Skip to main content

Around the globe, there is a crisis of confidence and accountability in both government and the private sector. The feeling that elites are not accountable has led to the rise of populist governments from London to Rome, Washington, D.C. to New Delhi. Even China is on a quest to hold its own politicians accountable for corruption. With rising debt, failing infrastructure, wealth inequality and a lack of political trust, many have given up on the democratic process. To these massive modern challenges, there are traditional, tested solutions.

Between 1450 and 1800 in Europe and the US, the modern administrative state was invented. During this tumultuous process, the founders of states as different as Imperial Spain, the Grand Duchy of Tuscany, the Dutch Republic, the Holy Roman Empire, Great Britain, Revolutionary France and the US all saw double-entry accounting not only as a tool for effective state accountability and management, including tax collection, building water works or a navy, but as one for public debt management. Accounting was the central tool used by state-builders to build trust in the public entities. From absolutist monarchs to constitutional republics, accurate state balance sheets were their tools. These states knew the solution—their challenge was finding enough trained accountants to actually do the job.

Early state builders understood that a central state ledger and balance sheet based on accurate reporting was essential to a stable state. Though necessary, it was incredibly hard to achieve as countries like 16th-century Spain had few trained in double-entry accounting. In spite of this impediment, both Holy Roman Emperor Charles V (ruled 1516-1556) and his son, Philip II of Spain (ruled 1556-1598), worked to create sophisticated accounting legislation. They knew they needed a central control system, but they did not have the human capital or the will to truly build effective public financial management in imperial Spain. Their failure at training a corps of state financial managers to manage money and public debt was one reason Spain could not manage its constant bankruptcies.

France faced the same problem when it teetered toward bankruptcy and famine after the costly American Revolutionary War. Louis XVI’s Director of Finances Jacques Necker published his Compte Rendu, or “Accounts Rendered to the King,” in 1781 to attempt to falsely show that the crown was worthy of more credit. Yet, this fictionally narrated balance sheet became one of the best-sellers of its age and sparked a movement of financial accountability. In a time of political tyranny, bankruptcy and total inequality, the public was starved for transparent information on state finance.

Necker’s work was a catalyst for a storm of published accounts and leaked state ledgers. When the French Revolution began on July 14, 1789, it led to a massive campaign by the new National Assembly to create a Bureau of Accounts to train state accountants, force all state officers to turn in receipts and financial accounts of their political work, and publish all  balance sheets so the state would be held accountable to the public. This endeavor was so elaborate and expensive that when the Bureau of Accountants published its own balance sheet, it listed all of its accounts so that the government and public would understand why it had spent so much money on training the accountants necessary to maintain a well-managed and transparent administration.

The movement toward financial transparency was a central tenet of the French Revolution and included in all revolutionary constitutions, giving the state a new class of public financial managers that helped France regain its financial footing. Throughout the tumult of the Revolution, the Napoleonic Era and even the monarchical restoration, French public financial management improved and became more transparent—to the point that in 1828, Sir John Bowring was sent to France by the British Parliament to study its success.

The French revolutionary fervor for good and transparent state accounting also made a strong impression on the early United States. Article 1, Section 9 of the US Constitution already stated that, “No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time.” The US had a remarkable administrative advantage in its early years as the leaders of the young republic were skilled accountants. When US’s Founding Fathers Robert Morris and Alexander Hamilton saw Jacques Necker’s published state account, they felt the US should do the same but on a much smaller scale. They too published an official state balance sheet in 1781.

Many of the US’s Founders were fluent in accounting from running businesses and plantations and saw good, transparent accounting as a necessary tool of state-building and good government. The first US President George Washington believed that the head of state should not only keep accounts but was responsible for making them public. Personally obsessed with accounting at all levels of his life, Benjamin Franklin wrote a spiritual accounting book, negotiated the US’s debt, and kept detailed accountants of the extravagant dinner parties he threw while representing the US in Paris. Franklin hoped that all US citizens would emulate the Dutch and learn double-entry bookkeeping. This was the path, he believed, to both national prosperity and political accountability.

 In 1791 the Pennsylvania State Assembly published its accounts and provided a publically available printed copy, as I explain in my book, The Reckoning: Financial Accountability and the Rise and Fall of Nations. The State Assembly’s opinion was that, “it would be an advantage to the public and individuals, if a set of Books were kept in the Register-General’s Office, where accounts should be kept.” In 1795, the Pennsylvania State Comptroller, John Nicholson, claimed that citizens might even enjoy paying taxes if they “are faithfully accounted for.” Public accounting was believed to build credit, protect property and business, and build faith in US democracy. All citizens and leaders, literate in the basics of accounting, took part in a democratic circle of accounting and accountability.

Political leaders everywhere, from medieval Genoa to 17th-century Sweden, recognized that they could not build functional modern states without good internal control systems. Visionary leaders from France, Britain and the US realized that these professionally made accounts (and later “budgets”) needed to be made public, allowing them to build states and maintain confidence.

Today, we know that Nicholson’s noble dream has, after more than 200 years, not been fully realized. Most countries do not make the most of accrual accounting for public financial management. History shows that this is both dangerous and unprecedented. If we want to see growth and stability around the globe, we need to continue to make the argument that strong professional accountancy organizations spur economic and political development. We need international organizations and donor-funded initiatives to build the professional accountancy organizations and spur sound public financial management governments. As history proves, accounting and accountability show us a clear path to stability, prosperity and sustainability.

Jacob Soll

Professor, Journalist, University of Southern California

Jacob Soll is a historian of early modern Europe who is researching the origins of the modern state. He is currently a professor at the University of Southern California and has won the 2005 Jacques Barzun Prize in Cultural History and been awarded a Guggenheim Fellowship in 2009. In 2011 he was awarded a $500,000 MacArthur Fellowship.