Episode 4 started with Luca Pacioli and how new accounting paved the way for capitalism. As we covered in an earlier post, Pacioli was a mate of Leonardo da Vinci's, and also happened to be very good at chess. But his main achievement was his book on double entry book-keeping. He didn't invent the form, but he did promote it.

Christopher Nobes, Royal Holloway: In the old days - two types of account. What you owned, what you owed. No need for cash or profit (no taxation). So we started off with "What we own" and "Who trusts us to pay them later". Hence "debit" and "credit".

Every transaction has two aspects. If I buy bread for £1, I'm up a loaf of bread and down by a pound. Cash is in the accounts as a debit, because the cashier is treated as a debtor of the business. The more you start recording, the more you spot that two things are happening. It all adds up, and all "feels good".

Was it divinely inspired? Alan Sangster of Middlesex University sees two sides in perpetual balance. He thinks Pacioli loved this: the beauty in balance.

Accounting can be seen as a form of storytelling, which means you need a listener, an auditor. The auditor was God, originally. James Aho of Idaho State University believes you can find lots of forms of accounting everywhere, including in business. There was a form of neurosis that inspires obsessive book-keeping, doing everything twice.

Jenkins observed that usury is not allowed by the Bible. But double entry book-keeping lets you fudge this. For example, you can sell an apple, and it's right that you get some money for it. But interest is like selling time, and time is God's alone to dispose of. People were using double entry book-keeping to hide things from the church, and from themselves.

But Basil Yamey disagrees with this interpretation. How can accounting - which lays things out for all to see - make things less clear?

Some people have suggested that capitalism couldn't have happened without double entry book-keeping. People don't generally agree these days, but Sangster supports it. He believes it helps build trust, and therefore trade, because you have two lists of things - your list and their list, from both sides.

Yamey pooh-poohs this idea. You had partnerships before double entry. And later, you didn't have double entry book-keeping in big companies, e.g. Rothschilds and Dutch East India Company.

Dick Edwards said that the beauty of double entry book-keeping is that it lets you produce final accounts whenever you want, based on data you already have. It lets you produce a profit figure. This is important, because although all forms of accounting give you some sense of stewardship, double entry book-keeping also lets you see profitability. So you can assess the honesty of the steward as well as his profitability.

Efficiency is the most durable legacy of the double entry approach. Things that can't be measured are simply ignored. Only financial stuff gets into the books, with other externalities being excluded. Ironically, this means that it ends up concealing as much as it reveals.

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Filed under: Entertainment with tags a brief history of double entry book-keeping, alan sangster, basil yamey, bbc, christopher nobes, dick edwards, james aho, jolyon jenkins, leonardo da vinci, luca pacioli, stewardship, usury