TOWARDS A POLITICAL ECONOMY OF ACCOUNTING:

AN EMPIRICAL ILLUSTRATION OF THE

CAMBRIDGE CONTROVERSIES*

ANTHONY M. TINKER

Graduate School of Management, University of California, Los Angeles

Abstract

For over a century economics has been dominated by two theoretical positions: classical political
economy and the neo-classical economics of marginalism. From these two paradigms have come
the major theories of value: the labor theory and the marginalists theory of value. Until recently
marginalism has held the center of the stage, however since the Cambridge Controversies and
Piero Sraffas critique of marginalism there has been a revival of interest in classical political
economy. One outcome is clear from the Cambridge debates: in so far as accounting relies on
marginalism for its theoretical foundations then those foundations are fallacious. This paper
reviews some of the controversies and illustrates how accounting ideas are affected by the
critique of marginalism. An alternative approach to accounting (based on ideas from political
economy) is then explored using evidence from an empirical study of a multinational enterprise.

What does the figure at the bottom of an income statement mean? What interpretations
may we put on it? Business firms trade in factor and product markets that form part of a societys
economy. As profit is a result of a trading in these markets, may we conclude that profit is
indicative not only of the firms market viability but also its social efficiency in utilizing
societys resources? Alternatively the rate of profit may reflect the social power of capitalists. In
this view, the magnitude of expenses in the income statement (including profit) is indicative of
social, institutional and monopolistic power rather than social efficiency and productivity.
The two views of what an income statement tells us correspond with two theoretical
positions that have dominated the history of economic thought: classical political economy and
neoclassical marginalist economics. When applied to the income statement these two theories
offer conflicting explanations as to what income signifies and how it is determined.
Table 1 summarizes the theoretical differences between these two viewpoints: it shows
that they
differ not merely as to what profit means but also as to how the rate of profit is determined. For
example, marginal productivity theory adopts an approach that is almost akin to that of
engineering: it deals with the manner in which physical resource inputs are transformed into
outputs and the role played by profit as an efficiency criterion in this process. Conversely,
political economy attributes the division of income (and therefore the rate of profit accruing to
capital) to the distribution of power in society and the social-political and institutional structure
that mirrors that distribution of power.
 The marginalist explanation concentrates on what are called the forces of production. In
economic analysis these are brought together in a production function analysis. They include the
technological aspects of the input and output quantities and their transformation coefficients. In
contrast, political economy relies on the social relations of production: an analysis of the division
of power between interest groups in a society and the institutional processes through which
interests may be advanced.

TABLE 1. Conflicting explanations of profit

Neo-classical economics Classical political
(marginalism) economy
Meaning attributed Indicator of The returns to
to profit economic efficiency capitalists
Marginal productivity A social and political
Theoretical explanation
theory focusing on analysis that focuses
as to how the rate of
the forces of on the social relations
profit is determined
production of production
The differences between these theoretical alternatives are crystalized by the empirical case
study that is described later in this paper. The case study concerns the socioeconomic history of a
UK based multinational (Delco) that operated in Africa. Delco operated an iron-ore extraction
business in Sierra Leone for 46 years. The firm closed down in 1976. The research attempts to
link the firms accounting history with its social and political history. A periodization analysis of
the historical data is used to illustrate the link between socio-political and accounting variables.
The 46 year history of Delco is divided into three periods: early colonial; late colonial and
postcolonial. An income statement is then prepared for each period that summarizes that
distribution of the firms income for that period. The differences between the three income
statements (i.e. changes in the distribution of income) are then linked with changes in the social
and political conditions underlying the figures.
Table 2 contains a sample of expense items from the income statements of Delco. The
expenses are shown in monetary terms and as a percentage of sales revenue. Our earlier
questions may now be directed to the data in Table 2: are the returns to investors, labor and
government institutions indicative of their marginal productivity in production? For example,
Cl3 million was earned by investors over the 46 year period. Is this part of an efficient income
distribution in the sense that at the margin, sufficient earnings accrued to investors to ensure that
capital was solicited and employed to the point where it was just profitable to do so? Similarly,
are the wage rates roughly indicative of the value of labor in production? Is there a notion of
social justice in this marginalists explanation in the sense that each factor input gets its just
rewards by earning an amount commensurate with the value of what it contributes?
 The subdivision of the venture into three main periods (each with its own income statement)
suggests an alternative explanation of the distribution of income in Table 2. Associated with the
income statement data for a period is a unique configuration of social and political conditions.
TABLE 2. Sample of items from three income statements of Delco Ltd

We will see how these two are related: the income data is a product of the socioeconomic reality
and differences between items in the three income statements may be traced to the changes in
that reality. In this fashion we may use political economy to explain and predict accounting
numbers.
The next section shows how heavily contemporary accounting theory and practice
depend on marginalist thought. This is followed by a review of the Cambridge Controversies: a
discussion that shows that the marginalist underpinnings of accounting are deficient on logical
grounds. The paper then turns to explain the mode of analysis of classical political economy and
illustrates how it may be applied to the accounting data of the Delco Company.
MARGINALISM AND ACCOUNTING
Very few scholars would deny that marginalist economics has had a tremendous impact on
shaping accounting theory. This is not to say that contemporary accounting practice is simply
applied marginalism, but if theory has played any role in determining practice then
marginalist theory has probably contributed more than any other to the practice of accounting.
This particular economic theory has provided guidelines for income definition, asset valuation
and more recent work in financial standard setting (Hicks, 1946; Edwards & Bell, 1961; Parker
& Harcourt, 1969; Demski, 1973; American Accounting Association, 1977; Dyckman, 1977).
The pervasiveness of marginalism in accounting though is illustrated by views such as:
accounting describes an area of economics concerned with the measurement of economic
phenomenon (Dyckman, 1977, p. 266).
The attraction that marginalism holds for accounting theorists may be understood if we
reflect on the conceptual structure of marginalism. The power and strength of marginalism stems
from its potential in linking rational decision making at various levels: the individual level; the
level of the firm and that of an entire economy. While its ability to achieve this conceptual
integration has been frequently challenged, marginalism has few rivals today as an organizing
frame for accounting thought. Indeed it might be argued that marginalism has advanced beyond
the theoretical domain to penetrate the subconscious of even the most ardent practitioner. Thus
Keynes aptly referred to practical men who believe themselves to be exempt from any
intellectual influences are usually the slave of some defunct economist (Keynes, 1936, p. 383).
We can explore the contributions by marginalism to accounting in the following manner.
Imagine a highly simplified economy organizing its economic system. These two methods of
organizing are termed techniques of production and are defined as follows: 1

Year 0 1 2 3
Technique A -w 0 $5
Technique B -y $1 0 $6
The problem we are addressing is: Which is the most socially desirable technique?
Technique A requires an investment of w man-years in year 0 in order to earn a return of $5 in
year 2. Technique B requires an outlay of y man-years in order to earn returns of $1 (year 1) and
$6 (year 3).
The present value of each technique (the monetary value of w and JJ) depends on the
discount rate applied to their future returns. By substituting different discount rates into a present
for value formulae we obtain a range of present values for each technique. The results are
presented graphically in Fig. 1.

Notice that it is not possible to assert that one technique is most socially desirable regardless of
the rate of interest: technique A is dominant over the 100-200 per cent range while technique B
is superior up to 100 per cent and again over 200 per cent. Thus we can only speak of a
preferable technique for a society with reference to a given rate of interest.
The individual business firm may be incorporated into this analysis as follows: Fig. 1 may
now be viewed as the investment possibilities confronting the typical firm. Alternatively the
reader may visualize some firms considering technique A; others considering technique B and a
third group considering both techniques. If the interest rate for the economy is (say) 250 per cent
then, from a societal viewpoint, an efficient allocation of resources will occur if investors are
attracted to firms that will select technique B (with the highest present value). Correspondingly,
from a firms viewpoint, technique B provides the most competitive market position.
The example illustrates two levels of accounting analysis. The first is a societal level and this
shows how different techniques of production may be ranked according to their social
desirability (where desirability is defined in terms of the income accruing to laborors and
capitalists). In this context financial accounting may assist in allocating resources by informing
investors about the relative desirability of the two techniques. The second level of analysis is
microeconomic and shows the investment opportunities confronting the typical firm in the
economy. In order to remain competitive the typical firm should choose the technique with the
highest present value. Management accounting systems may assist management in this choice by
correctly valuing investment alternatives. Most important, however, is the integrative view of the
firm and the economy that marginalism offers accounting. Whatever the market rate of interest,
the best alternative for society is also the best alternative for the firm. This unifying aspect is one
of the most appealing reasons for devising accounting policy according to marginalist principles.
Marginalist economists such as Fisher (1930) Hicks (1946) and Hirshleifer have developed
concepts of economic value and economic income that are related to the worth of future
consumption possibilities. Subject to certain qualifications, cash flow information may be used to
assess the present value of these future possibilities (Hicks, 1946, pp. 172-176; Solomons, 1961;
Parker & Harcourt, 1969, p. 8; Revsine, 1970; Scapens, 1978, p. 448) ,3 ,4 These marginalist
ideas already form part of accounting policy: present value calculations are used in valuing
leases and assessing such expenses as economic depreciation and certain employee pension
items. In these areas there is no difference between the marginalist concept of value (illustrated
with reference to techniques A and B) and current accounting policy. However, perhaps the most
comprehensive application of marginalist thought is to be found in the realms of replacement
cost accounting.

Replacement cost advocates have frequently used the marginalists concept of value as an
ideal or benchmark to judge their own proposals for accounting measurement (Carsberg &
Edey, 1969, pp. 73-112; Bromwich, 1977, pp. 592-594). For example, Edwards and Bell provide
a detailed illustration which shows that, over time, a firms economic income will converge with
its replacement cost income and the present value of its assets will converge with their
replacement cost (Edwards & Bell, 1961, pp. 48-51) Notice that for Edwards and Bell, this
convergence with marginalist values are important grounds for favouring replacement costs for
financial reporting purposes. They appeal to marginalist principles even more directly in relation
to management accounting. In this area, rational management is expected to use present values in
evaluating alternative uses of their asset base (Edwards & Bell, 1961, pp. 37-38; Parker &
Harcourt, 1969, pp. l-30).
 We have seen how accounting theorists have developed methods that, directly and indirectly,
attempt to measure the marginalists concept of value and income. The Cambridge Controversies
are concerned with the validity of the marginalists concept of value and income. They challenge
the conclusion we made earlier (in relation to Fig. 1) that, for a given market rate of interest, we
can conclude that one technique is socially preferable. If we are unable to make this conclusion
then marginalism begins to lose some of its advantages as a coherent, integrated schema for
accounting policy.

THE CAMBRIDGE CONTROVERSIES

Figure 1 will help further our understanding of marginalisms difficulties. The problem in
Fig. 1 was to identify the most socially desirable technique. We needed to assume a discount rate
in order to solve the problem and we used 250 per cent. How should we decide which rate to
use? Two (alternative) answers are offered in the marginalist literature: firstly, the existing
market rate of interest and secondly, that the rate is irrelevant (i.e. the final solution is
independent of the interest rate and therefore the distribution of income). This paper deals with
the first answer: we will critically examine the case for using the market rate of interest. The
reader is referred to Kregel (1976) for an answer to the second question. Kregel shows that:
firstly, that in all but the most trivial and unrealistic cases, the choice of the discount rate is
crucial (and so therefore is the distribution of income). Secondly, using examples of the
switching of techniques, it is shown that marginalism is an underdetermined theory: it does not
offer a unique prediction and explanation as to the behavior of a real economy but rather a
multiplicity of conflicting predictions and explanations. Thirdly, we see that two of the central
building blocks in marginalist arguments (marginal productivity theory and the law of
diminishing marginal returns) are fallacious.
What justification is there for using the existing market rate of interest in relation to Fig.
l? This question requires an examination of the Cambridge Controversies. Reviews of these
debates already exist that are more comprehensive than space permits here (see for instance,
Robinson, 1953-1954; Sraffa, 1960; Harcourt, 1969; Harcourt & Laing, 1971; Hunt & Schwartz,
1972; Dobb, 1973; Kregel, 1972, 1976). However some of the central issues may be explored
using a classic marginalist study conducted by Arrow, Chenery, Minhas and Solow in 1961. This
was a comparative analysis of the economies of nineteen countries that explored the relationship
between economic growth and capital intensity. In relation to Fig. 1 this empirical study
addresses the question: which sequences of techniques leads to the highest levels of national
output over time? The study raises the question: how should we measure the quantity of capital
goods in an economy and the quantity of national output? Labor resources have a physical
measure in terms of labor hours, similarly other resources (such as land) have corresponding
physical measures (i.e. acres). What are the physical equivalents for measuring the quantity of
capital and the quantity of national output?
 These concerns can be illustrated with reference to a simplified production function for a
national economy shown in Fig. 2. Only two factors of production are considered in this
example: labor and capital. Ql, Q2 and Q3 are examples of iso-product curves: each curve
represents a frontier of alternative combinations of labor and capital that are capable of
producing the same level of national output. Tl and T2 are members of a family of price, budget
or income lines. The slope of these lines is given by the ratio of the market prices of the factor
inputs (i.e. the ratio of the wage rate to the interest rate). All the points that make up a single line
represent the different possible combinations of factors that are capable of producing the same
level of national income. Points on the same line differ in the way that a given level of national
income is distributed between labor and capital.
How much labor and capital would be employed to produce the output level Q2 in a
perfectly competitive economy? How will the national income be distributed between the two
factors? Neoclassical theory tells us that, in the short term when factor quantities are fixed at L
and C, the relative prices of labor and capital will adjust to equate supply and demand. At point
V in Fig. 2, the maximum national output (Q2) is attained (and factors quantities L and C are
fully employed) provided their market prices adjust to the slope of T2. These equilibrium prices
are reflected in the slope of the price line that gives a minimum cost solution at the point of
tangency between the price line T2 and the iso-product curve Q2. Suppose that the stock of
capital expanded to C. Its price would cheapen relative to labor causing a change in the slope of
the price line to T. This leads to a higher level of national output at Q3 with a new equilibrium
for wage and interest rates (at V). This is the neoclassical explanation to how a competitive
economy simultaneously solves the problem of production and income distribution. As Harcourt
and Laing note, the production function is a method of analysis for killing two birds with one
stone, it shows how the level of employment of labor and capital is determined and also how
national income is divided between labor and capital (Harcourt & Laing, 1971). The national
income distribution is given by multiplying the quantities of labor and capital by the equilibrium
wage and interest rates.
In the longer term the supplies of labor and capital become variable. The long run
equilibrium conditions are governed by the net marginal productivity of each factor: supplies
will increase until net marginal revenue is equal to zero for each factor. And this is the
marginalists reason for using the market rate of interest in Fig. 2. Capital is assumed to have
marginal productivity and the existing market interest rate reflects the worth of its productivity in
final production.
But can we say that capital has marginal productivity in the same sense as land or labor?
Returning to Fig. 2, how is the stock of capital to be measured? A quantity measure that is often
used is the present value of the income stream that; expected to accrue to capital owners
(Samuelson, 1976, p. 615). But where do we get the discount rate and a net income stream for
this calculation? The expected income stream requires an estimate of national income and a
division of that income between labor and capital. But this is what the analysis is supposed to
produce: i.e. the optimal income distribution in terms of output, employment and growth.6 [This
would give the equilibrium prices that equate the marginal rates of substitution of capital and
labor (Samuelson, 1976, pp. 547-557).] In other words, the assumptions we require (in order that
the analysis can proceed) gives us the solution before we begin.7 Far from giving optimal
solutions to the problems of production, income distribution and growth policies, this analysis
shows that the problem is indeterminate unless a distribution of income is assumed beforehand.8
Yet no rationale can be offered for choosing one income distribution in preference to another.
After all, this is exactly what the analysis was supposed to solve, not assume away!
(Harcourt,1969, p. 370). This marginalist explanation is tautological: we begin by asking how
the rate of profit is determined and the answer is with reference to the quantity of capital and its
marginal revenue product. We then ask how these are determined and the reply is by assuming a
division of future income and discounting the returns to capital with the market rate of interest.
All that has been said is that the market rate of interest is a function of the market rate of interest
(and an assumed income distribution).
It should be stressed that these deficiencies refer to marginalism as a theory, not
necessarily to capitalism as a system of economic organization. Obviously market discount rates
do exist in reality; what the Cambridge criticisms highlight is the inability of marginalism (qua
theory) to explain how these market prices are formed and (therefore) how capitalism works.
As Kregel observes, the orthodox (marginalist) theory can be seen to be a special case
requiring restrictions that are non-existent in reality and having no obvious logical support or
theoretical foundation . . . capital values and capital intensity depend on the ruling rate of profit
or wage rate (Kregel, 1976, p. 75).
Leading marginalists have acknowledged the difficulties raised for neoclassical
economics by the Cambridge Controversies. Paul Samuelson has stated:
The discussion shows that the simple tale told by Jevons, Bohm-Bawerk, Wicksell and
other neo-classical writers . . . cannot be universally valid (1966, p. 576) . . . If all this
causes headaches for those nostalgic for the old time parables of neo-classical writings,
we must remind ourselves that scholars are not born to live an easy existence. We must
respect and appraise the facts of life (1966, p. 583).
Professor Ferguson has concluded that neoclassical economic theory is a matter of faith . . . I
personally have the faith (Ferguson, 1969).
One of the most interesting consequences of the Cambridge Controversies has been the
reinstatement of classical political economy to the center of economic discussion. This has
involved a return to the concerns of Bicardo and an acknowledgement that the scope of
marginalism, defined in terms of competitive markets (the sphere of exchange), needs to be
supplemented with political and social concepts if we are to understand how a capitalist economy
works.
 AN ALTERNATIVE FRAMEWORK OF POLITICAL ECONOMY
Political economy differs from neo-classical (marginalist) thought in that it recognizes
two (not one) dimensions of capital: firstly as (physical) instruments of production and secondly
as mans relationship to man in social organization (Bhadui, 1969). The first dimension
represents the economic forces of production, the second the social relations of production.
Figure 3 shows how these two concepts of capital are interrelated in shaping social and economic
life.

Type of society (e.g.

slave, fuedal, agrarian,
asiatic, early capitalist

Political, Educational, Law

Enforcement, Legal, Military,
Welfare, Cultural, Scientific,
and other Beliefs

Methods of organizing productive sources (i.e.

types of economy), e.g. Market Economy,
planned economy, mixed economy, state
capitalism, slave economy.

Fig. 3. The two concepts of capital and their relationship.

In Fig. 3 the social relations are represented by various social institutions (e.g. legal,
state, educational, religious, law and order, political, government administration). These
institutions ensure that rights and obligations (e.g. property rights) can be pursued and enforced:
they provide the ground rules for an economic order. Different kinds of society (feudal, slave,
capitalist, etc.) are characterized by different kinds of social relations and therefore different
institutional arrangements. For example, in a recent analysis of the Japanese postwar economy an
eminent Japanese economist attributes the economic miracle to a unique alignment of social and
political interests (Yamaura, 1978, pp. 4-10). This included a tri-partied alliance between the
Liberal Democratic Party, government bureaucracy and business leaders; a closely regulated
capital market where the Bank of Japan controlled the money supply by lending through thirteen
large central banks; weak monopoly laws and a protectionist stance regarding imports. These
factors permitted the government to establish a low cost of capital that stimulated investment and
growth: the so-called disequilibrium policy of Japan. In terms of Fig. 3, this study shows how
an understanding of social and political processes (the social relations) is indispensable to
interpreting economic performance (either at the enterprise or national levels).
Here we come to the empirical study! The analysis of Delco not only attempts to show
how the financial benefits from a mining venture were distributed, it also tries to explain how
this distribution occurred as a result of institutional and social forces. The study shows how the
market was governed by successive institutional forces (including the military, the colonial
government and a bureaucratic management function). This amounts to a theoretical explanation
(in sociological terms) of the social forces that determine market prices (and therefore
accounting data). The Cambridge Controversies have shown theories of workable competition
and marginal productivity as inadequate for accounting data. Thus we rely on theories of
imperfect competition and political economy to explain income distribution and profit.
CONVENTIONAL FINANCIAL APPRAISAL OF THE VENTURE
The study of the Scottish owned iron ore company, Delco, spans its 46 year life
beginning in the early colonial period, and tracing its expansion through the late colonial period
until its collapse in 1976 under a post-colonial state of Sierra Leone.
In order to investigate the Delco Company a computer simulation model was created that
included all the main financial flows involving Delco throughout the period.* These monetary
flows were then adjusted by an inflation index in an attempt to present all monetary amounts in
units of the same purchasing power (thus all calculations are expressed in 1976 pounds sterling
equivalents). These inflation adjusted amounts were then used to compute ex ante profitability
indices and other measures for assessing the value of the venture. Thus for the shareholders of
Delco, the project produced a 13 per cent inflation adjusted, internal rate of return (or 16 per cent
before inflation). Figure 4 and Table 3 show how the total 46 year (inflation-adjusted) sales
proceeds were distributed between various parties.
Table 3 presents the project (ex post) from a financial viewpoint. For an outlay of
&500,000 in 1930 (approximately 3 million in 1976 pounds sterling), the project generated a
present value of &18.9 million at a 3 per cent discount rate after allowing for inflation. In
October 1975, Delco (Sierra Leones second largest export earning industry) went into voluntary
liquidation and with it, the several thousand employment opportunities its operations generated.
Table 3 is not concerned with whether some participants made excess profits from the venture.
This would imply that we could say what normal profits were for the situation. What is of
interest are the factors that led to the shares taken by participants and then why those shares
change over time.13
 Black Manual Labour Black Stuff Tribal Authorities
Sierra Leone
6% 1% 0%
Government
10%

Shippers and
White Employees Insurance Agent
8% 40%

Delco Investors
10%

UK Suppliers
25%
Shippers and Insurance Agent UK Suppliers
Delco Investors White Employees
Sierra Leone Government Black Manual Labour
Black Stuff Tribal Authorities

TABEL
ALTERNATIVE ANALYSIS OF THE VENTURE: A PERIODIZATION ANALYSIS
It is at this point that a new way of interpreting accounting data may be introduced. Table
3 (together with Fig. 4) is an income statement for the entire 46 year venture. Table 4 provides a
breakdown of Table 3 in the form of a series of income statements: a periodization analysis. The
period covered by each income statement in Table 4 represents a particular institutional regime
(early colonial, late colonial and post-colonial). Each regime had its own unique configuration of
social and political institutions.
How should we interpret Table 4? Table 3 shows that 17.25 per cent of the sales proceeds
were returns to capital for an initial investment of 500,000. Was this allocation (and its related
returns) efficient in the wider context of the allocation of international economic resources? Our
earlier review of neoclassical analysis shows that we cannot evaluate the situation in terms of
marginal productivity. After all, the Cambridge debates show that the distribution of income is
determined by forces outside the neo-classical sphere of market exchange. And this is exactly
what Table 4 shows us: it provides an income statement for each institutional regime. We can
now begin a new interpretation of the accounting data shown in Table 2.
From the early colonial to the late colonial period we see the percentage share of
proceeds collected by the British constituents gently declined (from 84 to 79 per cent) and this
decline is accompanied by increasing allocations (mainly through taxation) to the Colonial state
whose share of the proceeds reaches a peak in the beginning of the post-colonial period (from 1.7
to 14.9 per cent). These figures together with other records of the period, indicate that with the
passage from early to late colonial conditions the British colonial system that made mineral
extraction possible in the form of military, ideological and other support was gradually devolved
to a growing and an increasingly bureaucratic group in Freetown (Hoogvelt & Tinker, 1977a).
The important thing to note is that the basic relations of production characteristic of capitalist
enterprises, i.e. the relationships between the factors of production: capital versus land and labor,
remain unaltered. For instance, the returns to the tribal authorities (representing the original
owners of the land) and to black wage labor remain perfectly stagnant throughout the entire
period. None of the new and swelling government revenues directly or indirectly ever benefitted
the native workers, people and local authorities in the iron producing province. However, they
did serve to secure the continued co-operation of the state.

In its general outline this situation prevailed throughout the post colonial period except
for one important additional variable which progressively frustrated the financial position of the
company. This concerns the appearance and the rise of a new participant, namely a contingent of
black salaried staff. In response to pressures for indigenization after independence Delco began
to recruit black managerial, clerical and technical supervisory staff, most of whom were not
productive in the usual sense. The agreements of 1967 and 1972 formulated this
indigenization programme in increasingly stringent terms. By the time of its closure Delco
employed some 218 supervisory salaried staff of whom 164 were Sierra Leoneans earning an
average annual salary of g3041. In 1974 this black salaried contingent received a total income of
422,320, not much below the total wage bill 513,215 of black manual labor numbering 23 17
(Table 3). This Sierra Leonization programme was difficult to justify on the more usual
commercial terms (Hoogvelt & Tinker, 1977a). As the figures in Table 5 suggest, we should
interpret the bonanza in black salaried staff as an attempt by the company to retain the approval
and support of influential groups in Sierra Leone. By the mid-nineteen-seventies, the expanding
indigenous pressure coupled with the prospect of diminishing returns from the mine induced the
Company to leave. In doing so, it was simply following a strategy for survival in a market
context.
We have seen how the 46 year history of Delcos operations in Sierra Leone can be
classified into a series of institutional regimes, each with its own income statement. Each regime
consists of a configuration of socio-political forces that determine the distribution of the revenue
shown in the income statement. Each regime is a development from the previous one in the sense
that it is an outgrowth from, and response to, the contradictions and instabilities of the previous
era. The final collapse of Delco took place in a new episode in this sequence of institution
regimes.

IMPLICATIONS
It is with the interpretation and use made of accounting statements that this paper is
mainly concerned. While these statements are supposed to provide information about an
enterprises efficiency they neglect the state of the socio-political foundations underlying the
market forces. For, as the fate of Delco demonstrates, market efficiency and social stability are
not independent realms: there is a complex interplay between the two that shapes the destiny of
enterprises such as Delco.
While accountants are becoming more rigorous in their understanding of the economic
realm, a commensurate degree of rigor also is required concerning the political and social realms.
Some may find this suggestion rather alien. All too often political and social problems are
relegated to common sense status, not deserving systematic scientific investigation. However, as
the Cambridge Controversies have shown, political and social conditions predicate any economic
analysis, thus the accounting results are only as good as their political and social precepts.
In order to understand the processes of price formation and income distribution within
advanced industrial societies one needs to take into account the second dimension of capital,
i.e. the state of social relations. Thus, trade unionism, institutionalization of welfare demands and
other supply conditions - the sociological datum to which Maurice Dobb refers - need to be
reflected in any model for explaining price formation and income distribution. Institutional and
social forces are often treated as market imperfections or aberrations. It is the contention here
that in the analysis of multinational and monopoly business (conditions of imperfect
competition) these aberrations must become central to the analysis.
We have seen from the Delco case how coercive and ideological social forces take on
different guises in different periods of history. Moreover, by connecting our economic and
accounting data to these underlying social conditions we have started to tell a different story
about valuation and income distribution. This is not a tale of wealth generation and the justice
of marginal productivity measured in net present values and accounting rates of return, but the
story of a system that was so unstable that it failed to meet even the minimum viability test: it did
not offer weaker parties (i.e. black employees) enough returns to enable them to reproduce an
economic role in the longer term. The fact that in the Delco case, ex post accounting
(marginalist) measures of financial viability of the venture flatly contradicted this weak litmus
test of viability raises serious questions about the adequacy of accounting and its social role.
One important lesson from the Delco case concerns the belief that we may entrust to the
free play of market forces the task of working out socioeconomic problems. The Cambridge
Controversies demonstrate this belief to be fallacious: markets are not free but structured and
we have to discern the structure if we are to explain the distribution of income (including the
magnitude of profit). With examples from early colonialism it is relatively easy to agree on the
importance of the military (rather than marginal productivity) factors in determining the profit-
wage ratio. Similarly, we have little difficulty detecting other such socio-political forces in
societies unlike our own. What needs to be done in political economy is to construct a theory
for explaining income distribution and market conditions in our industrial societies.
Maurice Dobb notes that at the time of writing, that alternative explanations of
distribution in our twentieth-century world are sub judice in current economic discussion, and
that discussion (or even elaboration) of them has proceeded insufficiently far as yet to make final
judgment possible, still less to speak of consensus (1973, p. 272). In view of the poor condition
of marginalism that is so often used as theoretical support for accounting in matters of
production, value and social choice, Dobbs comments seem to be sound advice.