In his recent book, The Reckoning: Financial Accountability and the Rise and Fall of Nations, Jacob Soll recounts the development and adoption of financial accounting. The practice was first adopted by merchants, traders, and ambitious political leaders. Actors from these groups had great incentive to adopt these practices, assuming that they correctly perceived the costs and benefits of adoption. The earliest adopters appear to have been wildly successful. Caesar Augustus, Soll tells us, solidified the Julio-Claudian dynasty due largely to his faithful accounting practices. Augustus used “accounting as a tool of management and legitimation” (p. 2). Many more would follow, employing accounting as a means of personal empowerment. The Medici family rose to power by the employment of strict accounting measures—and fell as these practices degraded. King Louis XIV prized accounting’s efficacy, and later feared political fallout that accompanied an increase in accessibility to information that was formerly scattered and private. Accounting was a double-edged sword that forced frugality on the wealthy and powerful.

Accounting was also a favorite tool of many Enlightenment-era professionals. Merchants were among the first to learn that a failure to keep good accounts might lead one’s business toward failure, or at least prevent it from expanding. This lesson is exemplified by the rise of publicly traded corporations. In a world of trade dependent largely on voluntary exchange, businessmen learned that accounting was an indication of good faith to investors. Sometimes, these professionals, in love with the clarity and efficiency of accounting, promoted its adoption by the state. Strict accounting quickly came to both constrain the leviathan and increase its efficacy. Whereas state actors had previously used good accounting to better allocate state wealth toward their own ends, the public turned the purpose of state accounting on its head by demanding that government make its accounts public. As accounting practices became widely adopted, creative accounting methods became a source of hiding financial misdeeds. Such was the case, for example, with maneuvering by Robert Walpole, as he helped enable one of the earliest recorded bailouts with his rescue of the South Sea shareholders. Throughout the modern capitalist era, the same accounting methods that allowed for complex forms of production and exchange also proved to be drivers of instability and redistribution when employed unethically.

In presenting his argument, Soll leaves the reader with conclusions worthy of consideration for a broader narrative. Soll shows that double-entry accounting was not generally accepted as a practice until the Enlightenment. A major impediment to its adoption was a general mistrust of persons whose occupation involved the handling of large sums of money. Medieval Christianity’s emphasis on the immorality of money and profit was the primary source of this impediment. As Soll points out, even Cosimo de’Medici saw these accounting methods “as a lower and even immoral discipline” (p. 38). Not coincidentally, the Medici family was closely tied to the Catholic faith. Also not a coincidence, the family faded from history as poor accounting methods precipitated its decline.

This attitude was present to a lesser extent in Dutch and English societies, in which business blossomed under systems that constrained state power. Many in these societies even respected mercantile ventures. This fits well with a narrative growing in popularity, exemplified by Deirdra McCloskey’s Bourgeois Dignity (2010) and Joel Mokyr’s The Enlightened Economy (2009), that assigns a culture friendly to commercial values an essential role in promoting early industrial development. The narrative also contributes to our understanding of the development of transparency that is requisite for liberal institutions. As noted earlier, the revelation provided by the account books of the state constrained the ability of kings and statesmen to act without regard to the income of the state. It also limited the ability of those inside the state to employ its funds for personal gain. Once accepted, accounting provided a clearer picture of politico-economic reality.

In all, Soll tells a story of an object that might be used to promote financial openness or destruction. This tool first arose as a means of facilitating exchange and honest record keeping. As time passed, it came to be used for financial deception and political conflict. When used toward these latter ends, accounting serves to diminish trust. In his conclusion, Soll makes a passionate call for accounting culture to be embedded with “piety, ethics, civic politics, and art” (p. 208). A society with accounting is not made better off if the accounting is used toward short-sighted ends. Only an ethic of mutual respect and honesty, along with a responsive legal system, can protect us from such malemployment.