The Pacioli Revolution is long overdue everywhere but in Britain

Thursday, March 14 2013 @ 12:23 PM JST

Contributed by: Y.Yamamoto

Law 1: Work expands so as to fill the time available for its completion.
Law 2: Expenditures rise to meet income.

-
Cyril Northcote Parkinson


Nobusuke Kishi, under-cover CIA agent

Shinzo Abe, "new" Prime Minister of Japan
I am not blogging to make my audience feel good about themselves. I'm sorry for that, but now I'm taking up another unpopular topic: Luca Pacioli's double-entry accounting method.

I know most of you well-educated and lofty-minded gentlemen will feel uneasy and say you are not interested in discussing such a lowly matter. I suspect the real reason you think the particular subject is irrelevant to your life is not just because you haven't been in a number-crunching occupation in the past but because throughout your lifetime, you haven't engaged yourself in a value-creating process of the real world.

You keep talking about values, but have never thought about disambiguating your definition of the word. You just take it for granted that "spiritual" values are far greater than "material" ones, or they are just incomparable.

In fact, though, values are values, tangible or not. It takes narcissistic self-deception to believe vagrant, lubricious, foggy, elusive, and opaque ideas in your brain have some values. Actually not a few accounting experts are struggling to come up with objective valuation methods for inner values such as ones to be externalized into intellectual property, by leveraging the wisdom from other areas of expertise such as knowledge science and ontological engineering.
I believe they will be coming closer to quantifying everything, slowly but steadfastly, because at least in theory, there's no such thing as a bright idea you can't make communicable or even marketable. Until you can find the way to materialize your idea, it remains a bubble soon to evaporate into thin air.

Like many of you, I was a late learner in that respect. As recently as when my book was aborted the way it was, I had to learn the hard way my well-researched arguments about the Japanese history were as worthless as a silly idea the average American tweets about in 140 letters.

Contrary to accounting experts, those money-worshiping lawyers and political racketeers know nothing about man's value-creating process but its reverse view. They still believe in the hypocritical notion inherent in Christianity and anti-Christianity alike that "people do not live by bread alone." They always make believe spiritual values don't carry price tags. Why, then, are they willing to pay for the book they may read, the music they may listen to, and the art piece they may appreciate at the museum at times?

In 1494, a groundbreaking book written by a person named Luca Pacioli was published under the title of Summa de Arithmetica, Geometria, Proportioni et Proportionalita. The author was a Franciscan friar, but he wrote the book as a mathematician rather than a mendicant. Although I haven't read it myself, I think Summa was the first sign of the modern civil society where the management of a business, or any other entity, would not always own it. A character in Johann Wolfgang von Goethe's Wilhelm Meister's Apprenticeship says, "[The double-entry accounting method] is among the finest inventions of the human mind." This indicates that Pacioli's theory had already started, by the late-18th century, to have a profound impact on the way people lived their lives.

In 1882, some government entities in Britain started to use the Pacioli method. But it still remained a partial implementation when Cyril Northcote Parkinson drew the dismal conclusions in his book published in 1958 from his extensive research in the British civil service. Margaret Thatcher (1979-90 in office) thought one of the main culprits of the British Disease was the pre-Pacioli mindset underlying the widely-used single-entry accounting method. Having shelved her right-leaning ideology, the Iron Lady took drastic reform measures including the one aimed at the full implementation of the double-entry, accrual-based system. It took Britain's local governments until 1994, the year that fell on the 500th anniversary of the publication of Summa, to complete the switchover.

Even so, the Pacioli Revolution has only just begun in the U.K. because government entities closing their books the way private companies do are only part of it.

In this respect, the U.S. is lagging far behind the U.K. Ronald Reagan's initiative for a small government did not really pay off because there were too many impediments to allow the President to go as far as his British counterpart did. Just for one thing, it's the last thing the Military-Industrial Complex would accept to make its shady business transactions a little more transparent.

There are more than 600 thousand CPAs in the U.S. today. But the population of lawyers is twice as large. As we all know, these shysters are there to prevent change from happening under the guise of guardians of laws, which are mostly unconstitutional in the country. This is basically why the American people are unaware of the ever-accelerating progress of the American Disease.

According to Isamu Fudeya, professor at Chuo University's Accounting School, GASB (Governmental Accounting Standards Board) and FASAB (Federal Accounting Standards Advisory Board) were founded under Reagan's initiative. But it's only recently that government organizations have actually started phasing in Pacioli's system both at the federal and state levels. It seems they think it's about time to have transformed their cultural wasteland into a little more civilized nation, if only for cosmetic purposes.

The switchover will, however, involve a daunting task with profound and far-reaching implications. The introduction of debits and credits, alone, is the easiest and smallest part of it. My prediction is that the Kenyan Black Monkey and many other legal experts in the country will eventually succeed to water down the impact of the Pacioli system in one way or the other. It must be a cinch for these shysters to outsmart the general public which is still daydreaming in the imaginary prison of ideologies.

The situation in Japan is even worse. Despite its political and economic ups and downs in the last one and a half centuries, the country has essentially stood still, going round in circles. Especially in the last couple of decades, which are called "the lost 20 years," the media made every possible effort to instill in their audiences the idea that the postwar regime, also known as the 1955 Sytem, was coming to an end anytime soon to usher in a new era for a viable Japan. Actually it could have come true during the 3-year-period (Sept. 2009-Dec. 2012) when the Democratic Party of Japan, an offshoot from the Liberal Democratic Party, was temporarily in power. The entire regime was almost falling apart. But once again, the change-resistant people opted to pass up the golden opportunity to deliver a final blow to the 57-year-old edifice, on the pretext that it was not the right time to do so in the wake of the "once-in-a-millennium" disaster of 3/11.

As a result of the recent general election of the House of Representatives, the LDP, now headed by Shinzo Abe, breezed back to power. The new Prime Minister is the same guy who had to step down in 2007 as the second last Prime Minister of the former LDP administration when he mentally collapsed in the face of the protracted economic doldrums and deepening political imbroglio.

Abe's maternal grandfather is Nobusuke Kishi, one of the Class-A war criminals. In 1948 Kishi was released from the Sugamo Prison by Douglas MacArthur on the condition that he would act as the main architect of the 1955 System, and subsequently would sign the U.S.-Japan security treaty of 1960 as an undercover CIA agent disguised as Japanese Prime Minster.

So Abe's phenomenal comeback is really symbolic. It's yet another confirmation that the 1955 System is undefeatable and will remain so until the end of time - unless a fundamental change happens just by accident.

No sooner had Abe taken office than he announced "bold" plans to revive the Japanese economy. The three pillars of his stimulus package are measures for a drastic quantitative easing, artificial weakening of the Japanese yen and beefing up public works projects. Now people are enthusiastically hailing these measures as "Abenomics." It looks as though they haven't learned that artificially blowing up GDP by boosting business and consumer sentiment in the total absence of spontaneity and creativity on the part of individual citizens is the surest way to form another economic bubble. And yet the learning-disabled Japanese are hopeful that they can expect a different outcome this time around from repeating the same folly of the 1980s.

Now the entire Japan Inc. is being reorganized by the Ministry of Economy, Trade and Industry into the all-too-familiar formation which used to be dubbed MITI's Convoy System. (METI was formerly named the Ministry of International Trade and Industry.) With the same political racketeers back in place of those amateurish ones in the DPJ, pork-barreling is now on a roll across the board. The original sociopolitical model, which my former friend Benjamin Fulford once called a kleptocracy, seems to have been fully restored as if the 3 years under the DPJ administration were yet another hiccup of the system.

On the other hand, the new Prime Minister has taken over essentially the same set of nanny-state measures from his immediate predecessors because there is no other option acceptable to the 127-million people with pathological obsession with false equality. Since they are all duped into believing in the absurd myth that the nation's wealth can justly be redistributed through taxation combined with "welfare" programs, not a single person has come forward to say: "If wealth is being distributed so unjustly that its redistribution is needed on such a massive scale, something must be fundamentally wrong with this country. What good does it do to reshuffle nation's wealth, which has already been hollowed out, without overhauling the entire mechanism?"

The fact of the matter remains that wealth is constantly transferred from a wrong group of people to another. For instance, those in a feigned disablement are enjoying handsome benefits at the expense of honest people. As a result, income gap keeps widening, rather than narrowing. It's all the more amazing to see the Japanese have become even more hooked on empty promises by their government for jobs that only create fake values and many other egalitarian measures.

Now the country has been unionized from tip to toe in a way somewhat reminiscent of Nationalsozialismus, without a dictator, of course. It looks as though the people without the spirit of self-reliance and sense of self-esteem are babysitting and wet-nursing one another while on the government's payroll. In a sense, the Japanese are now cannibalizing themselves, if you can see what I mean.

Throughout prewar, wartime and postwar years, Japan's political leaders have invariably used the 123-year-old news cartel called Kisha Kurabu Shisutemu (Press Club System) as their propaganda machine. Especially under the 1955 System, media obscurantists have tried every conceivable gimmick in order to dupe people into believing in the legitimacy and viability of this fake nationhood.

To those of you who are superstitious enough to believe in the delusive idea that the world is revolving around something unquantifiable, such as ideologies, the Japanese media look to be manipulating the people's hearts and minds by casting a spell on them. But as always, you are wrong. In this "closely-knit" society, indoctrination is the role of parents, siblings, teachers, friends and neighbors. Media's job is to manipulate numbers, instead.

Actually, it's a breeze for them to dupe their innumerate audiences into believing this country is not really broke yet. It is true that there still are a small number of number-savvy people who are keenly aware that everything they do to others, or others do to them (i.e. a transaction in the accounting terminology) has two or more different implications in it as Luca Pacioli suggested more than five centuries ago. But unlike vague ideas fabricated from ideological delusions, numbers never allow them to see the total picture of multifaceted issues when they are only given mutilated or fragmented data.

In this context, I think the primary role of the Japanese media is something like giving their audiences a jigsaw puzzle in which some important pieces of cardboard are missing, or wrongly shaped. This way they can easily block people from seeing the total picture of the system which has actually gone belly up for quite a while.

Aside from the media, the U.S. government has played a pivotal role in making the shaky system look still in good shape. On February 22 in Washington, Japan's "new" Prime Minister had a meeting with his U.S. counterpart. After the talk, he proudly declared the U.S.-Japanese alliance was now back to normal. He was right. Obviously the 1955 System is one of the rare success stories about America's nation-building efforts since Woodrow Wilson. If there is another series of effort that has been paying off, it's the one exerted on America itself.

In the last 57 years since Dwight D. Eisenhower, Washington has made meticulous efforts to further tie down this country. George H. W. Bush, for one, demanded his Japanese counterpart unilaterally comply with his U.S.-Japan Structural Impediments Initiative which included tearing down non-tariff barriers for more than 200 items. In subsequent years, GHWB's son started the U.S.-Japan Regulatory Reform and Competition Policy Initiative. Once again, his Japanese counterparts swallowed practically everything including the privatization of the Japan Post whose savings arm holds huge funds that top 175 trillion yen as of today. And now Abe reaffirmed his grandfather's pledge of unconditional allegiance to the U.S. by telling the Kenyan Black Monkey he had made up his mind to join the Trans-Pacific Strategic Economic Partnership.

The single most noteworthy thing here is the fact that none of these unilateral reform initiatives have included a demand that the Pacioli System be put in use in the Japanese government, which might have eliminated all these "impediments" in one go.

According to the aforementioned accounting professor, Japan imported the double-entry accounting method as early as 1875 to use it for the government books. But 14 years later, it was replaced with a single-entry, cash-based bookkeeping method which had its origin in Prussia. Fudeya does not elaborate on the story behind the backward move, presumably because he thinks it's self-explanatory. Even today, the country uses the archaic Prussian system at all levels of the government.

Now that even the lawyers' kingdom across the Pacific is belatedly moving toward the Anglo-Italian model, though only on the surface, it's only a matter of time that its "docile satellite" in the Far East jumps on the same bandwagon.

Potentially, the switchover would have enormous implications for the country.

Just take a look at the website of Japan Pension Service (the pension administration arm of the Ministry of Health, Labor and Welfare,) for instance. If you are one of those who are exceptionally familiar with accounting and actuarial matters, the first thing you will notice is the fact that no Balance Sheets and Profit and Loss statements are provided there. True, some data for investment portfolios are available in the site, but they mean absolutely nothing when no liabilities are shown to support the asset side of the data, including the dividend income from investment, which is normally reinvested at the fund manager's discretion. In Japan, most government pension programs are contributory type. That means the government is incurring liabilities for its fiduciary responsibility for the current and future beneficiaries.

Any trained accountant can tell the implications of this pre-modern arrangement. For one thing, sovereign debt is only part of the government's indebtedness. It's understated at least by 400 trillion yen. That makes it meaningless to say the government is now indebted a little more than 200% of Japan's GDP, which already indicates the government spends far beyond its means. Another thing is that it's quite likely a good part of these pension assets have been misused or even embezzled because keeping accrued liabilities off the books is a typical way to cover up irregularities.

Now it's evident that the country is already in a negative equity situation, i.e. it's already gone bankrupt. At present, the government retains as many as 4 million single-entry-minded civil servants who strictly observe Parkinson's Laws. They are solely working on income redistribution. which, by definition, creates no values. To put it bluntly, the only option for the Japanese government is to dump most, not just many, of those on its payroll. Since the private sector also has a huge redundant manpower, I have always argued that Japan would become a viable nation only when it became ready to see its unemployment rate, which still stays below 5%, shooting up to 20% or even higher.

Even if all the government entities start to apply the double-entry accounting method to their financial statements, that, alone, will be far from enough because the credibility of their disclosures will be zero until independent auditors, not ones from the Board of Audit of Japan, thoroughly scrutinize their books. Moreover, even the audited books will still mean nothing if people remain in the dark about how to analyze financial statements.

Unfortunately, chances are remote that the full-fledged implementation of the Pacioli system, which is nothing more than an enabler of change, will help the Japanese clean house. Japan has a proven track record in artfully distorting and sanitizing imported ideas so the old system, be it the Tennoist cult or the 1955 System, would be kept intact.

One such example is the import of Mahayana Buddhism in the mid 6th century. They lifted the import ban only after deifying the Buddha. The same cherry-picking trick has been applied time and again to the "modernization" of the country in the last one and a half centuries under the slogan of
和魂洋才 (Japanese spirit and Western learning.) It's as though the "Japanese spirit" needs no modernization.

In all likelihood, the same trick will be used to devise a configuration to neutralize the effects of the double-entry bookkeeping method so the existing system still looks resuscitatable. I think most probably it takes an eternity for the Japanese to wake up from the pre-Pacioli fantasy. It's always people that should change first and foremost.

My prediction in this respect is that Shintaro Ishihara, former Tokyo Governor, will be the mastermind of this gimmick.

In 1968, Ishihara ran for a seat in the Diet on the LDP ticket on the pretext that the System could be reformed only from within. Then in 1989, he ran for the party presidency, but lost by a big margin to a mediocre contender named Toshiki Kaifu. This is the only election he has lost by now. Soon after the loss, he left the LDP to become the Tokyo Governor. Weeks before the December election, however, the 80-year-old ape quit the cushy, high-paying position at the Metropolitan government to make a comeback to the national politics. As usual he won.

On his campaign trail, and in a recent Diet session, he argued that one of the most important problems facing this country lies with the fact that the government still clings to the single-entry accounting method. He said to the effect that during his tenure as the head of the Metropolitan Government, he successfully changed its accounting method to the Pacioli System, and that the central government should follow suit. He added that then Japan's net-worth would instantly turn positive because the Household Financial Assets total 1,400 trillion whereas the government's indebtedness is just 1,000 trillion.

Once again he proved to be an idiot. His alma mater is Tokyo's Hitotsubashi University which was formerly named Tokyo Commerce of College. When he was a freshman, he took the exam for the CPA, but he failed. No wonder he doesn't understand the Bank of Japan's data means absolutely nothing if he doesn't subtract the Household Debts from the Household Financial Assets. The Net Household Financial Assets, which stand at 466 trillion yen, are what really count. More importantly, he doesn't have the slightest idea about accounting entities. The government is an accounting entity, but each household has its own. So any part of the government's debt can't be offset against the Household Financial Assets.

This is yet another hyperbole we heard from the idiot. You may wonder why, then, he has always been a shoo-in in a popular vote. The reason is simply because voters, who are in perpetual frustration over the dysfunctional system, always need to be degassed. Australian writer Ben Hills once dubbed him a Neanderthal. Ishihara should have taken it as a compliment because actually he is more like a parasite. He needs the 1955 System to withstand his attack just like it needs the self-styled rebel to keep talking big about the "reform from within."

I wrote this essay because I wanted to tell you I have been losing further ground in my constitutional battle against Yokohama municipality. Early on I insisted that I have no reason to pay the income-unrelated Citizen Taxes when my constitutional rights are in jeopardy. But it was like "urinating on the face of a frog."

At the same time, I've also had to prove I have no money to pay them, anyhow. To that end, I submitted several times the summaries of my cash book in Excel Sheet. The tax collectors refused to seriously examine my monthly receipts and disbursements on the pretext that there is a rule that says these data should be submitted using the "designated form." I refused to comply with their demand because the format I was shown was designed based on the archaic single-entry, cash-based accounting method.

Even if I had filled it out as they demanded, just the same I wouldn't have been able to convince them I was already broke. Cash balance can never be negative because you can't have a minus amount of money in your pocket.

Likewise, as long as a country sticks with the pre-Pacioli system, it won't notice until it's too late when it is on the verge of bankruptcy.

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