Surplus and Default in Xenophon’s Business Economics

Surplus and default are both as old as Man himself. Yet the first work which studies the phenomenon of deficit in a scientific way is Xenophon’s Oeconomicus (fourth century B.C.). Conversing with Critobulus, Socrates not only develops a technical nomenclature to denote defaults and losses, but also reveals what to do for transforming them into profits.


Introduction: Surplus and Default at the Origin of Business Economics
«Ma cos'è questa crisi? (=Butwhat'sthiscrisis?)» [Rodolfo Tonino "De Angelis", 1933]. It has already been sustained that «accounting would have been impossible without some surplus to take into account». 1 This is the reason why accountancy originated in Mesopotamia as soon as ancient Mesopotamian peoplesbecause of soil fertility -got some surplus to accumulate.
We have already maintained that accounting is «a mental form a priori of human intellect». 2 As such, it cannot only reckon profits, but also losses. Modern accountants say that balance may be either «positive» or «negative», registering either a surplus or a default.
Therefore, it happens that -in times of crisis -a clever accountant must register losses more often than profits. Most people think business economics to be useless in times of crisis, when surpluses and profits lack. The contrary is true: during economic depressions, the science of accountancy is even more useful, since it prevents temporary losses from becoming permanent defaults. 3
3 See the late Osvaldo Paganelli's doctoral dissertation (1953/54 [12]). «Xenophon […] too often irritates the reader by incessant repetition of the same pattern of sentence, of the same formula, and even of the same word.
[…] It is strange that he constantly uses the same word over and over again in the compass of a few lines. A translator is often compelled to have recourse to synonyms». 4 We shan't subscribe to such a severe judgement. Repetitions in Xenophon's Oeconomicus -and especially in the first part of it (chap. I-VI), the so-called Critobulus'Dialogue -denote the effort of creating the nomenclature of business economics and accountancyex nihilo. Elsewhere, we sought to classify the fundamental entries of Xenophon's «lessicocontabile (= accountants' lexicon)» 5 in Greek. Here we are doing the same in English.
Business economics:ΕΠΙΣΤΗΜΗ ΤΗΣ ΟΙΚΟΝΟΜΙΑΣ epistēmētēsoikonomias (Oec. I 1 B, VI 4, etc.; Liddell, Scott 1996 [3], 660, 1204; Montanari 2004 [7], 819, 1448). No doubt, ΟΙΚΟΝΟΜΙΑoikonomia is a most polysemous term. However, when Socrates speaks of ΕΠΙΣΤΉΜΗΤΗΣ ΟΙΚΟΝΟΜΙΑΣ epistēmētēsoikonomias, he surely hints at the «science of the ΟΙΚΟΣoikos». Yet ΟΙΚΟΝΟΜΙΑoikonomia -in Socrates' opinion -isn't a sort of «domestic science» (as some annotators maintain). On the contrary, Socrates' ΟΙΚΟΝΟΜΙΑoikonomia deals with the nature and function of the ΟΙΚΟΣoikos (the latter being the cell of economic organization). Socrates' innovative change is just considering the ΟΙΚΟΣoikos not merely as a «(family) house», but rather as a prototype of «(family) business» (see enterprise or concern). Only the ΟΙΚΟΣoikos as a business company -we shall note -can be the object of a science which may be compared with medicine: namely, an ΕΠΙΣΤΗΜΗepistēmē including a general theory (that's what we call «business economics») and an applied science (that's what we call «accountancy»). It is to be noted, then, that Socrates' ΟΙΚΟΝΟΜΙΑoikonomia doesn't correspond exactly to modern «economics» as being the science of money. Indeed, today's financial economics is the equivalent of ΧΡΗΜΑΤΙΣΤΙΚΗkhrēmatistikēof the ancient Greeks (literally: the «science of ΧΡΗΜΑΤΑkhrēmata = capitals»). On the other side, ΟΙΚΟΝΟΜΙΑoikonomiaof the ancient Greeks is closely linked to the notion of ΟΙΚΟΣoikos as a «(family) business»; therefore, it appears to be the equivalent of today's «business Socrates defines ΟΙΚΟΝΟΜΙΑoikonomia not only as the «science of the ΟIΚΟΣoikos» (see business economics), but also as the «ΤEΧΝΗtekhnē = art and technique of managing an ΟIΚΟΣoikos»: that's what we call «management». Of course the act of OIKΟΝΟΜΕIΝoikonomein, etymologically deriving from ΟIΚΟΝΝEΜΕΙΝoikonnemein (see to manageor administer), isn't the very same as «domestic science», namely housekeeping: on the contrary, it's closely linked with the notion of OIKΟΣoikos as a«(family) business». No doubt ΟΙΚΟΝΟΜΙΑoikonomia -in Socrates' opinion -isn't an idle debateon the basic elements of economic theory, but rather a practice. Socrates doesn't accept the distinction (so widespread today) between «business economists» and «business managers or businessmen». According to his ethical intellectualism, the knowledge of business economics is a necessary and sufficient condition to know how to manage a business; and, conversely, the one who doesn't know how to manage an enterprise, proves beyond all doubts that he doesn't know the «science of (business) enterprise».
Capital ( [7], 2371). Of course, ΧΡHΜΑkhrēma can't mean «industrial capital», which didn't exist before the Industrial Revolution: it must surely mean «financial capital». In this Dialogue on business management, the notion ofΧΡHΜΑkhrēma is strictly related to one's capability of «managing» it (= ΧΡHΣΘΑΙkhrēsthai, from the same root). Socrates theorizes that not every KTHΜΑktēma («possession») is a ΧΡHΜΑkhrēma: only what can be managed is a «capital». Conversely, a KTHΜΑktēmaif one doesn't know how to manage it -is possibly a «possession», but surely not a «capital». It follows that «capital» is an absolute value, whereas «possession» is a relative one: evidently, ΧΡHΣΘΑΙkhrēsthai (see to manage or use) and ΧΡHΜATΑkhrēmata («capitals») are etymologically linked in Socrates' economic theories. No doubt, linking together the ideas of «capital» and «management» is an innovative change -and it seems to occur in Critobulus' Dialogue for the very first time. Business economists 6 are used to assuming that the origins of the sciences of accounting are to be found at the origins of capitalism: in their view, the first appearance of «industrial capital» would have given rise to early accountancy. On the contrary, we could assert that business accounting originates from the first appearance of «financial capital». If so, the first treatise on accountancy would surely be this Dialogue.
Capital and ΔΑΠAΝΑΙdapanai. In particular, Xenophon thinks that ΠΡOΣΟΔΟΙprosodoi are within the man's province, whereasΔΑΠAΝΑΙdapanai concern the woman as «joint manageress» of the family business. No doubt, such a division of labour between male and female, husband and wife, would be outdated today -yet it wasn't so in fourth-century Athens. But (what's more surprising) Socrates seems to have already understood -twenty-four centuries ago -that economic equilibrium consists of a positive cost-revenue balance. In other words, ΠΡOΣΟΔΟΙprosodoi must be higher thanΔΑΠAΝΑΙdapanai, so that the difference «revenues minus costs» may be a positive number (ΠΕΡΙΟΥΣΙΑperiousia: see profit). As concerns that, Socrates is certainly ahead of his time. Now, we have no proof that Xenophon knew something like a «balance sheet» (today consisting in a «statement of assets and liabilities» and a «profit and loss account»). Actually, we know very little about Xenophon's own bookkeeping techniques (it appears that he employs the term ΔΑΠAΝΑΙdapanai to denote also «expenditure», whilst modern accountancy is used to distinguishing between «costs» and «expenses»). However it might be, we must admit that the essential logic of balance was already clear to Socrates' mind.
(to) Decrease: ΜΕΙΟΩmeioō (Oec. III 15; Liddell, Scott 1996 [3], 1093; Montanari 2004 [7], 1318). In business economics, it's the contrary of ΑΥΞΩauxō (see to expand). As the former means the «decreasing or diminishing» of an enterprise, the latter means its «increasing». In Socrates' opinion, the «decrement» of a business is the result of mismanagement. That happens when the enterprise -instead of accumulating ΠΕΡΙΟΥΣΙΑperiousia (see profit)accumulates ΖΗΜΙΑzēmia (see loss). In conclusion, such «decrement» proves to be due to lack of ΕΠΙΣΤΗΜΗepistēmē (see science) or ΕΠΙΜΕΛΕΙΑepimeleia («attention»).
Enterprise or concern:ΟΙΚΟΣoikos (Oec. I 2 ff.; Liddell, Scott 1996 [3], 1204-1205; Montanari 2004 [7], 1448). No doubt, the most important entry in Xenophon's economic nomenclature is this. Its original meaning was «house or family», including the «family estate and/or wealth». Yet, by way of catachresis (ΚΑΤΑΧΡΗΣΙΣkatakhrēsis: Latin = abusio), 7 Socrates employs this term to signify the «family business or enterprise». Notice that -as time went by -the wordΟΙΚΟΣoikos lost its affective implications, so as to mean only the «business company or concern or firm», as the basic cell of economic organization. As concerns that, some annotators haven't understood such catachresis, and have supposed that ΟΙΚΟΣoikos merely means «family estate and/or wealth». But this supposition proves to be incorrect, for three reasons. Firstly, Socrates deems the ΟΙΚΟΣoikos to be, not a set of wealth, but a «growing» organism (see expansion), whose value is much greater than the sum of its parts. Secondly, Xenophon maintains that there are most valuable ΟΙΚΟΙoikoi with little wealth (like Socrates' family business) and less valuable ΟΙΚΟΙoikoi with much more wealth (like old Crito's and young Critobulus' family business: see chap. II) -which is the best proof that an ΟΙΚΟΣoikos doesn't identify itself with its wealth. Thirdly, the essence of Xenophon's ΟΙΚΟΣoikos isn't represented by its business wealth, but rather by its business management. Thus the predominance of managerial matters over financial matters is Socrates' innovative change -and this anticipates the theories of modern business economists, in Europe 8 and especially in the USA. However, the limit of Xenophon's economic thought is that the author wouldn't or couldn't invent a series of neologisms in order to denote the realities (German = Realien) of business economics and accountancy: he limited himself to employing the compounds of ΟΙΚΟΣoikos, by way of catachresis (so did the historical Socrates, who was accustomed to discussing the realities of philosophy using terms of everyday speech). But such catachresis has caused many misunderstandings among today's translators and annotators 9 of Xenophon's ΟΙΚΟΝΟΜΙΚΟΣOikonomikos.
Expansion:ΑΥΞΗΣΙΣauxēsis (Oec. V 1; Liddell, Scott 1996 [3], 277; Montanari 2004 [7], 378). It means the «business growth», being the good manager's objective. Some annotators interpret ΑΥΞΗΣΙΣauxēsis as though it meant only an «increase or increment in wealth». But actually, the business company doesn't identify itself with the business wealth. In fact -according to Socrates -the ΟΙΚΟΣoikos (see enterprise or concern) is a living organism, having in itself the potentiality of growth; on the contrary, ΠΛΟΥΤΟΣploutos («wealth») hasn't such potentiality. Moreover, Socrates points out that even ΑΡΓΥΡΙΟΝargyrion (see money) is no ΧΡΗΜΑkhrēma (see capitals) if one doesn't know how to «manage» it (ΧΡΗΣΘΑΙkhrēsthai: I 14). This is a proof that to Socrates' mind, managerial matters are much more important than financial matters, as for what concerns business life.
(  [7], 1138-1139). Socrates counters ΚΕΡΔΟΣkerdos with ΠΕΡΙΟΥΣΙΑperiousia (see profit). The latter is the «net income» obtained by balancing costs and revenues in a skilful way. On the contrary, the former is the «gain or lucre» obtained by buying at a low price and reselling at a high price. Therefore, ΠΕΡΙΟΥΣΙΑperiousia as such is the result of sound management and the characteristic feature of a good manager. On the contrary, ΚΕΡΔΟΣkerdos is the result of retail trade and the characteristic feature of a ΚΑΠΗΛΟΣkapēlos (= «[small] retailer»). This is the reason why Socrates deems ΠΕΡΙΟΥΣΙΑperiousiato be licit and lawful, whilst other Greek authors consider ΚΕΡΔΟΣkerdosas an illicit, unlawful «lucre».
House:ΟΙΚΙΑoikia or ΟΙΚΗΣΙΣoikēsis (Oec. I 5, IV 6; Liddell, Scott 1996 [3], 1203; Montanari 2004 [7], 1447). These two synonyms mustn't be confused with ΟΙΚΟΣoikos (see enterprise or concern). As a matter of fact, ΟΙΚΙΑoikia and ΟΙΚΗΣΙΣoikēsis mean the «house» (Latin = domus) and also the «household». Thus comparing the notions of ΟΙΚΟΣoikos and ΟΙΚΙΑoikia, Socrates is obliged to underline a considerable difference between the two. Actually, ΟΙΚΙΑoikia is nothing but the «family house». As to ΟΙΚΟΣoikos, it's something including the «family house»yet something whose limits are far beyond the bounds of the «family house». Some annotators identify the ΟΙΚΟΣoikos with the «family estate», which may extend even to different city-states. However, elsewhere Socrates points out that theΟΙΚΟΣoikos has also in itself the capacity of «growing» (see toexpand). That is why we have considered it as denoting not merely a sort of «estate», but the earliest form of «business enterprise», being the smallest cell of economic organization. So in the history of Greek language, the word ΟΙΚΟΣoikos -formerly concerning a «family» -tends to signify a «family business», and finally a «business company» tout court, like in Modern Greek.
(to) Know:ΕΠΙΣΤΑΜΑΙepistamai (Oec. I 8-17; Liddell, Scott 1996 [3], 658-659; Montanari 2004 [7], 818-819). This is one of the keywords in theDialogue. Firstly, it means the «knowledge of an ΕΠΙΣΤΗΜΗepistēmē» (see science), and secondly the «skill in a ΤΕΧΝΗtekhnē» (see technics ortechnique). The high frequency of this verb gives an intellectualistic tone to Xenophon's Oeconomicus -and indeed, Socrates' ethical intellectualism is witnessed also by Plato and other philosophers. Conversing with Critobulus, Socrates maintains that «knowing the science of business management» is a necessary and sufficient condition for managing a business well. That is why the good ΟΙΚΟΝΟΜΟΣoikonomos (see manager), in this Dialogue, is so often called ΕΠΙΣΤΑΜΕΝΟΣepistamenos or ΕΠΙΣΤΗΜΩΝepistēmōn (see scientist).
Loss: ΖΗΜΙΑzēmia (Oec. I 7 B, 9, II 18, etc.; Liddell, Scott 1996 [3], 755; Montanari 2004 [7], 918). It's the exact contrary of ΠΕΡΙΟΥΣΙΑperiousia (see profit). As the latter is the positive result of business management, the former is the negative difference obtained subtracting ΔΑΠΑΝΑΙdapanai (see costs) from ΠΡΟΣΟΔΟΙprosodoi (see revenues). Therefore, as ΠΕΡΙΟΥΣΙΑperiousia is the characteristics of a good ΟΙΚΟΝΟΜΟΣoikonomos (see manager), ΖΗΜΙΑzēmia is the typical feature of a bad ΟΙΚΟΝΟΜΟΣoikonomos -that is to say, a real vice to Socrates' mind, in so far as it derives from an excess of «costs» and a lack of «revenues».
(to) Manage or administer:(ΔΙ)ΟΙΚΕΩ(di)oikeō andΟΙΚΟΝΟΜΕΩoikonomeō (Oec. I 2 B, 4 A, II 13, etc.; Liddell, Scott 1996 [3], 432, 1202-1204; Montanari 2004 [7], 569, 1446-1448). As for ΟΙΚΕΙΝoikein, it originally meant «to inhabit or live in». Yet Xenophon uses this verb by way of catachresis (see enterprise or concern), so that the idiom ΟΙΚΟΝΟΙΚΕΙΝoikonoikein means «to manage a (family) business». Such «management» implies also «business administration, organization, and control». As for ΔΙΟΙΚΕΙΝdioikein, this compound is almost a synonym of ΟΙΚΕΙΝoikein.  [7], 1448). Another keyword in Critobulus' Dialogue is ΟΙΚΟΝΟΜΟΣoikonomos, originally meaning the «dispenser (= ΝΕΜΩΝnemōn) of food in the ΟΙΚΟΣoikos»: that is to say, either the «master (householder)» or the «steward (housekeeper)». By way of catachresis (see enterprise or concern), Xenophon employs this term to denote the «manager of the (family) enterprise», 10 being also «administrator and controller» of the ΟΙΚΟΣoikos. No doubt the real hero of this Dialogue is the ΟΙΚΟΝΟΜΟΣoikonomos asanΕΜΠΕΙΡΟΣempeiros («expert») and an ΕΠΙΣΤΗΜΩΝepistēmōn (see scientist). According to his own custom (witnessed by Plato too), Socrates refuses the title of ΟΙΚΟΝΟΜΟΣoikonomos: in fact, although he has understood the principles and laws of the ΕΠΙΣΤΗΜΗ ΤΗΣ ΟΙΚΟΝΟΜΙΑΣepistēmētēsoikonomias (see business economics), he cannot have the practice deriving from managing a large «business» with big ΧΡΗΜΑΤΑkhrēmata (see capitals). Yet Xenophon's change is maintaining that a «manager» may have full powers over anΟΙΚΟΣoikos (see enterprise or concern), even though he isn't the «owner» and possesses no «capitals» of his own. It follows that -when a business appears to be mismanaged by an incompetent «owner or possessor» -Xenophon counsels to delegate it to a «receiver» (ΚΑΤΑΛΑΒΩΝkatalabōn: I 4) -namely, a competent ΟΙΚΟΝΟΜΟΣoikonomos, who will manage it better. Another synonym of ΟΙΚΟΝΟΜΟΣoikonomos is Ο ΟΙΚΟΝΟΜΙΚΟΣ (ΕΠΙΣΤΑΜΕΝΟΣ) ho oikonomikos (epistamenos): literally, «the specialist in business management».