ARST 575G

1. ARST 575G Financial Records: Theory & Practice

2. Agenda • Review of definition of financial records? • Presentations on readings • Selection of organization for assignment 1 Today’s Topic: Financial Records in Historical Perspective – This is a vast topics, so we will concentrate on Western European developments

3. What are financial records? • Yeo and the “representational” theory of the record • Records represent “occurrents” in a specific domain, some better than others (what I call the “good” records theory) • Knowledge of the domain is critical to understanding the records, judging their representational quality, etc. • Acquisition of domain knowledge is something I refer to as “contextual analytics”

4. What are financial records • A financial record is a persistent representation of a set of beliefs about financial activities or other financial occurrents, taking place in a certain domain of discourse, created by participants or observers of those financial occurrents, or by their proxies; or sets of such representations representing particular financial occurrents. • We can then ask the further question, what does it mean to say that something is financial. In my Archivaria article, I contend that an activity or other occurrent may be considered financial if it has to do with money.

5. “Always follow the Money” • Financial records form an important, sometimes the only, source of information about past events. • Take for example Cabot’s voyage to Canada • Most would say that the Italians played a very peripheral role in the history of Canada (except students of SLAIS!) • Read article

6. McCalla • Uses account books to trace economic history in Upper Canada, pre-1850 • Knowing what people bought tells us about their patterns of consumption • Knowing how people paid their debts tells us how they produced and responded to changing circumstances • Records can tell us about the character of work • Documents valuable for the study of prices • Can be revealing about the evolution of standards of living • McCalla advises evaluating the representativeness, comprehensiveness, and detail and specificity

7. Money, Finance, Accounting and Economics • Money • Anything that is generally accepted in payment for goods and services or in the repayment of debts. • Finance • The science that describes the management of money, banking, credit, investments, and assets. • Accounting • To provide a record such as funds paid or received for a person or business. Accounting summarizes and submits this information in reports and statements. The reports are intended both for the firm itself and for outside parties. • Economics • A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants. Economics can generally be broken down into: macroeconomics, which concentrates on the behaviour of the aggregate economy; and microeconomics, which focuses on individual consumers.

8. Money, Finance, Accounting and Economics • Accounting • To provide a record such as funds paid or received for a person or business. Accounting summarizes and submits this information in reports and statements. The reports are intended both for the firm itself and for outside parties. • Economics • A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants. Economics can generally be broken down into: macroeconomics, which concentrates on the behavior of the aggregate economy; and microeconomics, which focuses on individual consumers.

9. Proof of Beginning of Accounting in Vedas • Vedas are the oldest books of the world and after deep study of these sanskrit books, you can find that accounting was started at India's vedic period. Vikraya is found in the Atharvaveda and the Nirukta denoting ‘sale’. Sulka in the Rig veda clearly means ‘price’. In the Dharma Sutras it denotes a ‘tax’.[11]

10. Token accounting in ancient Mesopotamia • Map of the Middle East showing the Fertile Cresent circa. 3rd millennium BC • The earliest accounting records were found amongst the ruins of ancient Babylon, Assyria and Sumeria, which date back more than 7,000 years. The people of that time relied on primitive accounting methods to record the growth of crops and herds. Because there is a natural season to farming and herding, it is easy to count and determine if a surplus had been gained after the crops had been harvested or the young animals weaned.[6] • Accounting tokens made of clay, from Susa, Uruk period, cira 3500 BCE. Department of Oriental Antiquities, Louvre. • The invention of a form of bookkeeping using clay tokens represented a huge cognitive leap for mankind.[12]

11. More info on the history of accounting • http://en.wikipedia.org/wiki/Accountancy

12. Quipus Pre-recorded history – Ancient Incas – Quipu – variously coloured strings attached to a base rope used to encode information for accounting purposes

13. Earliest financial activity and records • Among the Mesopotamians, Hittites, Phoenicians and Egyptians interest was legal and often fixed by the state. • There are extant records of loans from the second century BC in Babylon that were made by temple priests/monks to merchants. • Banking was a well-established activity by 1760 BC – rules governing Banking were included in Hammurabi’s Code • Ancient Greece - conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey • Pythius who operated as a merchant banker throughout Asia Minor at the beginning of the 5th century BC is the first individual banker of whom we have records.

14. Earliest financial activity and records • There are extant records of loans from the second century BC in Babylon that were made by temple priests/monks to merchants. • Banking was a well-established activity by 1760 BC – rules governing Banking were included in Hammurabi’s Code • Ancient Greece - conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey • Pythius who operated as a merchant banker throughout Asia Minor at the beginning of the 5th century BC is the first individual banker of whom we have records.

15. Earliest financial activity and records • Pre-recorded history – Ancient Incas – Quipu – variously coloured strings attached to a base rope used to encode information for accounting purposes • Many of the early bankers in Greek city-states were “metics” or foreign residents . This is because the citizens did were engaged in politics. The economy was operated by foreigners and slaves. • The 4th century BC saw increased use of credit-based banking in the Mediterranean world • Egypt - from early times grain had been used as a form of money in addition to precious metals. State granaries functioned as banks. • When Egypt fell under the rule of a Greek dynasty, the Ptolemies (332-30 BC), numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria where the main accounts from all the state granary banks were recorded. This banking network functioned as a trade credit system in which payments were effected by transfer from one account to another without money passing

16. Earliest financial activity and records • In the late 3rd century BC, Delos became a prominent banking center. As in Egypt, cash transactions were replaced by real credit receipts and payments were made based on simple instructions with accounts kept for each client. With the defeat of its main rivals, Carthage and Corinth, by the Romans, the importance of Delos increased. • Delos became the model most closely imitated by the banks of Rome.

17. Earliest financial activity and records • Ancient Rome perfected the administrative aspect of banking and saw greater regulation of financial institutions and financial practices • Charging interest on loans and paying interest on deposits became more highly developed and competitive • The development of Roman banks was limited, however, by the Roman preference for cash transactions. During the reign of the Roman emperor Gallienus (260-268 AD), there was a temporary breakdown of the Roman banking system after the banks rejected the flakes of copper produced by his mints • With the ascent of Christianity banking became subject to additional restrictions, as the charging of interest was seen as immoral. After the fall of Rome, banking was abandoned in western Europe and did not revive until the time of the crusades.

18. Usury seen as immoral English: woodcut of the pope selling indulgences, "Christ drives the Usurers out of the Temple"

19. Sakks • In classical period Islam Sakk (sukuk) – which is cognate with the Europeanroot "cheque" from Persian '(چک) pronounced check' - meant any document representing a contract or conveyanceof rights, obligations or monies done in conformity with the Shariah. Empirical evidence shows that sukuk were a product extensively used during medieval Islam for the transferring of financial obligations originating from trade and other commercial activities. • The essence of sukuk, in the modern Islamic perspective, lies in the concept of asset monetization - the so called securitisation - that is achieved through the process of issuance of sukuk (taskeek). Its great potential is in transforming an asset’s future cash flow into present cash flow. Sukuk may be issued on existing as well as specific assets that may become available at a future date. • During the 3rd century AD, banks in Persia and other territories in the Persian Sassanid Empire issued letters of credit known as Ṣakks. • Muslim traders are known to have used the cheque or ṣakk system since the time of Harun al-Rashid(9th century) of the Abbasid Caliphate • In the 9th century, a Muslim businessman could cash an early form of the cheque in China drawn on sources in Baghdad • Fragments found in the Cairo Geniza indicate that in the 12th century cheques remarkably similar to our own were in use, only smaller to save costs on the paper. They contain a sum to be paid and then the order "May so and so pay the bearer such and such an amount". The date and name of the issuer are also apparent • The concept of sakk appeared in European documents around 1220, mostly in areas neighbouring Muslim Spain and North Africa. Between 1118 and 1307, the Knights Templar introduced a cheque system for pilgrims travelling to Palestine or across Europe. They adopted it from the Muslims. • The Romans are believed to have used an early form of cheque in the first century BC.

20. Sakk Today • The Arabic name for financial certificates, but commonly refers to the Islamic equivalent of bonds. Since fixed income, interest bearing bonds are not permissible in Islam, Sukuk securities are structured to comply with the Islamic law and its investment principles, which prohibits the charging, or paying of interest. Financial assets that comply with the Islamic law can be classified in accordance with their tradability and non-tradability in the secondary markets.

21. Economic Activity in Late Medieval Europe • Canterbury reading . . . • Beginning around 12th century, the need to transfer large sums of money to finance the Crusades stimulated the re-emergence of banking in western Europe. • 13th and 14th c. – some parts of Europe suffering lower productivity; however, northern Italy, especially Florence, emerges as a power in the production of textiles and in Banking • Italian banking becomes pre-eminent. Banking can be traced to medieval and early Renaissance Italy, to the rich cities in the north like Florence Venice and Genoa. The Bardi and Peruzzi families dominated banking in 14th century Florence, establishing branches in many other parts of Europe. • The most famous Italian bank was the Medici bank, set up by Giovanni Medici in 1397. • Banca Monte deiPaschidi Siena SPA (MPS) Italy, is the oldest surviving bank in the world.

22. Medieval Trade Routes http://www.ucalgary.ca/applied_history/tutor/endmiddle/FRAMES/econframe.html

23. History of market capitalism • Modern Western economic and financial history is usually traced back to the coffee houses of London. • The London Royal Exchange was established in 1565. • Moneychangers were already called bankers though the term "bank" usually referred to their offices, and did not carry the meaning it does today • Hierarchical order among professionals; at the top were the bankers who did business with heads of state, next were the city exchanges, and at the bottom were the pawn shops or "Lombards. Some European cities today have a Lombard street where the pawn shop was located. • After the siege of Antwerp trade moved to Amsterdam. In 1609 the AmsterdamscheWisselbank (Amsterdam Exchange Bank) was founded which made Amsterdam the financial center of the world until the Industrial Revolution. • Banking offices were usually located near centers of trade, and in the late 17th century, the largest centers for commerce were the ports of Amsterdam, London, and Hamburg. • Individuals could participate in the lucrative East India trade by purchasing bills of credit from these banks, but the price they received for commodities was dependent on the ships returning (which often didn't happen on time) and on the cargo they carried (which often wasn't according to plan). The commodities market was very volatile for this reason, and also because of the many wars that led to cargo seizures and loss of ships.

24. Market Capitalism

25. Aho • Origins & Purpose of accounting records • Descriptive • Explanatory • Rhetorical – used to justify commercial activity about which there was a great deal of suspicion in Medieval Europe • Paccioli – father of double-entry bookkeeping. Some debate as to whether he invented it or simply articulated practices in use at the time. • “In the name of God and Profit” – Medieval accounting ledgers always opened with this phrase and God was invoked at the top of each page • Double entry is designed to account for all debits and credits arriving an 0 balance to show how honest the merchant is

26. Next Class • Guest Lecture by Professor Duranti on the financial records of the Vatican • Accounting records and accounting processes