TRIPLE ENTRY BOOKKEEPING^TM

The discussion paper Triple Entry Bookkeeping^TM uses the sci-fi genre and a story-telling narrative to explore a utopian vision for capitalism. This approach was taken because sci-fi allows us the creativity to explore an alternative reality. It frees us from preconceptions and the inertia of habit. However, sci-fi is also rooted in practical feasibility - it is not fantasy.

This thought experiment allows us to ask: 'if our socio-economic construct was different - how could capitalism be improved?'

Download the full paper here

Triple Entry Bookkeeping^TM is an accounting methodology that incorporates the non-financial impacts of commercial transactions. These externalities, whether positive or negative, are by definition not reflected in conventional accounting methodologies, and therefore often excluded from market prices and asset valuations. Such omissions can result in market failure if price sensitive decisions are disconnected from their broader societal consequences.

Triple Entry Bookkeeping^TM corrects this imbalance by modifying both the debit and credit entries to reflect the externalities of a transaction, so that they align more closely with the true cost (or value). This has the effect of adjusting the perceived price for both the buyer and the seller, as well as the future purchasing power of market actors based upon their historic choices. It was inspired by studying the behaviour of social impact investors when they offer concessional capital pricing in anticipation of positive impact. This departure from the risk adjusted norms of modern portfolio theory is referred to as the implied impact of investments.

Triple Entry Bookkeeping^TM operates at the level of the underlying mercantile activity. It expands traditional accounting methodologies to integrate both positive and negative impacts, through a unified approach, across the full gamut of economic activity. It also includes elements of behavioural tax and money supply functions, and assumes a context of digital currency to enable the functionality of programmable money.

1. Triple Entry Bookkeeping^TM introduces an impact weight (sumpt rate) that applies to both positive and negative externalities. This acknowledges impact in a way that is similar to other forms of intangible value, like goodwill and brand. Both positive and negative externalities are considered within the same framework, and translate into positive and negative intangible value respectively.
2. Impact weights (sumpt rates) allow non financial impact to manifest in the real economy as pricing signals, which can nudge purchase decisions at the time they are made. This incentivises both purchasers and producers to value doing 'good' if they choose, without forcing their preference, but instead adjusting their purchasing power in accordance with the underlying impact of the transaction.
3. The weighting of prices is subtlety different from assigning a pecuniary value to impact (i.e. monetising impact). Instead the weighting (sumpt rate) works more like an exchange rate between financial capital and non-financial capital, without trying to monetise impact per se. The result is a means of internalising non-financial externalities.
4. Pricing signals can be applied to the full gamut of commercial and mercantile transactions, including investment transactions. Importantly, impact weighted pricing signals are not restricted to only financial and capital markets.
5. The universality of a single simple concept means that it can be applied consistently to all sectors, industries, transaction types, and all categories of impact.
6. Impact weights (sumpt rates) can be applied to both stocks and flows of capital and across all financial statements. For example, balance sheets, profit and loss accounts, and cashflow statements.
7. The impact weight (sumpt rate) is additive and therefore interoperable with existing methodologies because it does not violate existing norms. Impact weights can be ignored or reversed by sceptics to compare with the current financial-only accounting paradigm.
8. A systemic approach is required, which should not be applied in isolation but in a comprehensive way that integrates related fields such as tax policy, money supply, global trade policy (incl tariffs and duties), and others.
9. The weighting of prices (and valuations) for the underlying impact recognises that the notion of impact is of a higher order of complexity than financial value. Although impact can be 'locked-in' by summarising it as a specific pecuniary value, doing so forces it into a lower order of complexity and therefore important information could be lost. It is more appropriate to give people the freedom to assign different impact weights (sumpt rates) based upon their world-views, and for impact weights to change over time to reflect changing ethical perspectives or priorities of society.
10. The added complexity of impact weights invites experimentation with new technologies such as digital currency and programmable money.