In the latest issue of Prospect, John Kay begins his review of The Reckoning by the American historian Jacob Soll as follows: "If Prospect held a competition for the most improbable conjunction of author and quotation, my entry would pair Goethe with the observation that 'the system of book-keeping by double entry is among the finest inventions of the human mind.'" I'm tempted to say that almost as improbable is the fact that Soll has written a riveting book about the history of accountancy. But that would be unfair, because The Reckoning is really a book about political legitimacy and what makes a functioning state. As Kay points out, "Soll sees accounting as the key to accountability"—political accountability, that is. "Louis XIV discontinued Colbert's elaborate book-keeping system because the monarch could not bear the evidence of his own extravagance… Public accounting is a powerful antidote to autocracy, Soll argues…"
Last week I spoke to Soll, who is a professor of history and accounting at the University of Southern California. I began by asking him about the relationship between accounting and accountability.
JS: In English, the word “accountability” really does come from “accounting”. It comes into use when the French Revolutionary constitution of 1793 is translated into English. “Compatabilité” becomes “accounting”. There really is a strict relationship between the two notions.
JD: So there’s a link between accounting, accountability and political legitimacy. Does it follow from that that there’s a close relationship between accounting and democracy in particular?
As I wrote this book, I went to look at the places in which accounting was most prominent. And they were all in republics. There’s a famous book by my friend and mentor J.G.A. Pocock called The Machiavellian Moment. People have argued with him for decades, saying he was wrong. But wherever I found evidence of accounting and transparency, it was as if I was looking at the “Machiavellian moment”. And we see the language of accounting finding its way into constitutions, and political language. There are accounting clauses in the American constitution, for example, which predate similar clauses in the French Revolutionary constitution.
And this is related to the account you give in the book of the different experiences of England and France in the early 18th century—the different experiences they had of various financial bubbles and blow-ups. The reason you give for England coming out of those financial emergencies relatively unscathed was the way accounting culture was entrenched there in a way that it wasn’t in pre-Revolutionary France.
This is really striking. France has many incredibly successful family industries at the time, so it’s not like France was completely backward. But as a historian of France, when I went into the English archives, I couldn’t believe how much more literature and more paperwork there was. It was a smaller country that produced more paperwork. It also produced many more accounts than France. There were more accountants—for cultural and religious reasons—and that seeped into the political culture. By the time we get to the 1700s, England is the most accounting-literate place in the world. And it shows in their politics. But the French couldn’t even find accountants to do the state’s tax books.
So one of the things that happens with the Revolution of 1789 in France is the emergence there of a culture of accounting? This is your distinctive take on the Marxist reading of 1789 as a bourgeois revolution.
Absolutely. There’s this incredible document drawn up by the “Bureau of Accounting and Accountability” in which they list how much it’ll cost to train the accountants. It’s remarkable: the French Revolution begins with scrawled, handwritten accounts and ends with printed super-budgets.
The story you tell in the book is a long one—you begin with the Emperor Augustus and his rudimentary account books. Is there a particular episode in that long-run story which you think is especially significant or decisive? I was thinking, for example, of the chapter on the Netherlands in the 16th century, when the relationship between political administration and accounting becomes particularly close.
That’s the key moment in the book. In fact, since I finished the book, the head archivist of Holland has sent me data on a huge number of portraits of public administrators painted with their [account] books open. This is a place that, before it invents capitalism, spends a hundred years actively creating a culture of accountability. Its leaders expressly say it: we need accounting at all levels of society and then we need this culture of accountability and openness. They build that culture and work to maintain it. And they export this culture—everyone from the Germans to Benjamin Franklin talk about the Dutch.
As you’ve just implied, accounting and double-entry book-keeping predate the emergence of capitalist economies. But you think that taking accounting and accountability as your focus also allows you to adopt a novel perspective on the history of capitalism. You say something to the effect that what you get, if you take this perspective, is not the familiar, cyclical picture of boom and bust, but rather a picture of “inherent weakness”.
This is Max Weber’s viewpoint: double-entry accounting is the lynchpin of capitalism. Without it, capitalism can’t work. But what history shows is that there’s a faulty lever somewhere in accounting, a blindspot. There are moments when accounting fails. And other moments—and I think we’re going through one now—in which we turn away from accounting. What the Dutch example shows is that there are people who realise the flaws [in capitalism] and try to make up for it, and therefore maintain a remarkable level of stability. I don’t want to say that if we suddenly all become fluent in accounting we won’t have financial problems. But I do think that it helps to have a culture that’s fluent in accountability and therefore deeply aware of the cultures of auditing, of balanced books, and of how these things work at a basic level.
In your conclusion, however, you do suggest that there is a kind of cycle here. It’s a pattern that is repeated throughout history—and the recent financial crisis is a good example of this—in which, as you put it, “accounting arrives on the scene with great effect, only then to retreat into dangerous obscurity”. So there’s an endless waxing and waning of capitalism’s interest in its own regulation, then?
Consider this: there is no history of accountability. I looked and expected there to be stacks of books. I found their absence chilling, considering where we are now. I think what we’re experiencing right now is a crisis of accountability, as much as a crisis of finance. We have lost the language of accountability. When the recent crisis broke, I expected the numbers to be brought out—I expected a deep debate in public about the numbers. But it didn’t happen. So we’ve lost this old cultural practice of bringing accounts out at moments of political crisis, arguing about them and then working out reforms on the basis of those arguments. We haven’t had those discussions.
Jacob Soll's "The Reckoning: Financial Accountability and the Making and Breaking of Nations" is published by Allen Lane (£20)
Accounting and accountability
April 29, 2014
