Saturday, May 14, 2016

Counting the Errors in "Throwing Rocks at the Google Bus"

By Don Boudreaux

Counting the Errors…

… crammed into Douglas Rushkoff’s Throwing Rocks at the Google Bus is practically impossible, the number of them being so large.  Even in a single paragraph the number of errors is nearly too large to count.  Consider, for example, this swirl of senselessness on page 45:
The problem with trying to get all human activity back on the books is that the books themselves are not neutral.  They are artifacts of a very specific moment in human history – the beginning of the Renaissance – when the two-column ledger was instituted and everything came to be understood as a credit or a debit in a zero-sum game of capital management.  Feeding more activity to the ledger simply cedes more of humanity and business alike to a growth-centric industrial model that was invented to thwart us to begin with.
To begin, let’s be clear: while double-entry bookkeeping likely was first perfected in 14th-century northern Italy (although not then first appearing in some primitive forms), the practice of accounting – of using ‘the books’ to objectively record the results of commercial activities – is much, much more ancient.  So if, as is strongly suggested by the last sentence quoted above, Rushkoff’s real complaint is that ledgers are used to keep objective records of people’s commercial dealings, his historical timing is off by several millennia.
This fact is powerful evidence against Rushkoff’s assertion (on page 67) – in yet another error-filled passage – that “Renaissance monarchs … depended on their exclusive power over lawmaking to rewrite the rules of commerce in their favor.”  In Rushkoff’s juvenile ‘constructivist’ view, not only are all results of non-instinctive human actions the results of some humans’ designs, the evil designers of modern capitalism are the pre-industrial elite (led and protected by “Renaissance monarchs”).  These elites, in Rushkoff’s telling, seeing the sweet economic growth that was sparked by medieval “peer-to-peer” exchange relationships, sought to capture that growth for themselves – and to stop it for ordinary people – by inventing modern capitalism, of which modern accounting is a piece.  But, again, while double-entry bookkeeping might have finally been perfected in Renaissance Europe, it was not first attempted there, and accounting more generally began thousands of years earlier.  (I put aside for purposes of this post the fact – most inconvenient for Rushkoff’s thesis – that it wasn’t until the industrial age that ordinary people began to enjoy the material riches that had until then been reserved exclusively of for the elites.  If pre-industrial elites and “Renaissance monarchs” invented capitalism to “thwart” the masses, that effort must be counted as the greatest failed attempt in human history.)
Accounting, including the perfection of double-entry bookkeeping, emerged (it wasn’t invented, by elites or by anyone else) from the efforts of merchants to keep better track of their commercial dealings.  I’m no expert in accounting, but I remember enough from classes and from some readings that one great virtue of double-entry bookkeeping is that it is an excellent method for detecting errors.  By requiring that ‘the books’ balance according to established and widely accepted rules of accounting, merchants are better protected against, say, unwittingly overestimating their annual profits.  And auditors are better able to protect investors, creditors, and others who deal with merchants from being defrauded or otherwise led into avoidable and costly error.
The notion that accounting in general (“the books”), or double-entry bookkeeping specifically, is some devious device to kidnap humanity and enslave it to work for a “growth-centric industrial model” is absurd.  Contrary to Rushkoff’s bizarre suggestion, keeping better account, in money terms, of outflows from, and of inflows to, a business does not force people to work or to consume in the money economy.  Indeed, it is because more and more people chose to participate in the money economy that the demand for better means of accounting grew.
Rushkoff also fuels confusion by using, in the above-quoted passage, the phrase “a zero-sum game of capital management.”  I assume that, by “zero-sum,” he means simply that, in double-entry bookkeeping, debits always equal credits.  Debits + credits = $0.  They sum to zero.  Always.  True.  But this accounting requirement (definition, really) does not mean that the capital that is under a firm’s “management” cannot grow or shrink.  Rushkoff himself wastes lots of ink throughout his book – indeed, even in the same paragraph quoted above – lamenting the fact that corporations focus obsessively on growth.  Whether you cheer or diss growth, it ain’t zero-sum.  It’s growth.
Rushkoff might respond by saying that it’s zero sum for society as a whole: that is, the growth that is recorded on corporations’ books is offset by the losses that such growth inflicts on the rest of society.  If so, historical evidence simply will not remotely even begin to support such an assertion.  Are the masses today materially poorer than they were during the Renaissance?  Rushkoff, I suppose, might believe that the answer is yes.  Indeed, to make his above quotation something closer to a coherent one, he must harbor that belief.  But, then, any pretenses that he has to being someone knowledgeable enough to take seriously are utterly demolished.
The above originally appeared at Cafe Hayek.

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