Part I. Monetary relations – as the most ancient and natural experience of mankind
Many of you believe that the financial analysis arose only in the twentieth century, or in the Renaissance, or in the ancient civilizations, or in the ancient world … .. But it is not so! Financial analysis appeared together with monetary interrelationships and the rudiments of banking relationships. It is widely believed that the “grandfathers” of the current financial relations date back to the ancient times and the ancient world. Appearance of the first rudiments of the financial affairs of Eurasia occurred at about 3600 year BC; – In the course of archaeological excavations uncovered cuneiform tablets in Mesopotamia, which kept records of accounts on the analysis of economic activities of temples – the first “grandparents” of modern commercial companies. The community”s Center of the society of those times was usually a temple itself. Therefore it is not surprising that the temples date us back to the emergence of financial analysis. At about 3600 year BC there were found the first cuneiform tablets, which had a recorded data about such important for that period things as grain, oil and meat produced in the community; – and also a data to whom and how much grain, meat and oil should be given and according to which and what terms and conditions. Temples then bought goods and sold goods, store goods to sell them more expensive then, in the future, and the temples even gave the first loans. In general, temples lent out the then nobility or a state in those times. As the basis for loans and deposits temples used grain, precious stones and metals. Availability of storage facilities to store grain and valuables allowed temples to attract monetary equivalents – deposits. Sanctity of the place together with troops and walls for many centuries preserved temples as the safest refuge of wealth. Cyclicity of agricultural crops, together with the seasonal nature of the main sectors of the ancient world”s economy, gave rise to the rate of interest – an uneven crop value in space and time. Thus, during the agricultural works season, whilst getting a harvest, the prices for grain, figs, flax, peas, straw, oil and meat fell down, and in times after planting and after crop failures – the prices grown rapidly. In the centers of trade prices were more market-based than in some communities. Different regions produced different goods. So there was irregularity in prices in time and space, that was, and there was a need for the rate of interest. If a man could not pay its debts (and totally most ancient societies were not matriarchal at all) – he was deprived of whole family”s property and, often, freedom – then a family could become slaves. Temples, and not only of Babylon ones, and also of ancient Egypt, India, Greece and other countries, involved, we can say, banking. The peculiarity of the Babylonian temples was a deposit interest rate – the fee for storage of valuables, secured by a clay tablet. The flowering of the financial affairs has occurred in Greece. In the ancient world, mainly in Greece, in the middle of 5 century BC, there appeared “ergasterias” (slave workshops) that were beginning a mass, for those times, production of goods. It started an abundant trade of “policies” (independent ancient Greek cities) with the cities, especially in the Mediterranean basin. Each region had its own currency, which often was not taken in the basic “policies”. To trade, the money was needed to be changed in each region. In the 5 – 4 cc. BC, in Greece, there was a term “Trapezit” – actually “a currency exchanger”. “Money-changers” have always sought to win and overcome the state to accept their terms, and sometimes they actually succeeded in it. The famous philosopher Aristotle said that in 4 BC in “Bizatsium” (the future of Constantinople / Istanbul) there was a monopoly on the exchanges of coins. Gradually, the term “Trapezits” – “Bench moneychangers” – took in ancient Greece a nature and significance of a state financial institution; upon such institutions the Government effected payments and accepted contributions of taxpayers. This institution was called the “Τραπεξαι βασιλιkαι”, and it was the first prototype of the state central bank. It is still unknown exactly when the bank account has appeared. But recently, a papyrus of 6 century BC was found; the papyrus called “a Trapezit” of Egyptian scribe whose name is Apiona; and the responsibilities of this “Trapezit” included both normal duties of “Trapezits” and also keeping an account book of operations (Johnson, 1974). Gradually, the state sought to abolish the activity of “Trapezits”, saving them only one role – as money changers. Then appeared the term “Katallakt” – a money changer for smaller coins (“numias”). In the Roman tradition, the money changers were called “Argentarias”, who had the right to change coins, to lend money for bail or commitment, to consider debts, to be intermediaries in exchanges the capital to be engaged in trade, to do trade, in particular, the purchase and sale bread, to conduct cash transactions in behalf of clients (G. Preisike, “Aegypten”, 1980). But this is a classic look at the history of the emergence and the emergence of finance. People at all times were interesting: How to increase and how to keep their wealth? In fact, the rudiments of money and banking relationships actually existed in the primitive society. So, Angel Norman conducted a study of the island Ual (Caroline Islands” Group), and he found that the existence of financial relationships and the first rudiments of banking relationships may exist in a primitive society. Moreover, A. Norman goes further and points out that banking in a primitive society positively influence the development of culture, science, ethics, communication and commerce. Recent studies on the island of Ual (Caroline Islands” group) showed the existence of an analogue exchange “Fay”. “Fay” – is a limestone disc, extracted and processed at the island Barbeltual (about 600 km. south from Ual), the disk has the average size from 30 cm to 3.5 meters. Ual has a definite place to store these rocks (an analogue to a bank vault). Moreover, the owner, at settling a bargain, doesn”t have a necessity to divide the rock into pieces – just a special mark is enough to be made at Fay after the deal; the mark affirms what part of Fay belongs to whom. Fay”s Storage Location is not a point of interest within the people. Thus, nobody has ever seen with their eyes the wealth of the richest family at the island – a giant Fay sank to the bottom of the sea many centuries ago, but there were witnesses who claimed that their Fay was huge, and, because of these testimonies, the family is still regarded as the richest on the island. ”Bank” of this primitive society – is not so much a cash vault, but a single record store, where it is written by whom and by what a share of wealth is owned. The need for Fays” extraction developed navigation, cartography, mathematics, basic mechanics (levers and “sails”) and trade. It is this influence to be exerted by a, perhaps, the first in the history of the Earth “grandfather” of banks, the influence to the people of this primitive tribe is – the development of public relations, science and culture (honesty and ethics). It is possible that banking relationships and banks on the Ual island are evidence that the beginnings of banking were already in the primitive society, and an evidence they were among the first, or the very first, prototypes of banks in the Earth’s history. The origins of the island Ual”s people is a mystery. Tentatively, today it is known that these people belong to the Micronesian group of tribes, some of whom migrated from ancient Africa and Madagascar. It is possible that the rudiments of financial and banking relationships at the Ual island are the first in the world, and it is possible that at this island we can find the world’s first “grandfather” of modern banks, which, however, had a tiny impact to the development of banking in Europe. The theory is itself interesting, the theory of the banking and financial relations” existence in a primitive society. At Ual, a size of money (of Fays) was the deciding factor. The more a Fay was – the richer the family was considered. The biggest Fays stored in a single location on the island. Owner of a Fay at settling a bargain, for example, a bargain of small amounts, was not needed to divide the Fay into pieces at making a deal; including cases when the value of deal was defined with a part or with a whole Fay. Large Fays are virtually non-transportable, taking into account a fact that until the early 20th century there were no roads at the island due to overgrown jungle. In this case, the payee was quite satisfied with a fact that from the deal”s moment he was an owner of a Fay or of its part. The vast majority of Fays remained lying at the territory of the former owner (during the lifetime of generations), even without any records on it; – to a new owner and to his family it was enough to have an opinion about the fact the Fay or its part from a certain moment belongs to them. All of this suggests the presence of the rudiments of financial and banking relationships may give a rise to the business interrelations ethics, which can be seen even today on the Ual islan. The high level of business ethics, on the one hand, and, on the other hand, a trade relations caused by the rudiments of banking relations within the islanders can be testified by the next case. In 1898, the Government of the Kaiser’s Germany bought the Caroline Islands. Ual was an island, overgrown with jungle, with here and there little trails. The German Government decided to start building roads. But it was obviously their own workers were far not enough, it was decided to attract the islanders. However, the natives resisted, citing the fact that if there is a path, then why do we need an extensive road? The German Government challenged with a difficult issue – fining the islanders had no sense – massive boulders – Fays – are not easy to be even moved and, of course, there were no sense to transport the Fays to Germany, where the Fays are virtually useless. In addition, it would be necessary the work of all local residents and of all the local soldiers to draw even one Fay to the port. In the end, the governments choose the following scheme. It sent a special agent who marked all of the Fays at the island as an owned by the Kaiser German Government”s property, and so nationalizing the National Bank of the Ual island – the actual location and store of large part of Fays. In fact, residents of the islands became a bankrupt in an instant, and they immediately set to work to build the roads to regain at least a part of their former wealth. Soon they constructed the first wide paths and the first roads in the jungle. After that, another governmental agent was sent to the island, and he erased all property tags from Fays; after this event the island”s population begun a national holiday. This story tells about the priority value of Fays as the national currency of this primitive society, as well as about the importance of analogue of the first in the history of the Earth’s primitive “central bank”. This case shows that the basis for these primitive people”s motivation is exactly the monetary relations. In addition, the presence of the rudiments of banking relationships is closely linked to the development of science at the Ual island. So, to bring a boulder weighing several tons from the island Barbeltual where the quarry is, to the island Ual – the final destination, a remote distance of almost 600 km. should be crossed to get from Barbeltual to Ual (or back from Ual to Barbeltual), – such a complex thing to say and especially to do actually requires a very well developed science. First, one needs to develop navigation. To overcome such a way one should have a solid boat that could carry a cargo of a large weight even in severe storms (only typhoons themselves are far enough, every year in average one can calculate up till 25 typhoons; Ual – is the epicenter and the homeland of typhoons in the world). In addition, the Caroline Islands are surrounded by coral reefs. Because of all the mentioned, to swim from Ual to Barbeltual – a distance of almost 600 km. – With a heavy cargo taking into an account the threat of storms and typhoons, as well as reefs and sharks, – it all is a real challenge to a primitive man as like as to the primitive science of navigation! Secondly, for these purposes the development of navigation as a science is necessary – orienting using the stars” positions skill. Thirdly, the orientation using the stars” positions, in its turn, is virtually impossible without the development of an elementary astronomy – the science, which calculates the location of the boat among the luminaries. Fourth, one needs to develop basic mechanics – for loading and uploading the Fays using primitive instruments for vertical and horizontal positioning (like tree trunks). Also the mechanics is necessary for the production of primitive analog cables – Fays were brought on a separate raft, which should be tied to the boat with a rope. It was invented in a case of storm to chop off the cable the sunken raft not to sink together with the boat and, therefore, with the team. And fifthly, you need a developed system of social relations and social ties. High level of business ethics – is one of the evidences of this. In this primitive society, a word would be appreciated as well as the wealth itself, like the Fays; it indicates the integrity and ethics of the population. Proof of this may be the most famous at the island story. A friend and conductor of Angel Norman named Fatumak told the story of the richest family on the island. It is surprising that none of the members of this family ever touched and ever seen even a small part of this family”s fortune – all is kept upon the word of honor for many centuries. The wealth of this family was a huge stone Fay, whose size is passed in the legends at the island. This is the biggest Fay in the island’s history; many years ago it was mined and processed in the very ancestor of this family at the island Barbeltual. Fay was put upon a raft and brought home to the island Ual. On the way back the boat got into a typhoon and the team was forced to over-chop a rope to stay alive. Fay, along with a raft, drowned. But witnesses described of seeing Fay and testified that the Fay was of a colossal size and of a great quality, as well as they testified the fact that the Fay was lost through the fault of the owner. Later, the islanders decided that the fact that the wealth of the family drowned does not mean anything at all, because the Fay actually exists somewhere on the seabed. Thus, the purchasing power of the stone has remained the same as if the rock was lying against the wall of its owner! This example demonstrates the high level of social organization of this society. Due to the rudiments of banking and monetary relations that existed in this unique historical perspective, inside a primitive society, we can say it certainly gave a lot to the development of science, social relations, trade relations, banking relationships, commodity-money relations and the development of business ethics, which played a key role in the development of the island. Financial and banking relations are the true phenomenon of human civilization, as well as of some pre-civilization, even primitive societies. These relations produce the technology’s strongest accumulation of monetary funds in the narrow sense, and finance in the broader sense; and these relations played the role as the leading accelerator of human culture, social relations and cognitive human activity; these factors primarily affect the level of scientific development, social and ethical relations in any society. Why is this so? Almost every achievement of science and culture, even in prehistory, is associated more with a collective activity, either with expensive (for a given period) researches or specialists. Financial relationships allowed to conduct such studies, literally, by financing and encouraging them. Financial relations developed independently in many ancient and even some primitive societies. Thus, even in apparently pre-civilization Great Zimbabwe, which had little army, had also the rudiments of financial relations. Great Zimbabwe was inhabited by about six months of the year when the selected harvest and thousands of tribes in South Africa met in this place together for trade and exchange. In the remaining six months the city was virtually uninhabited. In particular, at this point the Arab travelers, who traded with the city in the “active season”. Money, for temporary residents of Great Zimbabwe, was seashells. And, for a beautiful shell, extracted by an Arab navigator from the Indian Ocean, some residents were willing to exchange a significant portion of the annual harvest of the tribe. Since the Great Zimbabwe gathered itself for a certain time, all the other tribes, including the primary, then so, primitive tribes started to enter monetary and financial relations. Then, primitive tribes had been interested to retain part of the loot from hunting or from apiculture and to exchange them for some beautiful shell. But how is to estimate a shell or a Fay? How would you, dear reader, know, which part of the crop should be given for one or for other Fay or shell? How would you compare one Fay with the others, and one seashell with another? How would you, dear reader, know who is the richest: the one who has more Fays/shells, or the one who has these Fays and shell more beautiful and bigger? Does one need to show all the wealth everyone to recognize it, or is it enough to have a virtual wealth accepted by the all-consent and all-recognition that such wealth of virtuality exists in reality? These issues are not only interested in those primitive or almost primitive tribes, but also these are the issues of interests of a modern human today! Only instead of Fays and shells we have the same in its essence virtual currency – paper or electronic. Fay of a nation no one has ever seen, but everyone knows that it is huge, that is why the receipts for a part of this “Fay” are being widely accepted in a turnover by all members of society “on faith”. No one needs to ask someone to get the “Fay” from the bottom of the sea and to demonstrate it to everyone on a constant basis. Once a society loses its faith to the value of the “Fay”, the national money begin to depreciate themselves rapidly, and the society – starts to decline. By coincidence, the very “big” note in the world in 100 trillion dollars is used in today’s Zimbabwe, and it depicts a large rock, reminiscent of unhewn Fays. In today’s world the financial analysis has a purpose to help to earn and to save money for a company. In an environment where all the economic agents behave themselves fully financially feasible, there is no crisis, neither in a company nor in a state, the crisis becomes simply not an event to be happened.
Postwar Hungary: janitor sweeps money, thrown away like garbage, from the streets
Note: 100 trillion dollars, the Bank of Zimbabwe
Of course, we know few about finances in other primitive societies, since the notion “primitive” means the absence of writing, and oral history does not live long. There are chances that not only the tribes of Barbeltual, Ual and Great Zimbabwe, but also the tribes from other areas had their own beginnings of monetary, financial and even banking relations. The wealth is analyzed by mathematics even in a primitive society, and more so nowadays. If primitive people from Ual had an access to modern technologies, they would accurately measure the size, shape, weight, volume, diameter, financial cost, the change in value over time, depreciation and other settings of Fays. But they did not have such an opportunity – the people used simple algebra and their own inner intuition: a giant Fay at the bottom of the sea is more expensive than any other Fay upon their land; and a big one Fay worth far more than a small one; ugly one Fay (that has of an irregular shape) is cheaper than a beautiful one (that means correct in all spheres), and so on. Similar to what we have today, people from Ual used recordings at an analogue of “the central bank of the island”, making notes directly on stored there fairies (or making records on clay tablets, as it was in the Great Zimbabwe). Just today we have a real central bank, and the recordings are to be done mostly electronically. In primitive society every neighbor wanted to know about the wealth of another neighbor. Some people were able to read and write the cost of Fays. Such people can be compared with modern financial analysts. Other people determined the value of a Fay with their naked eyes, trusting their inner “financial intuition”. Each neighbor wanted to know: how much richer is his or her neighbor, and neighbors? How many Fays do they have? How much do the Fays cost? And how, therefore, thou needs to get some Fays from Barbeltual to become rich and buy thyself, for example, a house? Also today the people who own companies, they tend to earn much advanced and more modern “Fays”, and they also seek to know: Who are their competitors and how they’re doing? Who their friends (suppliers, banks, investors, creditors, debtors, ….) are? And how they’re doing? And if they can pay off the debts? Also, whether the company itself is capable to pay off debts? However, to make a Fay, a primitive man from Ual had to go to and to achieve Barbeltual – the only known habitat of the material for Fays. However, the primitive man quickly got the idea that one person can not even get big and good Fays; and, of course, one single person has quite little opportunities even to nig the boulder and to deliver it back to the Ual! This requires a team! And this team must be special: an astrologer for navigation at sea, strong porters and miners for mining and carving Fays, a specialist on the ropes, levers and marine bends, a builder of the raft, an expert appraiser of the potential cost of a Fay (after all, one shouldn”t hollow a boulder out without knowledge about its potential value first) and someone else …. But how to motivate someone from Ual to go for more than 600 kilometers out through the sea; how to motivate someone to get the Fays, and to help bring them back?! It means also that the ownership for the hollowed Fays shouldn”t be extinguished by payment of “team”s salary.” Today, the companies have very similar questions. How to find a place where the finances actually “live”? How to get some finances? What experts are needed? Where to get them? How to motivate a staff? How to measure the potential revenue from the “development of the financial field”? How to save a Fay? How to calculate wages and shares of workers and owners of the joint venture? How to take into account the financial resources …? Moreover, Fays” mining within the tribes of the island Ual is associated with a risk: the team and Fays can not to return back! Risk has traditionally assumed by the breadwinner who wins a Fay. Depreciation of risk was provided by business traditions and business ethics: if the Fays were sunk, and the team would survive and would be able to get to Ual, the “sunken treasure” owner would have a risk not to lose his sunken treasure in reality. Just recollect the story of the wealthiest family at the island! As well as it was in a primitive society, risk management – is the weakest position of any company! In a primitive society there were risks to get lost, to go astray, to get into trouble or in a storm, to get back with the not much valuable Fays, to fail to trim properly a Fay, and so on. Today there are modern equivalents of these primitive risks: a risk not to understand what merchandises are to be required by which customer (who is a core revenue generator); a risk to invest an unprofitable investment project; a risk to make an unprofitable investment project from a primary profitable one; a risk to lose a business due to force majeure; a security risk; a risk of lack of profits; a risk to lose a wealth (of a bankruptcy of a joint venture); a risk of a profit non-maximization, …. Money, financial relations, and even the rudiments of the banking relationships – these are not to be the modern inventions of civilization! Moreover, for the presence of this type of relationships there is no need in civilization at all – they are natural, and they occur even in conditions when a human lives fully inseparable from nature itself. Financial and banking rights, thus, in the opinion of the author and his concept, can be compared with the natural rights of human. Financial and banking commitments – these are themselves the natural rights of another person to get someone”s income. There is no natural right without a natural obligation! In finances and banks the natural rights of one person end themselves where it began the natural financial and banking rights of another person. Financial analysis – this is probably one of the oldest sciences, peculiar to human since the days of primitive society, but to recall the history of its occurrence – you need to have a great memory! In any case, financial analysis may exist among the primitive tribes, as it existed and exists among the tribes of the Ual and Barbeltual islands, as it also existed until 17 century AD within the tribes who gathered in the Great Zimbabwe for millenniums before. Bankruptcy of not only individuals, but even States – is also not an obligatory attribute of civilization. Recollect, though, a story told by Angel Norman, a winner of the Nobel Peace Prize, an author of more than 100 publications on economics and finance, recall the story about how the entire primitive tribe went bankrupt in one evening, when the government of the Kaiser’s Germany, seeking to motivate the local tribes to build roads, privatized All the Fays of all the inhabitants at the island, and it also privatized the analogue of “the central bank of the island Ual”! It happens! On whether a primitive tribe is an analog of state – it is an issue that goes beyond economics and finance to the direction of political science, because in the book I”m about to write, we together with you will not take it under consideration. We simply recognize the existence of bankruptcy in a primitive society. Incidentally, in the primitive society there existed a primitive analogue of the audit – after the return of all the Fays, the inhabitants of the island, before to start the national holiday, they audited all the Fays to be sure their primary value to be preserved and to be sure them not to belong to the Kaiser”s Germany government anymore. Financial analysis as a science has been developing rapidly today. Once the author of this paper read a scanned reprint of one of the first scholarly books on finance; the book was published in 1914 in the United States. Its volume was only 12 pages and this book was a bestseller. Over the 97 years that have rapidly elapsed since the publication of that book, the tools of financial analysis are some expanded, and, in a geometrical progression at that! Because of that fact my future book will be a bit more than 12 pages – so, please, preserve your patience! The mastering of modern techniques of complex financial analysis requires a lot of diligence and patience!
Part II. The psychological aspect of business,
or Business as psychology
I. “Chief Architect Project ”
One of the key aspects of any business is exactly the psychological aspect. Business – it is primarily a psychology. In business there is no “magic wand”, and, therefore, each method and each model will work as effectively as you attach your efforts to their understanding, comprehension and application. If you have not mastered the techniques and models of anti-crisis management, represented in the future book, it is for sure that, by the way very soon, it will make your competitors, increasing by this their efficiency and financial unsinkable ability at the same time! Business – it is a psychology. The Russian business – is a psychology in square. Russian business has very high demands on the level of a company”s owner and at the same time of its management. If we say about the West, there the main part of any process or phenomenon, in particular, in business – are the actions combined together with an organization. Any success of an enterprise in the west – this is a team’s success, the factor of organization is in core. In Russia it is quite the contrary. It was so, and, probably, it will be so. In Russia the main factor – is the factor of personality! Let us recall the history of Russia. The factor of personality has always played the prior role. For example, a factor of Peter the Great and his transformations, that were literally “pulled” by him. He was gone – all at once changed. After his death, another identity came to power, and the state policy changed in all the levels. The same thing can be applicable to any Russian enterprise. There the main factor – is the factor of personality! The leader, who is also at the same time the owner, “pulls” behind him an entire team, an entire organization, all the marketing, etc. – this is the basic formula of business in Russia. The formula of a successful business is highly dependent on an individual, on a leader: The leader pulls a whole team and organization, sharing authority and giving orders to managers who should have delegated further orders. The leader always keeps his hand abreast to feel the pulse of his company. Also, any failure in Russia – it is not a failure of the company”s collective – it is a failure only of its owners. Leader, the owner of a company, – is the main engine of the company in the Russian reality. And there is another reality – Leader may rely primarily upon himself. Therefore, his preparation must be singular. He has a lot to know and he should be able to deal with this. This future book is designed to help you in this! Did you know that in Germany there is almost no such term as “manager” or “managing the company.” They use another word – “Firma Führer”, and the management process is called “Firma Führung.” Therefore, the “Führer” in Germany – is not only some “mister with mustache” – it is also a good word for an owner or manager of a firm. This word means a complete control of the owner or manager of business, a control of all the business-processes, a control over subordinates, on their motivation, a control over the finances, over the anti-crisis management, over strategy and tactics of business, over many, many elements inside a company. Therefore, it is not only in Russia, where the requirements for owners and managers of a business must be special…. In the west, the main factor of success in business, as well as in any other field – is a factor of the whole team acting together, of their teamwork. Therefore, a corporation in the West has every and all rights to be called “the Organization”. Saying about us, we have to deal with a fact that the most appropriate term for the company – it is “Enterprise” – that means something that was created, organized and made by the leader of the company by himself, at his own risk, and that was pulled out by himself and by his direct trusted people and also who motivated people to work and to bring some income when it is possible. If we say about the west, such companies are rare, I mean the companies where the leader plays a major role in the company by just “pulling out” his company behind himself, as it is an often phenomenon in Russia. In practice, such companies in the west to be called “chief architect project”. Among such companies in the west that are successful (there are just few of such companies there) can be distinguished, above all, Microsoft and Starbucs. Their owners upon themselves do lead their companies forward; they develop a master plan and the main directions of development, and they constantly supervise all activities of their companies. As you can see, these companies may also be successful not only in domestic, but also in global markets! But for doing this they need to know so many things, above all, deeply studied finance and anti-crisis management. That is why, it is the Russia’s business that requires special qualities and skills from leaders of companies, from companies” owners. They need a lot of things to know and be able to understand and the activities of their companies. It is also necessary to possess the advanced techniques of business data analysis and of development of anti-crisis and strategic plans. The Russian business dictates to their owners so they to be “principal architects of their business”, of their company; it dictates so they constantly to keep abreast to feel the pulse of all their business affairs, above all, of psychological and of financial and also of anti-crisis. “The chief architect project” requires a lot of knowledge and skills from the “principal architects” themselves. The practice shows that other business-structures proved to be low-viable at Russian domestic and especially at international markets. The book that is about to be published provides the necessary set of knowledge, skills, information, best practices and models, descriptions and comparisons; and also in this future book there are given concrete examples to complete the perception, and also for the same reason all the calculations are repeated on the given examples. That is why every leader of every business, every owner of every business, every “chief architect” will be able to gather useful information about anti-crisis management of company. Any business, as well as the anti-crisis management of business consists of two parts that you need to know – this is Finance as a psychology and Finance as financial management, primary, the Anti-crisis one. Anti-crisis management is always aimed at maximizing the effectiveness of any company”s activity at risks minimization, and in case when an owner consciously rejects from the risks minimization at aim to receive additional incomes, anti-crisis management gives a unique opportunity to evaluate the risk and also to foresee all the “pitfalls” that need to be avoided by an enterprise. II. Finance as a psychology In fact, people started to consider business and finance as a psychology in the late 17th century in Japan, it is almost 350 years ago. The Japanese generally consider finance, business and commercial relations primary as psychology. So the first part of my future book will be devoted to finance as a psychology. In the West, psychology as a science emerged only about 100 years ago, and few people knew that in far-away Japan, 200 years prior to the first scientific works in psychology in the west, the first works on this subject appeared. The Japanese business-psychology appeared more than 300 years ago. And it is paradoxically, that we know virtually nothing about it. This is a big omission, considering to what a well-deserved reputation the Japanese companies and Japanese business analysts have. Why do the business-psychology systems, which have been used in Japan for centuries, remained unknown not only in Russia but until recently in the West? Answer to this question is known by no one. Perhaps the Japanese were trying to hide something; maybe they deliberately did not allow a leakage of scientific information from their own country? Or maybe their models, until recently, were considered not the ones to be interested in? The origins of the business-psychology as a science are associated with the city Osaka (Japan). Osaka, after the unifying war in Japan, when the Japan became a unified empire, became the commercial center of Japan. It was not easy, and the lives of people in Osaka because of it were very hard. The fact was that the merchants in Japan were considered as the lower social classes – in fact at the level of slaves. In Japan, there were five classes of society. The first and most notable – it’s military, the samurais and their families, who often had plots of land on which the peasants worked. The second class was also the military – “Warriors that do not have a name” – these, too, were soldiers, but they did not have the honorary title of the Samurai in Japan. The third class of society was the peasants and artisans. The fourth and fifth classes of society were in fact equated with each other – the slaves and merchants. In Japan, until the late 18th century, merchants were considered as the lower classes of society. It was believed that the merchants do not produce anything valuable, that their wealth – it is a pure speculation by means of margin on the trade – of the margin caused by selling the same products within different regions. Once the merchants do not produce anything, it was believed then – they could not be richer than an half of the average peasant family in their state, that is, they might have to possess the property in total at 50% less than the peasants. If a merchant started to earn a wealth, people began to say about him that he was “profiting out from others” work”; and this wealth was to be taken away and divided among the inhabitants of the same village; part of the wealth was to be retreated to the State, sometimes all the wealth of such merchant could be withdrawn completely to the State. There were merchants who opposed it. In this case, if they refused to voluntarily give up their “acquired by dishonest work things”, they were a subject for execution; and if the property of merchant was especially great, it was often when they executed his children, and he himself could be sent to hard work at penal servitude. Merchants in history had traditionally been the lowest class of Japanese society, and their fate had always been unenviable. But since 1500, there began large-scale feudal wars in Japan. Local feudal lords (in Japanese, “deimyu”) urgently needed the money to finance their military campaigns. The merchants were once again under severe persecution. Many people had been executed at all together with their families or were sent to forced labor. But then, three of the most successful generals started a process that would later be called as the “Association of Japan”. Their names were Nobunaga Oda, Hideyoshi Toyotomi and Yasu Tokugawa. They conquered one after the other all the local principalities and created a huge single empire. At these times General Hideyoshi Toyotomi conducted an unprecedented for Japan experiment. He allowed a “free” trade in his central city, which he regarded as his capital, Osaka, but it was allowed only under a strict government supervision. Merchants still, even in this city, could not get richer peasants, who, as they believed, were a direct producer of public goods, and merchants were thought to produce nothing, therefore, they should not have to live richer than farmers. The military took away all from a merchant who succeeded in making, at least, some wealth. Thee who resisted, they were executed or exiled to penal servitude. Thus, Mr. Iodo Keyan was a merchant from Osaka who supplied food to the army of the Hideyoshi Toyotomi; and Hideyoshi himself after all took away his wealth and his belongings till the last penny, in fact, this former merchant was left with nothing at all. Osaka – is a unique place for Japan. This is port city that quickly became the commercial center of Japan. Each merchant had to know psychology to accumulate some wealth and also to keep it in future. Thus, in the late 17th century in Japan, there started to appear the first sketchbooks devoted to business-psychology, although their mass reproduction will begin only from the 18th century. In Europe and in the U.S. people started to create sketchbooks and to print books only from the mid-20th century. Around 1670 – 1680 years in Osaka, Japan, they launched Japan’s first rice wholesale exchange, which in 1710 went virtually to trade new stocks and bonds in Japan – the Futures (Futures in the world appeared only the mid-20th century). These were hard times for merchants in Japan, and even that exchange was a semi-legal market. In fact it is so, that in 1615, Shogun Tokugawa came to power in Japan. His family will hold on to power even until 1867. One of the first decrees of the new Shogun was an order, under which anyone who divulge information about Japan to “strangers” was subjected to a terrible death penalty together with his family. Anyone who have divulged any information about the country, they were to be immediately executed. It should be said that such orders had acted even before the arrival of the Europeans, they acted among the local territories” princes in Japan. So, for every careless word or disclosure of any important information about the local principality, people could be immediately subjected to death with their families. So there was like a tradition to use the Japanese allegory, that is, and that led to the Japanese language had become an indirect one, more focused on images.Munehissa-Sokyu Homma – was a legendary person in Japan. Japan still has a saying: “No one is to become as rich as Homma”. He was the youngest son in a family of simple peasants, who, nevertheless, were considered prosperous. It was he whom the family entrusted all their fortune after his father’s death, for though he was a junior, he was also the smartest among all the sons. He went to Osaka. And the first thing he began to study – it was the psychology of traders: both retail and wholesale traders at their inter-relations at the commodity exchange. He created two sketchbooks, which will become “the best sellers” in Japan for many centuries to come, up to date. His first book devoted to mass psychology, and his second book – to techno-mathematical analysis of the market with the Japanese candles. From his own knowledge and experience, he has managed to become the richest man in Japan. He was so rich, that he led the national currency out of a niche “top-popular” and “commonly used”. In fact, he made the Futures so popular that it became more popular than even money in his home country. Every merchant, every feudal lord, and even every farmer kept a large portion of their savings in Futures – that were like a kind of securities. He and several other merchants managed to cancel the ban to be prosperous merchants, the ban to be more prosperous than peasants. According to legend, the government took away from the very Homma his wealth for three times, leaving him only with his family’s farm. And three times he was able to get it back again and multiply. As a result, even the Tokugawa family members themselves (the actual rulers of Japan) have to say that “they will never get as rich as Homma”, and they removed all restrictions on trade and merchants, which had existed in Japan before. Restrictions were canceled gradually. In 1710, the Exchange in Osaka was officially sanctioned. And by 1810 the last province removed the last restrictions on merchants and trade. But, seemingly, the prohibition on disclosure of information to foreigners had to stay for many years in Japan. By the way, did you know that Japan – is not quite a real name of the “Land of the Rising Sun”? The Japanese call their country as “Nip” or “Nippon” in dependence on the way of pronunciation. The word “Japan” comes from China, “Ja – Pan”, or “Land of the Rising Sun”. This name became popular after the victory of Japan over the armies of the Genghis Khan Empire (the Golden Horde) in the late 13th century. Army of the empire of Genghis Khan attempted to seize Japan twice, and they were defeated twice; in the last expedition about 2000 Genghis Khan Empire”s ships were eliminated. The history still doesn”t know the way in which Japan was able to win this army. The Japanese themselves informed the rulers of the Golden Horde, that “The Holy Storm” (in Japanese “Kami Kaze”) sank all their ships. After it the so called “liberation odes” became popular in China ; in this odes Japan was called poetically as “the Land of the Rising Sun” (literally: “Ja-Pan”), that is the name this land was represented to the Europeans and after – to the whole world. The basic meaning of these odes was next: if a small island was able to defeat the Horde, then we can, and China has relatively quickly, in about 100 years, throw off the yoke of the Horde. And instead we got the name Japan! Homma himself, as well as subsequent economists in Japan, developed their economic school, radically different from the classical economics of Adam Smith”s school in Europe. Homma said: “Small (company) – it’s like a small army – everyone will be able to break it, a large (company) – this is a great host for the enemies and, at the same time, a big family for the soldiers”. Subsequent economists have developed a model of monopoly as an ideal model of the market. Japanese economists argue that the monopoly behaves like a perfect competitor in the external (global) markets, and it has much greater possibilities and greater financial unsinkability, financial strength; this is, by the way, the same thing Homma told about. Ever since Homma, in Japan there exists a system of lifetime employment for workers – a phenomenon when a person is taken not just to work – an employee is regarded like if he is taken to some family. If a person doesn”t do his job well in Japan, he will not be thrown out of company – as well as a family doesn”t abandon its relatives, – such employee will just be transferred to a more low-skilled position, which he will manage. In the West, particularly, in the U.S., where it is paid a major role to the Japanese economy and business psychology study, people have also been making attempts to introduce a system of lifetime employment for its employees. But none of such attempts achieved any success even now. For an employee of such companies an employer stays just as “an employer”, and nothing more. In Japan it is accustomed the companies care about their employees, their parents and their children. As a result, they were able to increase greatly the productivity of its workers. A few words should be said about the Japanese Futures. The Futures came into treatment and turnover in Japan in the 1670″s, and it became an officially accepted paper only in 1710 in Osaka. The Rice coupon – this is the name of the first in the history of the world futures contract. When concluding such contract, a farmer undertook to deliver a certain quantity of rice at a certain time in future. The feudal lords also send the surplus of rice to warehouses in Osaka, and instead they were provided with the same rice coupon issued in exchange for the rice. During the times of Homma, rice contract actually replaced the money in Japan, and, at the same time, they let to avoid high inflation, because the futures – they were something like “paper money” in Japan at this period. Thus, in the middle of the 18th century, there were one hundred and ten thousand bales of rice, and all of them were mostly virtual and issued in the futures contracts; at the same time and in fact in all the Japan there were only about thirty thousand bales of rice. Homma, as a result of his trade at the exchange, even more increased this ratio. Doubtless due to the time of the merchants” persecution that lasted for thousands years in Japan, they have a low of social differentiation at such parameter as income level at present time. For example, in Japan, the difference between the statistically most highly paid and statistically the most low-paid workers is only 10 . That is, on average, the highest paid employee in Japan (eg, manager of the firm with a worldwide reputation) has only 10 times more income than the lowest paid (eg, janitor). Japanese philosophy, if we study it, is full of the theory of Chaos elements (I have not said catastrophism)! According to the Japanese philosophy, nothing is connected with nothing; there are no interconnections between the different philosophical essences. “Wag of a butterfly’s wing can produce a typhoon halfway around the world” – interpretation of a Japanese proverb. That’s the psychology, according to Japanese philosophy, that connects everything in the world. So, if rice”s cost is 20 grams of gold per kilo, the person psychologically adjusted to buy a kilo of rice in exchange of 20 grams of gold, and to buy it at a very certain particular seller. It is the mass psychology that in priority forms the inter-connections inside the human mind. By itself, rice has nothing to do with gold, as like as gold has nothing to do with rice. A person is not connected with gold, as well as with rice. That is the psychology that forms the connections between the essences. In this example, it is psychology that forms the exchange value of rice, the rules of exchange, the equivalent measure of value and other parameters. A mass psychology, or mass consciousness, creates a private consciousness. Homma went to such like thinking in the 18th century. Later he would develop this theory to complex technical-mathematical analysis of the market by means of Japanese candles. This technique allows us to understand this psychology of masses when buying-selling securities and large parcel-lots. Japanese economists, financiers and stock traders are among the best in the world! The Japanese psychological theory also covers pricing in the market. A person is set psychologically to buy exactly this (eg, rice) in exchange of a certain fee at a certain seller. According to Homma and his followers, namely psychology plays a crucial role in the market. If you combine this with the Western model of perfect competition, we”ll get the following. When it is a perfect competition, when the number of buyers and sellers is the most possible, it is the psychological theory that will play a key role in determining the competitive advantage of the seller of some goods and services, because the price is theoretically the same, the supply is huge, and market demands goods and services within a limited scope. A person – the buyer – will follow its psychological mood in priority to buy an exact product at an exact seller at an exact price. But! The psychological theory suggests the maximum courtesy of seller. Always! This is a constant condition, according to the concept of the Japanese economy. In this chapter I will try to justify the need of not just politeness, namely of the maximum courtesy at customer support and servicing at selling them some goods, works and services by your organization. So, business psychology originated in the “Land of the Rising Sun” in the late 17th century. And it also originated in the West in the early 20th century, independently of Japan. The first in the full sense scientist in psychology was Sigmund Freud. For business-psychology it”s useful his motivation theory and the theory of psychoanalysis. The critique of Freudian theory is also useful. In general terms, the critique of Freud’s theory can be contained in one little phrase: “The complexity of psychoanalysis protects it from even a small scientific scrutiny”. And since the times Freud was born, a lot of concepts and ideas appeared in the field of business-psychology. I recommend you explore them yourself! This is very good for business. In general, any business consists of three basic elements (3C): Concept, Customer Capital, – located in the descending order of importance. The leader of the future company invents and develops some sort of business-idea, of business-concept, which aims to bring his earnings in the future. Then he realizes it with the use of owned of “somebody else”s” capital. The final source of income is always a client. That is the client to play a key role in this model. Why Customer and not Staff is the basic element of business? Try to ponder over this question! Analyze the Japanese psychological theory, which implies the maximum courtesy of seller. According to the theory of management, staff can ruin any idea, even the best one, and literally to “flush the entire capital of the company into the WC pan”, intentionally or unintentionally. Staff is able to deter any client from a company, even the one who thought most positively about your company. Yet, in spite of everything – it is a customer rather than a staff is the key contributor of well-being to yours” or somebody else”s business”s. Client – is a generator of income for company, the source of that income. The company policy should be oriented towards the customer, and the customer is the one the business-concept should be adapted for. Capital, in the ideal variant, should help the company only until the moment when an enterprise gained certain customer base. Therefore, the fundamentals of any company”s success – is its target audience, which ideally should be formed at something like a Club of customers. I will say here a very simple truth. According to statistics, it is 10 – 20 times cheaper to hold a client than to get the new one. And for some reason, few companies in Russia are aimed at it. They are more focused on getting the new audience. At the same time, they rarely supervise the quality of customer service, for the fact whether a customer is satisfied after the purchase (of goods, works and services) at a company! In order to realize the importance of customer, – let’s imagine a typical pattern of company”s interaction with its Client. Moreover, let us suppose that a company just lost a customer for some reason. Therefore, this company will not receive part of the expected income in the future. Let us now imagine that the owner was waiting for today to get this part of income, for example, to buy a mink coat for his wife. This time he didn”t receive this income, therefore, he has not enough money to buy a mink coat for his wife. He calls his friend to the company, which sells fur, and he says that he has yet the circumstances and he can”t come today to buy a mink coat, which he asked his friend to pick it up and to put by in advance in his shop. Director of the fur shop has already chosen a new car to replace the old one. But … he didn”t receive the proceeds of selling the mint coat today, and, therefore, he doesn”t have a significant portion of the necessary amount to buy a car. Videlicet he expected to receive that amount today. He calls to his acquaintance who works in the automobiles sale center, and then he says he can”t come in today to buy a car from him he expected to buy… The auto sales center seller, who is familiar with the previous guy, in his turn, was going to go on vacation with his wife, hoping now to get to get this proceeds of money as a percentage bonus to the salary from the sale of the machine to his friend. But money is not received, the familiar doesn”t come, and, consequently, he doesn”t have the full amount for that to go on vacation. He calls to the travel agency, where he always orders the tour, and he says that circumstances had changed and he would not go on vacation until… In the travel agency they were going to give publicity to promote the falling demand for its products. And they didn”t receive a part of the revenue that they expected to receive for sale the tour to the auto-seller, and, therefore, they don”t have funds enough for ads. Director and staff of an advertising agency … … I think you can imagine for yourself the further chain… … And it is still only an half of the chain! It is a descending chain of payments, the nonpayment from such client of the very first company just “rolled” upon this chain down. There is also a rising chain. It is as follows: Each person, according to statistics, knows, on average, 200 relatives, friends and just acquaintances with whom he constantly communicates. If for some reason this person went as a totally dissatisfied customer by the quality of goods or services of any company, this person will tell it to them, they can tell their relatives, friends and acquaintances, and those can tell to their …. and so on. And they will not use the services of “compromised” oneself firm…. And they will go to your competitors…. Thus, the loss of a single client can turn into a strong chain of nonpayment reactions. Let’s imagine this schematic: Thus, as it is seen at the scheme, the loss of a single client by company has caused a powerful chain reaction of nonpayment in the economy. Due to this an acceleration effect begins to operate in the economy. It acts like that. Imagine that every business owner who has not received a certain amount of money from his clients still wants to get them. But the client does not carry money. What is the business owner going to do? What do you think? Try to think about this question…. In general, such entrepreneur has only two major ways out from this situation: to accelerate (“to hasten”) activity”s turnover of a company, or to raise prices so that other clients theoretically to cut off that LOST of money by their purchases. Also, competitors in some cases are likely to change prices on their products. In addition, someone of thee who buys something at a higher price, such person seeks to “earn” this additional amount of money that he spent on an additional purchase of a product, which used to cost less. It will also initiate, mostly, either to accelerate the “pace” of its business activities or to increase its prices (if this subject is an employee – then it will mean to demand higher wages for its labor). The increase in prices, as you know, leads to inflation in the economy! Now, let’s look at the second variant, the one with accelerations of companies” business activity. They try to run faster on the market, by all means to stimulate demand in order to sell a big volume of products. Their competitors are behaving rationally (that is so, they do basically behave themselves on the market), and they will also accelerate their turnover. Due to this firm in the economy will begin to produce more and more products at the same time constantly stimulating the demand. Ultimately, this market segment will produce much more goods and services of a certain type than their clients, in principle, are able and capable to buy. A crisis of overproduction can start in an industry and, worse still, even in economy! The main conclusion from this is next. The crisis of non-payment of even of a single client (and even more so if there are many such “clients”) always leads to a chain reaction of nonpayment defaults, even in unrelated sectors and industries; that can achieve such a magnitude enough to cause a hyper-acceleration effect inside a certain market segment, or even inside the whole economy; that, in general, causes the powerful coils of inflation and the crisis of overproduction in the market segment or in the economy. And, plus to this, the loss of even one customer has the opposite effect of strengthening the chain reaction of nonpayment defaults from other customers for that company, which lost customer, because, as already stated, every person knows in average 200 acquaintances (including friends and relatives) . This will cause an even greater effect of defaults and, consequently, an even greater acceleration effect… And so on. You see, my dear entrepreneur, how closely is linked the entire economy as a whole! It should be noted that the effect of acceleration in the economy – is a major cause of inflation in the country and of crises. As a result of losing a customer, who is a major source of income in any company, it may happen next. If you, my dear entrepreneur, are not the one to be fully solvent, those firms with which you are interconnected – they also may lose some of their profits. Therefore, they may also lose some of their ability to pay, because they will not get that part of money from you, which was calculated in their business-prognosis or intentionally wanted to be earned at a “certain date”. If they did nothing to earn, therefore they may have nothing to spend. Therefore, the firms that wanted to get some extra-income from that firm who wanted to earn some money from you, they may have also not so much to earn, therefore, not so much to spend….. That is how a chain reaction of defaults tends to get started in the economy. The reason of a big chain reaction of defaults may be found within a small problem a certain firm lost its, probably, only one customer and … such a small factor caused an inability to pay for another “small” merchandise or service….. On the other hand, the client with whom the firm was incapable to agree may be once caught in a process of telling to every and each his or her relatives and friends something negative about the insufficient quality of goods and services, who then also may do the same with their relatives and friends…. Such a consequence may cause a damage of the authority of, probably, your own company! Losing even one client – this is a huge loss for Your company, this is a loss for the automatic-advertising-mechanism (AAM) *, which, in its turn, may cause a loss of a lot of money, a loss of image and prestige of Your company. You all know the old truth that “everything genius is always as simple as a wheel.” And now we have together considered one such simple and important “Business wheel.” In the west people have long been fighting for every customer. They know the statistics of chain reactions of non-payments, and they know what it means – to lose a Client, and how much such a loss may cost. In Japan, for example, it is accustomed that when, for instance, a container with 10 000 luxury cars came, and one car was found to be defective, – they take the entire container back, and bring a new one, often they give this container for free as a “token” of compensation for moral damage! This is done to ensure that the “Western clients” not to “noisy” and say that Japan began to “push forward” its defectives to U.S. markets. And for this Japan has a high image, especially in the field of automobile production. This image plays an important role in restoring the economy after the recent cataclysm. The Japanese cars are considered both cheap and durable, and also their engine system works for 50 million hours without breakdowns! Everyone knows about the high quality of Japanese cars. And the quality must not only be done high for once – You need to keep it high forever! The company’s image must also be maintained forever! The hardest part – is not to get a good image! The hardest part – is to keep it! For example, the Coca-Cola managers – they know that a year without advertising is enough the company to lose much of its world markets forever! Let’s move now to the three whales of business: Idea, Client and Capital.
Image – Scheme: Three whales on which holds any Business
Therefore, the business consists only of three basic components: Idea, Customer, Capital. Staff, as an element that can ruin any business and liquidate all assets, does not apply to the basic components of a company, particularly in Russia!
Part III. The origin of the practical use of the risks matrix analysis in managing the systems in Europe
Thanks to new technologies of digital silicon wafers, we now have the opportunity to get acquainted with the Giulio Parigi”s book, which is now available in electronic archives of the Library of Congress in U.S., and it is of substantial interest in solving the problem of history-graphical interpretations of the birth of the risks matrix analysis in the management of systems in Europe.
It should be said a few words about the fate of the manuscript. Until 1944 it was in a private collection of L.J. Rosenwald (Lessing J. Rosenwald), a famous collector of rare editions, who realized its cultural and historical significance and handed the manuscript to the Library of the U.S. Congress. According to the conclusion of expertise, the manuscript was created in the next time interval: from 1592 to 1608 A.D. Much of the book was written at the end of the XVI century and in the early XVII century; then it was supplemented with some pictures. The examination confirmed the author of this work – Giulio Parigi, a practical mathematician who lifelong created military machines for the cities that were in the territory of modern Italy, as well as for the Spanish Empire. The manuscript is written in the Old Italian language with a high proportion of Old-Spanish, mainly classical Iberian dialect. The work itself is made in the form of the author’s monograph with text and illustrations on one side so, that the reverse of the sheets remain blank for the next possible author”s or readers” records. One should also mention the lack of a clear numbering of the sheets in the manuscript. In this case, the numbering is based on the silicone matrix copy of the work, where the first digit is a lateral cover (matrix 1), second digit is a hardcover, the third – is the page after the spine and so on. Thus, the cover, made by the author himself after the hardcover, it turns out only on page 6, and the author’s preface – 8. Calculated in this manner, the book has 601 matrix sheets . Long before the advent of the classical European tradition branch, there appeared and then was developed a special approach to matrix analysis. It was based on the practical use of matrices to analyze the risks in the management of systems that had profound economic implications. It can be regarded as a striking example – the birth of the practical use of the matrix analysis of risks in the management of systems – and it all can be found in a handwritten essay of Giulio Parigi (Julio Parigi) “Fronte capillata” (“The hairs on the forehead,” old. Ital. / Spanish.). This comic title describes the circus acrobat – a scientist who tries to understand the laws of mathematics and fortification, and because of this he rides a gun kernel dressed in the ancient Roman garb with his “hairs on the forehead,” which in addition stand on end. This picture was drawn by the author on the first page of his manuscript. The first rudiments of matrix analysis have appeared in ancient China. However, the “magic squares”, as they were known in China and India, they were invented in 2200 BC presumably by Mr. Lo Shu, – all these matrix had little practical use. Then there was created an ideal matrix (sum of rows, columns and diagonals are equal to each other, and the sum always gives the same constant). Any deviation from the ideal matrix immediately reduced its value. The so-called “demonic” magic squares were also of high value – they are the matrixes, which coincided with constant sums of the numbers of broken diagonals. However, such matrixes were also out of wide practical usage. In the European tradition, matrixes were used in the art till the end of XVII century – middle of the XVIII century . Widespread practical use of analysis, based on matrixes, appeared in the second half of XIX century. Risks” matrix analysis was used mainly in the III quarter of the twentieth century. This is a classical branch of the matrix analysis development. The important thing is what the author meant by the system. During the gradual transition from the era of the late Middle-Ages to the Renaissance, yet there was no economic science as a separate branch of human knowledge. The largest system was the city itself, which was an industrial, commercial, trade and military “hub”. Particularly important system was the capital of a state, the loss of which meant the most significant crisis. “Theorization” of mathematics” sciences and its partition, the matrix calculation instead of pure notation, it was made much later, after almost 250 years after the publication of this manuscript book. The conclusions and proposals of the book were, most likely, the ones to have been practically applied. There is a possibility of their application in the construction of a model of an ideal city-fortress ” Bird-City ” in the South American colony, and Peter-and-Paul Fortress in St. Petersburg was built largely under the laws of the Giulio Parigi”s inferred concept of ideal military fortification for commercial and political centers. On page 412 Giulio Parigi describes the matrix depending cubes of different substances (water, stone, marble, iron, and alloys (iron and lead)) from a fraction of the ideal proportions to create defensive line systems (ill. 1).
Illustration 1 – The illustrated matrix of blocks of different substances
Under the systems” management in the manuscript it is included next. First, under the system he understood the management of commercial, industrial and domestic infrastructure of the castle to be built in accordance with the ideal matrix. The most perfect system he thought the quadratic-matrix-system-location of this infrastructure as it is shown in a matrix with artistic illustrations (p. 336). The matrix is divided into zones: F – area outside of the matrix – it is considered to be an empty space; A -area of residential infrastructure, it corresponds to the extreme rows and columns of the matrix; B – zone of industrial-commercial infrastructure – it conforms to all the top interior columns and rows of the matrix, except for the center; Zone E – corresponds to the dislocation core of military infrastructure, this is the ideal center of the matrix; D is the area of commercial infrastructure, which is directly linked to the military (food stores, distribution networks for the military purposes and so on). Zone C represents only the military sector of infrastructure; the fortified zone G sector meets “the last stronghold” purposes, that must be used to resist if the city (outside the zone) will be busy with the enemy, – according to Giulio Parigi, – it is the lower right cell, which is located from the bottom up – just inside the cell at the matrix. When the ideal matrix is complied in practice, it should reduce to minimum the risk of a system”s demolishing due to the capture, and also due to other crises trends of the environment, by which he meant chiefly military crisis trends of the environment (ill. 2).
Illustration 2 – The illustrated matrix of ideal city”s risks minimization
Thus, based on matrix analysis Giulio Parigi developed, the ideal systems” management tries to minimize the risks of this very administration or management (of the old. Italian Maneggiare – “Get in hand (a tool)”, “Something to do using one”s hands” and the old. Lat. Manus – “hand”). Get in or pick up an instrument intended to be used to create a system with minimal risk, at those times to fulfill this purpose the construction process was very much needed. It was necessary to know how many resources and “what goes where” for the construction in the process of construction. Giulio Parigi calculated it all on the basis of developed by him practical applications of matrix analysis. In these conditions it was possible to calculate in advance the exact amount of resources needed, therefore, the exact amount of money that are needed to create a system with minimal risks, a system to be able to withstand the crisis changes in the environment, mainly, military expansion crisis. Based on the matrix, according to Giulio Parigi, one can determine whether resources are enough to create the ideal system. If not – then Giulio Parigi offers a wide range of cheaper in the implementation not so “perfect systems”, which are listed at the beginning of the book (pp. 46, 48, 54). One of those “cheap” system, in terms of the amount of the necessary resources, is given in the form of broken triangle (p. 54). According to the calculations made with the transformation matrix, the creation of such a system would take very little resources, and, at the same time, the risks of this system with a limited set of inputs will be minimal possible. Second, under a system management Giulio Parigi understood managing of set of siege weapons, in particular, based on matrix analysis. At the same time, Giulio Parigi applied matrix analysis to create projects, schemes and designs of an ideal system. Primary, Giulio Parigi invented the Camera obscura principle, re-invented only by the late XVIII – early XIX century, when making a photo started to develop itself. Principle, described by Giulio Parigi, the Camera obscura principle is used today. A section in the manuscript of Giulio Parigi is devoted to the Camera obscura principle (p. 480 – 540). Giulio Parigi begins with an introduction to the reader with the principle of Camera obscura, which is in an exact copy of an image by an artist (p. 480). The image passes through a lens and projected onto a special treated canvas on which the artist displays a replica of the image (p. 480). However, Giulio Parigi considered such use of copying acceptable only for professional art, history and architecture. It was necessary not simply copy models when constructing models of systems, – it was necessary a high-precision copying.
Illustration 3 – The offered by Giulio Parigi Camera obscura principle
with using a matrix and without it
To do this, the scientist develops an accurate image transfer matrix, using which it was possible to focus a point on a canvas, or a line, – depending on the stage of precision copying. The such-like principle is used in modern digital cameras, in which there is also a digital matrix correction, which sets clear boundaries of images. To focus the image, in addition to the matrix, it was used also a leverage system – to receive a precise angle of the shadow drop when copying. The paper shows the practical application of the matrix when using a framework to copy, in which some certain cells are made for high-precision-copy (p. 492) (at the modern digital copying technologies at a certain impulse cell-point the impulse code should be clearly distinguishable from the pulse codes of adjacent elements of picture matrix; at the times of Giulio Parigi they didn”t distinguish this matrix clearly – they distinguished clearly only a certain cell-point for a high-precision-copy; then they distinguished another certain cell-point or a line, and et cetera, – until the high-precision-copying process will not be completed). There is a comparison in the manuscript – the comparison of copies of an image without using a discrete framework (very blurry image) (p. 494) with an image obtained using the framework (p. 492). You, my dear Reader, may see such comparison at an illustration above. Of course, the practical application of matrix analysis, that wasn”t developed then both methodically and methodologically, – it adversely affected the completeness of the application of modern for Giulio Parigi methods of matrix analysis. The classic application of the Camera obscura method is given on page 500 in the book: there is illustrated how to receive an image from a light passing through a lens in a perfectly dark room on a sample of copying of an image copy of a Gothic cathedral in the details. Giulio Parigi uses the image of a young child as an artist, implying that even a little boy can handle with the copying of complex images in Camera obscura (first photo-cameras were made in a form of such-like dark rooms, where the high-precision-copying-process lasted for many minutes, together with this, the “object for photography” wasn”t allowed as much as even move; the difference of such first photo-cameras from the original method of Giulio Parigi (1598) was in that fact, that an artist was needed, – an artist who could be not much skilled in an art. In this case, there was eliminated a risk somebody will move during the process of “photocopying”, and so there was an opportunity to easily copy not just images of small objects and people inside a “dark room”, – there is also an interesting fact that there was a possibility to copy wide-scale, big objects in a bright sunlight). Discrete-matrix apparatus is needed only when copying models of complex systems – to minimize the risk of errors in the construction of models, the errors that arise from natural inaccuracy in copying schemes and drawings (ill. 4).
Illustration 4 – The optical analysis of an ideal system
A variant of matrix analysis – is the matrix for calculation of the dependence between such parameters as volume and characteristics of the ball, baffle and throat of a gun; the bastion wall thickness and other factors (p. 44). The analysis can reveal the perfect construction for the system with minimal risks for different baseline characteristics and applications. Thus there is a counter-action to the risk of a system”s destruction – by means of an ideal system creation that would satisfy the conditions put in a certain matrix, i.e., it is the model for an ideal system that is calculated with the use of matrix. At the same time, Giulio Parigi considers the risk for artillery to miss the missiles to the enemy. To minimize this risk, in his opinion, a more complex geometry of wall should be used to increase the coverage area for all the defensive artillery weapons. The Drawing matrixes author proposes to compare by using the optical slits in the selected discrete units through which a light ray is projected, – this is how an analysis of an ideal system “perfectness” should be made, the author says (p. 516) (ill. 4).. On pages 260 – 262 there is a matrix that shows the depending between the required amounts of iron, stone, steel, specialists in certain designs of loopholes in the calculation of the ideal number of guns. A consequence of the matrix”s calculation is to establish the cost of the project, which is reflected in its resource-intensive. The author tried to identify the diagonal relationship between the columns, which can be clearly seen in his notes (ill. 5).
Illustration 5 – The G. Parigi attempt to reveal the diagonal inter-dependences of an ideal matrix
Giulio Parigi considered: the biggest risk for a system – is in a variety of risks that can occur simultaneously, such as during an analog cassette bombing of system, when the minimal risk of negative effects of a projectile is maximized at the expense of plurality of projectiles. On page 318 the author describes the gun for a massive cluster bombing of castles, the materials for the creation and operation of which can be calculated from the matrix analysis. The author offers two types of cassette- cluster-like bombings: With the cassette-gun, or by adaptation of the supply mechanism for fireworks to massive launch of missiles filled with high explosive shells prototypes (in the explosion there sprayed gas; while the risk of misses is minimized by a set of missiles, explosive gas and fission products in the explosive element (the analog of the nails)). Giulio Parigi describes in an allegorical way, that the risk of cluster bomb systems comparable to the risk, which gives the devil to the world, setting fire for masquerade to disguise the ship in which he swims (p. 352) (ill. 6).
Illustration 6 – The philosophy of fire
Giulio Parigi, in his manuscript, also creates a detailed drawing of Colt-like-pistol with drum cartridge (p. 286) (ill. 7).
Illustration 7 – Colt pistol, a sample from 1598 year
And also Giulio Parigi, in his manuscript, describes the anti-chivalry-mines (p. 220) (ill. 8).
Illustration 8 – The anti-chivalry-mines
And also Giulio Parigi, in his manuscript, describes the scheme of mines these anti-chivalry-mines (p. 202). The author also gives the type of the bastion, which analogue was later often used in the construction of Russian cities in the future periods of time (p. 136) (ill. 9).
Illustration 9 – The fast in installing bastion
In general, at the end of the Middle-Ages in Europe, there was created an alternative for the future matrix analysis, based on first-hand – in the practical applications of this type of analysis. The author abandoned the theoretical framework of diagonal relationship among the columns in one of his matrices, the matrix needed to be used to calculate the resource requirements for the organization and systems” management, because, apparently, he could not find a practical application of this theoretical construct. Giulio Parigi”s Matrix risk analysis in the systems” management was, in fact, an analysis of the systems themselves by comparing them with the standards based on the matrix. Consequently, using the basis of this analysis, one could calculate the quantity and quality of standard resources that are needed to create a system: stones, wood, metal (iron and alloys), gunpowder and other components. As a result, the world received a theory of ideal systems” building, the systems that are most resistant to the main risk for the environment of those times – the risk of military intervention. So, for example, the first fortress on the territory of present-day Yekaterinburg city in Russia, the city primary built during Peter the Great times, the main city was also created on the principles described by Giulio Parigi (iI. 9, 10, 11 (straightening of the fortress into a rectangular shape in the mountainous terrain), 12).
Illustration 10 – An ideal fortress at river
Illustration 11 – Straightening of the fortress into a rectangular shape in the mountainous terrain
Illustration 12 – Surrounding of fortress with a picket fence
Management, at those times, was perceived on the basis of its practical value – “to pick up the tools” to create a system to minimize the risks .
List of sources used to write the Part III: 1) Giulio Parigi Fronte capillata, LJRC MS 27 # R1363, 1598, 601p.
2) Lamberini D. Two projects: a sketchbook on military architecture and the Frederick Hart papers / / Record of activities and research reports, Washington: National Gallery of Art, 2004