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More Advance Praise for The Reckoning

“Packed with riveting stories of how empires can be so easily felled by poor accounting, whether through willful disregard (Louis XIV) or lack of training (Lorenzo de’ Medici), The Reckoning is a must read for anyone who hopes to avoid similar fates. But the book is more than a litany of woes. Every student, teacher and practitioner of finance should know this history of accounting, from its grounding in theology and philosophy to its central place in the rise of modern commerce, statecraft, and, indeed, civilization itself.”

—Robert Bloomfield, Nicholas H. Noyes Professor of Management and Accounting, Cornell University

“Accountability and the trust it breeds made possible business and government as we know them in the West, a history The Reckoning recounts engagingly. Yet every era’s Madoffs, magnates and mega-organizations—and, critically, their minions—subverted that relationship with catastrophic results of which 2008–09 is only the most recent. Jacob Soll has persuaded me that this time, it’s different: our traditions of accountability could be destroyed yielding a reckoning we cannot project.”

—Peter D. Kinder, co-author, Ethical Investing and Investing for Good; co-founder, KLD Research & Analytics, Inc.

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THE RECKONING

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THE

RECKONING

FINANCIAL ACCOUNTABILITY and the RISE and FALL of NATIONS

JACOB SOLL

BASIC BOOKS

A Member of the Perseus Books Group

New York

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Copyright © 2014 Jacob Soll

Published by Basic Books,

A Member of the Perseus Books Group

All rights reserved. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews. For information, address Basic Books, 250 West 57 th Street, New York, NY 10107.

Books published by Basic Books are available at special discounts for bulk purchases in the United States by corporations, institutions, and other organizations. For more information, please contact the Special Markets Department at the Perseus Books Group, 2300 Chestnut Street, Suite 200, Philadelphia, PA 19103, or call (800) 810-

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ISBN (e-book): 978-0-465-03663-9

10 9 8 7 6 5 4 3 2 1

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I credit this book to Margaret Jacob

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C ONTENTS

Introduction

CHAPTER 1: A Short History of Early Accounting, Politics, and Accountability

CHAPTER 2: For God and Profit: The Books According to Saint Matthew

CHAPTER 3: Medici Magnificence: A Cautionary Tale

CHAPTER 4: The Mathematician, the Courtier, and the Emperor of the World

CHAPTER 5: The Dutch Audit

CHAPTER 6: The Accountant and the Sun King

CHAPTER 7: The First Bailout

CHAPTER 8: “Fame and Profit”: Counting on the Wedgwood Vase

CHAPTER 9: Big Debts, Big Numbers, and the French Revolution

CHAPTER 10: “The Price of Liberty”

CHAPTER 11: Railroaded

CHAPTER 12: The Dickens Dilemma

CHAPTER 13: Judgment Day

Conclusion

Acknowledgments

Notes

Bibliography

Index

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I NTRODUCTION

In September 2008, just as I was finishing a book about the French King Louis XIV’s famed finance minister, Jean- Baptiste Colbert, I found something remarkable: Colbert commissioned miniature golden calligraphy account books for the Sun King to carry in his coat pockets. Twice a year, starting in 1661, Louis XIV would receive these new accounts of his expenditures, his revenues, and his assets. It was the first time a monarch of his stature had taken such an interest in accounting. Here, then, it seemed, was a starting point of modern politics and accountability: a king who carried his accounts so that at all moments he might have some reckoning of his kingdom.

I was at least as startled to learn next just how short-lived this experiment was. For as soon as Colbert died, in 1683, Louis—consistently in the red due to his predilection for costly wars and palaces like Versailles—discontinued the account books. Rather than tools of administrative success, Louis came to see his account books as illustrations of his failings as a king. He had created a system of accounting and accountability, and now he began breaking up the central administration of his kingdom. This made it impossible to unify the accounts of each ministry into one clear, central register, as Colbert had done, and for any minister to effectively critique, let alone understand, the king’s financial management. If good accounting meant facing the truth when the news was bad, Louis, it seemed, now preferred ignorance. Speaking those famous words, “l’État c’est moi,” he apparently really meant it. No longer would a functioning state interfere with his personal will. On his deathbed in 1715, Louis admitted that he had in effect bankrupted France with his spending.

Rather than some relic of a bygone age, the story of Louis’s rise and decline seemed to me all too familiar as I digested the parable of the Sun King’s golden notebooks. That very week in September, a startling parallel story was taking place during the collapse of Lehman Brothers Bank. A monument of American and world capitalism, Lehman was suddenly exposed now as little more than a mirage. Just as Louis had held onto his power through snuffing out good accounting in his government, so U.S. investment banks had made untold riches, even as they destroyed their own institutions by cooking their books through trading overvalued bundles of worthless subprime mortgages and credit default swaps. A financial system, which had been deemed healthy by accountants and regulators alike, now revealed itself as dysfunctional by design.

If Louis preferred not to know, so, too, it seemed, Wall Street and its regulators had chosen to overlook the rot threatening the entire financial system. The chairman of the New York Federal Reserve, Timothy Geithner, was supposed to have at least an expert knowledge of the financial markets, yet he appeared not to know, or know fully, what was going on just blocks from his office. The Securities and Exchange Commission (SEC)—whose responsibility it is to enforce good corporate accounting—was caught similarly unaware, as were the Big Four accounting firms— Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers. No one, it seemed, had effectively audited the bank’s books. They missed the barely hidden fact that Lehman Brothers used accounting fraud to manipulate its accounts and

appear solvent. 1

Soon after Lehman Brothers collapsed in September 2008, other American investment banks began failing, and the world financial system was threatened with collapse. In October, the Bush administration stepped in to bail out the banks and buoy the financial system. Thus came to pass the Troubled Asset Relief Program (TARP), which gave massive funds to troubled banks and put the American capitalist economy on a government life support system. By 2009, Barack Obama was president, promoting Geithner to Secretary of the Treasury. Yet, in spite of Obama’s claims of a new age of accountability, a sense of impunity pervaded Wall Street. The $350 billion recapitalization of American banks managed to stave off the financial chaos that risked consuming the world economy. Yet, no strings were attached to the money. No audits were ever made to see how the banks spent it. America’s economy stumbled, but the bankers, at least, had avoided a reckoning.

Six years later, it is not just banks that are threatened by financial crisis brought on by bad bookkeeping. Leading 8

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nations—the United States, European countries, and China—find themselves facing their own larger potential crises of accounting and accountability. From opaque banks and the sovereign debts of Greece, Portugal, Spain, and Italy, to the financing of municipalities worldwide, there seems little certainty in balance sheets and reports on debt levels and pension obligations. Confidence in private auditors and public regulators also lags. At the very moment we most need careful audits to assess balance sheets, the SEC remains woefully underfunded, and government regulation has limited the capacity of the Big Four accounting firms to aggressively audit corporations.

There has been little to no outcry over dangerously feeble financial accountability, private and public alike. One hears complaints about the impunity of banks, on one hand, or some version of indignation over perceived government interference with the freedom of Wall Street, on the other. Yet there has been no serious discussion about what exactly financial accountability is, how it works, where it comes from, and why modern societies find themselves mired in crises of not only financial but also political accountability, as governments and citizens seem either unable or unwilling to hold corporations and themselves accountable.

The Reckoning steps into this breach, looking back seven hundred years into the history of financial accountability, to understand why it is so hard to achieve. Accounting is at the basis of building businesses, states, and empires. It has helped leaders craft their policies and measure their power. However, when practiced poorly or neglected, accounting has contributed to cycles of destruction, as we saw all too clearly in the 2008 financial crisis. From Renaissance Italy, the Spanish Empire, and Louis XIV’s France to the Dutch Republic, the British Empire, and the early United States,

effective accounting and political accountability have made the difference between a society’s rise and fall. Over and over again, good accounting practices have produced the levels of trust necessary to found stable governments and vital capitalist societies, and poor accounting and its attendant lack of accountability have led to financial chaos, economic crimes, civil unrest, and worse. All this is every bit as true in our own day of multitrillion-dollar debts and massive financial scandals as it was in the Florence of the Medici, Holland’s Golden Age, the heyday of the British Empire, and, of course, 1929 on Wall Street. Capitalism and government, it seems, have flourished without massive crises only during distinct and even limited periods of time when financial accountability functions. People have known how to do good accounting for nearly a millennium, but many financial institutions and regimes have just chosen not to do it. Those societies that have succeeded are not only those rich in accounting and commercial culture but also the ones that have worked to build a sound moral and cultural framework to manage the fact that humans have a regular habit of ignoring, falsifying, and failing in accounting. This book examines why a lesson so simple has so rarely been learned.

The first successful capitalist societies developed systems of accounting and corresponding financial and political accountability. In 1340, the Republic of Genoa kept a large register in the central government office. It recorded the

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city-state’s finances through double-entry bookkeeping. Accounting brought with it a fundamentally different way of thinking about political legitimacy: Balanced books equaled not just good business but also good government. At any moment, the maritime republic knew the state of its finances and could even make plans for future difficulties. The Genoese, Venetians, Florentines, and other merchant republics, or at least their ruling classes, could expect a certain level of accountability. This was the beginning of modern government as we ideally imagine it: semirational, well

ordered, and generally accountable. 2

And yet, as successful as they were, accountable societies and governments proved to be difficult to maintain. In the sixteenth century, with the decline of the Italian republics and the rise of the great monarchies, the interest in accounting faded. Even as merchants became ever more familiar with the practice of double-entry accounting, it all but disappeared as a political administrative tool outside Switzerland and Holland, bastions of republicanism in a world of monarchies. At the height of the Renaissance and the scientific revolution that emerged from it, between 1480 and 1700, kings did take an interest in accounting. King Edward VII of England, King Philip II of Spain, Elizabeth I, the great Austrian emperors, Louis XIV, and the German, Swedish, and Portuguese kings examined accounts and kept treasurers and account books. Yet none managed or ultimately desired to create the kind of stable, centralized, double- entry state accounting system so carefully controlled by the fourteenth-century Genoese and other northern Italian republics. Indeed, keeping good state ledgers implied that the king answered to the logic of balanced books. Much as they tried to reform their administrations, monarchs, in the end, saw themselves as accountable to God, not to bookkeepers. This inherent conflict between monarchy and financial accountability helped cause centuries of European financial crisis.

Monarchs considered transparent accounting practices dangerous, and, indeed, they could be. In 1781, eight years before the French Revolution, Louis XVI’s finance minister, the comte de Vergennes, found his country crippled by debt from the American War of Independence. These debts, he warned, could never be revealed, however, for publicly exposing royal accounts would surely undermine that most critical religion of monarchy: secrecy. In the end, Vergennes knew little about finance—France was, in fact, nearly bankrupt by this point—but he was right about monarchy. Opening up the books opened the floodgates of accountability. When royal accounts and the depth of the crown’s financial difficulties were discussed publicly for the first time during political debates in the 1780s, Louis XVI lost part of his regal mystery. For this, and a host of related reasons, he would later lose his head.

Yet even with the emergence of nominally open, elected governments in the nineteenth century, accountability was still often unattainable. During the nineteenth century, as England ruled its empire and was the center of world finance, corruption and unaccountability plagued its financial administration. As nineteenth-century America carefully designed mechanisms of financial accountability, it, too, was mired in the massive financial accounting frauds, scandals, and

crises of the robber barons of the Gilded Age. There has never been a perfect model of a constantly accountable state. Financial accountability—both corporate and governmental—still remains elusive even in democratic societies.

Threatened by ongoing financial crisis, as we are just now, it seems altogether timely to examine the history of financial accountability. Oddly, few historians have elected do so. They have examined the financial history of nations while barely acknowledging the central role of accounting and accountability in the rise and fall of great nations. It would seem natural to place double-entry accounting—a true Western invention—at the center of European and American economic history. The study of accounting and accountability allows us to understand how institutions and societies succeed and fail at their most basic levels. We recognize that the Medici Bank, the Dutch dominance of commerce, and the British Empire were successes, yet, of course, they no longer exist. So if each one of these institutions knew massive success, it also knew great decline and fall, and accounting was central to each of these stories. Seen through

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the lens of the history of financial accountability, then, the history of capitalism is neither simply a history of ascent nor a cycle of booms and busts. Rather, capitalism and modern government have an inherent weakness: At crucial moments, accounting and the mechanics of accountability break down, adding to financial and political crises, if not creating them. The success of a society, at least financially, is, in great part, the mastery of accounting, accountability, and the ensuing struggle to successfully manage them.

Without double-entry accounting, neither modern capitalism nor the modern state could exist, for it is the essential tool in calculating profit and loss, the basis of financial management. Double entry emerged in Tuscany and northern Italy sometime around 1300. Until then, the great ancient and medieval societies persisted without it. Indeed, the advent of double-entry accounting marks the beginning of the history of capitalism and modern politics. So what exactly is double-entry accounting? Single-entry accounting, like balancing a checkbook, tallies only what goes in and out of a single account. Double-entry accounting, by contrast, is a method of exacting control and accurately calculating profit,

loss, and the value of assets. It separates credits from debits with a vertical line down the center of the page. For every credit that comes into an account, there must be a debit. One puts income and expenditures into each column and adds them up. Credits must equal debits. For example, each time a goat is sold, the profit goes on the left, and the merchandise sold goes on the right. Then a tally of profit or loss is calculated, or balanced on the spot. Once the balance has been tallied, the transaction is over, and both sides have a line drawn through them. Profit and loss are known at all times. 3

Double-entry bookkeeping for capitalism can also be understood with what accountants call the fundamental accounting equation: The assets controlled by an organization are always exactly equal to the claims on those assets held by its creditors and owners. This allows businesses and governments to track their assets and obligations, while preventing and deterring theft. These measures of performance—wealth and income and, above all, profit—make double-entry accounting a tool for financial planning, management, and accountability. 4

The founders of modern economic thought—from Adam Smith to Karl Marx—saw double-entry accounting as essential to the development of successful economies and modern capitalism. In 1923, the pioneering German sociologist and theorist of capitalism Max Weber wrote that the modern firm is bound with accounting, “which determines its income yielding power by calculation according to the methods of modern bookkeeping and striking a balance.” Weber saw accounting as one of many cultural elements necessary to the growth of complex capitalism, placing it squarely among the fundamental traits of the Protestant work ethic that he believed allowed early Americans to master capitalist culture. 5

Even blunter was the influential German economist Werner Sombart: “One cannot imagine what capitalism would be without double-entry bookkeeping: the two phenomena are connected as intimately as form and contents.” The Austrian American economist, political scientist, and coiner of the term “creative destruction,” Joseph Schumpeter, not only saw accounting as central to capitalism but also lamented that economists had not devoted more attention to it; it was only through a historical understanding of accounting practices, he wrote, that effective economic theory could be formulated. 6

These thinkers saw accounting as an ingredient to economic success and a key to understanding economic history. What they did not see, however, is how political stability is grounded in cultures of accountability, which rely on

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double-entry accounting systems. Double entry mattered not only for calculating profit but also because it brought with it a central concept of the balanced book, which could be used to judge and hold accountable a political administration. In medieval Italy, not only did balanced books mirror the divine aspect of God’s judgment and a tally of sins but also they came to represent sound business and good government. Of course, it is one thing to have a set of values; the challenge is to uphold them, and maintaining financial accountability was and is a constant struggle. What this book shows is that financial accountability functioned better when accounting was seen not simply as part of a financial transaction but also as part of a moral and cultural framework. From the Middle Ages to the early twentieth century, those societies that managed to harness accounting and long-term traditions of financial accountability and trust did so by full cultural engagement: Republican Italian city-states like Florence and Genoa, Golden Age Holland, and eighteenth- and nineteenth-century Britain and America all integrated accounting into their educational curriculum, religious and moral thought, art, philosophy, and political theory. Accounting became the subject of theological and political works, great paintings, social and scientific theories, and novels, from Dante and the Dutch Masters to Auguste Comte, Thomas Malthus, Charles Dickens, Charles Darwin, Henry David Thoreau, Louisa May Alcott, and Max Weber. In a virtuous circle, the elevation of practical, business-minded mathematics into the spheres of high and humane thinking allowed these societies not only to maximize their use of accounting but also to build complex cultures of accountability and awareness of the difficulties posed by such a culture. With this culture of accountability came capitalism and representative government.

The delicate interplay between accounting and accountability can decide the fate of a company or, indeed, a nation. Financial history, therefore, is not only about cyclical crises or trends in numbers. It is also a story about individuals and societies that become adept at mastering the interplay between accounting and cultural life, yet often lose this capacity

and find themselves in unexpected, avoidable, and sometimes cataclysmic financial crises. In this long history, accounting and financial accountability emerge as both mundane and, at the same time, difficult to control. What is remarkable is that the basic lessons of medieval Italian accounting—that it is essential to wealth and political stability but incredibly difficult, frail, and even perilous —are still as pertinent today as they were seven hundred years ago.

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CHAPTER 1

A S HORT H ISTORY OF E ARLY A CCOUNTING, P OLITICS, AND A CCOUNTABILITY

[The Domesday Book’s] decisions, like those of the Last Judgment, are unalterable.

RICHARD FITZNIGEL, BISHOP OF ELY, 1179

The Emperor Augustus is famous today for his buildings and his statues and as the rather overly modest and fatherly character found in ancient histories and Robert Graves’s novel I Claudius. He claimed to have found Rome a city of bricks and left it a sparkling city of marble. But the key to Augustus’s power can be found in his own account of his reign, the Res gestae divi Augusti, “The Great Deeds of the Divine Augustus” (circa CE 14). In it, he describes buildings, armies, and feats. He also includes a lot of numbers. Indeed, he measured his own success by them, bragging that he had paid victorious Roman soldiers 170 million sesterces from his own coffers. Financial numbers, the symbols of Augustus’s great achievements, were taken from entries in rudimentary account books. The true founder of the Julio-Claudian dynasty and father of the Roman Empire linked accounting and the transparency of numbers with political legitimacy and achievement. 1

As is typical in the history of accounting, no one noticed. Augustus the imperial accountant is not a story anyone tells. And of all those princes and kings who followed and emulated the father of the Roman Empire, none ever copied the exact form of the Res gestae. Even had they known or understood the numbers from their accounts, few would have published them as measures of their royal potency.

Augustus came from a world in which accounts were accessible and even prevalent and in which a man with Augustus’s Roman education as a pater familias and patrician felt no shame in showing he knew how to use them. Yet in spite of Augustus’s use of accounting as a tool of management and legitimation, it would take around 1,700 years for leaders to legitimate their political power and actions through the publication of financial numbers from account books. What seemed good practice to Augustus and is now standard practice took more than a millennium to take hold. Accounting developed slowly in ancient Mesopotamia, Greece, and Rome until medieval Italians transformed it into double-entry bookkeeping, a powerful tool of profit for capitalist enterprise and government administration.

For thousands of years, the ancient world was steeped in accounts, but there was almost no innovation, and few used the tools at their disposal as Augustus did. Single-entry accounting existed in ancient Mesopotamia, Israel, Egypt, China, Greece, and Rome. The Greeks, Ptolemaic Egyptians, and Arabs reached marvelous heights of civilization and mastered numbers for geometry and astronomy, but they did not manage to create double-entry accounting, so

essential for the exact calculation of profit and loss. 2

Ancient finance was limited to stores accounting, that is, basic inventorying. Max Weber believed that this was due to a separation of business from the home and the lack of a concept of profit and of valuing the total assets of an enterprise over a period, for example, of a year. Yet despite the lack of a modern understanding of capital and profit, a culture and mind-set of accounting did have a prominent place in ancient public life. 3

In any place where records were kept, tallies, or rudimentary accounts, were made. In Mesopotamia, contracts and warehouse and trade records all made general tallies of accounts, often of the inventory of bakeries. Accounting was for inventorying but also for calculating surpluses of grain, the very dust of civilization that brought with it sedentary villages, farming, and markets. The Sumerians created clay tokens for accounting in 3500 BCE to represent goods shipped or received. Tokens soon gave way to flat clay tablets of written basic inventory accounts, which are common

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among Assyrian and Sumerian artifacts. The Babylonian legal Code of Hammurabi (circa 1772 BCE) is famous not only for its “eye for an eye, tooth for a tooth” regulation (accounting in its most rudimentary form) but also for basic accounting rules and state auditing regulations for mercantile transactions. Law 105 stipulates that any agent who has not sealed and signed off on the reception of money may not record the transaction in his account book. The state kept an inventory of its currency holdings, which scribes wrote down in the House of Silver of the Treasury, and even kept track of grain and bread stores through basic accounts of inventory. 4

Once the state became involved in accounting and auditing, numbers and morals mixed with politics. In ancient Athens, accounting was seen as connected to political accountability. From the beginning, a complex system of bookkeeping and public auditing was at the heart of democratic government. The Athenian treasury was considered sacred and kept at Delos under the watchful eyes of its treasurers. Humble citizens and slaves were educated and employed as bookkeepers. For the most part, Athenians preferred public slaves as comptrollers and auditors because they could be tortured on the rack and freemen could not. There were higher officers and book checkers who oversaw public accounts. In contrast to oligarchies—in which the powerful few ruled and there were no systems of financial accountability—democratic Athens had systems of accountability. The accounts of all Athenian public officers were subject to audits in accordance with basic democratic political philosophy. Even members of the senatorial Areopagus (the high court of appeals), as well as priests and priestesses, had to make a full accounting of funds, not just of the accounts of their official business but also of gifts. No citizen of Athens could go abroad, consecrate property to a god, or make a will without a full public reckoning to the state before doing so. The logistae—the public accounting officers described by Aristotle in the last book of his study of the Athenian Constitution—audited the books of public officers and city magistrates. Before hearing any case of corruption, these accounting officers made a public audit of the books of the officer in question. 5

Yet even with this system of account keeping and political accountability, corruption was rife, and Athenians struggled with the concept of accountability. The revered general and statesman Aristides (530–468 BCE) complained that it was considered bad form for logistae to make strict audits. A certain level of fraud was expected and tolerated, with aggressive audits seen as threatening the status quo. The historian Polybius noted that even if the state had ten auditors and as many official seals and public witnesses, it still could not ensure someone’s honesty. The clever, he implied, could always cook their books. 6

Honest or not, accounting flourished as the basis of Roman home economics. Aristotle had a concept for the management of public finances, a house or property, which he called Oikonomia, the root of the term “economics.” Oikonomia did not mean financial management with an eye to profit in the modern sense of economics, but rather good stewardship of government and households. The Romans adopted Aristotle’s concept, and there accounting began in private homes, where the pater familias was charged by the state to keep household books, which could be audited by tax collectors. The head of the household kept a waste book (a daily diary of all receipts), which he would, every month, enter into a register of income and expenditures, often recording future income as well as outstanding loans and debts. Bankers kept the same basic single-entry books. Bankers and sometimes citizens would have to balance their books for audits by a praetor, a city or provincial magistrate. 7

The Roman Republic and early Roman Empire were managed by a group of auditors called the quaestores oerarii, oversight officers of the public coffers. In his Natural History, Pliny states that in 49 BCE, the year Caesar crossed the Rubicon, the Roman treasury contained 17,410 pounds of gold, 22,070 pounds of silver, and in coin, 6,135,400 sesterces. Accountants in the treasury communicated with the accountants at the mint and their assistants to ensure that there was enough currency to pay state and most military expenditures. 8

The quaestors of Rome kept the keys to the public treasury in the Temple of Saturn, now the oldest holy site in Rome, which also contained the tablets of Roman law. Scribes within the treasury also kept monthly registers of incoming and outgoing cash, with the names, dates, and types of each transaction. There were separate registers for debts and for

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current accounts of the military and provincial quaestors. The central accounting office—the tabularium—was overseen by a superintendent and staffed by overseers, scribes, accountants, and cashiers. 9

As in Athens, state accounting in Rome was haphazard, and fraud was common. In his Philippics (44–43 BCE), Cicero complained of bad accounts in his attacks on Mark Antony, known for his debts and shady financial dealings. He claimed Mark Antony had kept bad account books and, in doing so, had “squandered a countless sum of moneys” stolen from Caesar and even forged accounts and signatures. Although Cicero denounced bad books, Vice Consul Mark Antony did not go to jail. Returning to power later that year as part of a triumvirate with Lepidus and Octavius, the future Emperor Augustus, Mark Antony hunted down Cicero and had his head and hands chopped off and displayed in the Forum. This grimly illustrates a constant maxim: The powerful don’t respond well to those who call for their books to be opened. 10

Yet bad accounting has a way of coming back to haunt those who practice it. Augustus in turn killed Marc Antony (whose military organizational skills matched his bookkeeping), took power, became emperor, and brought order to the chaotic empire and to what were now imperial account books. Unlike his rival, Augustus kept good account books—his rationarium. Indeed, the Roman historian Tacitus claims that Augustus kept them in his own hand, even once he was emperor (27 BCE–14 CE). They contained a summary of the financial condition of the empire, statistics about the military and building projects, and the amounts of cash in the provincial tax treasuries. 11

Augustus in turn used data from these personal accounts to write his Res gestae divi Augusti, which was etched onto entire walls of public buildings and posted on slabs across the empire. Even with Rome’s annual revenues of 500 million sesterces, Augustus was careful to note that most of his achievements—buildings, armies, and most important, personal payments made to soldiers—were paid for out of his own coffers. He also revealed how he accounted for his personal fortune, paying towns for the goods used by his soldiers, and he revealed the sums to advertise his largesse. Thus Augustus thought actively about how to manage the empire, using his own account book as a tool for conceptualizing and planning projects, as well as for propaganda. 12

It became a tradition to publish data from the imperial account books. Although Emperor Tiberius did not continue the tradition, Caligula, of all people, published a general state of imperial accounts. Nero (37–68 CE), known for his particular interest in gold, named praetorian senators to manage the treasury of the Temple of Saturn. There is ample evidence that Augustus’s office of the imperial financial secretary continued working until at least the reign of Diocletian (244–311 CE). 13

Although this accounting system served as a central tool of imperial management, and even legitimacy, it still had major faults. Books were kept and accounts audited, yet fraud was still expected (and systematically tolerated, especially where leading figures were concerned). At the same time, the economic practices of the Roman Empire did not focus on profit and future earnings, the principal function of double-entry bookkeeping. The Mediterranean Sea sustained the Roman Empire by shipping and trade, yet there was no overarching concept or system by which all the practices of trade were theorized. Loans were instead made on a pawnbrokerage model, stunting the development of a culture of credit. Wealth in palaces and hoarded gold took precedence over the idea of wealth as investment capital for profit. In spite of a slew of practical and theoretical works, no concept of economics for business ever emerged. 14

The central office of the quaestors changed over time, reflecting the interests of emperors. With the decline of the empire, public accounts came ever more under the personal purview of the emperor, so that, as Edward Gibbon noted, everyone would be inculcated with the notion that all “payment flowed from the bounty of the monarch” rather than from the state. Later emperors considered the treasury sacred, and by the time of Constantine (325 CE) and his new Roman capital on the Bosporus, the chief of the treasury was an aristocratic count rather than a professional bureaucratic officer. 15

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