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The Reckoning: Financial Accountability and the Making and Breaking of Nations, by Jacob Soll, Allen Lane, RRP£20/Basic Books, RRP£28.99, 304 pages
The history of financial accountability suggests that bad accounting comes back to haunt those who practise it, both in business and in politics. Enron and Arthur Andersen are only recent examples of the accountancy crises that periodically shake the political economies of powerful nations. Others have helped to precipitate irreversible decline. But if financial and political accountability are two sides of the same coin, why is the lesson that both are necessary for continued economic success continually forgotten, and what are its implications?
That question is hardly new, as Jacob Soll’s book The Reckoning shows in colourful detail. Soll, a professor of history at the University of Southern California, has become increasingly interested in the basic relationship between the rise of double-entry bookkeeping and the political economy of the modern state. The author of The Information Master (2009), a study of Jean-Baptiste Colbert, Louis XIV’s finance minister from 1665 to 1683, Soll sees in the history of modern accounting part of the necessary information management machinery required by successful modern nation-states.
The first systematic presentation of double-entry accounting was published in 1494 by a Franciscan friar and mathematician called Luca Pacioli. By then, successful merchants had already been practising it for almost two centuries but it was Colbert who transposed the bookkeeping of the merchant on to the state with dramatic effect. Over the course of nearly two decades, he drew up for Louis XIV miniature double-entry account books that the king could carry around, showing his expenditures and revenues. For a ruler on a mission to revitalise France, engage in grand courtly politics, expand the treasury and wage numerous costly wars, such information was priceless. But when Colbert died, Louis reverted to maintaining absolute control himself. One of the key paradoxes of accounting for modern politics was succinctly outlined: clear financial accounting is a necessary prerequisite for political and economic success but it also implies a chain of accountability. There was little more threatening to a Sun King’s mystique than cold numbers on a balance sheet.
Soll’s wry and lucid book traces this fraught relationship between accountability, economic success and political will from Renaissance Florence and the Netherlands to the larger modern republics of France and America, via the empires of Spain and Britain. In his hands, accountability and accountancy becomes a way of investigating the rise and fall of nations.
Early businessmen such as Cosimo de Medici had used their double-entry accountancy skills to build fortunes under conditions of extreme political instability. Cosimo traded with the papacy, issuing currency bonds and earning profits through favourable exchange rates (not on interest, which as usury would be ungodly). He also set up international branches, managed by local auditors reporting back to the boss. The Medici bank flourished. But just as Cosimo’s success was at its apex, the Florentine elite of which he was a part began to see trade and accountancy as beneath the higher cultural and intellectual pursuits of a leisured ruling class. Their lack of attention to accountability would lead to ruin.
This interplay between economic success and the moral or intellectual foundations supporting it has taken many forms, ranging from the godly pursuit of republican profit in the Dutch Golden Age to the self-interested development of a “culture of accountability” in the modern Britain of Josiah Wedgwood and Jeremy Bentham. For others, such as Benjamin Franklin, accountancy and accountability was as much a psychic as a political strategy. As postmaster general in the mid-1770s, he established a pullout guide to double-entry bookkeeping that shaped the early American post office.
Although the American republic under another of its founders, Alexander Hamilton, recognised that the “price of liberty” was public debt, ultimately it was a Swiss-born French finance minister under Louis XVI, Jacques Necker, who transformed accountability for modern politics. Necker sought to defuse attacks on the credibility and creditability of the French state by publishing for the first time the royal accounts. When his Compte Rendu du Roi appeared in 1781 it became a bestseller and changed the terms of political debate. For enemies of the state, the sheer magnitude of calculable royal extravagance would shortly help unleash a revolutionary deluge.
The message of Soll’s book is that transparency, accountability and good government can and do go together, and when they do, success can be relatively long-lasting. But the moral of the book is that such success never lasts, often because of a failure of political imagination or will.
Without political will, financial accountability remains toothless, but what scope is there for rigorous accountability when the accountancy firms behind banks and corporations thought too big to fail are already their advisers and representatives? Perhaps some rather old lessons from the surprisingly exciting history of accountancy can help us deal with these not so very new problems.
Duncan Kelly teaches political thought at the University of Cambridge. He is author of ‘The Propriety of Liberty (Princeton)