Enough of the accounting philosophy, let’s talk about something more fun. Fraud!
If accounting is as old as the hills, so is fraud. If you recall my post about Clay Balls a few days ago, you may remember that they were storage for tokens carried by tax collectors. The tokens were stored inside hollowed balls to “prevent tampering.” In other words, tampering–tax collectors collecting a few of the tokens to barter for their own purposes–was already a common practice in 3000 B.C.E. Where there are tax collectors, there are corrupt tax collectors, apparently.
Oops! My Warehouse Burned Down…Insurance Fraud
There was also ancient insurance, and with that came ancient insurance fraud. Ancient merchants purchased “bottomry” contracts (now there’s a word!) in Babylon as early as the third millennium BCE, as did Hindus, Greeks, and others. A trader would get a loan for his cargo and pay an extra fee for insurance, with the interest on the loan also helping cover the loss. When the ship came in, if he defaulted on the loan, the insurer would keep the cargo.
The Greek merchant Hegestratos decided to try an end run around his bottomry contract, in 360 BCE. He had received a cash advance and figured to keep it–and the corn–and claim an insurance loss. He put the corn in secret storage and sailed the ship, but empty. However, there were other passengers on the ship, and they were not too keen when they noticed him trying to scuttle the empty vessel. They chased him off, and he drowned. So much for early insurance fraud!
Inventory. Tax records. Rations of bread and beer to the workers. Storage of food during the winter. The earliest civilizations were built on keeping track of things.
Before data warehouses. Before the invention of the steam engine, calculus, banking, or even the ox-drawn plow, somewhere between the wheel and the pyramids, the Mesopotamians created tracking systems.
We tend to think about the earliest people as hunter-gatherers. But nomadic hunters are the antithesis of foragers. Gatherers figured out eventually that if they stayed in the place with lots of bushes, bare survival turns into surplus food. Domestic the cow rather than chasing after it, figure out how to plant barley, and you have farming. Farming leads to population growth, and suddenly you have 40,000 people living in the Fertile Crescent, building cities and empires. You need armies to protect your grain, which requires the farmers to give surplus to a central authority to pay soldiers. Now you’ve invented taxation and a centralized administration.
Banks are like good hygiene, like brushing teeth and wearing underwear. A thankless resource, though someone needs to do it. People don’t like bankers, but they need them. People don’t like bankers because they need them. I explained why in the second post I ever wrote. But how does banking work?
What Is a Bank?
Essentially, banks take your money and give it to somebody else. You could put your money in a sock under the mattress, but it’s a bit safer to choose someplace with big steel vault doors and complicated locks. Like Gringott’s. A bank might hold a Philosopher’s Stone, the royal treasury of the Lannisters, or the wealth of the InterGalactic Empire (who had Storm Troopers handling security). Modern banks spend huge sums on strong encryption systems–online vault doors–to keep your money safe.
Suppose your cousin Marvin wants to open a business, a combination sushi and ice cream store. Hey, they both need ice, right?! That’s Marvin’s business plan. The bank gives your money to Marvin as a loan.
Two problems here. First, Marvin may need more dough than your puny deposits, so the bank has to convince more friends and gather enough deposits in order to give out loans. Secondly, you may need some of your money back before Marvin can attract enough customers. He’s trying–he’s got the slogan: Come for the Eels, Stay for the Sprinkles! This is called a problem of liquidity.
Accountants invented writing, money, international commerce, the middle class, and spreadsheets. When Genghis Khan would take over a city, the first people he’d send in would be the accountants. The Egyptians, the Babylonians, the Romans, the Tang dynasty–most of the huge empires and great civilizations thrived because of their accountants. Truly, as Max Bialystock says to Leo Bloom in “The Producers”:
You’re an accountant! You’re in a noble profession! The word “count” is part of your title!
It is once more the first of April, the first day of the A to Z Blogging Challenge. Last year, I started writing A to Z about a subject (the Olympics) and still Haven’t STOPPED… stay tuned for exciting news along those lines in a few days.
This year, I am challenging myself to keep the entries super short. I won’t air my specific goal publicly, but I promise, Dear Readers, S-H-O-R-T. Suffice it to say, there will be 26 days worth of topics on the history, sociology, fun facts, and weird stories about Accounting, my noble profession.
Ninety percent of Americans are not Irish. Thus, it has always confused me that everyone wants to celebrate St. Patrick’s Day. If your heritage is Irish, more power to you, please feel free to immerse yourself in your culture. If you are in Ireland, I have no doubt it was a gay old time. I don’t mean to burst anyone’s bubble –so much so that I have waited two days, until after the last vestiges of the green beer hangovers are gone, not wanting to interrupt merrymaking. Far be it for me to throw shade at frivolity.
Is Everyone Really Irish in America on St. Patrick’s Day?
But why in the sam heck is March 17 so entrenched as an annual holiday? Every U.S. calendar in the month of March has a giant shamrock symbol on it. Yet, the vast majority of us aren’t Irish, and we don’t all get our own cultural holidays, do we?
It particularly never ceases to amaze me when my diverse Bay Area colleagues, whose English is heavily tinged with accents from the Philippines, Ecuador, Hong Kong, and Mumbai, remind me that we will all need to wear green. What color do I get to wear on Polish heritage day? When is Diwali again? What’s that traditional German dish that we all eat on …. really, there’s no German-American day? That’s particularly surprising when Germans comprise nearly 17% of our ancestry.