Double-Entry Bookkeeping and the Birth of Capitalism: Accounting for the Commercial Revolution in Medieval Northern Italy

Abstract

The first part of the paper advances a new explanation of the emergence and diffusion of double-entry bookkeeping as a response to the revolution in social relations underlying the emergence and spread of merchant capitalism identified by Marx. During the "commercial revolution" of 1250 to 1350, which began in the cities of northern Italy, for the first time in history the capitals of many individuals were pooled for commercial investment. For Marx, a fundamental rule regulating the social relations of capitalism is that each investor should receive and "equal return for equal capital". It is hypothesized that in this context investors would demand frequent and reliable calculations of the rate of return on capital. It is argued that by automatically and continuously providing the means for doing so, double-entry bookkeeping emerged as a response to this demand. It is shown this hypothesis is consistent with the limited historical evidence available. The second part of the paper provides a critique of the explanations of accounting historians, and analyses to what extent they are consistent with the historical context in which double-entry emerged, and what light they shed. It is argued that while some aspects of these explanations are essential elements in the history of double entry bookkeeping, some face formidable problems. The paper concludes with an outline of how the socialization of capital hypothesis could be used to explain the diffusion of double-entry, and some suggestions for further research.