Accounting: A Brief History

9 March 2007 at 12:39 am 5 comments

| Peter Klein |

Despite widespread rumors to the contrary, we agree with Monty Python that accounting is not boring. After all, Ludwig von Mises was fond of quoting Goethe’s remark that double-entry bookkeeping was “one of the finest inventions of the human mind.” Who can disagree?

In this spirit, I’d like to share a terrific bibliography on the history of accounting provided by Sudha Shenoy, responding to a listserv query on the “organic” emergence of accounting practice. Someone asked whether accounting conventions can be interpreted as a kind of “spontaneous order,” in Hayek’s sense, or if the standard rules are the result mainly of state intervention. Sudha replied with these reading suggestions (lightly edited by me):

Accounting began in Mesopotamia: (a) Denise Schmandt-Besserat, Before Writing (1992), vol 1, From counting to cuneiform. Clay tokens recorded loans/transfers of sheep; stocks of goods (eg baskets of grain, jars of oil, types of cloth, garments, wool, beer, perfumes, etc.). Clay tablets then recorded payments in kind; agricultural & house leases; etc. (b) Mercantile accounts: Opening stocks valued in silver; also disbursements; closing balances in silver values: J B Curtis & W W Hallo, ‘Money & merchants in Ur III’, Hebrew Union College Annual 1959.

R H Parker & B S Yamey, eds, Accounting History: Some British Contributions (1994) has (inter alia) articles on: Roman Egypt; 14th century monastic estates in England & their estimates of profit; 17th century farm accounts (already very professional); the 19th century shipping industry & the problems of ‘fixed’ capital. Also on English railways; the textile industry in early 19th century Yorkshire; & much more, including Japan.

More on monastic profit calculations in 14th century England: E L Stone, ‘Profit & loss accountancy…’, Transactions of the Royal Historical Society, 12 (1962.)

North Italian merchants (very important) in the 14th & 16th centuries: two articles (very good) reprinted in Raymond de Roover, Business, Banking, & Economic Thought (1976.)

Cost accounting in 17th century England: R Edwards et al, ‘Cost accounting at Keswick…’, Accounting Historians Jnl, 17 (1990). In the 18th century: Neil McKendrick, ‘Josiah Wedgwood & cost accounting…’, Econ Hist Rev 23 (1970) — extraordinarily detailed calculations (eg cost per yard of painting different types of decoration on vases.)

A study of the evolution of profit calculations: G A Lee, ‘The concept of profit in British accounting’, Bus. Hist. Rev. 49 (1975.)

Finally, A C Littleton & B S Yamey, eds, Studies in the History of Accounting (1956) reprint (inter alia) articles on: early railway accounting (hair-raising) until they discovered that ‘fixed’ assets had to be replaced; accounting in colonial America; & on British accounting 1840-1900: which shows that accounting evolved through practice & under common law: the latter too evolved as cases came to court. There was virtually no legislation.

Entry filed under: - Klein -, Business/Economic History.

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5 Comments Add your own

  • 1. Richard O. Hammer  |  9 March 2007 at 10:46 am

    I found accounting to be an exciting subject, as it was taught by Yuji Ijiri at Carnegie-Mellon.

    Accounting is boiring only if you assume that all the important decisions have already been made. It might be boring for an accounting clerk whose task could be computerized.

    But if the accountant’s task is to design the reporting system then the accountant is as important as the CEO, because the accountant is deciding what information should be presented to the CEO. Indeed, the selection of what information is important to the CEO is the CEO’s job.

  • 2. Peter Klein  |  9 March 2007 at 10:55 am

    Richard, I quite agree. In fact, one of the most difficult, challenging, and intellectually stimulating courses I ever took as a graduate student was an accounting seminar on information theory, taught by the brilliant Stefan Reichelstein. And I regard Holmstrom and Tirole (1991) as one of the classics of organizational economics.

  • 3. Gary Peters  |  18 March 2007 at 2:50 pm

    I wonder how Goethe would respond to Ijiri’s “Triple Entry Accounting”?
    I am not versed enough to comment on Hayek’s meaning of “spontaneous order”, but it certainly is true that accounting has evolved with the complexity of organizations (and not always as a result of “government” intervention). A prime example, is how we identify or define the owners of an organization versus creditors. Given today’s complex financing arrangements it is not always easy to distinguish between equity versus debt. However, the markets desire and respond to the accounting for both positions.
    In the same manner if organizations are formed around the assets they hold, it is not always clear how to identify or value the assets. Case in point, one of the heaviest criticisms of current accounting practice (at least in the U.S.) is the lack of accounting for intangible assets, such as the knowledge created or held by an organization (but even this is subject to ongoing change).

  • 4. Ruks  |  30 March 2010 at 2:34 pm

    Accounting rocks, only lazy people hate it.

  • […] Organizations and Markets has this brief bibliography of the evolution of accounting by the distinguished libertarian economic historian, Sudha Shenoy. Accounting emerged without state intervention as a type of Hayekian spontaneous order: “Someone asked whether accounting conventions can be interpreted as a kind of “spontaneous order,” in Hayek’s sense, or if the standard rules are the result mainly of state intervention. Sudha replied with these reading suggestions (lightly edited by me): […]

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