The Friar Who Built the Machine

The Prologue to The Ledger and the Machine. Why you can't see where accounting is going without seeing how little it has changed.

I’ve been excited to write about this. I have been patiently waiting for the clock to strike September to get us into that learning mode we are conditioned to be in from memories of childhood and our first days in school. I grew up in a time when bullying was quite the thing, so I was always on guard those first few days until I got comfortable with the lay of the land.

Maybe that connotation to bullying as accountants is a good reference to use. We have often felt bullied at times from the grind and brute force we’ve resorted to use to help us get our work done. We have lacked help from a declining accounting population and overpromised software tools that didn’t live up to their promise. I thought it’d be helpful to paint a more accurate picture of accounting and to frame it with a clearer lens.

The founding of accounting can be credited back to 1494, in Venice, when a Franciscan friar published a math book.

That friar was Luca Pacioli. He was a teacher, a friend of Leonardo da Vinci, and by every account, a man more interested in spreading knowledge than in owning it. Buried inside his book, between sections on arithmetic and geometry, were twenty-seven chapters describing how the merchants of Venice kept their books. Debits on the left, credits on the right. Every transaction was recorded twice, so the books had “checks of balances.”

Five hundred and thirty-two years later, every ERP on earth still runs his system. Every trial balance you have ever tied out, every audit opinion ever issued, and every close has used this foundational method. It’s kind of sad in a way that we don’t pay more homage to the marvel of accounting and how it came to be. A system that stands today based on those twenty-seven chapters. As much as I resisted reading assignments back then, I believe I would have had a greater appreciation for the development of accounting if I had been “forced” to study the history of accounting.

There’s a special feeling connected to knowledge passed on generationally that ties back to the origination of why something came to be. Losing that native storytelling could be one of the reasons why we have a disoriented view of accounting. One that doesn’t have the same prestige as a picture of a Harvard Law library. I think the visual of Bob Cratchit sitting at his work desk in the cold, a quill pen shakily held in his hand shadowed by a dim light, slugging away for Scrooge is more of the visual we have come to be represented by.

I think it is a perfect time to look back at our friend, the friar. We need to be centered on where we came from because you cannot comprehend where accounting is going without understanding how little it has changed. I hope you are asking yourself, why is that?

Here is the first thing to know: Pacioli did not invent double-entry bookkeeping.

The merchants of Venice had been using it for well over a century. What I love about revisiting this is that we can make a correlation between the way in which knowledge lives now to the way professional knowledge survived back then. It lived in the heads of practitioners with the knowledge passed from master to apprentice, guild to guild, father to son. It worked, but it was fragile, just like it is today because knowledge stored in people transfers when they leave or worse, when they pass.

Pacioli helped to codify a system that had been in place by simply writing it down. This transfer of knowledge symbolizes the importance the Renaissance had on the spread of intelligence. He took the accumulated judgment that had existed from generations of merchants, the method behind their method, and put it in a book so people could learn from it. The printing press, which was brand new to his day, allowed for the knowledge to be captured and spread. Not walk out the door! He open-sourced accounting, the original knowledge layer!

Now look at what he actually captured, because the methodology is genius. Double entry is a self-checking machine built by recording the two sides of every transaction. The books must balance. If they don’t, something is wrong, and the system itself is telling you so. You don’t need electricity or specialized calculus to do this. It’s the structure that catches errors by design.

Since it had the power of an error-detection system, it helped to develop something deeper: trust. In a way, the methodology is a trust technology. A Venetian merchant’s books, kept the Venetian way, could be believed by a banker in Florence who may have never met this merchant. Double entry didn’t just record commerce. It allowed strangers to trust each other’s numbers, and on that trust, credit, investment, and the modern economy was built.

That is what accounting is. It was never the back office. It was the original intelligence layer over the economy. It’s the system that compresses and allows for millions upon millions of daily transactions to be digested down into something the world can faithfully rely on.

I hope that presents an exciting view of accounting at its inception. So, now watch what happened over the next five hundred years. Or rather, watch what didn’t.

The quill gave way to the fountain pen. The bound ledger led to the adding machine. Punch cards arrived with early computing to help process transactions. Working artifacts to develop visual spreadsheets like VisiCalc arrived in 1979, and eventually Excel after it. Then came the ERP era to combine the core processes of a business into one unified platform.

Every one of those waves changed how fast we could record. And still, not one of them changed what the recording meant or who did the thinking. The tools automated the writing. The judgment, the part Pacioli captured from the merchants, stayed exactly where it was in 1494: in the heads of practitioners, passed master to apprentice, walking out the door, time and again.

Five hundred years of new tools. Zero new thinking about the thinking.

To add color to that, it’s the lack of thinking behind the thinking that has led to accounting failures and the collapse of one of the giants back in the early 2000s, Arthur Andersen. In the first layer of intelligence, the system didn’t fail. The books were balanced and the machine ran exactly as designed with debits equaling credits, but the books lied anyway. The system that was built centuries ago has always had one dependency as it cannot check itself. It requires people who are willing to ask whether or not it all truly adds up. Yes, there are instances over time where the accountants missed key pieces or even worse, participated in a distortion of results. But, if you look at the history of reliability in financial statements from thousands of companies and hundreds of years, you realize how important accountants have been as the layer of intelligence across the dual entry system. The profession is rooted in principles of judgment and skepticism, constantly relying on human judgment, even during technological revolutions. Up until now, the machine/ERP has lacked the ability to be a complete independent source of truth.

AI is the first technology in the history of this profession aimed at increasing accounting intelligence. It’s not just at the recording level, which was conquered centuries ago and re-conquered by every generation of software since. Instead, it’s with the thinking by capturing how the work is judged.

I think Pacioli is cheering from above. For centuries, he’s been witnessing knowledge die with the people who carried it, while he gave his life to writing it down so it would compound instead. In the Summa, he wrote that a merchant’s records must be kept in good order because without order, their business will be chaos. He knew the whole game was memory. Genius.

Five hundred years later, the profession he codified finally has a way to remember everything it knows. The friar helped build a machine that, for over five centuries, we have continued to find ways to feed with more complex data. Yet, that data, once trapped in books and ledgers, are now trapped inside of machines. Now, at long last, we get to teach it.

This is a prelude to a series of writings as we revisit our history in this back-to-school month. In my next piece, I’ll focus on the 1873 time period and how panic becomes a catalyst for change.