TINKER, MERINO e NEIMARK (1982) - The Normative Origins of Positive Theories Ideology and Accounting Thought PDF

Accounting, Organizations and Society, Vol. 7, No. 2, pp. 167-200, 1982. 0361-3682/82/020167-36 $03.
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Printed in Great Britain. @ 1982 Pergamon Press Ltd.
THE NORMATIVE ORIGINS OF POSITIVE THEORIES:

IDEOLOGY AND ACCOUNTING THOUGHT*
ANTHONY M. TINKER, BARBARA D. MERINO and

MARILYN DALE NEIMARK
Schools of Business, New York University
Abstract
“Positive”, “descriptive” and “empirical” theories are frequently promoted as being more realistic,
factual and relevant than normative approaches. This paper argues that “positive” or “empirical”
theories are also normative and value-laden in that they usually mask a conservative ideological bias in
their accounting policy implications. We argue that labels such as “positive” and “empirical” emanate
from a Realist theory of knowledge; a wholly inadequate epistemological basis for a social science. We
use an alternative philosophical position (of Historical Materialism) together with a historical review
of the concept of value to illustrate first, the partisan role played by theories and theoreticians in
questions concerning social control, social conflict and social order; second, the ideologically con-
servative underpinnings of positive accounting theories; and last, some indications of alternative
(radical) approaches to accounting policy.
It is commonly believed, inside and outside the ac- accounting) such as Positivism, Empiricism and
counting community, that accounting is independ- Realism. Whatever their specific form, we argue
ent and neutral as regards major social struggles here that these theoretical masks act to mystify
and conflicts. This paper contends that, far from the socially partisan role of accounting and elevate
being neutral, accountants have been highly instead its technical, factual and seemingly object-
partisan in such matters. Specifically, we argue ive aspects.
that (partly by choice and more often by default) We begin our exposition by examining one of
accountants have been unduly influenced by one the epistemological masks that enjoys widespread
particular viewpoint in economic thought (utility- popular support in the current accounting litera-
based, marginalist economics) with the result that ture: that of Positivism (or Realism). We contrast
accounting serves to bolster particular interest Positivism with an alternative philosophy of
groups in society. Historical Materialism, and show that the former is
The social allegiances and biases of accounting an inadequate epistemological foundation for
are rarely apparent, usually they are “masked” by accounting, requiring too many acts-of-faith and
pretentions of objectivity and independence. leaving too many questions unanswered. The
Academics have contributed some of the more notion of a positive accounting theory is shown
sophisticated “masks” in the form of accounting to be an illusion because research in accounting (or
theories (theories in accounting) and epistemo- in any science) cannot be value-free or socially
logical theories (theories about theorizing in neutral. Researchers who remain oblivious to this
-
l The authors are grateful to the following for their helpful suggestions and comments: George Benston, University of
Rochester; Charles Christenson, Harvard University; and the faculty seminars at Baruch College and New York Univer-
sities. Special thanks are due to Anthony Hopwood for his perceptive comments on an earlier draft of the paper. Any
errors and shortcomings in the paper are the exclusive responsibility of the authors.
167
168 ANTHONY M. TINKER‘ BARBARA D. MERINO and MARILYN DALE NEIMARK
fact are open to becoming tools of the funding enhance or diminish the social value of produc-
agencies of special interest groups. We suggest that tion, i.e. is it a manipulative practice that increases
Historical Materialism offers a more plausible basis alienation or a legitimate improvement in pro-
for accounting theorizing. duction technology?’ What were the historical
We illustrate the application of Historical conditions that led to greater corporate account-
Materialism by means of a brief history of Value ability? Has auditing increased that account-
Theory. Our review highlights the central role that ability? Is there any cost to work that is demand-
arguments about the meaning of value have played ing and tedious? Is there any value to work that is
in social struggles throughout history. For al- stimulating and enriching?3
though the term “value” is one of the most com-
monplace in the language of accounting, there is
little in the accounting literature that acknow- REALIST PHILOSOPHY
ledges its controversial nature. We also introduce
concepts of value that differ from the utility-based Accounting is not the first discipline to wit-
(marginalist) concept of value (with all its attend- ness a struggle between positive and normative
ent social allegiances) which dominates contem- approaches, indeed their philosophical counter-
porary accounting and which forms “the norm- parts of Realism and Idealism have been at odds
ative origins of positive theories”. throughout the history of western science (Harre,
In the last part of the paper we suggest that 1972; Caws, 1965; Hudson, 1969; Pirsig, 1974).
alternative ways of conceptualizing value offer the Realist philosophy asserts that reality objectively
prospect for a radical realignment of the ideo- exists “out there” and is independent of our per-
logical, political and social predispositions of ceptions and thus reality is ultimately the same for
accounting. We explore the implications of this every observer. Given this, we may come to know
realignment for areas such as multinational ac- this one, ultimate reality by searching out the
counting, corporate accounting; management underlying laws and mechanisms that regulate its
accounting; behavioral accounting; social account- behavior. Note that this philosophy holds out the
ing; tax accounting; accounting law etc.’ We show possibility of discovering one single, absolute,
that, in each of these areas, a reconstituted con- objective reality and that this “truth” exists in-
cept of value enables us to investigate a range of dependently of individual perceptions, idiosyn-
critical social issues and questions that are “over- cracies and biases. Thus ultimately, there is only
looked” by the present literature. For instance, one truth facing the Pentagon, Polit Bureau and
how should we evaluate the pricing policy of the Catholic Church. Final agreement is con-
public and private monopolies? Can we assess the sidered (in principle) possible on such questions
degree of unequal exchange that occurs (through as “what is”, “what causes what” and “what
multinationals) between developed and under- exists”, because researchers need merely to consult
developed societies? Does behavioral accounting “facts” about our shared reality in order to
* We use this “conventional” categorization of the subject merely to expedite our discussion; this should not be taken
to mean that we concur with this “structuring” of accounting. On the contrary, in our opinion, many of the problems
that afflict the subject arise from the kind of partitioning that is entailed by these conventional categories. The segrega-
tion of the “historical” from the “social” from the “financial” from the “behavioral” aspects are some of the more
damaging divisions (Lowe & Tinker, 1977; Tinker & Lowe, 1980, 1981, 1982).
2 For concepts of value that embrace the notion of alienation, see for instance Braverman, 1974; Ollman, 1976;
Elson, 1979.
3 We do not attempt to explicate value theories that address all of the above questions; such an objective would be
most unrealistic for a single paper. What we do provide is an introduction to literature on different value approaches
and indicate some of the theoretical and political reorientations that they suggest for accountants.
THE NORMATIVE ORIGINS OF POSITIVE THEORIES 169
determine the truth (Giddens, 1974; Novack,

1971; Morick, 1980). Realism, or Positivism, became an authentic
Controversies over Realist philosophy have philosophy for accounting researchers when
been especially pronounced in the social sciences Friedman gave it his stamp of approval in 1953
because of the difficulties of verifying propositions (see Hakansson, 1969, pp. 137-144; 1973, pp.
involving man-made intangibles and constructs. 4 153-160).6 Friedman had taken his cue from
In what sense can we touch an equilibrium, see a Keynes. Thus, in 1980, Zimmerman cited Fried-
bliss point or smell an income number and verify man (1953) who quoted from Keynes (1891) that
their character and existence in the same way that a positive science is “a body of systematized
we can (say) with an element or a sulphur crystal? knowledge concerning what is” and a normative
Are personalities, market prices, pluralistic ideo- science is “a body of systematized knowledge dis-
logies, role structures, costs, growth paths, culture, cussing criteria of what ought to be”. Friedman
dissonance, motivation and leadership, items that expanded his argument for viewing economics as
we can show, unequivocally, exist “out there”; or a positive science in Capitalism and b’recdom
are they imputations, contrivances and projections (1962, p. 86) claiming that while “the economist’s
that originate from within ourselves and our social value judgments doubtless influence the subjects
relations? he works on and perhaps, at times, the conclusions
Can we say that the “laws” of supply and de- he reaches . . this does not alter the fundamental
mand are “natural” laws like gravity, or did we point that, in principle, there are no value judg-
put them “out there”? If they do originate from ments in economics”. These statements, on the
within ourselves, even in part, then whose truth same page, appear quite contradictory; but per-
and whose reality is to provide the correct basis haps Friedman is suggesting that if the researchers
for accounting theory and policy making? If the make all their value judgments (i.e. in choosing the
social world that we observe and study is a world problem, the variables, the characterization, the
that we have helped contrive, are the usual causal ordering and the posited relationship) at the
(physical science) criteria of explanation and pre- outset of the research, then the results will be
diction adequate for evaluating these creations? 5 objective and value free. If this is true, then all
-
4 Realism has also had its difficulties in the so-called natural sciences (see, for instance, Kuhn, 1970, pp. 55-68).
Thus, early physicists climbed mountains in search of “aether” that subsequently turned out to be a figment of their
theoretical imagination (Kuhn, 1970, pp. 52-59). In contemporary physics, certain particles behave “as though” they
had different personalities, thereby raising the question for some academics as to whether a personality-theory of
particles is needed (Capra, 1975; Zukav, 1979).
’ The above is not intended to ignore questions related to the social construction of the physical world. There is a
substantial body of literature (e.g., Mendelsohn & Whitlcy, 1977; Knorr et al., 1980) that argues that the theories and
epistemology of the natural sciences are formed by and continually interact with the broader social order. Further, to-
day’s researchers are no longer merely investigating (and interpreting) the world; they are creating the world they are
investigating in genetic engineering, space research, waste disposal, forestry control, industrial planning etc. (Boulding,
1969).
’ The epistemological roots of “Positivism”, as the term is used in accounting, are muddled at best. Its proponents at
the University of Rochester are not “Positivists” in the sense of any of the common uses of the term. For example, in
asserting that the term “theory” should be reserved “for principles advanced to explain a set of phenomena” Watts &
Zimmerman (1979, p. 272) seem to reject Friedman’s positivist (really instrumentalist) epistemology - that the criteria
for theory acceptance is “the precision, scope and conformity of the predictions it yields” (1953, p. 4). On the other
hand, Christenson (1981) shows that their research is inconsistent with the standards of both 20th century logical
positivism (e.g. Popper, 1959) or “Verificationism” (Positivism’s 19th century form). In linking Positivism in all its
manifestations with Realism, we are not ignoring the differences between these forms of Positivism. Rather, we are
suggesting that despite these differences, all versions of Positivism share a common Realist foundation - a belief that
the “facts” stand “out there”, somehow independent of our theories about them.
170 ANTHONY M. TINKER, BARBARA D. MERINO and MARILYN DALE NEIMARK
that follows is trivial, for the important pre- into “normative” and “positive” or, in those cases
analytic decisions (in Schumpeter’s terms) are out- where a theory has been infected by values, the
side the theory formulation and therefore are not very act of recognizing the value-judgments (usu-
subject to critical analysis or discussion.’ ally called “stating one’s assumptions”) somehow
The recent accounting literature of the efficient exorcises the theory of the troublesome element.
market-related research contains numerous ex- It seems that confessing one’s assumptions (e.g.
amples of attempts to deny or diminish the that the market is efficient; that we can ignore
significance of value-jugments embodied in pre- wealth endowments; that informational efficiency
analytical decisions. In this literature, various is an important indicator of real economic well-
intellectual maneuvers have been used to achieve being; that we can add utils together) is taken by
this desired separation of “fact” from “value”. In some researchers as absolution from all that logic-
a landmark paper in 1974, Gonedes & Dopuch ally follows from the assumptions (however out-
argue that researchers can only assess the “effects” rageous and unrealistic the assumptions may be).
not the “desirability” of alternative accounting Some of the efficient market research assump-
procedures.8 In the same tradition, Watts & tions, for example, are so unrealistic that they
Zimmerman have argued that theories can be more closely resemble “articles of faith” than
divided into those that commit value judgments plausible premises (Katauzian, 1980, pp. 45-83).
(normative theories) and those that do not (posi- There are several, crucial “articles of faith” that
tive theories). They propose that positive account- lurk imperceptibly under the positivistic mask
ing research (such as efficient market studies) be that dignifies and authenticates efficient market
used to form accounting policy.g In a similar research. First, there is the tenuous connection
manner, Dopuch (1980, p. 74) welcomes em- between informational efficiency and economic
piricism in accounting research and lauds attempts efficiency: that the speed with which new inform-
to eradicate (value-laden) theorizing in the stand- ation is impounded into stock market prices
ard-setting process. He asserts that theories can be correlates directly with the efficiency with which
divided into “empirical” and “non-empirical” real goods and services are produced. Second, the
(later becoming positive and normative) and that assumption that the stock market remains a signifi-
while normative theories are not dead, he hopes cant economic institution under contemporary
they will be discontinued because they are unlike- capitalism when only a small fraction of new
ly to produce any further benefits (op. cit.). capital is secured through the stock market: the
Underlying much of the above is the view that, primary source of corporate finance being reten-
either theories may be unambiguously segregated tions.” This is in addition to assuming that partial
’ Friedman’s 1953 essay resulted in a decade-long controversy in which Friedman’s arguments and his instrumentalist
epistemology were sharply criticized, e.g. Grunberg (1957); Nagel (1963); Bunke (1964); Boland (1979) and Blaug
(1980). For example, Nagel (1963) concluded that Friedman’s thesis ranged from trivial to absurd depending upon
which of his several meanings of “assumptions” one chose (Christenson, 1981, p. 41).
8 Nowhere do Gonedes & Dopuch discuss the criteria (values) they have used in their work that enable them to reduce
“effects” to “security price effects”.
9
Zimmerman has “refined” this categorization by suggesting that theories can be further compartmentalized into
descriptive, positive and normative (Zimmerman, 1980). The motivation behind this analysis remains the same as before
however; if, by isolating the normative “seed”, we can purge positive and descriptive accounting research from value
judgments, then all accounting policies that flow from this research will be blessed with an objectivity and impartiality
that transcends particular class, institutional and other interests.
lo A July 1962 study by the Machinery and Allied Products Institute found that between 1947 and 1961 internally
generated funds provided 85% of corporate capital requirements. Net stock issues in the same period accounted for less
than 4% (Baumol, 1965, p. 68). Baumol concludes from this and other studies “that a very substantial proportion of
American business firms manage to avoid the direct disciplining influences of the securities market, or at least to evade
the type of discipline which can be imposed by the provision of funds to inefficient firms only on extremely unfavor-
equilibrium in the capital market translates un- other investigations.14 Collectively, these invest-
ambiguously into a general equilibrium for the igations have used empirical methods that have a
economy as a whole, despite all market imper- legitimate claim to be more exhaustive and reliable
fections (Ronen, 1974; Keynes, 1936; Baumol, than “peering at life” through Compustat tapes.
1965; Stiglitz, 1972; Jensen & Long, 1972; Mays- Efficient market research “washes-out” the vari-
har, 1978). Since the ultimate object of economic ance belonging to such results with large samples:
activity is to reproduce the (real) means of sub- such results are dismissed as “mavericks” and “out-
sistence, with stock prices merely “paper” inter- hers”. What efficient market studies lack is a sense
mediaries in this process, the linkage between of the social loss-function that appears to be
stock prices and the production of real goods and associated with these scandals: single, unique cases
services is critical and cannot be taken for granted. have been quite sufficient to mobilize public out-
Third, both general equilibrium theory and effi- rage against the profession. A minimax objective
cient market research have been criticized for function (for example) would be more appropriate
assuming (rather than demonstrating) that markets in these circumstances since we are no longer
exhibit equilibrium-seeking properties (Hicks, interested in the efficiency of the market as a
1965, p. 15; Shaikh, 1981, pp. 270-278);” for whole, but in success at every individual level.
the implausible causal assumptions that are used to Although perhaps over-dramatic, the response of
explain observed behavior (Kregel, 1973, pp. 12- efficient market researchers (through their mass-
14);12 and for the errors in logical inference that sampling) seems analogous to arguing that inci-
are frequently committed by researchers in inter- dents like Three Mile Island are not a problem
preting from stock market data (Ronen, 1979).r3 because most surveys show that the majority of
Fourth, there are “the facts” that “efficient nuclear power stations are not melting down.
marketeers” choose to ignore: Leasco and Reh- We reserve our main philosophical critique of
ante; National Student Marketing; Mattel; Equity Realism and Positivism for the following section
Funding; Penn Central, etc. The manipulation of where we are able to highlight the deficiencies of
accounting data, the financial losses to investors, these approaches by juxtaposing them against the
the effect on stock prices and the damage to in- alternative of Historical Materialism. We should
vestor confidence resulting from these cases has point out however, that Positivism itself has its
been established by legal, journalistic, SEC and own long and checkered history and can be (and
-
able terms” (ibid, p. 70). The Wheat Report (1969, p, 59) noted that between 1961 and 1967 the ratio of the trading
volume of new issues to those of established stocks declined from 5.3 to 1.6%.
l1 For instance, Shaikh has persuasively argued that market prices are subject to a form of “tendential regulation”
rather than equilibria&g tendencies. Tendential regulation provides for the possibility of disequilibrium situations
occurring.
l2 Kregel and Robinson have both challenged the omniscient abilities that are attributed to Walrus’s mythical auc-
tioneer. Walrus’s auctioneer is an imaginary “person” (symbolizing the tatonnement process) who, like a stock market
specialist, supposedly “causes” the market convergence towards an equilibrium price by issuing a series of prices, based
on successive schedules of bids from buyers and sellers. Kregel notes that Walrus’s infamous auctioneer is like most
religious apparitions, only seen if believed. Kregel adds that, even if we could be sure that this imaginary person exists
in some sense, the information requirements, computational ability and foresight required to act, just like a real broker
(but for the whole economy) makes the proposition totally absurd.
13
A particular set of stock market prices may signify either equilibrium or disequilibrium in a macroeconomic sense.
Efficient market theory cannot distinguish between equilibrium and disequilibrium structures.
l4 Although investors may increase their individual discount rates to allow for such contingencies, a higher overall
(social) discount rate reduces the amount of investment and therefore, the level of economic growth. Thus, actions
which seem advantageous to the individual investor may, in the longer term, impoverish him/her as a member of a less-
well-off community.
has been) criticized as a philosophy independently materialistic theory, as a guide for future research.
of its links to Realism. The origins of Positivism
lie in the works of Madame de Stael, Saint-Simon
and subsequently Auguste Comte (Giddens, 1974; A MATERIALIST THEORY OF
Hayek, 1952; Christenson, 1981). A rather garbled ACCOUNTING THOUGHT
version of these early ideas has been translated
into accounting research from the writings of Materialistic philosophy provides an alternative
Hayek (1952), Keynes (1891) and Friedman epistomolygy to that of Realism. A materialistic
(1962). (For a discussion of this “translation” see philosophy contends that knowledge of the world
Christenson, 1981; Zimmerman, 1980.) In the is as much an invention as it is a discovery. “Facts”
view of early Positivists, the methodology of never speak for themselves and therefore consult-
natural science offered the prospect of “positive ing the “facts” about reality is never a sufficient
knowledge” about “what is” (Harre, 1972). This explanation as to how we come to know what we
initial presumption was followed by two deduc- know (Abercrombie, 1980; Shaw, 1978). The
tions; both of which have been accepted by psychological predispositions of researchers
accounting positivists and both of which were (Brown, 1974; Mitroff, 1974); their cultural and
shown to be invalid by the philosopher David social environment (Domhoff, 1979; Lecourt,
Hume (1888). The first assumption was that, from 1981; Strickland, 1972; Shaw, 1975); and their
knowledge about “what is”, it is possible to solve institutional affiliations (Baritz, 1960; Muthern,
questions about “what should be” (Hudson, 1981; Debray, 1981) are all relevant to how we
1969). The second assumption involves the prob- construct knowledge in the fashion that we do;
lem of induction: that is, it is possible to justify, whether that knowledge pertains to surgical
on purely logical grounds, inference (prediction) practice (Ehrenreich & English, 1973); genetic
from experience. Both assumptions are still held engineering (Reich, 1971); economic management
by accounting positivists (Christenson, 1981, pp. (Routh, 1975); motor-cycle maintenance (Pirsig,
14-16) even though, since Hume, they are regard- 1974); or the practice of accounting (Burchell
ed as erroneous in conventional epistemological et al., 1980).
thought (see for instance Novack, 1971; Christen- There are many examples that show scientific
son, 1981; Morick, 1980; Cornforth, 1971, 1980; knowledge to be artifact rather than merely the
Giddens, 1974).” outcome of a search for absolute truth. Break-
Realism, operating in the clothes of positive throughs in scientific theory frequently occur in
theory, claims theoretical supremacy because it is times of crisis for a discipline or its underlying
born of fact, not values. We contend that this social system. For example, Edmund Burke’s
separation of theorizing into descriptive, positive ideas came in response to the challenge of forces
and normative is designed to create an illusion of for democratization; Adam Smith’s thought served
impartiality and independence to support norm- as an important theoretical justification of laissez-
ative policy type decisions.16 As an epistemology, faire; Marxism was an attempt to provide an expla-
we find such a linear representation of the com- nation of the more disturbing consequences of
plexities of the scientific imagination unaccept- capitalism; marginal analysis was a counterblast to
able, and offer an alternative epistemology, a Marxism;17 Weber’s bureaucratic theory can be
’ 5 Our critique of Realism extends to all variants of Positivism, including Logical Positivism, which some research com-
mends as the new epistemological Nirvana for accountants.
l6 Zimmerman (1980) and Watts & Zimmerman (1979) are among the leading proponents of positive theories. But, in
the final analysis, the only reason for conducting positive research is to formulate normative policy-type decisions. How
theorists interpret “facts”, (i.e. why variables are related) without also subscribing to some normative preconceptions,
(i.e. usually what ought to be) has not been explained.
l7 Solow (1963) has acknowledged that marginalist capital theory in the 19th century resulted in part from a non-
marxist backlash and fulfilled the social function of providing an ideological justification for profit. (See Harcourt.
1972, p. 380.)
viewed as a rationalization and, therefore a theo- analysts estimate that this will not become due
retical justification of the contradictions of large- until the mid-1990s at the earliest (Business Week,
scale German monopolies operating within an en- 17, July, 1978). If the current expense associated
vironment of laissez-faire ideology; Keynesian with this future payment was estimated in present
economics was an intellectual and pragmatic value terms, the current effective tax rate would
response to the crisis of mass unemployment and fall considerably. The fiction is maintained of
the inability of neoclassical economics to locate course because accounting statements and foot-
the cause (Allen, 1975, p. 72). In a similar vein, notes are not disinterested best estimates of profits
the philosopher Wittgenstein has argued that even and expenses, they are “certified documents” that
mathematical theory is better understood when can be used politically to resist government regula-
viewed as an invention rather than just a discovery tion and to lobby for a more favorable business
(Bloor, 1973; Young, 1975). climate (Sloan, 1976). From a materialistic view-
Materialist philosophy differs fundamentally point therefore, financial statements should be
from Realism in that it recognizes that “theory” seen as “creatures” of business reality rather than
may come to form part of the reality that the objective descriptions of historical “dead facts”.
theory purports to describe. In this way a theory The difficulty with the Realist assumption (that
comes to have a life of its own - it is reified - and truth comes from facts) is that it fails to recognize
therefore may be experienced as external to the that theory plants some of the facts. Realism pre-
theorist. Thus for example, how is the validity of supposes a subject-object split: we (the subjects)
Monetarist or Keynesian theory affected by the can observe and analyze reality (the object) in a
fact that they are employed to both act upon and completely detached objective fashion. Neverthe-
describe reality? Are features of economic ration- less the subject-object split is a false assumption:
ality (such as acquisitiveness; selfishness; com- observers (subjects) are a product of the reality
petitiveness) inherently natural to human kind, or (objects) they observe (and so therefore are their
are they products of theoretical interventions models of observation and perception). Moreover,
(reifications)? There are examples from both the object (reality) is changed by the results of the
management and financial accounting that under- subject’s analysis and theorizing.
score the relevance of a materialist philosophy. The rejection of the subject-object split leaves
In management accounting, it is commonly Realism and the promoters of positive accounting
acknowledged that budgets are not merely “best theories in something of an epistemological
estimates” of what will happen; they are also quandary. How can we talk of discovering the
targets used to motivate managers to adopt truth about the workings of the socio-economic
particular courses of action (Hopwood, 1974; world if our theories have helped create the
Stedry, 1960). In this respect, it is not the for- institutional and ideological aspects of the reality
casting ability of a budget that is important, rather we are examining? The problem, in essence, is one
it is the desirability of the situation that it helps of trying to discover human nature empirically,
create. Similar examples abound in financial when much of human nature is created by society
accounting (although this is less commonly re- and its theories.
cognized): for example, many U.S. oil companies The task we have set for ourselves in the follow-
and utility firms have, in recent years, protested ing secrion is to illustrate, with a specific example,
their high tax burden. They cite, as evidence, the how a materialist viewpoint may enhance our
expense items in their income statements and the understanding of the evolution of accounting
footnotes, which show effective tax rates that are theory. The example we have selected is the
often in excess of 40% of profits. Yet payment historical development of the concept of value in
of this expense is deferred, often for many years, economic theory. Two questions require attention
and in certain cases indefinitely. AT & T, for before we proceed, however. First, as many ac-
instance, showed a deferred tax liability in excess countants would view the history of Value Theory
of $11 billion on its 1978 balance sheet. Market as only tangentially related to the evolution of
accounting theory, what constitutes the proper Value Theory has been so central to the de-
domain of study for accounting researchers who velopment of economic thought that Georgescu-
are concerned with the development of accounting Roegen (1971) has said that “a broad perspective
thought? Second, what kind of evidence should be of the history of economics emerges as a struggle
admissible in such an historical inquiry? Both with the problem of value”. We argue that Value
questions raise exceedingly complex but funda- Theory has also been central to the development
mental issues. To insist that accounting history of accounting. While Value Theory has tradition-
research should be confined to (say) primary ally provided the logic for exchange relations,
sources about bookkeeping practices would be to accounting has provided the system for measuring
prejudge research questions before they have and reporting reciprocity in exchange. We will
been articulated. Danto (1971, pp. 9-13) has argue subsequently that it is impossible for ac-
argued that such questions as “What is history?” counting to avoid aligning itself with one brand of
“What is economics?” “What is philosophy?” Value Theory or another. The real question is
state the mission of a subject. Therefore, we which one to choose. If this choice is to be an in-
feel that a question such as “What is account- formed one, then accounting researchers need to
ing history?” should be taken as problematic; take the nature of social conflicts as problematic
Social change and changes m the concept of value”
Rlcardion
Socialists
Canomst
School
(Aquinus
(Smith, 1776; *
1250) -Marxism (1850)
Ricardo, 1817) -Srafforlans----)
\ (1960)
\ /
Lousonne
(Gossen , 1854 ;
Mercantillst
School
(Barbon, 1690;
Pol lexfen, 1700 ;
Cory, 1719)
STATE AND
FEUDALISM--MERCANTILISM- EARLY CAPITALISM -MONOPOLY
CAPITALISM
*The dates ore the opproxlmote dotes of publication of major theoretlcol contrlbutlons
The orrows denote some of the moln interrelations between ideas.
Fig 1.
something to be discussed and investigated by and to understand the active role that the concept
scholars, not prejudged by equating historical of value has played in wider social struggles. To see
research to “hard” accounting or bookkeeping this however, one must view the changes that have
data. occurred in the concept of value, not in Realist
terms as an accumulating wisdom about a fixed detail in the following passages, we can gain a brief
reality, but as an ideological positioning of the foretaste of their implications for accounting by
social imagination designed to explain contempo- contrasting the essential differences of these two
rary social conflicts and concerns. In this way we generic approaches to value theory.
may gain a better perspective on the partiality of The most fundamental difference between
our contemporary notions of value, as well as a utility-based and labor-based theories of value lies
feeling for the compromises and assumptions we in the manner in which each approach deals with
must commit in accepting such notions. the social relations underlying economic cate-
gories. In the case of utility-based value theories,
the relative value or worth of all goods and services
A MATERIALIST HISTORY OF produced in an economy (producer goods, inter-
VALUE THEORY mediate goods and final goods) is ultimately deter-
mined by their relative contribution to the utility
Figure 1 is a route map for the following dis- of consumers.” The distinguishing aspect of this
cussion, which traces the development of the con- theory is that value is said to originate in “things”
cept of value from the Middle Ages to the 20th (called “factors” i.e. land, labor and capital).
century. As suggested by the parallel streams in Those labor theorists who are also historical
the diagram, the concept of value has developed materialists have criticized this analysis because of
along two competing themes - value based on its a historical and a social character; it treats
socially necessary labor (i.e. production side valu- factors of production as the genesis of value
ation) versus value based on subjective utility (i.e. (“eternal categories”) thus failing to recognize
demand side valuation). It will be seen that the that these factors are only found in one type of
social struggles in each historic period are mani- wealth producing society: the very specific social
fested in, and stimulated by these two generic and historical conditions of capitalism. This is
concepts of value, which share a common theo- evident in the dual meaning of the term “capital”:
retical mission - to simultaneously explain exist- the first, to do with its capacity to produce other
ing production and exchange relations and to goods; the second, which is concerned with pro-
prescribe how such relations should be structured. perty ownership. This second (Marxian) meaning
Figure 1 summarizes a great deal more than the of the term capital is specific to capitalism and
evolution of two streams of economic abstrac- signifies a social entitlement to income for a class
tions: the two lines of thought correspond to that has no personal involvement in production.
perspectives that are fundamentally opposed: This shows that the notion of “factors of pro-
philosophically, politically and ideologically. duction” is socially specific to capitalism:
Moreover, insofar as accounting has used eco- “factors” refer to sources of value (labor) as well
nomic thought as a rationale for its own practices as features of appropriation of value (capital) that
(consciously and otherwise) these borrowings are specific to Capitalist Society. Socially special-
have been almost exclusively from one of these ized labor is the only factor that is common to all
approaches: utility-based value theories (the lower societies, in the view of labor theorists, and there-
stream of ideas in Fig. 1). fore labor is the common origin and determinant
What kinds of accounting are suggested by of value (for capital itself is appropriated and
labor-based theories of value (the upper stream of accumulated labor).
thought in Fig. l)? How might they differ from We may develop still further the labor-theory
the accounting which has grown-up in the shadow critique of utility-based value theories to show
of utility-based value theory? While the evolution that factors of production and associated concepts
of these two economic paradigms is considered in such as profit, wages, capital, equilibrium and
18
Including capitalists who express their preferences for consumption over time in a time-preference discount rate.
price are all ultimately reducible to the social ceremonial exchange and exchange by plunder
relations of capitalism. Capitalism may be defined that transgressed this rule, however, even in these
and distinguished from other social formations cases, the value principle was still prevalent: a
(such as slavery and feudalism) in terms of its product was worth the socially necessarylg labor
unique relations between social members (laborers, expended on it, and it could be exchanged for a
capitalists and landowners) and their relations to quantity of other products that embodied an
Nature and property (Shaikh, 1981; Dobb, 1963). equivalent amount of labor time (Mandel, 1968,
Theoretical categories such as capital, rent, profit pp. 49-67).
and wages are not universal to all wealth producing This production-based value principle (based on
societies; they are (socially) specific to capitalism the exchange of equal amounts of labor time) was
and therefore to its social relations because, in the one of the most influential legacies that Antiquity
final analysis, it is the social relations of capitalism bestowed on the medieval period. Canonist
that distinguish it from other social systems theorists” were concerned with the terms of ex-
(Meek, 1967; Mandel, 1968). change between small independent producers, i.e.
Thus, what utility-based value theorists regard the proceeds that each obtained from the sale of
as “fixed” in the form of factors that produce products and what could be obtained with those
wealth, labor theorists take as problematic because proceeds. As Canonist scholars and clerics were
the latter treat “factors” (like capital) as social frequently involved in adjudicating trade disputes
relations of capitalism that are both changing and as well as other matters of distributive justice,
changeable (Arthur, 1979; Elson, 1979; Amin, there was a need to develop a concept of an
1978). Being “changeable” is the vital element ethically just price. Since the proceeds of sale
here: whereas utility approaches reify the existing usually accrued to the direct producer (not a
social order into “fixed factors”, labor theory merchant intermediary or capitalist) the idea that
approaches highlight the fact that a social order the rewards should be commensurate with the
may be recreated, enhanced and developed. The outlay and effort expended in production pro-
difference is crucial for accountants (as it is for vided an obvious definition of a just price (Kaulla,
ail social beings): one approach is an apology for 1940, Chapter 1). The exchange of equal amounts
the existing social structure, the other is on of labor time - the practice evolved in Antiquity
opportunity to change it. - became the Canonist’s primary rule for deter-
mining the ‘fairness’ of a particular exchange.
The canonist theory of‘ value Compensation for the labor time expended was
One of the dominant value principles to emerge the most important element of medieval just price;
from Antiquity and primitive societies was that with additional amounts added to cover the costs
exchange took place in quantities that equalized of raw materials, transport and sometimes the risk
the amount of non-slave labor-time embodied in involved.2’ A reasonable measure of distributive
the products transferred (Anderson, 1974; Dobb, justice was probably attained by the concept of a
1963; Mandel, 1968). Certainly there were ex- just price in Aquinas’s time because trade took
amples from irregular exchange, silent exchange, place in small, static and relatively self-sufficient
ly 1n this context, “socially necessary” labor time means time spent productively in a trade or craft that has evolved as
part of the division of labor of the community in question. Thus, time spent as a finance professor would have been
“unnecessary” in feudal times but “necessary ” in other societies (Mandel, 1968, pp. 63-65).
20
The Canonist concept of value may be traced to 13th century philosophers such as Thomas Aquinas.
‘I The fact that the Canonists placed equal value on an hour spent by different craft specialists was in keeping with
customs dating back to the very beginnings of commodity production, estimated to be about 3000 B.C., when labor
was frequently considered to be equivalent, regardless of its specific character. On the tables found at Sasa, inscribed in
a Semitic language, the wages in a Prince’s household were fixed at 60 qua of barley for the donkey man, shepherd,
cultivator, smith, cobbler, cook, engraver, tailor and carpenter (Mandel, 1963, p, 65).
communities, where the efforts and expenses of (Meek, 1975, p. 14).

various direct producers were known and could In the development of the idea of a conven-
readily be compared (Meek, 1975, p. 13). tional price in the mid-to-late seventeenth century,
What was distinct about Canonist Value Theory several important subsidiary concepts emerged
(compared with utility-based marginalist theories) that were to play an important role in future theo-
was the centrality that was ascribed to a com- rizing. The ideas are well illustrated by Nicholas
munity’s labor time in imparting “real” value to a Barbon’s pamphlet (A Uiscourse on Trade) written
commodity and in translating that real value into in about 1690, when Classical Value Theory
the commodity’s exchange or relative value. was beginning to supercede Mercantilist theory.
Accompanying this emphasis on the production- Barbon’s pamphlet links the “value” of a com-
side, as the source of value, was a stubborn refusal modity (its current market price) with the strength
to grant consumer demand and subjective utility of its demand and its level of supply. Moreover, he
the status of determinants of value and price introduces the concept of the intrinsic value of a
(ibid, p. 11). commodity (its utility value or subjective value)
and suggests that this is causally linked to the
Mercantalist theory of value market value; thereby anticipating marginalism
The growth of merchant trade initiated a major and its causal ordering by nearly sixty years.
transition in the concept of value. The Church’s The emphasis (in the mercantilist period) on
involvement was ambiguous and contradictory in utility as a legitimate factor in determining value
this transition, reflecting its heavy investment in and price was understandable in that the mer-
the feudal order (through ownership of land, for chants’ gains came almost entirely from the con-
instance) and, at the same time, its expanding sumer through price differentials. Conventional
beneficial interests in ore-extraction and trade price value, with its emphasis on utility rather than
(Tigar & Levy, 1978). labor as the primary source of value, strengthened
Gradually scholastic theoreticians began to the merchant’s bargaining position relative to pri-
articulate a concept of value that was more in mary producers by suggesting that the consumer’s
keeping with the growing merchant interests who wishes (not rhe effort expended) should be the
came to dominate the new social structure. In ultimate consideration in determining the amount
order to respond to the needs of expanding trade to be paid to producers by merchants.
and commerce (particularly the need for the gains The transition to the classical thcovy of value
of the merchants and traders to be recognized as The emergence of early forms of capitalism in
“just”) scholars retreated from the cost-oriented the late seventeenth and early eighteenth centuries
basis of the Canonist’s just price, and redefined stimulated a further transition in Value Theory.
“just ” in terms of what has been called the con- The producer-cost approach to value began to
ventional price approach. show clear signs of a revival (especially in Britain)
The conventional price was that which was where we find writers such as Cary describing pro-
customarily received and paid for a commodity. duction costs as “true value” or “real value”
This approach set aside its production-oriented (Cary, 1719, pp. 11-12, 98-99). The reversal in
traditions by admitting demand-side influences economic thinking mirrored a revolution that
(utility and the subjective expectations of owners was taking place in economic practice. Many
and consumers) as determinants and constituents theoreticians of the times were spokesmen of the
of value. Meek suggests that the conventional price merchant-manufacturer and parvenu industrial
was reconciled with Aquinas’s just price without capitalist and these new entrepreneurs were in-
too much difficulty by arguing that, in the absence creasingly concerned with costs of production.
of information about the difficulties in producing Competitive pressures in the product market made
a merchant’s products, value was partly depend- it more difficult for merchants to maintain profit
ent on utility to the purchaser and therefore levels by traditional methods and the merchant
subjective valuations of the individual consumer classes began seeking new ways of exercising direct
control over production costs.** These methods a period of ideological transition in which the
varied from the “putting out” system, to attempts central problem was to remove mercantilist
to increase productivity through technical im- obstacles to industrial expansion, i.e. the regula-
provements and the division of labor. The latter tions, practices and sectionally-protective impedi-
form of reorganization was often instigated from ments to free trade and competition. While Smith
within the direct producer group: “the rise from argued that the ultimate source of a nation’s
the ranks of the producers themselves of a capita- wealth was its labor, he recognized that unlike
list element, half-manufacturer, half-merchant, more primitive societies, where exchanges of pro-
which began to subordinate and organize those ducts were based on equal amounts of labor
very ranks from which it had so recently risen” power, capitalism featured “unequal exchanges”
(Dobb, 1963, Chapter 4). in which the capitalist appropriated part of the
There was also a shortage of labor during this social product for reinvestment and capital ac-
period resulting, in large part, from restrictions on cumulation.
the movement of labor and the existence of parish At the center of Smith’s analysis of the de-
based poor laws (Polanyi, 1957). Well before the velopment of capitalism is the emergence of a
end of the 18th century, by which time the short- social surplus and the appropriation of that surplus
age had become acute, the economic literature by capitalists for growth and development. These
recognized the importance of the supply of wage- precepts were essential for Smith’s basic theoretical
labor for economic advancement. From the last mission: to show that the key to abundance lay in
quarter of the 17th century onwards, a variety of understanding how the surplus was appropriated,
schemes emerged for encouraging immigration and deployed and then redeployed in successive time
permitting naturalization; setting the poor to periods. For Smith, wealth generation involved
work; and abolishing the death penalty for all but the study of economic dynamics and this required
the most serious offences (Meek, 1975, p. 19). an invariable yardstick with which to measure the
Production problems, together with greater com- flow of production through time that would
petition in the market-place, gradually helped emanate from a particular sequnce of employ-
divert the attention of economists and social ments (distributions) of surpluses.
philosophers away from the sphere of exchange to Smith’s yardstick of social value was his con-
that of production. These changes were accom- cept of commandable labor value: the quantity of
panied by a growing belief that it was through work-people that could be hired from the proceeds
specialization of labor rather than through the of sale of a product. Such a concept is meaningful
accumulation of gold and silver that nations be- when viewed in terms of the preoccupations of
came wealthy. It was no accident that Adam theorists at the time. An individual capitalist’s rate
Smith, the pre-eminent economic thinker of this of accumulation could be measured in terms of the
period, states in the first sentence of the Wealth of additional number of employees who could be
Nations that “the annual labor of every nation is hired in each period. It was natural, therefore, for
the fund which originally supplies it with all the Smith to appeal to such a value notion to describe
necessaries and conveniences of life which it a nation’s capital accumulation potential.23
annually consumes”. Smith uses the notion of a “real measure” in
Smith’s doctrine - articulated initially in his the special sense that it not only captures the
Glasgow Lectures (1740) and developed and ex- magnitude of a commodity’s value but also “em-
panded in his Wealth of Nations (1776) - reflects bodies”, “inheres”, or “composes” the product.
** From Pollard we can hypothesize that this interest in production costs preceeded early developments in cost ac-
counting. Here we have a clear instance of accounting ideas and practices - as we would recognize them today -
originating from social and economic conditions (Pollard, 1965).
23 Meek also notes that it is only in a society in which labor power has become a commodity (i.e. capitalism) that one
would associate real value with the power to purchase labor itself and not the products of labor (1975, p. 65).
While Smith regarded money as a measure of Classical political economy and the labor theory
value, it was only in the limited sense of providing of value
an estimate of the “real” value possessed by the Ricardo’s contribution to the ideological re-
product (Meek, 1975, p. 51). Thus, Smith states in constitution of the concept of value was complex.
the Lectures: “We have shown what rendered He is known for his trenchant attacks on land-
money the measure of value, but it is observed owners and was outspoken in his support of
that labour, not money, is the true measure of capitalism. At the same time, he developed a theo-
value” (Smith, 1838, p. 190).24 retical apparatus in his Principles (1817) that came
The intellectual climate of Smith’s era was a to be feared by gentry economists as having
period of transition from the mercantilist’s con- socially mischievous and even revolutionary
cern about exchange to the early capitalist’s possibilities. Inherent in the work of Ricardo, is a
concentration on production and the division of concept of value that is diametrically opposed to
social labor. It was understandable therefore that the value theory underlying much contemporary
Smith would regard socially specialized labor as accounting research. We first examine Ricardo’s
the motive force behind progress and abundance concept of value and then show how it was sub-
and the quintessence of a commodity’s value. sequently maligned and discredited thereby pre-
Socially necessary labor endows a product with paring the way for the utility-based theory of
exchange value because that labor forms part of a marginalism (and its accounting derivatives).
social, collective whole: a form of social under- Ricardo was interested in economic dynamics:
standing that permits each member to specialize the path that an economy followed over time in
in a prescribed way and exchange the products terms of aggregate national income, income dis-
of this specialization for the means of existence. tribution between social classes, employment,
In this sense, all exchange is not only an exchange savings and investment. Income distribution (and
of labor but ultimately an exchange of social therefore the distribution of property and wealth)
activities, or as Meek puts it, “The value relation- were at the center of Ricardo’s studies. Indeed,
ship between commodities which manifests itself evolving a distribution theory was the “principle
in the act of exchange is in essence a reflection of problem in Political Economy” in his view.
the relationship between men as producers” Ricardo saw economic activity as a circular loop
(Meek, 1975, p. 63). This accords with the view, where, once continuing net investment and growth
developed subsequently by Marx, that “value” is are introduced, a significant portion of the outputs
ultimately a social relation because it is concerned are ploughed back as fresh inputs before they have
with the exchange of the life experiences of people a chance to emerge as final consumer goods.
whose labor is bound-up in the products, We are Ricardo, and his twentieth century interpreters,
thus led to the conclusion that accountants and such as Sraffa, sought to determine the trajectory
economists who advise and guide participation in an economy would follow over time if it began
market transactions are essentially adjudicating in from a particular distribution of income among
social relations and in the transfer (and appropria- laborers, capitalists and landowning classes. In
tion) of labor time. this fashion, he sought to provide a “conditional
24 It would be incorrect to say that, by the mideighteenth century, a fully fledged labor theory of value, such as that
articulated by Ricardo and Marx, had developed. Many writers were still heavily influenced by the mercantilist view of
exchange values, but a growing number were beginning to take an interest in the link between the increasing amount of
labor specialization in society and the accumulation of social wealth. This would eventually develop into the idea that
labor contributed value to commodities in proportion to the total social effort that it was necessary to expend in their
production (Meek, 1975, p. 445).
forecast” as to the pattern of growth, employ- Before considering the ideological struggle that
ment, etc., that would ensue in a succession of ensued from the declaration of this potentially
time periods from an initial distribution of in- revolutionary viewpoint, it is worth noting the
come. way that Ricardo dealt with contemporaries such
Such a formulation raises one of the most in- as Malthus, who advocated incipient versions of
tractible problems in economics: how should we the kind of economics that underlies much of the
measure the total output of goods and services accounting that we practice and teach today.
from an economy (including capital goods that Utility was an inadequate source and determinant
will be used in future production) for each time of value in Ricardo’s view (except in inducing
period? Such a measure is necessary if the desir- short-run price fluctuations) because economic
ability of different (starting) income distributions policy and the well-being of those who depended
is to be ascertained. Unfortunately the same on it were far too important to be based on such a
physical output quantity of goods and services fickle and unassessable quantity (a point that was
may be valued differently depending on the dis- dramatically reiterated in Keynes’ references to
tribution of income. In short, there is a many-to- the “animal spirits” of investors being the unstable
one (not a one-to-one) relation between monetary ingredient in capitalism). Similarly, supply and
measures and each physical output level. Therefore demand theory was viewed by Ricardo as in-
monetary measures do not provide a reliable adequate because in his view, a theory of value
numaire, metric or in Ricardo’s terms, “an invari- had to make some determinate statement about
able yardstick of Absolute Value”.*’ the level at which forces of supply and demand
It was precisely on this point that Ricardo had fixed price in the normal case (Meek, 1975, p.
criticized Smith. In Ricardo’s estimation Smith 122). It was not enough to argue supply balanced
held contradictory views on value: it was incom- demand at the point where net marginal revenue
patible to assert on one hand that a commodity was zero because that begged the question: what
was imbued with value through the amount of determines “cost”?26
social labor that had been expended on its pro- Ricardo’s focus on income and property
duction and on the other hand to contend that a division between classes as a primary determinant
commodity’s worth was equal to the number of of economic growth set him apart from many of
laborers that could be hired from its proceeds his successors. He argued that an antagonism of
(i.e. Smith’s concept of commandable labor value). interest existed between landed property and
If the wage rate changed, so would its command- industrial capital: “the interests of the landlord
able labor value in Smith’s analysis, even though are always opposed to the interests of every other
the social labor expended on the commodity class in the community” (Sraffa, 1946, Vol. IV,
through production remained constant. Rather, to p. 18). Ricardian analysis suggested that income
Ricardo, the ultimate source, regulator, and yard- distribution and so, therefore, property-ownership,
stick of “real” value was socially necessary labor. class-relations and the institutional context were
Monetary value and market values were merely the proper and legitimate concern of economists
imperfect expressions of this “real” underlying and could not be parcelled off to the economic
value. historian or the sociologist.
25 Not until 1960 was this problem “solved” when Sraffa devised a Standard Commodity Index for the purpose
(Sraffa, 1960; Kregel, 1976).
” Modern economists and finance researchers who accept the market’s verdict as the sole arbiter of “cost” and “value”
are haunted to this day by these Ricardian criticisms: their inability to think of value in any way other than in terms of
market value means that they are never able to put the market prices into question. Their theory is incapable of re-
cognizing disequilibrium situations (excessively priced or underpriced commodities) with the corollary that there is no
such thing as an under- or over-valued share in the modern theory of finance.
The outrage evoked by Ricardo’s theories and capital” and “the Right of Profit on Capital” as a
their subsequent rejection27 have been attributed response to Hodgskin’s “robbery of laborers”
to the fact that “the majority of economists were (Scrape, 1833, pp. 103, 105). Critics of Ricardo
very much aware of the dangerous use to which a did not attack his concept of Absolute Value
number of radical writers were putting Ricardian directly; rather they sought to conflate it with
concepts” (Meek, 1967, pp. 50-60). These writers other notions of value (principally exchange
and pamphleteers have been described as the value). Thus, we find Bailey, one of Ricardo’s
“Ricardian Socialists” and included Thomas most vociferous critics and a thorough going
Hodgskin, J. F. Bray, John Gay and William relativist, starting with a definition of “exchange-
Thompson. They used Ricardo’s theories to able value” and then contending that “value .
formulate a revolutionary ideology (Halevy, denotes nothing . but merely the relation in
1928). Hodgskin for instance was a considerable which two objects stand to each other as ex-
influence in the incipient trade unions and work- changeable commodities . thus, Ricardo’s
ing-class educational establishments such as the search . . . was pointless because there was no way
Mechanics Institute. His work did not go un- of defining ‘unvarying value’ ” (Bailey, 1825).
noticed by economists who inhabited the cloisters Thus Ricardo’s focus on the distribution of in-
of Dublin and Oxford. James Mill once wrote of come and property and his concept of Absolute
Hodgskin’s ideas that “if they were to spread they Value not only facilitated the transition from
would be subversive of civilized society” (Robbins, feudalism to capitalism, but also became an
1952, p. 135). Hodgskin propounded a rather ideological weapon that was used against capital-
underdeveloped concept of exploitation “where ism itself.
profit and rent were alike filched from labor” Ricardo’s preoccupation with measuring the
(Hodgskin, 1825). Piercy Ravenstone elaborated aggregate social product led him to average out the
an appropriation theory of property-income when effects of alternative income distributions. In con-
he wrote: “A man cannot excercise his faculties trast, the causes of different income distributions
. make use of his limbs without sharing the were the centerpiece of Marx’s contribution to
produce of his labor with those who contribute economic analysis where he showed that social
nothing to the success of his exertions” (Raven- history was the history of the struggle between
stone, 1821, pp. 199-200). social classes over the social product and that
Professor Meek was of the opinion that estab- distribution of income was a manifestation of the
lishment scholars were primarily concerned with exploitation of one class by another. Building on
the dangerous character of Ricardo’s doctrines, Ricardo’s ideas, Marx defined exploitation as the
rather than with what they believed to be their difference between the actual time spent working
falsity: “Their fundamental approach was by the producer classes and the portion of that
determined by the belief that what was socially time devoted ultimately to reproducing those
dangerous could not possibly be true” (Meek, classes. Under capitalism, this difference is the
1967, p. 71).= Thus, we find Samuel Read amount of time the laborer spends working for
denouncing Ricardo’s notion that labor is the only capital and is an appropriation of the labor pro-
source of wealth as a “mischievous and funda- duct by those who have contributed no productive
mental error” (Read, 1929). Poulett Scrape, activity and lack personal participation in the
author of Political Economy for Plain t’eople process. Marx’s concept of capitalist exploitation
(I833), refers to the “mistaken hostility to is fundamentally the same as Marc Block’s apt
27 This rejection lingered well into the 20th century until the Royal Society commissioned Piero Sraffa to produce the
edited works of David Ricardo. The project, completed in 1946, resulted in the reinstatement of Ricardian theories to
the center stage of economic debate.
28 It was with reference to these establishment academics that Marx referred to “hired prize-fighters” taking over from
scientists and the emergence of “vulgar economics”.
characterization of feudal exploitation as a system such critical parameters as the distribution of in-
where feudal lords “lived off the labor of other come (that were molded by forces “outside” the
men” (Dobb, 1973, p. 145). Marx argued that in market) were treated as “given” because (in the
order to understand exploitation and income words of one marginalist) “to do otherwise would
distribution in the market sphere of exchange, it be to ask economists to commit value judgments”
is necessary to consider the institutional datum; (Robertson, 1930).
the social relations; the “hidden essence” or The foundation for marginalism was laid by
“inner form” lying beneath the “outward dis- Jevons. 3o In the second edition of his Theory of
guises” or the “market appearances” of things. 29 Political Economy, Jevons shows how conscious
In the following section, it will be seen that he was in reshunting the “car of economic
ideas espoused in reaction to Marx and Ricardo science” which Ricardo had redirected “onto the
provided the basis for a new value theory, margin- wrong line” (Jevons, 1879, Preface, 2nd ed.;
alism, in which demand-side influences (in the Dobb, 1973, p. 166). At the beginning of his
form of utility and subjective preference) replaced work, Jevons has a much quoted passage that pro-
Ricardo’s socially necessary labor as the prime vides the basis for the marginalist theory of value:
source and determinant of value. “Repeated reflection and inquiry have led me to
the somewhat novel opinion, that value depends
Marginaksm and the subjective theory of value entirely on utility . . . in this work I have attempt-
The transition from the Ricardian to the ed to treat economy as a calculus of pleasure and
marginalist view of value was completed by the pain” (Jevons, 1871, p. 2).
elaboration of two catenations of ideas. The first Space precludes a comprehensive exegesis on
related to the directional flow of the causal influ- the various criticisms that have been levelled at
ences and determinants of value. Under margin- Jevon’s claim that utility is the central moment
alism value originated not from the fund of labor in value theory. Rather, we will confine our
that Smith termed “the Wealth of Nations” but criticisms to three areas of specific concern:
from the utility-based, subjective preferences of criticisms of the relevance of utility, the nature of
consumers of final goods. This reorientation was utility and its existence as an aggregate function,
expressed in a shift away from macroscopic Ricardo challenged the relevance of utility by
problems of the economy-at-large towards a micro- arguing that it was effective demand not merely
scopic emphasis on the behavior of individuals. utility, which affected the level of production and
These were not the individuals in the Ricardian or the distribution of resources, thereby underscoring
Marxian sense, however, as they were stripped the need for a theory of income distribution.
completely of their social class origins and thus Ricardo, like Marx, understood that, in a very real
of their unique standing in relation to property or sense, distribution preceded everything else and
natural resources. therefore an “economic sociology” was essential
The second aspect of the transition was to to show how social and property relations affected
attempt to remove a number of social policy issues income distribution and its translation into effect-
from the agenda of economics, mainly by expung- ive demand.
ing “politics” and “sociology” from political eco- The existence of aggregate utility has been
nomy. This was achieved by confining economics challenged by several authors (Boulding, 1969;
to the study of the sphere of market exchange; Kay, 1979; Arthur, 1979). Most of these criticisms
29 Marx’s theory of value is one of the richest (and currently one of the most controversial) contributions to the
literature. The omission here of any detailed discussion of this value theory should not be taken as an indication of its
lack of relevance. Rather in our opinion, it offers one of the most promising sources of radical thought. For a summary
of the current controversies surrounding Marx’s value theory, see Elson (1979) and Steedman & Sweezy (1981).
3o Stigler describes Jevons as “the forerunner of neoclassical (marginalist) economics” (1946, pp. 13, 135).
relate to the difficulty of using utility as a cri- assumption that all factors and services would be
terion of social choice and efficiency, without fully employed at such an equilibrium position;
which utility has little to offer as a theory of overlooking the possibility (until Keynes in the
value. The concept of aggregate social labor value 1930s) that multiple equilibria were possible, and
(as a criterion for a theory of value) could be not necessarily at the full employment level.j3
justified on the grounds that individual labor be- Jevon’s notions of utility-based Value Theory,
comes additive and homogenized as labor evolves diminishing marginal returns and the equilibrating
into a specialized cooperative entity. The same tendencies of economies, gave rise to the assump-
argument cannot be made for utility: the utils of tion that maximizing behavior by economic agents
individual consumers are not socialized into an (i.e. entrepreneurs, laborers, and consumers) led to
integrated whole, they remain disparate, incom- the maximization of the social welfare - an invalid
mensurable and (therefore) non-additive (Kay, deduction since such a summation is contingent on
1979; Arthur, 1979).31 the distribution of income (a further example of
The nature of utility, as conceived by Jevons how the latter intrudes itself). Both Jevons and
and his followers, has been questioned because of Walras often overlooked this qualification in their
its ambiguous form. Dobb notes how both enthusiastic support for the capitalist social order
Marshall and Pigou acknowledged that utility was (Steedman, 1972, pp. 48-49; Walras, 1954, pp.
ambiguous because “desire” was used to represent 125, 255). The most flagrant claims for the
“satisfaction”. Thus Marshall said: “We fall back “natural justice and order” of capitalism (that
on the measurement which economics supplies of marginalist theory legitimatized) were made by
the motive, or moving force to action, and we J. B. Clark: “What a social class gets is, under
make it serve with all its faults, both for the natural law, what it contributed to the general
desires which prompt activity and for the satis- output of industry” (Clark, 1899, pp. 46-47,
factions that result from them.” (Marshall, 1920, 323-325).34
pp. 92-93; Dobb, 1937, pp. 27-28). What Jevon’s theory lacked was a compre-
Jevons further contributed to the development hensive scheme for showing how the prices of
of marginalism by utilizing the principle of the goods in various parts of the economy were
equilibrium seeking tendencies found in the study determined. Menger and his two disciples, Wieser
of Statical Mechanics3’ This turned out to be a and Bohm-Bawerk, provided this framework by
particularly prophetic analogy as it led to a conceiving of an economy in terms of goods
manner of thinking (i.e. that an economy tended arrayed in various stages of production, whose
toward equilibrium) that contributed to the values are imputed directly and indirectly from the
31 Boulding has indicated further problems, especially those related to the lack of realism in marginalist utility analysis.
For instance, it is assumed in general equilibrium theory that utility functions of consumers are independent of each
other (thereby excluding the affects of greed and envy that intertwine the utility functions of individuals) (Boulding,
1969). An equally unrealistic assumption in this analysis is that production and consumption decisions arc independent,
thus implying that the advertising industry and production decisions that attempt to condition consumption choices
may be safely overlooked (Graaf, 1975).
32
Dynamic considerations are therefore neglected by marginalist methods because it is just assumed that economies
will gravitate to an equilibrium state. Unfortunately the path of movement that an economy follows in this equilibrat-
ing process is undefined, as is the time-frame in which it takes place (Dobb, 1973, pp. 168, 173).
33 Sir John Hicks has cautioned that “economists are so used to the equilibrium assumption that they are inclined to
take it for granted,” yet “there are market forms, not necessarily unrealistic or unimportant, where the mere existence
of an equilibrium, even in a single market, is doubtful, and perhaps more than doubtful” (1965, pp. 15 et seq.).
34 This crude attempt to bless the existing orderof-things was subsequently disowned by Stigler (who remarked that
“Clark was a made-toorder foil for the diatribes of a Veblen”) but the approval bestowed by marginalism was still
allowed to linger in many texts (Stigler, 1946, p. 297).
preferences of consumers for final goods. That is employed which requires quantity measures of
to say, all resources and intermediate goods were factor inputs (e.g. labor hours, acres). (See for
valued in terms of their marginal productivity to- instance, Arrow et al., 1961.) In such an analysis,
wards final consumer goods. heterogenous capital goods and tools of pro-
Menger, Weiser and Bohm-Bawerk were duction are conventionally measured by present
members of the so-called Austrian school, for value methods. However, in assuming the discount
whom the criticism of socialist doctrines was rate needed for the present value calculations, one
something of a preoccupation (as it was also with is also assuming a distribution of income; but this
Pareto). Weiser developed Menger’s imputation is what the analysis is supposed to derive, not
theory expressly as an answer to supposedly assume at the outset of the calculation.36 Con-
socialist claims that property income represented sequently, in its attempt to show that an eco-
exploitation of labor; and Bohm-Bawerk’s theory nomy’s particular income distribution (wages,
of interest and capital, elaborated along Jevonian profit and rents) is optimal, marginalism begins
lines, was intended as an answer to Marx’s theory by assuming an income distribution!
surplus-value. The Austrians are frequently de- In their empirical work, marginalists have
scribed as apologists of the existing system, so “assumed” a discount rate in one of two ways.
much so that Schumpeter dubbed Bohm-Bawerk Some researchers have simply used the prime rate
“the bourgeois Marx” (Dobb, 1973, p. 193; prevailing in the market at a point in time, thereby
Schumpeter, 1954, p. 846). assuming (rather than demonstrating) that this rate
Weiser and Bohm-Bawerk were not only fully is in equilibrium. In other cases, researchers have
aware of the work of Marx but also the social used the internal rate of return that is inherent
backlash to Lassallean propaganda. Thus, Bohm- in the cash flows expected to accrue to a stock of
Bawerk in appraising Lassalle’s critique of ab- capital goods. This latter practice has been dis-
stinence as an “explanation” of profit, attributed credited by showing that, in general, there are
the popularity of abstinence theory, not so much many internal rates of return associated with the
to its superiority as a theory, as that it came in the assets of an economy (Pasinetti, 1969, 1970).
nick of time to support interest against the severe It is important to note that these criticisms are
attacks that had been made on it (Bohm-Bawerk, directed at marginalism’s ability, as a theory, to
1880, pp. 277,286). explain and appraise the existing discount rate or
Marginalist value theory was expressed as a rate of profit. It may be that the ‘real’ rate is
general equilibrium model of a capitalist economy indeed optimal (in terms of, say, economic
by Walras, in which he embodied the same eco- growth; employment; inflation etc.), however the
nomic interpretations and causal implications as significance of the indictment lies in the fact that
Jevons and Menger. This model contributed a marginalism, as a theory, totally fails to demon-
representation of society at large that enabled strate this social optimality. Moreover, the theo-
marginalists to claim to be pursuing policy pre- retical flaws of marginalism that invalidate it as a
scriptions that are consonant with the social macro-economic theory, also contaminate such
interest.3s intellectual dependents as accounting. For ex-
The Walrasian system shares the same problem ample, consider a management accounting
that confronted Menger, Weiser and all subsequent problem of appraising an investment in a new
marginalists. In order to assess whether the dis- factory in an area of high unemployment. Accord-
tribution of income in an economy is at a social ing to some versions of rationality, not only the
equilibrium, a production function analysis is firm’s best interests but also those of society
3sAn exhortation to apply general equilibrium theory to social choice issues facing accountants may be found in May
& Sunden (1976) and American Accounting Association (1977).
36
For the readers who are interested in exploring these issues see Sraffa, (1960) for an economic analysis and Tinker
(1980) for a discussion of the accounting implications.
would be furthered by rejecting the investment if Our discussion of the evolution of value
its net present value was negative. The authority theories is summarized in Table 1, which compares
for such a rule derives from marginal productivity and contrasts characteristics of the two main
theory. However, as the previous discussion has approaches: labor-based and utility-based value
shown, the basic ingredients of a present value theories. The first row of Table 1 contrasts the
calculation (the discount or profit rate and the treatment of “real” historical time and dynamic
TABLE 1. Differences between the marginalist and classical theories of value
Characteristics Marginalism Classical theory
Criterion variable(s) Studies using static equilibrium analysis Studied using dynamic equilibrium
(e.g. level of output; where historical (real) time is ignored, analysis where paths of movement of
employment of factors; i.e. the future is summarized into the criterion variables (and their inter-
equilibrium price present through rational expectations actions) are examined over time
structure)
Explanatoy system of Focuses on the sphere of exchange Focuses on productive and social
variables and assumes that behavior is regulated relations and assumes that developed
by ‘workable’ competition western economies are governed by
monopoly and oligopoly
Causality assumptions Subjective theory of value: value “Absolute” theory of value: value is
(a) concerning the emanates from the utility of consumers, created through effective demand
origin of value i.e. Demand creates value. Production which is a function of the distribution
(b) the direction of and consumption decisions are in of income which (in turn) is deter-
the causal flow dependent (advertising is insignificant mined by social and production rela-
for instance) tions, i.e. Production creates value
Quantification in models (a) Measures are in terms of marginal (a) Measures are in terms of total
(a) measures quantities and relative prices quantities
(b) basic entity (b) Individuals (atomistic consumers (b) Social aggregates and class
and producers) relations
wage rate) are arbitrary or indeterminate quanti- considerations under marginalism and the classical
ties in marginalist theory.37 Thus, although the labor theory. Under marginalism, historical time is
prescriptions of management accounting may ad- non-existent: using comparative statics and
Vance the interests of capital in such circum- rational expectations, the future is instantaneously
stances, they cartainly have no authority to claim and effortlessly transformed into a present-time
to be harmonious with Society’s interests. equilibrium. Classical labor theory (in contrast)
37 This does not mean that these quantities are arbitrary in general. Several theories (particularly exploitation theories)
have been put forward to explain the level of profits relative to wages: Kalecki for instance emphasized the degree of
monopoly; others have stressed the degree of unionization or the monetary policy of the state (Dobb, 1973). The point
is that, unlike marginalism, these exploitation theories do not attempt to relate to the existing distribution of income
between profits and wages with the ‘colorful’ language of “efficiency”; “equilibrium”; “optimality”; “justice”, etc.
186 ANTHONY M. TINKER. BARBARA D. MERINO and MARILYN DALE NEIMARK
deals directly with economic dynamics by tracing Cornforth, 1971, 1980). It is the philosophy of
the paths of movement of interacting economic Historical Materialism that suggests this con-
variables through real historical time; disequi- ception of accounting as social ideology. In stark
librium situations are readily anticipated with such contrast to orthodox philosophy - which pays
models (Kregel, 1973). The second row focuses on little attention to the social origins of scientific
the differences between the explanatory systems theories38 - Historical Materialism shows that
of the two approaches. As noted previously, theories emerge and decline, not merely in the
marginalism explains production and distribution context of sociai struggles but as inextricable
in terms of “factors” while the classical labor parts of them. The recurring lesson from our
theory appeals to the specific social relations history of Value Theory is that social theorizing is
underlying the “factors” that uniquely define subordinated, not to a quest for absolute truth,
capitalism as a social system. The origin and but to materialist conditions that require a con-
direction of causal movement of the two tinual molding and remolding of the social con-
approaches is the subject of the third row in sciousness for the purpose of social order and
Table 1; value derives from utility and is im- control. Our focus on Value Theory underlines
puted to “factors” by marginalist theory while the dialectical pressures of social history: the
(under classical labor theory) it is socially special- conflicts, antinomies and contradictions that
ized and necessary labor (the physical manifesta- spring from social conflicts (Amin, 1978). These
tion of the state of development of Society’s provide the momentum for change, not only in
precious productive forces) that embodies and the social structure but also in the ideological
bestows value. Finally, the two approaches differ apparatus through which social order and control
in terms of their measurement systems. Margin- is achieved. In this fashion therefore, economic,
alism computes with “first differences”, relative accounting and other theories are not so much
prices and the aggregated behavior of social atoms refuted by the facts as rendered obsolete by
(consumers, entreprenuers etc.) to obtain historical change. Thus Canonist Value Theory
economy-level characteristics. In contrast, classical was overthrown by mercantilism; the conventional
theory uses absolute quantities (not their deriva- price approach of mercantilism was rendered
tives) and works with variables that tend to be obsolete by inchoate forms of capitalisn;
exclusive to the economy-entity level (e.g. class, Ricardian Socialism was refuted by the ideological
surplus value, socially necessary labor, employ- developments of capitalism and currently, the
ment). revival of classical political economy appears to be
a response to the difficulties of late capitalism
Marginalism: truth, fact or ideology? (Mandel, 1975). “Truth” in this view is not an
An important lesson from the historical review absolute that is to be discerned by logic and/or
concerns the link between scientific theories and facts, but a “social truth” that only embraces
social ideology and, when viewed in that light, the those theories that are in tune with the prevailing
extent to which accounting theoreticians, through social ideology. In focusing this materialist view
marginalism, may be said to foster the social on accounting we recognize that accounting
relations (and ideology) of capitalism (Katouzian, theories form part of social ideology and as an
1980; Abercrombie, 1980; Lowe & Tinker, 1977; ideology are always changing and changeable.
38 For instance Popper views the origins of theorizing as a problem of psychology (Popper, 1959). Thomas Kuhn
comes closer than Popper in acknowledging that, when a scientific paradigm is in a state of crisis, the crisis is usually
reflective of a larger ideological crisis in the social system of which the scientific community is part. Kuhn fails to
pursue the implications of this point, however, and concludes by attributing the origins of a theoretical crisis to the
buildup of unsolved puzzles (Kuhn, 1970). In this respect, Kuhn and Popper share the same basic view of the multitude
of discarded theories that litter history: that they are no more than the “gropings” of early scientific explorers who, in
the quest for objective truth, exemplified the “very best” of the scientific tradition (Weiner, 19.50; Allen, 1975; Shaw,
1975).
It is important to contrast the view of account- Finally, the reduction of all accounting theo-
ing theories that emerges from Historical Material- rists to the status of intellectual mercenaries
ism with the view presented by the so-called creates special problems when we come to evaluate
“Positivism” of Watts & Zimmerman (1979). To Watts & Zimmerman’s own theorizing. Are we to
the careless reader it may appear that the two regard their work in the same manner as they
views hardly differ - for Watts & Zimmerman suggest that we view that of others? Should we
acknowledge that (1) accounting research changes follow their general exhortation and dismiss their
“as the underlying factors change” (ibid: p. 274); theory (of excuses) as nothing more than a self-
(2) accounting theories will be used by special serving excuse? Apparently not: Watts & Zimmer-
interest groups to advance the latter’s self-inte- man claim to have miraculously transcended the
rest3’ (ibid: pp. 274-27.5); and (3) the accounting scientific law that, they assert, applies to the
literature is not “the simple accumulation of theorizing of all other earthly scholars. Their
knowledge” that results in progressively “better” Excuses Theory is put forward as a correct,
accounting practices. “Instead it is a literature in accurate and truthful representation of account-
which the concepts are altered to permit accounting theorizing. Ironically therefore, by their own
ing practices to adapt to changes in political issues arguments, Watts & Zimmerman’s own Excuses
and institutions” (ibid: p. 289). The differences Theory provides a single counter exception to
between the views become apparent, when one itself: it amounts to a refutation that (according
recognizes the undialectical, individualistic (rather to Realist Popperian philosophy) should cause
than class) and economic (rather than sociological) them to abandon their beliefs or drastically revise
character of their analysis. In focusing on “com- them.
petition among individuals for the use of coercive
power of the government to achieve wealth trans-
fers” (ibid: 275), Watts & Zimmerman ignore MARGINALISM AND ACCOUNTING
relations between people and with property that
unify social classes. In failing to examine the Our review of Value Theory suggests that
origins and existence of the institutional frame- economics is not a closed book. The acute diffi-
work (e.g. government bureaucracies, universities, culties of economic management together with the
corporations) underlying the supply and demand lively intellectual tournaments among economists
data that form the starting point of their analysis, throughout the subject’s history should have
Watts & Zimmerman fail to provide any insights taught accounting scholars that nothing has been
into the historical and social processes from which settled. Yet if a Martian consulted the accounting
these institutions spring or the class interests that literature in order to form an opinion as to the
originate and perpetuate them. Thus, the under- substance of economics, he/she could be forgiven
lying factors alluded to when they set out the for assuming that there was only one economic
objectives of their paper are, in fact, never ex- theory: Marginalism. As we show below, account-
plained. Without an explicit analysis of the under- ing scholars exhibit far greater unanimity than
lying class structure of society, their theory is akin professional economists as to the “true” economic
to the sound of one hand clapping in that it fails theory.
to explain countercultures, social change and We find two emphases running through the
ultimately, how revolutionary thought comes into history of accounting thought that have main-
being. tained the subject’s commitment to Marginalism.
3g Clearly self-interest is also present in a dialectical process: what distinguishes the latter is that it articulates and
subordinates individual self-interest into a class structure that eventually impedes further development of productive
forces. The dynamic contradiction or antagonism between the social structure and the development of the productive
forces is the fundamental dialectic in Historical Materialism: it is exhibited in the overthrow of slavery by feudalism and
the eventual deposal of feudalism by capitalism.
188 ANTHONY M. TINKER. BARBARA D. MERINO and MARILYN DALE NEIMARK
The first is the emphasis on individualism (whether of cost nor his individualistic focus went un-
the individual owner or the corporation as a legal challenged. However, in the accounting literature,
“person”) which has served to preempt questions most criticisms were modest relative to the kinds
about the class affiliations of “individuals” and the of concerns raised in this study. For instance, in
part accountants play in class conflicts (Mac- the 1960s and 1970s we find accountants mildly
pherson, 1971). The second emphasis in account- questioning the relevance of Fisher’s individualistic
ing has been an attempt to preserve objectivity focus to a world of large corporations run by
and independence by shunning “subjective” managers who are not the owners (see for instance
questions of value and confining accounting data Rayman, 1972; Sprouse & Moonitz, 1963;
to “objective”
market prices (historical and Edwards, 1962; Lee, 1974, 1975; Taylor, 1975;
current). As we show subsequently, this image of Sterling, 1970; Chambers, 1971). Such questioning
the accountant - often as a disinterested, in- of Fisher’s assumptions hardly matched the
nocuous “historian” - stems from a desire to deny criticisms of economists such as Veblen who con-
the responsibility that accountants bear for tended that the concentration of corporate control
shaping subjective expectations which, in turn, created a differential advantage that favored the
affect decisions about resource allocation and the vendibility of capital relative to the vendibility of
distribution of income between and within social goods and services (Veblen, 1904, p. 146). Instead
classes. This attachment to historical facts pro- of viewing the rise of corporatism as a shift in
vides a veneer of pseudo-objectivity that allows social and political power that was capable of
accountants to claim that they merely record - radically redistributing income between classes,
not partake in - social conflicts. accountants have followed the legal model which
Irving Fisher (1906, p. 70 ff), underscored the reincarnated, out of individual shareholders, a
importance of both an individualistic focus and an corporate “being” with its own rights and re-
emphasis on historical cost in writing that: “cost, sponsibilities.42
at the time of purchase, is a market estimate of Accounting theorists who explicitly recogniz-
future earning power”.40 As such, he continued, it ed the separation of ownership and management
can be assumed “to reflect expected future returns (for example, Paton 82 Stevenson, 1918; Paton,
to a specific individual”.41 This view of the 1922; Sweeney, 1930) contended that the firm
sovereignity of the individual owner was adopted itself had a “right” to maintain command over a
by Sprague (1908), Hatfield (1909) and Canning given level of resources. Thus, income did not
(1929), who simply ignored the separation of accrue to the stockholder/owner unless a given
ownership and management by focusing on the productive capacity and/or level of purchasing
individual owner-manager. Neither Fisher’s view power had been maintained. Edwards & Bell
4o The attraction of subjective accounting income concepts is reflected today in contemporary GAAP and FASB rules
where present value procedures are used in valuing leases, pensions, goodwill, bonds, fixed assets (where payment is
deferred) and oil and gas reserves.
41
Irving Fisher (1906), a self proclaimed Marginalist, has had considerable influence on the works of early accounting
scholars (e.g. Canning, 1929; Rorem, 1928; Paton, 1922; Paton & Stevenson, 1918). Canning’s acknowledgement to
Fisher was explicit “I need not declare my obligation to Professor Fisher for the influence of his writings upon my
thought - that obligation appears throughout this book” (1929, p. iv). The influence of Canning can be seen in Vatter
(1947) and subsequent funds flow theorists. The utility-based foundations of Fisher’s work, as articulated by Hirsh-
leifer (1970) and Fama & Miller (1972), are also widely acknowledged in the accounting literature, even the standard
teaching texts. Thus for instance, we find open acknowledgements to this intellectual heritage in Hendrikson (1970);
May et al. (1975); Edwards & Bell (1961); Parker & Harcourt (1969).
42 For a discussion of the evolution of legal thought from the 19th century perceptions of corporations as “artificial
beings” subject to regulation, to the 20th century extention of “individual rights” to corporations, see McClurdy, 1979,
pp. 307 ff. See also Miller, 1969, pp. 13 ff, who characterized natural order legal theory as affirmative action to pro-
mote monopolistic advantage.
(1961) provide a further reconciliation between of accounting; discrediting the professional image
accounting and its utility-based, marginalist found- of objectivity and impartiality and undercutting
ations: First, they espouse a concept of accounting its authority and credibility.43
wealth and profit that they claim best approxi- It is in the light of the above that the long
mates subjective present value (op. cit. pp. 48-56); attachment of accounting scholars to historical
and second, they propose that the corporate objectivity needs to be interpreted. Kester (1919),
“personage” should retain sufficient resources to Couchman (1929) and Littleton (1928, 1929)
allow the maintenance of physical capital (op. cit. argued that all accountants did was trace “un-
pp. 31-109). expired costs”, factual evidence, in and out of the
The second emphasis in the development of firm. Littleton (1928, pp. 148 ff) went further in
accounting thought is the positioning of account- asserting that cost and value were in fact un-
ing as an impartial record of historical exchange related.44 Accountants, he wrote, deal only with
values with the corollary that the accountant bears the “supply side” of economics, cost that furnish-
no responsibility for affecting expectations, de- ed the limiting factor to price. “Value”, he con-
cisions or ultimately the distribution of income tended, “was subjective”. Citing Bohm-Bawerk,
within and between classes. We do not mean to who wrote that value was “regulated in the last
suggest that accountants have rested easily with resort by marginal utility of finished products”,
historical objectivity as their dominant objective. Littleton argued that utility and value were mental
Rather, the protection offered by appearing as concepts based on desiredness and had no place in
“mere historians”, together with the desire to accounting. As finally incorporated in Paton &
measure subjective Fisherian-type income, have Littleton’s (1940) cost allocation model the view
presented accountants with the twin horns of a of the accountant as recorder, classifier and
dilemma. On the one hand, Fisherian and Hicksian matcher of costs (with revenues) provided the
income are faithful disciples of marginalist value rationale by which decades of accountants, cloak-
theory in the way they install capital as a “pro- ed in pseudo-objectivity, have circumscribed the
ducer” of value and legitimize profit as the reward profession’s view of its responsibilities and the
for marginal productivity in production. On the agenda for accounting research.
other hand, the affiliations of accounting to these In limiting the scope of accounting research,
subjective notions of value have drawn account- the theorists referred to above, ignored alternative
ing into a number of bitter disputes about the perspectives that were available both in accounting
way accounting data influences income distribu- and in economics. Scott (1933) for example,
tion within and between classes. Most disputes attempted to show that accounting theory based
have centered on redistributions of income within on marginalist premises, was biased and could be
the capitalist class (i.e. between groups of invest- socially dysfunctional. Scott (1925, p. 191) re-
ors) that accounting data has affected. Equity cognized that “subject to conditions fixed by pre-
Funding, National Student Marketing, Slater- vailing institutions, the machinery of the market
Walker, Leasco-Pergamon and the recent affair controls economic activity, determines income
involving IOS and Arthur Andersen & Co. were and adjusts conflicts of economic interests be-
all incidents that exposed the distributional impact tween different classes and individuals of society”.
43 Veblen (1904, pp. 132 ff) regarded the value of large, managerially governed corporations as a psychological con-
cept that was dependent on the expectations and confidence of investors. Those in control, he argued, attempted to
promote the interests of capital by creating illusions (manipulating outpur, disseminating false reports and information
or withholding positive news) that impacted on exchange prices. In this manner he anticipated the power of accounting
to affect the distribution of income.
44 Those wishing to retain the link between historical cost and subjective consumption possibilities did so by arguing
that future income is determined at the time of purchase (measured by the owners implicit discount rate) and, as
Alexander (1950) was to contend at a later date, any future deviations from that income were due to faulty expecta-
tions and, as such, were not income (or loss) but merely revisions of initial cost.
In 1933, he chastized his colleagues for uncritical and not to ask. Specifically, along with the indivi-
acceptance of the market model, noting that it had dualistic focus, it has precluded inquiries into the
a pervasive effect on theorizing, i.e. it did more class underpinnings of economic phenomena; the
than allow the theorist to accept market valuations role of accounting in regulating economic activity
for measurement of goods and services, it justified and the possibility “that accounting data has
limiting the profession’s role by assuming the superceded competition as the chief arbiter of
viability of “regulation by competition”. Scott society’s resources” (Scott, 1933, pp. 225 ff).
decried the propensity of accounting theorists to The reluctance of accountants to address such
place blind reliance on the efficacy of competition questions along with their acceptance of market
and argued that, if accountants did not recognize prices (and hence their implicit commitment to
the non-competitive nature of the corporate particular distributions of income and social re-
economy, accounting would become a useless sources) is reflected in the persistent notion that
“vestigial appendage” of society. accountants are “historians”.
Similarly, Veblen (1909, 1923) and later More recent contributions to accounting
Keynes (193 3) noted the dysfunctional nature of theory, while they have shifted their focus away
accounting’s pecuniary calculus, criticizing from “theories of accounting” to theories about
accountants for focusing solely on monetary accounting theorizing (i.e. the production of
returns. Keynes, for example, wrote that under knowledge in accounting) have done so without
the peculiar logic of accountancy, the men of the fundamentally modifying the Marginalist pre-
nineteenth century built slums rather than model conceptions and narrow focus of the discipline.
cities, because slums paid. Veblen (1904) re- While the market of competing interest groups
cognized that the growing separation of ownership has replaced that of competing individuals, and
and control was transforming the character of the utilitarian calculus has been extended to in-
business entities under capitalism. To Veblen, corporate transaction costs, a series of marginalist
management’s interest in the vendibility of (and hence ideological) assumptions remain un-
capital rather than of goods, resulted in a dis- questioned. These are vividly illustrated by Watts
harmony between the interests of capital and & Zimmerman’s (1979) interpretation of agency
those of Society at large. One result of this dis- theory, implicit in which are the following assump-
harmony was that exchange prices no longer tions: that the primary (and perhaps sole) ration-
reflected value, but rather were a reflection of ale for and objective of contemporary financial
existing power relationships (or to use alternative reporting is to serve the capital market; that
terminology, was a reflection of the appropriation competitive market forces can be relied upon to
of income by one class from another). protect all interest groups (and that all interest
Although Veblen was to have a direct influence groups are represented in the process); that
on the subsequent work of Berle & Means (1934), members of each interest group are equally
Brandeis and Landis (who played a substantial role capable of processing information and discerning
in drafting the Securities Act of 1933) (Dorfman, management’s (homogeneous) utility function;
1973, pp. 62 ff, pp. 138 ff), both Veblen and his that only government possesses coercive power;
student Scott were virtually ignored by accounting that all behavior is motivated by economic
theorists. The consequence of this myopia for rationality; and that public interest arguments are
accounting is reflected in the questions that sub- always a sham to mask self-interest.45
sequent accounting theorists have chosen to ask,
45 For a critical assessment of romantic pluralism in political science, i.e. freedom accrues only to the individual while
all government action is coercive, see McConnell, 1966, pp. 89 ff. There is, also, a substantial body of literature
challenging the assumption that the leadership of any interest group protects the interests of its membership. Starting
with Michel’s “Iron Law of Oligarchy”, delineated in the 1920s (see Michels, 1949, passim), there has been a wealth of
sociological literature that suggests that leaders, once attaining power, are more concerned with preserving their own
power than with protecting membership interests.
IMPLICATIONS apparatus as “given”.

Like the “Implications” section of many
This paper was motivated by the claims of some papers, this one contains a speculative element
scholars that if accounting research was conducted that goes beyond the detailed arguments of its
according to the tenets of positivism, it would be contents. These speculations take on two forms:
blessed with a detachment, neutrality and promise The first concerns the way “radical accounting” is
not enjoyed by normative approaches. In the pre- conceptualized as a total area of study. Here our
vious sections we argued that such a viewpoint focus on Value Theory and our view of accounting
misapprehends the nature of scientific knowledge as commensurate reciprocity in exchange, warn us
and the social processes by which it is produced. against construing “radical accounting” too
Specifically, the normative-positive split emanates narrowly; especially by reducing it to (say) ac-
from a Realist position: a viewpoint that, from a counting for trade unions or corporate account-
sociology-of-knowledge perspective, fails to re- ability. Such tendencies run the risk of localizing
cognize the partisan role of scientific theories in radical criticism to ‘new’ areas and overlooking its
social control and social change (Gouldner, 1971; applicability to existing areas such as cost and
Shaw, 1975; Mendelsohn & Whitley, 1977). We management accounting; organizational theory
illustrated the process by which ideas are reified and behavioral accounting; financial accounting;
by using the history of Value Theory. This analysis international accounting etc. (Elson, 1979, pp.
illuminates the normative (i.e. marginalist) origins 171-174). The second part of our speculations
of positive accounting theories. The pretense of involves the function of historical analysis (His-
value-freetheorizing is cultivated by taking market torical Materialism) where we argue that historical
phenomena as “natural” and “universal” and, at analysis is an integral part of social criticism and
the same time, by ignoring the institutional back- should not be devalued to an “interesting back-
ground that defines the rules according to which ground”, as if it were a superfluous scholarly
market behavior is played out. Thus marginalist appendage.
theory and its fairyland of perfect competition, Interest in the role of accounting in providing
fails to consider institutional “imperfections” information to employees and trade unions has
such as monopolies, cartels, labor unions, political resulted in a body of research which, although
lobbys and particularly, the division of income valuable and well-intentioned, needs a unifying
and property and the nature of property rights. In and underlying theory of social value to situate
ignoring these sociological facts, marginalism the research in an overall context of social con-
attempts to confine its analysis to “free” markets flict. (See for instance, Maunders & Foley, 1974a,
of exchange. Ricardo showed that markets are not 1974b; Cooper & Essex, 1977; Cooper, 1979;
“free” but are conditioned by property ownership Transport and General Workers Union, 1971;
through income distribution. Other economists Jenkins, 1974.) Incipient forms of such a theory
have demonstrated that “surface” market behavior of value may be found in the recent controversies
cannot be understood in isolation from aspects of between so-called neo-Ricardians and Marxists
its underlying, sociological datum (Veblen, 1904; (see for example, Elson, 1979; Steedman &
Scitovsky, 1976; Dobb, 1973; Sweezy & Baran, Sweezy, 1981). These concepts of value are
1966; Galbraith, 1967). Thus we can see the sensitive to problems of alienation at work and
normative bias that is inherent in marginalism the debasement of work-life to mechanical, un-
and its positive accounting variants: a neoconserv- fulfilling routine (see, for example, Braverman,
ative ideological bias that encourages us to take 1974; Ollman, 1976; Marcuse, 1964; Arthur,
the “free” market and its implicit institutional 1979; Elson, 1979; Sartre, 1960).46
46 It is not that we expect employers to be overwhelmed by humanitarian and philanthropic feelings when confronted
with a new theory of value. Our proposals are longer-term in nature and extend beyond the workplace to the activities
of professions, business schools and other institutional spheres where concepts of value (marginalist and others) are in-
culcated. The first step could be to break the strangle-hold that Marginalism has on accounting education and research.
The importance of giving due weight to the an accounting court (Briloff, 1972) or function as
social context of accounting becomes even more a countervailing institution (Galbraith, 1967).
apparent if we recognize that, to date, when ac- In parallel with the quest for global solutions to
counting has affected the work-lives of employees, corporate accountability in the 197Os, have been
it has done so overwhelmingly on behalf of corpo- a steady flow of localized, “grass-roots” activity:
rations and employers. Budgeting, motivating, co- Examples include the critical appraisals of Bell
ordinating and planning are methods for control- Telephone (Sloan, 1976); British Steel Corpora-
ling the behavior of people within organizations. tion (Bryer et al., 1981); American Universities
The traditional areas of cost and management (New York University Conference Publications
accounting (together with more recent approaches Collective, 1971); Slater Walker (Raw, 1977); New
based on industrial psychology and organization York City (Newfield & Debrul, 1977); Equity
theory) have escaped virtually Scot-free from Funding (Dirks & Gross, 1975); nuclear power
critical social appraisal. The organizational and (Komanoff, 1981). As with the proposed global
behavioral literature provides accountants with solutions referred to above, each of these case
some helpful precedents for self-criticism in this studies implicitly attempts to confront one of the
regard; not only are there studies that focus on the most complex problems facing modern value
manipulative and exploitative side of these sub- theorists: what constitutes commensurate reci-
jects but a number of these works seek to locate procity in exchanges between large corporations
their analyses in a socio-historical perspective (see and Societyat-large? Such a question is at the
for instance: Pollard, 1965; Bogomolova, 1973; heart of the Lucas Aerospace Workers’ plan (for
Leavitt, 1964, pp. 55-71; Clegg & Dunkerley, instance) where a corporate plan was developed
1980, Gouldner, 1971, pp. 167-242; Fredricks, that was intended to create greater social worth
1970; Krupp, 1961; Baritz, 1960; Shaw, 1975; (value) than the existing militaryqriented pro-
Burrell & Morgan, 1979; Edwards, 1979). His- gram. Similarly, investigations that attempt to
torical studies in this area do not merely add a show that the services of Bell Telephone or Con
historical “dimension”, they shed light on the Edison are “overpriced” imply that the investi-
social conditions that create and sustain a dis- gators had in mind a notion of social value that
cipline in its present form. enables them to judge that an “unequal exchange”
The role that Value Theory could serve in pro- was taking place between these institutions and
viding a framework for “counter” information Society.47 These investigative studies, together
systems is also illustrated in the case of corporate with the general proposals for greater corporate
financial reporting. The 1970s was a period of accountability, envisage a similar social role for
vigorous criticism of the “Accounting Establish- accounting - that of an interpreter and articulator
ment”, financial reporting and corporate behavior of social value, as an adjudicator in social struggles,
in general (e.g. see Briloff, 1970, 1972; Account- and as an instrument of social change. Here too,
ing Standards Steering Committee, 1975; Nadar critical social history can be deployed in providing
et al., 1976; Green et al., 1976; U.S. Congress, insights into the formulation of current policy. An
1976a, 1976b; Lowe & Tinker, 1977). The pro- illustration is the study of disclosure regulation
posals that emerged in this period however, and public policy by Merino & Neimark (1982).
typically ignored the social roots of corporate The study finds that, in the three decades preced-
power in that they proffered “voluntaristic” ing the passage of the securities acts in the U.S.,
solutions. Most critical in this regard is their the concept of disclosure helped to reconcile the
common assumption that the State is an inde- growing contradictions between a belief in indivi-
pendent and well-meaning body that can act freely dualism and market competition and increasing
to establish a licensing system (Nadar et al., 1976), economic concentration and the separation of
47 Insofar as the prices charged by large public and private corporations became embodied in the prices of other goods
and services, it is the community at large (not just the immediate customers) who may be subject to unequal exchanges.
ownership from control. In developing their view- be gained from a critical social history. The
point Merino and Neimark challenge two con- example here is a study, by Hoogvelt & Tinker
temporary precepts: first, that the only criteria (1978), of the African subsidiary of a U.K. based
for assessing the disclosure system is whether it has multinational, located in Sierra Leone. The study
improved the pricing mechanism for securities; shows how the early colonial, late colonial and
second, that the existence of voluntary disclosure post colonial periods were distinguished by their
prior to 1933-34 is evidence that existing mecha- prevailing methods of repression and exploitation;
nisms were sufficient to ensure an optimum level methods that the company relied on and helped
of disclosure (for investors) (e.g. Phillips & Zecker, to reproduce (Hoogvelt & Tinker, 1977a, 1977b,
1980; Wallace, 1980; Watts & Zimmerman, 1978; 1978; Tinker, 1980). Differences in the methods
Ferguson, 1978; Benston, 1969, 1973; Friend & of repression and exploitation were manifest in the
Herman, 1964; Stigler, 1964). income statements for each of the three eras.
Multinational accounting and international Moreover, if Marginalist assumptions about the
accounting offer opportunities for radical and correlation between corporate and (international)
dramatic changes in accounting. Samir Amin social efficiency are rejected, then it becomes im-
delivered sharp words of rebuke for Western possible to ignore exploitative social relations in
Marxists who, he argues, perpetuate exploitation assessing a multinational’s performance.
between different races and nations by down- We have tried in this concluding section to
playing the world-wide character of exploitation sketch out the implications for accounting re-
(Amin, 1978, p. 116). Amin’s criticisms are search (and practice) of alternative, non-margina-
relevant to multinational and international ac- list concepts of value. We have also illustrated the
counting research because although it is in inter- important role of critical social history in under-
national exchanges that the greatest inequality standing and changing contemporary social pro-
takes place (i.e. exploitation of one nation cesses (Held, 1980). By tracing the historical
state by another through the relative terms of development of the concept of value, for example,
trade) accountants have managed to curtail their we have illuminated the social ideology that under-
vision of research to problems of currency trans- lies marginalist economics and thus dominates
lation; controlling overseas divisions of multi- accounting thought. It is this social ideology that
nationals; moving cash balances around the globe forms the normative origin of positive accounting
in an optimal manner and harmonizing account- theory. The question that this insight raises for
ing practices in different nation states.48 accountants who are interested in social change is,
The area of international accounting provides what kind of value theory should we create as our
an additional illustration of the insights that can contribution to social development?
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Accounting, Organizations and Society, Vol. 7, No. 2, pp. 167-200, 1982. 0361-3682/82/020167-36 $03.

THE NORMATIVE ORIGINS OF POSITIVE THEORIES:

ANTHONY M. TINKER, BARBARA D. MERINO and

determine the truth (Giddens, 1974; Novack,

Social change and changes m the concept of value”

communities, where the efforts and expenses of (Meek, 1975, p. 14).

TABLE 1. Differences between the marginalist and classical theories of value

Characteristics Marginalism Classical theory

IMPLICATIONS apparatus as “given”.

Kregel, J., The Reconstnrction of Political Economy: an Introduction to Post-Keynesian Economics

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