Luca Pacioli and Leonardo DaVinci, men of the Renaissance, were both mathematical geniuses. Leonardo was more inclined towards military engineering, while Luca towards pure and abstract mathematics. When Pacioli included “Double Entry Bookkeeping” in his textbook, Arithmetic Additionpublished in 1494 (two years after Christopher Columbus landed in Santo Domingo), he did not know that it would change the world.
Leonardo Da Vinci and a monk named Luca Pacioli, the inventor of Accounting (debits and credits), lived together for many years. Luca’s math textbook contained the basic notions followed by accountants today: assets equal liabilities plus owner’s equity (A = L + OE).
Both being university professors they traveled together and stayed together in different universities.
Sigmund Freud – in his study of Leonardo’s homosexuality – ignored this fact. It is a pity because Freud would have brought up factual evidence instead of wild speculation based on his psychoanalytic techniques. Leonardo, being much younger than Luca, has always been described as Luca’s protégé.
Today, with the perspective of time, we can understand that they probably had a kind of common-law partner. In 1495 they lived together in Milan and Venice. Art historians have well documented that Leonardo was summoned before a court to address the charges of homosexuality against him. But since the accuser did not come forward, the charges were later dropped.
The diagrams and figures that one sees in Luca’a Summa were drawings by DaVinci’a. They worked together as equal partners instead of the master-apprentice relationships of the times.
Billions of human beings have populated the earth, living mostly in the shadow of survival and mediocrity, the rare, the strange and the eccentric are the ones who make the most invaluable contributions to the betterment of the human condition. These two eccentrics made tangible contributions to humanity.
While Leonardo’s achievements have been well recorded and documented in our times – even Bill Gates couldn’t resist owning Leonardo’s original manuscripts – Luca’s contributions are less well known. Like our American composer Aaron Copland, I will play a fanfare for the common man: Luca, with his clever explanation of the double-entry bookkeeping system, made international trade possible, opening the floodgates to what we now call “The Global Economy.” .
Businesses were no longer confined within borders, as banks, financial institutions, entrepreneurs, and corporations traded, traded, and profited across borders. The standardization of the Financial Statements followed, so that the Balance Sheets, Income Statements and Cash Flows are read and interpreted without major impediments throughout Europe.
With capital formation in full swing, the capital needed for factories became available, thus fostering the advent of the European Industrial Revolution. By 1750 Europe was already industrialized and by 1860 (after the Civil War) the United States became an industrial power.
Yes, it was a leap of imagination to design Debits (left side) and Credits (right side) as an information system. Write the assets on the left side of the equation and the claims on those assets on the right side.
In over ten thousand years of recorded history, no one in the human race had ever attempted to keep business records twice. The Babylonians, Phoenicians, Persians, Egyptians, Greeks, Romans and other ancient civilizations recorded their transactions in cash and in a single entry; that is, entrepreneurs made lists of items bought and sold.
As a result, companies remained small businesses, doomed to remain small as the lack of an orderly system impeded growth. Whether on papyrus, sheepskin parchment, or brick, all business records were endless enumerations and catalogues, offering little insight into measurements of profit or loss.
Pacioli changed all that.
To think that a humble discovery like double-entry bookkeeping can change the fate of the human race defies credibility. But given that double entry allows not only an orderly classification of accounts, journals, and ledgers, but also measurements of liquidity and profitability, it is not surprising to see that capitalism flourished.
In economic systems where capitalism prevails, companies, which are the main employers, offer medical coverage and retirement plans, men and women can now enjoy the latest technologies and therefore live longer and in good health. Health.
One can well imagine Luca and Leonardo discussing symmetries, contrasts, dichotomies, dualities, binary oppositions, polarities, antitheses and other opposites:
“Physical nature exhibits all these dualities: day and night, narrow and wide, fast and slow,” Luca would say, “and so does human nature.”
“We carry good and evil, love and hate, in our spirits and bodies, or as Heraclitus loved to say: ‘the way up is the way down, the narrow and the wide,'” Leonardo replied.
“What about Ecclesiastes, Leonardo, didn’t he say…?
time to be born and time to die; time to plant and time to pull up; time to kill and time to heal; time to tear down and time to build; time to cry and time to laugh; time of mourning and time of dance;…
Observing these doubles as a knowledge system allowed Luca to expand it to the accounting equation where what is on the left must equal what is on the right (Assets = Liabilities + Owner’s Equity). Later, accountants realized that another duality was needed: Revenues, which are increases in the owner’s equity, and Decreases in Expenses; the difference is none other than profit or loss.
With debits and credits practically established as a system of order, writers such as Descartes, Cervantes, Shakespeare, and Dickens imposed it on literature and philosophy through antithesis.
discards Cogito ergo sumit is the synthesis of a duality: mind and body.
In A Tale of Two Citites, Dickens opens his novel with a detailed set of antheses:
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the age of belief, it was the age of unbelief, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything ahead of us, we had nothing ahead of us, we were all going straight to Heaven, we were all going straight to the other side…
Although philosophers like Hegel and Karl Marx tried to discard the duality system by replacing it with a triad: thesis, antithesis, synthesis. They failed; and we can understand why: Hegel professed state power, while Marx communism. By now we know the chaotic results of Nazism and Communism.
The natural tendency is duality as shown by the Second Law of thermodynamics: order and chaos (entropy). Although nature tends towards chaos, human nature imposes order; the mind invents patterns of understanding.
The double-entry bookkeeping system is a triumph of the mind over the chaotic activities of human beings engaged in commerce. The Double Entry not only brought with it a new economic system, but also the dawn of a new way of thinking: modernity. And modernity dispelled the mists of superstition, monsters, magic, witches, ogres, dwarfs, giants, miracles, chimeras, unicorns, centaurs, mermaids and other impossible figures of the supernatural.
The Middle Ages and feudalism gave way to modern times.
Luca Pacioli’s legacy, the accounting system, to the business world is order. It contains: Balance, fullness and brilliance, because his system fits with Democracy, with Freedom for the businessman; a system that coincides with the pillars of Adam Smith’s capitalism: laissez-faire (free market economy), competition (invisible hand), and division of labor (the innate human propensity to create wealth for all).
This is my fanfare for the common man, the humble monk–Luca Pacioli