Entrepreneurial Economics Integrating Economics, Accounting and Money

An Aid to Teaching

Daniel W. Osmer

Sebastopol, California May 1, 2018

© 2018 Daniel Osmer

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Abstract

Thecurrentpracticeofintroducingbasiceconomics,moneyandaccounting,isolatedfromeachother,createsafragmentedpictureoftheworlddevoidofmeaningandwithoutasenseofwherewe'vecomefromandwherewe'regoingtoasindividualsorasacivilization.Thefocusofthisresearchistoidentifyanddescribeamoreintegratedapproachandpracticethatincludesbasiceconomicconcepts,explanatoryimagesandanhistoricalcontext.Threesectionsareofferedasguideswithaviewtoprovidingadeeperandbroaderunderstandingoftherelationshipbetweentheeconomicprocess,moneyandaccounting.

1)'WorldHistorythroughEconomics'anditstimelineofmilestonesandcharacteristicindividualsdepictsthedevelopmentoftheindividualandsocietyinrelationshiptotheevolvingformsofmoneyandaccountingfromthebeginningofcivilizationthroughtotheRenaissance.Twocriticalcharacteristichistoricalfiguresarehighlightedrepresentingthepedagogicalthemeofthegreat'timeoftransition'andtheinfluentialstoryofthetwostreamsofmathematicsunderlyingmoderneconomiclife.

2)'EconomicsfromtheGroundUp'identifiesfundamentaleconomicideasandasetofassociatedexplanatoryimagesthatcanbeusedasaguidefor'thinkingthingsthrough'inregardstounderstandingtheunderlyingnatureoftheeconomicprocessandtheexchangeofvalues.Thecreationofeconomicvaluebeginswiththelandandtheproductsofnatureasitmovestoeconomicvaluecomingmoreandmorefromtheintelligenceoftheindividuatingintelligenceofthedevelopinghumanbeing.Thedoubleentryaccountingprocessprovidesanorganizingtoolessentialforperceivingthemovementoftheseeconomicvalues.Afterall,itistheactionsofallhumanbeingsthatmoveseconomiclife,notthemarketorthestate.

3)'AccountinginaNutshell'focusesonanactualactivitybygoingthroughandcompletingasetofaccountingexercisesthatfollowthehistoricaltransitionfromsingletodoubleentryaccounting,andfinally,totheclosingentries.ThisprovidedthebasisformoderndayaccountingtechniqueandbecamecommonplaceduringtheRenaissanceasameansforobtainingameaningfulunderstandingofthefundamentalaccountingprocess.Thisexperientiallearningprocessmakesvisiblethebasicstructureandtechniqueoftheaccountingprocesswhilelinkingittotheoriginsofmoneyandthemanagementofeconomiclife.Thebasicprinciplesandpracticeofthisaccountingprocess,ineffectauniversallanguage,providesthelensforunderstandingmoneyandtheeconomicprocess.Moneyisaccounting.

Combiningthepresentationofessentialeconomicmilestonesandconceptshistorically,paralleltolookingatmoneyandaccounting-in-practice,providesacoherentframeworkandwayofeconomicthinkingthatmakesforanewawarenessoftheeconomicprocessinitmanyfacetsandmovements.Thisguideprovidesanaidtoeconomicawarenessandperceptionprovidingthebasisforawilltoassociatewitheachother,thereby,bringingconsciousnessandbalancetoeconomiclife.

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Acknowledgements

Iamindebtedtomycolleaguesinassociativeeconomicswhohavecontributedtomyongoingeconomiceducationthroughparticipationinnumerousworkshops,conferencesandprojectsthathavetakenplacearoundtheworldsince1997.Manyoftheideasinthispaperderivefromon-goingresearchconductedcollegiallyinthecontextoftheEconomicsConference.TheAssociativeEconomicsFestivalthatyear(1997)markedanewlevelofcommitmentandearnestnessinregardtospiritualscientificresearchinthefieldofeconomicsanditsrelationshiptomoneyandaccounting.

AwordofgratitudegoestoChristopherHoughtonBuddandMarcDesaulesfortheirinvaluablecontributionstomyownjourneytounderstandandengagewithassociativeeconomicsinalivingway.Muchofthisresearchprojectisderivedfromtheirwork,generouslyandpatientlyshared.Recommendedforanintroductiontoassociativeeconomics:'AHumanResponsetoGlobalization:DiscoveringAssociativeEconomics'byMarcDesaulesand'MetamorphosisofCapitalism:RealizingAssociativeEconomics’byChristopherHoughtonBudd.

Finally,thankyouSusanGravelle.Thisresearchprojectwouldnothavebeenpossiblewithoutherencouragement,patientscrutinyandongoingdialogue.

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ThefollowingdocumentispartlybasedonareadingofthefourteenlecturesbyRudolfSteinergiveninDornach,SwitzerlandfromtheJuly24toAugust6,1922translatedin1936byA.O.BarfieldandT.Gordon-Jones,GA340.ThiswaspublishedasWorldEconomybyRudolfSteinerPress,London1972

AllreferencesrefertothemorerecentpublicationfromNewEconomyPublications,Canterbury,England,1993.ThistranslationhasbeeneditedandbroughtuptodatebyChristopherHoughtonBudd,PhDandistitledEconomics:TheWorldAsOneEconomy.

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Dedication

ThisfirsteffortasaresearcherisdedicatedtoWernerGlas,PhD.,whoin1976recognizedandencouragedmythententativeexplorationsofthespiritualnatureofeconomiclifeinlightofRudolfSteiner'seconomicscourseof1922whereheoftenhintedatitssignificanceformyfutureendeavors.

ThisresearchprojectwasmadepossiblethroughagrantfromtheEconomicsConferenceoftheGoetheanum,partoftheSectionfortheSocialSciencesoftheSchoolofSpiritualScience,DornachSwitzerland.

Supervisor:ChristopherHoughtonBudd,PhD. ResearcheratTechnologyUniversity,Delft,Netherlands Email:chb@christopherhoughtonbudd.com

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Contents

Abstract 2

Acknowledgements 3

Dedication 4

One:WorldHistorythroughEconomics 6

Introduction 6

TheStoryofExchange 8

Summary:TimeofTransition 17

Synopsis:WorldHistorythroughEconomics 18

Two:EconomicsfromtheGroundUp 20

Introduction 20

EssentialIdeasofAssociativeEconomics 22

EconomicsLectures:LinkstoAccountingandMoney 35

EssentialImages 37

TwelveBlackPaperDrawings:VisualAids 44

Three:AccountinginaNutshell 51

Introduction 51

TheTimeofTransition:HistoricalHighlights 52

ElementsoftheTransition 53

AccountinginaNutshellExercises 54

Appendix 87

Bibliography 89

Contacts 91

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ONE:WORLDHISTORYTHROUGHECONOMICS

Introduction

Theapproachtothehistoricalnarrativethatgoesalongwiththevisualtimelinemixesahistoryofeconomicsandeconomichistory.1Significantcharacteristicimagesandeventsaremarkedanddescribedinordertodevelopabroadbrushstrokefeelandunderstandingofthestoryofexchangeintheeconomicprocess.Thisnarrativefollowseconomicthoughtandthedevelopmentofeconomicideasaswellashighlightingmajorchangesineconomicpracticesandconditionsbeginningwiththeprocessofdevelopingthefirsthumansettlements.2

Avisualtimelineofeventsispresentedfirstinordertoprovideacontextfortheintroductionofeconomics,accountingandmoney.ThetimelineisastorytellingdeviceandexplanatorytoolforexploringeconomicconceptsandsignificanthistoricalmomentsfromJerichototheRepublicofVenice.Thisactsasanaidto'livinginto'theeconomicprocesswithourthinkingbyfollowingitslogicandtechnique.Jerichoisidentifiedbecauseitisrecognizableasrepresentativeofitstimeandplace.Thestorybeginswiththeexchangeofvaluessettingtheeconomicprocessinmotionwhenthefirstsettlementscreatedasurplusthroughthenewphenomenonoftrade.Theuseofanimaginativeandengagingeconomichistoryexerciseplacesusabovethehorizonofhistoryinordertoprovideadeeperunderstandingoftheevolutionofeconomics.Thistimelinestoryendswithavisualdepictionofthepaceandevolutionofthephysicaleconomyrelativetothoseofthemorerecentexpansionofthefinancialeconomy.TimelineNarrative

Usingcolorchalkon3’x6’blackpaper,achronologicalsketchdepictssignificantcharacteristicmomentsandbiographiesalongalineshowingthehistoricaldevelopmentoftheindividualandsocietyandtheirrelationshiptothechangingformsofeconomiclifeandmoney.Artistically,theideaistocreatethefeelingofaccelerationashumanitymovestowardanexplosionofindividualcreativity,towardsomethingmomentousandepoch-making,atthetimeoftransitionduringtheRenaissance.Theextraspaceontherightsideofthetimelineisspaceforthefuture,imaginativelyspeaking,thefutureyettobewrittenbyindividualsstrivingtowardtheimpulseoffreedomandresponsibility.Thehistoricaldevelopmentoftheaccountingprocessanditstechniqueprovidesameansforbridgingthegapinourunderstandingofeconomicsandmoneybymakingobjectivesenseoftheworldandone'splaceinit.ThepurposeistocreateanintroductiontobasiceconomicaxiomsandhistoryforthenovicebasedonthefirstsevenlecturesoftheeconomicscoursegivenbyRudolfSteinerin1922andsubsequentworkinassociativeeconomics.'WorldHistorythroughEconomics','EconomicsfromtheGroundUp'and'AccountinginaNutshell'aredesignedtoworkinconjunctionwitheachothertoenableanintegratedunderstandingofeconomics,accountingandmoney.

1Thehistoryofeconomicsisaboutthehistoryandevolutionofeconomicthought,itsoriginsandthedevelopmentofeconomicideas,whereas,economichistoryisconcernedwithchangesineconomicpractices,institutionsandconditions.2Whenthefirsthumansettlementsbeganisstilldebated.Atwhatpointhumanbeingsbegantomakepermanentsettlementsseemstobemoreofaprocessthanasinglepointintime.

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11,500BCtothePresent

Themainpurposeofeconomiclife,meaninghumanity'sjointprovisionformaterialexistence,istocreateeconomicvaluewhile,seeneconomically,thepurposeofculturallifeistouseupthosevalueswhiledevelopingandapplyingtheskillsandcapacitiesofeveryindividual.Imageandcolorareusedinthepresentationasanaidtoenteringimaginativelyintothesetwoprocessesthatperpetuallyflowintoeachother.Byrisingabovethehorizonofhistorywecanlookbackandexaminewherewehavecomefrom,wherewearenow,andwherewearegoingto–allinthecontextofeconomiclife,moneyandaccounting.Thisimaginativeexerciseismeanttoengenderasenseofeconomicandfinancialhistory.Themoreweunderstandeconomichistorythemorewecansenseandfindourplaceinit.Slide1-WorldHistorythroughEconomicsTimeLine

AssociativeEconomicsCafé•Sebastopol,CAMarch23,2015FrenchGardenBanquetRoomThreeaspectsof'WorldHistorythroughEconomics':

1)Achronologicaljourneyfromthefirstsettlementsaround9,000BCtotheRenaissanceupto1,500ADshowingthedevelopmentoftheindividualandsociety;

2)Theevolutionofeconomiclifeandtherelatedchangingformsofmoneyoverthesametimeperiod;

3)Thelinkageofthedevelopmentoftheindividualandsocietytotheemancipationofthe'moneymarket’relativetothe'goodsmarket'.

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TheStoryofExchange

TheAgriculturalRevolution

Astimemarchedonmoreandmorehumanbeingsbeganactingonandtransformingnatureinordertomeettheirmutualneeds.Astheydidsotheirknow-howandunderstandingoftheirnewcircumstancesexpanded,beginningaprocessofcontinuousinnovationandcreativity.Byworkinguponnatureandslowlyapplyingtheircreativeintelligencethefirstsurplusofgoodsbeyondtheirimmediateneedswascreated.Forthemostpart,currenteconomicconceptsarederivedfromlookingatcompetitiverelationshipsbetweenbuyersandsellers.Anotherwaytolookatthecrossingpoint,wherebuyerandsellermeet,istoseetheserelationshipsemergefromtwoopposingstreamsofeconomiclife.Ontheoneside,economicvaluesarecreatedthrougheconomicactivityandontheothersideeconomicvaluesareconsumedor‘usedup’byculturalactivity,thewiderangeofinnovativeandproductivethingspeopledo.Itispossibletoseetwostreamsthatarosewiththeseearlysettlementsthatinauguratedeconomicexchangeandthephenomenonofbuyingandselling.Valuegainedfrommodifyingtheproductsofnatureandvaluegainedthroughappliedknow-howconstitutesthetrueoriginsofaccountingandmoney.JerichoservesasastartingpointfordescribingthestageofcivilizationthatculminatesinthemilestoneofMesopotamia6,000yearslaterin3,000BC.EconomicdevelopmentandactivityacceleratesfromthetimeofMesopotamiaallthewaytotheadventoftheGreco-Romanperiodwhenanotherexpansiveimpulseradicallychangeshowcivilizationoperates.Thelastperiodcoveredbythe'WorldHistorythroughEconomics'timelineendswiththeperiodrecognizedasapivotaltimeoftransitionforcivilization,theRenaissance.Thefollowingnarrativematerialisdesignedtobeusedinconjunctionwiththestorytellingimageryofthetimelinevisualthatcanbebuiltupfromscratch.PopulationnumbersareapproximateandbasedonseveralsourcesincludingtheUnitedStatesCensusBureau,WikipediaandtheAncientHistoryEncyclopedia.

Fourmajorperiods:1)NatufianEpipalaeolithictoNeolithicsettlements(12,500BCto9,500BC),(2)JerichoandTepeAsiabtoMesopotamia(9,500BCto2,000BC),3)MesopotamiatotheGreco/Roman(2,000BCto340BC)and4)Greco/RomantoRenaissance(340BCto1,500AD).AbuHureyra11,500BC

ThegradualcreationofhumansettlementshasbeenalongprocessthatmayhavehaditsoriginsintheEpipalaeolithicandonintotheNeolithicperiod.AbuHureyrawasanancientsettlementmoundjusteastofAleppoandwashomeoftheNatufianculture.ItiswidelythoughtthattheyweretheeventualsettlersofJericho.Theywerehunter-gatherersthatovertimebecamethefirstfarmersevenbeforeJericho.3Also,newfindingsrevealthepossibilitythatsemi-permanentsettlementsandfoodcultivationexisted21,000yearsagoatasitecalledOhaloIIontheancientSeaofGalilee.ThisprocessofhumansettlementtowardsagricultureledtotheformationofthefirstknowncitieslikeJericho.4 3AndrewMoore,GordonHillmanandAnthonyLegge"VillageontheEuphrates:FromForagingtoFarmingatAbuHureyra"(Oxford:OxfordUniversityPress2000).4Nadel,D.,Piperno,D.,Holst,I.,Snir,A.,&Weiss,E."Antiquity",(2012)86(334),990-1003).doi:10.1017/S0003598X00048201.'NewevidencefortheprocessingofwildcerealgrainsatOhaloII,a23000-year-oldcampsiteontheshoreoftheSeaofGalilee,Israel.'

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Jericho9,500BC

Fromonepointofview,itcanbeshownthattheemergenceofcivilization,economiclifeandaccountingallbeganover11,500yearsagowiththefirstcitiesandearlysettlementsofhumanbeings.JerichoisintheWestBankofthePalestinianTerritoriesandisbutoneofmanypossiblesuchstartingpoints.5Thisspreadingphenomenonofexchangewitheachother–trade–resultedinsurplusgrainsandsaltaccumulatingbeyondtheimmediateneedsofthecommunity.6Theneedtokeeptrackofvariouscontributionstothecentralgranaryorsaltcolumnrequiredamethodforrecordingthisongoingstory.Itisnowthoughtthatthesingletallystickwasusedasasimplerecordingdevicetoaccommodatethenewlifeofeconomicexchange.7Thisrecordingormarkingtookplacelongbeforewritingornumberscameintoplay.Theseearlyrecordkeepers,'theaccountants',mayhaveprovidedthenarrationexplainingthemarkings,so,dotheythenbecomethefirststorytellers?Toaccountisnotonlytocountbutalsotosupplythenarrative–thestorybehindthenumbers.Markingsandtallystickswereusedtotrackgraininstoragebeforewritingandmoneyweredevelopedandrecentarchaeologicalevidencesuggeststhattheindividualsdoingtheaccountingeventuallydevelopingstorytelling,writing,countingandmoney.8

Atthistimetheworldpopulationisestimatedhavebeenfourmillionwiththelargestsettlementshavingfrom1,000to2,000inhabitants.Notes: Exchangeofvaluebeginstheeconomicprocess

Meetingeachother'sneedsthroughtradingwitheachother Householdeconomicsandsmallsurplusesscatteredabout Tallystickasmemorydevice HumanbeingsactuponNaturetomeettheirneeds 'Know-how'beginstobedevelopedandapplied Populationofthelargesthumansettlementsisfrom1,000to2,000TepeAsiab7000BC

RecentarchaeologicalworkdonebyaFrencharchaeologisthasshedlightontheveryancientclay-firedtokenshapesfoundscatteredinabundanceallaroundthearea.9Theevidencesuggeststhatby7,000BC

5KathleenMaryKenyon,https://www.britannica.com/place/Jericho-West-Bank,Retrieved2017-04-01."Thecity’ssiteisofgreatarchaeologicalimportance;itprovidesevidenceofthefirstdevelopmentofpermanentsettlementsandthusofthefirststepstowardcivilization."JerichoisatownlocatedintheWestBankinthecountryofJordan.6 D.R.Piperno,E.WeissandI.Holst,"Nature"(2004)p.670–673.DomesticatedeinkornwheatinTurkeydatesbackto9,500BCaccordingtothesescholars. 7AlexanderMarschack,"ArchaeologyofthePeabodyMuseum",HarvardUniversity(May/June1979):Vol.32,No.3,p.22-31.Tallying,fromtheOldFrenchwordtailler,meaningtocutornotch,mayhavebeenthefirstrecordingmethodusedbyancientpeople,theearliestnotationsbeingconcernedwiththereckoningoftimeandinventory–thetallystick.8Dr.GunterDreyeroftheGermanInstituteofArchaeologyisperhapsthemostprominentofanumberofarcheologistswhobelievethatwritingactuallydevelopedoutofearlymarksthatwereusedtotallythekindsandamountsofgoodsinstockatancientwarehouses.9DeniseSchmandt-Besserat,Archaeology(May/June1979)Vol.32,No.3,p.22-31.“TheirpopularitycontinueswithtimeandpracticallyallexcavatedMiddleEasternmoundsdatingfrom10,000-4,000BChaveyieldedsometokens.”

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templeaccountantswereusingsmallclaytokensofvariousshapesandsizesasrecordingdevicestorepresentgoods–wheat,sheep,goats,oxen,oil,andwine.10ShemakesthecasethatancientfiredclaytokensweretheprecursortotheSumerianideographsandtheyfunctionedasakindofnoteactingascurrencybythefactthattheywerebookkeepingentriesinscribedintotheclayfiguresaswellastheclayenvelopesholdingthem.Thisneweconomiclifeofexchangeandsurpluswasstillbasedonhouseholdeconomicsandsmall,dispersedsettlements.Theinventionofclaytokenaccountingrepresentedacognitiveleapformankindthatledtothedevelopmentofcountingandwriting.Andyet,ittookmanymoremillenniatodeveloprudimentarysingleentryaccountingusingcolumnsofnumbers.Bynowtheworldpopulationisestimatedtonumberlessthan8millionandthelargestsettlementswerearound3,000to5,000.Mesopotamia3000BC

Over4,000yearslaterlargercitiesandtradesystemsdevelopedwhereclaytokensbegantobereplacedbyimagesthatthenevolvedintotheideographsusedtocreatetheCuneiformscript.11Mesopotamiasawtheeconomiclifeofexchangecontinuetoaccelerateandrecordkeepingbecamemorecomplicatedastradeincreasedandwritingwasestablished.Theabilitytobuildcitiesandmonumentswasduetotheexpandingsurplusfromacontinuingandacceleratingdivisionoflabor,oradivisionoffunction,sinceJericho.Thisresultedinamultitudeofprofessionsandcraftsdistributedoveraneverwideryetconnectedgeographicalcircle.Thewheelconnectedtothecartandtheplowharnessedtooxenacceleratedeconomiclifewideningtheexpanseofcivilization.

Thecategoriesofclaytokensrepresentingthevarioustypesofgoodsavailablegreatlyincreased.Atokengoingintoaclayenvelopewasavaluecomingin,calledadebitindoubleentryaccounting,andatokenremovedwasavaluegoingout,oracredit.12Intoday’sterms,accountinghistoriansinterpretthesealedtransferofclaytokensaspartofthelongdevelopmentofaccountingthatprecededtheadventofportablemoney.Anarrativeaccompaniedthissimplesingleentryaccountingsystem.Barley,theshekel,andringmoneyservedasMesopotamiancurrency.13Theringsweremadeofsilverandwere 10.NiloufarMoghimiandHassanFazeliNashli,PhDCandidateinPrehistoricArchaeology,Abstract"AnArchaeologicalStudyontheTokensofTepeZagheh,QazvinPlain,Iran"DepartmentofArchaeology,UniversityofTehran,Tehran,Iran(2013)."TepeAsiabbecame,intheeighthmillenniumBC,thefirstsitesinIrantoincludetokens.Itwasinthesesites,stillintheprocessofNeolithization,thattokensandhumanandanimalfigurineswerediscovered." 11 DeniseSchmandt-Besserat,ScientificAmerican.June1977,Vol.238,No.6,p.50-58.“Withtheriseofcitiesandthedevelopmentoflarge-scaletradethesystemwaspushedontoanewtrack.Imagesofthetokenssoonsupplantedthetokensthemselves,andtheevolutionofsymbolicobjectsintoideographsledtotherapidadoptionofwritingallacrosswesternAsia.”12RichardMattessich,‘TheBeginningsofAccountingandAccountingThought:AccountingPracticeintheMiddleEast8000B.Cto2000B.C.andAccountingThoughtinIndia300B.C.totheMiddleAges’.Publisher,NewYork,N.Y.:Routledge,2000.13DeniseSchmandt-Besserat,"TheEarliestPrecursorofWriting"ScientificAmerican.(June1977),Vol.238,No.6,p.50-58.Theyweretriangles,circles,spheres,beads,cones,andpiecesforstringing.Sheoffersusaconvincingequivalencebetweenthevariousclayfiguresandthegoodsbeingtraded:sheep,goats,oxen,wheat,oil,wine,etc.,andsuggestthehypothesisthatthesesimpleclayfigurinesrepresentthefirstcurrencyinhistory:Currencyisanote,abookkeepingentry,andtheopeningtowriting.

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sometimesusedtohold60shekelsasameansformakinglargerpurchases.JerichotoMesopotamia6000Years

Thisphenomenonofincreasingeconomicexchangeamongpeoplesetintomotiontwomajorevolutionaryforcesthatshapedthefutureofsociety.Thefirstistheaccumulatingsurplusbeyondimmediateneedoruseandthesecondistheincreasingdiversityofeconomicactivities–thedivisionoffunction(labor).Geographicalconsiderationsandopportunitieshavealottodowiththelocationofsettlements.WhatbeganinJericho,withhouseholdeconomiesproducingthefirstsurplusesbycultivatingnature,ledtothetowneconomiesofMesopotamia,withitsrapidlydevelopingdivisionoflabor,andthefirstlargesurplusesthatmadepossiblethebuildingoflargercitiesandmonuments.Theincreasingintelligenceofhumanbeingsthroughsixthousandyearsofexperiencereliedonabundantfoodproduction,theplowwithoxenandthewheelandcart–makingtheriseofcivilizationpossible.Farmerswerenowabletopursuespecializedeconomictasksbecomingcraftsmenandentrepreneurs.14Thelifeofthecommunitywasmoreimportantthantheindividualandsocietywasstill‘ordered’andkeptcohesivethroughcommandmentsadministeredbytheveryfewasatheocracy.Economiclifeduringthislongperiodoftimewasbasedonhouseholdeconomiesthatgrewintovillagesandthencitiesby3,000BC.Boththeancienthouseholdandvillageeconomicsdevelopedanature-basedcommodity-moneyusinggrains,cattleormetals.Forthefirsttime,humanbeingsbegantoexchangevaluebetweeneachotherinordertomeeteachother'sneeds.Thisearlyroleofmoney–actingasanintermediaryinordertofacilitatefairandequitabletrade–isnowcalledthe‘meansofexchange’function(MX)orpurchasemoney.Thismoneywasusedforimmediatepurchase(buyingandselling).Nowadays,thesecirculatingvaluesaremadevisiblethroughtheincomeandexpenseaccountsindoubleentrybookkeeping.Atthistimemoneywasveryphysicalandcumbersome,relativetotoday.Bynow,theworldpopulationisfewerthan45millionandthesizeofUrukapproximately45,000.15Notes:

LocaleconomieswithinasmallgeographicalareameetinghumanneedsPersonalandvillageeconomyWheel/cartandplow/oxenWritingandcountingDivisionoftaskasanevolutionaryforceincivilizationCitiesandmonumentsFarmerfreedtospecialize(largersurpluses)

14Hays,J."MesopotamianEconomics,Money,Labor"(2009)."Asagriculturebecamemoreadvancedsurplusesweregeneratedfreeingfarmerstoperformothertasksandlearnnewtechniques.Overtime,farmerscouldbranchoutandspecializeinspecifictasks,becomingmorelikecraftsmen.Tabletslistedtheprofessions:tradesmen,butchers,stonemasons,watercarriers,fishermen,estateworkers,farmers,tanners,weavers,boatbuilders,furnituremakers,bakers,silversmiths,metalworkers,potterymakers,beerbrewers,breadmakers,leatherworkers,spinners,weavers,clothesmakers,toolandweaponsmakers,jewelers,woodworkersandpeopleinchargeofpreparingsacrificesandmaintainingbuildings." 15 FromtheAncientHistoryEncyclopedia(https://www.ancient.eu/uruk/)"TheUrukPeriodstretchedfrom3800to3200BC.Thistimesawanenormousgrowthinurbanizationwithimpressivestructuresandtheearliestevidenceofwriting.Urukprobablyhadapopulationofaround45,000attheendoftheperiod."

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Agriculture-based/Commodity-moneyMeansofexchange–Purchasemoney–IncomeandexpenseaccountsSilverringmoneyandtheShekelTemporaryrelationship/bothsidesmakeagain

Greece/Rome340BC

Coherentthinkingabouteconomiclifewaslacking,andperhapsnotneeded,untilAristotleinauguratedmoderneconomicsbyarticulatingafewkeyprinciplesandquestions(340BC).Onesuchcontributionthatholdsuptodayistheideathattheeconomicprocesstakesitscoursethroughexchange–theactofbuyingandselling.Humanneedsaremetasone’sindividualityunfoldsinorder,asJ.M.Keynesputit,'todofineactions’forothers.Inotherwords,economiclifeisbroughtintomotionthroughtheuniversalfactofhumanneeds(differentiatedcoincidenceofdemand)andtheinitiativefromthevariedtalentsandskillsofhumanbeings(coincidenceofuniqueness).InrelationtofutureeconomiclifeAristotleidentifiedtheneedtothinkaboutfairexchange,equitabledistribution,acommonmeasureandapermanentrecord.16ThedignityofthehumanbeingcultivatedinGreececontinuedasRomeintroducedthestructureoflawandtherightsofcitizens,withaccountabilitytoeachotherbuiltintotheculture.AtheniansaswellasthelaterRomanswererequiredtodotheiraccountsundertheseriousthreatofsanctions.EmperorAugustuskepthisaccounts17andexpectedeverycitizentodothesame.ThetabulaerationumwasthemostimportantaccountbookoftheRomanbusinessmanandwasdividedintotwosidesofoffsettingentriesthatultimatelycomprisedawhole.Accountinghistoriansdescribethisasametaphorexpressingthedichotomyofhumanexistenceandthetendencytodividetheworldintotwoonlytobringthembacktogetherintoawholeagainforperception.

Augustusconnectedaccountingtransparencyandthepublicationofaccountstopoliticalwell-beingandstability.Thisimperialaccountant’sdeedsfadedintohistoryuntilmuchlaterwhenaccountingitselfwastransformedintoanewtoolandtechniquethatallowedforthedramaticexplosionofeconomicactivitythatcameaboutastheindividualbeginstoemergewiththedawnoftheRenaissance.18Thisnewlegalworldof'rights'andtheconceptofthecitizenemergesalongsidethereligiousculturallifeasthestatebeginstoform.Thefuturestatealsobecomes,moreandmore,intertwinedwitheconomiclife,eventuallyleadingtonationaleconomiesandadebt-basedtrademoneyor–lookingattheotherside–creditmoney.Thisnewcreditmoneyfunctionedasa‘storeofvalue’(SV)usedtoinvestproductivelyoveraperiodoftime.Inaccountingterms,thisismadevisiblethroughthebalancesheet

16 HoughtonBudd,C.,RudolfSteiner,Economist-Articles&Essays,NewEconomyPublication,Canterbury,Kent,England.1996.17 FromtheHistoryofAccounting,Wikipedia,Retrieved201-04-017."TheRomanhistoriansSuetoniusandCassiusDiorecordthatin23BC,Augustuspreparedarationarium(account)whichlistedpublicrevenues,theamountsofcashintheaerarium(treasury),intheprovincialfisci(taxofficials),andinthehandsofthepublicani(publiccontractors);itincludedthenamesofthefreedmenandslavesfromwhomadetailedaccountcouldbeobtained." 18HistoryResearchGuidesbyBostonUniversityStudents,DepartmentofHistoryatBostonUniversity.(http://blogs.bu.edu/guidedhistory/)(January20,2017).InitProfessorMadeleineAtkinson,BostonUniversity,'RenaissanceIndividualism':"AstheindividualbecameincreasinglyimportantduringtheRenaissance,manyphilosophersdevelopedtheirownideasofa“perfect”individual,aRenaissanceman,oramanwhoiscapableandknowledgeableofallthings."

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createdfromtheaccounts.Moneywasnowintheformofmetalcoins,eventhoughpapermoneyhadtoappear.Howeconomiclifewillbeconductedinthenearfuture,asindividualscontinuetobecomemoreeconomicallyassertiveandaware,isagrowingproblemyettoberesolved.Bynow,worldpopulationwasapproximately140millionwithRomeestimatedtohavehadapopulationatitspeakofalmostonemillioninhabitants.Notes:LegalStateandLegalPersonEmergesalongsideCultural/ReligiousOrderAristotleasFatherofModernEconomicThoughtDebtBased/Credit-Money(Trade-Money)StoreofValue–LoanMoney–ExpressedinBalanceSheetAccountsModerninfluences:GreekCulture– RomanStructure–Jury ArchitectureTheaterandOlympics Citizen/RightsDemocracy AccountingpartofCulture/LawNorthernItaly1202to1494AD:TimeofTransition

BritishmathematicianandsciencewriterKeithJ.DevlinofStanfordUniversityhaswrittenthemostrecentandbesthistoryofancientmathematicsandtheimpactofFibonaccionmodernscienceandmathematics.Inaddition,mathematicianTimothyJohnson,professorattheMaxwellInstituteforMathematicalSciencesatHeriotWattUniversity,Edinburgh,UKhaswrittenapaperthatappearedintheJournalofBusinessEthics(2015)thatarguesthatafundamentalprincipleofcontemporaryfinancialeconomicsisbalancedreciprocityandnottheprincipleofutilitymaximizationasperconventionalwisdom.ScatteredaboutthistechnicalpaperJohnsonidentifiesthemathematicalhistoricallinksfromLeonardoBonacciandLucaPaciolitotoday'smodernmathematicsandeconometrics.MuchofthenarrativebelowcomesfromDevlin’sandJohnson’sworkconnectingancientandmodernmathematicalinnovators.ItaliansLeonardoBonacci(Fibonacci)andLucaPacioliThenearthreehundredyearsbetweenthepublicationoftheencyclopedicLiberAbacibyLeonardoBonacci(Fibonacci)in1202andtheSummabyLucaPacioliin1494marksaperiodoftimewherescience,mathematics,art,accountingandcommerceallwentthroughmajortransformations.Duringthistimetheseedsfortoday’smoderneconomyweresown,inpart,bytheadoptionofdoubleentryaccounting.Thistimeofmomentoustransitionfromthe13ththroughthe15thcenturysawtheaccelerationoftrade,individualinnovationandnewabilities,whichthendevelopedintotoday’smoderntechnologicalglobaleconomy.LeonardoBonacci(Fibonacci)andLucaPacioliarenaturalbookendstothiscolorfulstory,asitshedslightonthisradicaltimeoftransitiontothefuturemoderngloballyconnectedworld.LeonardoBonacci'sLiberAbaciintroducedtheHindu-ArabicnumeralsandArabicalgebratoEuropefromPisa,ItalywheretheyeventuallyreplacedRomannumeralsandlaunchedmodernmathematicsandscience.BonacciwasamerchantandmathematicianwhotravelledthroughoutNorthAfricaandtheMiddleEast,beforeMarcoPolo’sfamousjourneys,wherehelearnedadvancedalgebraanditsnumericplacesystemashewentabouthisbusiness.TheworkofLeonardoBonacciinspiredthe‘abbacoschools’

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thatbeganthepopularizationanddisseminationofthisnewmathematicsandnumbersystem.Throughoutthe13thand14thCenturies,itwascopiedinshorthandformandspreadthroughoutEuropewithoutanycitationorrecognitionofitssource.Romannumeralswerestillpreferredbythechurchandtheguildssotheypersistedallthroughthe15thcenturybecause,formany,thenewArabicnumbersandmathematicswerenottobetrusted.Thetraditionalmethodoftrackingexchange,beforeArabicnumerals,usedmoveablepiecesas‘counters’onaboard.Thismadeitpossibletospatiallyandvisuallyworkoutthecalculation,andthenrecordthefinalresultusingRomannumerals.Therefore,therewasnowaytopreservethetransactionprocessitselfuntilthenewsystemcamealong.Adding,subtracting,dividingandmultiplying,asweknowittodaywerehardlyknownatthetime,letalonepracticed.Theabilitytoseeorunderstandtheadvantagesofconsolidatingandsummarizingtheaccountsperiodicallywaslimitedduetothekindofconsciousnessofthetime.Mostdidnothave‘addinginone’shead’asanexperienceorability,forcalculatingwasstillspatialuntiltheuseandknowledgeofArabicnumeralsbecamecommonplace.Theadventofthisnewtechnical‘closing’process(summaryofaccounts)inaccountingwasamajortechnicalbreakthroughthatrevolutionizedthecultureandeconomyoftheRenaissance.(Thisisdemonstratedinthe‘AccountinginaNutshell’practiceexercises,seepages15-17.)SinceFibonacci,themerchantsofItalybegantoapplythenewmathematicsandnumbersystemtocommerce,singleentrybookkeeping,bankingandteachinginthevernacularratherthaninLatin.Theyalsogavenewlifetothehigherproblem-solvingmathematicsformerlyusedforrecreationandspeculation.Twostreamsofmathematicsexistedsidebyside,anabstractproblem-solvingscholarlymathematicspracticedbyafew,andanotherpracticalmathematicsappliedtocommercialaffairsinthenewlyemergingschools.Thesenewabbacoschools,astheywerecalled,wereknownforusingwhattodaywouldbecalled'storyproblems'tocreateliveexamplesofhowtosolveissuesincommercialarithmetic.Forthefirsttime,bothstreamsofmathematicsbegantobeintroducedinthevernaculartotheeverydaypeopleofthetime.19

WithoutthisintroductionofHindu-ArabicnumbersintoEuropedoubleentryaccountingcouldnothavedevelopedintothelanguageofcommerceandfoundationoftoday’sglobalfinancialarchitecture.ThedecisiveroleofFibonacciinthespreadandgrowthofalgebraandmathematicstothecommonpersonwouldhavegonecompletelyunnoticedtohistoryifmathematicianPietroCossalihadnotbychancecomeacrosstheonlyknownreferencetothemonumentalworkofLeonardoBonacci(Fibonacci)inanoldmanuscripthewasstudyingandsubsequentlypublishedinhis1797bookonthehistoryofalgebraandmathematics.20

19RichardMattessich,‘TheBeginningsofAccountingandAccountingThought:AccountingPracticeintheMiddleEast(8000B.Cto2000B.C.)andAccountingThoughtinIndia(300B.C.andtheMiddleAges)’.Publisher,NewYork,N.Y.:Routledge,2000.20ThatonementioninPacioli’s'SummadeArithmeticaGeometriaProportionietProportionalità'wastheonlycluetoLeonardo’s(Fibonacci)pivotalroleinthedramaticgrowthofarithmetic,algebraandmathematics.Itlaythere,unnoticed,untilthelateeighteenthcentury,whenanItalianmathematician,PietroCossali(1748–1815),cameacrossitwhilestudyingthe'Summa'ofPacioliinthecourseofresearchinghisbook“Origins,TransmissiontoItaly,andEarlyProgressofAlgebraThere”.Publisher,Springer,NewYork,CopyrightHolder,Springer.OnlineISBN978-0-387-48946-9.

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Continuingtheabbacotraditioncenturieslater,mathematicianandmonk,LucaPacioli,tookitfurtherwhenin1494hepublishedthe'SummadeArithmeticaGeometriaProportionietProportionalità',commonlycalledthe'Summa'forshort,thatincludedthefirstcodification,explanationanddemonstrationofthedoubleentryaccountingtechniquethathadalreadybeeninuseforsometimeinnorthernItaly.ThetransitionfromsingleentrybookkeepinginFibonacci’stimetoitscodificationandteachingasdoubleentryaccounting,epitomizedinLucaPacioli’sworkalmost300yearslater,correspondedwiththeemergenceofcapitalism,expandedtrade,increasedproductionandtheexplosionofindividualcreativityandinvention,characteristicoftheRenaissance.21

Paciolihadtheadvantageofanewtechnology–theprintingpress–thatallowedforunprecedenteddisseminationofknowledge.Mathematical,scientificandartisticabilitieswerebecomingmoreandmoreapparentinmoreandmorepeople,nownolongerrestrictedtoonlythefortunatefew.BothBonacciandPacioliwereconsideredmasterteachersandsynthesizersofthemostcurrentmathematics.Arabicnumeralseventuallybecamecustomary,astheabbacoschoolsbecamepopulartrainingforboysthroughouttheregionduringthisperiod.TheintroductionofArabicabbacomathematicsandrecentdevelopmentsinthescienceofopticsledtoadeeperunderstandingandapplicationofperspective,creatingarevolutionintheartandarchitectureofthetime.AleadingfigureduringtheItalianRenaissance,PierodellaFrancescawasamasterofmathematics,perspectiveinartandtheemergingscienceofoptics.22ItisnowthoughtthatPaciolistudiedunderPieroandthentaughtperspectivetohisfriendandcollaboratorLeonardodaVinci,thisjustafterworkingwiththepolymathLeonBattistaAlberti.Perspectiveinart,emergingscienceandmathematicswereallpartofalongandfruitfulcollaborationthateventuallyshapedthemodernworldandparticularlythetwoparallelseparatesystemsofmathematicalproceduresandknowledge–a‘lower’vernacularsystemrelatedtocommercialactivity,anda‘higher’LatinsystembasedonGreekmathematicsandgeometry.23

TwoParallelStreams

Bonacci(Fibonacci)andPacioliwere,toalargeextent,responsibleforthespreadofoneofthemost 21'Civilization'fromWikipedia,thefreeencyclopediaJanuary4,2017.Retrieved2017-04-01."Amajortechnologicalandculturaltransitiontomodernitybeganapproximately1500ADinWesternEuropeandfromthisbeginningnewapproachestoscienceandlawspreadrapidlyaroundtheworld,incorporatingearlierculturesintotheindustrialandtechnologicalcivilizationofthepresent."22 Monograph, "AlbertiandPierodellaFrancesca:TheHistoryoftheMathematicalTheoryofPerspectivefromAlbertitoMonge".SpringerVerlag(2007).LucaPaciolistudiedunderFranciscoDelPieroaswellasLeonBattistaAlbertiandthentaughtLeonardoDaVincithemathematicsofperspectiveheusedtopaintthe'LastSupper'.Onechapterisdevotedtotwooftheoldestwrittensourcesonperspectiveconstructions—andthemainsourcesforquattrocento—composedbyLeonBattistaAlbertiandPierodellaFrancesca.Pierowasanartistandamathematicianwhowantedtoconnectthesetwodisciplines–opticsandpainting.23Monograph,"TheOriginsofModernAlgebraanditsNotations",PublishedbyCatrina,(2016)."Bytheendofthefifteenthcenturythereexistedtwoindependenttraditionsofmathematicalpractice.OntheonehandtherewastheLatintraditionastaughtattheearlyuniversitiesandmonasteryschoolsinthequadrivium.OfthesefourdisciplinesarithmeticwasthedominantonewithDeInstitutioneArithmeticaofBoethiusastheauthoritativetext.Arithmeticdevelopedintoatheoryofproportionsasakindofqualitativearithmeticratherthanbeingofanypracticaluse,whichappealedtoestheticandintellectualaspirations.ThesouthofEuropealsoknewaflourishingtradition.Sonsofmerchantsandartisans,includingwell-knownnamessuchasDanteAlighieriandLeonardodaVinci,weretaughtthebasicsofreckoning(accounting)andarithmeticintheso-calledabbacoschoolsinthecitiesofNorthItaly,theProvence,andCatalonia."

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impactfulhumaninnovations,doubleentryaccounting,atechniqueandpracticeforperceivingandmanagingtheacceleratedtradethatfueledtheriseoftheRenaissanceandeventuallyledtoourcurrentglobalfinancialeconomy.Merchantsusedthistechnologytoguidetheirownenterprisesaswellastheeconomyasawhole.Thisinventionwasalsocalledthe‘VenetianMethod’,commonlyknownasdoubleentrybookkeeping(accounting).24

Inaddition,historiansofmathematicscantracetherootsofmodernmathematicsandscience,atleastindirectly,tothesesametwoindividuals.Forexample,LeonardoBonacci(Fibonacci)introducedsymbolicalgebraandthealgorithm,whileLucaPacioliusedthestoryproblemmethodofsolvingcomplexcommercialsituations.Indeed,today’sfinancialmathematicalconceptofpresent-valueanalysiscanbetracedtoLeonardoBonacci.

The‘problemofpoints’inmathematics,wasusedbyLucaPacioliforinstructionalpurposesandledtowhatisnowcalledtheCox-Ross-Rubensteinformulanowusedforpricingadigitalcalloptioninmodern

finance.25GamblerandmathematicianGerolamoCardanotooktheircontributionsfurther.MathematiciansBlaisePascalandPierredeFermatthentookupCardano’sprobabilitywork.Thiseventuallyledtoalgorithmiccomputationalschemesthatevolvedtotheinput-outputmodel,idealforcomputersandthefutureeconometricsthatholdsswaytoday.Mathematicalmodelsarenowbeingdevelopedthatbegintosupplanttheuseofdoubleentryaccountingastheguidingtechnologyformanagingthefutureeconomy.26Proportion,ProbabilityandEconometrics:AccountingEndures 1)MathematicalprobabilityisinBookVofNicomacheanEthics(Aristotle),atextthataddresseshowan individualcanliveaspartofacommunityanddirectlyaddressingtheissueofsocialcohesion. 2)ModernmathematicalprobabilityoriginatesoutofasynthesisofFibonacci’scommercialmathematics andtheanalysisofexchangebytheScholastics,theschoolmenofmedievaluniversitiesinEurope. 3)GamblerGerolamoCardanorecognizesthemathematical'ProblemofPoints'fromatextbyPacioli. 4)ThePascal–Fermatsolutiontothe'ProblemofPoints'becomesthepracticalstartingpointof mathematicalprobability. 5)TheCox/Ross/Rubensteinformula(Coxetal.1979)forpricingadigitalcalloptioncanbetracedbackto theworkofPascalandFermat.

VenetianMethodMovesWestward TheleadingcenterforinternationaltradeactivitymovedfromnorthernItalytothenorthandwestasLucaPacioliandhiscompanionLeonardodeVincifleeMilanin1499toescapethelatestinvadingarmy.TheNetherlands(LowCountries)wasbecomingthenewcenterfortheinternationaleconomyandthe 24JaneGleason-White,DoubleEntry,Allen&UnwinPublishing(2011).25TimothyC.Johnson,MaxwellInstituteforMathematicalSciencesandDepartmentofActuarialMathematicsandStatistics,Heriot-WattUniversityJournalofBusinessEthics,"ReciprocityasaFoundationofFinancialEconomics"(Edinburgh2015)."Essentially,PascalandFermatestablishedwhatwouldtodayberecognizedastheCox/Ross/Rubensteinformula(Coxetal.1979)forpricingadigitalcalloption."26MacKenzie(2008,p.158)p.52.Johnson;JBusEthics(2015)131:43–67."Black-Scholeswaswhatreallyenabledtheexchangetothrivewherewewerefacedwiththeissueofgambling.Thatfellaway,andIthinkBlack-Scholesmadeitfallaway.Itwasn’tspeculationorgambling;itwasefficientpricing."

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teachingandpracticeofdoubleentryaccounting.DutchaccountingmanualssparkedworldwideinterestinaccountingandAmsterdambecometheworldcenterforaccountingexpertise.27

Asanexampleofthepowerfuleffectsofthisnewtechnology,calledtheVenetianMethod,theHanseaticLeaguelostitscontrolofahugetradingregionattheendofthe15thcenturyingreatmeasureduetothisnewtechnologybeingimportedbytheDutch,whichgavethematradingadvantagethatledtoanintensificationandexponentialincreaseintheamountoftrade.28The‘VenetianMethod’includedinnovativecreditvehiclesandbillsofexchangethattheybeganusing,whichexpeditedandquickenedtradingactivitygreatly.Thiswasincontrasttothecumbersome,inconvenientandriskyuseofsilvercoinsbytheLeague.Bynow,worldpopulationhadincreasedto425millionpeople,withRepublicofVeniceestimatedtobecloseto150,000.Notes: Capital,individualandliabilitiesemerge

EconomiclifebeginstowidenandaccelerateNewscienceofopticsandperspectiveinart,clockandcompassSingletodoubleentryaccountingRomannumeralstoArabic

Arabicnumbers,unitofaccountandconceptofequity(capital)nowdoubleentry Manualtomachineprinting Leadingtoafuture: Globalclosedeconomy

Technology-based CapacitymoneyandBookMoney

Summary:TimeofTransition1202–1494ADThisthreehundred-yearperiodofsocialtransitionwascharacterizedbyanunprecedentedexplosionofindividualtalent,geniusandnewabilities,settingthetoneandimpulseforthecurrenttimesandbeyond.BorninPisa,Italyin1170LeonardoBonacci’smonumentalcontributionstomodernsocietywouldhavebeenlostinthedimshadowsofthelongpasthaditnotbeenforanaccidentofhistory.BeforeFibonacci(Bonacci)cameonthesceneRomannumeralsruled,Latinwasthelanguageofknowledgepracticedbythefew,whilebooksandmanuscriptswererareandaccessibleonlytohighlytrainedscholarsandnobles.MathematicianPietroCossaliin1797discoveredareferencetoFibonacciinanoldmanuscripthewasstudyingthatledtothere-recognitionofhiscontributiontobothstreamsofmathematicsthroughhisintroductionoftheplacesystemandadvancedArabicalgebratoEurope.TheplacesystemandunitofaccountwerethelastessentialelementsneededfortheemergingdevelopmentofacompletedoubleentryaccountingtechniquethatLucaPaciolicodifiedandpublishedalmost300yearslater.BorninSansepolcro,Italyin1447,LucaPaciolipickedupwhereFibonaccileftoffbysynthesizing, 27 JacobSoll,"TheReckoning:FinancialAccountabilityandtheRiseandFallofNations"(BasicBooksNewYork,NY2014). 28HanseaticLeaguefromWikipedia,thefreeencyclopedia.Retrieved2017-05-01. "NewvehiclesofcreditimportedfromItaly,wheredouble-entrybookingwascodifiedin1494,helpedtheDutchoutpacetheHansaeconomy,inwhichsilvercoinchangedhandsratherthanbillsofexchange."

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codifyingandteachingthenewdoubleentryaccountingtechnology,thathadalreadycontributedgreatlytotheeconomicriseoftheRenaissancebythetimeofhis1494publicationofanencyclopedicsummaryofmathematics.Surprisingly,Pacioli’s'SummadeArithmeticaGeometriaProportionietProportionalità'wastheoldmanuscriptfoundbyCossaliin1797thatresurrectedFibonacci’splaceinhistory.PaciolienthusiasticallyattributedtoFibonacciaswellasmathematicianandartistPierodellaFrancescamuchoftheworkinhis'Summa'.BonacciandPacioliwereconsideredmasterteachersoftheirtime,synthesizersofthemostcurrentmathematicsandexpandedalgebra,influencingbothstreamsofmathematics:theacademichighermathaswellasthe‘lower’commercialmathematics.Theyalsomadethetwodifferentmathematicsstreamsaccessibletotheeverydaypersonbywriting,andlaterprinting,inthecommonItalianratherthanintheconventionalLatin.Theircombinedefforts,alongwithothers,providedthefundamentalbasisandimpetusformodernmathematicsandscienceaswellascurrentdoubleentryaccountingthatunderliesthemodernglobalfinancialsystem.BothBonacciandPacioliexplainedthenewmethodsintermsthattradesmen,merchantsandschoolchildrencouldunderstand.29Centurieslater,theeconometricsthatevolvedfromthismathematicswouldsupplantdoubleentryaccountingastheguidingtoolfortheeconomybeginningintheearly19thcentury.Meanwhile,invasionandgeographyspurawestwardmovement.Thenextchapterrunsfrom1509Antwerpthroughto1914,WWIandtheTreatyofVersailles.

Synopsis:WorldHistorythroughEconomics

JerichotoMesopotamia:9,000BCto3,000BC(6,000years)

Thefieldofhumanneedsexpandsasagriculture-basedcommoditymoneyintheformofgrainsfulfillsimmediateneedsandbeginsthephenomenonofmoneyissueinahousehold/smallvillagesetting.Thisisconventionallycalledthe'meansofexchange',perRudolfSteiner'purchasemoney',andalsoreflectedintheincomeandexpenseaccounts.MesopotamiathroughGreece/RomeandMiddleAges:3,000BCto1,200AD(4,200years)

Thefieldofhumandignityexpands,asdebt-basedtrade-moneyintheformofmetal,fulfillingfuturepaymentneedsandresultinginthenewphenomenonofcreditcreationinanational-statesetting.ExpressedthroughLoanMoney,StoreofValue,andtheBalanceSheet.Renaissance:1,200toPresent(800years)

Thefieldofhumanabilitiesexpandsastechnology-basedcapacity-moneyintheformofdebitsandcreditsbeginstoshowapotentialthatwillestablishitselfinthefutureasmobileaccountingmoneyusedglobally.Future-appliedabilitiescreateeconomicvalueresultinginthepossibilityofabalancedeconomyonagloballevel.Recognitionisgrowingforconsideringtheimportanceofthemissionofanactivityorenterprisealongsidetheothertwo. 29 KarelDavids,C.A.Davids&JanLucassen"AMiracleMirrored:TheDutchRepublicinEuropeanPerspective",(CambridgeUniversityPress1995)p.240."AbbacoschoolsteachingcommercialmathematicsandotherpracticalskillsflourishedthroughoutnorthernItalycoincidingwithFibonacci'spublicationof'LiberAbaci'in1202.Ahighpercentageofboysattendedtheseschoolsinordertodoaccounting,writingandclericalworkintheprofessions."

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Thefinancialeconomyalsobeginstoseparatefromthe‘real’economy.Inotherwords,themoneymarketsdivergeactingontheirownaccountasdistinctfromthegoodsmarket.Mathematicsalsobeginstoinsertitselfintothemanagingofeconomiclifeasdoubleentryaccountingknowledgeweakens,becomingashadowofitself,despiteitsroleasthebasisfortheglobalfinancialarchitecture.Economistsarebeginningtoperceivetheneedtounderstanddoubleentryaccountinganewbyre-examiningitsroleinmanagingeconomiclife.

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TWO:ECONOMICSFROMTHEGROUNDUPIntroductionPreludetoUnderstandingEconomicsandAccounting

IntheprocessofworkingwiththeeconomicslecturesofRudolfSteiner30andtheworkofothercolleaguesseveralbasicconceptsrelatedtothe‘exchangeofvalue’intheeconomicprocessemerge.Theyareparticularlyusefulandnecessaryforbuildingapictureandbasicunderstandingoftheeconomicprocessanditscharacteristicsbeforeproceedingfurther.Theseleadingeconomicconceptsneedtobeexaminedandthoughtthroughinordertoprovidethegroundworkfordeepeningone'sunderstandingoftheeconomicprocess,theroleofaccounting,andmoney.

FromareadingoftheeveningseminarsduringtheeconomicslecturesRudolfSteinerlinksmoneyandbookkeeping(accounting)toeconomicsanditsconsciousmanagement.Manycenturiesagothemaintoolusedtoguideanenterpriseandtheeconomywasdoubleentryaccountinguntilovershadowedbymodernmathematicmodelsandeconometrics.Accountingisonceagaingainingrecognitionasauniversallanguageandtechniqueforunderstanding,perceivingandmanagingmoderneconomiclife.Discussionoftheseessentialeconomicideasprovidesanintroductionandevenprerequisiteforunderstandingtheprincipalrelationshipsbetweentheeconomicprocess,moneyandaccounting.

Twoqualitiesofoureconomicnature–self-servingandother–serving–emergeasthefirsthumansettlementssparktradebetweenpeoplemeetingeachotherneeds.31Thisnewphenomenonofexchangethroughtradeproducesthefirstsurplusofgoodsbeyondimmediateneedsandsetstheeconomicprocessinmotion-self-servinginthatweconsumeforourselvesandother-servingwhenproducingforothers.Wecanbeboth.Balancingconsumptionandproductionisaccomplishedbymanagingcirculation.

Thecurrentpracticeofintroducingbasiceconomics,moneyandaccountingisolatedfromeachothercreatesafragmentedpictureoftheworlddevoidofmeaningandwithoutasenseofwherewe'vecomefromandwherewe'regoingtoasindividualsorasacivilization.Inthecontextofhistory,itcanbeseenthatmoneyandaccountingarebornoutoftheactivityofhumanbeingsasaresultoftheexchangeofvalueintheeconomicprocess.ItisAristotlewhofirstidentifiestheexchangeofvalueasthebeginningofeconomics,andmorerecently,RudolfSteinerdescribesthetwofundamentalqualitiesofanyexchangeintheeconomicprocess.32

Youthofallagesareenteringaneconomiccultureindebtandwithoutdirectioninaworldwheretakinginitiativeisbecomingparamounttofindingajob.Moderndemandsofoureconomicculturearemakingitincreasinglynecessaryforresponsibleindividualstobecomemoreeconomicallyandfinanciallyaware,awarebeyondone’sownimmediatecircumstances,atanearlierandearlierage.Byawakeningeconomically,adeepersenseofentrepreneurshipinspiresaspiringyouthtodeveloptheirtalentsandabilitiesbymeetinghumanneedsintheworld.Thereisaneedtolearnhowtotakeinitiativeasyoung

30RudolfSteiner,Economics:TheWorldasOneEconomy(Canterbury,England:NewEconomyPublications,1996)

31ChristopherHoughtonBuddandArthurEdwards,21Policies:Forthe21stCentury(Canterbury,England:AssociativeEconomicsWorldwide,2012)32RudolfSteiner,Economics:TheWorldasOneEconomyLectureSix(Canterbury,England:NewEconomyPublications,1996)

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peopledevelopandhonetheirskills,thusengenderinganewsenseofpurposeandmeaning.

Theentrepreneurtakinginitiativethroughanactivityorevenjuststayingalivesetsintomotionaseriesoffoureconomicevents.Inotherwords,initiativecreatesexchange,value,accountsandcashflowthatallneedtobemanagedinordertomaintaintheoriginalaimandethos.Exchangeisneededbecausewenolongerrelyonourselvesalonetomeetourmaterialneedsbutonthosearounduswithwhomwetrade.Whenthisisdoneeconomicvalueiscreated,inthatbothpartiesinexchangegetswhattheyneedtosatisfytheireconomy,theirsituation.Inordertoviewandsharewithotherstheongoingactivityoftheconstantlymovingvaluesineconomiclifeitisnecessarytohaveapermanentrecordofthecorrespondingvaluescomingin,goingoutandremaining.Anaccountholdsthisinformationaboutthevaluesexchanged,expressedasaprice.

Economics,MoneyandAccounting

Economics,moneyandaccountinghaveaspecialrelationshiptovalue.Inonesense,economicsisaboutthecreationofvalueaswemeeteachother'sneedsthroughexchange.Thisbringstheeconomicprocessintomotionwhereinmoneycanbeseenasfacilitatingthecirculationoftheseeconomicvaluesintheformofacommoninstrument.Thislanguageisaccounting–usedtopreciselyperceiveandcommunicatetheseeconomicvaluesastheymovethroughthethreedomainsofsociety–culture,rightsandeconomy.Usinganappropriateimageforeachonecanenhancethearticulationandunderstandingofthesethreeessentialelementsoftheeconomicprocess.

CirculationofValue CreationofValue PerceptionofValue

1) 2) 3)T Money Economics AccountingTheimagesaboveareusedtoenhancetheprocessofunderstandingeconomics,moneyandaccountingasawhole.Formoneyandaccountingarereallytwosidesofthesamecoin,designedtobeaprecisereflectoroftheeconomyineveryexchange.

Thefirstisanopen-endedlemniscateimageusedtohelpexplainconceptsrelatedtothecirculationofvalueandmoneyintheeconomicprocess.Thesecondimagerepresentsacontinuumalludedtoinlecture1ofEconomicswhereRudolfSteinerusedittoillustratethevaluecreationprocessthathasevolvedovertime.Thisisusedasanaidforunderstandingthevaluecreationprocessandotherrelatedeconomicconcepts.Thethirdinthislexiconofeconomicimagesservesasavisualaidforunderstandingthelanguageofdoubleentryaccountingthatservesasthebasisforperceivingeconomicvaluewhilealsocommunicatingwithothersinacommonlanguage.Thesethreepedagogicallyusefulimages,inconjunctionwiththeuseofcolorcoding,areusedtoenhanceanddeepentheprocessofunderstandingeconomics,accountingandmoneyasanintegratedwhole. Thesethreeimageshavebeenchosentoactasaidsforcommunicatingeconomicideaspictoriallyandusedseparatelyasappropriateinordertoaddlayersofmeaninginthevariouseconomicconcepts,visuallyrevealingtheirrelationships.

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Respectively,theseare:1)anopen-endedcirculationlemniscate,2)thecontinuumlinepointingupwardanddownwardand3)aleft-rightorientedT-form.Withthisorientationanduseofthethreeimagesitispossibletoquicklygainaverybasicunderstandingofeconomicsbyfocusingonthemostessentialaspectofeconomics–theexchangeofvalueintheeconomicprocessofcirculationanditsrelationshiptomoneyandaccounting.Accountingispresentedasthelanguageofexchangeusedasanaidforconsciouslyperceivingtheeconomicsprocessinordertomaintainitshealth.EssentialIdeasofAssociativeEconomics TheExchangeofValueintheEconomicProcess

Whatiseconomicvalueandhowisitformedintheeconomicprocess?Inordertoanswerthequestion,thefollowingassociativeeconomicleadingthoughtshavebeendistilledandderivedfromareadingoftheeconomiclecturesofRudolfSteiner1922andarrivedatthroughanongoingcollegialdialogueinthecontextofspiritualscientificresearch.Intheprocessofbuyingandselling,exchangethatis,economicvalueiscreatedinadditiontomeetingeachother’simmediateneeds;so,thefirsttaskistobegintocreateapictureforourselvesoftheeconomicprocessandtheexchangeofvalue.

Taking initiative in the world meeting human needs creates exchange, values, accounts and cash flow that all need to be managed in order to maintain the original aim and ethos.

I. TheHumanBeingTakingInitiative(1through9)II. Exchange(10through16)III. Value(17through27)IV. Accounts(28through29)V. CashFlow(30through31)

I. THEHUMANBEINGTAKINGINITIATIVE

Civilization, economics and accounting simultaneously began as human settlements created exchange and the first surplus of goods beyond their immediate needs – setting the economic

process in motion.

1) Economicsisdonebyhumanbeingswithotherhumanbeings.Thedrivingforcetoeconomiclifeisthehumanbeingandnotthemarketorstate.Itispossibletojusttakewhatisgivenfromtheland,fromnature,andsubsistasanimalsdo.Itiswhenhumanbeingsbegintoexchangeneededgoodsthateconomicstrulybegins.2) Humanbeingsarecapableofactinginself-interestaswellasintheinterestofothers.Itseemsthatmarketeconomicshasanincompleteviewofthehumanbeingthatemphasizesonesideofhumanbehavior–self-interest.Whileitistruethatthehumanbeingisandneedstobeself-interested,itisalsotruethathumanbeingsarealsocapableofactingintheinterestofothers.Thissideoflifemakesaltruismandanexpandedviewofthehumanbeingpossibleandnecessaryforamorecompletepicture.

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3) Inordertounderstandtheeconomicprocessoneneedstoconsiderinfluencesbeyondone's owncircumstances.Itispossibletoseethingsclearlywhentheyarecloseathand,whereasitisnecessaryinaglobaleconomytolookbeyondone'sownhouseholdandneighborhoodandthinkofeconomicsandeconomiclifeasawhole."Wemustnotconfusetheissuebythinkinginthenarrowsenseofhouseholdeconomics."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationofValues(1922)p.62"Wecanonlygraspinsharpoutlinethatwhichliesclosetous.However,ourtaskistoachieverealinsight,yieldingmobileideas,whichnevercorrespondtothosederivedfromourimmediateneighborhood."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationofValues(1922)p.624) Economiclifeanditsmanagementhasbecomethecommonresponsibilityofusall.Livinginanincreasinglygloballyconnectedeconomyeveryoneisaffectedbyeveryoneelse'seconomicthoughtsandactions.Ratherthanrelyingmoreandmoreoncentralauthorityandexpertiseitisnowpossibleandnecessaryforindividualstobecomeeconomicallyandfinanciallyawaresothatwebecomeourownauthorities.Inthelanguageofdoubleentryaccountingusedinallcultureswehavethemeanstobegintoconsciouslymanagetheeconomysothatitworksforandbelongstoeveryone.“Everythinguptothehighestrealmshastobeseenfromaneconomicpointofview.Ifanangelweretocomedowntoearthtoday,thenitwouldhavetoappearmerelyinadream–andbeunabletochangeanything–or,ifitwantedtoappeartopeopleintheirwakingconsciousness,itwouldhavetoentertheeconomiclife.Itcouldnotavoiddoingso.”RudolfSteiner,Economics:TheWorldAsOneEconomy,Discourse1July31,(1922)P.1855 ThereisInsufficientthinkinginregardtounderstandingthemoderneconomicprocess.First,theelementsofeconomicsareperpetuallyfluctuatingandaredifficulttounderstandasstaticphenomenon.Ifweask,whatiscapital?astaticdefinitionisgiven,whereas,ifweask,'whatisthecapitalformationprocess?'adynamicdescriptionfromdifferentperspectivesandmovementinourthinkingcanresult."Todaywearecalleduponbythefactsoflifetogetmovementintoourconcepts,soastopenetratetheeconomicprocesseswithconsciousunderstanding.Wemustobtainsuchmobilityofthinkingasenablesustothinkaprocessthroughtoitsendquiteinwardly."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationofValues(1922)P.71Second,thinkingwithmovementrequiresakindofthinkingthatisalltogethercomprehensive,takingintoconsiderationmanyreciprocallyrelatedphenomena."Butonemustbeawareofthefactthateconomicthinkingmustbemoreorlesstotal,athinkingofaverycomprehensivekind.Itismucheasiertothinkjuridicallywhich,indeed,iswhatmosteconomistsdo."RudolfSteiner,Economics:TheWorldAsOneEconomy,Discourse1(July31,1922)P.186Third,unlikethescientistwhoobservesnaturefromoutside,theeconomistwhoobserveseconomicphenomenonfromoutsideisalsowithintheeconomicprocessbeingobserved!Weareintheretortandarenotjustoutsidetheprocessbutinitaswell,unlikethechemist.Inordertoaccommodatethisphenomenonineconomicsandfinanceacertaintypeofreflexivethinkingisrequired,akindofreflexivethinkingdescribedbyGeorgeSorosinhis1988publication,"TheAlchemyofFinance"."Theeconomicprocessesaredistinguishedbythefactthatweourselvesarewithinthem;thereforwemustsee

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themfromwithin."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationofValues(July27,1922)p.71"Innaturalsciencewestandoutsidetheprocess."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationofValues(July27,1922)p.726) Acomprehensiveall-encompassingthinkingwithampletorqueisneededinordertounderstand theeconomicprocessinaglobaleconomy.Everyoneneedsclothesbutnoteveryoneneedstobeaclothesmaker.Thinkingeconomically,especiallyinrelationtotheultravioletorintelligencepoleofthevaluecreationcontinuum,ischallenginganddifficult."Butacertainflairisessentialtothinkingeconomically."RudolfSteiner,Economics:TheWorldAsOneEconomy,Discourse2(August1,1922)p.197"Innaturebiologytakesthepartofsomethingthatpushesyouifyoudonothaveacertainflairyourself;ineconomicsyouneedtogeneratethisbyyourself."RudolfSteiner,Economics:TheWorldAsOneEconomy,Discourse2(August1,1922)p.1987) Theverynatureofeconomicphenomenacallsforadescriptivemethodofthinkingthat considersaconstellationofperspectivesallatonce..Descriptivethinkingisamobilethinkingthatisagileandabletoholdreciprocallyrelatedconceptsinafashionsimilartoawalk-around.Thisiswherephenomenaarelookedatfrommultipleperspectivesinordertogainasharedpictureofafluctuatinginvisibleprocessbeforedivingintodefinitionthroughdeductiveorinductivethinking.“Economicsneedsadescriptivemethodofthinking,whichsetsoutfromdifferentstartingpoints,allowingthemtoculminateinconcepts.”RudolfSteiner,Economics:TheWorldAsOneEconomy,Discourse1(July31,1922)P.180"Onereacheseconomicconceptionsbyverificationandmodificationofconceptsinthelightofexperience."RudolfSteiner,Economics:TheWorldAsOneEconomy,Discourse1(July31,1922)P.1818) Thereisnosuchthingasintrinsicvalueineconomics. Pricesfluctuatewithplace,timeandhumancircumstances.Itishumanbeingsthatgiveandtakeawayeconomicvalueastimepassesorasplacevariesorcircumstanceschange.“Tobeginwith,wecandolittlemorethanobservehowpricefluctuateswithplaceandtime.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.43.9) Thefutureeconomywillincreasinglyrelyonthecultivatingofaportfolioofmarketableskills andcapacities.Theeconomiclifetodayprefersthe'intelligencepole'ofvaluecreation,foreconomicvalueismoreandmorecreatedbyproductsandservicesderivedfromthecreativeintelligenceandintuitionofhumanbeings.PeterF.Druckerpronouncedthefutureageoftheknowledgeworker37yearsafterRudolfSteineranticipatesthisbypointingtotheneedforpeopletocultivatemultipleandvariousabilitiesandcapacitiesoverthecourseofone'slifetimeaswellastotheincreasingroleofhumanintelligenceinthecreationofeconomicvalue.Astradebecomesaworldwideaffairitistheintelligenceandcapabilitiesofindividualhumanbeingsthatcreatesthefutureeconomy.

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"HumaneconomicworkinghastoaverylargeextentbeendrawnintowhatIamherecomparingwiththeultraviolet."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture1:FromIndustrialismToWorldEconomy(July24,1922)p.38"Wemustseetoitthatpeoplearenotrestrictedtoonesolitaryactivitythroughouttheirlives,butareabletoturntheirhandstootherthings."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture5:TheProductionAndConsumptionofValues(July28,1922)p.82

II. EXCHANGE

Economics, money and accounting all meet at the transaction – the exchange of economic value.

10) Inanexchangeortransactionbothsidesmakeagainineconomicvalue–adualsurplusis created. Conventionalwisdomholdstothethoughtthatwhenonepersonmakesagain,theotherpersonsomehowsuffersaloss.AmedievalcustomthatlastedthroughtheRenaissancewastheculturalshunningofcommerceandaccounting.Theoriginalsourceofthiserroneouseconomicthoughtcanbefoundin‘TheEssays’ofMicheldeMontaigne,inwhichheconfidentlyexplainshowtheprofitofonemanistheexpenseoftheother.33

“Theeconomicprocesstakesitscourseintheactivityofbuyingandselling,essentially,thatis,intheexchangeofvalues.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.49.

“Bythebareprocessofexchange,thethingsexchangedonbothsidesbecomeofgreatervalue.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture10:OnAssociations(August2,1922)p.125.

11) Economicvaluescreatedneedtobeusedupandconsumed.

Whenwhatisproducedisnotconsumedanunhealthybalancearises.Ittakesperceptionandintervention,i.e.distribution,byhumanbeingstoensurethatproductionandconsumptionareinbalance.Productionforproduction'ssakeisuneconomic,sohowdoesonedeterminewhattoproduceandwhatnottoproduce?

"Ithinkthismatterwillbeofgreatsignificanceasfarastheproductionandconsumptionofvaluesisconcerned-becausevaluesexisttobeconsumed,andiftheyarenot,anunhealthytendencyarisesintheeconomicprocess.”RudolfSteiner,Economics:TheWorldAsOneEconomy,Discourse2(August1,1922)p.193.

12) Economicvaluesandpriceschangeastheycirculateintheeconomicprocess.

Withoutcirculationtherecanbenoeconomicvalue.Circulationinthissensemeansexchangeofvaluebetweenpeopleastheymeetoneanother'sneeds.Valueschangeastheymovethroughthreeareasofproduction,consumptionanddistribution.Andinaddition,howvaluesmovethroughthethreeaspectsofsociallife–culture,economicsandhumanrights.“Thusthepricechangesintheprocessofcirculation.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.42 33Threebooks,107chapters,published1580."TheEssaysofMicheldeMontaigne",Book1,Chapter21:“…thattheprofitofonemanisthedamageofanother.”

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"Nevertheless,hereagainthereistheunderlyingideaoftakingholdofsomethingstaticandgivingitadefinition,whereasintherealeconomicprocessthingsareinperpetualmovement."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)P.4513) Payingforsomethingimmediately,whetherthroughmoneyorbarter,isthefirstkindof exchangeintheeconomicprocess.

Thisformofmoneycameaboutwiththefirsthumansettlementsthatledtoexchangeformeetingeachother’sneedsthroughtrade.This'trademoney'facilitatedexchangeinthepresentforproductsmadeinthepast.Theseexchangeshappenedimmediatelyasatraceintimeofanowpasttransaction.ThisformofexchangeisderivedfromthenaturepoleofthevaluecreationcontinuumdesignatedasValueOne(V1)."Somethingveryimportanthappenswhen,inbuyingandsellinginthemarket,IpayonthespotforwhatIget."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationOfValue(July27,1922)p.88"Thatispayment.Thatisonethingtheremustbeintheeconomicprocess."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationOfValue(July27,1922)p.8814) Payingforsomethingovertimecreatesanenduringrelationshipthatconstitutesasecondkind ofexchangeintheeconomicprocess.

Thisformofmoneybegantodeveloplaterinhistoryashumanbeingsbegantorecognizeindividualrightsanddignity.Theriseofthe'citizen'inRometothe'justprice'ofAquinasledtotheexpansionofloanmoneyandindividualcreativityandinitiativeatthedawnoftheRenaissance.Theexchanges,i.e.,transactions,endureovertimeandcreateaspaceandarelationshiplastingintothefuture.LoanmoneyasaformofexchangeisderivedfromtheintelligencepoleofthevaluecreationcontinuumdesignatedasValueTwo(V2).Loanmoneyenduresasarelationshipintothefuture,ratherthantrademoneythatisimmediateandcompletedallatonce,

“Thesecondthing,whichplaysasimilarparttopayment,islending.Thisdoesnotinterferewiththeconceptofpaymentassuch.Lendingisanaltogetherdifferentfactwhichsimplyexists."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture6:TruePrice(July29,1922)p.88

"IfIhaveintellectualorcreativecapacitiesinsomedirection,itmustbepossibleformetoobtainloanedcapital."

“Inadditiontopaymenttheremustbeloancapital.Herethenwehavetwoveryimportantfactorsintheeconomicprocess–paymentandloan.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture6:TruePrice(July29,1922)p.88.15) Gift,paymentandloanmoneytogetherformaninherentmovementintheeconomicprocess.Understandingthreequalitiesofexchangeprovidesameansforcooperatinghumanbeingstotakeresponsibilityforbalancingandmanagingthewidereconomy.Thesethreequalitiesweavethroughsociety'sthreedomains:tradeofgoodsandservices,productiveenterpriseandrenewingofeducationandculture.Theclassicalfactorsoftheeconomicprocesscalledland,capitalandlaborserveasastartingpointforunderstandingtheeconomythatneedstoincludetheunderlyingimpellingforcemovingtheeconomicprocess.Itisthemovementfrompaymenttoloantogiftmoneythatformsthefactorsofpriceformationintheeconomicprocess.

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Thethreeaspectsofmodernfinancecanbedescribedintermsoftheglobalfinancialstructureas1)trade,2)capital,and3)centralbanking;orintermsofthefunctionsofmoneyas1)meansofexchange,2)storeofvalue,and3)unitofaccount;orintermsofaccountingas1)incomeandexpenses,2)balancesheet,and3)closingentries."Payment,loanandgift-thisisarealtrinityofconcepts,essentialtoahealthyeconomy."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture6:TruePrice(July29,1922)p.88

16) Asecondeconomyhasemergedfromthenormaleconomyofgoodsandservices.

Accumulatedcapital(value)arisingfromthenormaleconomyatacertainpointbegantodobusinessonitsownaccountseparatefromthatwhichiscreatedthroughtheinterplayofthemodificationofthelandintogoods(V1)andtheapplicationofintelligencetohumanactivity(V2)–thenormaleconomy.

Thefinancialsystemgrowsabovetheultra-economiclifeofaccumulatedsurpluscapitalnotneededforthemeansofproduction.Thisismoneyseekingtopreserveitselfafteritbecomesvisibleatthemomentoftheclosingentriesoritcanbeconsciouslyallocatedinthatmoment,towhereitisneeded.Financialism,moneyeconomics,arisesoutofthecapitalformationprocesswhenthereisexcessliquiditybeyondwhatisneededforinvestmentinenterprises.Freelycapitalizedactiveculturallifecreateseconomicvalueforthefuture–education,artsandinitiative–especiallytheyouthandsocialentrepreneurs. Thehumanbeingisanavigatorbetweentwologics,betweentwoworldsthatneedbalancing.

“Overandabovetheeconomic,thereliesanultra-economiclife,whichisessentiallydeterminedbythepeculiarpowerinherentintheactualmassesofcapital.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture1:FromIndustrialismToWorldEconomy(July24,1922)p.38

“Thuscapitalismarisesintheprocessofthedivisionoflabor,andintheprocessofcapitalismthefinancialsystem,moneyeconomics.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationofValues(July27,1922)p.66

III. VALUE

Values and prices arise through the fact of their perpetual circulation in the economic process.

17) Culturalandaestheticvalueisnotequivalenttovalueinatechnicaleconomicsense. Whileitistruethatallthingscansaidtobevaluable,tohavevalueinaneconomicsensesomeworkneedstobeperformedthatcancreateacommoditythatmeetsahumanneed.Exerciseisvaluabletoaperson,andwithextension,tosocietygenerally.However,ineconomicsitisnotwalkingforexercisethathaseconomicvaluewhereaswalkingtodeliverpackagestocustomersdoescreateeconomicvalue.

"If,forinstance,wefinditnecessaryforourbodilyhealth,havingworkeduponlandinsomeway,togetsomeexercise,allthismayofcoursebejudgedfromanotherstandpoint;butwethusdocannotbedescribedaslaborintheeconomicsense,norcanitberegardedinanywayasafactorcreatingeconomicvalues."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.48

"Butthemomentaropeiswoundroundthewheelandusedtodrivesomemachine,atthatmoment,thatwhichwouldnototherwisebelaboratalintheeconomicsense,isturnedtogoodaccountbyintelligence."Rudolf

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Steiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.48

18) Economicvalueiscreatedthroughhumanactivitytransformingthelandanditsproducts.First,economicvalueiscreatedwhenhumanactivityenhancesandtransformsnatureanditsproducts.Foodandproductscomefromnatureandtheresourcescomingfromtheland.Agricultureandexchangethatbeganwiththeearliestsettlementscreatesthenewphenomenaofeconomicvalueandasurplusbeyondone'simmediateneeds.

"Tograspeconomicswemustfirstconsiderhow,ontheonehand,valueappearsaslandtransformedbylabor-landseenthroughlabor-while,ontheotherhand,itappearsaslaborseenthroughintelligence."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.51.

"Thatwhichreachesdownintonaturewouldthenbecomparablewiththepartofthespectrumwhichextendsintotheinfra-red."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture1:FromIndustrialismToWorldEconomy(July24,1922)p.3719) Economicvalueiscreatedbyhumanintelligencemodifyingandorganizinghumanactivity.Second,economicvalueiscreatedwhenhumanintelligenceenhanceshumanactivityorlabor.Intelligencecreateshumancapacities,skillsandtalents.SincetheearlyRenaissanceanexplosionofinnovation,creativityandindividualachievementhasprovidedthegroundworkforourmodern'knowledgeandcontentworker'economy34. IntelligencecreateshumancapacitiesandproductscomefromNature. "HumaneconomicworkinghastoaverylargeextentbeendrawnintowhatIamherecomparingwithultra-violet.Irefertotheworkingsofcapitalassuch."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture1:FromIndustrialismToWorldEconomy(July24,1922)2p.3820) Twooriginsofeconomicvaluecanbeseenasapolaritybetweenlandononesideand intelligenceontheother.Acontinuumimageisusedintheeconomicslecturestodepicthoweconomicvaluesarecreatedintheeconomicprocess.Invisibleinfraredrepresentsthenaturepoleofvaluecreationandinvisibleultravioletrepresentstheintelligencepoleofvaluecreation.Thevisiblelightbetweenthesetworepresentsthenormaleverydayeconomyrepresentedbytheactivityofhumanbeingsastheyproduce,distributeandconsumevalues(intheformofgoods),allmediatedbymoney.“Thereiseverykindoffluctuatingcondition,butonefactwillalwaysbeinevidence:Thevalue-creatingfactorsintheeconomicprocesswillalwaysbefoundatthesetwooppositepoles.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.49."Thesetwooriginsofvaluearerealpolaropposites:theydifferas,inthespectrum,theone-theluminousoryellowpole-differsfromtheother-theblueorviolet."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.51.21) Economicvaluesarecreatedfromtwodirections:thelandanditsproductsaremodifiedby

humanactivityorhumanactivityismodifiedandorganizedbyintelligence.Coalinthegroundhasnoeconomicvalueuntilitisbroughttothesurface,cleaned,sorted,baggedanddelivered

34PeterDrucker,"LandmarksofTomorrow"(NewYork,HarperandRow1957).p.122.Druckercoinedtheterm'knowledge-worker'thatwaslateradoptedbythemarketingdepartmentofAppleComputer,Inc.tointroducetheMacintoshcomputerin1984.

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tomarket–byandforhumanbeings.Astimepasses,theincreaseinhumaningenuityandcreativitymeansthatmoreandmorevalueisoftheV2kind,resulting,asitwere,inmorecapitalorcreditintheworldrelativetomoney.Theeconomicprocessispredicatedatoneside'onlandor'nature',who'sproductsresultfromhumanlabor(V1)allthewhileorganizedbyintelligence(V2)–whichistheotherside.RudolfSteinerinhis1922lecturestoeconomicsstudentsusedtheelectromagneticspectrumtodescribethetwowayseconomicvaluecanbecreated.Visiblelightexistsbetweenthetwopolesofinfraredandultravioletwherethenormaleconomy(visiblelight)isanalogoustohumanactivity.TheinvisibleinfraredpoleisanalogoustoNatureandultravioletpolerepresentshumancreativeintelligence.Economicvalueisfirstcreatedwhenhumanactivityenhancesandtransformsnatureanditsproducts.Economicvalueisalsocreatedwhenhumanintelligenceenhanceshumanactivity(labor).Theeconomicvaluescreatedfromlaborworkingonnature(V1)areexchangedimmediatelytoactivelymeethumanneeds.Theeconomicvaluescreatedfromintelligenceworkingonhumanactivity(labor)areresourcesexchangedoveraperiodoftime.Thefirstisrelatedtotrade,purchasemoneyandtheIncome&Expenseaccountswhereasthesecondisrelatedtofinance,thebalancesheetandloanmoney.Ontheonesideisthequalityofimmediateexchangethatreflectsthetraceofthetransaction(flow).Theothersideisaqualityreflectingamoreenduringtransactionorrelationship(stock).Theonehavingalottodowiththepastandtheotherwiththefuture. “Thereisindeednootherwaysinwhicheconomicvaluesarecreated.Eitherlandismodifiedbylabor(V1),orlaborismodifiedbyintelligence(V2).”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)P.4822) Theeconomichealthratiobelowisamathematicalwayofexpressingthefactthateconomic valuesderivedfromintelligence(V2)actingonhumanlaborhastheeffectofextending economicvaluederivedfromnature(V1)stretchingitfurtherandfurther,increasingitsvalue exponentially.Whenthevaluecreationprocessislookedatasapolaritythereisontheonesidelandanditsproductsbeingtransformedbyhumanactivity(labor)andmadeintoavalue.ThisisV1orthenaturepoleofthevaluecreationcontinuum(polarity).Thiscanalsobeexpressedasland(Ld)modifiedbywork(w)Value(V).Thisisexpressedintheshorthandas–LdwV–landmodifiedbyhumanworkcreatingeconomicvalue.Thesecommoditiesfromnature(land)arecontinuallydivided(extended)byhumanintelligencetherebycontinuallymultiplyingtheireffectscreatinganotherformofeconomicvalue,humanintelligenceimprovingandorganizinglabor.ThisisV2ortheintelligencepoleofthevaluecreationcontinuum.Thisisexpressedsymbolicallybysayingthatlabor(La)organizedbyintelligence(i)andmadeintoavalue(V)intheshorthandis:LaiV.This'moneyfromintelligence'isthedivisorinitsrelationshipto'commodityfromnature'asitextendsthevaluesderivedfromnatureanditsproducts.Theonekindofvalue(V1)iscirculatingtrademoneyforpurchaseofcommoditiesthatismademoreefficientandvaluablethroughanotherkindofvalue(V2),appliedintelligenceandcreativity,thatbecomescapitalmoney.Thepointisnottosolvetheequationbuttoseeandunderstandthesignificanceoftherelationshipbetweenthetwo.Commodity-valuesareexpressedintheformofapriceaspurchasemoney(PM).Itisinrelationshiptoadifferentkindofvalueexpressedintheformofcapitalasloanmoney(LM)orcapitalmoneyasavaluederivedfromactiveintelligenceappliedtolabor. Thisrelationshiporratiodescribesaprocessofsynthesiswhentheproductsofthelandalongwiththesubsequenthumanactivitydisappearintothecreationofpurecapital.Capitalisemancipatedfrombothlandandlabor–asynthesisofnatureandhumaneffort.

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"Thisinteraction,whichcannotberepresentedbyasubtractionbutonlybyadivision,representstherealhealthoftheeconomicprocess:* Ld w V = Commodity Economic Health (X) = _______________

Lr i V = Money RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborAndCreationOfValue(July27,1922)p.71 Thisformularepresentstherelationshipbetweenthetwopolesofvaluecreation–natureandintelligenceorlandandcapital.WhereLdislandandwVisvaluederivedformthehumanbeingworkingonandmodifyingtheland(nature)anditsproducts.OntheothersidethereisLrthatrepresentsLaborandiVisvaluederivedfromintelligencemodifyinglabor.*Ld=LandorNature;w=labor;V=economicvalue;Lr=labor;i=intelligence (NlV;LsV)

23) PricesarisefromtheinterplayofvaluesbetweenthetwopolesofV1andV.

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Byusingthevisualofthevaluecreationcontinuumimage(seeimage#5-page35)itispossibletounderstandthetwopolesofvaluecreation–goodsbornofthelandandbornofintelligence.Economicvaluesarederivedfromavariedmixofthesequalitiesastheyinteractandcombine,resultinginprice.Itisverydifficulttofollowthemyriadvaluesthatplayapartinestablishingaprice.“Nowwhatisitthatemergesintheeconomicprocesswhenvalueandvalue,asitwere,impingeononeanotherintheprocessofexchange?Itisprice.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.49."Valuesetagainstvaluegivesyouprice."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.4924) Valuesareinvisibleandfluctuatingastheymovethroughtheeconomicprocess.Itisnotthethingsthatareexchangedineconomiclifebuttheeverchanginginvisibleeconomicvaluesattachedtothemthatareexchangedandnotthesubstance."Butwemustnotforgetthatwhateverappearsintheeconomiclifewillalwaysbefluctuating"RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborAndCreationOfValue(July27,1922)P.71"Ideasineconomicsmustbealtogethermobile.Wemustridourselvesofthehabitofconstructingconceptscapableofabsolutedefinition.Wemustrealizethatwearedealingwithalivingprocess,andmusttransformourconceptsalongwiththatprocess."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture1:FromIndustrialismToWorldEconomy(July24,1922)P.3925) Invisiblevaluesareexchangedineconomicsnotthephysicalgoodsperse.Thisisanimportanteconomicconceptthatisworththinkingthrough.First,whenanexchangehappensbothpartiesneedtoevaluateinthemoment,“DoesitmakessensetotradeandwillIbethebetterforit?”Onlyifbothdecidetodosowilltheexchangeoccur.Apieceoffruithasacertainvalueatonemomentandthenextithaslessvalueduetosatiationordecay.Eventhoughlittletimeisspentthinkingthroughtheactualprocessofanexchange,itisnonethelesstruethat‘value’exchangehovers,sotospeak,abovegoods–whetherdirectlyasin

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barter,orindirectlyaswhenmoneyservesasproxy.Inpureeconomicterms,itisthefluctuatinginvisiblevaluesthatareexchangedandnotthegoods.“Ineconomicswemustspeakofvalues,notgoods,astheelementarything.”RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.4926) Valuesandpricesareindicatorsofeconomicconditionsthatpointtosomethingelse. Justasathermometeractsasasensoroftheambientenvironmenteconomicvaluesandpricessensetheeconomicenvironment.Thetemperatureindicatesactionisneededinordertobalancetheambientenvironmenthigherorlowerjustasvalueandpriceindicatethatactionisneededtobalancetheeconomy.Justasdirectmanipulationofthethermometerwillnotbalancethetemperature,settingvaluesandpricesdirectlywillnotbalancetheeconomyinthelongrun.Ifpricesaretohighforaproductitcouldindicateaneedtohavemorehumanbeingsinvolvedintheproduction.Whenpricesgettolowawayneedstobefoundtoincreasesalesorreducethenumberofworkers. "Itonlybeginstohavearealmeaningwhenweregardpricesandvaluesmuchasweregardthepositionsofthemercury-asindicators,pointingtosomethingelse."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture3:EconomicScience(July26,1922)p.52"Thecardinalquestionisthatofprice.Wemustobservepricesasweobservethedegreesofthethermometer,andthenlookfortheunderlyingconditions."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.59 "Thepointis:ifpricesfallinsuchaway,wemustdosomethingofakindthatcanincreaseturnover."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture2:TheEconomicProcess(July25,1922)p.5327) Theirisatendencyforthepricesthatarisefromthevaluecreatingprocesstobedistortedandneedbebroughtintobalance.Rentsandlandincreaseinvalueduetofalseascendingprocesseswhilevaluesrelatedtointelligenceandwillareundervalued. "Suchascendinganddescendingprocessesmustequallybepresentintheeconomiclife:theremustbethetendencyontheonehandtofalsifypricesbytheformationofrent,andontheotherhandthetendencytolowerpricesonthesideofindustrialcapital."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture7:TheFactorsOfPriceFormulation(July30,1922)p.101

IV. Accounts Money has become moving bookkeeping.

Inordertoviewandsharewithotherstheongoingactivityoffluctuatinginvisiblevaluesitisnecessarytohaveapermanentrecordofthecorrespondingvaluescomingin,goingoutandremaining.Anaccountholdsthisinformationaboutthevaluesexchangedallexpressedintheformofprices. "Moneyisnothingbuttheexternallyexpressedvaluewhichisgainedintheeconomicprocessthroughthedivision

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oflaborandtransmittedfromonepersontoanother."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture4:DivisionOfLaborandCreationofValues(July27,1922)p.6628) Moneyhasbecomeaninterconnectedworldwidemovementofbookkeepingtransactions.Moneyisreallyanaccountingconceptthatdatesbacktoantiquityandhasprovidedthemeansformanagingsocietyandtheeconomy.Accounting(bookkeeping)inoneformoranotherhasbeenunderlyingoraccompanyinghumandevelopmentsincecivilizationbegan.Consideringthatinitscurrentformdoubleentryaccountingprovidesthestructureunderpinningtheglobalfinancialarchitecture,itisnowonderthattechnologicaldevelopmentshavemadeitsothatmoneyhasbecomemovingbookkeeping–sharedanduniversaldoubleentryaccounting,thatis.“Allformsofmoneytransactionsarebook-keeping.It’sjustthatmoneychangeshandsinsteadofentrieschangingfromdebittocreditcolumns.”Economics,RudolfSteiner,Discourse6,August5,1922p.223.29) Thekeytoolsforconsciouslymanagingtheeconomysustainablyaremoneyandaccounting.TheinsightfromRudolfSteiner'seconomiclecturesof1922,thatmoneywasbecomingglobalbookkeeping(accounting),hasproventobethecase,asmoderntechnologyhasmadeinstantelectronictransactionsandvirtualdistributedledgerspossibleworldwide.Theunderlyingstructureofmoney,aswellastoday'smodernglobalfinancialstructure,isthetechniqueorevenlanguageofdoubleentryaccounting.Doubleentryaccountingactsasatooltoperceivetheeffectsofworldtradeandworldfinance,whichismanagedbymoderncentralbanksandbankers.Thenewtrendistohaveanassociationofindividualsandpaymentsystemsreplacingcentralbankexpertiseasindividualsincreasetheireconomicawarenessworldwide."Foritiswithmoneythatwemastertheeconomicprocessnowadays."RudolfSteiner,Economics,TheWorldAsOneEconomy,Lecture12:Money(August4,1922)p.155. “Allformsofmoneytransactionsarebook-keeping.It’sjustthatmoneychangeshandsinsteadofentrieschangingfromdebittocreditcolumns.”RudolfSteiner,Economics:TheWorldAsOneEconomy:FurtherOnMoney,Discourse6(August5,1922)p.223."Thestudentlearnstothinkabouteconomiceventsinthefirstinstanceasalteringtheaccounts."JohnHicks,(1904-1989).

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V. CASHFLOW(P.A.V.E.™)

30) UnderstandandManage: 1)Profit-I&E 2)Capital-B/S 3)Cash-CFP.A.V.E.theWay®Exercise Thisexerciseintroducesthebasicpurposeandprinciplesunderlyingafinancialforecast.Aforecastiscreatedthatincludesprojectedfiguresnexttotheactualalongwiththevariancebetweenthetwofollowedbyanexplanation,whetheroverorunderthe projectedfigures.Insightandforesightaregainedintheprocess.

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31) The Money View - Understanding 2 kinds of money from an accounting perspective. 1) Everyone is a Bank

2) Every human being faces the need to have enough cash inflow to match the anticipated cash outflow. 3) The economy is the sum of all the bank-like individuals all related to each other in a worldwide ‘money flow’ economy. 4) My inflow is your outflow. My asset is your debt. 5) The interconnected nature of all balance sheets, great and small, is the reason for its inherent instability and dynamic tendency to fluctuate between extremes. 6). The inherently hierarchical money-flow system determines what counts as money (inflation metric) and what counts as credit (interest metric) all depending on the level in the system. This creates elasticity and expansion on the one side and discipline and contraction on the other. 7). The dealers (banks) knit together the layers in the hierarchy and make a profit on the two-way markets between money at a higher level and credit at a lower level. 8). Central banks can, but do not need to, make a profit and therefore, can play a special role as stewards of the economy as a whole.4

4

Bagehot is the origin of all modern monetary policy. Source: Professor Mehrling’s ‘Money View’ Blog (http://ineteconomics.org/blog/money-view/), adapted and edited edited. from the August 2011 Associate! Publisher: Centre for Associative Economics Ltd., on behalf of the Economics Conference of the Goetheanum.

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EconomicsLectures:LinkstoAccountingandMoney

Fromtheexcerptsrelatedtothetheme‘exchangeofvalue’threestoodout.OneisfromLectureTwo,withinputfromLectureTen,andtheotherisfromLectureSix.Thefirstisaboutbuyingandselling(exchange)andtheseconddescribestheessentialqualitiesofpaymentandloanintheeconomicprocess.Bothcanbevieweddirectlythroughexperienceintheprocessofdoingashortsetofaccountingexercisesfrom'AccountinginaNutshell'(SeeSectionThree,page50).TheconceptsfromLectureTwoandSixareespeciallyusefulforunderstandinghoweconomics,accountingandmoneyarelinked.Inaddition,athirdthemeincludestwoexcerptsthatgotogetherasbookendsmakingclearwhattheaccountingandmoneyaretrackingastheeconomicprocesstakesitscourse.LectureTwo:BuyingandSelling(Payment)

“Theeconomicprocesstakesitscourseintheactivityofbuyingandselling,essentially,thatis,intheexchangeofvalues.”RudolfSteiner,Economics,TheWorldAsOneEconomy,LectureTwo:TheEconomicProcess(July25,1922)p.49

“Bythebareprocessofexchange,thethingsexchangedonbothsidesbecomeofgreatervalue.”RudolfSteiner,Economics,TheWorldAsOneEconomy,LectureTen:OnAssociations(August2,1922)P.125

Thereisnobetterwaytoseetheresultsofeconomicexchangethaninthespeciallyorganizedaccountsofdoubleentryaccounting.Thenatureofexchangeisdepictedusingasimplesketchthatvisuallydemonstratesthatbothpartiesinanexchangemakeagain–asurplus–infact,adualsurplus.35Thiseconomicphenomenoncanbeperceivedinprecisefashionasoneproceedsthroughthehands-onaccountingexercise,makesvisiblethedualsurplusofanytransaction.

Whenthisprocessisexaminedcarefullyitisapparentthatbothsidesinanytransactionaremakingadoublevaluation,balancingimmediateandfutureneeds,beforetheexchangeismade.Inaddition,ashumanbeingssettled,asinJericho,theyexchangewitheachothermoreandmoreastheymeteachother’sneeds.Asnotedabovehowever,thereisagrowingcorrelatedphenomenonofsurplusvaluearisingfromtheexchangeitself.ThiscomingintomovementasaresultofbuyingandsellingisdescribedinLectureTwoandTenasaninvisibleperpetualprocessinwhichweareallparticipants.

LectureSix:PaymentandLoan

“Inadditiontopaymenttheremustbeloancapital.Herethenwehavetwoveryimportantfactorsintheeconomicprocess–paymentandloan.”RudolfSteiner,Economics,TheWorldAsOneEconomy,LectureSix:TruePrice(July29,1922)p.88.Thedescriptionofbuyingandlendinginthislecturealsothesourceofthetwoqualitiesofanexchangeortransaction–immediateandongoing.Withimmediatepaymentforagoodtherelationshipiscompletedandfinishedatonce.Aloancontinues,asitisnotcompletedallatonce.Thereisacontinuingrelationshipuntiltheloanispaid,whenthetransactioniscompleted.

35Seechapteronein'OfWheatandGold'foranexplanationofRudolfSteiner'stwintheoryofvalueandthenatureofexchangeascreatingadualsurplus.OfWheatandGold:ThoughtsontheNatureandFutureofMoney,ChristopherHoughtonBudd,PhD(NewEconomyPublications,Canterbury,Kent,England,1988).

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Conceptsinaccountingcanbedepictedusingcolorsandmultiplelayersofrelatedconceptsusingthevaluecreation,circulationandperceptionimages.Theaccountingexercisefollowingsingletodoubletoclosingentrywillshowhowthesetwoqualitiesformthebasisofdoubleentryaccounting.Theeconomiccategoryof‘Loan’isnotthesameasaloanfromsomeone,whichisafinancialinstrumentandnotanorderingconcept.36

LectureTwo&Seven:FromLand,Labor&CapitaltoPurchase,Gift&Loan

“Certainly,tobeginwith,tracingtheeconomicprocessrevealsthesethreefactors–thatwhichcomesfromland,thatwhichisachievedbylaborandthatwhichisderivedfrom,ordirectedbymeansofcapital.”RudolfSteiner,Economics,TheWorldAsOneEconomy,LectureTwo:TheEconomicProcess(July25,1922)p.44.

Inthislectureland,laborandcapitalarerecognizedastheconventionalstartingplaceforunderstandingtheeconomicprocess:valuederivedfromland,achievedbylabororderivedfromcapital.Butdoeseconomicvalueinherentlycomefromtheland,labororcapital?Thisquestionisaddressedinthevaluecreationcontinuumimageusedtovisualizetheeconomicvaluecreationprocessinrelationtothesethreefactors(seeimage#5page45).

“Letusrealizeatoncethattherecanbenoeconomicsystemwithoutthisinterplayofloan,giftandpurchase.”RudolfSteiner,Economics,TheWorldAsOneEconomy,LectureSeven:TheFactorsofPriceFormation(July30,1922)p.93.

RatherthanlookatthesethreeimportanteconomicfactorsinastaticfashionLectureSevenmakesitclearthat,lyingunderneathasitwere,thereissomethingelsemovingtheeconomicprocess–theinterplayofpurchase,loanandgiftmoney.Doubleentryaccountingtrackseconomicactionsbymakingmoneyvisibleasitchangesvalueinitsmovementthroughproduction,consumptionanddistribution.Threeeconomicimagesareusedtovisualizethemovementofeconomicvaluethroughland,laborandcapitalinordertoseetherelationshipsbetweenaccountingandmoneyandtheiruseformanagingtheeconomy.37

36“Loanismeanttorefertoaneconomiccategorythathoversabove,includes,butisnotsynonymouswith,theloanswemoreusuallyspeakofLoanasanorderingconcept,notafinancialinstrument.Bankloanscanindeed,andoftendo,haveanon-loancharacter.Theybecomegiftswhenremittedinthefaceofover-indebtedness,forexample:purchaseswhenthecostoftheloanisasgreatasthereturnitprovides–thatis,whentheborrower’sprofitissoakedupbyeconomicallyexcessiveinterestcharges,whichtransferawayfromhimmorevaluethanhehasbeenabletocreate.”Economics,RudolfSteiner,LectureVIJuly29,1922p.88(seeNote38,editorChristopherHoughtonBudd,page237.) 37 Thisreferstothreeofthetwelveimagesusedasaidsforthinkingthrougheconomicconceptsforestablishingalivingrelationshipanddeeperunderstandingoftheexchangeofvalueintheeconomicprocess(see#4'Synthesis:TheEconomicsProcess'atthetopofpage35).

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EssentialImages

TheEconomicsandAccountingImages

TheimagesarebasedontheeconomicscourseofRudolfSteinergivenin1922toeconomicsstudents.Threelargeformatblackpaneldrawingswereusedasrepresentativeimagesfordescribingthecreation,circulationandperceptionofeconomicvalueintheeconomicprocess.Afourthdepictstheevolutionofsociety,theindividualandexchangeintheeconomicprocessusingatimeline,significanteventsandbiographies.Theremainingeightblackpaneldrawingsareusedforexplainingessentialassociativeeconomicsaxiomsanddoubleentryaccounting.

Alltwelvelarge-formatwallvisuals(p.42-48)areusedtoaccommodateseverallayersofrelatedeconomicandmonetaryideasastheyariseinconversationduringthetraining.Bothstudentsandtrainerusethevisualsinconjunctionwith'EconomicsfromtheGroundUp'and'AccountinginaNutshell'asareferenceandcommunicationtoolforaskingandansweringeconomicandfinancialquestions.

TimelineImage

Oneofthetwelvepanesisthe'WorldHistorythroughEconomics'timeline(#3page43)thatprovidesanintroductionandongoingreferencepointforboth'EconomicsfromtheGroundUp'and'AccountinginaNutshell'.ThetimelinebeginsontheleftsideofthelargeformatblackpaperdrawingbeginningwiththetimeoftheAgriculturalRevolution,thenpassingthroughthe‘TimeofTransition’attheendoftheRenaissance,thenadvancingtothepresentontherightofthedrawing.ThetimelinepresentationdepictingtheevolvingeconomicliferevealsfordiscussionkeyconnectionstothechangingformsofmoneyandaccountinginrelationtotheindividualandsocietyTwelveImages:Titles-Descriptions-Methods

1) DriverofEconomicLife:TheHumanBeinginaWorldEconomy 2) SymmetryasExplanatoryDevice 3) WorldHistoryThroughEconomicsandFinance:AVisualTimeline 4) Synthesis:TheEconomicProcess 5) Money:CirculationofEconomicValue 6) Economics:CreationofEconomicValue 7) Accounting:PerceptionofEconomicValue 8) Synthesis:TheEconomicProcess 9) TakingInitiative:SteppingintoTheFuture 10) FindaNeedandMeetitwithYourAbilities 11) TheStructureofDoubleEntryAccounting 12) P.A.V.E.–PicturetheAimandExpressitinFiguresfortheFutureImageDescriptions(12)1)DriverofEconomicLife:TheHumanBeing

Thisimageisusedtotalkaboutthehumanbeingasdriveroftheeconomyandnotthemarketorstate.RelatedlayersofconceptsfromthetextoftheEconomicsCoursecanbeaddedtotheimagereinforcing

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relatedideasinordertobuildasharedimage.Accountinghasbecometheuniversallanguageforaone-worldeconomythatallshare.Individualmicroactionscanbeseentohavelarge-scalemacrosignificance.InstructorNotes:Thehumanbeingisalsocapableofhavinginterestinothersandtheirneedsinadditiontoself-interest.Associativeeconomicsincludesboth.AdamSmithindicatedthatself-interestisthemostsocialthingonecando,foritautomaticallyorderssocietysothatitworksforeveryone.Thedominantconceptsofcompetitionandmarketforcescanevolvetowardscooperationandresponsibility.Ratherthanlookingatthepartofthehumanbeingthatisfocusedonouroftenunconsciousdrives,itisalsopossibletoemphasizeahighermoreenlightenedconsciousness.BothJ.M.KeynesandR.Steinerdescribedtheemergenceofworldeconomyoutoftheoldpersonalandnationaleconomies.Theself-containedsystemofhouseholdeconomygrewintothetowneconomy,whichgrewintothestateeconomy,andnowwehavemovedintoaworld,orglobaleconomy."TheinhabitantofLondoncouldorderbytelephone,sippinghismorningteainbed,thevariousproductsofthewholeearthhecouldatthesametimeandbythesamemeansadventurehiswealthinthenaturalresourcesandnewenterpriseofanyquarteroftheworldhecouldsecureforthwith,ifhewished,cheapandcomfortablemeansoftransittoanycountryorclimatewithoutpassportorotherformality."38Inamarketeconomyunconsciousinstinctsstriveforthelowestprice;whereasconsciousinterestinothersseekstopaythetrueprice.Thismeansbeingawareofandinterestedinthe‘otherside’ofthetransaction–theexchangeofeconomicvalue.Dowetakeadvantageofourfriendsbytryingtogetthelowestpriceordoweaskifitisenoughsotheycancontinueinfuture?Economicsisaboutfindingthemeaninginlife,abalance.2)SymmetryasExplanatoryDevice

Symmetryisapowerfulexplanatorytoolinmanydisciplines,includingmathematics,physics,art,economics,moneyandaccounting.Symmetrydoesnotmeandualism;itismoreaboutpolarity,continuumandtheideaofdifferentlogicsneedingtoberesolved.InstructorNotes:Theconceptsreciprocity,polarityandproportionplayanimportantroleinunderstandingeconomiclife.J.K.Galbraith:'Theentiretyofeconomicsisabi-polaraffair.'Withouttwoeyescrossingwecouldnotperceiveinthemarvelouswaywedo!

"Inallhumanperceptionasymmetrycomestoexpression,arightandleftsymmetry.Hadhenottwo

38 J. M. Keynes,"TheEconomicConsequencesofthePeace"(NewYork:Harcourt,Brace,andHowe1920)."TheinhabitantofLondoncouldorderbytelephone,sippinghismorningteainbed,thevariousproductsofthewholeearth,insuchquantityashemightseefit,andreasonablyexpecttheirearlydeliveryuponhisdoorstep;hecouldatthesamemomentandbythesamemeansadventurehiswealthinthenaturalresourcesandnewenterprisesofanyquarteroftheworld,andshare,withoutexertionoreventrouble,intheirprospectivefruitsandadvantages;orhecoulddecidetocouplethesecurityofhisfortuneswiththegoodfaithofthetownspeopleofanysubstantialmunicipalityinanycontinentthatfancyorinformationmightrecommend."

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ears,twoeyes,andtwonoses,manwouldnotattaintotheperceptionofhisownIorEgo."RudolfSteiner,LectureTwo,November1,1914Dornach,Switzerland.

"Fromourperspectivesymmetriesarethefoundationsfromwhichlawsspring."BrianGreene,PhysicistandMathematician,ColumbiaUniversity,NewYork,NewYork.

3)VisualTimeline:WorldHistoryThroughEconomicsandFinance

TheeconomicandfinancialtimelineisbuiltupthroughconversationinordertoenhanceanunderstandingoftheevolutionofmoneyandeconomicsasdepictedinRudolfSteiner'seconomicscourse1922.InstructorNotes:Avisualtimelineofeventsispresentedfirstinordertoprovideacontextforintroducingthedevelopmentofeconomics,accountingandmoney.Theprocessofexchangebeginswiththefirsthumansettlementswherethestoryofcivilizationbegins.ThetimelineisastorytellingdeviceandexplanatorytoolforexploringeconomicconceptsandsignificanthistoricalmomentsfromJerichototheRepublicofVeniceinordertoliveintotheeconomicprocesswithourthinkingandimagination.

Usingcolorchalkon3’x6’blackpaperachronologicalsketchofsignificantcharacteristicmomentsandbiographiesaredepictedalongalineshowingthehistoricaldevelopmentoftheindividualandsocietyandtheirrelationshiptothechangingformsofeconomiclifeandmoney.Byplacingkeyeventspictoriallyonabroadhistoricaltimelineitispossibletogetasensefortheevolutionofsocietyandtheindividualinrelationshiptotheparalleldevelopmentoftheformsofmoneyandeconomiclife.

4)Synthesis:TheEconomicProcess

Thethreeimageshavebeendesignedtoactasaidsforcommunicatingeconomicideaspictoriallyandareusedseparatelyasappropriateinordertolayerthevariouseconomicconcepts,visuallyrevealingtheirrelationships:1)thecontinuumlinepointingdownwardandupward,2)anopen-endedcirculationlemniscate,and3)aleft-rightorientedT-form.

Withthisorientationanduseofthethreeimagesitispossibletoquicklygainaverybasicunderstandingofeconomicsbyfocusingonthemostessentialaspectofeconomics–theexchangeofvalueintheeconomicprocessofcirculationanditsrelationshiptoaccountingasthelanguageofeconomicsassuch.

InstructorNotes:Economics,moneyandaccountinghaveaspecialrelationshiptovalue.Fromonepointofview,economicsisaboutthecreationofvalueaswemeeteachother’sneeds,thusbringingtheeconomicprocessintomotion.Moneyfacilitatesthecirculationoftheseeconomicvaluesandaccountingisusedtopreciselyperceiveandcommunicatethemastheymovethroughthethreedomainsofeconomics,moneyandaccounting.Usinganappropriateimageforeachonecanenhancethearticulationandunderstandingofthesethreeessentialelementsoftheeconomicprocess.TheimagescanbeusedtoexplainorcommunicateassociativeeconomicaxiomsderivedfromtheeconomicscourseofRudolfSteiner.

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5)Economics:CreationofEconomicValueTheelectromagneticspectrumimageisalludedtoinLectureOneoftheeconomicscoursewhereSteinerusedittoillustratethevaluecreationprocess.Thisimagewillbeusedasanaidtounderstandingthevaluecreationprocessandothereconomicconcepts.InstructorNotes:Thenextimportanteconomicconceptisvalue.Iusetheimageoftheelectromagneticspectrumthatdepictsthecontinuumfromlowtohighfrequencywaves.Theleftside,coloredred,representstheinvisible,tothenakedeye,infraredpole.Therightside,coloredpurple,istheultravioletpole.Betweenthetwo–orange,yellow,green,blue–representingvisiblelightinthiscase,isthe'normal'economy.Visiblelightexistsbetweentwopolesofinfraredandultraviolet,thenormaleconomyisanalogoustotheorange,yellow,green,blueportion,thevisiblelightbetweenthetwopoles.39Theinvisibleinfraredisanalogoustonatureandultravioletrepresentshumanintelligence.Economicvalueiscreatedononesidewhenhumanactivityenhancesandtransformsnature,creatinggoods.Economicvalueisalsocreatedwhenhumanintelligenceorganizeshumanactivity(labor).IntelligencecompriseshumancapacitieswhileproductscomefromNature.Capitalishumanintelligenceandcapacitiesexpressingthemselves.Theproductsofnaturecomefromtheland.Humanactivityiscalledlabor.Capitalarisesthroughtheinterplayofvaluesderivedfromtheland(nature)andacteduponbylabor(humanactivity)andvaluesderivedfromintelligenceorganizinghumanactivity.Themoderndivisionoflaborisaprofoundspiritualandevolutionaryprocesswheretheburdenofacommoneconomictaskisshared.Onecanalsosaythatcapitalresultsfromtheincreasingdivisionoflabor.Developingoverandabovethenormaleconomyisanultraeconomiclifedeterminedbythegrowingpowerofaccumulatedcapital.Thefinancialsystemgrowsoverandabovetheultraeconomicslifeofaccumulatedsurpluscapitalnotneededforthemeansofproduction.Financialism-moneyeconomics-arisesoutofthecapitalformationprocesswhenthereisexcessliquiditybeyondwhatisneededforinvestmentinenterprises.Theactiveculturallifethencreatesfutureeconomicvalue.Removeland,labor&capitalascommoditiesandtheybecomethenaturalboundariesoftheeconomy–thethreebottomlines–people,planetandprofit-thesocial,environmental,andfinancial.WhenIsellsomethingIreceivecashanddebittheaccountasvalueentering.WhenIbuysomething 39 Rudolf Steiner, "Economics:TheWorldasOneEconomy"(NewEconomyPublications,Canterbury,England1996).InChapterTwoJuly25,1922P.51."Youmaywellholdfastthispicture:Justasinthespectrumthewarmcolorsappearontheoneside,soononesideoftheeconomicprocessthereappearstheland-valuewhichwillshowitselfmoreintheformationofrents*–thesideoflandtransformedbylabor(V1).Ontheothersidethereappearsinsteadthosevalueswhicharetranslatedintocapital.Labortransformedbyintelligence(V2)."*“Rent”ismeanthereinthestricteconomicsense,thevaluethatemergesfromland.

(seeNote19,editorChristopherHoughtonBudd,page230).

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cashleavesmyaccountasacreditbecausevalueisleavingtheaccount.Economicvaluearisesontheonesidewhentheproductsofnaturearetransformedbyhumanactivityasitisputintoeconomiccirculation.Economicvaluecanalsoarisewhenhumanactivity(labor)istransformedandenhancedbyhumancreativeintelligence.Economicvaluecanbecreatedwhenlandismodifiedbyhumanactivity(labor)andhumanactivity(labor)istransformedbyhumancreativeintelligence.6)Money:CirculationofEconomicValue

Anopen-endedlemniscateimageisusedtohelpexplainconceptsrelatedtothecirculationofvalueandmoneyintheeconomicprocess.InstructorNotes:Whatisthemostimportantaspectoftheeconomicprocessinexchange?Itisthefactofbuyingandselling.Buyingandsellingisreallyproductionandconsumptionthatformsapolaritythatneedshumaninterventiontocountertheimbalancesthatarise.Exchangeisthehumanelementofeconomics.Productionisdoneforothersandconsumptionforoneself.Exchangebelongstoneitherpolealoneandisneitherselflessnorselfishbutaresolutionofthetwoandbalancesthepolesofproductionandconsumption.40Whatbringstheeconomicprocessintomotion?Themovementofproductiontoconsumptionbringstheeconomicprocessintomotion.Circulation.Accurateknowledgeofthenatureofexchange,meetingoneanother'sneeds,isrequiredforregulationandintrinsicself-balancing.Inotherwords,recognizingthatitisnotpossibleforcreativehumanintelligencetoexpressitselfwithoutcreatingneeds.Humanneedscannotbemetwithouthumanintelligenceexpressingitself.Theworldeconomyisthesumofallexchangesthatarealsotransactions.Aslongasthereareneedstobemet,thisisaperpetualphenomenonandallitselementsareinreciprocalrelationship.Valuesfluctuatewithplace,timeandvaryinghumanneeds.Pricecomesaboutoutoftheinvisibleprocessofexchangingfluctuatingeconomicvaluesasaresultofexchange,circulation,distributionandrelationship.WhenIsellsomethingIreceivecashanddebittheaccountasvalueenteringin.WhenIbuysomethingcashleavesmyaccount;creditentry(out).7)Accounting:PerceptionofEconomicValue

Thethirdprimaryimageservesasavisualaidforunderstandingthelanguageofdoubleentryaccountingthatisthebasisforperceivingeconomicvalueandcommunicatingwithothersinacommonlanguage. 40 ChristopherHoughtonBudd,PreludeinEconomics(NewEconomyPublications,Canterbury1979).Manyideasandapproachestounderstandingthebasicassociativeeconomicconceptsfromtheeconomicscourseof1922byRudolfSteinerarefoundinPreludeinEconomics.Theeconomicimagescanbeusedtopresentrelatedconceptsbyaddinglayerstothedrawingthatcanedifytheirrelationshipsandfunctions.Thepurposeofthisistoenhancetheabilitytoperceivetheeconomicphenomenaandthenbeableto'thinkthemthrough'forourselves.

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InstructorNotes:WhenIsellsomethingIreceivecashanddebittheaccountasvalueentering.WhenIbuysomethingcashleavesmyaccount,credit.Insightsaregleanedfromthesummaryaccounts,andforesightfromtheprojectedbudgetaccountsaregainedasincreasedawarenessandperceptionguideone'seconomicactionsinordertonavigatetheshipofenterprise.DoubleEntryAccountingistheuniversallanguageofexchangeintheeconomicprocessandcanbeunderstoodtobethreekindsofmoney.8)TheNatureofExchange

Thissetofimagesisusedtotelltheprimalstoryofexchange,theeconomictransaction,reinforcingtheassociativeeconomicaxiomthatbothsidesmakeagain.InstructorNotes:Whendideconomicsbegin?ThefirstsettlementsnearJericho.Civilization,economicsandaccounting(money)beganover11,000yearsagowhenthefirstsettlementscreatedasurplusfromminingandagriculture.9)SteppingintotheFuture:TakingInitiative!Thisvisualaidsourunderstanding,inaccountingandmoneyterms,ofthemovementofeconomicvaluewhenfirstundertakingsomething.InstructorNotes:Toundertakesomethingorjuststayalivecreatesexchange,value,accountsandcashflowthatneedtobemanagedtomeettheaim.Takinginitiativebeginswiththefirstmonetaryeventwherecapitalcomesfromsomewhereandisreceivedascashinordertobegin.TheT-Accountformisavisualaidforrecordingandperceivingthisprocessofvaluesleavingaccountsinordertobereceivedintoanotheraccount.10)FindANeedandMeetIt!Perceivingahumanneedintheworldcanbemetbytakinginitiativeandapplyingone'stalentsandskills.ThislargeformatcolorimagehelpsusimaginehowmoneyintheformofcashandperceivedviatheT-accountisrelatedtotakinginitiativemeetinganeed.11)TheStructureofDoubleEntryAccounting

TheTformisusedasavisualaidandorganizingdevicefordepictingthefundamentalstructure,essentialelementsandtheirrelationship.ThestoryinthisimageislinkedtoLectureSixandthedescriptionofthenatureoftwokindsofmoney.

InstructorNotes:Thisimageshowstheunderlyingstructureofdoubleentryaccountingandtherelationshipsbetweenpermanentandtemporaryaccountsandthefivecategoriesandtheirrelationshiptovaluesenteringand

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leavinganaccount.Thebalancesheet(permanent)representstheassets,debtandequityandtheincomeandexpensestatement(temporary)representstheactivityofincurringexpensesandincome.

12)PicturetheAimandExpressitinFiguresfortheFuture

Theexpectedresultsofaneconomicactivityareprojectedintothefutureusingthesamecategoriesandstructureofdoubleentryaccounting.Itshowstherelationshipsbetweenaccountsbytrackingfuturemoneyflowsandtheireffectontheeconomicactivity.Thisanticipatesfuturework.InstructorNotes:Inanyfinancialandeconomicliteracyprogramforyouththeywouldlearnandpracticecreatingaforecastforthefutureyears'activity.Budgetedfiguresfortheactivityincludetheprojected,theactual,thedifferenceandanexplanation,whetherover,orunder-estimated.Thisisdoneforeachlineitem.MethodsforBlackPaperStoryPanels

1 Createthewalldrawingfromscratchasonepresentsthematerialtotheparticipants2 Createsomeofthedrawingbutleaveaspectstobedoneduringpresentation3 Createfinishedimageandconceptstobeusedasstorytellingprompt4 Createfinishedpanelandthenletparticipantsdescribeitsmeaning5 Askparticipantstoaddtoadrawingastheyseethings6 Presenterandparticipantscanbuildfromablankpaperduringtheconversation

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Twelve(12)BlackPaperDrawings:VisualAids

1)DriverofEconomicLife:TheHumanBeing

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2)SymmetryasExplanatoryDevice

3)WorldHistoryThroughEconomicsandFinance:VisualTimeline

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4)Synthesis:TheEconomicProcess

5)Economics:CreationofEconomicValue

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6)Money:CirculationofEconomicValue

7)Accounting:PerceptionofEconomicValue

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8)TheNatureofExchangeintheEconomicProcess

9)TakingInitiative!:SteppingintotheFuture

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10)FindaNeedandMeetitwithyourAbilities

11)TheStructureofDoubleEntryAccounting

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12)PicturetheAimandExpressitinFiguresfortheFuture

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THREE:ACCOUNTINGINANUTSHELL

Introduction

TheTransitionfromSingletoDoubleEntry:TheoryandPractice

Adeeperunderstandingofthenatureofmoneyatanearlyageusingdoubleentryaccountinghelpsavoidtoostrongaconnectiontomoney–oratoodisconnectedone–bymakingitpossibletofindabalance.Linkinganunderstandingoftheeconomicprocessandmoneywiththepracticeofaccountinginformsandtrainstheyouthfulwillinpreparationforfindingone’scallinginlifeandsteppinguptoone'sstorywithconfidence,clarityand,hopefully,capital."Ifwebringbackdouble-entrybook-keeping–tobusiness,tothecommons,totheinternet,tothemarketplace,andtooureverydaylives–we'llstartanotherrenaissance."41'AccountinginaNutshell'willusethetransitionfromsingletodoubleentryaccountingthattookplacefromthe12ththroughthe15thcenturytoprovideahands-onfast-pathintroductiontothetechniqueofdoubleentryaccountingforthenovice.Thistimeperiodcoincideswithageneral‘timeoftransition’thatprovidedtheimpulsefortherestoftheepochandthebirthofeconomiccultureandanewemphasisontheimportanceoftheindividual.Aburstofindividualachievement,inventionanddiscoveryprovidedtheplatformandimpetusfortoday’smodernscience,mathematicsandeconometrics.Goingthroughtheprocessofmovingfromsingletodoubleentryaccountingwithasetoftransactionsactsasaneffectiveteachingtoolthatallowsforadeeperunderstandingoftheunderlyingprinciplesinashortperiodoftime.TheeconomicslecturesfromRudolfSteinerin1922areintimatelyconnectedtoanunderstandingofaccountingandmoney.Bytakingaseriesoftransactionsthatareneededinordertoundertakeanewactivityintheworldthroughthedoubleentryaccountingprocessadirectexperienceisgained.Thisisaccomplishedthroughastep-by-stephands-onentryoffiguresandaminimumuseoftechnicalterms,noformulasorsemestersofaccounting.Oncelearned,doubleentryaccountingasaskill,isgoodforlife.Thislanguageforlifeisthelanguageofexchangeandisusedtomanageeconomiclife,takeinitiativeandnavigatethefuture.Itallowsindividualstoact,notonlyforthemselves,butalsoonbehalfofothersandtheeconomyasawhole.TheabilitytoreadandwritewasconfinedtoaveryfewatthedawnoftheRenaissanceandyetisnowthecommonpossessionofmostelementarystudents.Justastoday‘readingandwriting’inthelanguageofdoubleentryaccountingisconfinedtoafewexperts,inthefutureitwillbecomethecommonpossessionofallstudentsifitbecomesembeddedinthecultureonceagain.Ourfoundingfathersreliedondoubleentryaccountingtobothmanagethemselvesandnewenterprises,andtobuildacountry.Mostofthemweretaughtdoubleentryaccountingintheirteensasamatterofcourse.ThefirstAmericanentrepreneurandeconomistBenFranklincreatedamini-manualondouble-entryaccountingthatwasmadeavailabletoallpostalcustomers,forheconsidereditessentialfordailylife.Franklindeclaredthatallwomenandchildrenshouldbetrainedinaccountingbecauseitwouldensure“lastingadvantageandenrichingofthefamily.”Hepracticedfromandpromotedanintegrated

41DanPalanzainanarticlebyDocSearles,Medium"TheSecondComingofDouble-EntryBookkeeping"(August19,2016).

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knowledgeofeconomics,accountingandmoneyasthewaytomanageoneselfandtheworld.Thelanguageofeconomics,exchangeandfinanceisdoubleentryaccounting–aworldlanguagederivedoutofthenatureofthehumanbeing–thattodayprovidesthebasisforourglobalfinancialarchitecture.Theenhancedperceptionandabilitytomakeadjustmentstoouractionsthatdoubleentryaccountingcanachieveismuchlikecrossingabusystreet.Insteadofblindlyrushingimmediatelytotheothersideofthestreetbecauseonecan,despitethegroupofvehiclesneedingtocometoastop,onecouldperceivethatwaiting10secondswillallowfortheclearingofthestreetsothattrafficcontinuestoflow.Nowyoucancrosswithouteffortordisruptionoftrafficatall.Thisisconsciousperceptionandresponsibleaction–inlightofone’snewawareness.Anepochaltransformationinart,scienceandmathematicsbeganjustasLeonardoBonacci(Fibonacci)publishedhisLiberAbaci(1202).HisBookofCalculationintroducedArabicnumeralsandalgebratonorthernItaly.ThisalsoignitedatransitionfromsingletodoubleentryaccountingandfromRomannumeralstoArabicnumerals.Theclimaxtothisprocesswasmarkedbythe1494publicationofLucaPacioli’smasterworktheSumma,anencyclopedicsynthesisofcurrentmathematicalknowledgeincludingthefirstcompletedescriptionandcodificationofdoubleentryaccounting.Theybothcontributedgreatlytothetransformationandeventualworldwideimplementationofdoubleentryaccounting,whichalsoprovidedthevehicleforexpandingtheeconomy,fuelingtheRenaissanceandshapingtoday’smoderneconomy.TheTimeofTransition:HistoricalHighlights

1. EventuallyreplacingRomannumbers,ArabicnumbersandalgebrawereintroducedtoEuropevianorthernItalybyLeonardoBonacci(Fibonacci)whenhepublishedhisLiberAbaciin1202hasteningthetransitionfromsingletodoubleentryaccounting.

2. Thetransitiontothenewfinancialtechnologyofdoubleentryaccountingfromsingleentryspreadand

enabledanunprecedentedexpansionofeconomicactivityandinnovation,financingtheRenaissanceintheprocess.

3. TheHanseaticLeague,apowerfulcollectiveofmerchantguildsandtowns,dominatedcommercial

activityuntiltheywereundonebyanewtechnologyimportedbytheDutchfromVenicecalledthe‘VenetianMethod’(doubleentryaccounting).15Theirdependenceonsilverfortransactionscouldnotcompetewiththenewvehiclesofcreditwherebillsofexchangemadetradeeasier,quickerandsafer.

4. Thedoubleentryaccounting(bookkeeping)techniquedevelopedinnorthernItalynowformsthe

underlyingstructureofthemodernglobalfinancialstructureandthefundamentaltoolofallbanks.5. Doubleentryaccountingbecametheanchorscienceformerchantsandbankersinordertocopewith

rapideconomicexpansionandguidetheirenterprises.6. The12ththrough15thcenturiescouldbegenerallycharacterizedasa‘TimeofTransition’thatprovided

theimpulsefortherestofourepoch,meaningthebirthofeconomiccultureandtheriseofindividualwill.

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7. Anexplosionofindividualachievement,inventionanddiscoverysetsthestageandleadstoourcurrent

modernscience,mathematicsandglobaleconomy.Arabicnumbers,algebra,Greeklanguageteaching,drycompass,mechanicalclock,universities,cathedrals,paper,printingpress,lenses,optics,perspectiveinart,doubleentryaccountingenteredsociety.

8. Twostreamsofmathematicsdevelopedinparallelwitheachother–alowercommercialmathforthe

laypersonandahigherproblem-solvingmathforthefewscholars.9. LeonardoandLucahadamajorimpactonBOTHmathematicsandcontributedtothepopularizationand

advancementofBOTH.10. Doubleentryaccountingemergedfromthelowercommercialmathandbecametheguidingsciencefor

theexpandingeconomies.Modernmathematicsandscienceemergedfromthehigherproblemsolvingmathematics.

11. Algorithms,modernmathematicsandeventuallyeconometricscausedtheeventualreplacementof

doubleentryaccountingastheguidingtechniquefortheeconomy.ElementsofTheTransition:FromSingletoDoubleEntryAccounting

1. EarlyontheinnovationoftheCurrentAccountallowedforthepossibilityofarunningbalancein

accounting.2. TheCapitalAccountemergedandservedasaplacetoshowprofitaccumulation.3. TheIncomeandExpenseaccountswererecognizedandtheresultoftheactivityattheendofaperiodis

referredtoas’profit’.4. TheincomeandExpenseaccountscreateanadditional‘quality’ofaccount.Theyaretemporaryones

thatareperiodicallybroughttozero(closed)inordertobeginanew.5. Singleentryaccountingisonlyconcernedwithoneaspectoftheexchange(transaction).Whatiscoming

in,goingoutandleftover?6. Doubleentryaccountingtrackstheotherside,namelywherevalueshavecomefrom,andwherethey

havegoneto.7. Therearenowtwomajorqualitiesofaccountsthatareusedtoshowvaluesastheycomeinandgoout

andalsowheretheycomefromandgoto,thereby,addingperspectiveasthereisanincreasedawarenessofbothaspectsofthetransaction.

8. Doubleentryaccountinghasfivecategoriesofaccountsthatcanholdanytransaction(exchange)that

hasaneconomicconsequenceandismeasurableinmonetaryterms.

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AccountinginaNutshellExercisesThefollowingaccountingexercisestakethefirstfewtransactionsofanactivitysothatstudentscanusethemtomakeentriesastheygothroughtheaccountingprocess.Usingpencilandworksheetthestudentsfollowtheleadoftheinstructordoingthesameinlargeprintonthewallwhereallcanseeandhearastheydo.UsingtheTformandveryfewtechnicalterms,theinitialstart-uptransactionsaretakenthroughthesingleentryaccountingprocesscontinuingonthroughdoubleentryandclosingentriestoitsconclusionintheformoffinancialstatements.Thisuniqueapproachofutilizingthetransitionfromsingletodoubleentryaccountingasapedagogicaltoolgivesthestudentanengagingandrelevanthands-onexperienceofthebasicfirstprinciplesofdoubleentryaccountinginaneconomiccontextinashortperiodoftime.TakingInitiative

Takinginitiativethroughanactivitycreatesexchange,value,accountsandcashflowthatneedtobemanagedinordertomeettheoriginalaimandethos.Exchangeisneededbecausewenolongerrelyonourselvesalonetomeetourmaterialneedsbutonthosearounduswithwhomwetrade.Whenthisisdoneeconomicvalueiscreated,inthatbothpartiesinexchangegetswhattheyneedtosatisfytheireconomy,theirsituation.Inordertoviewandsharewithotherstheongoingactivityoftheconstantlymovingvaluesitisnecessarytohaveapermanentrecordofthecorrespondingvaluescomingin,goingoutandremaining.Anaccountholdsthisinformationaboutthevaluesexchangedexpressedasaprice.Thevaluesthatareheldintheaccountsareintheformofpricesnotallofwhicharecashorcoinbutpromisestopaycashinthefuture.Accountingisthelanguageoftheexchangeofvalueintheeconomicprocessthatcanbeexpressedinthreekindsofmoney.Theduoofaccountingandmoneymakesitpossiblefortheprecisetrackingoftheflowofproduction,distributionandconsumptioninordertomaintainabalancedeconomy–fairpricesandaffordablecredit.42One-DayWorkshop

First,usingaconstructedtimelinepanelonthewall,ashorthistorythroughthelensofeconomicsispresentedanddiscussed.Thisisabriefbutbroadhistoricalsketchdepictingtheevolutionofsocietyandtheindividualinrelationtothedevelopmentofeconomiclifeandthechangingformsofmoney.Thefinaloverlayofthetimelinefeaturesanimageofthedevelopmentofthe‘real’economyandthefinancialeconomyalongwithadiscussionofitsrelationshiptothe2008financialcrisis.(1hour)Second,thefirstaccountingexercisesetreflectsastandardaccountingapproachfittingtoday’smodernconsciousness.Throughbothpracticeandtheory,inlessthan2hoursthestudentshaveexperiencedtheentirejourneyfrominitialstart-uptransactionsofanactivitytoendingfinancialstatementsintwohours.(1.5hours) Third,thesecondaccountingexerciseusestheexactsamesetofinitialstart-uptransactionsandtakesthemthroughthesamedoubleentryaccountingprocessfromthepointofviewof‘Romannumeral’consciousness.Thisisincontrasttothemoreevolvedanduseful‘Arabicnumeral’consciousnessthatdevelopedandtakenforgrantedtoday.Thissidebysideapproachgivesthemadirectexperienceofthe

42 Christopher HoughtonBudd,"FinanceattheThreshold:RethinkingtheRealandFinancialEconomies"(Surrey:GowerPublishing2012).

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dramaticchangesbroughtaboutbytheunprecedentedexplosionofindividualcreativityduringtheRenaissancetimeoftransition(12ththrough15thC.)thatultimatelyshapedandledtoourcurrentabstractthinking.(1.5hours)Finally,inareviewoftheaccountingworkjustaccomplished,onebyonethetechnicaltermsarenowsubstitutedforthecolloquialexpressions.Questionsandclarificationsendtheday’sdoubleentryaccountingtraining.(1.5hours)

TrainingTime 5.5hours LunchTime 1.25hoursBreakTime 1hour(3x20min.)Total 7.75hours

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AccountinginaNutshellT-AccountExerciseSetOne(Indirect-With/TrialBalance)TransactiontoStatement(Currentpracticeandthinking)

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AccountinginaNutshell:ExerciseSetOne–CurrentPractice

SetOne:#1

Beforestartingtheexercises,abriefintroductionusing5ofthe12economicimagescreated(5,6,7,8&11below)isneededforabasicunderstandingoftheprocessofexchange,creationofvalueandtheirreflectioninaccounts.Thepurposeofthisfirstpanelistoactasavisualaidandpromptforunderstandinganddescribingwhathappensinatypicaleconomicexchange–atransaction.

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SetOne:#2

Economicsisaboutallofus–everysoulontheplanet.Recognizingahumanneedintheworldandcontributingtoitsresolutionisanotherwaytolookatthetruenatureofeconomiclife.Bybeginningtheexercisewiththeaboveinitialfour(4)economictransactionstheaccountingprocessisexperiencedasanaturalandusefulpartofactingresponsiblyandeffectivelyinlife.Thisissimplesingleentrybookkeepingthatdevelopedoveralongperiodoftime.

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SetOne:#3

Anewelementisaddedtothesingleentrybookkeepingtechniquethatexpandsitsscope,perspectiveandeffectiveness.Wheredothevaluescomingintoanaccountcomefromandwheredovaluesleavinganaccountgoto?Addingtheneededaccountstoseewherevaluesarecomingfromandgoingtocreatesacompletepictureoftheactivitybyrecognizingtheothersideofanytransaction.Thisisthebeginningofdoubleentryaccountingasitaddstothepartialviewofsingleentryaccountingwhereonlywhatcomesinandgoesoutisofconcern.

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SetOne:#4

Intheprocessofaddingaccountsinordertogainafullerpictureoftheactivity,twodifferentqualitiesofaccountsbecomeapparentastheaccounttotalsaremovedor'closed'toaTaccountthatactsasasummaryandproofthatitisinbalancebeforeproceeding.

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SetOne:#5

NowthatthesummaryproofshowsthattheentriesbalancetheyareseparatedintothetwoqualitiesofaccountsasrepresentedbythetwosummaryTaccountsofpermanentandtemporary.TheentriesintheProofaretransferredor'closed'intothetwo(2)qualitiesandtheresultoftheactivitycanemerge.

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SetOne:#6

TheTemporaryAccountsSummaryresultisnowcalculatedandmovedor'closed'intothePermanentAccountsSummaryasdemonstrated.

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SetOne:#7

Thelaststepinthisexercisetakesthetwo(2)Taccountformsanddisplaysthesameinformationinadifferentformatthatconformstomodernaccountingpractice.ThesummaryTemporaryAccountsandPermanentAccountsaretransferredtothestandardreportingformatandarenowcalledIncome&Expenseaccounts(Temporary)andBalanceSheetaccounts(Permanent)respectively.

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AccountinginaNutshell

T-AccountExerciseSetTwo(Direct-Without/TrialBalance)TransactiontoStatement(Pastpracticeandthinking)

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AccountinginaNutshell:ExerciseSetTwo–PastPractice

SetTwo:#1

Startingwiththesamefour(4)initialstartuptransactionsthissetofexercises(SetTwo)followsthesameprinciplesandtechniquecontainedandpracticedinSetOne.Thedifferencebetweenthetwobeginswithpagefour(4)wherethetwoqualitiesofaccountsaresummarizedanddirectlyenteredintothetwo(2)summaryT-accountsratherthanusingtheextrastepofcreatingaproof(trialbalance)tocheckthatbothsumsbalanceandareequal.

Also,themovingor'closing'oftheaccounttotalstothetwoT-accountsummariesisaccomplishedwithouttheuseofArabicnumbers.Thetechniqueusedisaspatialtranspositionthatallowsthemovementor'closing'oftheaccounttotalstothetwo(2)summaryT-accounts.Theabstractabilitytoadd,subtractandmultiplyontheflywasthen,averyrareabilitythatonlydevelopedsincetheintroductionofArabicnumerals.

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SetTwo:#2

Economicsisaboutallofus–everysoulontheplanet.Recognizingahumanneedintheworldandcontributingtoitsresolutionisanotherwaytolookatthetruenatureofeconomiclife.Bybeginningtheexercisewiththeinitialfour(4)economictransactionstheaccountingprocessisexperiencedasanaturalandusefulpartofactingresponsiblyandeffectivelyinlife.Thisissimplesingleentrybookkeepingthatdevelopedoveralongperiodoftime.

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SetTwo:#3

Anewelementisaddedtothesingleentrybookkeepingtechniquethatexpandsitsscope,perspectiveandeffectiveness.Wheredothevaluescomingintoanaccountcomefromandwheredovaluesleavinganaccountgo?Addingtheneededaccountstoseewherevaluesarecomingfromandgoingtocreatesacompletepictureoftheactivitybyrecognizingtheothersideofthetransaction.Thisisthebeginningofdoubleentryaccountingasitaddstothepartialviewofsingleentryaccountingwhereonlywhatcomesinandgoesoutisofconcern.

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SetTwo:#4

ThisiswheretheexercisesetdivergesfromthefirstSetOneinthat1)thesummaryofaccountsisentereddirectlyintothetwo(2)T-accountswithouta'check'orproof.Also,apre-Arabicnumeralconsciousnessismimickedinordertoexperiencethespatialtranspositiontechniquetomoveor'close'theaccounttotalstothetwo(2)SummaryAccounts:PermanentandTemporary.

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SetTwo:#5

Themovingor'closing'oftheTemporaryAccountstothePermanentAccountsisaccomplishedinthesamemannerasbefore,butwithoutthebenefitofArabicnumbers.Inessence,two(2)newT-accountsarecreatedtocompletethedoubleentryaccountingprocesscalled'Closing'.ThePeriodProfitaccount(result)andanOwnCapitalaccountareneededsotheresultoftheactivityasrecordedintheTemporaryAccountscanbemovedtothePermanentAccountsSummary.

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SetTwo:#6

TheT-accountformusedtounderstandthedoubleentrytechniqueandprocesscanalsobeviewedinamodernstandardformat.

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AccountinginaNutshellWorkshopwithPowerPointMay26,2017Twenty-FourSlidesT-Account'AccountinginaNutshellWorkshopwithThreeSetsofExercises ONE: ClosingtotheTwoSummaryAccounts(SpatialTransposingwithArabicNumerals) (Slides5through13) TWO: ClosingtotheTrialBalance(SpatialTransposingwithArabicNumerals) (Slides14through16) THREE:ClosingtotheTwoSummaryAccounts(CalculatingwithRomanNumerals) (Slides17through23)

AT-accountdemonstrationofthetransitionfromsingletodoubleentryaccountingthattookplacefromapproximately1200to1500innorthernItalyisusedtolearnthroughaseriesofexercisestheunderlyingprinciples&technique.

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What is Double Entry Accounting for? *

1) The balance sheet reveals our position in regard to our deepest purposes in life as well as a cumulative account of net worth.

2) The income and expense statement is an exact description of one's relationship to the world as well as a record of profitability.

3) Learning the language of accounting itself enlightens our will, allowing us to be financially sovereign, while at the same time acting as an instrument of service to others. This in contrast to becoming a slave to egotism and one's own self-interest.

4) The numbers can bee seen as hieroglyphs that plot and reveal our relationship to ourselves and to one another – to the world.

5) The ability to 'read' our financials can deepen our relationship to society and our purpose in life.

6) Financial and economic literacy can be done for what one can gain, at a deeper level, it calls on us to perceive how effectively are we giving to Society.

7) Learning to read and write financially creates the possibility to inscribe into the economic life our own particular signature and unique contribution to the betterment of the world.

8) Budgets (projections) and accounts can be seen as representing the journey about to be tread and the path already made, not just abstract assemblages of dry information and dead statistics.

9) Financial literacy can be about stocks, bonds, insurance, how mortgages work and credit card training, yet it is also about meeting human needs through what we do in the world and fulfilling one's life purpose in the process of serving others.

*Adapted and edited from:

Banking on Youth and Trade The teaching of associative business, finance and economics to young people © 2013 Christopher Houghton Budd. All rights asserted and reserved. Study material published as a contribution to public debates. Comments to the publisher always welcome. Part of any sale proceeds goes to finance research into associative economics. Please respect copyrights, otherwise how will authors live.

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Appendix

TheEvolutionofDoubleEntryAccounting

ManyoftheseelementsexistedearlierbutwerenotfoundtogetherinaformandstrengthnecessarytopushtotheinnovationofdoubleentryuntiltheMiddleAges.

Privateproperty

Thepowertochangeownershipinagreementneededtobecomestandardpractice.

Capital

Wealthproductivelyemployedallowedforcommerceandcredittoexistandexpand.

Commerce

Theinterchangeofgoodsonawidespreadbasiswasneededbecausesmallvolumelocaltradingdidnotspurthecreationofanorganizedsystemthateventuallyreplacedthehodgepodgeofrecordkeeping.

Credit

Thepresentuseoffuturegoods(value)hasbeenaroundsinceGreecebutnotefficientlyandnowneedingtoberecordedastransactions.

Writing

Awaytomakeapermanentrecordinacommonlanguagetoaidalimitedhumanmemory.

Money

The"commondenominator"fortrackingvalueinexchangesismoney.

Arithmetic

Ameansofcomputingthemonetaryfiguresofthedealor(transaction)neededtobequicklycalculated.

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StandardAccountingPrinciplesDavidMinars,CPA,J.D.,M.B.A.,Accounting,SecondEdition,Barron'sEducationalSeries,Inc.,2003.

Comparabilitymeansthattheinformationispresentedinsuchawaythatthedecisionmakercanrecognizesimilarities,differences,andtrendsbetweendifferentcompaniesorbetweendifferenttimeperiods.

Consistencyrequiresthataparticularaccountingprocedure,onceadoptedbyacompany,remaininusefromoneaccountingperiodtothenextunlesstheusersofthefinancialstatementsareinformedofachangebymeansofnotestothefinancialstatements.Disclosurerequiresthatallrelevantinformationthatwouldinfluencetheassessmentofacompany’shealthbyoutsideusersmustbedisclosedinthefinancialstatements.Materialityreferstotherelativeimportanceofanitemorevent.Ifanitemoreventismaterial,itislikelytoberelevanttotheuserofthefinancialstatements.Conservatismmeansthatwhenaccountantsfacemajoruncertaintiesastowhichaccountingproceduretouse,theygenerallychooseamethodthatwillunderstateassetsandincome.

Timelinessrequiresthatinformationgeneratedbytheaccountingsystemmustbereceivedshortlyaftertheendoftheentity’saccountingperiodinordertobeusefulfordecision-making.

Continuity,alsoknownasthegoingconcernconcept,assumesthatthebusinesswillcontinuetooperateindefinitely.

Entityreferstotheaccountingunit,businessoractivitythatisseparateandapartfromitsownerorowners.

Accountingperiodreferstothetimespanoverwhichtheaccountingdataisrecordedandreportedinthefinancialstatements.Comparisonoffinancialstatementsismadepossiblethroughtheuseofaccountingperiodsofequallength.Thetimeperiodcouldbeonemonth,interim(threemonth),orannual(twelvemonth)financialstatements.Formostcompanies,theannualaccountingperiodrunsthecalendaryearfromJanuary1throughDecember31.Othercompaniesusewhatiscalledafiscalyear,whichendsonsomedateotherthanDecember31.

Stabledollartheoryassumesthatpriceswillremainconstantovertime.Thistheoryrequiresthatallassetsberecordedattheirhistoricalcost.

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