The Accounting System #12: Electronic Money Takes Over

previous: Unraveling in 1930 and the New Deal

But in the 1930's ubiquitous accounting was being held back by the sheer amount of human effort needed to produce accurate accountings. In addition to adding machines (bulky, mechanical predecessors to today’s electronic calculators), there was some mechanized counting and data manipulation using punch-card machines. After World War II the accounting machines used by humans to do data entry and calculation started a cycle of major upgrades. The machines now known as computers were invented during the war. The new computers could do more than arithmetic: they could be programmed to manipulate numbers and information in almost limitless ways. Starting around 1950 they became available to the largest corporations for accounting and data processing.


With the computer revolution the accounting system itself began to be virtualized. Records and programs were first kept on punch cards or punched paper tapes, then as years passed on magnetic tape, on magnetic disks, and then on hard disk drives. The rules of accounting could be written in computer programming code. Humans still made the rules, and understood the rules, but the code itself had no material substance to it at all. Accounting programming code could be printed out, or viewed on a machine, but its essence was just an arrangement of electric charges or anything else that could represent numbers and symbols.

Money — abstract, virtual, accounting money — began to be transferred between banks using electronic means, tracked by the computerized accounting systems. Various methods were used, but the important thing was that such transfers were accounted for. Otherwise someone could create (or destroy) money in an account by making a phony transfer. More directly, if the accounting system did not catch such errors or cheats, money could be created or destroyed just by changing the balance numbers in accounts.

By 2010, an American could still write paper checks, but once they entered the banking system they would be virtualized. Cancelled paper checks were no longer returned to their writers. In 2002 Germany started phasing out paper checks altogether, and other nations followed suit. An increasing percentage of transactions are done using credit cards or electronic direct transfers to and from bank accounts.

Money is now electronic, and The Accounting System, with its myriad tentacles, must be totally trustworthy or the entire global economy would be at risk. While identity thieves and computer hackers continue to find chinks in the armor of the System, so far it has been reasonably reliable. Errors in accounts are eventually detected and dealt with. People generally trust that the electronic dollars they put in their accounts will be available to withdraw and use later. Creditors, including the banks themselves, trust that they can keep track of loans and, if necessary, courts will trust their electronic records proving indebtedness.  [Contracts may be on paper, and signed by human hands, especially for larger deals like mortgages, but even contracts and signatures are moving to electronic formats.]

Next: to be continued

[The Accounting System, Your Fate is in the Cloud, is a work in progress by William P. Meyers, ©2013]