Accounting, Printed

Organizations

and Society, Vol. 7, No. 2, pp. 167-200,

1982.

in Great Britain.

0361-3682/82/020167-36 @ 1982 Pergamon

$03.0010 Press Ltd.

THE NORMATIVE ORIGINS OF POSITIVE THEORIES: IDEOLOGY AND ACCOUNTING THOUGHT*

ANTHONY

M. TINKER, MARILYN
of Business,

BARBARA New York

D. MERINO University

and

DALE NEIMARK

Schools

Abstract theories are frequently promoted as being more realistic, descriptive and empirical Positive, 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 role played by theories and theoreticians in of the concept of value to illustrate first, the partisan questions concerning social control, social conflict and social order; second, the ideologically conservative underpinnings of positive accounting theories; and last, some indications of alternative (radical) approaches to accounting policy.

It is commonly believed, inside and outside the accounting community, that accounting is independent and neutral as regards major social and conflicts. This paper contends that, being partisan that accountants neutral, in such have (partly accountants matters. been have Specifically, often influenced been struggles far from highly we argue by default) by one

accounting) such as Positivism, Realism. Whatever their specific here that these theoretical masks the socially partisan instead its technical, ive aspects. We begin popular ture: Positivism Historical an accounting, leaving notion our exposition masks

Empiricism and form, we argue act to mystify

role of accounting and elevate factual and seemingly objectby examining that enjoys accounting one of litera-

by choice

and more unduly

the epistemological support

widespread We contrast

particular viewpoint in economic thought (utilitybased, marginalist economics) with the result that accounting serves to bolster particular interest groups in society. The social allegiances are rarely pretentions Academics sophisticated theories logical apparent, of have (theories theories

in the current

that of Positivism with an Materialism, requiring

(or Realism).

alternative philosophy of and show that the former is foundation acts-of-faith for and too many

and biases of accounting they are masked by and independence. some of the more of accounting and epistemotheorizing in

inadequate

epistemological questions accounting

usually objectivity contributed

too many of a positive

unanswered. The theory is shown

masks

in the form

in accounting) (theories about

to be an illusion in any science) neutral.

because cannot

research in accounting (or be value-free or socially oblivious to this

Researchers

who remain

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 Universities. 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 interest offers

tools groups.

of the funding We suggest that basis

enhance tion, alienation duction conditions ability? ability?

or diminish or that Has Is there

the

social

value of producthat increases in prohistorical accountaccount-

agencies Historical We Theory. arguments in social though monplace little ledges concepts ent

of special

i.e. is it a manipulative a legitimate technology?

practice

Materialism illustrate Our review about the term struggles the

a more plausible of

improvement

for accounting Materialism

theorizing. application Historical of Value role that For there acknowalis by means of a brief history the central history.

What were the led to greater corporate increased that any cost to work Is there

auditing

highlights throughout

that is demand-

the meaning value

of value have played com-

ing and tedious? stimulating

any value to work that is

and enriching?3

is one of the most of accounting, literature nature. that

in the language accounting

in the

REALIST Accounting ness parts 1972; a struggle of Realism Caws, approaches, throughout is not indeed

PHILOSOPHY the their first positive discipline and to witnormative counter(Harre, 1974).

its controversial concept allegiances) and of positive last part

We also introduce all its attendcontemthe normthat between

of value that differ from the utility-based of value (with which which theories. we suggest value offer the of the ideoforms dominates

(marginalist) social porary

philosophical science Pirsig,

accounting

and Idealism Hudson,

have been at odds 1969;

ative origins In the

the history 1965;

of western

of the paper

alternative ways of conceptualizing prospect for a radical realignment

logical, political and social predispositions of accounting. We explore the implications of this realignment for areas such as multinational acaccounting; management counting, corporate accounting; that, cept in each of value behavioral of these enables accounting; accounting areas, social accountWe show cona range of ing; tax accounting; law etc.

Realist philosophy asserts that reality objectively exists out there and is independent of our perceptions and thus reality is ultimately the same for every observer. Given this, we may come to know this one, ultimate reality by searching out the underlying laws and mechanisms that regulate its behavior. possibility objective dependently Note that this philosophy of discovering reality and that of individual holds out the absolute, exists inidiosynone single, this truth perceptions,

a reconstituted

us to investigate

critical social issues and questions looked by the present literature. how public degree should we evaluate the and private of unequal societies?

that are overFor instance, policy of

cracies and biases. Thus ultimately, there is only one truth facing the Pentagon, Polit Bureau and the Catholic Church. Final agreement is considered (in principle) possible on such questions is, what causes what and what as what exists, because researchers need merely to consult facts about our shared reality in order to

pricing

monopolies? Can we assess the exchange that occurs (through developed behavioral and underDoes accounting

multinationals) developed

between

* We use this conventional categorization of the subject merely to expedite our discussion; this should of accounting. On the contrary, in our opinion, many of to mean that we concur with this structuring that afflict the subject arise from the kind of partitioning that is entailed by these conventional categories. tion of the historical from the social from the financial from the behavioral aspects are some damaging divisions (Lowe & Tinker, 1977; Tinker & Lowe, 1980, 1981, 1982). 2 For concepts Elson, 1979. of value that embrace the notion of alienation, see for instance Braverman, 1974;

not be taken the problems The segregaof the more 1976;

Ollman,

3 We do not attempt to explicate most unrealistic for a single paper. and indicate some of the theoretical

value theories that address all of the above questions; such an objective would be What we do provide is an introduction to literature on different value approaches and political reorientations that they suggest for accountants.

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

169

determine

the

truth 1980). over

(Giddens, Realist

1974; philosophy

Novack, Realism, have philosophy Friedman (see or for gave Positivism, accounting it his stamp became an authentic when in 1953 researchers of approval

1971; Morick, Controversies

been especially pronounced in the social sciences because of the difficulties of verifying propositions involving man-made intangibles and constructs. 4 In what sense can we touch an equilibrium, see a bliss point their or smell an income and existence number and verify character in the same way that

Hakansson, 1969, pp. 137-144; 1973, pp. Friedman had taken his cue from 153-160).6 Keynes. Thus, in 1980, Zimmerman cited Friedman (1953) who quoted from Keynes (1891) that a positive science is a body of systematized knowledge concerning what is and a normative science is a body of systematized knowledge discussing expanded criteria of what
ought to be.

we can (say) with an element or a sulphur crystal? Are personalities, market prices, pluralistic ideologies, role structures, costs, growth paths, culture, dissonance, motivation and leadership, items that we can show, unequivocally, exist out there; or are they imputations, contrivances and projections that originate relations? Can we say that mand are natural put them out within ourselves, reality the laws of supply and delaws like gravity, or did we If they in part, do originate then whose the correct making? are these the from truth basis If the usual 5 from within ourselves and our social

Friedman as

his argument

for viewing

economics

a positive science in Capitalism and brecdom (1962, p. 86) claiming that while the economists value judgments he reaches point ments same that, page, doubtless influence at times, there These quite the subjects he works on and perhaps, the conclusions

. this does not alter the fundamental

in principle, appear are no value judgstatements, that on the but perthe the at the will then be all

there? even theory helped criteria

in economics.

contradictory;

and whose social world that diction we (physical

is to provide and policy contrive,

haps Friedman problem, the

is suggesting variables, the

if the researchers

for accounting have

make all their value judgments causal ordering and the posited

(i.e. in choosing characterization, relationship)

that we observe

and study

is a world and precreations?

science) adequate

of explanation

for evaluating

outset of the research, then the results objective and value free. If this is true,

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, todays 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 Friedmans 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 (Positivisms 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 analytic decisions (in Schumpeters side the theory formulation

important preterms) are outare not

into normative

and positive

or, in those cases

and therefore

subject to critical analysis or discussion. The recent accounting literature of the efficient market-related research contains numerous amples of attempts to deny or diminish significance analytical intellectual this desired of value-jugments In this embodied literature, decisions. maneuvers separation exthe

where a theory has been infected by values, the very act of recognizing the value-judgments (usually called stating ones assumptions) somehow exorcises It seems that wealth the the theory of the troublesome element. that confessing ones assumptions (e.g. market is efficient; indicator that we can ignore efficiency wellthat informational

in prevarious

endowments;

is an important

of real economic

have been used to achieve of fact from value. In

being; that we can add utils together) is taken by some researchers as absolution from all that logically follows from the assumptions (however outrageous and unrealistic the assumptions may be). Some of for the efficient resemble market articles research of assumpthat faith of faith they than that mask market

a landmark paper in 1974, Gonedes & Dopuch argue that researchers can only assess the effects not the desirability In have those theories) (such the that of alternative same tradition, that commit theories argued accounting Watts can & be procedures.8 Zimmerman divided into (normative tive theories). ing research used to manner, form Dopuch

tions, more plausible

example, premises are several, and

are so unrealistic (Katauzian, under the

closely

value judgments that do not (posiaccountbe emmarket studies)

1980, pp. 45-83). positivistic efficient tenuous

and those as efficient (1980, p.

There lurk that

crucial articles authenticates is the

They propose accounting

that positive policy.g 74)

imperceptibly dignifies First, there

In a similar welcomes

research.

connection

piricism in accounting research and lauds attempts to eradicate (value-laden) theorizing in the standard-setting process. He asserts that theories can be divided into empirical and non-empirical (later becoming positive and normative) and that while normative theories they will be discontinued ly to produce any Underlying either theories are not because dead, he hopes they are unlike(op. cit.).

between informational efficiency and economic efficiency: that the speed with which new information is impounded into stock market prices correlates real goods assumption directly with the efficiency with which and services are produced. Second, the that the stock market remains a signifi-

cant economic institution under contemporary capitalism when only a small fraction of new capital primary tions. is secured through the stock market: the source of corporate finance being retenThis is in addition to assuming that partial

further

benefits

much of the above is the view that, may be unambiguously segregated

Friedmans 1953 essay resulted in a decade-long controversy in which Friedmans 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 Friedmans thesis ranged from trivial to absurd depending upon one chose (Christenson, 1981, p. 41). which of his several meanings of assumptions 8 Nowhere do Gonedes & Dopuch discuss the criteria effects to security price effects.
9

(values)

they have used in their work that enable

them to reduce

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 accounting research from value however; if, by isolating the normative seed, we can purge positive and descriptive 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 proportion of than 4% (Baumol, 1965, p. 68). Baumol concludes from this and other studies that a very substantial 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-

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

171

equilibrium ambiguously economy fections

in the into

capital a general

market

translates for

unthe imper-

other igations

investigations.14 have used

Collectively, empirical methods

these

invest-

equilibrium all market 1936;

that have a

as a whole, (Ronen, 1974;

despite

legitimate

Keynes,

Baumol,

1965; Stiglitz, 1972; Jensen & Long, 1972; Mayshar, 1978). Since the ultimate object of economic activity sistence, mediaries stock prices is to reproduce with in stock this the (real) merely the means paper linkage of subinterbetween prices process,

claim to be more exhaustive and reliable Compustat tapes. than peering at life through Efficient market research washes-out the variance belonging to such results with large samples: such results are dismissed as mavericks and outhers. of the What efficient social market studies that lack is a sense appears public to be outcases loss-function sufficient

and the production

of real goods and

associated rage against function in these interested whole, Although efficient sampling) dents because but

with these scandals: the profession. would since

single, unique A minimax we are

services is critical and cannot be taken for granted. Third, both general equilibrium theory and efficient market research have been criticized for assuming (rather than demonstrating) that markets exhibit equilibrium-seeking properties (Hicks, 1965, p. 15; Shaikh, 1981, pp. 270-278); for the implausible causal assumptions that are used to explain observed behavior (Kregel, 1973, pp. 1214);12 and for the errors are frequently committed preting Fourth, ante; from stock market there are the choose Penn data, National Student Central, in logical inference that by researchers data (Ronen, facts that Leasco in inter1979).r3 efficient and RehEquity of

have been quite

to mobilize

objective no longer as a level.

(for example) circumstances in the in success

be more appropriate of the market

efficiency

at every

individual

perhaps over-dramatic, the response of market researchers (through their massseems most analogous Mile Island show to arguing are not that that inciof of of the a problem down. critique

like Three

surveys

the majority

marketeers Funding; accounting

to ignore: Marketing; etc.

nuclear power stations are not melting We reserve our main philosophical Realism where these and Positivism we are able to highlight approaches of by juxtaposing Historical

Mattel;

for the following them

section

The manipulation losses

the deficiencies against

the financial

to investors,

the effect on stock prices and the damage to investor confidence resulting from these cases has been established by legal, journalistic, SEC and

alternative

Materialism.

We should

point out however, that Positivism itself has its own long and checkered history and can be (and

able terms (ibid, p. 70). The Wheat Report (1969, p, 59) noted that between volume of new issues to those of established stocks declined from 5.3 to 1.6%. l1 For instance, Shaikh rather than equilibria&g occurring. has persuasively argued tendencies. Tendential 1961 and 1967 the ratio of the trading

that market prices are subject to a form of tendential regulation provides for the possibility of disequilibrium

regulation situations

l2 Kregel and Robinson have both challenged the omniscient abilities that are attributed to Walruss mythical auctioneer. Walruss 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 Walruss 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. A particular set of stock market prices may signify either equilibrium or disequilibrium in a macroeconomic Efficient market theory cannot distinguish between equilibrium and disequilibrium structures. l4 Although investors may increase their (social) discount rate reduces the amount which seem advantageous to the individual well-off community.
13

sense.

individual discount rates to allow for such contingencies, a higher overall of investment and therefore, the level of economic growth. Thus, actions investor may, in the longer term, impoverish him/her as a member of a less-

172

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN

DALE NEIMARK

has been)

criticized

as a philosophy The origins

independently of Positivism Saint-Simon 1974;

materialistic

theory,

as a guide for future

research.

of its links to Realism. lie in the works and subsequently Hayek, version into Hayek (1962). of these accounting Auguste early

of Madame

de Stael, Comte

(Giddens,

A MATERIALIST ACCOUNTING Materialistic philosophy

THEORY THOUGHT provides

OF

1952; Christenson, research

1981). A rather garbled ideas has been the translated writings of from

an alternative

(1952), Keynes (For a discussion

(1891) and Friedman of this translation see

epistomolygy to that of Realism. A materialistic philosophy contends that knowledge of the world is as much an invention as it is a discovery. Facts never speak for themselves and therefore consulting the facts about reality is never a sufficient explanation as to how we come to know what we 1978). The researchers know (Abercrombie, 1980; psychological predispositions (Brown, 1974; Mitroff, 1974); social environment (Domhoff, 1981; Strickland, 1972; Shaw, (Baritz, institutional affiliations Shaw, of

Christenson, 1981; Zimmerman, 1980.) In the view of early Positivists, the methodology of natural science offered the prospect of positive knowledge about initial presumption what is (Harre, 1972). This was followed by two deduc-

tions; both of which have been accepted by accounting positivists and both of which were shown to be invalid by the philosopher David Hume (1888). The first assumption was that, from knowledge about what is, it is possible to solve questions about what should be 1969). The second assumption involves lem of induction: that is, it is possible on purely logical grounds, inference from experience. Both assumptions by accounting 14-16) positivists (Christenson, even though, (Hudson, the probto justify,

their cultural and 1979; Lecourt, 1975); 1960; and their Muthern,

1981; Debray, 1981) are all relevant to how we construct knowledge in the fashion that we do; whether that knowledge pertains to surgical practice (Ehrenreich & English, 1973); genetic engineering (Reich, 1971); economic management (Routh, 1975); motor-cycle practice of maintenance accounting that absolute (Pirsig, (Burchell 1974); or the et al., 1980). There knowledge outcome throughs times

(prediction) are still held 1981, pp.

since Hume, they are regardepistemological 1971; Christen1971, 1980;

ed as erroneous in conventional thought (see for instance Novack, son, 1981; Morick, 1974). operating in the 1980; Cornforth, Giddens, theory,

are many

examples for

show scientific than merely occur the in truth. Break-

to be artifact of a search in scientific for

rather

Realism,

clothes

of positive because it is that this positive of norm-

theory a discipline

frequently

claims theoretical

supremacy

of crisis

or its underlying Burkes of forces

born of fact, not values. We contend separation of theorizing into descriptive, and normative impartiality is designed and to create independence

social system. For example, Edmund ideas came in response to the challenge

an illusion

to support

for democratization; Adam Smiths thought served as an important theoretical justification of laissezfaire; Marxism nation of capitalism; Marxism;17
including

ative policy type decisions.16 As an epistemology, we find such a linear representation of the complexities of the scientific imagination unacceptable, and offer an alternative epistemology, a

was an attempt

to provide

an explaof to be
com-

the more disturbing consequences marginal analysis was a counterblast Webers bureaucratic theory can
Logical Positivism, which some research

5 Our critique of Realism extends to all variants of Positivism, mends as the new epistemological Nirvana for accountants.

l6 Zimmerman (1980) and Watts & Zimmerman (1979) are among the leading proponents of positive the final analysis, the only reason for conducting positive research is to formulate normative policy-type theorists interpret facts, (i.e. why variables are related) without also subscribing to some normative (i.e. usually what ought to be) has not been explained. l7 Solow (1963) marxist backlash 1972, p. 380.)

theories. But, in decisions. How preconceptions,

has acknowledged that marginalist capital theory in the 19th century resulted in part from a nonand fulfilled the social function of providing an ideological justification for profit. (See Harcourt.

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

173

viewed retical scale

as a rationalization justification German of was monopolies laissez-faire an

and, therefore operating ideology; and within

a theoof largean en-

analysts until 17, July,

estimate 1978).

that

this

will not expense

become

due Week,

of the contradictions

the mid-1990s

at the earliest

(Business

If the current payment

associated in present

vironment economics

Keynesian pragmatic

with this future value terms,

was estimated effective

intellectual

the current

tax rate would

response to the crisis of mass unemployment and the inability of neoclassical economics to locate the cause (Allen, 1975, p. 72). In a similar vein, the philosopher Wittgenstein has argued that even mathematical theory is better understood when viewed as an invention rather than just a discovery fundamentally that theory reality that the (Bloor, 1973; Young, 1975). Materialist philosophy differs from Realism in that it recognizes may theory come to form part of the purports to describe.

fall considerably. The fiction is maintained of course because accounting statements and footnotes are not disinterested and expenses, they can be used politically best estimates of profits that regulaare certified documents

to resist government

tion and to lobby for a more favorable business climate (Sloan, 1976). From a materialistic viewpoint therefore, financial statements should be seen as creatures of business reality rather than objective descriptions of historical dead facts. The difficulty with the Realist assumption (that truth comes from facts) is that it fails to recognize that theory plants some of the facts. split: reality Realism presupposes a subject-object can observe and analyze completely observers (objects) models detached (subjects) they observe of observation less the subject-object we (the subjects) (the object) in a fashion. Neverthe-

In this way a theory

comes to have a life of its own - it is reified - and therefore may be experienced as external to the theorist. Thus for example, how is the validity of Monetarist or Keynesian are employed theory affected by the rationcomkind, or both fact that they to both act upon and

objective

describe reality? Are features of economic ality (such as acquisitiveness; selfishness; petitiveness) are they (reifications)? management score In the inherently products There relevance of natural are to human theoretical examples accounting it is

split is a false assumption: are a product of the reality are their Moreover, of the (and so therefore and perception).

interventions from that underphilosophy. commonly

and financial

the object (reality) is changed by the results subjects analysis and theorizing. The rejection Realism theories quandary. truth world about if our of the subject-object

of a materialist accounting,

split leaves

management

acknowledged that budgets are not merely best estimates of what will happen; they are also targets particular Stedry, casting used to motivate of action managers (Hopwood, to adopt 1974; courses

and the promoters of positive accounting in something of an epistemological How the can theories we talk have of discovering helped aspects create the the is one workings of the socio-economic of the reality

1960). In this respect, it is not the forability of a budget that is important, rather that it helps in financial re-

institutional

and ideological

we are examining?

The problem,

in essence,

it is the desirability of the situation create. Similar examples abound accounting (although this

is less commonly

of trying to discover when much of human and its theories. ing secrion

human nature empirically, nature is created by society in the followexample,

cognized): for example, many U.S. oil companies and utility firms have, in recent years, protested their high tax burden. They cite, as evidence, the expense items in their income statements and the footnotes, which show effective tax rates that are often in excess of 40% of profits. Yet payment of this expense is deferred, often for many years, and in certain cases indefinitely. AT & T, for instance, showed a deferred on its 1978 tax liability balance sheet. in excess Market of $11 billion

The task we have set for ourselves is to illustrate,

with a specific

how a materialist viewpoint may enhance our understanding of the evolution of accounting theory. The example we have selected is the historical development of the concept of value in economic theory. Two questions require attention before we proceed, however. First, as many accountants would view the history of Value Theory as only tangentially related to the evolution of

174

ANTHONY

M. TINKER,

BARBARA

D. MERINO and MARILYN

DALE NEIMARK

accounting theory, what constitutes the proper domain of study for accounting researchers who are concerned with the development of accounting thought? Second, what kind of evidence should be admissible in such an historical inquiry? Both questions mental research sources prejudge raise issues. should about research exceedingly To insist be bookkeeping questions that confined complex to but (say) fundahistory primary be to have accounting would they

Value velopment

Theory

has been

so central that

to the deGeorgescu-

of economic

thought

Roegen (1971) has said that a broad perspective of the history of economics emerges as a struggle with the problem of value. central for We argue that Theory Value Theory ally and argue Value has also been the to the development has traditionrelations, We will for acis for measuring exchange

of accounting. provided reporting accounting

While Value logic

practices before

has provided reciprocity that

the system

in exchange. it is impossible The

been articulated. argued that such What state the feel that ing

Danto (1971, pp. 9-13) has questions as What is history? What is philosophy?

subsequently Theory or

counting

to avoid aligning another.

itself with one brand of real question

is economics?

mission of a subject. Therefore, we a question such as What is accountshould be taken as problematic;

which one to choose. If this choice is to be an informed one, then accounting researchers need to take the nature of social conflicts as problematic

history?

Social

change

and

changes

m the

concept

of value

Rlcardion Socialists Canomst School (Aquinus 1250)

(Smith, Ricardo, \

1776; 1817)

-Marxism

(1850) -Srafforlans----) (1960)

Lousonne

(Gossen

1854

Mercantillst School (Barbon, 1690; Pol lexfen, 1700 Cory, 1719) FEUDALISM--MERCANTILISM-

;
EARLY CAPITALISM STATE AND -MONOPOLY CAPITALISM

*The The

dates ore the orrows denote

opproxlmote dotes some of the moln

of publication interrelations

of major theoretlcol between ideas.

contrlbutlons

Fig

1. and to understand the active role that the concept of value has played in wider social struggles. To see this however, one must view the changes that have occurred in the concept of value, not in Realist

something to be discussed and investigated by scholars, not prejudged by equating historical research to hard accounting or bookkeeping data.

THE

NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

175

terms reality,

as an accumulating but

wisdom

about

a fixed of the

detail

in the following of their

passages,

we can gain a brief for accounting of these by two

as an ideological

positioning

foretaste contrasting

implications

social imagination designed to explain contemporary social conflicts and concerns. In this way we may gain a better perspective on the partiality of our contemporary notions of value, as well as a feeling for the compromises and assumptions must commit in accepting such notions. we

the essential

differences

generic approaches to value theory. The most fundamental difference

between

utility-based and labor-based theories of value lies in the manner in which each approach deals with the social relations underlying economic categories. In the case of utility-based value theories, the relative value or worth of all goods and services

A MATERIALIST VALUE Figure cussion, cept century. 1 is a route which traces

HISTORY THEORY

OF

produced mediate mined dis20th in

in an economy goods relative

(producer contribution

goods,

interdeterof this

and final goods)

is ultimately aspect and also

by their

to the utility in things capital). historical

map

for the following Ages to the parallel

of consumers. theory (called Those factors labor

The distinguishing i.e. land, who labor are

the development the Middle by the

of the constreams

is that value is said to originate theorists

of value from the

As suggested

the diagram,

concept

of value

has developed based on side valuutility that (i.e. the

along two competing themes - value socially necessary labor (i.e. production ation) demand social fested concepts retical ing prescribe Figure evolution tions: the perspectives versus value based side struggles in, and valuation). stimulated which on subjective period It will be seen by these share

materialists have criticized this analysis because of its a historical and a social character; it treats factors of production (eternal categories) that and these factors wealth evident the first, goods; producing as the genesis thus failing to found of of value recognize of is social This

are only society:

in one type

in each historic

are manigeneric theoexistand to

the very specific capitalism. to produce with

two explain

historical

conditions

of value, mission and

a common relations

in the dual meaning the second, which

of the term capital: other prois concerned

to simultaneously exchange should

to do with its capacity

production

how such relations

be structured.

1 summarizes a great deal more than the of two streams of economic abstractwo lines of thought correspond to that are fundamentally opposed:

perty ownership. This second (Marxian) meaning of the term capital is specific to capitalism and signifies a social entitlement to income for a class that has no personal involvement in production. This shows that the notion of factors of production is socially specific to capitalism: factors refer to sources as features of appropriation of value (labor) as well of value (capital) that

philosophically, politically and ideologically. Moreover, insofar as accounting has used economic thought as a rationale for its own practices (consciously have been approaches: and almost otherwise) exclusively these borrowings from one of these (the lower

are specific to Capitalist Society. Socially specialized labor is the only factor that is common to all societies, in the view of labor theorists, and therefore labor is the common origin and determinant of value (for capital itself is appropriated and accumulated labor). We may develop still further the labor-theory critique of utility-based value theories to show that factors of production and associated concepts such as profit, wages, capital, equilibrium and

utility-based

value theories

stream of ideas in Fig. 1). What kinds of accounting are suggested by labor-based theories of value (the upper stream of thought in Fig. l)? How might they differ from the accounting which has grown-up in the shadow of utility-based value theory? While the evolution of these two economic paradigms is considered in

18

Including

capitalists

who

express

their

preferences

for consumption

over

time

in a time-preference

discount

rate.

176

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN

DALE NEIMARK

price and (such unique

are

all ultimately of capitalism. from and between

reducible Capitalism other feudalism)

to

the

social

relations

may be defined social formations of its to (laborers, relations in terms

ceremonial exchange and exchange by plunder that transgressed this rule, however, even in these cases, the value principle was still prevalent: a product was worth the socially necessarylg labor expended quantity equivalent pp. 49-67). This production-based the exchange of equal value principle amounts (based on of labor time) was on it, and it could of other products of labor amount be exchanged that time embodied (Mandel, for a an 1968,

distinguished as slavery relations

social members and their

capitalists

and landowners)

Nature and property (Shaikh, 1981; Dobb, 1963). Theoretical categories such as capital, rent, profit and wages are not universal societies; they are (socially) and therefore to all wealth specific producing in the to capitalism because,

to its social relations

final analysis, it is the social relations of capitalism that distinguish it from other social systems (Meek, 1967; Mandel, 1968). Thus, what utility-based value theorists regard as fixed in the form of factors that produce wealth, labor theorists take as problematic the latter treat factors (like capital) relations changeable 1978). here: social whereas order of capitalism (Arthur, utility into Being that 1979; are both Elson, is the factors, 1979; vital labor because as social and Amin, element theory

one of the most influential legacies that Antiquity bestowed on the medieval period. Canonist theorists were concerned with the terms of exchange between small independent producers, i.e. the proceeds that each obtained from the sale of products and what could be obtained with those proceeds. As Canonist scholars and clerics were frequently involved in adjudicating trade disputes as well as other matters of distributive justice, there usually merchant the was a need just accrued price. to to the be develop Since the direct a concept proceeds producer of an of sale (not with a the ethically

changing

changeable fixed

approaches

reify the existing

intermediary should

or capitalist) commensurate

the idea that

approaches highlight the fact that a social order may be recreated, enhanced and developed. The difference ail social the opportunity The canonist from the the existing is crucial beings): social to change theory and place transferred 1968). irregular for accountants structure, it. the (as it is for for other is on one approach is an apology

rewards

outlay and effort expended in production provided an obvious definition of a just price (Kaulla, 1940, Chapter 1). The exchange of equal amounts of labor time - the practice evolved in Antiquity - became the Canonists primary rule for determining the fairness for the of a particular time exchange. was Compensation labor expended

of value value principles primitive societies that in quantities labor-time (Anderson, Certainly exchange, to emerge was that equalized in ex-

One of the dominant Antiquity took amount products Mandel, from exchange

the most important element of medieval just price; with additional amounts added to cover the costs of raw materials, involved.2 justice transport attained and sometimes measure the risk of a A reasonable of distributive

of non-slave

embodied there were

1974; Dobb, exchange,

was probably

by the concept

1963; amples

silent

just price in Aquinass time because trade took 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 Princes 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).

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

177

communities, various readily direct

where

the

efforts were

and expenses known

of

producers

and could

(Meek, 1975, p. 14). In the development tional several important

of the idea of a convenseventeenth concepts century, emerged theo-

be compared

(Meek,

1975, p. 13).

price in the mid-to-late subsidiary

What was distinct about Canonist Value Theory (compared with utility-based marginalist theories) was the centrality that was ascribed to a communitys labor time in imparting real value to a commodity the Accompanying to grant the status and in translating exchange this emphasis demand that or real value into relative value. refusal utility price commoditys

that were to play an important

role in future

rizing. The ideas are well illustrated by Nicholas Barbons pamphlet (A Uiscourse on Trade) written in about 1690, when Classical Value was beginning to supercede Mercantilist Barbons modity pamphlet (its current links market the value Theory theory.

on the productionand subjective of value and

of a comMoreover, he

side, as the source consumer of

of value, was a stubborn

price) with the strength value of a value)

of its demand introduces commodity

and its level of supply. (its utility value

determinants

the concept

of the intrinsic

(ibid, p. 11). Mercantalist theory of value The growth of merchant trade initiated transition in the concept of value.

or subjective

a major in in

The Churchs

and suggests that this is causally linked to the market value; thereby anticipating marginalism and its causal ordering by nearly sixty years. The emphasis (in the mercantilist period) on utility as a legitimate factor in determining value and price was understandable in that the merchants gains came almost entirely from the consumer through price differentials. Conventional price value, with its emphasis labor as the primary source the merchants mary producers wishes ultimate (not bargaining rhe effort on utility position that expended) in determining rather than to pribe the of value, strengthened relative should the consumers the amount

involvement was ambiguous and contradictory this transition, reflecting its heavy investment

the feudal order (through ownership of land, for instance) and, at the same time, its expanding beneficial interests in ore-extraction and trade (Tigar & Levy, 1978). Gradually scholastic articulate keeping came order of the just) to a concept with dominate the growing the theoreticians of value new that social merchant began was more interests structure. to in who In trade as

by suggesting

consideration

to respond merchants scholars

to the needs (particularly and traders retreated

of expanding

and commerce

the need for the gains to be recognized the cost-oriented from

to be paid to producers by merchants. The transition to the classical thcovy of value The emergence the late seventeenth stimulated The show where duction (Cary, economic was taking a further producer-cost of early forms transition approach to of capitalism centuries Theory. began to provalue in that Many in Value value in and early eighteenth

basis of the Canonists just price, and redefined just in terms of what has been called the conventional price approach. The conventional price was that which was

clear signs of a revival (especially we find writers costs 1719, pp. place as true 11-12, in value 98-99). or

in Britain) real

such as Cary describing The reversal practice.

customarily received and paid for a commodity. This approach set aside its production-oriented traditions by admitting (utility and the subjective and consumers) demand-side expectations influences of owners

thinking

mirrored economic

a revolution

as determinants

and constituents

of value. Meek suggests that the conventional price was reconciled with Aquinass just price without too much difficulty by arguing that, in the absence of information about the difficulties in producing a merchants products, value was partly dependent on utility to the purchaser and therefore subjective valuations of the individual consumer

theoreticians of the times were spokesmen of the merchant-manufacturer and parvenu industrial capitalist and these new entrepreneurs were increasingly concerned with costs of production. Competitive pressures in the product market made it more difficult for merchants to maintain profit levels by traditional methods and the merchant classes began seeking new ways of exercising direct

178

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN DALE NEIMARK transition in which the to remove mercantilist expansion, i.e. the regulaimpediWhile Smith of a nations that of part and analysis unlike of prolabor of the acdeof a

control varied to

over from

production the putting productivity

costs.** out through

These

methods im-

system,

to attempts technical

a period of ideological central problem was obstacles tions, to industrial practices

increase

provements and the division of labor. The latter form of reorganization was often instigated from within list which very the direct element, began ranks from producer group: themselves and the rise from of a capitathose risen this on the half-merchant, organize the ranks of the producers to subordinate which

and sectionally-protective

ments to free trade and competition. argued that the ultimate source wealth more ducts power, in which social was its labor, primitive were the capitalism product center of for societies, based on featured he recognized where equal

half-manufacturer,

exchanges amounts

it had so recently

unequal

exchanges capital of the

(Dobb, 1963, Chapter 4). There was also a shortage period based age resulting, poor had the movement

capitalist

appropriated

of labor during

reinvestment of Smiths

in large part, from restrictions of labor and the existence 1957). by which the Well before

cumulation. At the velopment social surplus capitalism is the emergence

of parish

laws (Polanyi, acute,

end of the 18th century, become

time the shortliterature

and the appropriation

of that surplus

economic

recognized the importance of the supply of wagelabor for economic advancement. From the last quarter of the 17th century onwards, a variety of schemes emerged for encouraging immigration and permitting work; the most naturalization; serious in the the offences setting (Meek, with the 1975, greater and poor to and abolishing problems, attention the death together of penalty for all but p. 19). comhelped social

by capitalists for growth and development. These precepts were essential for Smiths basic theoretical mission: to show that the key to abundance lay in understanding how deployed and then periods. the study For Smith, the surplus redeployed wealth dynamics was appropriated, in successive time generation involved and this required

of economic

Production petition divert

an invariable yardstick flow of production emanate from ments (distributions) Smiths yardstick cept of commandable work-people when theorists viewed of sale of a product.

with which to measure the through time that would sequnce of employof surpluses. of social value was his conlabor value: Such a concept the quantity is meaningful of rate capitalists of

market-place,

gradually

a particular

economists

philosophers away from the sphere of exchange to that of production. These changes were accompanied by a growing of labor of gold belief rather that it was through through nations the bespecialization accumulation than

that could be hired from the proceeds in terms of the preoccupations

and silver that

came wealthy. It was no accident that Adam Smith, the pre-eminent economic thinker of this period, Nations the fund necessaries states that in the first sentence the and annual labor originally supplies of of the Wealth of of every life nation which is it it with all the

at the time. An individual could be measured

of accumulation

in terms of the

additional number of employees who could be hired in each period. It was natural, therefore, for Smith to appeal to such a value notion to describe in a nations Smith capital accumulation potential.23 uses the notion of a real measure

which

conveniences articulated

annually consumes. Smiths doctrine

initially

in his

Glasgow Lectures (1740) and developed and expanded in his Wealth of Nations (1776) - reflects ** From
counting. originating

the special sense that it not only captures the magnitude of a commoditys value but also embodies, inheres, or composes the product.

Pollard we can hypothesize

that this interest Here we have a clear instance of accounting from social and economic conditions (Pollard,

in production costs preceeded early developments in cost acideas and practices - as we would recognize them today 1965). that one

23 Meek also notes that it is only in a society in which labor power has become a commodity (i.e. capitalism) would associate real value with the power to purchase labor itself and not the products of labor (1975, p. 65).

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

179 and the labor theory to the ideological attacks in his re-

While

Smith

regarded of the

money value

as a measure possessed

of

Classical political of value Ricardos constitution He is known owners capitalism. and

economy

value, it was only an estimate

in the limited real

sense of providing by the

contribution of the concept for was outspoken

product (Meek, 1975, p. 51). Thus, Smith states in We have shown what rendered the Lectures: money the measure of value, but it is observed that labour, not money, is the true measure of value (Smith, 1838, p. 190).24 The intellectual climate of Smiths era was a period of transition from the mercantilists concern about concentration social Smith and labor. would the exchange to the early capitalists on production and the division of It was understandable regard force socially of behind labor progress endows therefore labor that as specialized

of value was complex. on landof a theosupport

his trenchant

At the same time, he developed

retical apparatus in his Principles (1817) that came to be feared by gentry economists as having revolutionary mischievous and even socially possibilities. concept the value accounting concept sequently paring the marginalism Ricardo Inherent theory of value maligned way for in the work much show of Ricardo, opposed contemporary Ricardos preof how it was subthereby theory is a to of value that is diametrically underlying We first and the and then research. examine

the motive Socially

and abundance value. with a product

quintessence necessary

a commoditys

discredited utility-based

exchange value because that labor forms part of a social, collective whole: a form of social understanding that permits each member to specialize in a prescribed way and exchange the products of this specialization for the means of existence. In this sense, all exchange is not only an exchange of labor but ultimately an exchange of social activities, or as Meek puts it, The value relationship between commodities which manifests itself in the act of exchange the relationship 1975, (Meek, developed ultimately p. 63). is in essence men This accords by Marx, because a reflection as that producers value is of between

(and its accounting derivatives). was interested in economic dynamics:

the path that an economy followed over time in terms of aggregate national income, income distribution between social classes, employment, savings and investment. Income distribution (and therefore the distribution of property and wealth) were at the center of Ricardos studies. Indeed, evolving problem Ricardo where, a distribution in Political saw economic once continuing theory activity was the in principle his view. loop Economy net investment

as a circular

with the view, it is concerned

and growth

subsequently

a social relation

are introduced, a significant portion of the outputs are ploughed back as fresh inputs before they have a chance to emerge as final consumer goods. Ricardo, and his twentieth century interpreters, such as Sraffa, sought to determine the trajectory an economy from laborers, would follow distribution and over time landowning to provide if it began among In classes. a conditional a particular capitalists of income

with the exchange of the life experiences of people whose labor is bound-up in the products, We are thus led to the conclusion that accountants participation adjudicating (and appropriaand in in economists who advise and guide market transactions are essentially social relations and in the transfer tion) of labor time.

this fashion,

he sought

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).

180

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN

DALE

NEIMARK

forecast

as to the

pattern

of growth,

employ-

Before

considering

the ideological

struggle

that

ment, etc., that would ensue time periods from an initial come. Such tractible measure a formulation problems the total raises

in a succession of distribution of inone of the most how should and inwe

ensued from revolutionary

the declaration of this viewpoint, it is worth

potentially noting the

in economics: output

of goods

services

way that Ricardo dealt with contemporaries such as Malthus, who advocated incipient versions of the kind of economics that underlies much of the accounting that we practice and teach today. Utility of short-run policy fickle was an inadequate in Ricardos price source view and determinant in inducing economic who depended that was to and as inof value because value (except

from an economy (including capital goods that will be used in future production) for each time period? ability is to physical may tribution one (not measures monetary numaire, Such be a measure is necessary income of goods depending there between Unfortunately if the desirdistributions the and same services of different output (starting) quantity differently

fluctuations)

and the well-being and unassessable reiterated spirits in capitalism). theory because was

of those

ascertained.

on it were far too important dramatically the animal ingredient demand adequate

to be based on such a (a point references supply

quantity

be valued

on the disis a many-tomonetary a reliable an invariRicardo had Smith

in Keynes Similarly, by

of income. a one-to-one)

In short, relation

of investors viewed

being the unstable Ricardo

and each physical

output

level. Therefore

measures do not provide metric or in Ricardos terms, of Absolute In Value.* that on this point Ricardos hand views on one value

in his view,

a theory

able yardstick criticized held patible was

had to make some determinate statement about the level at which forces of supply and demand fixed 122). demand was zero determines price in the normal where begged case (Meek, 1975, p. It was not enough at the point because that cost?26 to argue supply net marginal the question: balanced revenue what

It was precisely Smith. to assert with contradictory imbued

estimation that

on value: through

it was incoma commodity the amount of

social labor that had been expended on its production and on the other hand to contend that a commoditys worth was equal to the number of laborers that could be hired from (i.e. Smiths concept of commandable its proceeds labor value).

Ricardos focus on income and property division between classes as a primary determinant of economic growth set him apart from many of his successors. He argued that an antagonism of interest existed between landed property and the interests of the landlord industrial capital: are always opposed to the interests of every other class in the community (Sraffa, 1946, Vol. IV, p. 18). Ricardian analysis suggested that income distribution and so, therefore, property-ownership, class-relations and the institutional context were the proper and could historian and legitimate not be parcelled or the sociologist. concern of economists off to the economic

If the wage rate changed, so would its commandable labor value in Smiths analysis, even though the social labor expended through production remained on the commodity constant. Rather, to

Ricardo, the ultimate source, regulator, and yardstick of real value was socially necessary labor. Monetary imperfect value. value and market of this values real were merely expressions underlying

25 Not (Sraffa,

until 1960;

1960 Kregel,

was

this

problem

solved

when

Sraffa

devised

a Standard

Commodity

Index

for

the

purpose

1976). and finance that they researchers able who to put priced accept their the the markets inability market theory prices verdict into as the sole arbiter of value question. in any way Their with of cost other than that and value in terms there of of reis no

Modern value thing

economists means

are haunted market cognizing such

to this day by these disequilibrium as an undersituations

Ricardian are never share

criticisms:

to think

theory

is incapable

(excessively

or underpriced

commodities)

the corollary

or over-valued

in the modern

of finance.

THE

NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

181

The outrage their subsequent

evoked

by Ricardos

theories

and

capital response (Scrape, did not directly; other value).

and the to 1833, attack rather notions Thus,

Right 103,

of Profit robbery 105).

on Capital of Critics

as a

rejection27

have been

attributed

Hodgskins pp.

laborers of Ricardo Value it with exchange

to the fact that the majority of economists were very much aware of the dangerous use to which a number of radical writers were putting Ricardian concepts (Meek, and pamphleteers Ricardian Hodgskin, J. 1967, pp. 50-60). These writers have been described as the and included Thomas and William theories to

his concept they sought of we value find Bailey,

of Absolute to conflate (principally one

of Ricardos

Socialists

Thompson. ideology (Halevy, formulate a revolutionary 1928). Hodgskin for instance was a considerable influence in the incipient trade unions and working-class Mechanics noticed of Dublin Hodgskins would 1952, p. educational Institute. by economists establishments His work did who inhabited such not go

F. Bray, John Gay They used Ricardos

most vociferous relativist, starting able value denotes nothing . which two objects changeable

critics and a thorough going with a definition of exchangecontending but stand merely to each that value

and then

.
in

the relation other thus,

as ex-

commodities value on the

.
because

Ricardos 1825). of infrom an capitalthe

as the un-

search . . . was pointless of defining unvarying Thus come Value Ricardos not only to weapon focus and property

there was no way (Bailey, distribution

the cloisters

and Oxford. James Mill once wrote of ideas that if they were to spread they of civilized society (Robbins, a rather 135). Hodgskin propounded

and his concept facilitated that the but also

of Absolute became

transition against

be subversive

feudalism ideological ism itself. Ricardos

capitalism,

was used with

underdeveloped concept of exploitation where profit and rent were alike filched from labor 1825). Piercy Ravenstone elaborated (Hodgskin, an appropriation theory of property-income when he wrote: A man cannot excercise his faculties . make use of his limbs without sharing the produce nothing of his labor with those who contribute to the success of his exertions (Raventhat estabwith doctrines,

preoccupation

measuring

aggregate social product led him to average out the effects of alternative income distributions. In contrast, the causes of different income distributions were the economic history social centerpiece of Marxs contribution to analysis where he showed that social history the of the struggle social product was a manifestation between and that of the over

was the classes

stone, 1821, pp. 199-200). Professor Meek was of the opinion lishment the scholars were character primarily dangerous of Ricardos

distribution

of income

concerned

exploitation of one class by another. Building on Ricardos ideas, Marx defined exploitation as the difference between the actual time spent working of that those by the producer classes time devoted ultimately classes. amount capital activity process. and the portion to reproducing

rather than with what they falsity: Their fundamental determined dangerous 1967, p. denouncing source mental author (I833), by the belief

believed to be their approach was what was socially

that

could not possibly be true (Meek, 71).= Thus, we find Samuel Read Ricardos notion that labor is the only

Under capitalism, this difference is the of time the laborer spends working for and is an appropriation and lack personal the same of the labor participation as Marc prono productive in the apt exploitation Blocks

of wealth as a mischievous and fundaerror (Read, 1929). Poulett Scrape, of Political Economy for Plain teople refers to the mistaken hostility to

duct by those who have contributed Marxs concept of capitalist

is fundamentally

27 This edited the center

rejection works stage

lingered of economic reference

well

into The

the

20th

century completed

until

the

Royal

Society

commissioned in the reinstatement

Piero

Sraffa

to produce theories

the to

of David

Ricardo.

project,

in 1946,

resulted

of Ricardian

debate. establishment economics. academics that Marx referred to hired prize-fighters taking over from

28 It was with scientists

to these

and the emergence

of vulgar

182

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN

DALE NEIMARK

characterization where men order feudal (Dobb, to

of feudal

exploitation

as a system

such

critical

parameters

as the distribution

of in-

lords lived off the labor of other 1973, p. 145). Marx argued that in exploitation sphere hidden and income it or datum; in the market to consider relations; the of exchange, essence

come (that were molded by forces outside the market) were treated as given because (in the words of one marginalist) 1930). for marginalism was laid by to do otherwise would be to ask economists (Robertson, The foundation to commit value judgments

understand

distribution is necessary the social inner guises ideas alism, form source

the institutional

form or the espoused in which of utility

lying beneath the outward dismarket appearances of things. 29 section, it will be seen that to Marx and Ricardo margin(in the replaced prime in reaction demand-side and subjective necessary

Jevons. 3o In the second edition of his Theory of Political Economy, Jevons shows how conscious he was in line 1973, Jevons reshunting Ricardo (Jevons, p. 166). has a much the 1879, At the quoted car of economic onto 2nd the ed.; science wrong Dobb, work, which had redirected Preface, beginning theory

In the provided

following

the basis for a new value theory, influences preference) labor as the

of his of value:

passage that prohave led me to value depends of pleasure and

Ricardos

socially

vides the basis for the marginalist Repeated the reflection novel on utility economy and inquiry opinion, that somewhat

and determinant

of value.
theory of value

Marginaksm

and the subjective

entirely the

. . . in this work I have attemptas a calculus

The marginalist

transition view

from of value

the

Ricardian

to

ed to treat

was completed

by the

elaboration of two catenations of ideas. The first related to the directional flow of the causal influences that and Smith determinants termed the of value. not from Wealth Under marginof labor but of was alism value originated from the consumers expressed the fund

pain (Jevons, 1871, p. 2). Space precludes a comprehensive exegesis on the various criticisms that have been levelled at Jevons in value criticisms claim to that three utility Rather, areas is the central we of will specific moment our concern: theory. confine

of Nations

utility-based, subjective preferences of final goods. This reorientation in a shift away from

criticisms of the relevance of utility, the nature of utility and its existence as an aggregate function, Ricardo arguing challenged the relevance of utility by that it was effective demand not merely

macroscopic

problems of the economy-at-large towards a microscopic emphasis on the behavior of individuals. These were not the individuals in the Ricardian or Marxian sense, however, as they were stripped completely of their social class origins and thus of their unique standing in relation to property or natural resources. The second aspect attempt to remove of the transition was to issues

utility, which affected the level of production and the distribution of resources, thereby underscoring the need for a theory of income distribution. Ricardo, like Marx, understood that, in a very real sense, distribution preceded everything else and therefore an economic distribution sociology was essential affected into effecthas
been

to show how social and property income ive demand. The existence
challenged by

relations

a number

of social policy

and its translation of aggregate

authors

from the agenda of economics, mainly by expunging politics and sociology from political economy. This was achieved by confining economics to the study of the sphere of market exchange;

utility
(Boulding,

several

1969;

Kay, 1979; Arthur,

1979). Most of these criticisms

29 Marxs 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 Marxs value theory, see Elson (1979) and Steedman & Sweezy (1981). 3o Stigler describes Jevons as the forerunner of neoclassical (marginalist) economics (1946, pp. 13, 135).

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

183

relate terion which value.

to the of utility

difficulty choice little has

of using and to offer

utility

as a criwithout of

assumption fully 1930s) overlooking that

that the

all factors at such possibility

and services (until

would

be

social

efficiency,

employed

an equilibrium Keynes

position; in the and

as a theory

The concept

of aggregate

social labor value of value) individual entity. could be labor beThe same

multiple

equilibria

were possible,

(as a criterion for a theory justified on the grounds that comes into additive a specialized cooperative

not necessarily at the full employment level.j3 Jevons notions of utility-based Value Theory, diminishing tendencies marginal returns behavior and the equilibrating by economic agents of economies, gave rise to the assump-

and homogenized

as labor evolves

argument individual integrated mensurable

cannot be made for utility: the utils of consumers are not socialized into an whole, and they remain disparate, (therefore) non-additive as conceived incom(Kay,

tion that maximizing (i.e. entrepreneurs, the maximization deduction how the the distribution

laborers, and consumers) led to of the social welfare - an invalid is contingent example Jevons Both on of and of income intrudes (a further itself).

since such a summation latter

1979; Arthur, 1979).31 The nature of utility, and his followers,

by Jevons because of

has been questioned

Walras often enthusiastic

overlooked support

this qualification

in their

Dobb notes how both its ambiguous form. Marshall and Pigou acknowledged that utility was ambiguous because desire was used to represent satisfaction. Thus Marshall said: We fall back on the measurement the motive, which economics supplies and of we or moving force to action,

for the capitalist

social order

(Steedman, 1972, pp. 48-49; Walras, 1954, pp. 125, 255). The most flagrant claims for the natural justice and order of capitalism (that marginalist J. B. Clark: natural output law, of theory What what industry legitimatized) a social (Clark, it contributed were made by class gets to the pp. 1899, is, under general 46-47,

make it serve with all its faults, both for the desires which prompt activity and for the satisfactions that result from them. (Marshall, 1920, pp. 92-93; Dobb, 1937, pp. 27-28). Jevons further contributed to the development of marginalism by utilizing the principle of the equilibrium seeking tendencies found in the study of Statical Mechanics3 This turned out to be a particularly prophetic analogy as it led to a manner of thinking (i.e. that an economy tended toward equilibrium) that contributed to the

323-325).34 What Jevons theory lacked was a comprehensive scheme for showing how the prices of goods and in various Menger parts of the this economy framework were Wieser by determined. and his two disciples, provided

Bohm-Bawerk,

conceiving of an economy in terms of goods arrayed in various stages of production, whose 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). 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 equilibrating 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.). 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).
34 This crude
32

184

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN

DALE NEIMARK

preferences of consumers for final goods. That is to say, all resources and intermediate goods were valued in terms of their marginal productivity towards final consumer goods. Bohm-Bawerk were Austrian school, for socialist doctrines was (as it was also with Mengers imputation

employed

which

requires

quantity

measures

of

factor inputs (e.g. labor hours, acres). (See for instance, Arrow et al., 1961.) In such an analysis, heterogenous capital goods and tools of production are conventionally measured by present value methods. However, in assuming the discount rate needed for the present value calculations, one is also assuming a distribution of income; but this is what the analysis assume at the outset sequently, nomys profit In and their particular rents) is supposed to derive, not of the calculation.36 Conto show that an eco(wages, begins have income is optimal, work, rate distribution marginalism marginalists

Menger, Weiser and members of the so-called whom the criticism of something of a preoccupation Pareto). Weiser developed theory socialist

expressly as an answer to supposedly claims that property income represented of labor; and Bohm-Bawerks theory

in its attempt

exploitation

of interest and capital, elaborated along Jevonian lines, was intended as an answer to Marxs theory surplus-value. scribed much the so that bourgeois The Austrians of the are dubbed (Dobb, were but frequently system, p. only deso 193; fully Bohmof abas apologists Marx existing 1973, not

by assuming assumed

an income empirical a discount

distribution! in one of two ways.

Schumpeter

Bohm-Bawerk

Some researchers have simply used the prime rate prevailing in the market at a point in time, thereby assuming (rather internal This showing rates than demonstrating) In other rate expected latter that, of return of return practice that that this rate have is inherent to a stock of has been there disare is in equilibrium. used capital credited many assets directed of the in the cash flows goods. by internal cases, researchers to accrue

Schumpeter, 1954, p. 846). Weiser and Bohm-Bawerk aware backlash Bawerk of the to in work appraising of Marx Lassallean

also the social Thus, critique

propaganda. Lassalles

stinence as an explanation the popularity of abstinence to its superiority nick of time attacks that as a theory, to support

of profit, attributed theory, not so much as that it came in the against the severe on it (Bohm-Bawerk,

in general, associated

with the 1970). are to

an economy to note at marginalisms

(Pasinetti, ability,

1969,

interest

It is important

that these criticisms as a theory,

had been made

1880, pp. 277,286). Marginalist value theory was expressed as a general equilibrium model of a capitalist economy by Walras, in which nomic interpretations Jevons and representation marginalists he embodied and causal the same ecoimplications as

explain and appraise the existing discount rate or rate of profit. It may be that the real rate is indeed growth; optimal (in employment; terms of, say, economic inflation etc.), however the

Menger. This model contributed a of society at large that enabled to claim to be pursuing policy pre-

significance marginalism,

of the indictment lies in the fact that as a theory, totally fails to demonMoreover, the theothat invalidate it as a

strate this social optimality. retical flaws of marginalism macro-economic theory, intellectual dependents ample, problem factory ing to firms

scriptions that are consonant with the social interest.3s The Walrasian system shares the same problem that confronted Menger, Weiser and all subsequent marginalists. In order to assess whether the distribution of income in an economy is at a social equilibrium, a production function analysis is

also contaminate such as accounting. For exaccounting consider a management of appraising an investment in a new in an area of high unemployment. Accordsome versions of rationality, not only the 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.

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

185

would

be furthered value

by rejecting from

the investment The authority productivity

if and

Our theories

discussion is summarized

of

the

evolution of the

of two

value main value

its net present

was negative. marginal

in Table 1, which and

compares

for such a rule derives

contrasts

characteristics labor-based

theory. However, as the previous discussion has shown, the basic ingredients of a present value calculation (the discount or profit rate and the
TABLE 1. Differences between

approaches: theories. treatment

utility-based

The first row of Table 1 contrasts the of real historical time and dynamic
theories of value

the marginalist

and classical

Characteristics
Criterion variable(s)

Marginalism

Classical

theory

Studies

using static equilibrium

analysis

Studied analysis criterion actions)

using dynamic where paths

equilibrium of movement of

(e.g. level of output;

where historical i.e. the future present

of

(real) time is ignored, is summarized rational into the

employment equilibrium structure)

Explanatoy variables

of factors; price
system

variables

(and their interover time

through

expectations

are examined

Focuses

on the sphere of exchange that behavior competition is regulated

Focuses relations western monopoly

on productive and assumes

and social that developed by

and assumes by workable

economies

are governed

and oligopoly

Causality (a)

assumptions

Subjective emanates i.e. Demand

theory creates

of value: value of consumers, value. Production are in

Absolute created which

theory

of value:

value

is

concerning

the

from the utility

through

effective

demand

origin of value (b) the direction of

is a function which

of the distribution

and consumption dependent for instance)

decisions

of income

(in turn) is deter-

the causal flow

(advertising

is insignificant

mined by social and production relations, i.e. Production creates value

Quantification (a)

in models

(a)

Measures quantities

are in terms of marginal and relative (atomistic prices consumers

(a)

Measures quantities

are

in terms

of

total

measures basic entity (b)

(b)

Individuals

(b)

Social aggregates relations

and class

and producers)

wage rate) ties prescriptions Vance the stances,

are arbitrary

or indeterminate Thus,

quantithe

in marginalist

theory.37

although

of management accounting may adinterests of capital in such circumcartainly have no authority interests. to claim with Societys

considerations labor theory. non-existent:

under marginalism and the classical Under marginalism, historical time is using comparative statics and

they

rational expectations, the future is instantaneously and effortlessly transformed into a present-time equilibrium. Classical labor theory (in contrast)

to be harmonious

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, Historical ception contrast little

1971,

1980).

It is the philosophy that suggests this

of con-

the paths of movement variables through real librium models situations (Kregel,

of interacting economic historical time; disequianticipated with such on row focuses

Materialism of accounting to orthodox to the

are readily

as social ideology. In stark philosophy - which pays social origins of scientific

1973). The second

attention

the differences of the two

between the explanatory systems approaches. As noted previously,

theories38 - Historical Materialism shows that theories emerge and decline, not merely in the context of sociai struggles but as inextricable parts of them. The recurring lesson from our history of Value Theory is that social theorizing is subordinated, not to a quest for absolute truth, but tinual control. the conflicts, to materialist molding for Our and the focus conditions remolding purpose on Value of and of that require a conconand the that of the social social Theory social order

marginalism explains production and distribution in terms of factors while the classical labor theory appeals to the specific social relations underlying the factors that uniquely define capitalism direction approaches Table puted (under ized tion to as of a social causal derives system. movement of the utility from The of third and theory origin the row and two in is imwhile special-

is the factors

subject

sciousness

1; value classical

underlines history:

by marginalist

dialectical

pressures

labor theory)

it is socially

antinomies

contradictions

and necessary of the state productive value. computes

labor (the physical manifestaof development of Societys forces) measurement that embodies systems. and differ Marginrelative obtain classical derivato be the two approaches first differences, etc.) (not that to their tend

spring from social conflicts (Amin, 1978). These provide the momentum for change, not only in the social structure but also in the ideological apparatus through which social order and control is achieved. accounting refuted historical price obsolete by In this fashion and the change. of other facts Thus therefore, are not Value was of economic, so much by Theory rendered capitalisn; obsolete theories

precious bestows in terms alism prices

Finally, with

of their

and the aggregated entreprenuers

behavior

of social atoms

as rendered Canonist

(consumers, economy-level theory tives) and

characteristics. quantities works with

In contrast,

was overthrown approach by

by mercantilism; mercantilism forms inchoate

the conventional

uses absolute

variables

exclusive to the economy-entity surplus value, socially necessary ment).

Marginalism:

level (e.g. class, labor, employ-

Ricardian Socialism was refuted by the ideological developments of capitalism and currently, the revival of classical political economy appears to be a response to the difficulties of late capitalism (Mandel, 1975). Truth in this view is not an

truth, fact or ideology?

An important concerns social extent ideology to which

lesson

from

the historical scientific

review and

the link between and, when accounting

theories

absolute that is to be discerned by logic and/or facts, but a social truth that only embraces those social theories ideology. that are in tune with the prevailing this materialist view accounting and as an In focusing

viewed

in that light, the through

theoreticians,

marginalism, may be relations (and ideology) 1980; Abercrombie,

said to foster the social of capitalism (Katouzian, Lowe & Tinker, 1977;

on accounting theories form ideology

we recognize that part of social ideology

1980;

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).

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

187

It is important ing theories ism with that the

to contrast emerges view presented

the view of accountMaterialso-called by the

Finally, rists creates to

the the

reduction status of

of all accounting intellectual

theo-

from Historical

mercenaries

special problems

when we come to evaluate

Positivism of Watts & Zimmerman (1979). To the careless reader it may appear that the two views hardly differ - for Watts & Zimmerman acknowledge that as the underlying (2) accounting interest groups rest3 (ibid: literature knowledge accounting (1) accounting research factors change (ibid: changes p. 274);

Watts & Zimmermans own theorizing. Are we to regard their work in the same manner as they suggest that we view that of others? Should we follow their general exhortation and dismiss their theory (of excuses) as nothing more than a selfserving excuse? Apparently not: man claim to have miraculously scientific theorizing Excuses accurate arguments, law of Theory and that, all they other is put Ironically Watts assert, earthly forward therefore, representation Watts & Zimmertranscended the applies scholars. to the Their

theories will be used by special to advance the latters self-inte-

is not that

pp. 274-27.5); and (3) the accounting the simple accumulation of results in progressively better in Instead it is a literature

as a correct, of accountby their own own Excuses

practices.

truthful

which the concepts are altered to permit accounting practices to adapt to changes in political issues and institutions (ibid: p. 289). The differences between the views become recognizes the undialectical, than class) and economic of their among (ibid: individuals Watts people character petition power fers relations analysis. apparent, when one individualistic (rather than sociological) on comtransignore that In focusing to achieve and with

ing theorizing.

& Zimmermans

Theory provides itself: it amounts to Realist them to abandon them.

a single counter exception to to a refutation that (according philosophy) beliefs should cause revise their or drastically

Popperian

(rather

for the use of coercive wealth property & Zimmerman MARGINALISM Our review of AND ACCOUNTING Value Theory suggests that

of the government 275), between

unify social classes. origins and existence work (e.g. government

In failing to examine the of the institutional framebureaucracies, universities,

economics is not a closed book. The acute difficulties of economic management together with the lively intellectual tournaments among economists throughout the subjects history should have taught accounting scholars that nothing has been settled. Yet if a Martian consulted the accounting literature in order to form an opinion as to the substance for ing theory: of economics, that exhibit economists there far Marginalism. he/she could be forgiven accountthan economic assuming scholars was only greater one economic unanimity

corporations) underlying the supply and demand data that form the starting point of their analysis, Watts & Zimmerman fail to provide any insights into the historical and social processes from which these institutions spring originate and perpetuate lying plained. factors alluded objectives of their Without paper or the class interests that them. Thus, the underthey in fact, set out never the exare,

to when

As we show below, as to the true

an explicit

analysis clapping

of the underis akin in that it fails

lying class structure to the sound to explain ultimately, being.

of society,

their theory

of one hand

professional theory.

countercultures, how revolutionary

social change and thought comes into

We find two emphases running through the history of accounting thought that have maintained the subjects 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 the eventual deposal of feudalism by capitalism. Materialism: it is exhibited in the overthrow of slavery by feudalism and

188

ANTHONY

M. TINKER.

BARBARA

D. MERINO

and MARILYN

DALE NEIMARK

The first is the emphasis on individualism the individual owner or the corporation person) about part which has served play in to preempt class the class affiliations accountants 1971). of individuals

(whether as a legal questions and the (Mac-

of cost nor his individualistic focus challenged. However, in the accounting

went unliterature,

most criticisms were modest relative to the kinds of concerns raised in this study. For instance, in the 1960s and 1970s we find accountants mildly questioning the relevance of Fishers individualistic focus to a world of large corporations run by managers Rayman, who are not the owners 1972; Sprouse & (see for instance Moonitz, 1963;

conflicts

pherson,

The second

emphasis

in account-

ing has been an attempt and independence by questions to of value objective

to preserve objectivity shunning subjective accounting data

and confining

market prices (historical and current). As we show subsequently, this image of the accountant - often as a disinterested, innocuous historian the responsibility - stems from a desire to deny that accountants bear for

Edwards, 1962; Lee, 1974, 1975; Taylor, 1975; Sterling, 1970; Chambers, 1971). Such questioning of Fishers hardly matched the assumptions criticisms of economists such as Veblen who contended that the concentration of corporate control created a differential advantage that favored the vendibility of capital relative to the vendibility of goods and services (Veblen, 1904, p. 146). Instead of viewing social radically accountants reincarnated, corporate sponsibilities.42 Accounting ed the separation (for 1922; itself given accrue power example, Sweeney, level to had of the and the rise of corporatism power that income individual its own who as a shift was capable between in of political redistributing out being of

shaping subjective expectations which, in turn, affect decisions about resource allocation and the distribution of income between and within social classes. vides This a veneer attachment to claim Fisher (1906, that to historical they merely facts that record proallows the cost, of of pseudo-objectivity

accountants not partake Irving importance emphasis at the time

classes, which a reand

in - social conflicts. p. 70 ff), underscored cost in writing is a market that: of both on historical of purchase, an individualistic focus and an estimate

have followed with

the legal model rights

shareholders,

theorists Paton

explicitly

recognizPaton, firm over a did not a given & Bell

future earning power.40 As such, he continued, it can be assumed to reflect expected future returns to a specific individual.41 of the individual This owner view of the sovereignity was adopted

of ownership 1930) resources. and/or maintained. contended Thus,

and management 1918; that command income unless level of Edwards the

82 Stevenson, to maintain

had a right

by Sprague (1908), Hatfield (1909) and Canning (1929), who simply ignored the separation of ownership individual and management by focusing Neither Fishers on the view owner-manager.

stockholder/owner

productive

capacity been

purchasing

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. Irving Fisher (1906), a self proclaimed Marginalist, has had considerable influence on the works of early accounting 1918). Cannings acknowledgement to scholars (e.g. Canning, 1929; Rorem, 1928; Paton, 1922; Paton & Stevenson, 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 Fishers work, as articulated by Hirshleifer (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 promote monopolistic advantage.
41

THE

NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

189

(1961) ations: wealth

provide

a further

reconciliation marginalist

between found-

of accounting; of objectivity its authority It is in the attachment of objectivity Couchman argued that

discrediting and and credibility.43

the professional

image

accounting

and its utility-based,

impartiality

and undercutting that the long to historical Kester (1919), (1928, 1929) was trace un-

First, they espouse a concept of accounting and profit that they claim best approxi-

mates subjective present value (op. cit. pp. 48-56); and second, they propose that the corporate should retain sufficient resources to personage allow the maintenance pp. 31-109). The second accounting of physical in the capital (op.
cit.

light of the above accounting scholars

needs to be interpreted. (1929) and Littleton all accountants did

emphasis record for

development

of

expired costs, firm. Littleton asserting that

factual evidence, in and out of the (1928, pp. 148 ff) went further in cost and value were in fact un-

thought

is the positioning of historical

of accountexchange bears deto

ing as an impartial no responsibility and that between

values with the corollary cisions within suggest or ultimately the

that the accountant affecting expectations, We do not rested distribution have

Accountants, he wrote, deal only with related.44 the supply side of economics, cost that furnished the limiting tended, who resort Littleton concepts accounting. Littletons of the matcher rationale of was wrote that factor value to price. Value, he consubjective. utility Citing Bohm-Bawerk, in the last products,

of income mean easily with

classes.

was regulated of finished

accountants

by marginal

historical objectivity as their dominant objective. Rather, the protection offered by appearing as mere historians, together with the desire to measure presented dilemma. income theory ducer for other subjective Fisherian-type income, have accountants with the twin horns of a On the one hand, Fisherian and Hicksian are faithful disciples of marginalist value in the way they install capital as a proof value and legitimize profit as the reward productivity the affiliations in production. of accounting On the to these hand,

argued that utility and value were mental based on desiredness and had no place in As finally (1940) accountant costs by which cost as (with decades incorporated allocation recorder, revenues) in Paton model classifier provided & and the cloakthe the and the view

of accountants, have circumscribed

ed in pseudo-objectivity,

marginal

professions view of its responsibilities agenda for accounting research.

subjective notions of value have drawn accounting into a number of bitter disputes about the way tion have the ors) accounting data influences income distribuwithin and between classes. Most disputes centered on redistributions of income within capitalist class (i.e. between groups of investthat accounting National Leasco-Pergamon data Student has and affected. the recent Equity Slateraffair Marketing,

In limiting the scope of accounting research, the theorists referred to above, ignored alternative perspectives that were available both in accounting and in economics. Scott (1933) for example, attempted to show that accounting theory based on marginalist premises, was biased and could be socially dysfunctional. cognized that subject vailing controls and tween
managerially

Scott (1925, p. 191) reto conditions fixed by preof the market income beof society.
conto

Funding, Walker,

institutions, economic conflicts different

governed Those

the machinery activity, of economic

determines

involving IOS and Arthur Andersen & Co. were all incidents that exposed the distributional impact
43 Veblen cept that promote to affect 44 Those that tions future and, Alexander (1904, was the pp. 132 ff) regarded on the of capital news) that the value and illusions of large, confidence

adjusts

interests

classes and individuals

corporations in control,

as a psychological he argued, the power attempted

dependent interests positive

expectations by creating impacted

of investors. outpur,

(manipulating prices.

disseminating

false reports

and information of accounting

or withholding

on exchange

In this manner

he anticipated

the distribution wishing income (1950) as such,

of income. the link between historical time of date, any cost future and subjective by consumption the cost. owners that from income possibilities implicit were did so by arguing rate) and, expectaas

to retain

is determined was to contend were not income

at

the

purchase

(measured deviations of initial

discount

at a later (or loss)

due to faulty

but merely

revisions

190

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN

DALE NEIMARK

In 1933, he chastized his colleagues for uncritical acceptance of the market model, noting that it had a pervasive effect on theorizing, i.e. it did more than allow the theorist for measurement limiting viability decried to accept market valuations it justified of goods and services,

and not to ask. Specifically,

along with the indivi-

dualistic focus, it has precluded inquiries into the class underpinnings of economic phenomena; the role of accounting in regulating economic activity and the possibility competition resources of with along that (Scott, accountants their their implicit of income in the persistent contributions have shifted (i.e. the the of accounting to their accounting as the chief pp. to 1933, acceptance and data arbiter 225 has of ff). such to rethat superceded societys The prices sources) accountants More theory, from questions (and particular

the professions of regulation the propensity reliance that,

role by assuming the by competition. Scott of accounting theorists to of competition the corporate a useless and later nature of criticizing monetary that under

reluctance

address

place blind and argued the economy, vestigial

on the efficacy nature would of society. of

of market social

if accountants

did not recognize become

hence

commitment notion

non-competitive accounting appendage

distributions is reflected recent while they

are historians. accounting focus away about of pre-

Similarly, Veblen Keynes (193 3) noted accountings accountants returns. nineteenth the peculiar Keynes, century for

(1909, 1923) the dysfunctional calculus, solely on wrote

pecuniary focusing for

theories

to theories production Marginalist

accounting knowledge fundamentally conceptions While the has replaced the (and utilitarian hence corporate questioned.

theorizing in accounting) modifying

example,

have done

so without

logic of accountancy,

the men of the than model

built slums rather

cities, because slums paid. Veblen (1904) recognized that the growing separation of ownership and control was transforming the character of business entities under managements interest capitalism. To Veblen, in the vendibility of

and narrow focus of the discipline. market of competing interest groups that of competing has been costs, individuals, extended remain and to inuncalculus ideological) These (1979) in which

transaction

a series of marginalist illustrated by Watts

assumptions

capital rather than of goods, resulted in a disharmony between the interests of capital and those of Society at large. One result of this disharmony reflected was value, that but exchange rather prices were no longer of a reflection

are vividly

& Zimmermans theory, implicit tions: ale for reporting competitive protect groups members capable are of that and

interpretation of agency are the following assump(and perhaps of contemporary the capital (and in the group utility that sole) rationfinancial that to that equally function; upon market;

the primary objective serve market is to

existing power relationships terminology, was a reflection of income Although Brandeis in drafting Veblen

(or to use alternative of the appropriation influence role

forces groups interest

can be relied

by one class from another). was to have a direct work of Berle & Means (1934), a substantial Act of 1933) (Dorfman,

all interest each

all interest are

represented

process);

on the subsequent

and Landis (who played the Securities

of processing

information

and discerning

managements

(homogeneous)

1973, pp. 62 ff, pp. 138 ff), both Veblen and his student Scott were virtually ignored by accounting theorists. The consequence of this myopia for accounting is reflected in the questions that subsequent accounting theorists have chosen to ask,

that only government possesses coercive power; that all behavior is motivated by economic rationality; and that public interest arguments are always a sham to mask self-interest.45

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 Michels 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.

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

191

IMPLICATIONS This paper was motivated scholars that if accounting by the claims of some research was conducted it would be and promise

apparatus Like papers, that goes

as given. the Implications this one contains the beyond detailed

section a speculative

of

many element of its

arguments

according to the tenets of positivism, blessed with a detachment, neutrality not enjoyed by normative vious sections we argued misapprehends the nature

contents. These speculations take on two forms: The first concerns the way radical accounting is conceptualized as a total area of study. Here our focus on Value Theory and our view of accounting as commensurate reciprocity in exchange, warn us against narrowly; construing especially for Such criticism to trade radical by reducing unions accounting it to (say) too ac-

approaches. In the prethat such a viewpoint of scientific knowledge it is produced. split emanates that, fails from to a rein We

and the social processes by which Specifically, the normative-positive from cognize social Shaw, a Realist the control 1975; position: a viewpoint perspective, sociology-of-knowledge partisan and social Mendelsohn

counting ability. radical

or corporate

accountits and

tendencies existing

run the risk of localizing areas such as cost

role of scientific change & Whitley,

theories 1977).

to new areas and overlooking accounting; accounting; accounting etc. part second where part organizational financial (Elson,

(Gouldner,

1971;

applicability management and behavioral international 171-174). involves torical analysis the

theory 1979, pp. (Hisand backscholarly

illustrated the process by which ideas are reified by using the history of Value Theory. This analysis illuminates of positive value-free the normative accounting (i.e. marginalist) theories. origins of The pretense

accounting;

The

of our speculations analysis

function

of historical

theorizing is cultivated by taking market and universal and, at phenomena as natural the same time, by ignoring the institutional backthat defines the rules according to which behavior is played out. Thus marginalist

Materialism)

we argue that historical of social criticism to an interesting a superfluous

is an integral

ground market

should not be devalued ground, as if it were appendage. Interest information resulted

theory and its fairyland of perfect competition, fails to consider institutional imperfections such as monopolies, cartels, labor unions, political lobbys and particularly, the division of income and property and the nature of property rights. In ignoring these sociological facts, marginalism attempts to confine its analysis to free markets of exchange. Ricardo showed that markets are not free but are conditioned by property ownership through cannot income distribution. that surface in isolation datum 1973; sociological Dobb, Other from Sweezy economists behavior aspects of 1904; have demonstrated be understood 1976; its underlying, Scitovsky, market

in the role of accounting to employees in a body and trade of research

in providing unions has although

which,

valuable and well-intentioned, needs a unifying and underlying theory of social value to situate the research in an overall context of social conflict. (See for instance, Maunders & Foley, 1974a, 1974b; Cooper Transport and Jenkins, 1974.) & Essex, 1977; General Workers Incipient forms Cooper, Union, 1979; 1971;

of such a theory

of value may be found in the recent controversies between so-called neo-Ricardians and Marxists (see for example, 1981). to problems Elson, These 1979; Steedman of value at work & are and unSweezy, sensitive the concepts of alienation

(Veblen,

& Baran,

1966; Galbraith, 1967). Thus normative bias that is inherent

we can see the in marginalism

debasement

of work-life

to mechanical,

and its positive accounting variants: a neoconservative ideological bias that encourages us to take the free market and its implicit institutional

fulfilling routine (see, for example, Braverman, 1974; Ollman, 1976; Marcuse, 1964; Arthur, 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 inculcated. The first step could be to break the strangle-hold that Marginalism has on accounting education and research.

192

ANTHONY

M. TINKER,

BARBARA

D. MERINO

and MARILYN

DALE NEIMARK

The importance of giving due weight to the social context of accounting becomes even more apparent counting rations ordinating The based theory) critical behavioral some regard; jects helpful if we recognize that, to date, when achas affected the work-lives of employees, so overwhelmingly and planning areas of on behalf of corpocoand employers. Budgeting, within cost and motivating, organizations. management approaches from and with in this sub-

an accounting

court

(Briloff,

1972)

or function

as to

a countervailing institution (Galbraith, 1967). In parallel with the quest for global solutions corporate a steady Examples Telephone tion (New York Funding (Bryer York City

it has done

accountability in the 197Os, have been flow of localized, grass-roots activity: include (Sloan, et al., the critical appraisals Steel of Bell Corpora1976); 1981); British Conference & Debrul, 1975);

are methods

for control-

ling the behavior traditional on accounting

of people

American

Universities Publications 1977); New Equity power 1977); nuclear

University (Newfield

(together industrial

with more recent psychology

Collective,

1971); Slater Walker (Raw, (Dirks & Gross,

and organization

have social

escaped appraisal. precedents and

virtually Scot-free The organizational accountants for self-criticism side works

literature

provides

(Komanoff, 1981). As with the proposed global solutions referred to above, each of these case studies most implicitly complex attempts problems to confront facing one of the value modern

not only are there studies exploitative of these but a number

that focus on the of these seek to locate

manipulative their analyses for instance:

theorists: what constitutes commensurate reciprocity in exchanges between large corporations and Societyat-large? heart of the Lucas instance) that was (value) gram. Such a question Aerospace Workers is at the plan (for

in a socio-historical perspective (see Pollard, 1965; Bogomolova, 1973; Clegg & Dunkerley, 167-242; Fredricks, 1960; Shaw, 1975;

Leavitt, 1964, pp. 55-71; 1980, Gouldner, 1971, pp. 1970; Burrell torical historical social Krupp, 1961; Baritz,

where a corporate intended to create than the existing investigations

plan was developed greater social worth militaryqriented that attempt proto or Con investithat

& Morgan, 1979; Edwards, 1979). Hisstudies in this area do not merely add a dimension, that conditions they create shed light on the and sustain a discould serve in proinformation

Similarly,

show that the services of Bell Telephone Edison are overpriced imply that the gators enables had in mind them a notion of social to judge that an unequal

value

cipline in its present form. The role that Value Theory viding systems financial vigorous ment, in general et al., a framework for is also illustrated

exchange

counter

in the case of corporate

was taking place between these institutions and These investigative studies, together Society.47 with the general proposals for greater corporate accountability, accounting envisage a similar social role for - that of an interpreter and articulator in social struggles,

reporting. The 1970s was a period of criticism of the Accounting Establishfinancial reporting Steering Green
et

and corporate 1970, 1976; Committee,

al.,

behavior Nadar

of social value, as an adjudicator and as an instrument critical social history insights

(e.g. see Briloff,

1972; Account1975; U.S. Congress,

ing Standards 1976;

of social change. Here too, can be deployed in providing of current policy. An

into the formulation

1976a, 1976b; Lowe & Tinker, 1977). The proposals that emerged in this period however, typically ignored the social roots of corporate power in that they proffered voluntaristic solutions. Most critical in this regard is their common assumption that the State is an independent and well-meaning body that can act freely to establish a licensing system (Nadar et al., 1976),

illustration is the study of disclosure regulation and public policy by Merino & Neimark (1982). The study finds that, in the three decades preceding the passage of the securities acts in the U.S., the concept of disclosure helped to reconcile the growing contradictions between a belief in individualism and market competition and increasing economic concentration and the separation of
became embodied in the prices of other goods customers) who may be subject to unequal exchanges.

47 Insofar as the prices charged by large public and private corporations

and services, it is the community at large (not just the immediate

THE NORMATIVE

ORIGINS

OF POSITIVE

THEORIES

193

ownership point temporary

from

control. and

In developing challenge that the

their viewtwo only concriteria

be

gained

from here

a critical

social

history.

The

Merino

Neimark first,

example

is a study,

by Hoogvelt

& Tinker

precepts:

for assessing the disclosure system is whether it has improved the pricing mechanism for securities; second, that the existence of voluntary disclosure prior to 1933-34 is evidence that existing mechanisms were sufficient to ensure an optimum level of disclosure (for investors) (e.g. Phillips & Zecker,

(1978), of the African multinational, located shows post how colonial that the early periods

subsidiary of a U.K. based in Sierra Leone. The study colonial, were late colonial and distinguished relied by their

prevailing methods

methods

of repression & Tinker,

and exploitation; on and helped 1977a, 1977b,

the company (Hoogvelt

to reproduce

1980; Wallace, 1980; Watts & Zimmerman, 1978; Ferguson, 1978; Benston, 1969, 1973; Friend & Herman, accounting dramatic delivered Marxists between playing (Amin, relevant 1964; Stigler, offer changes sharp who, the different 1964). and for rebuke nations international radical Samir for by and Amin Western downare acMultinational accounting opportunities in words he argues, races accounting. of and perpetuate character

1978; Tinker, 1980). Differences in the methods of repression and exploitation were manifest in the income Moreover, statements for each of the three about eras. the if Marginalist assumptions

correlation between corporate and (international) social efficiency are rejected, then it becomes impossible assessing sketch search to ignore tried the practice) exploitative in this implications social relations section non-marginain to rea multinationals out (and performance. concluding for accounting

exploitation of exploitation

We have

world-wide

1978, p. 116). to multinational

Amins criticisms and international

of alternative,

counting research because although it is in international exchanges that the greatest inequality takes place (i.e. exploitation of one nation state trade) vision lation; by another through the relative terms of accountants of research controlling have managed to curtail their to problems of currency transoverseas divisions of multithe globe accountprovides that can

list concepts of value. We have also illustrated the important role of critical social history in understanding and cesses (Held, development changing 1980). contemporary social proBy tracing the historical of value, for example,

of the concept

we have illuminated the social ideology that underlies marginalist economics and thus dominates accounting forms theory. The thought. question It is this social ideology origin that of positive this insight that the normative accounting raises for

nationals; moving cash balances around in an optimal manner and harmonizing ing practices The area an additional in different illustration nation states.48 accounting of international

accountants

who are interested

in social change is,

of the insights

what kind of value theory should we create as our contribution to social development?

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ANTHONY

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