son withdraws money, know whether it is salary, profit, repayment, or an advance against inheritance. Otherwise one brother believes another has taken too much, a widow believes the business owes what was actually spent privately, and a partner finds family expenditure charged against partnership profit.
Confusion of money produces confusion of authority. Confusion of authority produces quarrels. Quarrels destroy houses more reliably than storms.
Provide for continuity while everyone is healthy. Do not wait for a father’s death to decide what sons may do, nor for a brother’s illness to determine who acts in his place. Write down what each contributes, may withdraw, and may decide; how profit and loss are divided; what happens if one leaves or dies; how heirs are treated; and how the books are valued at departure.
Translator note: Genoese merchant families often combined kinship and business partnership, but the two were not identical. A compagnia was a commercial partnership whose members, capital contributions, profit shares, authority, and duration could be defined by contract.
The continuity of the House also depends upon education. Do not place a son in authority merely because he has reached a certain age. Let him first copy letters, keep simple accounts, reconcile bills, inspect goods, observe disputes, and travel where the family name will help him but his father cannot solve every problem.
Give him enough responsibility that mistakes have consequences, but not enough that one mistake can damage the House. Require him to explain why he trusts a buyer, expects a price to rise, chooses one ship over another, or grants ninety days instead of thirty. The purpose is not to raise sons who can obey instructions, but men capable of governing when there is no father left to ask.
1.3 Who May Bind the House and Who May Not
The most dangerous words in commerce are sometimes very few: “I agreed.” Before any man may say them on behalf of the House, decide precisely what they may mean.
A merchant house acts through partners, factors, clerks, brokers, shipmasters, attorneys, and agents. Each may need authority. None should possess more than his work requires.
The broad authority to act for another may be given by a power of attorney (procura). Prefer limited authority whenever the purpose permits it. A factor sent to buy silk need not be able to borrow money in our name. A clerk allowed to collect debts need not be able to sell property. An agent authorized to settle one dispute should not thereby obtain power to settle all disputes.
Translator note: A procura was a formal authorization permitting an agent or representative to act in another person’s name. Because merchants conducted business across long distances, carefully defining such powers was a basic tool of commercial control.
Authority should be considered in four parts: the kind of transaction, the amount, the place, and the duration. A man may buy wool but not grain; up to ten thousand lire but not twenty thousand; in Florence but not Rome; for six months but not indefinitely.
Where appropriate, these limits should also be known to those dealing with him. Otherwise we may believe privately that an agent has narrow authority while outsiders reasonably believe he has broad authority.
Letters of introduction must therefore be written carefully. Do not say a man possesses “all our confidence” if he is meant to handle only a narrow matter. Words written for courtesy may later be produced as evidence.
Control the seal, signature, and commercial name of the House. No clerk should sign an obligation merely because he drafted it. Do not leave blank signed paper. When authority ends, recover seals, account books, cipher keys, letters of credit, and powers of attorney, and inform important correspondents.
Some acts should rarely be entrusted to junior men without approval: substantial borrowing, guarantees for another’s debts, long partnerships, purchases of ships or immovable property, loans to princes or governments, opening a permanent foreign establishment, unusually long credit, large legal settlements, or waiving major claims.
Teach every servant the difference between negotiating and agreeing. A clerk may ask the price. A factor may seek improved terms. A broker may carry proposals. But the House is not bound until the proper person gives assent.
This matters especially in letters. Expressions such as “we accept,” “we undertake,” “you may rely upon us,” or “we shall answer for him” create obligations. Where a matter remains open, say so plainly: “subject to our confirmation,” or “do not regard this as final until our next letter.” Ambiguity is expensive.
There is also apparent authority. If a factor has bought cloth on our account for years and we repeatedly paid, outsiders may reasonably suppose he continues to possess that power. When authority changes, practice and communication must change with it.
Within the House, servants must also know who may give which instructions. If two brothers disagree, settle the matter privately and issue one instruction. A House with two voices soon acquires twenty.
1.4 Dividing Authority Among Brothers, Partners, and Senior Clerks
A House of any size cannot be governed by one man attending personally to every matter. The man who attempts it becomes the greatest obstruction in his own business.
If every letter, purchase, account, and minor dispute waits for the principal, the House may appear carefully controlled, but it is badly controlled. The principal has failed to distinguish matters requiring his judgment from matters requiring competent execution.
Authority must therefore be divided according to a plan.
Among brothers, begin with ability rather than age alone. One may understand finance better, another merchandise, another foreign correspondence, and other accounts. Use each where he is strongest. Equality of dignity does not require identity of work.
Yet no brother should build a separate kingdom inside the House. If one controls Spain, another shipping, and another finance, each must report enough that the others can understand the whole. Information belongs to the House, not to the man who first received it.
Keep common records. Record transactions between divisions. If one brother’s trade uses another’s cash, enter it. If one division bears a loss for the whole House, record why. Accurate accounts strengthen goodwill because memory is always favorable to the man doing the remembering.
Among partners (soci), authority should be even more explicit. Choose partners slowly. A useful partner should bring something the House would otherwise lack: capital, knowledge, access, relationships, management, or risk sharing.
Do not take a partner merely because you like him. Friendship is pleasant; partnership concerns property. If affection is his only contribution, dine together. Do not keep books together.
Translator note: Socio means partner, while compagnia denotes the partnership or company formed by the partners. Such partnerships were often established for a fixed term or specified purpose rather than existing perpetually like a modern corporation.
Set monetary limits. A rule saying “large transactions require approval” is nearly useless. Write instead that purchases above a stated amount require another partner. Review the amount as the House grows.
The same principle applies to senior clerks. Give them enough authority to keep business moving when principals are absent, but require extraordinary matters to be escalated.
Every senior man should know three classes of decision: matters he should decide himself; matters on which he should prepare a recommendation and seek approval; and matters he must bring immediately to the principals without acting.
Distinguish error from disobedience. If a factor acts within authority after reasonable inquiry and the market later moves against him, that may be bad judgment or bad fortune. If he exceeds his limit because he believes the opportunity is too good to lose, he has violated the government of the House—even if the transaction later profits.
Do not praise a breach of authority merely because fortune rewarded it. Otherwise every limit becomes optional whenever a servant thinks himself clever.
Authority must always be accompanied by reporting. A man who may purchase must report what he bought. A man who may extend credit must report to whom and on what terms. A factor abroad must write regularly even when nothing unusual has happened.
Foreign reports should answer recurring questions: what cash is on hand; what is owed to us; what must soon be paid; what merchandise is held; what has been bought and sold; which prices changed; which customers are slow; which ships arrived or departed; what political events may affect business; and what decisions are required from Genoa.
A man who writes twenty pages without answering these questions has not sent a report. He has sent a letter.
Review authority periodically. A son becomes capable. A clerk proves himself. A partner becomes distracted. A factor who managed ten thousand lire well may become careless with one hundred thousand. Increase authority when justified, reduce it when necessary, and withdraw it when confidence is lost.
1.5 The Matters That Must Always Remain in the Hands of the Family
A successful merchant must delegate much. He must never delegate everything.
Certain decisions affect the character, solvency, and future of the House so directly that the family must retain final judgment.
The use of the House’s name and credit: No servant should decide on his own that the House will guarantee another man’s debt, pledge its general credit, or answer for an obligation unrelated to ordinary business. A guarantee is a loan made in a form that allows the borrower to say no loan has been made. Treat it with the same seriousness.
The total amount of debt: Clerks and factors may negotiate terms within limits, but the decision to increase the general indebtedness of the House belongs to those whose fortune stands behind it. Borrowing lets us undertake more business than our own capital permits. It also allows us to suffer more loss than our own capital can bear.
The admission of partners: An employee can be dismissed. A partner enters the government of the enterprise, learns the books, customers, methods, and sources of credit, and connects his reputation and possibly his heirs with ours. Do not admit a partner merely to solve a temporary shortage of money.
The appointment of principal foreign factors: A foreign factor (fattore) may hold our money, receive merchandise, extend credit, employ servants, negotiate with authorities, and become the face of the House. Select such men personally. Require intelligence, order, clear accounts, and willingness to be supervised.
Translator note: The fattore was a resident commercial agent or manager acting for a merchant house. Depending on the assignment, he might function as branch manager, purchasing officer, sales representative, credit manager, logistics coordinator, and political liaison at once.
Entry into a new country or major line of business: Expansion should not occur by accident. Before committing substantial capital, ask why we should be there, what advantage we possess, who dominates the trade, how money will be remitted, what laws govern foreigners, what taxes apply, what happens during war, who will represent us, and how much we can lose before withdrawing.
Major credit decisions: Salesmen wish to sell, factors wish to show activity, brokers are paid when transactions occur, and customers prefer generous terms. The owner bears the loss if the buyer fails. Large exposures must therefore remain under family review. Ask not only whether a man is honorable or rich, but whether he can pay, how his wealth is held, and whether it can be reached.
Major disputes: Lawyers advise and agents negotiate, but the family must decide when to fight and when to compromise. Some claims should be pursued because failure to do so invites further abuse. Others should be settled because years of litigation will cost more than the dispute. Pride is not a commercial strategy.
The disposition of accumulated profit: Profit may be consumed, retained, invested, lent, or distributed. Resist turning one prosperous year into permanent household expense. Houses, servants, entertainment, clothing, and estates are easily acquired and difficult to reduce without embarrassment. Commercial wealth should grow faster than the expenses created to display it.
Marriage and succession where they affect the House: Marriage is not merely commercial, but dowries, inheritances, and family alliances affect property. Know what enters and leaves the family. Write agreements clearly. A succession plan that works only if every heir remains friendly is not a plan.
The standard of conduct: This cannot be delegated. Servants watch principals more carefully than principals watch servants. If we manipulate weights, conceal losses, ignore our own rules, or use House money as a private purse, those below us will conclude that rules are negotiable.
The conduct permitted at the top becomes the conduct practiced below. Therefore the government of the House begins with the government of ourselves.
My sons, you will encounter opportunities and dangers I cannot describe because they do not yet exist. Cities will rise and decline. Princes will make war. Routes will change. New goods will become fashionable. Old customers will fail. New instruments of finance will appear.
Do not reject what is new merely because it is new. But do not suppose that new circumstances abolish old principles.
Know what you own. Know what you owe. Know whom you trust. Know what authority you have given. Keep the books true. Keep sufficient money available. Do not place the House at the mercy of one event. Do not lend your name more readily than your coin. Do not mistake revenue for profit, profit for cash, wealth for liquidity, or reputation for invulnerability.
Put agreements in writing. Read what you sign. Make men report. Correct small disorders before they become large. Pay what you owe. Collect what is owed to you.
And remember always that the House existed before you governed it and, if you govern it properly, should continue after you are gone.
This is the first duty of its head. Everything else in this book follows from it.
