There seems to be much agreement amongst scholars that Venice was the mainspring of modern capitalism, spreading mercantile capitalism from italian city state to city state, across the Mediterranean to the low countries when it matured in the Netherlands as the first modern capitalist state. Certainly mercantile capitalism is much older, existing in the Arab World, the Roman Empire and other trading empires of ancient times. However Venice adopted a large number on institutional innovations.
By the early fourteenth century, financial innovations included: the appearance of limited liability joint stock companies; thick markets for debt (especially bills of exchange); secondary markets for a wide variety of debt, equity and mortgage instruments; bankruptcy laws that distinguished illiquidity from insolvency; double-entry accounting methods; business education (including the use of algebra for currency conversions); deposit banking; and a reliable medium of exchange (the Venetian ducat). All these innovations can be
From an NBER paper by Tugla and Tefla. The revolution in banking, accounting and company law that Venice undertook are well explained in Jane Gleeson Whites Book ‘Double Entry’ which remarkably makes the history of accounting readible. The question is why Venice. There is a risk of circularity if we argue these innovations were developed to aid long distance trade and at the same trade facilitated that trade. My simple thesis is that geographically Venice was uniquely placed as the former western most post of the Byantine Empire to spread these innovations. Firstly its Italian location gave it a background in Roman law which provided the tools to codify legal innovations. Secondly enclosure first developed in North Italy around teh 12th Century according to the historian Quin Skinner. This generated a surplus for trade. Thirdly being an island nation they were forced to trade and could not fall back on the feudal imperative of simply extracting an agricultural surplus with a serf or slave workforce. Fourthly as an outpost of Byzantium, then an independent state that forged the main link with Byzantium, especially during teh Crusades. This led to the import of Roman institutions that Byzantium had kept alive, notably banking. Fifthly Venice did not suffer from currency unions as did Byantium then the Ottoman Empire which replaced it. Hence it had opportunities for arbitrage through trade, rather than stagnation at the periphery. Sixthly it also served as a conduit for arabic ideas, such as Algebra, Zero, and more controversially double entry bookeeping. There is evidence that double entry bookeeping had its origins in the Roman Empire, in ““ex Oratione Ciceronis pro Roscio Comaedo“, and Naturalis Historiae Plinii, lib. 2, cap. 7 where the advised system was “That the one side of their booke was used for Debitor, the other for Creditor” (Huic Omnia Expensa. Huic Omnia Feruntur accepta et in tota Ratione mortalium sola. Utramque Paginam facit. Later there are traces of the double-entry system in the accounting of the Islamic world from at least the 12th century, though the first official record of double entry record keeping we have was in the Medici bank in the 12th Century the system was known as the ventitian system and was first codified by the ventitian Luca Pacioli in a text book in 1494. Jane Gleeson also speculates that Venice may have imported early forms from double entry bookeeping – bhai kata – from India. The arab world however was held back by its strictures on ursury. Finally Venice quickly threw off social strictions on Ursery, effectively helped by state oversight of religion.