Markets and the Spontaneous Emergence of Double-Entry Accounting: A Short Essay

SYNOPSIS This brief essay advances the thesis that double-entry accounting is due to markets. It is the natural method of recording market transactions, which are exchanges and therefore have two sides to record: what is given up and what is received in exchange. There had been comparatively little market activity in the manorial system that prevailed in Europe during most of the Middle Ages. When peasants and serfs living on the manors had delivered money, grain, or services to their landlords, nothing had been given up coincidentally in exchange, so double-entry accounting would not have been appropriate. Consistent with the present thesis, the double-entry method did not emerge until the thirteenth century, in northern Italy, after goods and financial markets had expanded substantially and a merchant class had arisen. Double-entry accounting therefore has survived for centuries because active markets have survived for centuries. JEL Classifications: B15; D23; D83; M40; M41.