Accounting for Rationality Part 2

Continuation of Accounting for Rationality summary and analysis:

4. AUDIENCE AND THE INSTITUTIONAL CONTEXT FOR DOUBLE-ENTRY BOOKKEEPING

In this section, the authors explain the spread of DEB (double entry bookkeeping) through the institutional contexts in which it developed.

• Commercial schools in northern Italy during the 14/15th c. helped spread the technique
• scuola d' abbaco (Italian schools of the abacus/computation) appear in 13th c., spread along trade routes
• students were taught commercial arithmetic, principles of monetary systems
• it was in these schools that accounting was taught, not clear when DEB was introduced into curriculum
• after 1500, evidence of treatises on accounting suggest DEB was included in curriculum
• after education, boys were apprenticed
• Florence the abacus center
• the masters were here, and students came to study there
• Also during 15th c., accounting textbooks proliferated
• merchants used them and could teach themselves
• they were written in vernacular, didn't provide theory, and often illustrated
• northern italy publishing industry helped spread these books
• interesting note: merchants were the first to get libraries of books for reference for their trade
• the education + textbooks on commercial math = numerate people! 
• Florentine merchants (Baxandall 1972) were very detailed, fascinated by the mathematics, were passionate about DEB 
• bc audience was numerate, the fact that these records were written in numbers meant numerical evidence could convince
• when audience for bookkeeping moved beyond business community, they were also more literate and numerate
• to establish reputation (and retain credit) businessmen needed to keep careful records, as it stood in for personal qualities like reliability, thrift
• institutionalization: two necessary factors are professions and state (Dimaggio)
• early institutionalization happened through education (the schools) and mercantile networks
• merchants were mobile, had large networks (debtors, creditors, customers) across borders and had to maintain reputation --> DEB becomes taken for granted
• Where this ties into sociology:
• (Feldman and March 1981) information organizations offer symbolic value, provide an assurance/authority/confidence in the decision, rather than making the choice
• (Meyer and Rowan 1977) rational organizational structure can legitimize
• the formal structure might not actually be what's going on, but it legitimizes the organizational relationship
• So, DEB becomes, like a formal structure, a "legitimating myth" for business "one with important symbolic values decoupled from purely utilitarian concerns" although DEB is also a useful tool
• The authors then claim that accounting PRACTICE didn't reflect accounting theory (I guess the theory = the symbolic value whereas the practice are the utilitarian concerns)
• accounting wasn't necessarily in practice the full, rational tool it could be
• accounts weren't always balanced, rarely revalued
• BUT it still provided symbolic benefits!
• How to separate symbolic vs. technical contributions of DEB
• example 18th cent. English overseas merchants
• overseas trade was super risky, and the merchants were pretty sophisticated
• they had every reason to use DEB to its fullest power: credit was important, claims of bankruptcy could only be backed by accounts
• YET merchants accounts were badly kept
• so symbolic use was pretty important

My questions: if books were badly kept, wouldn't people know that? 

5. COGNITION AND ACCOUNTING

Accounting developed in response to audience's needs/demands to legitimate business practices. But did accounting also change the way people thought about business? 

• Accounts as a cognitive device: they sort, order, name; they provide a frame! 
• Mirrors similar changes to a shift from oral to literate culture
• changes in how things are communicated in culture are important since they "involve developments in the storing, analysis, and creation of human knowledge, as well as the relationships between the individuals involved" (Goody 1977)
• writing isn't tied to the place/person/time, can be viewed more abstractly
• depersonalize transactions, fixed meanings, practical interpretation is static
• for accounts - idea of fixed meaning --> objective economic reality
• tabular accounts - each item has spatial relationship which could then symbolize conceptual relationships, like items in a row mean they happened in one day
• items become decontextualized, simplified
• the categories/organization of accounting absorb uncertainty
• the organization frames and edits information
• economic reality becomes reduced to a 'bottom-line' which doesn't reflect various judgments/uncertainties
• how does uncertainty absorption happen? an example of the process of accounting:
• accounting methods require three books: waste book, journal, ledger, each becomes increasingly edited and parses out information from narrative accounts in the waste book 
• ledger takes instances away from time and reclassifies them according to item/type
• accounting influenced decision making, because it allows comparison of different items (by price)
• allowed for precise measurements of capital, allowed for a bottom line to influence decisions
• bookkeeping made the enterprise seem less like discrete events and more like a periodic, abstract continuation of transactions
• merchants also recognized its ability to help decisions with when to invest by looking at their current accounts
• evidence of how accounting methods changed cognition: 15th century artists used gauging and the rule of three, common accounting practices, in their paintings to help viewers understand the proportions
• even today, studies show that people's perceptions are influenced by a variety of factors, including format, order, and visual presentation

6. CONCLUSION (yay!)

• history of accounting shows broad social and economic changes, but also how it helped legitimate and change them itself
• development of capital gave new audiences, new reasons, new demands for accountability and legitimacy
• double-entry accounting as a technical device was helpful--it was abstract and flexible
• accounting as rhetorical device - used to justify to God, or logic patterns, but now it is accepted as legitimate on its own terms
• often act as justifications for decisions already made
• the uneven spread of the practice shows that the rhetorical aspects were just as if not more so important than the technical ones in keeping a business
• Weber (and Schumpeter, and Sombart) talk about how the technical aspects helped enterprises, but neglect the rhetorical aspects
• when are the symbolic aspects more important than the technical ones? 
• symbols have meaning only if the audience can understand them. the numbers and order became effective symbols only once their audience was numerate
• symbols are useful if the activity is suspect to an audience e.g. a new idea, business solution may not be accepted at first, but eventually won over
• another situation where legitimacy is useful: when an idea is extended to a new group
• familiarity of double entry as a method helped legitimize new forms of companies (joint-stock, partnerships)
• another situation: contexts where you have a valuable but vague characteristic
• if there's no way to determine a decision maker's knowledge, symbolic significance gains importance (Feldman and March) 
• e.g. 18th century merchants had to establish good "character" and "standing" to obtain credit, and bookkeeping served as symbol for those ague characteristics
• ANOTHER situation! documentation for a third party
• e.g. analyzing enterprises/organization to legitimate for third parties like investors or funders
• IN CONCLUSION DEB is not only a technical form, but a cultural form, and can be seen from multiple points of view than just as a tool for rational decision making.