Accounting

Accounting is not only historically the first form of writing, a method for expressing, organizing, managing and archiving information. It is also maybe our earliest distributed economic communication and networking protocol. As a collaborative record-keeping and calculation system based on simple arithmetic, it is used to organize and record our transactions in a ledger or a book of accounts. Through accounting, every transaction is recorded in at least two ledgers. To reflect what I transfer to you, you make a positive entry in your ledger: a credit; I make a negative one of a matching amount in mine: a debit. To record the transfer going the other way around, I make a positive entry in my ledger, and you make a negative one in yours. We distribute our transaction record across two mutually referring ledgers. Together, through this practice, we create a fundamentally networked, non-hierarchical, and distributed record-keeping system: A distributed ledger. The key insight of accounting ECSA has followed is that we are able to cooperate, coordinate and form relationships by just sharing a practice and rules about it - with no need for a global shared ledger. Accounting practices contain rules and procedures that determine how to classify and record information, how to change it, verify it, and compile and communicate it. Through the accounting practice we agree to connect not only instantaneously but across time through accounting notions like assets and liabilities. A liability entry in my ledger is an asset entry in yours. Your present right is my promise and future obligation. The matching credits and debits that we record indicate the transfer of anything and how much of it: They describe a value flow between us. Every transaction we make records our operations and necessarily connects our ledgers. The accounting information binds together a network and coordinates our activities and those we transact with: it is a record-keeping and calculation system, but more importantly, a communication and organization system. As a record-keeping, communication and calculation agreement between two or more parties, accounting is in effect a network computation agreement. This is the definition of a network protocol. As a protocol, it does not dictate what we enter into the ledger, only how we must enter it; it does not determine the amounts we record, only that we record amounts. As a protocol accounting serves the function of storage, retrieval, and verification of the integrity of information. But why do we use it? We record in the ledger our tacit response to an essential economic question: “what is valuable?”. The transactions on the ledgers that document our exchange reflect a practical agreement on what we value of each other. The amounts we record using accounting respond to another question: “How valuable is it?”. The ledger entries embed a transaction as a measurement: an exchange rate that reflects the “value” we give to one thing in terms of another. In other words, accounting is a value communication network. The accounting practice, whether recording on clay, tablet, or paper, binds together a network of bookkeepers and their ledgers. As such, historically, it formed a rudimentary distributed computational medium. Now, when computational networks are our new medium that host the record-keeping and the calculation - historically undertaken by slower mediums - the updates on our ledgers, our transactions, are rendered incredibly fast and incredibly vast. Economic Space Agency (ECSA) is building directly on this insight. See Jorge Lopez (2022): Economy as a reprogrammable communication medium.