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Thursday 1 April 2010

In the Beginning Were The Accountants

Genesis in a Ledger

In the beginning were the accountants. Mostly people think it was the dinosaurs, or bacteria or bread mould or something. Well, it was all of those things. But mostly it was the accountants.

Despite all the efforts that scientists put into making protons and neutrons go really, really fast in order to achieve the quickest acceleration from nought to sixty, the truth is actually that they’re on a hiding to nothing. The fundamental secret of the universe doesn’t lie hidden in elementary particles. No, it’s in full view for anyone who wants to look: it’s in double-entry bookkeeping.

The Invention of Zero

Way back in the fertile crescent the need to count things led to one thing and another which eventually ended up with early accountants inventing writing in Mesopotamia. It took a another few thousand years to come up with double entry bookkeeping because before that existed someone had to invent zero. You might think that zero isn’t the kind of thing you can invent. It’s a bit like being the first European to see the Pacific Ocean and then claiming you owned it. Although, come to think of it, that’s pretty much what happened.

Anyway, zero isn’t something that you can find just lying around. Numbers started with people counting stuff: “Look, I’ve got three chickens”, “We’ve got nine, no, ten, no, eleven children” or “See, there come fourteen hairy men with really big swords”. Generally there wasn't much call for counting none of any of these things.

In fact it was pretty much impossible to find zero anywhere before it was invented so someone had to figure out that the absence of something or anything or whatever needed a name. “Look”, they said, “I name this nothing zero”. And everyone else looked really puzzled and then started talking amongst themselves in low voices and hoped the weirdo would go away or invent something useful like the pump-action corkscrew. And corks and some wine and those little cheesy nibbles on cocktail sticks that go really, really well with a nice chilled Chianti.

Roman Numerals

Now, however you look at it, the idea of naming something that’s actually nothing is a pretty abstract idea. It’s perhaps not too surprising that the ever practical Romans didn’t come up with it because generally they were too busy refusing to be beaten at anything to spend any time doing anything as superfluous as thinking. Much like modern executives, really. Still, trying to figure out (CLXVII– CV) * XVI would stretch even the most creative of modern financiers, although doubtless they’d plug these numbers into an electric abacus to show that a PE Ratio of CMXCII is perfectly reasonable if you make the assumption that people are perpetually compromised, behaviourally.

However, the old Ancient Greeks were quite good at philosophising about stuff, in between coming up with ridiculous ideas like the Earth going round the sun, the particulate theory of matter and democracy. Heavens, Pythagoras even treated women as equals, an idea that has still to catch on across vast swathes of the world – although the inverse appears to be true in my household. In fact it kind of looks like a few Greek astronomers did use something that looks suspiciously like zero, but generally it didn’t catch on, Greek math was mainly based on geometry and the idea of creating a number to signify nothing was way too abstract for the inventors of modern physics, a problem seemingly shared by their more modern geographic counterparts as they wrestle with the concept of "budget defecit".

Driven to Abstraction

The fact that the idea of “zero” took humans so long to come up with – being first definitely written about by the Indian mathematician Brahmagupta around 628AD, about 30,000 years after we started demonstrating abstract reasoning by starting wall painting in some French caves tells us something fundamental about humanity's priorities: interior decoration first, secrets of the universe later. It also shows that many of the most important ideas in our culture aren’t driven by genes but by environment. Homo sapiens may be sapient by name but it ain’t entirely clear that we were always sapient by nature.

And so it turned out that the development of capitalism and the subsequent growth of humanity had to wait until someone invented this abstract concept, zero, because without zero there wasn’t any double-entry bookkeeping and without that there wasn’t any way of making a profit. Or, come to think of it, a loss. Or at least, telling one from another. And creative accounting was right out.

Quite how, why and when someone made the great abstract leap that made modern business possible is unknown, but we can be pretty damn sure it was relatively late in human history. Once zero was invented, though, vast vistas of exciting accountancy opportunities suddenly opened up for quill-pushers everywhere. Zero enables us to do stuff like addition, subtraction and multiplication really easily and these, it turns out, are quite useful things for bookkeepers such as small business owners and giant accountancy practices.

Accounting for Business

Once you can keep track of money in and money out of your corporation in an abstract form you can start to think about whether or not you’re actually making a profit and that, of course, is very useful information for businessmen. It rather looks like this all came together in Italy somewhere in the eleventh century when Fibonacci wrote Liber Abaci introducing the newfangled Hindu-Arabic counting system. Certainly we find the first example of double-entry bookkeeping in Florence in 1299 in the ledgers of Farolfi & Company, an Italian moneylender and the first proper book on the subject in Summa de arithmetica, geometria, proportoni et proportionalita by Luca Pacioli in 1494.

This didn't happen without the old guard going down fighting against this newfangled nonsense. The city of Florence banned it in 1299, due to fears of forgery - it being transparently simple to change a 0 to 8 for instance. In fact it was probably the widespread introduction of moveable type printing which made zero difficult to change that led to the eventually triumph of the bookkeepers.

Many social theorists like Max Weber trace the rise of human rationality and capitalism to the development of accounting. As Carruthers and Espeland express it:
"Accounting makes it possible for capitalists to evaluate rationally the consequences of their past decisions. They can calculate exactly the resources currently available to them and those that will be forthcoming in the future. Capitalists can use the information provided by an account to assess and compare various alternatives for investments."
In short - accountancy lies behind the rise of the capitalist system. Heaven help us.

Imaginary Accounting

Of course, the invention of zero also makes other things possible. Not only can we count nothing but we can also count specific numbers of things that we don’t have. For only when you have zero can you represent negative numbers and these whacky little beasts are very useful for recording stuff like losses and the absence of money from contracts that you’ve previously claimed you had. In a very real sense, negative numbers make fraud a realistic and possible attainment.

Understandably though, many small business owners baulked at the idea of having to count specific amounts of things that they didn’t have and thus originated the profession of accountants. Before scientists started dreaming up the Higgs Boson and a bunch of other seafaring elementary particles, accountants had to create a fantasy numerical infrastructure for them to work in.

From this it’s fairly easy to see that dinosaurs, bacteria and bread mould must have been later additions to the universe. Only accountants would be strange enough to create the universe upon modern accountancy principles, requiring the concepts of negative numbers, zero and, in the case of the more creative members of the accounting profession, imaginary numbers.

A Cosmos in a Spreadsheet

Of course, there are philosophers that argue that these numerical constructs are artefacts of the human mind which we impose on a largely indifferent cosmos which continues on its way regardless of the amazement we express about the fact that its behaviour can be expressed in only a few numbers, the so-called universal physical constants. Although, typically, physicists disagree about the exact number of these required to adequately understand the innermost workings of the whole damn universe.

We, however, know differently. There are no numbers sufficient to describe the muddled meanderings of the human mind such that only accountants could have created this strange world. This, of course, also explains why most investors don’t like to sully their analysis with actual numerical calculations: like us, they know, that it was all decided long, long ago.

The Nothing that Is: A Natural History of ZeroThe Man of Numbers: Fibonacci's Arithmetic RevolutionMore Than a Numbers Game: A Brief History of Accounting (Wiley Finance)

Related Articles: Gaming the System, Cyclical Growth, Form and Fibonacci, The Ig History of Modern Economics


  1. Nice post.

    I think you're channelling PTerry this fine April 1st.

  2. I want to join a cima courses. This information will be very usefull for me, thanks