Accounting and Business Economics

Insights from National Traditions

Yuri Biondi, Stefano Zambon, Yuri Biondi, Stefano Zambon

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136209000
• Edition: 1
• Topic: Business
• Subtopic: Financial Accounting
• Index: Business

The recent financial crisis has sparked debates surrounding the nature and role of accounting in informing capital markets and regulatory bodies about the financial performance and position of a firm. These debates have drawn attention to the broader implications of accounting for the economy and society. Accounting and Business Economics brings together leading international scholars to examine the current state of accounting theory and its fundamental connection with the economics and finance of firms, viewing the business entity from not only accounting, but also national, economic, social, political, juridical, anthropological, and moral points of view.

Part I

Introduction

1 Accounting Theories of the First Half of the Twentieth Century

The Genesis of an Academic Discipline

Mattessich Richard¹

Introduction

The first half of the twentieth century was the true beginning of accounting in the narrower ‘academic’ sense. Yet, I emphasize ‘academic’ rather than ‘scientific’ because accounting and business economics—despite enormous efforts during some 200 years or more—are still far away from any truly scientific success. Our discipline is locked in by the confines of a social science with all its norms, value judgments, and opinions relative to some specific point of view. Hence, its history is bound to reflect the temporal and geographical relativities incumbent on such social situations. In other words, accounting and its theories mirror human thoughts and behavior at a specific time, at a specific country, and under specific circumstances. Although this seems to be a fairly humbling admission, it rather conveys a ‘heroic’ fact. Despite all those limitations and ‘adversities’ (as a series of recent and not so recent global financial crises manifested), accountants unflinchingly continue to experiment with the creation of a cybernetic feedback and control mechanism that, in the long run, is indispensable for the survival of any economic system. Hence, the limitations I am referring to are not those of accountants as ingenious human beings, but of accounting as a very ‘brittle’ subject matter. I think it was John Maynard Keynes who emphasized that economics is a much more complicated endeavour than any hard science. Indeed, the enormous amount of variables and uncertainties that confront most economic problems creates sheer insurmountable difficulties. The only solution is to cut the Gordian knot, and that means making drastic simplifications and unrealistic assumptions, as well as specific value judgments. Even if all that is based on reason and sound judgment, the empirical status of our results is often doubtful. And this holds for accounting no less than for business economics or Betriebswirtschaftslehre.

Look at the problems of valuation, or of allocating overhead costs, or even of coming to grips with the reality of money, debts, and ownership relations. Yet, all this does not negate the extremely important task of accountants and the groundwork laid by academics and practitioners during the nineteenth and early twentieth centuries (for details, see Mattessich 2008/2011). But I shall here concentrate on the first half of the twentieth century. Indeed, this is the task the editors have assigned to me. However, due to the enormity of the historical material available, on the one hand, and the tight space allocation, on the other hand, I offer merely a rough sketch of the genesis of accounting as an academic subject. I hope to catch the flavor of the major ideas defended by the various actors—although there is little space to convey the occasionally fierce controversies between them. Nor will I be able to discuss many details without which the picture is bound to remain fragmentary. For example, I could include only a limited number of publications for each author (as important as he may have been). I also had to omit references to works on the history of accounting to leave enough space for works concerned with introducing novel ideas, such as standard costing, direct costing, or disputes over valuation, charts of accounts, and so on. For a fuller picture, I refer the reader to the pertinent chapters in this volume and to Mattessich (2008/2011), both of which offer a large panorama with many of the exciting details.

In attempting to write such a ‘survey,’ one has two choices. The first is to offer some details about the most prestigious accounting academics of the period, such as Eugen Schmalenbach and Fritz Schmidt in Germany, Gino Zappa in Italy, and William A. Paton and Henry Rand Hatfield in the United States, but neglect the rest. The other alternative is to offer a concise sketch of different points of view of a greater number of leading accounting academics at the neglect of further details about the few ‘leading figures.’ In either case, the chapter (referring to the first half of the twentieth century) had to abandon most of the subtleties, references, footnotes, and so on to obey the stringent space constraints. For several reasons, I have chosen the second alternative. First, sufficient literature already exists on Schmalenbach, Schmidt, Zappa, Paton, and Hatfield, as well as many others (see Edwards 1994 and the remaining chapters of this book). Second, the different views of a larger number of academics (even if only fleetingly sketched) convey much better the atmosphere, excitement, and tensions between competing views. Third, let us not forget that most of those ideas and controversies had their roots in opinions rather than in any absolute truth. This is evidenced by the fragility and temporality of many of those ideas. Yet, that does not make them less important historically. What would history be without the struggle for ideas?

Yet, in either case, only three language areas (German, Italian, and English) could be taken into consideration in this chapter because that’s where the guiding ideas came from in this particular period. During the first half of the twentieth century, German accounting literature had a strong influence in northern and Eastern Europe as well as Japan—and to some extent in France and the Unites States. Italian accounting literature of the time exercised considerable influence in Spain and Portugal as well as all over South America. The accounting literature of the English tongue dominated the Common Wealth countries as well as North America. But beyond that, it became the basis of many innovations in the second half of the twentieth century that, in turn, exercised worldwide influence.

As to ‘business economics’ (in the sense of the German Betriebswirtschaftslehre, the Italian Economia aziendale, or the Dutch Bedrijfseconomie), unlike microeconomics, it grew out of accounting. Nevertheless, it was conceived as a subject matter in its own right with the intention to unify several disciplines—among which accounting originally dominated the scene. Only in the second half of the twentieth century (with its specializing trends) did most of the other branches of business economics turn into respectable academic disciplines of their own—like marketing, finance, production and organization theory, operations research, and so on. But it was precisely this develop ment that led to the present crisis of ‘business economics.’ Its ‘children’ gained such a degree of independence that there is little substance left for its parent. Hence, the endeavour of integrating all business subjects in a single discipline by means of a common theoretical founda tion is nowadays regarded with skepticism. In contrast to this stands the Anglo-American ‘business admi nistration,’ which was conceived from the outset as a kind of portemanteau or loose collection of related disciplines.

Accounting in the German Language Area

The Pinnacles of German Accounting Literature

During the first three decades of the twentieth century, German accounting literature was most influential. As mentioned above, it had a strong impact in northern and Eastern Europe, and in turn attracted scholars from abroad to publish in German. Indeed, notable contributions to German accounting literature were made during this period by ‘foreigners’: Gomberg (1908) from Russia, Ciompa (1910) from Poland, Kovero (1912) from Finland, and ter Vehn (1924, 1929) presumably from Sweden. This also influenced accounting practice in Eastern Europe, while the notion of Schmalenbach’s master chart of accounts found even interest in Soviet Russia. Indeed, charts of accounts spread to many continental European countries. This was also true for France, where German cost accounting and particularly inflation accounting exercised considerable academic and practical influence. To a lesser extent this held for Italy and least for Spain, which was influenced to a much greater degree by French and Italian accounting thoughts. The countries where German accounting had the least impact were the United Kingdom and those of the Commonwealth. German accounting thought was more favourably received in North America and Japan. The latter had traditional ties to Germany, particularly in regulation and academic disciplines such as economics and management. In the United States, the influence was either indirect or through German inflation accounting literature, expounded and given its own slant by Sweeney (e.g., 1927, 1936) or through several English publications of Fritz Schmidt (e.g. 1930a, 1930b), which exercised some influence in America, although mainly in the second half of the century, as precursor of Edwards and Bell (1961).

Toward the end of the nineteenth century, a series of outstanding accounting scholars arose in Germany, Austria, and Switzerland. They combined a sound and prac ti cal sense of business with the gift to apply this intuition and knowledge in a logical and scientific fashion to the needs of an ever-increasing industrialization and commerce. With the exception of Schmalenbach and Schmidt, the following renowned scholars are little known in the English-language area: Beste, Le Coutre, Geldmacher, Gutenberg, Hasenack, K. Hax, Isaac, Kalveram, Kosiol, Lehmann, Leitner, Lion, Mahlberg, Mellerowicz, Münstermann, Nicklisch, Osbahr, Passow, Penndorf, Prion, Rieger, Seischab, Seÿffert, and Walb (all from Germany); Meithner, Bouffier, Hatheyer, and Illetschko (from Austria); and Calmes, Gomberg, Sganzini, Schär, and Töndury (from Switzerland; i.e., all of them either originally or ‘permanently’ teaching there). Most or all of these authors were born in the nineteenth century, but they were active in the twentieth century (some of them even in the second half of the century) and still carry considerable prestige in Continental Europe. It seems that the ‘theories of accounts’ and the consequent controversies were a predominant ly Continental European or even German phe no menon. In Great Britain, scho lars hardly took part in those controversies, just as they showed little interest in the modern successors of these particular theories, namely, the various charts and master charts of accounts that became so prominent during the twentieth cen tury (from France and Germany to Scandinavia and Russia), while in England the focus was on auditing and the chartered accounting profession.

Among the ‘theories of accounts’ (as schemes of categorization), the most successful seems to have been Hügli’s materialistic theory of two accounts classes (assets and equities). This was further developed by another Swiss scholar, Schär (1890, 1911, 1914), whose ‘closed accounts system’ was regarded by Scherpf (1955: 8) as the ‘first’ chart of accounts in the proper sense. However, accounting practice before World War I was too liberally oriented to show much enthusiasm for uniform or even semi-obligatory charts of accounts. Many practitioners, as well as academics, held such an undertaking unrealistic—be it for certain industrial sectors or as a general national scheme. Nevertheless, individual theories of accounts and the rivalry between them flourished, and Holzer (1936) even attempted the axiomatiza tion of theories of accounts classes—although this was hardly an anticipation of the more rigorous axiomatization and postulation attempts of the late 1950s and 1960s in American literature. But beyond ‘theory of accounts,’ the ‘proprietory theory’ and the slowly emerging ‘entity theory’ (both conceived already in the nineteenth century) have become considerably important for modern accounting theory, and not only in Continental Europe. The central feature of the proprietary theory was its emphasis on the capital account and capital preservation, and later, on the balance sheet, which grew to assume a more dominant position. In the proprietory theory, the capital account was no lon ger con sidered to be a residual account but became firmly identified with the owners—just as the entire firm was considered their possession, not something apart from them. Hence, attention shifted from mere transactions (concen trating on the ex change of values) to making profit for the owners—a crucial step in the direction toward twentieth-century accounting theory.

In Switzerland, Friedrich Hügli (1887/1923, 1900), elabo rating on the work of earlier German authors, became a leading expo nent of the proprietary point of view and demonstrated the accounting equi librium by means of algebraic equations. Johann Schär (1914) also approached the proprietary theory by means of mathe matical symbols and, more significantly, pioneered ethics in accounting and business economics.

In the early twentieth century, the Swiss scholar Sganzini (1906, 1908) presented what he called a ‘realistic theory of accounts,’ which anticipated not only Schmalenbach’s dynamic accounting but even some of its improvements by others. In fact, the entity theory gained popularity only after the turn of the twentieth century through Nicklisch (1903, 1912) and other authors. Accordingly, the business enterprise was considered an “entity in its own” (Unternehmen an sich), as promoted by W. Rathenau (1918). This entity ...