A writer and thinker who was also teacher and friend to Leonardo da Vinci, he is depicted holding a book. But it is not a religious or even an artistic text – it is his treatise on mathematics, called the Summa de Arithmetica.
Published in 1494 in accessible Italian rather than Latin, the Summa is today remembered mostly for one remarkable 27-page section – a section establishing the principles and methods of double-entry bookkeeping. Pacioli, more than anyone else, is the father of double-entry accounting and the system of business that it allows.
Double Entry: How the Merchants of Venice Shaped the Modern World – and How Their Invention Could Make or Break the Planet, by Sydney writer Jane Gleeson-White, traces both the development and the consequences of Pacioli’s work. Gleeson-White acknowledges that Pacioli did not invent the method – and did not claim to. Rather, he consolidated a variety of existing tools and concepts into a practical model.
But when the section of the Summa setting out the system was published separately in 1504, Gleeson-White explains, it “went viral” in the emerging merchant class, especially among the traders of Pisa, Genoa, Florence and, most importantly, the mighty trading city-state of Venice.
It was the right thing at the right time. The clumsy technology of Roman numerals was being replaced by the Arabic system, including the new concept of the zero. This was critical, the pivot of Pacioli’s method of balancing assets and liabilities, debits and credits. Without the zero, accounting is just, well, counting.
But the double-entry system was also a revolution in thinking. It provided a basis for objectivity and comparison rather than guesses and opinion. As much as anything else, Pacioli invented the idea of the fact.
And yet he was far from a hard-headed materialist. He advised those using double entry to incorporate explicit signs of religious faith into their work and saw the method as a reflection of divine order. But before long, the system took on a life of its own and developed a quasi-scientific tone, divorced from and even antagonistic to matters that could not be quantified, measured and managed.
Gleeson-White accepts that double-entry bookkeeping brought huge benefits, not least the financing of the Renaissance and a jump in material prosperity. It also underwrote the drift in political power from the aristocracy to the merchant classes. She traces the system through history to the Industrial Revolution, the creation of the limited stock company and the rise of the corporation. She also examines the adaptation of the method to the accounts of countries, creating the notions of GDP, national debt and regular budgets.
But there has always been a downside, says Gleeson-White. No sooner was the system created than people began to look for ways to manipulate it for dishonest ends, and that problem has remained up to the days of Enron and the GFC.
Moreover, as capitalism grew in complexity and double entry gave rise to cost accounting, there were persistent questions as to whether the traditional accounting methods could keep up.
The proliferation of rules and standards, along with the increasing specialisation of the profession, were meant to address this, but the issue remains a thorny one.
Another concern, says Gleeson-White, is that this approach misses many crucial aspects of human activity. For instance, it measures company output but not employee satisfaction.
At the national level, it fails to incorporate the value of work such as parenting. Crucially, it misses non-financial costs, such as environmental degradation, as well as problems like climate change.
Whatever the perceived flaws in the system, Gleeson-White believes that, just as Luca Pacioli’s medieval Venetian accounting adapted to the demands of the industrial age, so today’s accountants will find new ways of dealing with current challenges.
Indeed, from where it began to where it is today, the accountancy journey has seen many important developments – but perhaps none more so than the advent of the double-entry system.
The whole story
Double Entry: How the Merchants of Venice Shaped the Modern World – and How Their Invention Could Make or Break the Planet. By Jane Gleeson-White. Allen & Unwin, $29.99rrp (hardcover), 304 pages, ISBN 9781743311554.
Available at booktopia.com.au and amazon.com (Kindle and hardcover editions).
