Gleeson-White, Jane. Double Entry: How the Merchants of Venice Created Modern Finance. New York: W.W. Norton & Co., 2012. http://www.myilibrary.com?id=336325. --- # Progressive Summary This is a very readable and enjoyable history of the origins of double-entry bookkeeping. It is far more interesting than one might expect. The history of accounting goes all the way back to the origins of writing. # Key Points ## Origins of accounting - Accounting is one of the oldest human activities. - Counting preceded writing. Denise Schmandt-Besserat found early tokens that helped ancestors count. (Mesopotamia, 7000 BC). This was the first visual code and first external memory aid. A cone was a small measure of grain. A sphere was a large measure of grain. A cylinder was an animal. - Writing was the exclusive domain of accountants until 2000 BC, when it began to be used for funeral rites. - Cities emerged around 3500 BC. Archaeologists have found around three hundred token shapes signifying a large range of items: bread, honey, textiles. These tokens would be sealed in clay containers. This was the origin of our modern accounting system. Later, around 3300 BC, they realized they could just unroll the clay into tablets and press the tokens into the surface. The next development was that they simply scratched a 2-dimensional image into the clay. So thinking proceeded along greater and greater levels of abstraction. Spheres became circles, cones became triangles, ovoids became ovals, and writing was invented. - Greece and Rome were the first civilisations to use coinage. Greek and Roman citizens were required to keep meticulous accounts of their financial affairs. A Roman businessman's ledger was divided into 2 pages, one recording disbursements, and the other recording receipts. This was an early form of double-entry book-keeping. - A document dated around 800 AD shows how Charlemagne instructed each manager of the royal estates to produce an annual income statement. ## Crusades and double-entry bookkeping - In 1095, Pope Urban II launched the crusades to liberate Jerusalem from Islam, in answer to the Byzantine emperor's call for help against the Turks. The resulting traffic through Italy boosted the fortunes of the cities of Florence, Pisa, Genoa, and Venice. These cities used their wealth to break free from feudal obligations, local aristocrats, and the Church. - Pisa was granted independence from its local lord in 1081. - In 1082, Venetian merchants were granted tax-free travel by the Byzantine emperor. In 1272, Marco Polo travelled with his father across the Gobi Desert to the court of Kublai Khan. - The merchants of Venice perfected double-entry record keeping to cope with the increasing commercial complexity resulting from the Crusades. It was called the Venetian method. - Double-entry bookkeeping may have originated with the early Islamic State (founded 622) or India. From India, it would have found its way to the trading gateway of Venice. ## Hindu-Arabic numerals - Fibonacci grew up in Algeria, the son of a Pisan customs officer, and he encountered an extraordinary system of writing used by the Arabs. He introduced Hindu-Arabic numerals to Italy. In 1202, he wrote a book called Liber Abaci (Book of Calculation), in which he explained that the Hindus contributed the numbers 1-9, and the Arabs contributed the zero. He used his famous Fibonacci sequence to explain the practical uses of the number system. - The Church authorities viewed Hindu-Arabic numerals with suspicion, saying that they could be altered too easily. Roman numerals would not be dropped until the 1500s. The last known arithmetic book to use Roman numerals appeared in 1514. Medici bank did not use Hindu-Arabic numerals exclusively until 1500. In 1520, German town of Freiburg refused to recognise financial documents unless they used Roman numerals or were written out in words. - In 13th and 14th century Europe, there was an increasing interest in precision. Spectacles to improve eyesight, marine maps for navigation, clocks to regulate the activities of townsfolk, frescoes painted using artificial perspective. In 1335, Philip VI of France gave the mayor of Amiens the power to govern when the residents of the town woke up, when they ate their lunch, and when they went home from work (signalled with the tolling of bells). - The earliest records of double-entry bookkeeping are found around 1300. Giovanni Farolfi's ledger already contains the hallmarks of a double entry system: 1) the idea of an accounting entity (proprietor or business) which records its financial dealings with others; 2) use of a single currency to compare amounts; 3) recording increases or decreases in assets, liabilities, cash and inventory; 4) owner's equity shown as the sum of assets and liabilities; 5) profit is understood to be the net increase in owner's equity (loss as its opposite); 6) profit or loss is measured over a defined accounting period. ## Luca Pacioli - Luca Pacioli was born in the 1440s in San Sepulcro, the same town as Piero della Francesca. There is an amazing story of how a British military officer, Anthony Clark, refrained from using artillery on the town, because he remembered an essay by Aldous Huxley praising Piero della Francesca's Resurrection as the most beautiful painting in the world, and that this painting was located in San Sepulcro. - More about that story: https://www.bbc.com/news/magazine-16306893 - 1494 - At the age of 49, Luca Pacioli publishes "Summa de arithmetica, geometria, proportione et proportionalita", the first printed book to deal with Hindu-Arabic arithmetic and its offshoot, algebra. It was based on Euclid's Elements and the work of Fibonacci. It also contained "Paricularis de computis et scripturis " (Particulars of Reckonings and Writings), a codification of double-entry bookkeeping. - Pacioli was uniquely suited for this achievement. He had taught both commercial (abbaco) and speculative (university) mathematics. He had spent 6 years working as a merchant's assistant in the busiest trading centre in Europe (Venice), and 20 years studying the entire body of mathematics known to his peers: the rediscovered works of the ancient Greeks, the Latin mathematics of the medieval schoolmen, and the advances of the Arabs. - The 615 page book would have taken 9-12 months to complete at the printer's, at the rate of 2 pages a day. It had an estimated first run of 2000 copies. ## Speculative roots of mathematics - There has always been a tension between the mundane applications of mathematics, and its more mystical tradition - One of the first written texts on mathematics is an Egyptian papyrus entitled Directions for Knowing All Dark Things (c. 2000 BC). According to Herodotus, geometry (earth measurement) originated in Egypt in response to the need for land surveying because of the rise and fall of the Nile. - The Phoenicians were merchants and traders, and they specialized in the counting aspect of mathematics. But it was the son of a Phoenician merchant, Pythagoras (c. 569-500 BC), who elevated mathematics to its most mystical form. Pythagoreans divided mathematics into 4 parts – arithmetic (numbers absolute), music (numbers applied), geometry (magnitude at rest), and astronomy (magnitude in motion). - Plato (c. 428-348 BC) continued this tradition of mathematical mysticism. He inscribed the following words at the entrance to his academy: "Let none ignorant of geometry enter my door." - Euclid collected all of Greek mathematical knowledge in The Elements around 300 BC, and it was the 2nd bestselling book after the Bible until the 1900s. - Around 1100 AD, universities emerged in Paris, Bologna, Salerno, Oxford and Cambridge. Mathematics was taught as a form of astrology, useful for calculating the dates for celebrating Easter and other Christian festivals based on celestial positions. - In the 1510s, Pacioli was referred to as an astrologer to Pope Leo X. Only in the mid 1500s was astrology renamed mathematics in most Italian universities. In 1598, the professor of mathematics at Pisa was still required to lecture in astrology. ## Discovery of abbaco (commerical) treatises "Abacco" was the term for the new mathematics based on Hindu-Arabic numerals and taught to the young sons of the commercial classes. By 1338, Florence had six of these abacco schools. They were an alternative to the Latin-based Church schools, and helped promote the use of the Italian vernacular language. This vernacular mathematical tradition was unknown to historians until the 1960s, when abbaco manuscripts and treatises were discovered. Abbaco introduced the use of pen and paper for operations such as adding, subtracting, multiplying and dividing, rather than the old system of using counters on a board, which left no trace of the calculations. It made mathematics more practically useful for solving commercial problems such as discount, partnership divisions, barter and currency exchange. Abbaco mathematics was integral to Renaissance painting and architecture. Piero della Francesca was not only a painter, he was a mathematician who wrote three treatises on mathematics. ## The Venetian method - Venice's rise to commercial prominence began in the ninth century, thanks to its trading activity with the Byzantine Empire. It had a monopoly on salt, which was more valuable than gold because of its ability to preserve food. - The first state bank in Europe opened in Venice in the 12th century. - Its currency, the ducat, was the dominant currency by the late 13th century. Anyone caught debasing it had their right hand cut off. - Venice was unique among the Italian city states in putting commerce over the Church. It signed a peace treaty with the Ottoman Empire a year after it conquered Constantinople in 1453, eager to resume business as usual. It was excommunicated by the Pope several times during the 15th century. - By the 14th century, traders from all over Europe went to Venice to study the new abbaco mathematics, currency exchange and double entry bookkeeping. ## The printing press - Venice also became the printing capital of southern Europe. In 1494, it had more than 268 printing shops, run by Germans or French. They came to Venice because it had a large labour force, low printing costs, a liberal government friendly to merchants, and a vigorous intellectual community. - The first book printed in Venice was Cicero's Epistlesin 1469, but books on commerce and instruction manuals soon overtook the classics in popularity. - Books were 300 times cheaper than manuscripts. In 1500, the price of a book in Venice was about a week's salary for a teacher. This was about the cost of a desktop computer in today's terms. - In 1482, the German printer Erhard Ratdolt came up with a way to accurately reproduce tables of figures and other mathematical symbols, and Euclid's Elements was printed for the first time. - Pacioli was one of the first writers to be granted literary copyright. He was given a 10 year copyright on first publication, and this was renewed for another 20 years in 1508. - The Summa became the most widely read mathematical book in Italy for a century. Pacioli was probably the first mathematician to have a portrait painted. ## Pacioli's bookkeeping treatise of 1494 *Particularis de computis et scripturis* ("Particulars of Reckonings and Writings") was a 27 page, 24,000-word bookkeeping treatise for which Luca Pacioli is best known for. He defined double-entry bookkeeping as “nothing else than the expression in writing of the arrangement of [a merchant’s] affairs”. Using his system, Pacioli argues that a merchant will know “all about his business and will know exactly whether his business goes well or not. Therefore the proverb: If you are in business and do not know all about it, your money will go like flies—That is, you will lose it.” The double-entry method was known as the Venetian method, as it had been practised there for two centuries by the time Pacioli wrote his treatise. Whereas the Florentine merchants still mingled debit and credit entries in a single column, the Venetians divided them into two columns. The word debit comes from the Latin *debere*, to owe. Credit comes from the Latin *credere*, to believe.