How Merchants of Venice Created Modern Finance


A Book Review

Double Entry: How the Merchants of Venice Created Modern Finance


Filled with colorful characters and history, Double Entry takes us from the ancient origins of accounting in Mesopotamia to the frontiers of modern finance.

At the heart of the story is double-entry bookkeeping: the first system that allowed merchants to actually measure the worth of their businesses. Luca Pacioli—monk, mathematician, alchemist, and friend of Leonardo da Vinci—incorporated Arabic mathematics to formulate a system that could work across all trades and nations.

As Jane Gleeson-White reveals, double-entry accounting was nothing short of revolutionary: it fueled the Renaissance, enabled capitalism to flourish, and created the global economy. John Maynard Keynes would use it to calculate GDP, the measure of a nation’s wealth. Yet double-entry accounting has had its failures.

With the costs of sudden corporate collapses such as Enron and Lehman Brothers, and its disregard of environmental and human costs, the time may have come to re-create it for the future.

“A timely, topical, readable, and thought-provoking look at the history and legacy of double-entry bookkeeping.”—Elif Batuman, author of The Possessed

This book is a gem! Dusty old “double entry accounting” is threaded together with stories of Renaissance Venice, its merchants and scholarly discoveries, development of capitalism, national GDP, and accounting for environmental damage.

After a shaky start resurrecting Senator Robert Kennedy, the scene moves on cue to medieval Pisa, Genoa, Florence and Venice. There the Franciscan monk Luca Pacioli, mathematician, chess-player, and encylopedist inadvertently immortalized himself as the “father” of double-entry bookkeeping.

Luca Pacioli made significant mathematical discoveries, taught Leonardo da Vinci, and in particular wrote a mathematical encyclopedia in 1494 allocating 27 pages to a bookkeeping treatise that bestowed him glory to this day. This was only a small part of Pacioli’s work in “Summa de Arithmetica, geometria, proportione et proportionalità” or “Everything about Arithmetic, Geometry, Proportion, and Proportionality” plus other works including an unpublished treatise on chess which was rediscovered in 2006.

A brilliant intertwined history of merchants and mathematics is presented from Mesopotamian tablets and ancient Greek mathematics through to the Hindu-Arabic numerals and the new style bookkeeping.

The dark arts of Egyptian priests and the commercial activities of early merchants triggered Augustine’s warning that “The good Christian should beware of mathematics … a covenant with the devil to darken the spirit and confine man in the bonds of Hell”.

The author successfully combines “the calculations used by merchants … and the numbers used by philosophers to express the secret harmonies of the universe.” This is a neat idea particularly for those new to the history of mathematics or finance.

The focus then turns to bookkeeping, bills of exchange, limited liability, cost accounting, National Accounts, GDP, etc. Pacioli tells us that “If you are in business and do not know all about it, your money will go like flies – That is, you will lose it”; ” … the merchant is like a rooster … the most alert and … keeps his night vigils and never rests”. Just like modern continuous disclosure Pacioli advises “Frequent accounting makes for long friendship” warning that “if you are not a good bookkeeper … you will go on groping like a blind man and meet great losses”.

Finally, the author goes `over the top’ quoting claims not only that the concept of capitalism originated with double entry bookkeeping but the entire modern scientific capitalistic world as well. The book ends by considering environmental concerns excluded from company accounts longing for a sort of Accounting of Everything. Accounting can “make or break the planet … there may be one last hope for life on earth: accountants”. There are limits, if it is that bad, let us all just “drink and be merry …”. Malcolm Cameron

About the Author
Jane Gleeson-White holds degrees in economics and accounting and is studying for her PhD in creative writing and literature. She has worked at the Peggy Guggenheim Museum in Venice and currently lives in Sydney, Australia.

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