Transcripts For CSPAN2 Book Discussion On The Reckoning 20140614

It is my great pleasure to introduce professor jacob soll from the university of southern california. Among the most innovative and ambitious scholars in the field of intellectual history, professor solls work has shown that to understand the history of thought, we must understand the practical history of thinking, of the many mundane and often overlooked activities that go into making, storing and transmitting ideas. Professor soll received his ph. D. In 1998 and subsequently taught at princeton before his current position at usc. His work has been honored by the american philosophical society, the National Endowment for the humanities, the guggenheim and most recently the Macarthur Foundation who awarded a genius front in 2012. Hes the author of numerous articles, reviews and editorials including a wonderful New York Times oped in 2009 titled avoidance by the numbers as well as now three books, each of which has recovered in its own way the formative role with a different kind of inte lek call racks in the shaping of governance. So in his first book, soll looked at editing and the remarkable influence editors and publishers had in making machiavellis political treatise into the radical machiavellian be. In his second book, the key practice in question was broadly archiving. The information master examines the roles that new techniques for gathering and organizing politicallyuseful data played in the development of modern state craft. Be and most recently, professor soll has turned his focus to a new practice, to accounting. And this evening professor soll will be speaking on his new book just published by basic entitled the reckoning financial accountability and the rise and fall of nations. Its a remarkable tour that spans at least eight centuries and half a dozen countries. In the reckoning, professor soll expounds on the keeping of good books by way of dante and dickens. And with that, professor soll. [applause] thanks to, thanks for coming and thanks to the hyman center and thanks to will. A lot of this book comes from talking to him and from his work. I feel like we and some others in this room have been working on project virtually together for a long time. I basically, this book, actually, started i started by trying to write a book about how people build successful states. I was very interested in state building, and i was interested in the elements that we often overlook in state building. So what happened was i started going into state archives and just looking at the elements that were there when people were building states. The intellectual interests, the players. And one of the things i found, i found many account about thes. And i thought accountants. And i thought this is really interesting. Here we are at these great moments in tuscany, in the renaissance, and here we are in france, and here we are in holland, and each time i found accountants not just in sort of backup roles, but as these great leaders. And i was like this is really fascinating. But as i was doing that, the crisis in 2008 hit, and i sat, and i watched the crisis unfold, and i watched bear stearns and Lehman Brothers collapse, and i watched the footage as the accountants moved in at night only to discover even though their offices were just across the street that all the cdos and their bundles, their mortgage bundles were worthless. And i said this is it, were going to have this amazing discussion about accounting. And and i said this is, were going to talk about why it works, why it doesnt work. Theyre going the hold up the accounts, and were going to discuss the accounts because thats what happened in the 18th century. And wills work in the bubble, it happened in france later before the revolution, and it never happened. I thought, boy, thats an interesting disconnect, i wonder if thats a story here. Right now theres a lot of interest be in financial crisis interest in financial crisis and income inequality, and people are looking to economists. I sort of thought at least for this conference that i would just bring max vaber back into the picture, because i started thinking about culture and thing like ethics. And i was very, very interested, for example, in i was very, very interested in why people overlook accounting. So what i started doing is i started not just looking at states that worked, i started actually looking for other moments where accounting failed. And it was a sort of an odd trip. So what i did was i went to the archives of some major states and looked at the account about thes and the role of accountants and the role of accounting. I saw how people used accounting remarkably. But then i also, as many business historians know, i found that later they fail at accounting, they drop it. This is actually the ledger in which francesco cicetti stops balancing the books in the 1470 and, essentially, the medici bank goes bankrupt or starts going belly up, and they start raiding the city coffers. And i just kept going. I kept going to these sort of moments. I went to the first accounting manual which everyone holds up as this incredible moment of rationality and finance. And the book was a flop. Historians and and intellectual historians have really never examined this book. And the book didnt do very well to the point where luca pacolli was very unhappy with how the book did. These merchant italy sort of declined and spain rose up, princes became more uncomfortable with actually using accounting themselves. I went and i studied phillip ii who was the great be emperor of the spanish empire, famous for his administration, and i started looking at his accounting policies, and theres a lot of work thats been done on this by business historians, spanish business historians. And he came up with some of the most remarkable accounting reforms ive ever seen, incredibly modern, but he never brought them fully through. He put finish he tried to find account about thes. There werent many in spain. He sponsored the first manual on double entry in spanish. It didnt do very well. And all of these incredible reforms he did dropped. And i thought to myself, wow. Here we actually have this history. I had set out write a book about how accounting in states worked, and i ended up sort of writing a book about that, but also how it constantly failed over and over again. I thought this might be a cultural tradition. And so i sort of kept digging, and and i went to louis xiv, and it was the same thing. He became fascinated by accounting. He learned accounting. He had his minister, colbert, create golden account books for more than 20 years that he kept in his pocket. But when, you know, accounts went bad during the wars in the building of versailles, he stopped it too. So this was the sort of amazing thing. At point i was looking at this point, i was looking, i just kept looking. I kept going to Different Countries and different archives and different traditions to see what i could find. And i end up in holland. And what i found in holland really struck me because when i went there to start looking for the history of accounting and doing some work in the archives, i also ended up going to museums and also remembering paintings that i had known, and i discovered that there was a huge accounting genre of paintings in the flemish, dutch tradition. This is an early painting, actually, of the medici Branch Director who gives bad loans and keeps bad books. He actually painted this before he had this painted. He paid for it to be painted before he actually went bust in the brugges branch. But this was a sort of remarkable painting of a financier being judged and tasting the final reckoning. And facing the final reckoning. Thats where i got the idea for the title of the book. But it went on from that. You cant see it very well, but the dutch actually were very conscious that their prowess, they were becoming the richest small country really on earth at this time. And this engraving celebrates that. But it showed [inaudible] antwerp in all of its wealth. Double entry bookkeeping. So they actually knew that they had this skill, and it openly celebrated the fact that their mastery of this skill gave them their financial prowess. I thought, wow, this is really fascinating. We know that the disturb actually dont have the same financial crises, so what happened with the dutch . This storys going to be different than the other stories i had looked at. Now, what the dutch do which others, which others hadnt done is they start painting themselves doing their merchant art, and they create, first, a genre celebrating their skill. And these paintings are well known and, actually, at the met. This is a well known its in the national gallery, but the met had it, and there was discussion about it. But it hasnt really always been discussed as an accounting painting. But here we see this guy actually named schnook was his name, and he lived south of antwerp. And we see all of his tools of accounting. So the dutch celebrated this. Thats fine. I mean, the italians have celebrated it and talked about how important it was. But i was wondering sort of what made it work, and what i started finding was that the dutch didnt just celebrate accounting. They actually did more. They celebrated it, but they also warned against the dangers of putting too much faith in it. They warned against hubris. And this is my favorite of all the paintings because not only are the books remarkably accurate and you see this merchant whos made money and done well, and the other side of these panels it shows that the merchant has given money to a city and has been faithful to the virgin mary. But at the end of the day, he cant balance his books because the man who owes him money has died and only death or god can balance these books. So what the dutch do is they give a warping. And this painting really fascinated me. And there were more. There were more paintings that actually showed the skill that the dutch had. But this painting becomes the basis for what i call a series of warning paintings that the dutch have painted about accounting. Its between quentin metsys, they start showing the kill of bookkeeping. The book in the first frame was a prayer book. Nowst its an account book, and the wife where women keep books is looking over the account book, and theyre counting their money, and theyre weighing it, and theyre doing a reckoning. But this motif turns into even more of a warning. Not only do we have the skill, and youll look above. Someone spent a very long time, once again, painting all the tools necessary for accounting. The files, the books, the boxes, the filing system, the seals, all the Different Things you need to keep accounts. Theyre still showing their skill. Theyre still bragging about these skills of early capitalism. But at the same time, this painting some think it might be antisemitic. Theres an argument about it, its not certain, but its also showing people who are good at this can also be sneaky, and one has to be careful and watch out for accounting just as one does it well. Well, this is a message from the gospel of st. Matthew, and, in fact, st. Matthew runs throughout this culture because matthew is not only the patron saint of accountants and bankers, but also perfumists. But matthew, if anyone here has read the gospel who was actually levi, a jewish Tax Collector for the romans who left the accounting table to follow jesus, he writes the parable of the [inaudible] and the parable of the talents say that you have to invest your money and make money. But he also warns against following men over god, he warns against wealth, and he says to turn away from the accounting table. He gives two messages. And one of the things thats very fascinating is to see early modern european christians struggle with this dual message. Matthew ends up giving these conflicting messages, and there are struggles. These paintings, i think, are struggles with the image of matthew or the message of st. Matthew. Youve got to be a good manager, but you need to watch out for the worship of money because it can lead to more than just dishonesty, it can lead to folly. And this is really a remarkably fine painting where those, this is, i mean, the painting of the actual, once again, the tools, the books, the files, the notes of exchange, all of these things are portrayed in incredible detail in the back of the painting. The books are incredibly well shown, the numbers in them are there. I mean, we see incredible detail. But here we have someone twisted by hubris and folly, and theyre wearing hats that are crazy. And so theres this, theres this message once again that no matter how good you are at this thing that we all must do, be careful because it can lead you down the path of folly. Now, this went immediately to my mind. I said, well, this is really a remarkable thing. A remarkable tradition because it doesnt necessarily mean that the dutch dont cheat, it means that they are aware that its their tool, but its a dangerous one, and they constantly have to watch out for it. They have to be vigilant, and they talk about individual lance all the time. And they have to watch out for fraud, and one has to watch out for human pride and human humang race in financial calculationings. So this is a big tradition. Now, he has this tradition in the 1500s of paintings. This is quite fascinating. What happens though its in 1581 7 provinces from the north break off from spain from the hapsburg empire and the come the first modern republic to emerge and its a commercial republic. Its a fascinating place because it is partially managed by not only a famous humanist who is also a master of the waterworkwaterwork s but who is the most important teacher and the most influential accounting author in holland in the late 1500s. Its fascinating because not only did he actually teach accounting to the prince who was a stockholder of the republic he taught it to prince morris and theres a famous discourse about his relationship with prince morris when he teaches him accounting and prince morris says this is incredibly hard. Its very important but very hard. This is the first time we hear reprints actually taking part in this. He is not an incredibly powerful prince but hes nonetheless a prince. So its more that now that. Essentially in his accounting for prince the head of state needs to know how to keep books because the head of state wants to do audits of the state himself. Otherwise you will never get it clear view of anything so he even goes further and he says citizens are going to need to know how to do accounting to be good citizens. This is really fascinating. Not only do we have an earlier culture of prowess and accounting of art celebrating the prowess but warning of its dangers but here we have the leading manager of the country making accounting and accounting education for princes and other citizens a major state policy. We know its a state policy because the cities like amsterdam start paying accounting masters to comment and actually teach citizens how do accounting. They actually have a program to teach accounting which is quite remarkable. I can tell you that the germans and others are watching them do this in an act the spread of accounting manuals doesnt slow down as historians have previously said. If you do the book history and follow the manuals of the books they come to holland and its from holland that the accounting manuals actually spread. Also this idea that you need to do accounting and anguish in the germans and the french are slowly watching this go on. Now prince morris is quite remarkable, learns to do double entry. It was only in 2006 that they found his books in the archives. They are right there at the hague and essentially he oversaw the books and they were his. They have his seal on them and he insisted that his personal books and his administered look. Why the way double entry accounting being debits and credits in parallel columns. They have to balance so theres this idea of balance is deeply involved with the practice. If you sell a goat for three florence you earn three florence in one column but you lose the code in the other and it all has to balance out. You have to balance your books. Theres a kind of a moral story of accounting each time you do your book. You either have or havent balance things out and the moralists they should be balanced or he you should have a profit. Now everybody who knows financial history knows the dutch invent modern capitalism. They found in the east India Company the first publicly. Firm in 1602 and found the amsterdam stock market. Again why do they do this . If you go and study the history new research is being done right now and also of their books because their books are a funny odd story of success and failure. But what is really remarkable is that the dutch create this in great part because of trust. There is great trust in holland that most people can keep double entry looks and most people do it quite well. We have evidence of people from all levels of society. Theres a famous book actually of a prostitute describing the necessity of doing good accounting and the process does good accounting. We have merchants. We have artists. We have everyone talking about the fact that they know how to do accounting. We know if you walk out of latin school into one of the city run accounting schools. So this is quite impressive. We also know that the dutch have this old tradition of municipal management. Why . They have great hospitals. There are merchant cultures of people know how to do this but also 40 of the country is under water and they manage with waterboards their local Municipal Administration have to manage these waterboards. If people mess up the management of the waterboards they go underwater and they died. So there is great pressure for local people to do good administration. People have to trust their local provincial Tax Collectors as well as the administrators of these waterboards. Trusting the bookkeeping and the management of these localitielocalitie s is a matter of life and death for the dutch. I cant say that its a causal thing that this causes the dutch to do this but its definitely on their minds. We also know that dutch reverential tax collecting is some of the best in many cases they keep the best records and in fact dutch provincial tax collection is so stable and so trusted that Interest Rates are paid on these tax returns for a think 150 years, a very long time. Holland has this remarkable tradition of keeping books and of people trusting each other. Now that doesnt mean that things dont go all right. In 1622 the company starts losing money in their returns go to 6 from 18 and there are stories that the directors of the company are doing Insider Trading deals that they are hoarding things and actually they are just going to the docks and in many cases stuffing their pants with gold. So what happens is the shareholders, the shareholders actually write a complaint. Its the first shareholders revolt in the first publicly. Company only 20 years after its founder. They have a crisis and they say wow is interesting. What happens with holland . In 1622 the shareholders write something called a necessary discourse and in it they make a call for a reckoning which is a dutch word as well. They want wellkept books kept in the manner of merchants. They complained of books and the company had and smeared with bacon and eaten by dogs and they say we want the books to be transparent and open. We want them to the bee public and we want an audit. We want to reckon and that is the word for audit. This becomes a huge crisis because they dont relent. Theres basically a petition. Theres an uprising of these greedy investors and it goes to prints maurice desk. I said wow this is really an amazing moment because if we are talking about financial crisis and how to manage it here is one of the first audible crisis we have in the company read how they handle it . Fascinating morris actually knows how to handle the books. The most important accounting figure at the time in europe but morris is the shop older and holland is fighting wars and doing its massive World Trade Program and basically what moore says is fine i will do the books but for National Security or for reason of state it has to be a secret audit. I will audit them but i cant do a publicly. What is amazing is that the citizens in holland actually trust him to do it and he does it. The books are mildly reformed. The company gets back on its feet of those practices stop i thought wow thats amazing that there is this culture not just of trust but of demanding audits. Thats what comes out of the culture of accounting that the citizens demand an audit and we want to see the books. We know how to read them. Please show them to us but in this case they dont get the books. The princess i will do it and he says the guy knows accounting and we trust him. Its a small country so its not necessarily surprising that everyone knows each other and knows how good each of them is and is not in doing financial matters but they trust him and he does okay. That is a remarkable thing. This idea of being a good manager becomes a sort of a phenomenon and remains a phenomenon in culture and what happens is these people in positions of Public Management start having themselves painted with their books open. There are about 100 of these paintings all around holland. This is a completely unknown genre. Its the managers with open books painting and whats really interesting is in some of the cases the numbers worked out. We see them doing accounting. There are literally dozens and dozens of these things and they are holding their books open so that you can see that they have done them. Very early on in holland one of the reasons ben franklin loves one of his workers is that his wife said they keep great books. The dutch are valued because even the women know how to keep books which if you run a business is very valuable for family business. In holland even the women are shown with their open books and look she has got her hand showing that they are keeping good books and they are governing Saint Elizabeths hospital. This is amazing and this is actually from our catalog. Where did that one go . Eric kenalog graft all these paintings because nobody knew they were there. These are not the paintings you see in museums. There actually still in these administered houses or in state buildings. They are not exciting paintings but once again people overlook accounting which is such an odd thing. Its so essential that culturally we have kind of left it behind. Well the dutch didnt. The dutch spend a lot of money and time painting and thinking about these things. During the 17th century goes even further. Peter dale a court who is one of my favorite figures writes one of the most Remarkable Book some political theory about republican liberty. Its also about the need for free markets a very protoearly version of freemarket thought but also tolerance in which he said we need republican liberty and we need freedom of thought and tolerance but we also need good financial management. After he talks about classical republican rome he goes on to spend most of the book just providing trade numbers essentially tax accounts from each city to show the wealth. So he creates this genre in which he actually shows the power of the country and its political effectiveness by showing calculated diverse tax receipts. So this is a very unusual book of political theory. It even goes further than that. The dutch create as their grand pictionary thats the sort of the figure under the stockholder and gets into fights with the stockholder, johan dewitt who is a financial. Hes a mathematical expert. Hes a radical cartesian antirights a treatise on the mathematics of curves. Very important i think in building waterwork and that is actually published so this guy is a mathematician. He is known for it and is running the country. He also writes the first really great treatise on state annuities which is amazing thing. And so one could sort of stop here and say here it is. The dutch do it. They create the society and a master accounting and even though that it fails and they put in sort of a cultural watching and Warning System for these failures against hubris but of course this great mathematician comes up against the nassau inslee family and he and his brother end up getting killed, slaughtered, gutted and maimed by a crowd in 1672 who take their guts in their hearts and put them into a little container to keep them for several years in their stores paid by the nassau family to kill the dewitt brothers. I thought wow. This moment we get complete political oomph dennedy and either way this doesnt always happen. This was the only time this happened. It was a rare occurrence but yeah this was the first moment we get a financial expert is more or less the head of the state. Its a remarkable thing and i do find it quite remarkable that he gets completely gutted in such a brutal way. Look at his work which is so fun and sophisticated. The contrast is quite remarkable. Now what happens is that we know that holland declines in the 18th century and the dutch start painting more of those paintings again but at this point they are all cheating each other and nobody trusts anybody. The bookkeeping is not as good as it used to be. In fact england emerges as the center of keeping. At the beginning of the 18th century there are about 30 what i call writing schools which are schools where you learn to write well and you learn to write but to keep accounts and you also learn double entry accounting. By the end of 18th century britain has a thousand bschools. The schools are advertised for being for gentlemen as well as normal citizens and even in some cases for ladies so they get over this noble distaste of doing accounting and theres a lot of accounting being done in britain. This culture sort of expands out in britain. I wont go into the fold this course of this but it also enters into their artistic tradition. They celebrate accounting and there are huge number of pictures of british merchants smiling over there looks. They are not showing them like in holland. Its an actual hubristic moment of empire where they are literally sitting back. Some merchants in 1870 britain dont keep books. Its very unusual because theyre making so much money they never see it and they literally stop keeping books. They just have the money coming in. There are a whole bunch of these paintings of the smiling accountant. Look at the sky. His books are a mess but hes in control. Hes an Imperial Master lord of the world. He can be nonchalant about it. This is a more even sophisticated version of accounting. Hope arth warns that there are many british people that ignore accounting so there are many warning pictures in this case we have he and his wife who have been partying all night and the accountant walks away with their ledgers frustrated. He is the ledger under their arms and throwing his hands up. His people dont want accountability but its still an art and culture. Now my book goes into much more detail and explains 18th Century America in 19th Century America but it also talks about for me the most important figure in all this who is charles dickens. This consciousness, this cultural consciousness about accounting is deep in dickens work. Dickens father who was accountant who was a good accountant who was robbed by bad accountants in dickens struggles with the good and bad accountants. There are good accountants and bad accountants and of course in the Christmas Carol we have this whole story of these kind of accounting Business Owners with scrooge and jacob marley who keep books that can also be imprisoned by them and also keep bad books and marley comes back with numerous engravings of marley held by his ledgers. Again this consciousness is there very dickens talks about it. In france we have all site talking about it and many of the writers of 18th century writing about accounting. There are songs about accounting. There are poems about accounting. Its very much in peoples minds. There are stories, household stories about accounting about family fights. For example women were allowed to keep accounting but they couldnt keep accounts of groceries. All the strange things within the culture of accounting that in 18th century britain in 19 century britain people actually still discuss them. Now again this is a very sort of short version of my arguments in the book and dickens is my favorite character but really strikes me and im leaving over years and years and years of accounting history and the history of accountability but i do want to bring this up to the 20th century. Still in the 1960s arthur young could show this madman brochure. This is a good job when this guy is clearly scoping out the possibilities that his job offers him as an accountant. Theres a little bit of glamour involved in this but with all the scandals that follow accounting actually the loss of social prestige of accounting where Arthur Andersen moves accounting to the midwest and gets this theory that midwestern middleclass people into accounting. It loses much of its cultural cachet. Thats followed as we know by numerous accounting scandals and now accountants are out of view. We dont see them. We dont talk about them. The modern image of an accountant is kind of fat. Thats a stock photo accountant. Its not a great image, okay . In fact accountants there are other pictures that are in accounting schools of accountants with suits looking sort of grim and looking down. Theres not as great art surroundisurroundi ng accountants. There is none of this cultural awareness. That seems to me to be a huge problem. We dont talk about accountants and in fact we feel uncomfortable talking about accountants. Today we were at Bloomberg News and they say they want to write about accounting but its not. It doesnt go on the front page and its also gloomy because in many cases its warning about fraud. People dont want to hear it. We dont have that in the accounting journalist. Do you know that financial journalism is in part created by account is in the publications of ledgers and Balance Sheets of company accounts. What we see in the 18th century is the circulation of these things of account books and companies and the states becomes news becomes frodo journalism. Later in the 1830s when the budget emerges to get financial journalism growing out of this accounting tradition. Today we barely have any accounting terminal is. We have 800,000 accountants and the big four accounting firms. All of our lives one way or another one credit card transaction tonight will go through one of those four firms. Somehow, at some point eventually through an accountant these people remain invisible. We have this mass crisis. The Balance Sheets were right out into public and discussed the way they were in 18th century. In many ways we have gone backwards in that has inspired this book and that is why i wrote it. Thank you very much. [applause] i would be glad to take any questions. I was just wondering you mentioned [inaudible] species in there. Obviously hes the most fun because his accounts are part of his diaries and he accounts for everything and he does it using the language which he uses. He lives in great fear and he claims to have learned accounting from which showed in the 17th century it was hard to learn accounting but when he deals with the king and they dont know how to keep account books he writes i fear for this country. Its quite remarkable and he himself, this is a funny moment. He says i wish we had accounting like in france which is so funny because france is such an unaccountable system that colbert is an accountant and for a while france is run by National Trained accountants. He is in there for sure and he is any one of his topics you have to bring peeps up. He is there for that. Your story is very much a western story and im thinking especially talking about the waterworks and the chinese who have the same kind of life or death dependence on management. Is there sort of the great diversions aspect to what you are doing or how does accounting play out in that culture . Well we have all across the world people keeping accounts but only in the west you get double entry accounting which is the most accurate and really is favored and many other said the lynchpin of capitalism. Why does capitalism emerge and the west indies European Countries . Economists have felt that double entry bookkeeping is one of the reasons. I do believe thats true. That then leads to a very particular western culture mixed with the scriptures about accountability and about warnings and about columns in the reckoning of god. Remember god is an accountant too keeps the books of life and of death and takes the final tally in the judeochristian culture. There are other traditions but if this tradition becomes a tradition that creates modern complex capitalism, couldnt do it also i want to follow follow on tradition as a historian. There are many other stories out there that this one brings us to capitalism to empire and two crashes. Now obviously its much more complicated but its really only in the 1940s that double entry accounting spreads out across the world. These accounting standards are still fought over in america and europe. America will not enter as the world accounting standards. There are two views on that and i dont know whos right. A lot of people think its better to stick with the americans in spite of everything that has happened. So these fights are going on in the background. Most people dont know about them. They are take big discussions. I would take exception to your comments that accounting is not discussed. I for instance started a Company Called financials where we look at the financials of companies starting in the 90s. There were several of us comparable firms so in the profession and in the Financial Analysis and on wall street and in the Specialized Business publications like forbes in the journal you will see the articles and there is discussion about the accounting rules and about the impact of it and the complexity of it and whether the sec is flushing them are not so there is a discussion and its very likely that its about the environment that most people are just absolutely confused by the whole thing if they know anything about it at all. I will tell you a story. For five years ago i met a comptroller general of the United States and according to statute he has one each year. We havent done that. He hasnt done that for the past 10 or 12 years because he cant get a clean audit is at the pentagon. And there it is. This is one of the real issues. So i think people who know about it and the people who dont dont know about it. I couldnt agree with you more and we talked to Bloomberg News about this where they said yes some specialists know but think about this. They there arent that many accounting journalist. Bloomberg news room felt that they wanted when they do have writers doing it and they lamented that there wasnt more and just in it most people dont know anything about it. It was still part of the curriculum up until world war ii. Double entry accounting is not in the curriculum anymore. People dont know what it is. You can go to the best schools in the country never know anything about accounting. In the renaissance and enlightenment people would have thought that terrified any householder would not know accounting. My suggestion in the book is that the crisis is not necessarily there are with the experts although part of it is but for the general population which is completely ignorant of this basic thing. People take mortgages without knowing what depreciation is without being able to balance a book at all. That wont work. In the renaissance in the middle ages they want about that. They said you couldnt hold on to your house or property unless you knew how to manage these things. The language of financial literacy. Which transcends the accounting so when you talk about natural a literacy its very in this country. I agreed to crisis and thats a point to make in my book and i think we are in the deep accordance. By the way you know churchill i think in 1913 comes in to take over the navy he finds they have been completely cooking the books. There roque and this is always the case in a pizza militaries because they say National Security. He finds out in 1913 that he has no money and thats one of the reasons and a friend of mine tells me he starts building submarines rather than battleships because they have no money. Its cheaper. The history of submarines of the starts out with that accounting practices. So yeah absolutely. I really enjoyed seeing the art. Throughout the talk i felt this dichotomy in your narrative between success and failure and good accounting versus bad accounting lowlevel highlevel good records and bad records. Id like you to talk a little bit more about [inaudible] is that good accounting . Let me just say one more thing about this. What can accounting make us do . So i was just, that seemed to be absent. Its in the book and i mention very clearly. Its a lot easier to do slave trading when youre only looking at the books and its only in numbers and by the way i go through the account books of people like jefferson and i point out this absolutely terrific to read the passages about slavery in the way he talks about it in his account looks. There is the normative thing which is good. Its very good that many of the Founding Fathers knew about accounting believe me and this whole project has worked. Very creepy when they spin around washington and others and then do it for slavery. Its accounting. Its accounting and it can go both ways. There is a morality to things and in the books, there are books which balance out and show profit and dont necessarily it doesnt necessary come from human suffering and their books in which there is human suffering. The look show the numbers and they do clean it up and they fix it up. I talk about this in the book. What im also talking about is a nonnormatnonnormat ive thing in which we constantly end up dropping these books or ignoring them. Theres actually lloyds bank did a study raid i forget what its called. I wrote about it in a near times piece in which people get phobias of their own accounts. I can tell you its tax time. I have a phobia of my accounts right now. I dont want to look at them and there was another study that came out recently is that said the worse your accounts are theres a phenomenophenomeno n as people get poorer and poorer they stop doing accounting because its so horrible. Louix xiv had the same problem except in a lot of Different Levels so theres a whole other story of dysfunction in and human nature and then of cultural management. Cultures can deal with it that and its a very odd thing. I hope that came across. I found accounting to be incredibly strange however at the same time you really do need to do it in order to run a Business Center manager household. Or to trade slaves which i hope you are not involved with. Is the 17 trilliondollar deficit and is there is a reckoning . I can answer those questions but let me tell you this. I can tell you this. From the earliest publications of the budget numbers are fudged. I do think the Congressional Budget Office does not create a job with what it gets. I think there are some numbers out there. I think those who are trained can get a sense. Accountants will always tell you remember this isnt inexact art and our valuations might not be completely accurate. Theyre not always allowed to say that by the way in their statements and Balance Sheets dont always have this but theres a large tradition of fudging the books. Is a reckoning coming . After talking to some leading financial journalist today i get kind of worried that there really was one. Talking to some really serious experts about finance today i was deeply deeply concerned. But thats just me. I guess you do write about it in the book but as you talked about the gradual disappearance of all the the accountants especially in the 20th century i was thinking that comes along with the rising provenance of the markets even though the markets rely on the counting numbers completely. It produces numbers on which markets trade. [inaudible] their image has been tarnished and a few are an accountant you probably are going to make as much as a tanker. The county schools struggle with trying to get better students who want to go into banking. They want them to the auditors. They need skilled auditors and they struggle with this. Those are Big Questions but the image of the accounting across the 20th century is a fascinating story of the mismanagement of a brand created by the british around 1904 as the impartial Sherlock Holmes of finance who didnt care about it it was there for a reason and for facts. That image was very strong in 1904. Even a hundred years later. Thank you very much for your talk. [inaudible] [inaudible] [inaudible] absolutely. [inaudible] they are still arguing about these. [inaudible] [inaudible] he first of all i go over that briefly. I talk about it but not in enormous detail. It is so complicated. The history of modern accounting over the past 40 years is so complex that is really something i couldnt do. I looked at it and i read about it and i was startled by these things and also there is still an argument about historical accounting is market to market accounting. They dont agree in one of the interesting things in talking to real accountants is they are like no, we can be exact. We are all about doubt. Accountants themselves use postmodern language without even knowing it but you know its very impressive to go talk to thinking accountants that are out there and they will tell you a remarkable story. The people you least expect to tell you a story about doubt and about questioning numbers. They do it because they have to and they say we always try to tell people what we do is inexact and they can ever be exact. Its so fascinating and i gets back to those paintings were you have to try and do as good a job as you can and know that you can fully control it. Its such a remarkable cultural realization to get to that point. I find that just amazing. [inaudible] absolutely they really are. More than i would have thought. I was wondering if you would take a bit to tell us how does the story worked . There seems to me accounting you are describing is different strategies and practices. The physical practice of numbers and a moral discourse surrounding it. Theres a cultural confidence game for you project an image to the public. To what extent is there an integrated package . Do those things have to go together and are they stuck together and if they are not stuck together and this is a little bit after the question of accounting slaves. Is there a moral balance to books and how does that work with in other words does the story depend on having the kind of integrated package of different kinds of cultural behaviors that fit together better interlock together . All i can say is i think it would help. In the perfect world. But certainly it helps to have that greater view. Thats why i find 18th Century America so fascinating. Most americans and you helped me with that chapter so you know the information better than i do that most americans who note how to do accounting but a lot of that leading citizens many of whom were forming the government and other things knew how to do accounting and a lot of people that had plantations were good at doing it. Its a doubleedged sword there were people who were doing plantation accounting which is horrific are also the people who are doing accounting to create this free government. Thats the story of america. Thats also the jefferson in a nutshell the great writer of liberty who is a slaveholder. I think there is an internal tension and accounting at the dutch get it rated this is something that can be moral and good and bring it close to god but its also the tool of thought. It is both and the more you know about accounting the more wary and careful you will be of this Great Potential power but which also has the force when its done badly on the errand Stearns Lehman brothers scale to wipe out the whole system. That accounting on that scale and there was a lot of bad accounting going on. Wow it can cause incredible havoc. The lynchpin of capitalism is its achilles heel. I read a lot of 13th century account looks. Its in siena and i have to tell you there are tons of auditors and its absolutely essential to the function of the government. Its not just accounting. Its so detailed. Absolutely. Every official gets put against the wall and theres always over and theyre always spending too much. Its remarkable how insistent they are with every penny and nickel. Its a banking culture. Itself a republic and in the republics you find a lot of auditing. One of the things and i talked about this in the early days and it blows me away is that siena the great book of siena where the city state of siena has a big double entry ledger with all these threads and special pages the knowing can cheat and double signatures to keep the books of the republic because they believe its the only way to do that. We will not see a system like that again until around 1720. Thats not really effective in 1720. You dont see a standardize governmental practice in the west until the 19th century. What we do is we lose for hundreds of years. I find that deeply sobering. And the government gets weaker and kind of falls apart its actually the same story you are telling. Yeah, absolutely. If the government is threatenethreatened by accounting you would think [inaudible] it was not a professional issue. Now its a profession which means not everybody does it. I dont know what works better. A general culture where everybody does it and then there are also professionals or what we have now where just the professionals do it. We do know that having government oversight can wreak havoc as the accountants will tell you. They feel their hands are tied behind their backs against the banks that they can do good audits by now. Its not completely clear who is right on this. Its very complicated stuff. We are in a hyperfinancial moment that is so complex that its very hard to figure out. You had a question sir. The danger in the hubris is accounting is Good Practice and double entry count double entry accounting is bad . You should keep books but be careful with worshiping that entrusting it to much and that is from the scriptures and an old message but the dutch really pick that up and theyre really keen on it in dutch calvinism. In that sense we have to be careful with thinking. What is that . Fraud. Fraud by great accountants and thats what those warning pictures are. They show that the tools are fantastic and theyre doing everything theyre supposed to do but if theres something wrong be careful with the numbers. Will. You think of double entry books were sold and . Do you know what . I talked about this today and for a long time today think learning how to keep books is very important even though you can have an app for something that does it for you because you also learn how it works. You learn the moral of talents. You learn the dangers of not being disciplined and it is in medieval italy theres a long tradition of people keeping moral account books. He is an expert on this. Ben franklin keeps a moral account book in which he crosses off things and jesuits keep moral account books. Jesuits keep looks but they dont teach accounting. There are all these funny relationships but the loss of the moral account book is also followed as well. People kept moral account books. Im not going to say if i think thats a good idea or not but i put it out there is an interesting Cultural Practice that we have lost. You talked about the moral balance. It seems like its very different. [inaudible] i totally agree but its a start. If we want to have a conversation. Remember this also. I dont know if i mentioned this. I dont want to complement myself because you can read the book and decide if its any good or not but theres no history and accountability. This was a long attempt to write a book about accountability. I find that unnerving and kind of scary. So where do we start . My Research Shows that learning is one place to begin. We have to go back to the fundamental and then we can talk about how it doesnt function how terrifying it is that we cant even get their if people dont know what this is. People dont know what double entry accounting is. Most people. Its remarkable. [inaudible] theres a moral to the story if you keep your accounting book each night and that is what people talk about in the middle ages tomb midcentury italy. At the end of the day they are supposed to balance the books and then you go to sleep. And then you pray afterwards. The point is to a certain extent i think in a hyperfinancial world it might be a great base to start conversing because itll allows you to converse about calculation and even to begin to Start Talking about the crazy financial world we live in. We live in a crazy financial world and most people are financially illiterate. This is a story about education and culture. There are many other stories that could be told as well. [inaudible] the and a double entry if you read the history of Cost Accounting which is really fascinating. I talk about some of it in just via wedgwoods role in perfecting comes out of double entry bookkeeping and then you get more complex. Depreciation really is a fascinating concept. The italians have it early on. Cost accounting, rudimentary Cost Accounting in the middle ages is taught in the midlands and britain during the First Industrial revolution. Its not coming out of single entry bookkeeping because nobody does that. [inaudible] the end put it into the books. If you go back and read mckendricks article on Cost Accounting in just via wedgwood you conceived the process where he starts losing money goes back to audit his double entry books and realizes its time. Thats his problem and in his factory he has a famous name where he puts up the clock and starts clocking peoples hours one of the biggest moments in the history of humanity. Its pretty rough and intense and effective. You can go by wedgwood today if you have a 1200 setting. You can still do it. The exact relationship between the state and merchants in the story. You started talking about states and its a story almost always begin with merchants. I wonder if that was an explicit intervention on your part to have the rice at of accounting and yet when you talk about the dutch it seems to go in another direction and theres only one theres a culture of accounting amongst both that you are able to then get to a stage that works properly. Possibly it did in holland and i dont make sweeping judgments like that but what is very very interesting is to see these states try and try again and failed. One of the reasons the spanish veil and the french fail as they dont have the accountants that will work them into train accountants take so long. The middle medieval italians say you have to start as a child and yet to be beaten. If you dont put the entry in you have to be hit. Thats just a renaissance educational rule. But this deep discipline is necessary. Guess what . If you are stating you have the spanish empire you need accountants and you can get them and you cant train them. So you go to seville and get a couple of people. Nobody knows anything about it. Few and italians come in and they wont do for you. Its wild to see france for example in 1726 after their stockmarket bubble. Theres a proposal and internal memo which only three philip basically seen. Its a horrible thing to read the quite interesting by brothers who are trying to get double and reporting to the state and their enemies who dont want to be taxing its much too expensive to train the accountants. That is when the minister says okay thats expensive we dont have any money anyway and we are not going to train the accountants and they lose on the cost of doing this. Its a complicated story. I dont have appeared causality but i do see historically some impressive moments where these elements Work Together and thats the historians job. Could you say a little more about dickens. He showed a picture from Christmas Carol. Dickens is thinking and struggling and thinking about counting whether its good or bad. He thinks it should be discussed. Theres an office where wherever thing goes in and nothing comes out. Its the art of not doing it. Its this remarkable thing. We have all these rational account books and yet nothing works. In dickens early modern world its a world that slightly nightmarish, very nightmarish for him personally. The thing that strikes me about dickens is he is a moral and social proselytizer who happens to be one of the greatest novelists of all time. I will stand by that and i know some people dont like dickens. He staggers and he thinks and writes a lot about accounting. I find that remarkable. Balzac is my other favorite accountant and tolstoy is my favorite accountant. What i think he is doing is trying to make a point. I think he struggling with it. I dont think he has the full answer but he clearly wants people to be aware of how it does and doesnt work. I havent scanned him for references and i wonder if hes thinking about that. I would think that dickens is very aware of that. I havent done the entire works of dickens for this. [inaudible] his father and all these good accountants and the battle in stu. Its a story of good and. There are these two choices in accounting. That awareness is very important. I think dickens sophistication is grand. Thats a financial think art and someone who is using language. We have also lost do we have writers of this quality and have the financial problems of accounting . I think that could be helpful but thats an ideal utopia. Theres a shortterm solution and editorials by newspaper journalists that understand accounting telling us about it or do we need to get. [inaudible] we talked about this morning with Bloomberg News. We thought both, both. I think just to begin the discussion journalists are the ones to begin the discussion. If we want to be a country of homeowners and i dont think we really are right now. See what you say about homeowners in what you say about mortgages when it was happening i dont know what he know but in australia with your first time you have these extra benefits and i have friends who went into it. I said before you go into it just look at your money flowing both ways. Thats right. Australia. Trouble and we obviously did too. Theres this whole maxim of early medieval finance at the household must know good accounting. By the way one journalist told me australia rather than having big four firms have 120 or so competing firms and thats a better Financial Accounting during the crisis. That was the claim i heard what i thought was quite interesting. I dont know thats true but i thought it was fascinating. [inaudible] just a comment. One of the issues that i have seen over the past perhaps 50 to 75 years has been the growth of the footnotes to the financial state and so not just the numbers but if you look at Financial Statements at the turnofthecentury with Public Companies the footnotes were a very minor portion of the statement. If you look at major corporations today, lets say a city corp. We are looking at 250 pages of a Financial Statement of which probably 20 pages are numbers and 230 are footnotes. And so the footnotes really have taken over from the numbers. Its so funny accountants want more explanations to say we are not totally sure. Its a remarkable form of writing and expression. We dont talk about it very much. That alone is a great story of footnotes and how these things even worked. People dont have any idea this and people are arguing about it. Those are issues especially for auditors. That is more of a story in the sense that it seems to me accounting even good accounting accounting has a fundamental problem including the fact that a Balance Sheet hides much more than it necessarily shows. Even a good one. Accountants have always been aware that even if they are doing their best theres a certain amount of discretion involved. That process of accounting creates trying to sort of perfect a picture of an enterprise even when its done sort of according to the rules. Does matt and itself start to generate problems . People believe that want to have good accounting people forget the messiness behind it and it creates the. Sure, absolutely and thats one of the things im talking about. We talk about the Balance Sheet in 1929 and its not just producing fake Balance Sheets. One of just gradual abstraction. You know, first [inaudible] sure. The development of the Balance Sheet. Now the abstraction is you go from everyone doing the accounting to professionals doing it, and then you go from, you know, a hundred companies to four companies. Its the process of increasing thats why i think we need some kind of basic literacy to get up against the beast which is running everything, and we have no handle on it. Weve got to start somewhere. Thats my only true conclusion. And as a historian, i shouldnt probably be saying that. But i believe personally thats the case. We have to start the discussion. And, yeah, its going to be a long [inaudible] its tricky out there, a tricky, tricky time. And were in new york city. [laughter] last question, thanks. Isnt there a [inaudible] still a lingering fear [inaudible] [laughter] according to the journalists, yeah. I mean, people that really want to do the audits and blow the whistles can find themselves in deep trouble. Clear audits are Dangerous Things sometimes. Thank you very much. [applause] [inaudible conversations] youre watching booktv, nonfiction authors and books every weekend on cspan2. Next, from politic is the and prose bookstore in washington, d. C. , professor Michael Mandelbaum argues that globalization is a powerful, positive force that will continue to make the world more prosperous. This is a little under an hour. Well, thank you, abby, for that kind introduction. It is a pleasure to be back at politics prose, washingtons literary landmark. You know youve arrived when you can speak here. And i am extremely h