Book Review: “Double entry” is a War Cry to Accountants

By: Jaishree Singh

By Jaishree Singh

In “Double Entry,” Jane Gleeson-White argues that the way humans currently measure and report business value is dangerous for human life and the planet. For instance, a cost-benefit analysis by the Ford Motor Company in 1977 found that the cost of adding a safety device to their Pinto vehicles was greater than the benefit of preventing human deaths; the safety device was omitted and at least 500 people burned to death in Pinto cars between 1971-77 (pg. 250-1). Under current GDP calculations, countries become richer in the short-term by cutting down their forests for timber and polluting their soil for intensive agriculture (pg. 238) Quoting Bobby Kennedy in the preface, “…[W]e seemed to have surrendered personal excellence and community values in the mere accumulation of material things…the [Gross National Product] measures everything…except that which makes life worthwhile” such as health, education quality, or political integrity (pg. 1-2). Gleeson-White says that while accounting tools are used by governments, managers, policymakers and shareholders to make decisions these tools do not convey the actual state of businesses; in fact, modern accounting figures are “arbitrary [and] illusory” (pg. 5). “Double Entry” shows the birth and development of double-entry bookkeeping, an accounting tool that could be the determining factor as to whether humans “make or break the planet” (pg. 3, 8).

Humans began “accounting” or measuring and recording their wealth since 7000 BC in Mesopotamia using fired clay tokens (pg. 11-13). In 500 BC, Greece and Rome used more sophisticated accounting records and accounting information was considered necessary to maintaining Athenian democracy (pg. 15). Luca Pacioli was a Franciscan monk who published several books on mathematics, the most famous of which was the “Summa de arithmetica, geometria, proportioni et proportionalita” published in 1494 (pg. 29, 79). A small portion of Summa entitled, “Particulars of Reckoning and Writings,” was the first published work on double-entry (or Venetian) bookkeeping and led to this style of bookkeeping becoming standard among 15th century European merchants (pg. 29, 92).

Double-entry bookkeeping allowed business owners to distinguish capital and income in order to calculate profit (pg. 147). German economist, Werner Sombart (author or Der moderne Kapitalismus), argues that double-entry bookkeeping led to the birth of capitalism and commercialism (a.k.a. continuous and systemic acquisition of profit) (pg. 162, 166-7, 171). Gleeson-White says that while double-entry bookkeeping allows us to quickly assess commercial activity using figures related to cost-benefit and profit, this profit-hungry mindset causes great harm to human beings and the planet as a whole (pg. 175).

The United States and Britain created national accounts in the 1930s-40s in order to assist their governments in making economic decisions during the Great Depression and World War II. Since then, national accounting figures (e.g. GDP) guide policymakers in making decisions that affect their nation’s populations. However, according to Simon Kuznets, GDP is flawed in that it does not include household production, the costs of economic development, and other non-market activities. Hence, Gleeson-White argues, GDP is not meant to indicate or guide the economic condition of a nation (pg. 227-9).
Speaking of non-market activities, economists recognize the role that the environment plays in facilitating economic activity; the environment helps produce raw materials, purify water, decompose waste, maintain soil, pollinate flowers, control pests, absorb carbon, defend coasts, reduce pollution, and regulate climate (pg. 236-8). Current GDP calculation excludes natural resources (e.g. water, soil, forests, clean air), for example, because natural resources were assumed to be infinite (and free) (pg. 230-1, 237). Economists now realize that natural resources are finite and depreciate just like human-made capital (e.g. machinery) (pg. 230-1). In total, Sir Partha Dasgupta of Cambridge University remarks that GDP measures economic flows while ignoring capital stocks (e.g. social, human, and natural resources); moreover, the current GDP leads policymakers to make decisions that focus on the short-term and ignore long-term consequences (pg. 230-1). According to Klaus Toepfer, the former Executive Director of the U.N. Evironmental Programme, if we do not begin valuing capital stocks such as natural resources in our economics, we will bear the cost of losing them in the future. Earth’s ability to support human beings can fade or become less predictable (pg. 238-9). According to the UN-supported Millennium Ecosystem Assessment in 2005, humans are destroying 60% of the earth’s “ecosystem services.” Dasgupta calls the need to put prices on local and global ecosystems an urgent task (pg. 239).

Commissioned by France’s former President, Nicholas Sarkozy, economists Joseph Stiglitz, Amartya Sen, and Jean-Paul Fitoussi published a report in 2009 that proposed new measures be established in order to assess the progress of nations: these included health, education, environment, employment, material wellbeing, interpersonal connectedness, political engagement, equity, and economic/environmental sustainability (pg. 243). Economists Paul Ormerod and Amartya Sen believe that altering national accounting methods would inspire changes in government policies and thus improve the quality of life on earth. For instance, the inclusion of non-market factors in national accounts would put a price value on items such as trees, health, and education and thus force policymakers to seriously consider these items when constructing policies related to pollution, urban planning, education, and healthcare (pg. 244-5).

While accountants must wrestle with how to define, measure, and value natural capital, bodies such as the EU Environmental Agency and its partners are taking steps to do so. Moreover, the UN’s Conference on Sustainable Development in 2012, which was supported by G20 leaders, discussed creating an institutional framework for sustainable development—this important discussion suggests international momentum with respect to revising the GDP measure (pg. 248-9). Jonathan Watts argues that accountants are key to changing the discourse on the global capitalist economy. In other words, accountants should advocate for altering accounting procedures so that they reflect our values on protecting humanity and the planet on which we depend (pg. 249).

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