At a glance
- Accounting was a crucial technology that enabled advances like the Industrial Revolution.
- Standardised bookkeeping built trust and transparency, fuelling commerce.
- It has been essential for managing the large scale of modern industrial enterprises.
Economics, as economists themselves have sometimes noted, doesn’t usually concern itself with accounting – even though accounting is their main metaphor for the operation of economies. One of 2025’s Nobel Prize winners in Economics, though, sees accounting as a vital component of the engine of economic growth.
That economist is Joel Mokyr, an economic historian who has spent decades working to solve his profession’s greatest riddle – economic growth. Unlike co-winners Philippe Aghion and Peter Howitt, he has done it without lifting a differential equation in anger. His tool is the clear and polished prose of books like The Lever of Riches, a history of technological progress, and The Enlightened Economy, his economic history of Britain between 1700 and 1850. This is Nobel Prize-winning stuff that accountants can read for pleasure – and for insight into the profession’s evolution.
The riddle of progress
For Mokyr, the riddle of economic growth starts with the observation that most economies throughout history have not grown. Then he asks a question: how did one particular economy – western Europe, along with its colonial offshoots – escape this stagnation and launch itself skyward over the past few hundred years? How did we suddenly grow rich?
Mokyr’s books supply a powerful answer. In western Europe over the second millennium AD, factors like resources and climate helped to create a growth economy. But mostly, western Europe came across unprecedented ways to accumulate and apply ideas. Its people learned to record their knowledge, to standardise it, and to experiment to find new ideas to add to it. Knowledge (as 2018 Nobel laureate Paul Romer has sketched out) has unique economic characteristics. You only need to discover and record it once. You can share it around without losing any yourself. You can solidify it into a form, technology, that you can use to do more and more work.
And one of the pieces of knowledge that western Europe uncovered was a sort of meta-idea – the notion that commerce worked better when you could keep track of who was contributing what, how much they had sacrificed to do it, what had happened to it since, and how they should be rewarded.
That idea was modern accounting.
Joel Mokyr talks about his ideas at a press conference just hours after his Nobel Prize was announced.
The hydraulic system of progress
Mokyr writes of modern accounting not as passive record-keeping but as a sort of hydraulic system that allows the engine of progress to turn freely, with capital and goods and services going where they are needed.
Before the Renaissance, he notes, accounting was barely a system at all: commerce rested much more heavily on personal relationships. Double-entry bookkeeping changed that. It provided, in Mokyr’s terms, a powerful form of “prescriptive knowledge” – a clear set of standardised instructions that most mathematically-inclined people could follow, implement and share. It gave merchants and investors a transparent, reliable way to understand the financial position of their businesses.
Powering Britain’s Industrial Revolution
When industry started to grow, the world of accounting needed to advance further, and fast.
As Mokyr details in The Enlightened Economy, 18th-century Britain possessed a winning portfolio of growth drivers: stable legal system, strong property rights, and a vibrant culture of scientific and technological inquiry. But the Industrial Revolution needed more than just looms and steam engines; it needed ways to organise people and capital on a huge new scale. Mokyr in The Enlightened Economy sets out the novel problems that manufacturing plants brought into the world: “overhead capital, depreciation of equipment, inventory control, and the revenues and costs of different divisions”. Suddenly even capital itself needed a far better accounting, as joint stock companies pooled investment from strangers.
Mokyr notes that the solutions to these problems came from the people who ran the businesses: “For the engineering side, the early managers could rely on technical experts; for the management issues, they were usually on their own.” Initially they struggled to respond. Among Mokyr’s examples: at the Scottish Carron iron company, a manager estimated a £10,500 profit “when in fact £10,000 had been lost”.
Mokyr describes how accounting evolved to solve these problems and keep progress on course. Industrial pioneers like Josiah Wedgwood and Matthew Boulton were not just brilliant engineers; they became early masters of cost accounting. They used their ledgers to analyse the profitability of different product lines, control waste, and make rational, data-driven decisions. In the 1770s, for example, Wedgwood came up with new techniques to work out all the costs of vase-making.
“For the engineering side, the early managers could rely on technical experts; for the management issues, they were usually on their own.”
Joel Mokyr
Slowly, Mokyr explains, better accounting methods based on the principles of double-entry bookkeeping allowed a clearer picture of business reality. That in turn allowed better decisions. It also let owners appoint professional managers and be reasonably sure that they were producing results.
The accountant’s enduring role
Mokyr’s history offers a powerful lesson: in the Industrial Revolution, accounting became a technology for economic transformation. It gave entrepreneurs the confidence to invest, the ability to manage complexity, and the insight to innovate.
For today’s accountants, this historical perspective is more relevant than ever. The tools have changed: the quill pen and ledger have been replaced by cloud software and AI. But the fundamental role of the accountant remains the same: guardian of the information that fuels the economy.
Joel Mokyr’s work affirms that accounting is not a back-office function. It is, and always has been, in the engine room of progress. By providing clarity, fostering trust, and enabling control, accountants don’t just record the past; they provide the essential framework for building the future.
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