The Beginnings of Accounting and Accounting Thought

Accounting Practice in the Middle East (8000 B.C to 2000 B.C.) and Accounting Thought in India (300 B.C. and the Middle Ages)

Richard Mattessich

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136600937
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Based on recent archaeological, historical and accounting research, this book presents a series of well-supported, but often surprising hypotheses on the 10, 000 year-old history of accounting. Mattessich also illustrates the astounding sophistication manifested in some of the accounting and budgeting procedures throughout history. The second part of the book deals with the first manuscript containing sections describing accounting activities, the Kautilya's Arthasastra, written about 300 BC in India.

CHAPTER 1

Introduction

1. GENERAL EXPOSITION

To fully appreciate the meaning of a discipline and its cultural significance, some familiarity with its beginning and early development seems necessary. Yet, in the case of accounting and its first “theoretical” manifestations these beginnings were shrouded in obscurity for too long a time. Only during the last decade or two has this veil slowly been lifted.¹ Step by step, have accountants gained insight into the forces, techniques and circumstances that shaped the early phases of their discipline. Of course, it has been known for some time that these beginnings are to be found in antiquity or even prehistoric times, but what came as a total surprise was the knowledge that the origin of so humble a discipline as ours, had a most fundamental impact on the cultural life of humankind in general.

In the literature of accounting and accounting history it was, for example, taken for granted that writing and counting were prerequisites of record keeping (e.g., see Littleton 1966, p. 12; Skinner 1987, pp. 4–6). That this was a misconception is revealed through the revolutionary research of the French-American archeologist Schmandt-Besserat (e.g., 1977, 1992), bringing forth convincing evidence that Sumerian token-envelope accounting (for an explanation of this term, see below), at the end of the fourth millennium B.C., not only preceded the written word but constituted the major impetus in the creation of writing and abstract counting. There were also major changes of Mesopotamian record keeping between 4000 B.C. and 2000 B.C., and these changes proved to be highly significant. All this refutes such previously held views as the one expressed by Keister:

A functional approach, rather than a chronological approach, is necessary in the analysis of the records kept by Mesopotamians, because there were almost no significant changes in the records between the years 4000 B.C. and 538 B.C. the date that the second Babylonian empire fell to the Persians … the passage of years saw more particulars entered on the records, the totals were less frequently incorrect, information known to everyone was not written down as often, and the dating system became more precise and accurate, but, other than these relatively unimportant changes, the records remained quite unchanged. (Keister 1963, p. 372; my italics).²

Contrary to this quote, the new insights show that during this period a series of innovations, each fundamental in its own right, did take place. Around 3250 B.C. Sumerian scribes preserved the clay tokens (representing commodities and originally stored in perishable containers) in burned clay envelopes (hollow clay balls or bullae), thus converting token accounting into what I refer to as “token-envelope accounting”. In addition, perforated tokens on sealed strings were used as an alternative aggregation device for special purposes. Soon afterwards, around 3200 B.C., the accounting tokens were impressed upon the outer surface before putting them into the envelopes and sealing the latter.³ This not only enabled the recognition of the token content without breaking the envelope, it also introduced a double recording in so far as the same quantity was recorded twice: first, inside the envelope through individually movable tokens (as assets), and second, on the outside as a totality of inseparable token-impressions (as equity).

During the third millennium B.C. further striking accounting innovations can be found. Apart from introducing labor and cost accounting, agricultural and real estate accounting, budgeting, etc., the clay envelopes were abandoned and replaced by flat clay tablets to be impressed by tokens which then merely transferred symbols, but had no longer representative meaning on their own. Later, the quantitative token-impressions were supplemented by incised symbols carrying qualitative information. Only then could the process of developing various stages of proto-cuneiform and cuneiform writing begin.

2. REMARKS ON INDIVIDUAL CHAPTERS

Each paper is assigned to a separate chapter (with the exception of two articles in Chapter 5 which belong together). Chapters 2 to 5 deal with accounting practice in the Middle East over a time span of some 6000 years (from about the ninth millennium B.C. to the end of the third millennium B.C.), while Chapters 6 and 7 deal with the more “theoretical” development of accounting in India around the turn from the fourth to the third millennium B.C. and some aspect of Medieval India.

Chapter 2: “Prehistoric Accounting and the Problem of Representation: On Recent Archeological Evidence of the Middle-East from 8000 B.C. to 3000 B.C.” Accounting can be traced back some 10,000 years in the Middle East, and writing as well as abstract counting apparently emerged from the Sumerian token-envelope accounting of the 4th and early 3rd millenium B.C. The last stage of this early accounting technique represented individual assets through clay tokens inside a clay envelope and showed their sum-total (as a kind of equity) in form of a set of inseparable token impressions on the surface of the clay envelope. Thus, this paper discusses token accounting (including what I now call “token-envelope accounting”), and interprets it from an accountant’s point of view, illuminating it within the modern cultural setting. Special emphasis is put on two points:

(i) That token accounting not only preceded cuneiform writing but constituted the underlying matrix out of which writing in general arose. This may well be the first major civilizing contribution of accounting to humankind.

(ii) The relation between reality and its conceptual representation in thoughts, symbols and words has been one of the major topics of philosophy. A prehistoric system in which clay tokens stand for “real” objects (like cloth, labor, sheep, silver, wool, etc.) may well be suited to explain the transition from pictographic (concrete) to ideographic (abstract) representation, and even from “showing” to “saying,” to use Wittgenstein’s terminology. Indeed, many symbols of token accounting were still pictographic while others were already ideographic. Hence in the second half of this paper, I tried to relate the phenomenon of token accounting to modern philosophy, particularly to Wittgenstein’s two philosophies and the distinction between “showing” and “saying”—not least the transition from one to the other, as revealed in token accounting.

Chapter 3: “Counting, Accounting, and the Input-Output Principle: Recent Archeological Evidence Revising our View on the Evolution of Early Record Keeping” overlaps somewhat with the preceding paper (particularly as far as Exhibits 1 to 4 are concerned), but here the thrust is less on philosophic-representational problems and less on token accounting as the foundation of cuneiform writing, but more on Schmandt-Besserat’s claim that token accounting preceded abstract counting. The paper also contains further interpretation of the “token system” from an accountant’s point of view. It emphasizes the distinction between physical and social reality and shows that the double classification of accounting arises not from one duality, but from three (or at least two) distinct but interconnected kinds (first, physical transfers of commodities; second, debt claims, connecting a debtor to a creditor; and third, ownership rights, connecting a person to an economic good).

Chapter 4: “Archeology of Accounting and Schmandt-Besserat’s Contribution” is, first of all, a discussion of Schmandt-Besserat’s (1992) two volumes’ magnum opus, in which most of her “token research” is meticulously described and illustrated (since this time, she published two further books on this subject: Schmandt-Besserat 1996, 1997). The paper offers, among other material, a list of almost 40 concepts, juxtaposing their symbols in token-form as well as in form of impressions on the later cuneiform tablets. This illustrates Schmandt-Besserat’s ingenious feat of “retroactively” inferring the meaning of many three-dimensional tokens from the very similarly looking but two-dimensional imprints (the connotation of which was, by this time, already known). My own interpretations are here further extended and supported by various exhibits (see Figure 1 and Appendices A, B). For readers interested in observing the development of my personal thoughts on token and token-envelope accounting, a comparison between the individual Chapters 2 to 5 may prove of some interest. In each of the corresponding papers, I have tried to probe these issues from a somewhat different angle.

Chapter 5: “Recent Insights into Mesopotamian Accounting of the 3rd Millennium B.C.—Successor to Token Accounting” and “Follow-Up to ‘Recent Insights into Mesopotamian Accounting of the 3rd Millennium B.C.’—Correction to Table 1” extend the discussion of archeological accounting research (from the period of 8000 B.C. to 3000 B.C.) into the third millennium B.C. (up to 2000 B.C.), which indicates further portentous accounting developments. As the tokens were now impressed onto clay tablets (and not on cumbersome clay envelopes with tokens inside), the tokens lost their conceptual function and became mere tools. Later, the quantitative token-impressions were supplemented by incised symbols carrying qualitative information. Then a lengthy process began during which the token-impressions as well as the incised marks were converted into the different stages of proto-cuneiform and cuneiform writing (originally limited to recording commercial and economic transactions, but later used for literary purposes as well).

It is remarkable that, similar to token-envelope accounting, proto-cuneiform accounting records show on one side the charges or debit entries and on the reverse side the discharges or credit entries (cf. Nissen et al. 1993). However, there is no evidence that would connect the latter procedure to a closed double-entry system (in contrast to token-envelope accounting were such evidence does exist). Obviously, a clay envelope was a simple enough device to practically guarantee that all tokens inside were impressed on the outside of the envelope. But the innumerable clay tablets of a single bookkeeping system could no longer sustain such a genuine and closed double-entry feature without any particular effort. The feature of revealing on the outside the content was no more needed when using tablets, and other advantages of the double-entry feature were, apparently, not exploited by the Sumerians. Yet, it is precisely this feature of archaic bookkeeping which reinforces my hypothesis about the double-entry feature of the preceding token-envelope accounting.

Apart from those innovations, better techniques permitted increasing refinements in accounting, be it through the use of numerous number systems (each for a different task), be it for surprisingly sophisticated costing and budgeting procedures, applied to a variety of different areas (from construction activities to agriculture and cattle husbandry). Thanks to the primarily interpretive archeological research, revealed in Nissen, Damerow and Englund (1993), new vistas have been opened that call for further interpretation from an accountant’s point of view. My paper has begun with this task, and hopefully others will follow suit.

Chapter 6: “Review and Extension of Bhattacharyya’s Modern Accounting Concepts in Kautilya’s Arthaśāstra” makes three great leaps. First, a chronological one, from the third millennium B.C. to the fourth century B.C.; second, a geographical one, from Mesopotamia to the heartland of India; and third, an intra-disciplinary one, from accounting practice to accounting thought. The paper is not merely a review article of Bhattacharyya’s (1988) book, with additional reference to Choudhury (1982), it also brings notions of modern inflation accounting into play and gives further interpretations. It thus offers, as far as present evidence affords, a glance into the very first descriptive or perhaps “theoretical” reflections on accounting, as presented in the Arthaśāstra by Kautilya Vishnugupta, around 300 B.C. This Hindu sage not only distinguished between different types of income, he mentions concepts that invoke resemblance to the real vs. fictitious gains, fixed vs. variable costs, classifies expenses and is heavily concerned with taxation issues—and all this, some two thousand years or more before Western accountants developed similar ideas.

Chapter 7: “From Accounting to Negative Numbers: A Signal Contribution of Medieval India to Mathematics” looks at some relations between mathematics and accounting. However, in contrast to previous studies, it does not look at the aid which accounting may have derived from mathematics. It rather examines the reverse, namely, whether mathematics may have benefitted from previously existing accounting notions. In particular, the paper tries to show that the Hindus’ early concern with accounting thought seems to have contributed to the acceptance of negative numbers by Indian mathematicians of the Middle Ages (about a thousand years earlier than the acceptance of those numbers in Western mathematics). What ought to be of particular interest to accountants is that medieval Indian mathematicians justified this practice by regarding a debt as a negative, and an asset as a positive quantity. The paper hypothesizes a connection between the use of such accounting (and legal) notions as debts and assets by Indian mathematicians, on one side, and the previous accounting achievements on the Indian subcontinent, on the other side (see preceding chapter). The paper also examines the evidence supporting this hypothesis. For example, the translation of a medieval Indian manuscript, the Áchárya by Bhāskara (1151—see Colebrooke 1817/1973) contains evidence that Indian mathematicians assigned negative numbers to debts and positive ones to assets. Even more important, this practice—possibly influenced by the relatively sophisticated tradition of Indian accounting, as described above—was used to justify the acceptance of negative numbers (in contrast to Europe, which then lagged so much behind).

3. METHODOLOGY

There seem to exist some methodological misunderstandings among accountants and accounting historians as to the “speculative” nature of historical and even scientific hypotheses. Before presenting my papers let me shed light on this issue by invoking in this and the next section some aspects of the philosophy of science in general, and of history in particular. Science, by its very nature, is speculative; and absolute truth is an ideal to be aimed for—at best to be approximated, but hardly ever to be attained. And if attained, no one would be sure about such attainment. Every scientific and historical theory or view is hypothetical. Indeed, Hume’s scepticism, destructive of pure empiricism has—despite many unsuccessful attempts (from Kant to Carnap and beyond)—still to find a satisfactory refutation.⁴

This dilemma results in a neuralgic point concerning the evidential support which a particular theory or hypothesis can command. Intuitively, we feel that it is the difference in their “strength” which should enable us to rank theories and hypotheses within science and history and, perhaps even more important, draw the boundaries between the following three areas: scientific speculation, philosophic speculation, and wild, unsupported speculation.

But first, our mind is constructed in such a way that all of its representative activity depends on reduction and simplifications that can be deceptive—and not only in everyday life, but also in art, religion, philosophy, history and even in the hard sciences. We cannot but accept this uncomfortable fact. All the more reason to be on guard of the illusions ...

Table of contents

• Cover
• Title
• Copyright
• Dedication
• Contents
• Foreword
• Preface
• Halftitle
• Chapter 1: Introduction
• Chapter 2: Prehistoric Accounting and the Problem of Representation: On Recent Archeological Evidence of the Middle-East from 8000 B.C. to 3000 B.C.
• Chapter 3: Counting, Accounting, and the Input-Output Principle: Recent Archeological Evidence Revising Our View on the Evolution of Early Record Keeping
• Chapter 4: Archeology of Accounting and Schmandt-Besserat’s Contribution
• Chapter 5: Recent Insights into Mesopotamian Accounting of the 3rd Millennium B.C.—Successor to Token Accounting; and Follow-Up to “Recent Insights into Mesopotamian Accounting of the 3rd Millennium B.C.”
• Chapter 6: Review and Extension of Bhattacharyya’s Modern Accounting Concepts in Kautilya’s Arthaśāstra
• Chapter 7: From Accounting to Negative Numbers: A Signal Contribution of Medieval India to Mathematimes
• List of Errata
• Index