Abstract
This edition of ‘Routledge New Works in Accounting History’ is a very interesting study of accounting practices in a very particular context, the Netherlands from the sixteenth to the eighteenth century. It will be of much interest to accounting and business historians as well as scholars in other fields and to individuals who are curious about how life was in the past and, more specifically, about how a country faced complicated and unfavourable natural environmental conditions and became an international commercial player.
The authors’ main objective is to examine the contributions of accounting to the success of the Dutch East-India Company (Vereenidge Oost-Indishe Compagnie, also known as VOC) and the influences to which accounting practices were submitted. From the beginning the authors make it clear that the financial accounting of the East-India Company changed little during its lifetime (1602–1799) and that financial accounting information ‘was not designed as an aid to rational investment decision-making by communicating the Company’s financial performance but to be a means of promoting sound stewardship by senior management’ (p. i). So, more than the success of the Company reflecting the use of a particular bookkeeping system, the authors argue that the supremacy that it achieved and maintained in a very hazardous business at a time of recurring conflict between European states was a consequence of the practicalities of the 17th century business and The Netherlands’ unique, threatening natural environment which shaped its social political institutions. (p. i)
In line with the argument as espoused, the book is divided into eight chapters, including the Introduction and the Conclusion. At the beginning of the book, the authors provide the readers with a very useful timeline of the main historical events, followed by a map of the Low Countries in 1555. For someone who is not familiar with the history of the Netherlands, I found these very useful to understand the different chapters of the book. The Introduction starts with a quotation from Braudel selected by the authors, which is paramount for accounting history research by highlighting that through organizations and their social, economic and political context, it is possible to ‘see beyond into their larger picture of economic life and capitalistic practice’ (Braudel, 1992: 433, quoted in p. 1). This is important since ‘[w]hat has gone before remains important to understanding and acting in the present and anticipating and preparing for the future’ (Gomes et al., 2011: 399), and from this book, several lessons and parallels can be established with the present time, which the authors do throughout the text, such as in relation to accountability, auditing and fraud.
The introduction provides the justification for, and objectives of, the study and consists of two main sections. The first explains the exceptionalism of the seventeenth century, where the transition from feudalism to modern capitalism occurred. During these times, in 1602, the Company was established. It was the first public company financed by permanent capital and was the first example of the modern multinational corporation. It became ‘the largest and most powerful of the 17th joint stock companies’ (p. 2). The second section is dedicated to accounting and the rise of modern capitalism. In this section, the authors provide their theoretical framework by engaging in the debate about modern capitalism and focusing on the arguments of Weber, Marx, Sombart and Bryer, which are considerably debated in accounting history literature.
The second chapter provides a very comprehensive description of Dutch identity and the influence that the landscape exerted upon it. As the authors argue, to understand the geographical and topographical contextual characteristics that shaped the Netherlands’ society and its economy is fundamental to understanding the establishment of the Company and its structure.
Chapter 3 describes the long tradition of trade and commerce in the Netherlands, including its superior marine architecture that allowed the Dutch to dominate the European sea freight. The fact is that the Netherlands geographical location, its lack of raw materials and the poor quality of its agricultural land led the Dutch to develop superior expertise in commerce and trade, which positioned them as strong competitors in international trade against Portugal and Spain. As argued by the authors, ‘[t]he Netherlands revolutionised the Asian traffic by introducing a capitalist approach to the business’ (p. 52).
Chapter 4 is devoted to the Dutch bookkeeping and the influence of the accounting practices of the Hanseatic League, in particular the fact that Hanseatic bookkeepers did not use bookkeeping to calculate the profit of a business entity. Bookkeeping was a means by which to fix and discharge accountability of the agents. Double entry bookkeeping did not have a significant influence in northern Europe before the second half of the eighteenth century, although the method was known by Dutch writers.
Chapter 5 is where the creation of the Dutch East-Indian Company is described with a particular focus on the Charter from 1602 that brought together independent companies in a structure modelled on the federal government of the Netherlands. This charter, which created the first public company, was the result of extensive negotiations to resolve disputes between the different parties, but ultimately a consensus was reached and the structure adopted by the company was based on the organization of the Netherlands’ government, particularly the autonomy of local governments. The administrative structure consisted of a supervisory body of 17 representatives, whose role was limited to developing the Company’s policy and oversight of the organization. This supervisory body comprised several committees for different administrative matters and was then represented by six chambers located in different towns. The 17 persons were appointed by the 6 chambers, and it was in these chambers that the real power was based. These chambers were, of course, subject to the general policies of the supervisory body, but were ‘endowed with a high degree of operational independence which they jealously maintained’ (p. 96). As stated by the authors (pp. 96, 97), ‘[e]ach chamber built its own ships in their own yards, engaged the crews to man these ships, paid their employees’ wages and salaries, and provided the stocks and equipment needed to equip their part of the VOC’s East-Indian fleets’. Each chamber also kept its own financial records and set the policies to control their activities.
Chapter 6 is very complex and interesting. Since it was possible for any person to invest in the capital of the Company this chapter explains how large numbers of capital subscribers were administered, with most of them unknown to the Company instigators. This situation was a ‘revolutionary’ one (p. 105). This required the Company to have an accounting system to deal with the complexities of capital allocation, multiple capital calls, defaulters, capital distributions among other scenarios. However, the authors demonstrate that the Company did not have a capital account to administer additions to the participants’ capital resulting from profits, but it kept detailed records of its capital as part of its bookkeeping system. The authors concluded that the Company’s ‘capital accounting was complicated by not issuing bearer share certificates to its members and by a management philosophy grounded in the northern European merchant venturing’ (p. 132). Complicated situations emerged regarding speculation and fraud, which are not so different from modern day events in different companies and countries. Therefore, the accounting system of the Company was not a fully integrated one, as capital was incidental to the core operations and the capital journals and ledgers were subsidiary to the general ledgers.
Chapter 7 examines the Company’s general bookkeeping in detail, with an emphasis on contradictions and conflicts. It is an informative chapter that demonstrates how accounting influences and, in this case, is influenced by the context in which it operates. The contradiction emerges from the fact that since the Company was a modern capitalistic organization with socialized capital, it would be expected that a statement of profit and loss would have been prepared on a regular basis, in order to help investors make rational investment decisions. That would also lead to the expectation that the company would have adopted a double entry bookkeeping system capable of providing the information required to prepare such a statement, but that was not the case. The Company adopted the basic financial record books of double entry bookkeeping, the journal and the ledger; however, it was a cash-based system. The authors enter into great detail about the accounting system employed during the period of existence of the Company, highlighting the differences that existed between the several chambers of the Company in different towns and also the accounting practices carried out in Asia. The conflict emerged from the fact that the company refused to account for participants, although several attempts and requests were made, and the creation of an audit committee that never made available its reports.
The final chapter provides a very good summation of the study. Among other aspects that the authors highlight is that the Company was ‘a product of its natural and political environment’ (p. 167). The Company is considered to be the most advanced public company of its time and its structure reflected contemporary federal practices in the Netherlands, which ‘was a product of the north-German Hanseatic League’s governance practices and their accounting practices’ (p. 168). Finally, the Company’s accounting system was a hybrid one which was adapted to its particular circumstances.
Overall, this book is a valuable piece of accounting history research with interest for a wider audience. The authors applied academic rigour and I particularly appreciated the use of original Dutch archival sources which were translated by the authors. There is a need for more books like this to be written by academics!