More Advance Praise for The Reckoning “Packed with riveting stories of how empires can be so easily felled by poor accounting, whether through willful disregard (Louis XIV) or lack of training (Lorenzo de’ Medici), The Reckoning is a must read for anyone who hopes to avoid similar fates But the book is more than a litany of woes Every student, teacher and practitioner of finance should know this history of accounting, from its grounding in theology and philosophy to its central place in the rise of modern commerce, statecraft, and, indeed, civilization itself.” —Robert Bloomfield, Nicholas H Noyes Professor of Management and Accounting, Cornell University “Accountability and the trust it breeds made possible business and government as we know them in the West, a history The Reckoning recounts engagingly Yet every era’s Madoffs, magnates and mega-organizations—and, critically, their minions—subverted that relationship with catastrophic results of which 2008–09 is only the most recent Jacob Soll has persuaded me that this time, it’s different: our traditions of accountability could be destroyed yielding a reckoning we cannot project.” —Peter D Kinder, co-author, Ethical Investing and Investing for Good; co-founder, KLD Research & Analytics, Inc THE RECKONING THE RECKONING FINANCIAL ACCOUNTABILITY and the RISE and FALL of NATIONS JACOB SOLL BASIC BOOKS A Member of the Perseus Books Group New York Copyright © 2014 Jacob Soll Published by Basic Books, A Member of the Perseus Books Group All rights reserved No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews For information, address Basic Books, 250 West 57th Street, New York, NY 10107 Books published by Basic Books are available at special discounts for bulk purchases in the United States by corporations, institutions, and other organizations For more information, please contact the Special Markets Department at the Perseus Books Group, 2300 Chestnut Street, Suite 200, Philadelphia, PA 19103, or call (800) 810-4145, ext 5000, or e-mail special.markets@perseusbooks.com Designed by Jack Lenzo A CIP catalog record for this book is available from the Library of Congress ISBN (e-book): 978-0-465-03663-9 10 I credit this book to Margaret Jacob CONTENTS Introduction 1: A Short History of Early Accounting, Politics, and Accountability CHAPTER 2: For God and Profit: The Books According to Saint Matthew CHAPTER 3: Medici Magnificence: A Cautionary Tale CHAPTER 4: The Mathematician, the Courtier, and the Emperor of the World CHAPTER 5: The Dutch Audit CHAPTER 6: The Accountant and the Sun King CHAPTER 7: The First Bailout CHAPTER 8: “Fame and Profit”: Counting on the Wedgwood Vase CHAPTER 9: Big Debts, Big Numbers, and the French Revolution CHAPTER 10: “The Price of Liberty” CHAPTER 11: Railroaded CHAPTER 12: The Dickens Dilemma CHAPTER 13: Judgment Day CHAPTER Conclusion Acknowledgments Notes Bibliography Index INTRODUCTION n September 2008, just as I was finishing a book about the French King Louis XIV’s famed finance minister, Jean-Baptiste Colbert, I found something remarkable: Colbert commissioned miniature golden calligraphy account books for the Sun King to carry in his coat pockets Twice a year, starting in 1661, Louis XIV would receive these new accounts of his expenditures, his revenues, and his assets It was the first time a monarch of his stature had taken such an interest in accounting Here, then, it seemed, was a starting point of modern politics and accountability: a king who carried his accounts so that at all moments he might have some reckoning of his kingdom I was at least as startled to learn next just how short-lived this experiment was For as soon as Colbert died, in 1683, Louis—consistently in the red due to his predilection for costly wars and palaces like Versailles—discontinued the account books Rather than tools of administrative success, Louis came to see his account books as illustrations of his failings as a king He had created a system of accounting and accountability, and now he began breaking up the central administration of his kingdom This made it impossible to unify the accounts of each ministry into one clear, central register, as Colbert had done, and for any minister to effectively critique, let alone understand, the king’s financial management If good accounting meant facing the truth when the news was bad, Louis, it seemed, now preferred ignorance Speaking those famous words, “l’État c’est moi,” he apparently really meant it No longer would a functioning state interfere with his personal will On his deathbed in 1715, Louis admitted that he had in effect bankrupted France with his spending Rather than some relic of a bygone age, the story of Louis’s rise and decline seemed to me all too familiar as I digested the parable of the Sun King’s golden notebooks That very week in September, a startling parallel story was taking place during the collapse of Lehman Brothers Bank A monument of American and world capitalism, Lehman was suddenly exposed now as little more than a mirage Just as Louis had held onto his power through snuffing out good accounting in his government, so U.S investment banks had made untold riches, even as they destroyed their own institutions by cooking their books through trading overvalued bundles of worthless subprime mortgages and credit default swaps A financial system, which had been deemed healthy by accountants and regulators alike, now revealed itself as dysfunctional by design If Louis preferred not to know, so, too, it seemed, Wall Street and its regulators had chosen to overlook the rot threatening the entire financial system The chairman of the New York Federal Reserve, Timothy Geithner, was supposed to have at least an expert knowledge of the financial markets, yet he appeared not to know, or know fully, what was going on just blocks from his office The Securities and Exchange Commission (SEC)—whose responsibility it is to enforce good corporate accounting—was caught similarly unaware, as were the Big Four accounting firms— Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers No one, it seemed, had effectively audited the bank’s books They missed the barely hidden fact that Lehman Brothers used accounting fraud to manipulate its accounts and appear solvent.1 Soon after Lehman Brothers collapsed in September 2008, other American investment banks began failing, and the world financial system was threatened with collapse In October, the Bush administration stepped in to bail out the banks and buoy the financial system Thus came to pass the I Troubled Asset Relief Program (TARP), which gave massive funds to troubled banks and put the American capitalist economy on a government life support system By 2009, Barack Obama was president, promoting Geithner to Secretary of the Treasury Yet, in spite of Obama’s claims of a new age of accountability, a sense of impunity pervaded Wall Street The $350 billion recapitalization of American banks managed to stave off the financial chaos that risked consuming the world economy Yet, no strings were attached to the money No audits were ever made to see how the banks spent it America’s economy stumbled, but the bankers, at least, had avoided a reckoning Six years later, it is not just banks that are threatened by financial crisis brought on by bad bookkeeping Leading nations—the United States, European countries, and China—find themselves facing their own larger potential crises of accounting and accountability From opaque banks and the sovereign debts of Greece, Portugal, Spain, and Italy, to the financing of municipalities worldwide, there seems little certainty in balance sheets and reports on debt levels and pension obligations Confidence in private auditors and public regulators also lags At the very moment we most need careful audits to assess balance sheets, the SEC remains woefully underfunded, and government regulation has limited the capacity of the Big Four accounting firms to aggressively audit corporations There has been little to no outcry over dangerously feeble financial accountability, private and public alike One hears complaints about the impunity of banks, on one hand, or some version of indignation over perceived government interference with the freedom of Wall Street, on the other Yet there has been no serious discussion about what exactly financial accountability is, how it works, where it comes from, and why modern societies find themselves mired in crises of not only financial but also political accountability, as governments and citizens seem either unable or unwilling to hold corporations and themselves accountable The Reckoning steps into this breach, looking back seven hundred years into the history of financial accountability, to understand why it is so hard to achieve Accounting is at the basis of building businesses, states, and empires It has helped leaders craft their policies and measure their power However, when practiced poorly or neglected, accounting has contributed to cycles of destruction, as we saw all too clearly in the 2008 financial crisis From Renaissance Italy, the Spanish Empire, and Louis XIV’s France to the Dutch Republic, the British Empire, and the early United States, effective accounting and political accountability have made the difference between a society’s rise and fall Over and over again, good accounting practices have produced the levels of trust necessary to found stable governments and vital capitalist societies, and poor accounting and its attendant lack of accountability have led to financial chaos, economic crimes, civil unrest, and worse All this is every bit as true in our own day of multitrillion-dollar debts and massive financial scandals as it was in the Florence of the Medici, Holland’s Golden Age, the heyday of the British Empire, and, of course, 1929 on Wall Street Capitalism and government, it seems, have flourished without massive crises only during distinct and even limited periods of time when financial accountability functions People have known how to good accounting for nearly a millennium, but many financial institutions and regimes have just chosen not to it Those societies that have succeeded are not only those rich in accounting and commercial culture but also the ones that have worked to build a sound moral and cultural framework to manage the fact that humans have a regular habit of ignoring, falsifying, and failing in accounting This book examines why a lesson so simple has so rarely been learned The first successful capitalist societies developed systems of accounting and corresponding financial and political accountability In 1340, the Republic of Genoa kept a large register in the central government office It recorded the city-state’s finances through double-entry bookkeeping Accounting brought with it a fundamentally different way of thinking about political legitimacy: Balanced books equaled not just good business but also good government At any moment, the maritime republic knew the state of its finances and could even make plans for future difficulties The Genoese, Venetians, Florentines, and other merchant republics, or at least their ruling classes, could expect a certain level of accountability This was the beginning of modern government as we ideally imagine it: semirational, well ordered, and generally accountable.2 And yet, as successful as they were, accountable societies and governments proved to be difficult to maintain In the sixteenth century, with the decline of the Italian republics and the rise of the great monarchies, the interest in accounting faded Even as merchants became ever more familiar with the practice of double-entry accounting, it all but disappeared as a political administrative tool outside Switzerland and Holland, bastions of republicanism in a world of monarchies At the height of the Renaissance and the scientific revolution that emerged from it, between 1480 and 1700, kings did take an interest in accounting King Edward VII of England, King Philip II of Spain, Elizabeth I, the great Austrian emperors, Louis XIV, and the German, Swedish, and Portuguese kings examined accounts and kept treasurers and account books Yet none managed or ultimately desired to create the kind of stable, centralized, double-entry state accounting system so carefully controlled by the fourteenth-century Genoese and other northern Italian republics Indeed, keeping good state ledgers implied that the king answered to the logic of balanced books Much as they tried to reform their administrations, monarchs, in the end, saw themselves as accountable to God, not to bookkeepers This inherent conflict between monarchy and financial accountability helped cause centuries of European financial crisis Monarchs considered transparent accounting practices dangerous, and, indeed, they could be In 1781, eight years before the French Revolution, Louis XVI’s finance minister, the comte de Vergennes, found his country crippled by debt from the American War of Independence These debts, he warned, could never be revealed, however, for publicly exposing royal accounts would surely undermine that most critical religion of monarchy: secrecy In the end, Vergennes knew little about finance—France was, in fact, nearly bankrupt by this point—but he was right about monarchy Opening up the books opened the floodgates of accountability When royal accounts and the depth of the crown’s financial difficulties were discussed publicly for the first time during political debates in the 1780s, Louis XVI lost part of his regal mystery For this, and a host of related reasons, he would later lose his head Yet even with the emergence of nominally open, elected governments in the nineteenth century, accountability was still often unattainable During the nineteenth century, as England ruled its empire and was the center of world finance, corruption and unaccountability plagued its financial administration As nineteenth-century America carefully designed mechanisms of financial accountability, it, too, was mired in the massive financial accounting frauds, scandals, and crises of the robber barons of the Gilded Age There has never been a perfect model of a constantly accountable state Financial accountability—both corporate and governmental—still remains elusive even in democratic societies Threatened by ongoing financial crisis, as we are just now, it seems altogether timely to examine in Genoa, 13–14 in Holland, 70–86 origin of, 8–9 Pacioli’s manual and, 52 private firms and, 172–173 railroads and, 169–170 South Sea Company and, 110–113 in Spanish Empire, 63–65 in U.S., 159–161, 190, 192–204 Augéard, Jacques-Mathieu, 137–138, 140 Augustine, Saint, 24, 26–27 Augustus (emperor), 1–2, 5–6 Autobiography (Franklin), 151 Babylonia, Bacon, Francis, 103–104 Bailouts See debt bailouts Balance sheets, 171, 186, 193 Balanced books, concept of, xvi Balzac, Honoré de, 178–179 Bank of England, 108, 111, 165 Bank of the United States (first National), 163 Banker (or Moneylender) and His Wife, The (art) (Matsys), 58 Banking development of, Dutch, 72–73 Glass-Steagall Act and, 192, 200 Gramm-Leach-Bliley Act and, 200 laws of the church and, 20–22 Medici family and, 30, 33–34 papacy and, 16–17, 33 Bankruptcy Act of 1831 (England), 172–173 Banque Générale, 134 Baring Brothers bank, 123 Barlaeus, Caspar, 79 Basilica of San Lorenzo, 35 Bastille, 144 Bear Stearns, 202–203 Beaumarchais, Pierre-Augustin de, 154 Beeckman, Isaac, 74 Benci, Giovanni di Amerigo, 37–38 Benson, Sir Henry, 194 Bentham, Jeremy, 117, 130, 167 Bentley, Richard, 120 Bentley, Thomas, 122, 125 Bernardino of Siena, 27 Bevis, Herman, 197 Bewindhebbers, 79, 81–82 Bill of Rights of 1689 (England), 103 Black Death, 25 Blunt, John, 106 Boccaccio, Giovanni, 25 Book of Revelation (Bible), 24 Book-keeper, The, 165, 176 Book-keeping methodiz’d (Mair), 118, 150 Borgia, Cesare, 56 Boston & Worcester Railroad, 169 Botticelli, 39 Boulton, Matthew, 124 Boulton and Watt (firm), 124 Bowring, John, 167–168 Braams, Daniël, 84 British Enlightenment Protestantism, 119–122 Brodrick, Thomas, 109 Brown, Obadiah, 150 Brown University, 150 Brunelleschi, 35 Bubbles French Mississippi scheme as, 106, 107 risky mortgages and, 202–203 South Sea Company, 107–112 Bureau of Accountability (France), 145 Burgundy, Duke of (Charles the Bold), 44–45 Bush, George W., 201, 202, 239n28 Business Education and Accountancy (Haskins), 176 Byzantium, 9–10, 12 Caligula (emperor), Calonne, Vicomte de, Charles Alexandre, 142–143 Calvinists See Puritans Capitalism accountants as regulators of, 172–177 accounting breakdown and, xii–xiv culture of accountability and, xvi–xvii essential tools of, 51 expansion of across continents, 169–171 successes of, xii–xvi, 9–14 work ethic and, 19, 151 Capitularies (Charlemagne), Casa de la Contratación (House of Trade), 60–62, 66 Casa del Ceppo dei Poveri di Francesco di Marco, 27–28 Cash-Book and Accounting Manual for Merchants and Other People (Solórzano), 67 Cassette (Fouquet), 93 Castiglione, Baldassare, 56–57 Catasto tax, 34–35 Catholic Church, banking and, 16–17, 33 culture of accounting of, 22–28 Medici and, 33 ursury laws of, 20–22 CDOs See Mortgage securities bundles (CDOs) Centralized accounts in Athens, England and, 165–167 France and, 99, 135, 137, 146, 167 in Genoa, 12–13 Spanish Empire and, 61, 63–68, 71 U.S and, 160–163 Cervantes Saavedra, Miguel de, 68 Charlemagne, Charles II (king), 102 Charles V (emperor), 57, 59–61 Charlotte, Queen, 122, 124–125 Chartered Public Accountants, 172, 176 Cheating, two sets of books and, 53 Child, Frederick W., 175 China, 207 Chivalry, age of, 55, 56 Christianity See Catholic Church; Protestantism Christianity, money and, 15–28 culture of accounting of, 22–28 Datini and, 15–22, 25, 26, 27–28 laws of the church and, 20–22 Neo-Platonism and, 39–40 Christmas Carol, A (Dickens), 179 Chrysoloras, Manuel, 31–32, 38–39 Cicero, Clarendon, Earl of, 101 Clews, Henry, 175 Clinton, William, 200 Colbert, ẫdouard Franỗois, 99 Colbert, Jean-Baptiste, ix, 88–99 Colonies, account books and, 148 Commines, Philippe de, 45 Commission of Accounts (England), 101, 128 Compte Rendu au Roi (Necker), 138–142, 147 Comte, Auguste, 182 Conferencia Interamericana de Contabilidad, 193 Congressional Budget Office (CBO), 198 Conrad, Joseph, 185–186 Consejo de Hacienda, 63 Constantine (emperor), Constitutions French revolutionary, 145, 233n29 U.S., 147, 163–164 Contaduría de Cuentas, 63 Contaduría de Hacienda, 63 Convention Nationale, 145 Coolidge, Calvin, 192 Coopers & Lybrand, 196 Copying machine, Watt and, 124 Corruption Athenian, Dutch, 82 English, 111–116, 166 French, 136 professional accountants and, 178–179, 195–200 railroads in the Gilded Age and, 168, 170–171, 176 Spanish, 68 Cost accounting Nazi Germany and, 187–188 railroads and, 169–170 scientific management and, 186–187 Wedgewood and, 122–126 Council of Finance (France), 94, 96 Council of Finance (Spain), 63–64 Council of Florence, 38 Courtier, The (Castiglione), 56–57 Covenants, 22 Creative accounting, 106–107 Credit and exchange, tools of, 17, 33 Credits and debits See Double-entry accounting/bookkeeping Cultures of accountability, xvi–xvii, 207–208 British Protestantism and, 119–122 Christianity and, 22–28 in colonial America, 149–155 in England, 103–104, 107–108, 112–113, 119–122 French Revolution and, 133 in Holland, 80, 207 Jesuits and, 57 Medici family and, 35–47 Neo-Platonism and discrediting of, 55–59 republican, 52–54 Da Vinci, Leonardo, 50 Dante, 21, 25, 189 D’Artagnan, Charles Ogier de Batz-Castelmore, comte, 93 D’Artois, Charles-Philippe de France, comte, 143 Darwin, Charles, 183–185 Darwin, Emma, 184 Darwin, Erasmus, 129, 183 Darwin, Francis, 184 Darwin, William, 183–185 Datini, Francesco, 15–22, 25–28 Davenant, Charles, 103 David Copperfield (Dickens), 180 De Bonicha, Jacobus, 12 De Calonne, Vicomte, Charles Alexandre, 137 De Chabrol de Crouzol, Christophe, comte, 167 De Computis (Pacioli), 51, 54–55 De Créquy, Marquise, Renée-Caroline, 141–142 De Gournay, Vincent, 135 De la Court, Pieter, 84–85, 86 De Solórzano, Bartolomé Salvador, 67 De Witt, Cornelis, 86 De Witt, Johan, 85–86 Death and the Miser (art) (Provost), 208 Debits and credits See Double-entry accounting/bookkeeping Debt American War of Independence and, 158–164 in colonial America, 148–149 current U.S., 198 in England, 103–114, 127–128, 132, 136 in France, 127, 132–146, 167 Medici bank and, 44–45 moral, 22–27 nations and, xi–xiv, 206 prison and, 180 in Spanish Empire, 60–61, 64, 68 views of, 78, 83, 135, 163 Debt bailouts 2008 financial crisis and, x–xi, 203–204 South Sea Company, Walpole and, 106–116 Decameron (Boccaccio), 25 Deffand, Marie Anne de Vichy-Chamrond, 138 Deficiencies of the Confederation, The (Hamilton), 163 Defoe, Daniel, 111, 121 Della Francesca, Piero, 49 Deloitte, x, 173, 190, 196, 199 Deloitte & Touche, 199 Deloitte Touche Tohmatsi Ltd., 202 Depreciation and appreciation inflation and, 196 railroads and, 170, 174–175 Wedgewood and, 125 Descent of Man (Darwin), 185 Desmoulins, Camille, 144–145 Deutsche Reichsban (railway), 187 Dewey, John, 186 Di Barbari, Jacopo, 50, 55 Di Tacco, Benedetto, 20 Dickens, Charles, 171, 178, 179–181, 205–206 Dickens, John, 180 Dickinson, Arthur Lowes, 189–190 Discipline Italian world of trade and, 17–19 Protestant work ethic and, 119–120, 152 views on, 52–54, 57, 65, 195 Discourses on the Publick Revenues (Davenant), 103 Discrezione, 21, 33 Dissenters, 119–122, 127–128 Domesday Book, 7, 130 Donatello, 39 Dordrecht Latin school, 74, 85 Double Entry Books and Their Journal (Manzoni), 54–55 Double-entry accounting/bookkeeping, xiv–xv Colbert, Louis XIV and, 94–97 in colonial America, 150, 151, 153 Cosimo de’ Medici and, 35–37 Datini’s system and, 15–20 Dutch accounting and, 70–78 earliest forms of, 12–14 in England, 105, 118–119, 122–124 first manual of, 48–54 in France, 133–134, 167 origin of, xii–xiv, 9, 11–12 Royal African Company and, 155 Spanish Empire and, 60–61, 63–67 in U.S., 161 Weber’s theory and, 151 Dow Jones Industrials Index, 192 Drew, Daniel, 170–171 Dubois, Cardinal, 134 Dudley, Thomas, 148 Duncan, David, 201–202 Dutch audit, See Holland Dutch East India Company, 68, 70, 73, 78–84 Dutch Republic, 72–73 Dutch Revolt, 65, 66, 72 Dyckman, Johannes, 149 East India Company, 111, 114 Education and accounting in colonial America, 149–150 Dutch, 73–75 England and, 117–120 Florence and, 31–32 Edward III (king), Efficiency and speed, 186–187 England seventeenth- to eighteenth-century bailout in, 101–116 eighteenth-century industrial power of, 117–131, 132–133 nineteenth-century accounting in, 166–168, 171–173 early accounting in, 7–9 Enron, 201–202 Equity, double-entry accounting and, 11–12, 17 Erasmus, 57 Ernst & Young, x, 173, 199, 202 Ernst and Whinney, 196, 199 Escorial, 61–62 Essay on the Principle of Population (Malthus), 182 Eugenius IV (pope), 38 European Economic Community (EEC), 194 Evans, Oliver, 168 Exchange and credit, tools of, 17, 33 Exchequer, Factor General of the Kings of Spain, 61 Fair value accounting, 196–197 Far East Conference of Accountants, 194 Farolfi merchant house, 11 Federal Rules Procedure, 197 Federalist movement, 161 Ferdinand and Isabella, 59–60 Feudalism, 7–9 Fibonacci, Leonardo, 10 Ficino, Marsilio, 39, 43–44 Fielding, Henry, 115 Financial accountability See Accountability, financial and political Financial analysis, 109 Financial crisis of 2008, x–xi, 202–204 Fini, Rineiri and brothers firm, 11 Firms, development of multipartner, 9, 11–12, 17 Florence commerce and, 16–17 golden age of art and, 41 Medici family and, 29–47 Renaissance and, 30–32, 35 Florins (currency), 16 Ford, Henry, 187 Fouquet, Nicolas, 92–93 France seventeenth- to eighteenth-century accounting in, 87–100, 107 nineteenth-century accounting in, 167 Revolution and accountability in, 132–146 wealth of nobility in, 133 Francesco Sassetti and His Son Teodoro (art) (Ghirlandaio), 46 Franklin, Benjamin, 151–155, 158 Franklin, Deborah Read, 153 Fraud accountant liability for, 197 in the ancient world, 4, 5, in Genoa, 13–14 numbers as cover for, 142, 166 professional accountants and, 178–179, 201–202 railroad balance sheets and, 171 South Sea Company and, 112 in the Spanish Empire, 60, 67 French Mississippi scheme, 106, 107 French Revolution accountability and, 145–146 accounting background of, 132–144 outbreak of, 144–145 “French School” (Dutch), 72, 74 Fronde, 88–89, 90 GAAP, 193, 194 Galbraith, John Kenneth, 192 Gallatin, Albert, 163, 236n35 Galton, Francis, 183–185 Geithner, Timothy, x Genoa, Republic of, xii–xiii, 12–14 Gentleman Accomptant (North), 118 George I (king), 105–106, 108 George II (king), 112, 114 George III (king), 125 Ghirlandaio, 43, 46 Gibbon, Edward, 6, 136 Glass-Steagall Act (U.S.), 192, 200 Global accounting framework, 194 Gordon, Thomas, 112–113 Gordon Riots, 127 Government auditing of, 198, 204 current accounting disarray of, 206 Government regulation 1970s accounting scandals and, 197 1990s deregulation and, 200 financial crisis of 2008 and, 203–204 Great Depression and, 191–193 railroads and, 171–177 Sarbanes-Oxley Act and, 202 Grammar schools, 117–118 Gramm-Leach-Bliley Act (U.S.), 200 Gratian, 57 Great Depression, 191–193 Green Book, 112 Grey, Earl, 166–167 Grotius, Hugo, 77 Guzik, Jake “Greasy Thumb,” 195 Hamilton, Alexander, 156, 162–164 Hammurabi’s Code, Hancock, John, 150 Happiness, accounting and, 117, 119, 122, 130–131 Hapsburg Spanish Empire See Spanish Empire Harley, Edmund, 105 Harley, Robert, 106 Harvard Business School, 187 Haskins, Charles Waldo, 176, 188 Haskins and Sells, 190, 196, 199 Heart of Darkness (Conrad), 185–186 Hein, Piet, 68 Henriques, Moses Cohen, 68 Heren Seventien, 79, 81–82, 84 Historical Memoirs on French Financial Affairs (Colbert), 94 Hitler, Adolf, 187 Hobbes, Thomas, 104 Hogarth, William, 114 Holder, Eric, 204 Holland, 70–86, 132, 167 accounting education and, 73–75 Dutch East India Company and, 78–84 political stability and, 77–78 risk-taking, violence and, 76–77 water management and, 80 Holy League, 62 Holy Roman Empire, 59–61 Holyland, William Hopkins, 173 Hoover, Herbert, 187 How to Keep Household Accounts (Haskins), 176–177 Hudde, Johannes, 82–84 Hugh of St Cher (cardinal), 26 Humanism accounting and, 56, 57–59 Dutch, 77 Italian, 38–39, 50 Hume, David, 135 Hutcheson, Archibald, 108–112 Impairment recognition, 196 Income statements, 186 Indulgences, 26, 33 Industrial Revolution, 117, 165–166 academies and, 119 accounting and, 122–126 pollution and, 129–130 railroads and, 168–171 scientific management and, 186–187 Inequity, 127, 131, 133 Inflation, 196 Inspiration of St Matthew (art) (Caravaggio), 23 International Accounting Standards Board (IASB), 194, 206 International Accounting Standards Committee (IASC), 194 Interstate Commerce Commission, 172 Introduction to the Counting House, An (Serjeant), 150 Inventorying, 2–3 Investment banks, x, 192, 200, 202–204 Investment in stocks Dutch East India Company and, 79–84 Great Depression and, 192–193 railroads and, 169, 174 risky mortgage bundles and, 202–203, 206 South Sea Company and, 106–112 Invisible hand, 130, 135 Irwin, Timothy, 207 Islington Academy, 119 Italian city republics See Renaissance; Republics, Italian Jacombe, Robert, 110 Jacques Savary, 96–97 Jarry, Nicolas, 97 Jefferson, Thomas, 155–156 Jesuit order, 57 Jesus Christ, 23, 26 Jews, usury and, 21 Johnson, Lyndon, 198 Johnson, Samuel, 115 Joint Stock Companies Act of 1844 (England), 173 Jones, Joseph, 159 Jones, Lewis Davies, 173 Jullien, Adolph, 169 “Just price” concept (Aquinas), 21, 62 Kantoor van de Financie van Holland, 71 Keayne, Robert, 149 Kennedy, Joseph P., 192 Kent, William, 116 Knight, Robert, 112 KPMG, x, 202 Laffitte, Jacques, 167 “Laissez faire” theory, 135, 163, 171–172 Lampe, Barent, 81 Law, John, 107, 134 Lawrence, Thomas, 123 Le Maire, Isaac, 80–81 Le Peletier, Claude, 99 Leeson, Nick, 123 Lehman Brothers Bank, x, 203 Lenin, Vladimir, 187 Leonardo da Vinci, 50 Lerma, Duke of, 68 Leviathan (Hobbes), 104 Liabilities, in accounting, 83 Liancourt, Duke de, 145 Liber abaci (Fibonacci), 10 Libro segreto, 18–19, 34, 37, 44 L’Interdiction (The Ban) (Balzac), 178–179 Little Dorrit (Dickens), 171, 178, 180–181 Little Women (Alcott), 181–182 Locke, John, 103 London (Johnson), 115 Loose-leaf notebooks, 169 Lorenzo the Magnificent See Medici, Lorenzo de’ Louis XIV (king), ix–x, 86, 87–88, 91–100 Louis XVI (king), xiii, 135, 139–140, 142, 144–145 Loyola, Ignatius, 57 Machiavelli, 32, 42, 46–47 Madonna del Ceppo (art) (Lippi), 16, 27 Mair, John, 118, 150 Malthus, Thomas, 182–183 Manzoni, Domenico, 54–55 Marie Antoinette, 143 Market-to-market method, 196 Marshalsea Debtor’s Prison, 180 Mascranni family, 89 Massachusetts Bay Company, 148–149 Matsys, Quentin, 58 Matthew, Saint, 23–24, 26–27 Maurice, Prince, 76–78, 82 May, George O., 191, 193 Mayflower Compact, 147–148 Maynwaring, Arthur, 104 Mazarin, Jules, 88, 90–91 McKinsey & Co., 187 Medici, Cosimo de’, 30, 32–40, 47 Medici, Giovanni di Bicci de’, 30 Medici, Lorenzo de’, 34, 41–42, 44–47 Medici, Marie de’, 78–79 Medici bank, 30, 33–34, 36–37, 40–46 Medici family, 29–30, 34–35, 40–41, 47 Melcher, Richard, 199 Mennher, Valantijn, 74–75 Mercantilism, 91–92 Mesopotamia, 2–3 Metcalf Report, 197, 198–199 Montaigne, Michel de, 58 Moody, John, 174 Morgan, J P., 173, 175, 192 Morris, Robert, 158–162 Mortgage securities bundles (CDOs), 202–203, 206 Mowbray, John, 123 National Congress of Accountants (Italy), 172 Nationally Recognized Statistical Ratings Organizations (NRSROs), 198 Nations, accounting and, xi–xiv, 206 Natural History (Pliny), Necessary Discourse, The (pamphlet), 81–82 Necker, Jacques, 129, 135, 136–146, 232–233n22 influence of, 147, 154, 159–160 Nederlands Institut van Accountants, 172 Neo-Platonism, 38–39, 56–57 Nero (emperor), Netherlands, 59, 65, 66, 70–86, 72 Neudörfer, Johann, 75 New Instruction and Proof of the Praiseworthy Arts of Account Books (Ympyn de Christoffels), 74 New Netherlands, 149 New York Stock Exchange, 192, 198, 201, 202, 206 Newton, Isaac, 101, 108 Nicholson, John, 164 Nixon, Richard, 196, 198 Norman Conquest of England, North, Roger, 118 Obama, Barack, x–xi Oikonomia concept (Aristotle), Oldenbarnevelt, Johan van, 76–77, 79, 81 On the Family (Alberti), 50 Operating ratio, 170 Oration on the Dignity of Man (Pico della Mirandola), 40 Origin of the Species, The (Darwin), 183 Ovando, Juan de, 63–66 Pacioli, Luca, 48–55, 64, 67, 69, 70, 74 Padilla y Meneses, Antonio de, 65 Paine, Thomas, 160 Panofsky, Erwin, 58 Papacy, banking and, 16–17, 33 Pâris brothers, 133–134 Pâris Le Montagne, Claude, 134 Particelli family, 89 Passavanti, Fra Jacopo, 21 Pathway to Knowledge, The (Pietersz), 75 Patronage, 38–39, 41, 49, 115 Peat Marwick Mitchell, 194, 196 Pecora, Ferdinand, 192 Penance, 22, 25–26 Pendleton, Edmund, 156 Penn Central, 196 Pennsylvania Railroad, 170 Pepys, Samuel, 102 Pericles, 113 Peruvian silver, 59 Philip II (king), 61–69, 71–72 Philip III (king), 68 Philip IV (king), 68 Philippics (Cicero), Physiocrats, 134–135 Pico della Mirandola, Giovanni, 39–40, 57 Pietersz, Claes, 74–75 Pitt, Harvey, 239n28 Pitt, William, 127–128 Plato, 31–32, 38–39, 50 Pletho, Georgius Gemistus, 39 Pliny the Elder, Political accountability See Accountability, financial and political Political stability cultures of accountability and, xvi–xvii Medici family and, 41 threat to English, 107, 111–112 Poliziano, Angelo, 40, 43 Polybius, Pontifex Maximus (pope), 10 Ponzi schemes, 107–112 Population statistics, 182 Portable accounts, 97–98 Portinari, Tommaso, 36, 37–38, 44–45 Post office management, 152–153 Praepostinius of Cremona, 26 Pragmatic Sanction, 61 Prato Museum, 17 Price, Richard, 127 Price, Samuel Lowell, 173 Price Waterhouse & Company, 173, 189, 194, 196 PricewaterhouseCoopers, x, 173, 202 Priestley, Joseph, 128–129, 131 Probability, 83, 126, 182 Profit and loss Christianity and, 20–28 Datini and, 15–22, 25, 26, 27 Dissenters’s view of, 121–122 double-entry accounting and, xiv–xv, 9, 11–12 expected vs real, 84 railroads and, 169–170 scientific management and, 186–187 Spragues’ equation (A=L+P) and, 174–175 Protestant Ethic and the Spirit of Capitalism (Weber), 151 Protestantism, British Enlightenment, 119–122 Provost, Jan, 208 Prynne, William, 101 Public Company Accounting Oversight Board (U.S.), 202 Puritans, 119–120, 148, 149 Queensware, 122, 124125 Quesnay, Franỗois, 135 Quilter, William, 173 Rabelais, 57 Racism, scientific, 183–184 Railroad Reports (Moody), 174 Railroads, 168–177 Ralph, James, 151 Rathenau, Walter, 187 Ratings agencies, 198, 206 Reading Railroad, 170 Religion, accounting and, 22 Renaissance, 30–32, 35 Report Relative to a Provision for the Support of Public Credit (Hamilton), 163 Republican political theory, 84–85 Republics, Italian, xii–xiii, 9–14 Datini in, 15–22 Pacioli’s Summa and, 52–54 Res gestae divi Augusti (Augustus), 1–2 Revolutionary War Expense Account 1775–1783 (Washington), 157 Richardson, Samuel, 115 Rinuccini, Alamanno, 42 Ripley, William Z., 191 Robber barons, 170 Robespierre, 144 Robinson Crusoe (Defoe), 121 Rockefeller, John D., 175 Roman numerals, Roman Republic and Roman Empire, 1–2, 4–6 Roosevelt, Franklin D., 192 Rose, George, 128 Rossi, Roberto de, 32 Royal African Company, 155 Royal Swedish Railroad Company, 171 Ryder, Joseph, 121 Sadleir, John and James, 171, 180 Saint-Simon, Duke de, 99 Salutati, Coluccio, 31 Sarbanes-Oxley Act of 2002 (U.S.), 202 Sassetti, Francesco, 42–46 Sassetti Chapel, 43–44 Say, Jean-Baptiste, 208 Schumpeter, Joseph, xv Scientific management, 186–187 Secret Committee (England), 112 Securities Act of 1933 (U.S.), 193 Securities and Exchange Commission (SEC) 2008 financial crisis and, x, xi, 203 accounting scandals and, 197 formation of, 192–193 Serjeant, Thomas, 150 Sevigné, Marie de Rabutin-Chantal, marquise de, 92 Shamela (Fielding), 115 Shortly After the Marriage, or The Tête Tête (art) (Hogarth), 114 Single-entry accounting, xiv in the ancient world, 2, in the Middle Ages, in northern Italian city republics, 10 Sinking funds American War of Independence and, 127–128 Walpole and, 106, 108, 111, 113–114 Slavery, 155–156 Smith, Adam, 42, 46, 73, 92, 113, 130 Snell, Charles, 111, 118 South Sea Company, 106–112 Spanish Empire, 59–69, 70–72 Speer, Albert, 187 Speiß, Walter, 187 Sprague, Charles E., 174 Sprezzatura, 56 St Dominic College, 195 Stadtholders (Dutch), 76, 85–86 Staël, Anne Louise Germaine, 137, 142 Stalin, Joseph, 187 Standard Hill Academy, 120 Statecraft, accounting and, 94–98, 134 Statistics, 182–183 Stevens, Mark, 199 Stevin, Simon, 77, 80 Stock exchanges in Holland, 70, 73, 78–79 New York, 192, 198, 201, 202, 206 See also Investment in stocks Sumeria, Summa de Arithmetica, Geometria, Proportioni, et Proportionalita (Pacioli), 48–55 Swift, Jonathan, 121 Swift, Peter, 126 Tacitus, Taxation in England, 103, 114, 118, 127 in France, 97–98, 100, 107, 133–137 in Holland, 71–72, 221n3 Pacioli on, 53 Spanish Empire and, 59–61, 63–64, 66, 71–72 U.S system of, 161 Taylor, Frederick Winslow, 186–187 Taylorism, 186–187 Thomas Aquinas, Saint, 21 Thompson, Wardhaugh, 123 Thoreau, Henry David, 181 Tipperary Bank, 171 Tithes, 16, 33 Toland, John, 107 Torregrosa, Pedro Luis de, 66–68 Touche Ross, 173, 196, 199 Trade double-entry accounting and, 12 Dutch, 73 long-distance, Transparency China and, 207 Colbert, Louis XIV and, 96–97 danger of, in accounting, xiii Dutch East India Company and, 81–82 in England, 8–9, 103, 110–113, 128 financial crisis of 2008 and, 204 Great Depression and, 191–192 historic difficulties of, 207 modern governments and, 206 Necker and, 138–141 in U.S financial system, 161, 164 Washington and, 157–158 Treatise on Life Annuities (de Witt), 86 Treatise on the Administration of Finances (Necker), 142 Treaty of Rome, 194 Trenchard, John, 110, 112 Trevithick, Richard, 168 Triumph of Death (fresco) (Traini), 25 Troubled Asset Relief Program (TARP), x–xi, 203 True Interest and Political Maxims of the Republic of Holland (de la Court), 84–85 Tubeuf, Jacques, 91 Turgot, Anne-Robert-Jacques, 135 Twain, Mark, 171 Two Tax-Gatherers (art) (van Reymerswaele), 18, 58 Typeface, “le Franklin,” 154 Ultramares case, 197 Underreporting, 140 Union Européenne des Experts Comptables, 193–194 Unions, efficiency and, 187 United Dutch East India Company See Dutch East India Company United States colonies in, 147–158 financial crisis of 2008 and, x–xi, 202–204 Great Depression and aftermath in, 189–194 post Great Depression accounting in, 194–202 railroads and, 169–177 Revolutionary war debt and, 158–164 Urbino, Duke Guidobaldo of, 50, 55–56 U.S Department of Justice, 203–204 U.S Treasury, 159 Usury, 21 Van Reymerswaele, Marinus, 18, 58 Van Schoonhoven, Jacob, 74 Venice, Republic of, 33 Vergennes, comte de, Charles Gravier, xiii, 132, 141 VOC See Dutch East India Company Walden (Thoreau), 181 Wall Street, x–xii, 191–192, 199, 204 Walpole, Robert, 103–106, 108–116 Warrington Academy, 120 Washington, George, 156–158 Waste Management, 201 Waterhouse, Edwin, 173 Watt, James, 124, 129–130 Wealth in the ancient world, French nobility and, 133 in northern Italian city republics, 9, 22 views of, 121–122, 134 Wealth of Nations, The (Smith), 113 Weber, Max, xv, 2, 19, 119, 124, 151, 208 Wedgwood, Josiah, 117, 121–130, 183–184 Wedgwood china, 122, 124–125 Werner, Sombart, xv White, John, 148 William and Mary, 102 William the Conqueror, William the Silent, 76 Winthrop, John, 148 Wisselbank, 72–73 Women, accounting education and, 119, 152, 176–177 Wordsworth, William, 130 Work ethic Italian world of trade and, 19–20 Protestant, 119–121, 151–153 WorldCom, 201 Ympyn de Christoffels, Yan, 74 Zacharias in the Temple (art) (Ghirlandaio), 43 ... each of these stories Seen through the lens of the history of financial accountability, then, the history of capitalism is neither simply a history of ascent nor a cycle of booms and busts Rather,... of a concept of profit and of valuing the total assets of an enterprise over a period, for example, of a year Yet despite the lack of a modern understanding of capital and profit, a culture and. .. Analytics, Inc THE RECKONING THE RECKONING FINANCIAL ACCOUNTABILITY and the RISE and FALL of NATIONS JACOB SOLL BASIC BOOKS A Member of the Perseus Books Group New York Copyright © 2014 Jacob Soll Published