FINANCIAL STATEMENTS TELL A STORY. Depending on the circumstances, including the underlying motivations of the author, the accounts of an industrial company or a financial institution or a high tech start-up or a national government can be crafted to serve as either a biography, a fantasy, a romance, or a mystery. Too often, though, the four principal financial statements that drive modern financial markets — balance sheet, income statement, cash flow statement, and statement of retained earnings — are as impenetrable as the pristine copy of Finnegans Wake that sits unread on so many bookshelves around the world.

The practice of accounting that has developed over the past 600 years, as well as the highly remunerated professionalization of accountants over the past 150 years, is driven by a deep-seated human desire to measure things. As Joseph Stiglitz once observed, “What we measure effects what we do, and better measurement will lead to better decisions, or at least different decisions.”

Jane Gleeson-White’s survey of the history of accounting and the challenges it faces today, Double Entry: How the Merchants of Venice Created Modern Finance, draws a series of interesting and interconnected conclusions about both the early successes and the recurring failures of attempts to systematically reduce the hurly-burly of real-time economic activity to numerical form.

Her story begins in earnest during the Renaissance, a period when unprecedented successes in commerce in northern Italy were supporting and promoting grand artistic and literary endeavors. A few decades after the fall of Constantinople and the final demise of the ideal that was the Roman Empire, math teachers in Italy began to turn their attention to the practice of double-entry bookkeeping that had taken root in Italy in recent years. Armed with the recently arrived Hindu-Arabic numbers that would soon usurp the more cumbersome Roman numerals that still held sway in Europe, these practical mathematicians were led by Luca Pacioli, a monk whose impact on accounting can still be seen and felt to this day.

Pacioli set in motion a revolutionary change in how economic activity was viewed by its practitioners and by the world at large. In 1494, he published the first systematic explanation of the “Italian method” of double-entry bookkeeping, where every transaction is recorded twice, first as a credit and then as a debt, and ultimately all transactions can be reconciled together and the overall health and well-being of the business can be measured and judged. Pacioli quickly gained international fame and his work was translated into many other languages.

Gleeson-White explores the birth and initial triumph of double-entry accounting with sharp attention to the cultural and historical context of the times, and follows it briskly through subsequent centuries, as its acceptance and expansion steadily continued. When the industrial revolution arrives and the corporation appears on the scene as this new era’s vehicle-of-choice, Gleeson-White shows in concise and compelling detail how the “Italian method” of accounting evolved from its roots in simple trading and exchange to embrace and describe the minutiae of industrial production at a level of detail and with an analytic power never seen before.

The adoption of limited liability corporations as the dominant business form of the past 200 years was not inevitable. Many of the flaws of the corporate model remain ...