تئوری حسابداری مالی و آمریکایی - قسمت 2: شرکت کسب و کار مدرن '، گذار آمریکا به سرمایه داری، و پیدایش حسابداری مدیریت

The paper uses accounting evidence to explore when and how capitalism came to America. It continues the search for capitalists in American history begun in ‘Americanism and financial accounting theory. Part 1: Was America Born Capitalist?’ Part 1 concluded that America was not ‘born capitalist’ in Marx's sense, and that the capitalist mentality had not appeared in farming even by the late 19th century, on southern slave plantations by the Civil War, or in manufacturing enterprises by the 1830s. This paper (Part 2) challenges Alfred Chandler's thesis that the ‘modern business enterprise’ brought ‘a new type of capitalism’ from around the mid-19th century. It re-examines accounting evidence from the Boston textile mills, the railroads, and the iron and steel industry. It concludes that the Boston Associates who historians often see as ‘proto-capitalists’, the ‘managerial capitalists’ Chandler sees on the railroads, and the ‘entrepreneurial capitalists’ he sees in the iron and steel industry and elsewhere, remained semi-capitalists because their capitals and workers were not ‘free’. The paper re-examines the ‘costing renaissance’, the introduction and spread of product costing, standard costing, ROI and flexible budgets, and the evidence in Chandler's and Johnson and Kaplan's studies of the DuPont Powder Company and General Motors. This suggests that capitalism only appeared in America by around 1900, after more than two decades of intense conflict between ‘capital and labour’, and became established by the 1920s. This is the critical turning point in American business history, not the appearance of ‘managerial capitalism’, the paper argues. It concludes that America did not catch up with British capitalism until the late 1920s because its ruling elite faced an ideological problem created by its exceptional transition from a society of simple commodity producers and semi-capitalists, particularly the threat of popular socialism. The final paper, Part 3: ‘Adam Smith, the rise and fall of socialism, and Irving Fisher's theory of accounting’, argues that Fisher made a seminal contribution to solving this problem, but his legacy is a pathological theory of financial accounting.

When and how did America become a capitalist society? This paper (Part 2) continues the search for capitalists in American history started in ‘Americanism and financial accounting theory. Part 1: Was America Born Capitalist?’ Part 1 used Marx's theories of the transition to capitalism in England, of colonisation, and ideology, to construct an accounting history model of America's transition, and tested its predictions of the calculative mentalities we should find with accounting evidence from early farmers, merchants, slave owners, and manufacturers. It defined the capitalist mentality as a focus on the return on investment (ROI, net profit divided by capital employed), defined the capitalist labour process as the ‘real subordination of labour’, holding managers and workers accountable for the circulation of capital, and defined capitalist social relations of production as ‘free’ capital employing ‘free’ wage labour. By these tests, America was not ‘born capitalist’, its farmers were not capitalists by the end of the 19th century, nor its slaveowners by the end of the Civil War, nor its manufacturers by the 1830s. This evidence raises the questions of where, when and how it made the transition, and the consequences for America and accounting of its exceptional path? To address these questions, the paper challenges Alfred Chandler's thesis that the “modern business enterprise” brought “a new type of capitalism to the American economy” (1977, p. 9) from around 1850, Johnson and Kaplan's (1987) management accounting history, Miller and O’Leary's (1987) alternative explanation of standard costing, and Fleischman and Tyson's (e.g., 2009) empirical criticisms of all explanations. It argues that America only began to make its transition to capitalism in manufacturing industry around 1900 and did not catch up with Britain until the 1920s because its exceptional starting point – a society dominated by ‘simple commodity producers’ and ‘semi-capitalists’ – created an ideological problem for its ruling elite. The major consequences of its solution, Part 3 argues, were the ideological defeat of popular socialism and Fisher's pathological theory of accounting. Chandler's ‘modern business enterprise’ is an influential alternative to the farmer, merchant, small manufacturer, or slave owner, as the prime mover to capitalism in America, which he would have us believe appeared as an ‘efficient’ solution to the problem of ‘transactions costs’.1 According to his story, before the modern business enterprise the “small traditional family firm” focused on either finance, production, or distribution, “handled only a single economic function”, and was guided only by the ‘invisible hand’ of the competitive market (Chandler, 1977, pp. 1, 3). As output grew and the number of transactions multiplied, manufacturers specialised to minimise production costs, but continued with traditional methods of production, and merchants specialised to minimise marketing costs, but continued with traditional methods of selling and administration. However, there came a point when technology and the size of the market allowed a ‘large enough’ output to make it profitable to reduce total costs by internalising hitherto separate production and distribution functions within a large business enterprise.2 Chandler acknowledged that output grew “enormously” from the early to the mid-19th century without the help of the modern business enterprise (1977, p. 14). However, he argued it was only when technology (particularly using coal energy) “generate[d] a volume of output in production and number of transactions in distribution large enough to require the creation of a large managerial enterprise or to call for new business forms and practices”, was there sufficient “pressure to innovate” (Chandler, 1977, p. 14). In short, in his story the “modern business enterprise appeared for the first time in history when the volume of economic activities reached a level that made administrative coordination more efficient and more profitable than market coordination” (Chandler, 1977, p. 8). As controlling this much larger flow of materials and money required highly educated and skilled ‘managers’, “an entirely new class of businessmen” appeared who created the modern business enterprise to maximise profits by minimising ‘transactions costs’ (Chandler, 1977, p. 3). This reasoning is an example of the widely criticised, “deeply damaging tautology” embedded in transactions cost theory, “the complaint that it can be used to rationalize virtually any economic phenomena” (Robins, 1987, p. 72). In Chandler's case, the tautology runs: when technology and the market allow a ‘large enough’ output, enterprises innovate to reduce ‘transactions costs’, so where we see the introduction of administrative coordination this was because it was more ‘efficient’ or ‘profitable’. Rooted in the general equilibrium theory of neo-classical economics, whose benchmark is ‘general economic efficiency’, the maximisation of society's ‘welfare’, Chandler's notions of ‘efficiency’ and ‘profitability’ reduce to the assumption of perfectly competitive markets, which deprives them of historical relevance. Chandler (1977, 1980) followed Williamson (1975) who “saw a process of economic evolution in which markets exist in the beginning”, started from the idea that “markets are the natural form of exchange” (Robins, 1987, pp. 76, 77). In reality, in the early 19th century local communities “existed in relative isolation” (Robins, 1987, p. 76) and competition only developed following the railroads’ creation of a national market, which prompted big corporations to subdue or control it, as we shall see. Before the modern enterprise, Chandler says, there was “individual [sic] capitalism”, where “owners managed and managers owned” (1977, p. 9), but we saw in Part 1 that small social capitals were common. From the late 1830s, merchants and manufacturing firms increasingly organised as corporations (Robertson, 1973, p. 263), but many were effectively partnerships because their capital typically remained in the hands of a few individuals or families. Because “These corporations remained single-unit enterprises, which rarely hired more than two or three managers”, Chandler concluded, the “traditional capitalist firm can, therefore, be properly termed a personal enterprise” (1977, p. 9), but it is doubtful whether such a firm was in fact ‘personal’ or ‘capitalist’. Chandler never explicitly defines ‘capitalism’, but as his major “theme … is that modern business enterprise took the place of market mechanisms in coordinating the activities of the economy and allocating its resources”, and his “first proposition” is that it did so when “administrative coordination permitted … higher profits” (1977, pp. 1, 6), he evidently assumes ‘capitalism’ equals competitive markets. As managers replaced markets and individual capitalists to make ‘higher profits’, this reduces ‘capitalism’ to the market mentality that maximises ‘profit’, a critical term in his analysis that Chandler also nowhere defines. Few would deny that the search for ‘higher profits’ dominated American business history, but to understand it the paper argues we must recognise the changing meanings of both ‘higher’ and ‘profit’. As we shall see, the meaning of ‘profit’ changed from consumable surplus to the realised increment to capital, and the meaning of ‘higher’ changed from comparing ‘profits’ with the original capital invested, the simple rate of profit (SRP), to comparing them with capital employed (ROI) as America became capitalist. According to Chandler, America produced two new forms of ‘capitalism’ during the second half of the 19th century as businesses grew in size and complexity as the expanded the scale and scope of their capital. One was an intermediate form of “entrepreneurial capitalism” where the often greatly enlarged family enterprise hired managers, but “the entrepreneur and his close associates (and their families) who built the enterprise continued to hold the majority of the stock”, retained a “major say in top management decisions” (Chandler, 1977, p. 9). The other, “managerial capitalism”, was the fully developed form where managers controlled a large multi-functional enterprise embracing production and distribution, and the ownership was dispersed (Chandler, 1977, pp. 9, 10). Chandler argues that managerial capitalism first appeared on the American railroads from the 1850s, and entrepreneurial capitalism in iron and steel and other industries from the 1860s, and he claims that in “many industries and sectors of the American economy, managerial capitalism soon replaced family [i.e., entrepreneurial] or finance capitalism” (1977, p. 10).3Hannah (2007) shows this is wrong, that widely held companies run by managers were a relative rarity in America compared to Britain, France, Germany and Japan, until the late 1920s, which the paper explains by America's exceptional transition to capitalism. Large companies appeared from the 1880s that integrated mass production with mass distribution, many created by mergers in the 1890s (Chandler, 1977, p. 286). Chandler says they exemplified “managerial capitalism” because they were run by managers who replaced the market, who “took over the functions of coordinating the flows of goods through existing processes of production and distribution, and of allocating funds and personnel for future production and distribution” (1977, p. 1). Unlike traditional owner-producers who were ‘capitalists’ because they responded to the market and therefore “found the age-old methods of accounting completely adequate”, managers were ‘capitalists’ because they “had to invent new practices and procedures” (Chandler, 1977, pp. 62, 7), particularly methods of accounting, to embed the market mentality into the functioning of their organisations. According to Johnson and Kaplan (1987), management accounting history supports Chandler's thesis because it confirms that the search for ‘efficiency’ that created the modern business enterprise had also stimulated the invention of all modern techniques by the 1920s. However, the paper supports Hopper and Armstrong's conclusion that “their theory is flawed, their history partial, and some of their prescriptions neglectful of the socio-economic conditions on which the achievements of the 1920s depended” (1991, p. 406), including the ideological preconditions. It reinforces their view that there are “important linkages between phases of accounting development and their socio-economic contexts”, and responds to their call for a “broader, more critical, institutional analysis of capitalistic development” – their “desire to locate accounting within a more explicit theory of interests” (Hopper and Armstrong, 1991, pp. 405, 406, fn. 1).4 The evidence, it concludes, supports the hypothesis that the modern business enterprise and management accounting were products of America's exceptional transition to capitalism. According to Chandler, “the modern business enterprise brought a new type of relationship between ownership and management and therefore a new type of capitalism to the American economy” (1977, p. 9). Because “stockholders did not have the influence, knowledge, experience, or commitment to take part in the high command” (Chandler, 1977, p. 10), they relinquished control of capital, both long-term policy and detailed operations, to management. Marx agreed that the ‘separation’ of ownership from the control of capital was necessary for capitalism to advance to its highest level.5 As early as 1867, he observed that in England “Stock companies in general – developed with the credit system – have an increasing tendency to separate this work of management as a function from the ownership of capital, be it self-owned or borrowed” (Marx, 1959, p. 380). For Marx, this was a necessary step in capital gaining its freedom, but was not sufficient because it presupposed free wage labour (Bryer, 2006a). American capitalists were slow to separate ownership from control compared to Britain, the paper argues, because they could not relinquish direct control of capital and hold diversified portfolios, form a total social capital and allow companies to become free of the idiosyncrasies of the owners, until its workers became ‘free’, including freedom from anti-capitalist ideologies. In short, that American big businesses became capitalist and pursued the ROI only when free capital faced free wage labour, not because they became ‘large enough’, and not because managers ‘separated’ from owners and ‘invented’ techniques of accounting that mimicked the market. To test this hypothesis the paper first re-examines evidence from the Boston textile industry, the railroads, and the iron and steel industry, which suggests that capitalism in Marx's sense had not appeared by the 1880s. The Boston textile industry, financed and organised by the ‘Boston Associates’, leading merchants who promoted and owned large integrated mills, was the most advanced in America during the first half of the 19th century. Their mills were the first manufactures financed by large social capitals, the first to employ wageworkers paid regularly in cash, and the first to invest heavily in labour-saving production technology. Accounting historians have credited them with producing the most ‘sophisticated’ accounts of the time, and social and economic historians often call them “New England capitalists” (Clark and Hewitt, 2000, p. 298), “prototypical industrial capitalists in pursuit of the main chance” (Dalzell, 1987, p. 4).6 They created the largest industrial establishments of their day, but Chandler judged them “traditional businessmen … not yet pressed to alter their traditional ways”, who had not yet “reached a level” to force change, so “their managerial methods adhered to those of the mercantile world that spawned them” (Chandler, 1977, pp. 67, 71, 72). The paper agrees with Chandler that the Associates were not modern ‘capitalists’, but his conclusion reveals transactions theory as an empty tautology. By 1820, the Boston mills towered over the average American firm, providing “ten of the largest corporations in the United States” (Chandler, 1977, p. 59). We know their volumes were nevertheless not ‘large enough’, Chandler implies, because the Associates did not innovate, but this shows he cannot explain their failure to innovate because volumes were not ‘large enough’. The Associates were not capitalists in Marx's sense because their capitals and their workers were not free, which the paper argues explains why they focused on production and stagnated after a spectacular early flourish. According to their accounts they were not ‘New England capitalists’, ‘proto-capitalists’, or ‘traditional businessmen’, but advanced semi-capitalists. The accounts of Chandler's ‘managerial capitalists’ on the railroads, and of ‘entrepreneurial capitalists’ like Andrew Carnegie in the iron and steel industry, show that they also remained advanced semi-capitalists, still only part capitalist, and for the same reasons. Managers, entrepreneurs and investors continued to use the SRP to judge their ‘profit’, and used results control only for prime costs, excluding depreciation and other overheads, that is, produced accounts identical in approach to those used on large southern slave plantations and in the Boston textile mills. From the 1860s, the railroads elaborated their semi-capitalist mentality in ‘cost management’ systems, which appeared in the iron and steel industry through the efforts of Andrew Carnegie and others from the 1870s, and spread to other industries. Second, the paper re-examines the genesis of American management accounting to find capitalists in Marx's sense, those who focused on ROI, and explain their appearance. Contrary to Chandler, Johnson and Kaplan, and the textbooks, management accounting was not a set of techniques or tools ‘invented’ by management to replicate and improve on the market, it argues, but was developed by owners and their advisors to give them control of management and through them control of the workers. It criticises the Foucauldian explanation of standard costing offered by Miller and O’Leary (1987) for its historical blind spots and its flawed theoretical understanding of accounting control. It re-examines the available evidence on the introduction and spread of product costing, standard costing, ROI, and flexible budgets, which it explains as signatures of the capitalist mentality in the context of emerging capitalist social relations (Bryer, 2006a). A re-examination of the ‘costing renaissance’ in the 1890s, and of Chandler, 1959 and Chandler, 1977 and Johnson and Kaplan's (1987) uniquely detailed studies of the DuPont Powder Company and General Motors, suggests that by these tests the capitalist mentality first appeared in America around 1900, and was established in large corporations by the late 1920s. This evidence supports the hypothesis that the capitalist mentality only began to appear in manufacturing after sweeping corporate reorganisations in the 1890s, to create a society dominated by widely held large corporations employing free wage labour by the 1920s. A re-examination of DuPont's and General Motors's reorganisations in the early 1920s suggests that only from around then did ownership separate from control and large manufacturers integrate their financial and management accounting systems to hold managers accountable to the capital market for ROI, who pushed this accountability down to subordinate managers and, ultimately, to workers. Only then did capitalists achieve the direct real subordination of labour under capital.7 We need more archival research to test these conclusions, but from Marx's perspective the appearance and spread of ROI-driven systems of management accounting is the critical turning point in American business history, not ‘managerial capitalism’. The paper concludes that it took to the 1920s because the socio-economic and ideological preconditions for management accounting did not generally exist. Big business provoked conflict between ‘capital and labour’ from the late 1870s and hostility from farmers, small employers and reformers in the ensuing decades. The transition to a capitalist society created an ideological problem for the ruling elite because, Part 3 argues, many farmers remained simple commodity producers, and smaller manufacturers and merchants remained semi-capitalists, even in the late 19th century. The problem was that the laissez-faire, individualist element of the ideology of small employers and merchants was hostile to ‘big business’, and the independent producer, ‘free labour’ ideology element they shared with farmers and workers, threatened to coalesce into popular socialism. Part 3 analyses the origins of the ideological problem and the implications of its solution, the ideological defeat of American socialism, for accounting. It concludes that Irving Fisher made a seminal contribution, but his solution was a pathological theory of financial accounting.

Capitalism did not exist in America even by the 1890s. A survey of accounting by the Boston textile mills, the railroads, the iron and steel industry, shows that ‘proto-capitalists’, ‘managerial capitalists’, and the ‘entrepreneurial capitalists’ running big businesses, were only part capitalist in Marx's sense, only semi-capitalists. The paper re-examined the history of management accounting, the introduction and spread of product costing, standard costing, ROI and flexible budgets, exemplified in Chandler's and Johnson and Kaplan's studies of DuPont and General Motors. We need more research, but this evidence suggests that capitalism only appeared around 1900 after more than two decades of intense conflict between capital and labour, and only became established by around 1920. It seems unlikely that DuPont and General Motors’ systems were unique. Assuming they were not, “American industrial firms”, having by 1925 “developed virtually every management accounting procedure known today” (Johnson and Kaplan, 1987, p. 125), had taken control of their valorisation processes, had achieved the direct real subordination of managerial labour, probably down to supervisors, and of workers indirectly, if not directly. Tightly controlled, giant multi-divisional capitalist corporations owned by diversified shareholders, run by professional managers employing free wageworkers in large factories using machinery, mass-producing for national and international markets, dominated the US economy (Chandler, 1959, Chandler, 1962, Chandler, 1977, Cheffins, 2003, Hannah, 2007, Licht, 1995, Navin and Sears, 1955, Roy, 1997, Trachtenberg, 1982 and Werner, 1981). However, before they could install and operate ROI-driven management accounting systems, business and political leaders had to subdue the surge of labour and social unrest provoked by big business that peaked in the first two decades of the 20th century (Kolko, 1963 and Lichtenstein et al., 2000). These systems had socio-economic preconditions, particularly “lack of resistance from organised labour” (Hopper and Armstrong, 1991, p. 407), which did not exist generally until the 1920s. Then what was true of General Motors was true generally: “the successful operation of [its] … accounting system depended on the inability of organised labour to contest speed-ups and seasonal lay-offs” (Hopper and Armstrong, 1991, p. 423). It was not “accidental that Johnson and Kaplan's apogee of management accounting development was also an age of anti-union violence and espionage” (Hopper and Armstrong, 1991, p. 407), or that it came after a period of exceptional class conflict that resulted, Part 3 argues, in the ideological defeat of popular socialism. This defeat could explain the exceptionally aggressive “management style” and quiescent “pattern of labor activism” in America that produced its exceptional use of budgets and standard costing compared to Britain where socialism was embedded in stronger and more aggressive trade unions that had some state legitimacy (Wardell and Weisenfeld, 1991, pp. 655, 662, 665, 666). The appearance of big business in America generated a hostile and ‘class conscious’ labour movement, created conflict with middle class farmers and small employers, led to the formation of a ‘Popular Party’ that sought the destruction of the trusts and big business, and to the spectre of socialism. Business and political leaders repressed labour and radical political opponents, but force worked only to a point, and could be counter productive, particularly as big business had created a serious ideological problem for the ruling elite. The solution, Part 3 argues, was ‘corporate liberalism’ (Sklar, 1988), which claimed that corporations would behave ‘socially responsibly’ and earn only ‘fair profits’ with appropriate government regulation, particularly requiring ‘publicity’, but this left unanswered the socialists’ criticism that capitalism was inherently socially irresponsible, that all profit was ‘unfair’. To understand the problem, the solution, and its consequences, Part 3 argues, we must understand its origins in the long-running ideological conflict in America between simple commodity producers and semi-capitalists on one side and ‘capitalists’ on the other. It argues that Fisher took up the socialists’ challenge in this context through his acclaimed theory of accounting, which justified big business to the middle classes by reconciling the mentalities of the simple commodity producer, the semi-capitalist, and the money capitalist, reconciling Wall Street and Main Street, whilst simultaneously criticising socialism. Fisher claimed accounting practice supported his theory, but Part 3 shows he did not understand DEB or the accountants’ ‘cost theory of value’, and concludes that his theory introduced pathology by disconnecting accounting from reality.