Resource-Event-Agent Model

= In the early 1980s Bill McCarthy first defines Resource-Event-Agent (REA) model for accounting systems and publishes many papers on the topic.

Description

Bob Haugen:

"REA is usually presented as an enterprise accounting model. But it can also be used for higher-level economic analyses, which can connect individual enterprises into larger economic formations. No other accounting model is so adaptable. In this context, it is apt to think of REA as a general-purpose economic ontology.

The REA Ontology quotes Ijiri as saying "...the economic activities of an entity are a sequence of exchanges of resources - the process of giving up some resources to obtain others." Those exchanges of resources do not stop at the boundaries of a single company. They extend across many individuals and organizations, across industries, regions or the whole planet. And they can be aggregated at higher levels: for example, all exchanges involving an economic resource or economic agent type.

...

REA economic exchanges can extend across companies, industries, nations, regions and the earth as a whole. REA economic resource and agent types can aggregate data at higher and higher levels.

Integration of REA data at higher levels could give enterprises and individuals views into their surrounding value systems, business clusters, regional economies and ecosystems.

Governmental and regional organizations could operate with current accurate aggregate data for economic analyses and future predictability.

Internet aggregators could follow the dependencies of economic events more deeply, beyond superficial text matches, into the ripple effects of wants and needs and potentials on all the related economic agents.

The signals of economic events, needs and potentials do now and will increasingly propagate through networks of economic relationships that will be forced to look a lot like REA. Those networks will become increasingly intelligent." (http://mikorizal.org/BeyondTheEnterprise.html)

Applications

Supply Chains and Value Systems

Bob Haugen:

"Supply chains, which have been modeled in REA terms several times, are composed of the chains of material suppliers to an individual manufacturing company. For example, the January 2000 REA, a semantic model for Internet supply chain collaboration and Supply Chain Modeling with REA which focuses a lot on transportation.

A value system is a broader concept, which consists of all the interconnected economic agents and resource inputs involved in bringing a product or service type to its end consumers.

Both supply chains and value systems are modeled in REA by chains of alternating conversion and exchange processes, connected by output-input stock flows. These chains will also be used in all of the other larger economic formations below, except the larger formations will use larger aggregate resource, agent and process types." (http://mikorizal.org/BeyondTheEnterprise.html)

Input-Output Graphs

"The Input-output model of economics uses a matrix representation of a nation's (or a region's) economy to predict the effect of changes in one industry on others and by consumers, government, and foreign suppliers on the economy. Wassily Leontief (1906-1999) is credited with the development of this analysis." ([1])

History

• 1979: Bill McCarthy redesigns accounting based on real economic events, instead of accountant's interpretations from the viewpoint of ownership. He publishes a detailed analysis of economic interactions which explains the design thinking behind REA.
• 1982: Bill publishes the seminal paper that defines REA. This covers only the accounting or event layer of REA.
• 1982-1999: Bill and several collaborators add the Planning or Commitment layer and the Type or Policy layer.
• 1999: Bill and Guido Geerts publish The Ontological Foundation of REA Enterprise Information Systems which defines all three of the layers of REA in semantic detail.
• Anita Sawyer Hollander, Eric L. Denna, J. Owen Cherrington publish the first textbook on teaching accounting using REA
• 1995-2000: Bob Haugen discovers REA while researching models for developing supply chain software. He and Bill further develop REA as a semantic model for internet supply chain collaboration, which they present at the OOPSLA 2000 Business Object Workshop. Previously, REA has been an internal business accounting model: the internal view. This presentation defines the external, objective, or multi-agent view.
• 1999-2001: Bob and Bill start working with a series of standards organizatons, including ebXML, UN/CEFACT, and ISO.
• 2000: Verna Allee coins the term "Value Network" to describe and model tangible & intangible economic value within organisations.
• 2002: ISO adopts REA as their economic and accounting ontology.
• 2004: Cheryl Dunn, J. Owen Cherrington, Anita Sawyer Hollander publish another textbook on teaching information systems using REA. By this time, REA is taught in accounting classes all over the world.
• 2005: Bob begins to write to the importance of expanding REA to cover ad-hoc networks of external economic entities.
• 2005-2011: Bob works closely with Lynn Foster under the name 'Mikorizal Software' on several open supply chain projects; targeting timber, food networks & fishing industries.
• 2006: Pavel Hruby, Jesper Kiehn and Christian Vibe Scheller publish the book Model-Driven Design Using Business Patterns which explains in detail how to develop REA-based software.
• 2010: Wim Laurier and others start to define REA models and software for "collaboration spaces": business collaborations between many companies.
• 2012: Open hardware manufacturer Sensorica gets involved with REA and coins the term "Open Value Network" (OVN). They develop the Resource Planning (NRP) software in collaboration with Bob & Lynn. This is the first iteration of the software on which many subsequent forks have been based.
• NRP system architecture presentation
• 2014-2018: Lynn, Elf Pavlik, Mikey Williams, and Jon Richter start the Value Flows project to develop a common vocabulary for apps in economic networks using Linked Open Data. Other people arrive and help, including Kalin Maldzhanski, Paul Mackay, and Elio Qoshi.
• 2016: Bill expands upon the concept of an Open Value Network, building on his prior REA model. OVN / REA presentation slides
• 2016-2017: Sensorica's NRP software is forked by FreedomCoop and becomes OCP (Open Collaboration Platform). Many updates are made and integrations with digital currencies (FairCoin) begin.
• 2017: Several people from different projects meet to plan several new software projects based on Value Flows
• 2017: Ivan Minutillo of that group starts to work on mobile-friendly user interface components for ValueFlows-based apps.
• 2017: LearnDeep, a high-school fablab project in Milwaukee Wisconsin, forks the combination of OCP and Ivan's UI components for a fablab materials sharing system.
• 2017: Christophe Combelles starts to develop an REA system for Coopaname, a French associated labor mutual using the open-source ERP software Odoo as a framework.
• 2017: Bill returns to ISO to work on a standard for REA on blockchains.

Example

REA Client Application Interface

"This application attempts to be a new frontend to existing 'Open Value Network' client / server apps." (https://github.com/django-rea/rea-app/wiki)

Discussion

Bob Haugen on how REA developments fit in a Commons Economy

Bob Haugen:

"What I miss on this page is the importance of REA for what the P2PF wants to do.

You can get a hint of it from reading between some of the lines in this story: https://www.wired.com/story/how-the-blockchain-is-redefining-trust/

Key excerpt:

"Consider traditional accounting, a multi-billion industry largely dominated by the ‘big four’ audit firms, Deloitte, KPMG, Ernst & Young, and PwC. The digital distributed ledger could transparently report the financial transactions of an organization in real time, reducing the need for traditional accounting practices. And that is why most major players in the financial industry are busy investing significant resources into blockchain solutions. They have to embrace this new paradigm to ensure it works for, not against, them."

Traditional accounting, with debits and credits, and assets and liabilities and owner's equity, brilliant invention though it was*, will not work on a blockchain populated by economic events from many companies. All of those traditional accounting artifacts are interpretations of those events from the viewpoint of one and only one agent.

McCarthy is increasingly being invited to accounting industry events to talk about REA, collaboration spaces, value networks, and blockchains. ISO is working on a blockchain standard based on their earlier Economic Ontology which is based on REA.

If you put that together with blockchain supply chain systems like Sweetbridge and another one that Consensys is working on, you start to get whole economic networks. And Consensys is talking to McCarthy and other REA practitioners, including us. So that means whole economic networks either running on REA, or at least heavily influenced by REA.

Pretty soon, if you have the P2PF vision, you can see a new economic system emerging. Not yet escaped from capital, but nothing in the version of REA that we use assumes or requires capitalist relationships.

I don't pretend that these computer systems will bring down capitalism or by themselves create a new economic system. That will happen on the ground, by human organizations. But they will need an operating system.

That operating system will be built on REA." (email, January 2018)

PS: Bob Haugen adds: "blockchains are not necessary for that vision. Something like Holochain or even Scuttlebutt could work better."

More information

• https://bitbucket.org/ccomb/rea/ (very early project to combine odoo/rea in the context of Coopaname