
I have been often accused
of being too optimistic. People frequently tell me that I see things
in a too positive way, and that I fail to realize how serious some
problems are. I am also often told that my theories are unworkable,
that there is no way anyone can maintain his mental balance when
everything turns against him. Yet, I must smile when I receive this
kind of criticism, since I know very well that I am being
misunderstood.
Indeed, rational optimism
is counter-intuitive. Our natural reaction to problems is to feel
stressed, and focus exclusively on our most pressing concerns. It is
part of human nature that, when someone is facing severe
difficulties, he blows his problems out of proportion, and becomes
blind to opportunity.
I know that this happens
all the time because it used to happen to me. It takes substantial
effort to train yourself to maintain an objective look of reality,
and not fall prey to the temptation of focusing exclusively on the
problem of the hour. It is only by the increasing your knowledge that
you can learn to react adequately to difficulties, lower your stress,
and increase your effectiveness.
An interesting intellectual problem
Paradoxically, the
strengthening of human serenity is an intellectual problem that has
more to do with accounting that with psychology. The fact that people
tend to overlook that there is plenty of light in the darkness has
more to do with their failure to perform correct calculations than
with any psychological impairment.
Yes,
I believe that there is plenty of light in the darkness, even in the
most profound discouragement and despondency. However, you will only
be able to see the light if you maintain an objective view of the
situation.
This
is why I am fond of comparing psychological processes with accounting
problems. If people learned to put their emotions aside,
and view their problems in a businesslike manner, they would be able
to see, not only their liabilities, but also their assets. If a
correct accounting of the facts was done, the mental resiliency of
most people would be incomparably higher. Nonetheless, I am
aware that this is very difficult to do.
The
accounting approach to solving problems, all kind of problems, only
began in the 15th century. It started as part of the
Renaissance culture, in particular as expressed in the works of Luca
Bartolomeo Pacioli (1445-1518).
Pacioli
was born on Borgo San Sepolcro, which was just a mid-sized village at
that time, although it has in the meantime grown to become a
substantial town. Borgo San Sepolcro, or San Sepolcro for short, is
located 60 km north of Perugia, a large city south of Venice, in
Italy.
With time, Pacioli grew
to become one the most-in-demand teachers of his time, partly because
of his own talent, and partly because of his friendship with Piero
della Francesca (1420-1492). It was Della Francesca who had helped
established the new fashion of painting portraits and landscapes by
using a consistent perspective.
Not only did Della
Francesca produce amazing paintings, but he also wrote two treatises
on the subject. In his books “Perspective in Painting” and “The
Five Regular Bodies,” he defended the theory that beauty andharmony primary depend on the adoption of a consistent perspective,
from the point of view of the artist and the viewer.
Taking old ideas and expanding their scope
Della Francesca was a
great theorist in the field of art, and but it was Pacioli who took
these ideas and began to apply them to other areas of human
knowledge. Piero della Francesca was 25 years older than Pacioli, but
both lived in San Sepolcro at the same point in time, and became
close friends.
It
was also Della Francesca who introduced the young Pacioli to the
Count of Urbino, who then granted Pacioli access to his library. As
the legend goes, the Count of Urbino had accumulated six hundred
volumes on different subjects, mostly copies of ancient Roman
and Greek works, but I must hasten to add that Urbino's library did
not primarily consist of printed books. Most volumes in his
collection were texts copied by hand on parchment, and then bounded
in leather.
Pacioli's access to
Urbino's library had the effect of awakening his intellectual
ambitions, and enabled him to conceive wide-ranging abstractions.
Pacioli did not just want to learn mathematics, but was also
interested in philosophy. He wanted to find the principles that
govern everything in the universe. In this sense, he went much
farther than Della Francesca, who was mainly interested in painting.
Initially, Pacioli set
out to be a merchant. He received basic bookkeeping instruction in
San Sepolcro, and then found a job as private tutor through the
intervention of Della Francesca. The job involved moving from San
Sepolcro to Venice, to the prestigious island of the Giudeca, where
Pacioli became the tutor of the two sons of merchant Antonio
Rompiasi.
The job provided Pacioli
not only with a source of income, but also with the opportunity to
meet all sorts of learned people in Venice, as well as to continue to
read extensively, and expand his knowledge of mathematics, geometry,
and business practices.
By the time the sons of
Antonio Rompiasi entered adulthood, Pacioli had become a well-rounded
intellectual, widely read in accounting and mathematics. In fact, he
had by then acquired a small-celebrity status in Venice, and this
procured him letters of introduction to look for a teaching position
in Rome.
Opening new possibilities
Whether Pacioli arrived
in Rome, he was 23 years old. He was introduced to several cardinals,
and eventually also to the Pope. Nevertheless, he was not offered the
teaching position he was looking for, since he was neither a Catholic
priest nor a member of a Catholic order.
The advice he received
from the cardinals and the Pope was that he should join a Catholic
order, so that he could devote his life to teaching and learning.
Pacioli reflected on the matter for a month, and agreed to join the
Franciscan order. For that purpose, he spent a year and a half
studying theology in Rome, and then became a Franciscan monk shortly
after his 25th birthday.
This step opened him a
wide array of possibilities, professional and intellectual. It
allowed him sufficient time to read and write, and enabled him to
find teaching positions all around Italy. Franciscan monks were
supposed to be poor, and have no personal possessions, but this did
not prevent the Franciscan Order from owning a network of houses all
around the country, and exerting a strong influence on the
appointment of professors in Italian universities.
It was thanks to his
status of Franciscan monk that Pacioli then managed, during the next
40 years, to occupy a succession of teaching positions in Florence,
Venice, Perugia, Croatia, Naples, Urbino, Milan, and Bologna.
The travelling involved
in his teaching activities enabled Pacioli to meet practically all
intellectuals of the Italian Renaissance. Amongst others, he met
Leonardo da Vinci in Florence, in the period from 1497 to 1498.
Pacioli and Leonardo then became such close friends, that Leonardo
later provided the drawings to illustrate one of Pacioli's
publications.
All that has remained
from Pacioli are his writings, from which two books are particularly
important, from the point of view of accounting, and from the point
of view of philosophy. First, he wrote a “Handbook of Arithmetic,
Geometry, Proportion, and Proportionality,” which was published in
1493, and a decade later, “On the Divine Proportion,” which was
published in 1503.
The work of a man of genius
The
Handbook was the first treatise ever published on algebra, geometry,
and bookkeeping for financial purposes. As far as we know, Pacioli
was not an innovator in what he wrote, but he was a great compiler
and generaliser.
He
took the mathematical knowledge of his time, organized it, and drew
conclusions for its application in other areas. Making such a
compilation was the work of a man of genius. The effort to understand
a field of knowledge in depth, and condense its general principles is
a major intellectual undertaking. It requires patience, reflection,
and long-term intellectual ambition, a combination of qualities that
no mathematician in Europe had displayed before Pacioli.
Pacioli's
Handbook of Arithmetic, Geometry, Proportion, and
Proportionality contains a chapter exclusively dedicated to
bookkeeping. This chapter is titled “Particularis de computis et
scripturis,” which means, “On the particulars of financial
calculation and accounting.”
In this chapter, Pacioli
presents in an organised way the bookkeeping practices that Venetian
merchants were using in their businesses. Of course, Pacioli had
learned those practices during the period when he had been working as
a private tutor of the sons of Antonio Rompiasi, a leading Venetian
merchant.
For the first time in
history, Pacioli put on paper a method that allowed to record
mathematically all transactions involving goods or services. Pacioli
explained in great detail the process used by Venetian merchants to
keep track of large numbers of purchases, items in storage, and sales
to customers located not only in Venice, but also in Germany, France,
Belgium, and the Middle East; sales made not only in Venetian
currency, but also in other currencies.
Pacioli's explanations
were so clear and comprehensive that his work became the most widely
used accounting textbook in Europe for the next three hundred years,
which is a remarkable feat. The way in which Pacioli presents
accounting problems is also rather philosophical. He says that, if
you follow the process he describes to establish a balance sheet, you
will never lose track of the situation of your business.
Never lose track of the big picture
“A conscientious
businessman,” he writes, “records his transactions every day,
regularly calculates his profits and losses, and never loses track of
his overall financial position, since this is the only way to prevent
serious mistakes.”
Pacioli's work presents
the complete accounting cycle, starting with the daily records, and
ending with the annual accounts. On the one hand, he describes the
techniques for keeping track of profits and losses, indicating how to
record sales and inventory movements, and write off damaged items. On
the other hand, he explains how to consolidate the transactions
performed over a period of time into a balance sheet that shows the
assets and liabilities, and provides an overview of a merchant's
financial situation.
The
balance sheet structure described by Pacioli in 1493 is still used in
the 21st century. The distinction between the different
types of assets, such as buildings, cash, receivables, and inventory
has remained the same, and Pacioli's recommendation to split
liabilities into short-term and long-term debts still constitutes the
way accountants work in our days.
His
recommendation to draw a profit-and-loss calculation together with a
balance sheet every quarter, and also at the end of each calendar
year, is exactly the way companies continue to operate all around the
world five centuries after Pacioli published his Handbook.
Pacioli
later expanded his theories in his work “On the Divine
Proportion,” where he propounds the existence of a divine, natural
proportion in all aspects of life. In a way, Pacioli was now trying
to apply his concepts of profit-and-loss, assets, and liabilities to
all areas of human activity.
The same equilibrium that
can be expected in a balance sheet, the same matching of assets and
liabilities, should now apply to medicine, law, grammar,
architecture, painting, sculpture, music, and literature.
Every area of human
action should be governed by the search of harmonious proportions,
thus preventing the use of excessive resources to attain a goal, and
ensuring a fair allocation of efforts amongst desirable objectives.
By following this
reasoning, physicians must assess the favourable and unfavourable
aspects of their patients' situation before making a diagnosis and
prescribing a treatment. Similarly, lawyers must review the
advantages and disadvantages of their clients' legal position before
advising them how to proceed.
Universal balance and proportion
Pacioli developed the
idea of universal balance and proportion in a series of lectures he
gave during the last ten years of his life. His work “On the Divine
Proportion” had mostly dealt with painting and architecture, but
during his teaching activity in the early 16th century, he
proposed the application of the same principle to medicine, law,
grammar, sculpture, music, and literature.
And this leads me to the
areas of psychology and philosophy. If Pacioli propounded that all
human actions should be guided by a sense of proportion, by a fair
balance between assets and liabilities, it is because he understood
that you cannot achieve good results if you lose the overview of your
situation.
In his handbook published
in 1493, he described how Venetian merchants recorded in simple terms
extremely complex transactions involving barters, loans, purchases,
investments, transportation, and insurance, and in ways that allow
them to keep track of those transactions without losing visibility of
their overall financial position. Conversely, when people become
extremely pessimistic about their future and the future of the world,
they tend to focus on just a few elements, and forget about the bigpicture.
Two decades before
Pacioli, Piero della Francesca had already arrived at the conclusion
that only paintings that have the right proportions can be regarded
as beautiful and harmonious. Leonardo da Vinci, who had learned the
principles of proportionality from Pacioli in 1497, incorporated
those in his masterpiece “The Last Supper.” Proportion andbalance constitute two essential requirements for success.
How to remain optimistic
Also in the area of
psychology, you need to keep track on a regular basis of your assets
and liabilities, since keeping those in mind is essential for
remaining optimistic. When people focus on isolated elements and
forget about the whole picture, they tend to lose track of their
assets and liabilities, and drive their emotions to extremes. In the
same way as merchants calculate their profits, losses, assets, and
liabilities, well-balanced individuals need to keep an overview of
their strengths and weaknesses, short- and long-term goals.
Even in the darkest situations, when everything seems to be falling apart, well-balanced
individuals can still keep the big picture in mind. Merchants know
that, from time to time, they are going to incur some losses, but
that those do not represent the end of the world. Part of their
inventory may be lost in a shipwreck, or maybe has to be written off
because it has gone out of fashion. That's too bad, but it's no
reason to despair. Overall, the accounts can still be satisfactorily
balanced.
Such disruptions in the
conduct of business must be regarded as normal, in the sense that,
they can be expected to happen from time to time. Such problems won't
make an experienced merchant panic because he knows that, as long as
he keeps the overview, he can still repair his balance sheet.
Never lose your nerve in difficult situations
In the same way,
well-balanced individuals do not despair when they are going through
difficult periods in their health, relationships, of personal
finances. Their ability to see that there is still plenty of light in
the darkness entails a form of psychological accounting. As long as
they are able to keep the big picture in mind, they are highly
unlikely to lose their nerve.
Undoubtedly, Pacioli was
a pioneer in his attempt to seek balance and proportion in all human
activities. He did not write about psychology, since this was not yet
an established area of knowledge in the Renaissance, but he
recommended using double-entry bookkeeping for all kinds of
transactions.
Thus every product sale
must have an impact on the inventory, which is decreased, and the
income, which is increased; and every investment must have an impact
on the assets, on the one hand, and the debts or capital, on the
other.
Similarly, in the area of
human emotions, people should strive to look for balance and
proportion, so that they never lose track of their assets and
liabilities, problems and opportunities, misfortunes and lucky
streaks.
Choose a consistent perspective
Pacioli defended the view
that the universe has a propensity towards balance and
proportionality. A harmonious painting must offer a consistent
perspective and a well-composed structure. This is why Leonardo's
work “The Last Supper” is so impressive, since all figures are
perfectly proportioned. This is the type of proportion that we should
be seeking in our careers, relationships, health, and emotions.
The ability to search for
balance and proportion is essential for maintaining a good emotional
balance, especially in critical situations. The lessons to be learned
from Pacioli are not only financial, but also philosophical and
psychological. The search for a balanced perspective should be taught
in schools and universities. It is a piece of knowledge that explains
why so many people become extremely emotional, make terrible
decisions, and engage in counter-productive actions.
It is only by maintaining
an overview of our assets and liabilities that we can ensure our
emotional stability. Those who can preserve the ability to look at
the big picture can be assured that, even in the darkest moments,
they are always going to be able to see plenty of light.
For more information about rational living and personal development, I refer you to my book The 10 Principles of Rational Living
[Text: copyright John Vespasian, 2014]
[Image by dbking under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]
[Text: copyright John Vespasian, 2014]
[Image by dbking under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]