Jacob Soll’s The Reckoning looks the history of financial accountability. He starts from early accounting and makes the point that tracking how the finances works has been central to the success (and failure) of many nations. The key point is that understanding money really does matter. Various potentates have over the years decided that financial accountability was a vulgar pursuit. Even a strong king though could eventually run into trouble if the finances weren’t making sense.
Financial Accountability Is Not A New Problem
Soll’s work is a history, throughout various big events accountants turn up. A bit like Zelig or Forrest Gump. We move from renaissance Italy, through Holy Roman Emperors and Spanish Kings. We find ourselves immersed in some of the interminable wars between Britain and France. We see worries about the national debt causing massive problems in 18th century Britain. We also see the French king’s accountant treating military spending as separate from “normal state expenditures”. The French books were in surplus by 10 million livres but…
[Necker, Louis XVI’s minister] omitted about 50 million more in deficit military and debt-related spending, which he deemed extraordinary….
Soll, 2014, page 140
It turns out that the French treasury was in a much worse state than they looked because people were pretending military spending was exceptional. I have heard that before. BTW this did not work out well for Louis XVI.
Understanding Money Really Does Matter
British settlement of what is now the US, was, at least in part, a business endeavor. The companies set up to exploit the new world kept books and aimed to make a profit. Understanding money really does matter when you are establishing a new country as well as running an old one. Benjamin Franklin, first postmaster general of the United States, understood how important it is to understand money.
Thus, all post offices in early America had double-entry manuals posted on their walls, with instructions on how to use them.
Soll, 2014, page 153
Accounting took off even more as complex businesses arose in the UK and the US.
“Modern” Accountability Problems Remain
A lot of the problems of financial accountability are still with us. It is hard not to worry about governmental books nowadays. They are generally pretty terrible. Investments often don’t look like investments which means that governments might do something short-sighted like cut investments in human capital (education), infrastructure (transport infrastructure), technological advancement (renewables), or public health (vaccines) and it looks financially positive in the short-term. Cutting can be extremely short-sighted, but you may not be found out for a few years. Turns out running a government is like running a business, there are similar ways to do a shit job at both.
It was also interesting to hear how long accounting firms had grappled with the problem that giving consulting advice makes more money than boring audit work. Strait-laced accountants regularly make the hard to refute point that pursuing consulting deals risks corruption, as the auditor is no longer independent but instead ‘wants to help’. Eventually, however, the profits in consulting drive accountants to do a little more, and a bit more consulting. It then all goes horribly wrong, and everyone backs away from consulting. After the reset, the whole cycle starts again.
For more on accounting and public policy Whose Problem Is It When Accounting Is Challenging?, More On Accounting’s Failure To Deal With Intangibles, Faulty Sums and Accounting, The Politics of Accounting and Double Entry Bookkeeping.
Read: Jacob Soll (2014) The Reckoning: Financial Accountability and the Rise and Fall of Nations, Basic Books
