Description
The paper argues that by examining accounting’s technical/objective and relational/social
characteristics simultaneously, a deeper understanding can be gained of accounting transition
at key stages of economic development. Using the case of Boulton & Watt (B&W),
a pioneering firm of the British Industrial Revolution (BIR), the paper critiques prior interpretations
and applies a taxonomy using new archival evidence, contrasting these with
developments at the Springfield Armory.
Accounting fundamentals and accounting change: Boulton &
Watt and the Spring?eld Armory
q
Steven Toms
a,?
, Richard K. Fleischman
b
a
Leeds University Business School, Room 2.09, Maurice Keyworth Building, University of Leeds, Leeds LS2 9JT, United Kingdom
b
John Carroll University, University Heights, OH 44118, United States
a b s t r a c t
The paper argues that by examining accounting’s technical/objective and relational/social
characteristics simultaneously, a deeper understanding can be gained of accounting tran-
sition at key stages of economic development. Using the case of Boulton & Watt (B&W),
a pioneering ?rm of the British Industrial Revolution (BIR), the paper critiques prior inter-
pretations and applies a taxonomy using new archival evidence, contrasting these with
developments at the Spring?eld Armory. Results show that the management of internal
contractual relationships and a preoccupation with ef?ciency rather than pro?t or control
through surveillance were the dominant explanations of accounting change.
Ó 2014 Elsevier Ltd. All rights reserved.
Introduction
There has been a substantial literature examining the
process of accounting change, focusing on signi?cant his-
torical events such as the BIR, incorporating a dispersion
of methodologies across and within philosophical view-
points. Most approaches tend to be partial. Positivist
accounting research (Watts & Zimmerman, 1978, 1986)
concentrates only on empirical regularities, while social
and market structures are taken as given. Critical account-
ing, by contrast, has increased methodological diversity
(Baxter & Chua, 2003) and in accounting history has led
to a greater appreciation of accounting’s interconnections
with social relationships, contexts and arenas (Napier,
2006).
In this paper, we argue that importations of theories
from the wider social sciences into accounting tend to be
incomplete because they do not take the fundamentals of
accounting as their point of departure. By fundamentals
we mean that there is a dual technical and social aspect
to an accounting transaction or a ?nancial statement such
as a balance sheet. Accounting simultaneously contains
speci?c technical/objective and relational/social character-
istics at the transactional and business-entity levels which
should therefore be combined for a suf?cient theory of
accounting change.
1
Grounding theory in the nature of
accounting itself, applied to historical investigation, allows
us to trace value through the processes of innovation and
development of the productive base (manifested in the nat-
ure and speci?cation of assets) and its reinvestment or
appropriation (manifested in the associated structure of
liabilities).
Following this approach, the paper advocates the
accounting transaction as the basis of analysis (hereafter
referred to as the ‘‘accounting transaction-based view’’http://dx.doi.org/10.1016/j.aos.2014.09.001
0361-3682/Ó 2014 Elsevier Ltd. All rights reserved.
q
We are grateful for ?nancial support from John Carroll University and
thank Wai Fong Chua and two anonymous reviewers whose exceptional
attention to detail and constructive advice have substantially added to
this paper. Any remaining errors are the authors’.
?
Corresponding author. Tel.: +44 (113) 3434456.
E-mail addresses: [email protected] (S. Toms), [email protected]
(R.K. Fleischman).
1
In the technical/objective dyad, the physical properties of asset and/or
their technical representation, speci?es their objective characteristics or
form of objecti?cation. The relational/social dyad generalizes the relational
properties of an asset, which might assume speci?c or historically
conditioned social properties.
Accounting, Organizations and Society 41 (2015) 1–20
Contents lists available at ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
(ATBV)). The ATBV provides a means of contextualizing
accounting change at a societal level, relating the material
properties of assets to the ?nancial claims upon them, with
the former governed by technical and labor-process innova-
tions and the latter settled through the evolution of institu-
tions of arbitration and enforcement (law, tax, etc.).
Practical accounting, most obviously in the form of dou-
ble-entry bookkeeping (DEB), re?ects this distinction,
where in the resulting balance sheet, the debit side refers
to the existence of assets and the credit side to the claims
upon those assets. A change in one presupposes a change
in the other, and herein lays the power of accounting using
the ATBV. The transaction is conceptualized as a dichoto-
mous relation, to go beyond DEB, as a sui generis tool of his-
torical and organizational analysis. For example, a technical
innovation implies the re-evaluation of ?nancial claims on
existing and newassets. A ?nancial crisis implies a reorder-
ing of the purpose and value of physical assets. The ATBV
also requires consideration of the labor process because,
on the one hand, it adds to the stock of the ?rm(the techni-
cal/objective element), while on the other, creates poten-
tially con?icting claims as to the division of the value (the
social/relational element). A full discussion of value theory
is beyond the scope of the paper, but it is important for cur-
rent purposes to show that recording value created by the
labor process and its distribution are the tasks of account-
ing, such that changes in the process explain accounting
change.
Accounting is a set of technical approaches that must
respond to some goal- related function as determined by
the institutional and organizational setting. For example,
constructing an accounting system for an armory is deter-
mined by the asset structures required to produce weap-
ons and the goals implied by the accountability
structures created by the deployment of those resources.
Asset and accountability structures make the role of
accounting problematic in ways that lead to accounting
innovation and evolution of technique as methods learned
in one setting are transferred to others. In this sense, there
is a constitutive role for accounting as part of a symbiotic
relationship with technology and the ?nance of technology
for productive purposes. Despite appearances, our view is
not essentialist, as the transaction’s physical and relation-
ship aspect takes on different forms through time, which
are historically and socially conditioned and develop dee-
per institutional complexity. For example, specialization
and the division of labor create complexity in asset struc-
ture and valuation and in the credit-based relationships
between individuals’ claims on assets and laws governing
them.
Conceptually, the main features of the ATBV are as fol-
lows: In the abstract equilibrium sense, the technical side
of the transaction is governed by the material properties
of asset creation, in other words their physical and loca-
tional characteristics, and therefore described as objective.
The social side of the transaction refers to the relationships
between the parties involved in value creation and its dis-
tribution. For example, in the abstract, a business entity is
represented in accounting terms by the accumulation of
accounting transactions, of valorized wealth on the one
hand, and social structures of ownership of that wealth
on the other. At the same time, accounting has a dynamic
and constitutive role, linking the technical/objective and
the relational/social so that the equalization of asset values
and claims on those values provide visible and historically
speci?c representation of the business entity in its various
stages of development. In this sense the ATBV offers a
structured analysis of competing claims over valorized
production and wealth. Subjective claims on assets can
be in con?ict with the material conditions implicit in their
creation. For example, the physical and technical orienta-
tion of assets in the labor process means that the time
and intensity of effort are in contradiction with the mone-
tized claims to the value created. While there may be spec-
i?able conditions of equilibrium between value of effort
and value of claim (for example where equilibrium pro?t
equals social contribution [Makowski & Ostroy, 2001, p.
502]), the normal situation of disequilibrium is where cer-
tain claims to revenues are given visibility by accounting
and achieve priority, so that resulting values become
established as facts (Latour, 2013, p. 447). In this respect,
accounting reinforces power relations (see, e.g., Ezzamel,
2009, 2012), allowing accounting methods to become
entrenched until they ossify and are subsequently under-
mined either by technologically driven changes in the nat-
ure of the asset base or reordering of competing claims
arising from crises. The paper uses these processes and
relationships to investigate the potential of the ATBV to
provide a generalizable theory of accounting change
which, for the BIR, is presented as a structured taxonomy,
deployed later in the paper to analyze developments at
B&W.
The analytical structure of the ATBV potentially com-
plements certain theoretical approaches but contradicts
others. Economic rationalists typically stress the techni-
cal/objective (e.g., Edwards & Boyns, 2013), and Marxists
(e.g., Tinker, 1980) the relational/social determinants of
accounting practice, but not necessarily both or their
inter-relation. The Foucauldian view, in its genealogical
variant, explains the emergence of accounting in terms of
successive modes of naming and counting, including tech-
niques of educational instruction and grading (Hoskin &
Macve, 1986, 1988), but does not therefore ?t logically into
our technical/objective and relational/social framework.
2
Even so, because ?nancial transactions have a physical
aspect (monetary and ?xed assets) and a relationship aspect
(creditors and equity holders’ claims on those assets), such
characteristics could precede genealogical accounts. Where
there is no money; e.g., in gift-based societies, the posses-
sion of gifted assets bears reciprocal obligations (Mauss,
1922). The challenge then, in the Popperian sense is falsi?ca-
tion; that is, to ?nd instances of transactions that do not pos-
sess a physical and relationship aspect. Other Foucauldian
variants overlap more closely with the ATBV, such as those
based on the sociology of translation (Callon, 1986), which
see accounting techniques developing as part of constella-
tions of institutions and practice (Miller & Rose, 1990;
Miller, 1991), based on expertise (Miller & O’Leary, 1987),
2
Recognizing that accounting precedes writing (Ezzamel & Hoskin, 2002,
p. 339) but that once developed, writing in?uences modes of naming and
counting.
2 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
and constitutive of social relations (McKinlay, Carter, Pezet,
& Clegg, 2010).
3
The paper uses the ATBV in the next section to examine
accounting evidence from B&W, the pioneering steam-
engine manufacturing ?rm of the BIR. It is organized
according to key developmental phases. Each phase is
introduced with a synopsis of current empirical knowl-
edge, which hitherto has concentrated on the years imme-
diately following the Soho Foundry’s establishment in
1795, particularly the bonus-system experiments and
piece-rate revisions in 1800–1802, followed by an applica-
tion of the ATBV using new archival evidence
4
up to and
including the piece-rate revision of 1816. A third section
re-examines three competing perspectives, economic ration-
alist (e.g., Fleischman, Hoskin, & Macve, 1995; Williams,
1999), Marxist (e.g., Bryer, 2005) and Foucauldian (e.g., Hos-
kin & Macve in Fleischman et al., 1995), used to explain the
role of B&W’s accounting in the BIR and to develop interpre-
tations of the origins of ‘‘modern accounting,’’ including the
alternative hypothesis that later developments in the U.S.,
particularly at the Spring?eld Armory (SA), were more sig-
ni?cant (Chandler, 1977; Hoskin & Macve, 1988, 1994). In
the fourth section, the reviews of recent contributions on
B&W, empirical evidence, and alternative perspectives are
drawn together in a taxonomy used to contextualize the
empirical cases, allowing evidence of the development of
accounting in the BIR to be evaluated. The ATBV is advocated
as a means of critiquing previous approaches and as a theo-
retical approach in its own right. We argue that as a conse-
quence, debates can be moved beyond the social relations
and positivist dividing lines, developing new insights into
accounting as a response to technical change, mediated by
institutional arrangements. These points are elaborated in
the concluding section.
Accounting change at B&W
This section develops a chronology of B&W c.1770–
1820, concentrating on the dual-nature technical/objective
and relational/social aspects of accounting transactions. It
considers evidence in two respects: (1) the origins of value
through the processes of innovation and development of
the productive base, and (2) how the value thereby created
was reinvested or appropriated as mediated by social rela-
tions. In each case, we focus on the role of accounting,
which in (1) refers to the cost-accounting methods used
to integrate technological change and its impact on the
labor process, and in (2) to the mainly ?nancial-accounting
processes used to recognize and allocate surplus. The
review provides historical background, highlighting impor-
tant stages in the development of the ?rm that impacted
its methods of accounting. These were the consulting-engi-
neering phase, the internalization of production at Soho in
1795, experiments with incentive payment systems in the
1800–1802 period, and a previously un-researched, piece-
rate revision in 1816. The paper re-evaluates the empirical
evidence chronologically, concentrating on apprenticeship
records, piecework accounts, and ledgers.
The consulting-engineering phase, 1775–1795
The ?rst phase of the ?rm’s development followed the
establishment of the partnership between Boulton and
Watt and the con?rmation of the patent on Watt’s engine
in 1775. Installing engines in Cornish tin mines to pump
water accounted for a signi?cant proportion of the ?rm’s
business (40% of the total c.1777–1782, Tann, 1996, p.
29). Outside Cornwall, London breweries and water com-
panies were also signi?cant customers (Smiles, 1874, p.
484). To build engines for these markets, the ?rm devel-
oped an extensive network of subcontracted supplier rela-
tionships; e.g., John Wilkinson (Melling, 2013).
5
Application of the ATBV illustrates how the decentral-
ized scope of the business, together with custom, practice,
and regulation, explain accounting developments during
the consulting- engineering phase. In these respects, the
technical nature of Watt’s inventions and the 18th- cen-
tury, pre-capitalist regime of feudal regulation in?uenced
how the gains generated were appropriated. Extensive
monitoring of patent licenses was required at remote loca-
tions and explains the complex negotiations affecting roy-
alty payments and the personalized and decentralized
process of securing accountability from contractors. For
example, books of the mines were liable to inspection by
B&W (Roll, 1930, p. 75). Consequently, B&W was better
able to monitor remotely without taking direct control of
production. It was only by ‘‘force of circumstance’’
(Dickinson, 1937, p. 131) that they took shares in certain
mining companies. A method was required that reduced
monitoring cost and conformed to expectations arising
from custom and practice. In common with other ?rms,
B&W faced trade-offs between external contracting and
direct supervision.
6
In the Black Country and Birmingham,
employers in saddlery, iron, lock, nail, and other trades con-
tinued to struggle with worker absenteeism (Allen, 1929).
Contractors embezzled, substituted inferior materials,
reneged on agreements, and traded effort for leisure time
(Marglin, 1976, p. 34; Toms, 2005). B&W’s subcontracting
arrangements also evolved under the aegis of regulations
for just prices, restrictions on usurious lending, regulated
wages, and the indentured apprenticeship system.
7
These
principles directly impacted business (Hobsbawm, 1968,
pp. 347–350; Thompson, 1971) and accounting practice
(Toms, 2010). Market manipulations were legislated against;
e.g., forestalling and withholding goods to manipulate prices
3
Where critical accountants have analyzed social and institutional
contexts from an ostensibly Foucauldian perspective, they represent
applications of Foucauldian theorizing to institutional settings rather than
Foucauldian work as such (a point acknowledged by Miller & Rose, 2008, p.
8). We thank a reviewer for pointing this out.
4
Birmingham Central Library, Boulton & Watt Collection (BWC).
5
John Wilkinson (1728–1808) had an exclusive contract to supply high-
quality cylinders until 1794 when his works was closed by an injunction
(Roll, 1930, pp. 157–158).
6
Subcontracting was common (the ‘‘butty’’ system in iron founding or
the ‘‘family economy’’ in the cotton industry), whereby craftsmen super-
vised teams of family members and acquaintances (Fleischman, 1985;
Fleischman & Tyson, 1996, p. 62).
7
Bread prices, in particular, created social con?ict (Thompson, 1971);
e.g., the Assize of Bread calculated the baker’s allowance, set according to
the ruling price of wheat (Webb & Webb, 1904).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 3
could provoke riots, seizures, and redistribution at ‘‘fair
prices.’’
8
These included threats to disrupt the networks dis-
tributing hoarded and unfairly priced goods, including the
canals upon which B&W depended for transportation to
and from Soho.
9
Monopoly was an important feature of 18th-century
regulation (Tawney, 1926, p. 270) and a theme in the ?rst
phase of B&W’s development, whether through the use of
blocking patents or controlling supply chains and markets
otherwise at risk. In 1785, Boulton was instrumental in
forming the Cornish Metal Company, which, until 1792,
operated as a cartel (Dickinson, 1937, pp. 131–132) com-
parable to a Stuart monopoly of purchase and sale
(Pollard, 1965, p. 20).
10
In Cornwall, the tin miners were
particularly robust at enforcing fair prices through direct
action against recalcitrant merchants (Rule, 1970, pp. 90–
91). Matthew Robinson Boulton wrote to James Watt Jr. in
1798 that without the precaution of price reductions ‘‘. . .
we shall have much dif?culty in steering clear of Disputes
on this subject and certainly not succeed in accomplishing
the alteration without exciting public attention’’ (cited in
Williams, 1999, p. 78).
B&W solved its monitoring problems by developing
new technical measurement methods corresponding to
social expectations. Watt responded to disputes over mea-
surement by inventing a counter that accurately measured
the number of engine strokes for one year, allowing sav-
ings to be precisely quanti?ed (Muirhead, 1858, pp. 290–
291). Rather than maximize pro?ts, B&W used a mecha-
nism that was ‘‘quite fair’’ (Dickinson, 1937, p. 96), which
split the fuel-cost savings between B&W and the mine
adventurers 1:2.
11
The principle adopted was similar to
the ‘‘three-rents’’ notion from Cantillon’s Essai of 1755.
12
Although the principle used re?ected traditional methods
of division dating back at least to Petty in the 1660s
(Tribe, 1978, pp. 92–93), the measurement method relied
on new technology and resulted in disputes. As a conse-
quence, through technical ingenuity, accounting was
embedded in the process of contract speci?cation and debt
enforcement with prices negotiated by reference to cost
and cost savings.
Table 1 shows the internal rate of return (IRR) arising
from the 1:2 split of realized savings for an 8-horsepower
engine with an invoice cost of £525. B&W’s returns might
be described as ‘‘fair,’’ or indeed surprisingly low factoring
dif?culties associated with disputes and court arbitrations.
Certainly the partners showed no interest in carrying out
sophisticated ?nancial calculations relating to their own
wealth accumulation, notwithstanding Watt’s consider-
able ability with technical calculations. According to
Muirhead (1858, p. 418), ‘‘Watt made a very moderate esti-
mate of the remunerative nature of the business . . .in
. . .1782 he mentioned that the clear income realised by it
was £3000 per annum, and might be £5000, he at the same
time added that it might be less or nothing.’’
Against this highly regulated background of disinte-
grated and limited capital accumulation, neither partner
had a clear idea of his income. In summary, in the consult-
ing-engineering phase, B&W paid serious attention to
recording and monitoring and developed technical solu-
tions to assist monitoring dispersed assets. On the other
hand, social norms determined how the patent was
exploited in a manner that limited excessive capital
accumulation.
The internalization of production and incentive payment
systems, 1795–1802
In 1795, the Soho Foundry commenced operation,
allowing full-scale engine production (Fleischman et al.,
1995). Technical improvements, including the rotative
engine, allowed component standardization and created
pressure to internalize production (Roll, 1930, p. 194).
Meanwhile, B&W continued subcontracting, external and
internal, as a means of avoiding fraud and other risks
(Pollard, 1965, p. 218). To achieve ef?ciency with internal
sub-contracting, standard prices were used. Following the
establishment of production departments, the ?rm was
concerned with accurate costing, transfer pricing, and con-
trolling material and labor processes. As Roll (1930, p. 244)
suggested, establishing departments ‘‘tended to raise the
Table 1
Internal rates of return on patented engines.
B&W Client Total
(1) (2) (3)
Cost of engine (£) 435 525 525
Annual Premium at £3.85 per HP per year for 8 hp engine = £30.8 30.8
Annual cost saving (client) 61.6
Total cost saving 92.4
Internal rate of return (IRR) 4.96% 10.84% 17.27%
Source: Calculated from Roll (1930, pp. 239, 312).
Note: IRR is based on cost savings over 25 years, corresponding to the length of the patent. (1) Calculated using production cost to B&W against premium
earned by B&W; (2) calculated using selling price including margin to the client against net savings achieved by the client; (3) calculated using selling price
and total savings for the client and B&W combined.
8
Part of this practice was to account for the pro?t to the offender,
calculated according to what would have been earned had ‘‘fair prices’’
been charged (Thompson, 1971).
9
Josiah Wedgwood (Wedgwood, 1783, pp. 12–13) heard it ‘‘threate-
ned...to destroy our canals and let out the water,’’ because provisions were
passing through Staffordshire to Manchester from East Anglia.’’
10
Boulton petitioned Parliament in 1766 for a monopoly to prevent
buckle chape exports (Dickinson, 1937, pp. 31–33).
11
Writing in 1827, Thomas Thredgold described the one-third rule as a
‘‘fair rate of licence’’ in exercising the patent (cited by Muirhead, 1858, p.
402).
12
According to Cantillon (1755/1959), rents were split, 1/3 costs of the
farmer, 1/3 pro?t of the farmer, 1/3 rent to the landlord. In the position of
patent holder, analogous to the landlord, B&W took 1/3 of the savings.
4 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
standard in the methods of accounting’’. Like Roll (1930),
Fleischman et al. (1995, p. 166) argued that complexity
in calculation arose from ‘‘the greater standardisation of
products and specialisation of labour’’ following the foun-
dry opening and that most accounting innovations were
‘‘necessitated by the decision to produce locally compo-
nents. . . previously. . . subcontracted.’’ A new pricing strat-
egy based on markups instead of royalties was introduced
in 1795 (Roll, 1930, p. 312; Williams, 1999, p. 72). Engine
standards contained hundreds of components costed in
huge volumes with many pages given over for each engine.
Standard costs were facilitated by numerous engine trials
and the development of inter-departmental transfer prices
(Fleischman et al., 1995).
Under a premiumsystem, labor bonuses were related to
output, particularly where output could be measured at
low cost (Roll, 1930, pp. 205–206; c/f Lazear, 1986). B&W
developed precise calculations (theorems) to relate labor
time to different-sized outputs (Roll, 1930, pp. 205–206).
Roll gives the example of ?tting nozzles for which there
is a standard price of 22s per inch (Roll, 1930, p. 198).
13
In the illustration, the days required at standard labor rates
resulted in a lower production cost than the standard price,
which is recorded as ‘‘men’s pro?t.’’ For nozzles, the work
was subcontracted to Joseph Turner & Co., a group consisting
of Joseph Turner, John Turner, William Smallwood, and
Joseph Turner Jr., who, as an assistant, received a lower rate
for his time only (4s per day). These wages were added to
production cost, but the resulting pro?t (cost of production
less standard price) was only shared among the senior team
members.
14
Following the patent’s expiry in 1800 and Boulton’s par-
tial retirement, the management of the ?rm was increas-
ingly conducted by the founders’ sons, Matthew Robinson
Boulton (1770–1842) and James Watt Jr. (1769–1848).
The latter was trained in management and accounting
(Fleischman, 1993) and actively sought advice on best prac-
tice from established managers and innovators like George
Lee, a Manchester cotton manufacturer (letter dated March
11, 1797, Tann, 1981, p. 240).
15
In 1802, the method of
accounting was revised. The premium system was replaced
by piece-rates with disbursements related directly to output
(Tann, 1981, p. 13; Fleischman et al., 1995, p. 169).
16
Both
systems used supervisor incentives rather than direct over-
sight by the partners or managers. In common with the pre-
mium system, only supervisors were paid piece rates, with
day rates administered to other workers. There is some evi-
dence of less formal piece-working agreements in the early
1790s, but formalized piece rates were only made possible
by the internalization of all engine-part production at Soho
(Roll, 1930, p. 194). The period 1800–1802 has been charac-
terized as an ‘‘outburst of calculating activity’’ (Fleischman
et al., 1995, p. 167). During 1800–1802, moulder-team fore-
men submitted to management piece-rate tender offers for
the numerous components produced at Soho. Based on time
trials and the piece-rate offers, B&Wnegotiated and awarded
contracts to internal subcontractors. For two years, data were
kept on quarterly productivity of nine moulder teams with
their performances commented upon (Tann, 1981, pp. 257–
267).
Using the ATBV, it can be seen how the technical/objec-
tive changes, particularly investment in factory capacity,
posed new questions about measuring and appropriating
surplus against a backdrop of changing social norms. The
new foundry signi?cantly integrated the business so that
the orientation of accounting shifted from measuring and
monitoring external contractors to inside teams of produc-
tion workers. The premium system provided an internal
subcontracting solution to the supervision problem and
the scarcity and power of skilled labor. Where incentive-
based contracts were granted, employees could earn
bonuses over and above their indentured wage rates; but
if output was suf?ciently low or payments to team mem-
bers too high, their earnings fell below the contracted
time-based rate. B&W received supporting accounts from
the supervisors about performance during the period
under review. It was observed that ‘‘James Middleton has
worked exceedingly hard during the quarter and done his
work very well,’’ and ‘‘. . .during the last three quarters Col-
lier has done a very small proportion of work to what he
did in the ?rst having been absent during the great part
of them’’.
17
Using combined weekly wages and piece rates
guaranteed that B&W did not pay for absent workers or
for work that did not get done, and ensured that workers
bore much of the risk associated with reduced output. Not-
withstanding his hard work and high-quality output, Mid-
dleton was left with insuf?cient funds for his own wages
after paying his men and was left dependent upon an
advance from the partnership. Similarly, George Croft had
scarcely suf?cient funds for his own wages.
18
Middleton also
had to stand the cost of wasters.
19
While facilitating supervision in the face of signi?cant
sunk-cost investment, the premium system did not pro-
vide the partners with suf?cient information about pro-
duction ef?ciency or incentive mechanisms to increase
output. Although passing considerable risk onto foremen,
most of the gains were appropriated within the contracting
teams. Labor shortages created constraints on manufactur-
ing capacity, so B&W used the new piece-rate system to
ensure that scarce labor was used as productively as possi-
ble and the piece-rate revision resulted in signi?cant
13
In pre-decimal units of coinage referred to here and elsewhere, s
denotes shillings (20s = £1), d denotes pence (240d = £1; 12d = 1s) and in
weights and measures, cwt denotes hundredweights, equivalent to 112 lbs
or 50.8 k.
14
In the 1803 wage list, rates were not prescribed for certain junior
employees, labeled ‘‘underage’’ (Arrangement of the Foundry men, 1802–
1803, Tann, 1981, pp. 250–252).
15
George Lee was regarded as ‘‘the most able manager in the trade,’’ who,
?rst applied B&W rotative engines to mule spinning, thereby cutting labor
costs by one-third (Brown, 1996, p. 64).
16
From then on, B&W used pre-determined listed wages for individual
employees (Arrangement of the Foundry men, 1802–1803, Tann, 1981, pp.
250–252).
17
Tann, 1981, pp. 264, 267. In the latter case, Young appears to have
compensated by achieving higher output so that the joint income of Collier
and Young did not decline.
18
Tann, 1981, pp. 264, 266. In Croft’s case, B&W estimated his wages to be
up to 1/3 less than they would normally have been (12/À; c.f. 18/À).
19
Conditions upon which Piece Work is let to James Middleton, 1802
(Tann, 1981, pp. 259–268). ‘‘Wasters’’ refer to lost castings in the moulding
process (West, 1892, p. 4).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 5
improvements (Tann, 1981, pp. 13, 268). Accounts were
maintained between the piece men and the partnership
so that supervisors could draw down funds to pay their
teams as they determined.
20
At any given time therefore,
a debit or credit balance existed on the supervisor’s account
with the ?rm.
21
Narrative comments indicate that B&W
management had little knowledge of disbursements within
teams, and that such activities were, in any case, dif?cult
to monitor. For example (Tann, 1981, pp.261–262),
Samuel Williams has drawn various sums weekly
according to the number of men employed under him
and it is supposed the whole has gone to pay them
and his own wages. . .and it is doubtful whether he
may owe a part or not (of the balance) for Chipping.
It is supposed that the sum drawn weekly by Isaac Croft
during the above quarter has been suf?cient to pay his
Man, himself and all his Chipping.
[(emphases added)]
As implied here, chipping was not always performed by
directly employed labor and might be further subcon-
tracted.
22
Apprenticeship contracts stipulated a weekly
wage at commencement but also automatic increases each
year thereafter.
23
The new piece-rate system helped the ?rm
attract and retain experienced workers, but offered little
knowledge or control over appropriation of gains from
improved productivity.
As a consequence, in part because of these changes,
pro?ts began to accumulate as they had not done previ-
ously, but these were still accounted for as sources of
income indistinguishable from the personal estates of the
partners.
24
In the period 1811–1815, the ledger provides a
full set of double-entry accounts for the foundry and manu-
factory. They show balances for stock carried forward in
both departments and the value of production transferred
from foundry to manufactory. A balance account shows
the inventory for the manufactory but not the balance car-
ried forward from the foundry. Instead, there is a balancing
?gure with an opposite entry to ‘‘sundries.’’ It is possible to
estimate the capital from these accounts by adding the man-
ufactory stock and sundries together.
25
However, it is not
possible to ascertain the composition of the ?gure for ‘‘sun-
dries’’ since the sundries account is not in the ledger. It
might be supposed that they are recorded in the partners’
private accounts. Indeed, there are a large number of busi-
ness transactions involving the partners in the departmental
accounts. The integration of the transactions in this fashion
creates dif?culties in terms of separating the capital of the
foundry and manufactory from the capital held in monetary
and other assets by the partners elsewhere. Transactions
involving partners do not differentiate between drawings
and ordinary business transactions. The sundries ?gure in
the balance account comprises the foundry balance carried
forward, but this forms only part of a total that arises from
other unspeci?ed sources. The ledger also reveals that pro?t
in the manufactory was calculated once costs and sales had
been adjusted for the stock valuation. In addition, there was
a further transfer to the pro?t-and-loss account of premium,
showing that this income was accounted for separately and
in addition to pro?t.
So, although using accounting more effectively to con-
trol labor, notwithstanding the closer integration of the
business at Soho, B&W did not use accounts to measure
or regulate return on capital employed (ROCE) or capital
accumulation. Financial accounting methods only partially
applied the business-entity concept. Adding this evidence
to Pollard’s (1965, p. 65) identi?cation of errors in the
accounts, it is doubtful that they formed a suitable basis
for performance measurement even if B&W had been con-
cerned with directly measuring it in ?nancial terms. Not-
withstanding the opportunity arising from investment in
integrated production to account for capital accumulation
and use ROCE to measure ef?ciency, productive depart-
ment activities were not separated from partners’ private
accounts. There is no sign here of Weber’s capital account
or of Bryer’s ROCE.
26
Subsequent developments and the piece-rate revision of 1816
Following the establishment of the new piece rates,
there were further periodic reviews in 1808, which
increased time allowances but reduced rates and a further
more general review in 1810 (Fleischman et al., 1995, p.
169). James Watt Jr. settled piece rates annually (Tann,
1981, p. 14). However, apparent sophistication was belied
on closer scrutiny, as was the case with labor standards.
Productivity studies conducted by managers (Haden in
the 1810s and Buckle in the 1830s) referred to costs and
outputs by weight, but did not measure time taken for spe-
ci?c tasks, with quarter days the smallest recorded interval
(Fleischman et al., 1995, p. 169). Notwithstanding the
establishment of labor standards and piece rates, arithme-
tic comprising total cost was frequently shoddy. Compo-
nent costs were rounded to the nearest shilling or even
?ve shillings, grouped at convenient numbers. Perhaps
most telling was the use of past costs as a measure of
future costs and the arbitrary allocation of joint costs. An
important piece of evidence in this respect is a comment
that appeared in an 1830s instruction book: ‘‘The exact
time put down by Mr. Buckle must not always be taken
for the real time a job has been in completing, but in many
instances and indeed in general the person who makes out
20
BWC, MS/3147/8/26 &27, Apprenticeship Indentures. For further
examples of cash accounts between James Watt and certain employees,
see BWC, MS/3147/54, Cash Account Abstract, July, 1810–1827.
21
Statement of the quantity of castings by Moulders in different quarters,
1800–1802 (Tann, 1981, pp. 259–268). B&W clerks provided bookkeeping
services for some of the internally contracted ?rms (BWC, MS/3147/4/196,
Personal piece-work accounts, Edward Molyneaux and Edward Seager).
22
‘‘Chipping’’ refers to the removal of slag from welds with hammers and
chisels. In the case of Collier and Young’s team, chipping was hired out to
the air-furnace man (p. 267).
23
BWC, MS/3147/8, Apprenticeship Indentures.
24
BWC MS/3147/1/2, ledgers, 1810–1848.
25
For example, in 1814, the manufactory stock balance was £20,916 and
sundries £41,646, giving a total in the balance account of £62,562. The
balance is not carried forward, but is transferred by a corresponding credit
entry to sundries (BWC MS/3147/1/2, ledgers, 1810–1848).
26
For a summary of Weber and Bryer on calculative mentalities, see
Robertson and Funnell (2012, p. 345) and also for an explanation of how
accounting at the Dutch East India Company re?ected a long tradition of
ownership obviating ROCE computations.
6 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
the ?tting must be governed by his knowledge of the arti-
cle ?tted’’ (cited in Fleischman et al., 1995, p. 171).
Evidence from the prior literature then is not suggestive
of progressive sophistication in accounting applications.
Even so, applying the ATBV to new evidence shows that
B&W used accounting to achieve progressively tighter con-
trol over labor costs, supported by an increasingly favor-
able regulatory framework. These aspects of accounting
change are explained in turn.
To achieve tighter control, calculations were carried out
in 1816 on the performance and earnings of four employ-
ees.
27
These are summarized in Table 2a under headings
showing material cost, weight of output, and labor cost
(shown as ‘‘balance’’ in the document). An example calcula-
tion of the proposed reduction is shown in Table 2b. As
Table 2b illustrates, the four employees were raising their
output year on year so that their piece-based wages were
also rising.
28
Rate reductions were computed to correspond
to what would be considered a reasonable weekly wage
rather than to custom and practice. Also, by referring to
the amount the employee could or needed to earn in the
1816 piece-rate revision, the ?rm implicitly set output tar-
gets based on the high levels achieved in 1815.
Calculations were made with reference to the individ-
ual’s perceived performance. For example, in the case of
John Philips, his balance of £20/18s per annum was con-
verted to a weekly equivalent of 8s and added to his
weekly wage of 23s, to make ‘‘his whole gain per
week = 31s.’’ The note then states: ‘‘This would not be
too much for a good workman to make, but as he is an
indifferent one, it is too much and no distinction can be
made between him and other green sand moulders.’’ For
John Philips, the effect of the 2d per cwt. reduction was
quanti?ed as a reduction from 8s per week to 2s/10d.
The effect was his retaining only 35% of the previous bal-
ance, with 65% reverting to the ?rm.
29
In contrast, the effect
on Thomas Philips was less onerous, as illustrated in
Table 2b, whose reduction left him still with 8s/8d per week
or 31s/8d in total, closely corresponding to the rate
approved by the ?rm for a good workman. The consequence
was that Thomas Philips had a 14% wage cut, but would
keep 63% with 37% reverting to the ?rm. In such fashion,
accounting calculations were used to determine appropria-
tion between labor and capital. The reduction was based
on a desired outcome for the employee rate rather than
related to a reduction in the value of output, so any addi-
tional surplus realized would represent greater pro?t or
unpaid labor input. Based on the ?gures in Table 2, the
1816 revision constituted an effective wage cut of just under
16%, re?ecting legislative encouragement of greater
employer control over rates and some managerial oversight
in supervision, based on comparative output data.
Methods of labor control at B&W increasingly re?ected
a regulatory environment in which employer rights were
reinforced and protection for employees and apprentices
in particular began to wither. A distinct phase of retrench-
ment and attacks on traditional notions of moral economy
and just price made headway in 1812–1813, with the
repeal of the Statute of Arti?cers and the Assize of Bread
(Hilton, 2006, pp. 233–234). The statute had governed inter
alia the employment of apprentices, typically on seven-
year indentures, allowed magistrates to ?x minimum
wages (Frank, 2010), and required an annual review of
prices for designated skilled tasks. It thereby legally
empowered skilled master craftsmen over teams of jour-
neymen and apprentices. As the system eroded during
the Napoleonic wars, the threat of losing legal privileges
became a source of grievance to this aristocracy of labor,
but was an opportunity for owners to take more direct con-
trol (Thompson, 1963, pp. 245, 275). Elizabethan laws
were undermined progressively through the courts for this
reason.
30
During the 18th century, masters petitioned for
Table 2
Piece-rate revisions 1816.
Material cost Output Balance
£ s.d. cwt. £ s.d.
(a) Memoranda respecting individual employees
?
Thos. Philips
1813 76.15.9 1395 27.13.10
1814 96.15.8 1686 31.3.10
1815 100.17.6 1533 35.7.6
Barnabus Croft
1813 112.14.4 1239 32.1.10
1814 161.3.8 1736 41.5.0
1815 194.10.6 2087 48.2.6
John Saunders
1813 108.13.11 1368 39.8.10
1814 117.16.4 1600 38.17.6
1815 144.9.6 1973 47.14.4
John Philips
1813 70.15.10 668 16.11.3
1814 82.12.0 1153 14.2.2
1815 100.0.7 1626 20.18.0
(b) Example calculation for Thos Philips (all ?gures refer to 1815,
panel a above)
£37/7/6 is = 13s 7d per week above the wages he draws of 23/– per
week making the whole gain
Per week = 36s 7d
Suppose 2d per cwt be deducted upon all work done by him
1533 @ 2d = 12/5/6 which taken from 35/7/6
12/15/6
Leaves 22/12
Which is £22/12 = 8/8 per week and
This added to his wages of 23/– will allow him to gain
31/8 per week
?
Dated June, 1816.
Source: B&W Collection, Accounts of piecework, 3147/4/182.
Note: Some roundings have been taken, ignoring 1/2d monetary units and
weights rounded down to complete cwts.
27
BWC MS/3147/4/182, Accounts of piecework. Separate calculations by
employee: Thos. Philips, Barnabus Croft, John Philips, and John Saunders.
28
Annotations in the document suggest that more could be earned in
green sand than dry sand (MS/3147/4/182, Accounts of piecework, John
Philips). Real wages were falling due to wartime in?ation (Feinstein, 1998,
Table 5, p. 648).
29
BWC, MS/3147/4/182, Accounts of piecework.
30
For example, assize judge Sir Michael Foster advocated the repeal of the
‘‘Acts of Queen Elizabeth’’ because they no longer protected the public
interest (Manchester Mercury, April 3, 1759). Although potential repeal was
closely associated with the interests of the emerging capitalist class, the
statute remained useful for undermining strikes on the pretence that ring-
leaders had left their work un?nished (Thompson, 1963, pp. 507, 543).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 7
legislation to assist workplace discipline. Between 1720 and
1792, ten acts were passed under the master and servant
laws, with High Court rulings in 1806 and 1817 generalizing
applicability to most forms of employment. The principle
feature was the asymmetric contract, where breach by the
employer was regarded a civil matter, but breach by the
employee was regarded a criminal offence (Steinberg,
2010). Furthermore, employers enjoyed rights to determine
custom and judge work quality (Frank, 2010). Magistrates
were often the arbiters of custom and in areas where
employers dominated the judiciary, workers frequently
complained of bias (Deakin & Wilkinson, 2005).
Contracts also re?ected circumstances at B&W. These
included moral priorities, stipulating behavioral rules such
as requirements to avoid taverns and gambling.
31
There is
little evidence, however, of the use of criminal sanctions.
According to Hay (1988, pp. 14–15), a typical clause at
B&W provided that unjusti?ed absences would be made up
at the end of the contract by two days’ labor for each day
absent. Archival evidence suggests such disproportionality
in contracts was a feature only of the earliest days of the
foundry (examples include moulders Edward Collier and
Thomas Mousley, 1797).
32
Later contracts only speci?ed that
wages should be foregone in proportion to absence, includ-
ing sickness (e.g., William Turner, ?ler and ?tter, 1818).
33
All
contracts speci?ed a weekly wage rate in shillings, which
was clearly a necessary condition for the ?rm to make pro-
portionate deductions of wages for absence. The Soho Insur-
ance Society, which paid sickness bene?ts to employees,
based its contributions and bene?ts on weekly wage rates
(Roll, 1930, pp. 230–231), thereby further underpinning
the importance of specifying time-based rates.
A consequence of contract speci?cation for accounting
then was that all employee wages required a time-based
element. Incentive-based premium and piecework meth-
ods were superimposed over and above the basic wage.
Pure piecework payments were possible, but risky because
although the Statute of Arti?cers rules on piece work pre-
vented workers quitting unless speci?c pieces of work
were complete, the courts found it increasingly dif?cult
to enforce, particularly where the increasing division of
labor made identi?cation of individual responsibility for
units of output more dif?cult (Johnson, 2010, pp. 75–76).
The scale of the proposed cuts in rates suggests that
rewards for increased productivity had thus far predomi-
nantly accrued to labor over the longer run, speci?cally
to the supervisors, notwithstanding poor returns to some
foremen in some years. Legislative changes that weakened
labor protection meant it was easier to impose a signi?cant
reduction in rates. While successive changes in practice led
to increasing control over labor using accounting, there
remained a disjuncture between accounting for plant-level
managerial decisions, on the one hand, and the absence of
integral ?nancial accounts to record the valorization and
accumulation of capital on the other. As this review has
shown, in line with the ATBV, accounting change can be
explained by a dynamic that combines changes in charac-
ter and location of assets and corresponding alterations in
ownership interests and the arrangements for monitoring
the ownership interests in those assets.
Prior interpretations: a critical review
The ATBV contrasts with some major claims in the
recent literature. For the purposes of analysis, we consider
the three broad schools of thought (economic rationalist,
Foucauldian, and Marxian), re?ecting both the dispersal
and commonalities of interpretations. The ATBV is used
to inform the critique, highlighting gaps and possible
extensions. The review of the economic rationalist account
concentrates on interpretations of B&W by Fleischman and
others (Fleischman et al., 1995; Fleischman & Parker, 1997;
Williams, 1999), and, in a more general context, the role of
administrative coordination in explaining the origins of
managerial accounting (Chandler (1977). The review of
the Foucauldian literature re-examines the conclusions
on B&W in Fleischman et al. (1995), which notably
included an unfavorable comparison of B&W with SA. For
Hoskin and Macve (1986, 1988, 1994), the absence of
detailed time-based monitoring of workers’ activities is
interpreted as the lack of the ‘‘disciplinary gaze’’ needed
for the truly modern management later instituted at the
SA (Fleischman et al., 1995, p. 169). Evidence on the SA is
therefore also considered as part of this review. Finally,
the review of the Marxist approach concentrates on
Bryer’s (2005) account and juxtaposes this with Toms’
(2010) alternative perspective, including Bryer’s (2005)
assertion that the changes after 1795 amounted to an
activity-based cost and management (ABCM) system to
assist the partners in maximizing the ROCE.
Economic rationalist
Roll (1930) described operations at Soho as the apogee
of scienti?c management, resulting from carefully planned
production ?ow, component and process standardization,
and the division of labor. Pollard (1965, p. 252), who was
unimpressed with BIR cost accounting generally, observed
that B&W’s Soho operation was ‘‘rightly compared with
best practice of the 20th century’’ and an ‘‘astonishingly
fertile pioneer of scienti?c management practices’’
(Pollard, 1965, pp. 79, 248). Fleischman and Parker
(1991) qualitatively rated B&W ‘‘excellent’’ in all four of
their identi?ed cost-accounting activities: cost control,
overhead accounting, decision making, and standard cost-
ing. Dickinson (1937) likewise felt B&W akin to the best
practice of his day (the 1930s). To some extent its develop-
ment is well explained by the economic rationalist per-
spective, in terms of external (competition, etc.) and
internal (B&W’s technology and factory organization) con-
ditions (Fleischman et al., 1995, p. 171).
Williams (1999) provides a further reason for the devel-
opment of new accounting methods; namely, that the new
market-sensitive business environment necessitated more
31
BWC, MS/3147/8/26 & 27, Apprenticeship Indentures, 1796–1810 (e.g.,
Richard Cartwright, indentured in 1798). The parish apprenticeship
scheme, widespread in other industries in the 1790s, was not used at
B&W with the exception of Thomas Cox, apprenticed in 1792 at age 13.
32
BWC, MS/3147/8/11/1 & MS/3147/8/17/13, Apprenticeship Indentures.
33
BWC, MS 3147/8/22/9, Apprenticeship Indentures.
8 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
attention to pricing decisions. Williams’ (1999, p. 74)
thesis also explains why James Watt Jr. became concerned
with indirect costs and recording them, together with
departmental markups at the production-department
level, may have allowed more effective price determina-
tion. Fleischman et al. (1995, p. 166, note 8) acknowledged
that the review of markups was for the purposes of cost-
plus pricing and expenditure control rather than feedback
control over managers and departments. The comparative
pro?t-and-loss account referred to by Williams (1999, p.
74), showing losses in the smithy and pro?ts in the foun-
dry and ?tting departments, may have been used for either
of these purposes.
Notwithstanding apparent complementarities with the
economic rationalist view, these accounting changes might
also be explained by the ATBV. As Pollard (1963) and
Williams (1999) suggest, adding markups to accumulate
costs across departments had its origins in the traditional
practice of subcontracting, treating each department inde-
pendently. Pricing and markup systems re?ected the cen-
tralization of multiple processes at Soho. Separate
charges could be made for engines built at the foundry or
assembled at the manufactory (Williams, 1999, p. 72). Wil-
liams’ approach complements the economic rationalist
view by adding the product-pricing decision as a motiva-
tion for accounting change. However, the purpose of the
accounting system’s technical aspects was to achieve the
same return as under the old royalty system. The objective
continued to re?ect 18th-century business norms. Watt
felt that they had ‘‘no title to pro?t’’ on boilers not made
by the ?rm, although a small markup of 10% would be
required to cover bad-debt risk (Watt to M.R. Boulton, June
1, 1796, cited by Williams, 1999, p. 73). Watt believed the
pricing issue could not be settled until there was a fuller
picture of the year’s transactions and the conclusion of
the patent.
For the economic rationalist, greater labor ef?ciency
was not required because external conditions (the compet-
itive environment) and internal conditions (B&W’s tech-
nology and factory organization) did not warrant
amendment of labor standards. However, as the above
review has shown, concern with pro?tability was at ?rst
mitigated by norms of business practice going beyond
the patent, and labor standards were later signi?cantly
amended, resulting in an increased partnership share of
value added.
The impact of regulation explains why c.1800 eco-
nomic rationalists have hitherto agreed (Fleischman
et al., 1995) that B&W practices were less advanced than
at SA, where there were signi?cant innovations in
accounting (Chandler, 1977). According to Chandler
(1977), Superintendent Col. Roswell Lee instituted this
shift towards modern management by the simultaneous
use of inspections and DEB, ‘‘complete accountability’’
was achieved.
34
Although Chandler too can be character-
ized as an economic rationalist, his interpretation diverges
from the economic rationalist view applied to B&W.
Chandler (1977, pp. 6–8, 11) suggests three propositions
that explain the emergence of the modern enterprise. The
?rst is that market co-ordination is superseded when there
are savings, not just in transaction-cost terms, but, more
importantly, by administrative coordination, which delivers
more effective scheduling, more intensive use of facilities
and personnel, greater certainty of cash ?ow, and more
rapid payment for services rendered. Second, these bene?ts
only arise once a managerial hierarchy has been created.
Third, ef?ciencies implied by administrative coordination
were determined by an expansion in the volume of activity.
However, it is evident that transition from market to
hierarchy can be explained in the absence of any of these
conditions. Poor supplier relations or rents created by sup-
plier monopolies might, for example, be suf?cient for the
internalization of previously outsourced activities. Dif?cul-
ties in controlling labor, the costs of monitoring quality, and
the risk of embezzlement created pressures for the replace-
ment of the putting-out system with factory production
(Marglin, 1976). In other words, Chandler’s analysis is not
in itself a suf?cient basis for understanding accounting
change because corporate governance and associated
transaction costs of imposing accountability are absent
from his analytical framework (Toms & Wilson, 2003;
Toms &Wright, 2005). Chandler therefore provides no anal-
ysis of the liabilities arising from investment in the strate-
gic assets that create scale-and-scope economies. He also
pays little attention to the labor process (Rowlinson,
Toms, & Wilson, 2007). For these reasons, the economic
rationalist perspective is helpfully complemented by the
ATBV with its emphasis on the valorization aspects of the
labor process through the social relations of production.
Furthermore, Chandler’s claims about the role of DEB are
incorrect, given the use of charge/discharge accounting
before the Civil War (Deyrup, 1948; Tyson, 1990). Empirical
examination of these aspects at Spring?eld, discussed
below, con?rms that the supervision of labor was poor
and that governance procedures were inadequate, leaving
the apparent superiority of accounting at SA relative to
B&W open to some doubt, whether under the superinten-
dence of Lee, as claimed by Chandler, or following the
establishment of ‘‘total human accounting’’ by Daniel Tyler
and his colleagues, as claimed by Hoskin and Macve.
Foucauldian
The Foucauldian conclusion applied to B&W in
Fleischman et al. (1995) was that the labor standards,
which have impressed so many historians, were not the
modern type of labor-control mechanism, that allow man-
agement to order workers about (p. 328). The article con-
cluded that from a Foucauldian perspective, labor and
engineering standards did not justify the praise Pollard
(1965) and Fleischman and Parker (1991, 1997) accorded
B&W. Focusing on labor standards, they observed that
the effort undertaken at the turn of the 19th century was
not only a one-off, but produced standards that failed to
achieve the labor discipline and calculability found at the
SA decades later. To examine the hypothesis that factors
important at SA were likewise absent at B&W, this conclu-
sion warrants further investigation. Indeed, it is necessary
34
According to an 1819 Inspection Report (cited in Chandler, 1977, p. 74).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 9
to review evidence of modernity at SA through the same
lens used to analyze the BIR.
The rigorous ‘‘time and motion, watch in hand’’ study
undertaken by West Point graduate Tyler at Spring?eld in
1831 (Hoskin & Macve, 1994, p. 9) would certainly seem
to be an advance on the methods at B&W.
35
However, by
how much is unclear from the literature. There has been
an unresolved debate (Edwards & Boyns, 2013; Hoskin &
Macve, 2000; Tyson, 1990; Tyson, 1993) as to whether or
not the methods at SA constituted modern management.
Undoubtedly, successive regimes at SA imposed tighter hier-
archical control over the workforce. Lee’s accounting system
determined the cost of muskets, including allocation of indi-
rect overheads and depreciation (Hoskin & Macve, 1994, pp.
15–16). Charge-and-discharge accounting was suf?cient and
suitable for such an organization. Materials and tools were
furnished by the government and workers credited at the
month end for inspected work of appropriate quality
(Deyrup, 1948, p. 161).
However, for Hoskin and Macve (1994, p.17), to be
managerial an accounting system must be linked to work
discipline and normalized labor practices. Lee’s charge/dis-
charge system as a method for tracking labor and material
cost was similar to those used in many 18th and 19th cen-
tury factories. Indeed, there were very strong similarities
with B&W c.1800 (Hoskin & Macve, 1994, p. 18 et seq.),
including steps towards stronger labor control.
36
Even so,
as early as 1832, Tyler had ‘‘set wage rates (mostly in
piece-rate form), based on the requirement of all workers
doing an ‘‘honest day’s work of ten hours’’ (Hoskin &
Macve, 1994, p. 10). The schedule was suspended almost
straight after and replaced by a new one drawn up in
1833, applying a general wage increase (Deyrup, 1948, p.
172). Tyler’s in?uence was therefore partial and temporary.
Meanwhile, other important technical and political
in?uences impacted accounting developments at Spring-
?eld. A series of improvements, notably Blanchard’s gun-
stock lathe, gave the impetus towards interchangeable
parts, led by Charles Bomford at the War Department
and John H. Hall at Harpers Ferry, which in?uenced the
later period of Lee’s superintendence, promoting the
authority of technical experts. Thomas Warner, the master
armorer at SA, convinced Robb, Lee’s successor, to allow a
‘‘thorough reorganization’’ of Spring?eld’s production sys-
tem (Hounshell, 1984, pp. 44, 38–45). Stearns (1852, p.
37) noted some consolidation of previously disparate phys-
ical assets post-1841.
37
By the 1850s, the plant re?ected the
design priorities of Warner’s successor, Cyrus Buckland
(Hounshell, 1984, p. 45). These changes impacted the labor
process, with standard gauges replacing operative judgment
and revisions to job descriptions arising from further sub-
divisions (Hounshell, 1984, p. 44). Inside contracting was
forbidden in 1838 when all workers were directly employed.
Internal contracting was problematic as it afforded the
chance of advancement to only a few unskilled workers, cre-
ating the risk of high labor turnover (Deyrup, 1948, p. 162).
Before 1841, absenteeism was rife with little done to pre-
vent it, such that workers might be absent for substantial
periods and still receive wages for work done on their behalf
by others (Deyrup, p. 173). New attempts to impose norms
in 1841, with which Tyler was also involved, depended
heavily on recording time worked for the speci?c purpose
of ensuring that workers were only paid for work done.
Alongside the technical changes in production, political
and economic governance of the Armory was also impor-
tant. This explains how, if ef?ciencies were achieved, the
value created was subsequently appropriated. The com-
mon feature of the above initiatives is that the ?nancial
resource provider imposed them, via the of?cial represen-
tatives of the Ordnance Department. The deployment of
?nancial resources and the associated structure of
accountability were therefore important dimensions of
the management process.
The inauguration of President William Henry Harrison
in 1841 provided the Department with the excuse to
remove the patronage associated with civilian leadership
and break up traditional working methods at the armories,
including SA (Roe Smith, 1981, pp. 92–94). In accounting
terms, this meant monthly reports of known quantities;
i.e., the ‘‘quantity of labor performed, or product, and the
time during which it is effected. . .The degree of diligence
is also known and hence results a knowledge of what is a
fair price to be paid for piece work!!!’’ (Talcott,
38
writing
to the Secretary of War, cited in Roe Smith, 1981, p. 94).
As noted above, in the review of piece rates for 1816, this
objective of ‘‘fair prices’’ was similar to B&W practices. Even
so, despite ‘‘pretenses to the contrary, the War Department
never really expected signi?cant cost reductions,’’ having
achieved its goal of solid, easy-to-repair weapons with inter-
changeable parts (Hounshell, 1984, p. 44). As Roe Smith’s
account also illustrates, changes were politically motivated
and re?ected imperatives for the new political establish-
ment that went well beyond that fraction represented by
West Point in?uences.
39
Moreover, evidence not previously
consulted in these debates suggests that the link between
military method and modern management was undermined
by the crucial technical changes that explain the apparent
improvement in performance after 1841, by the precise rela-
tionship between the military and the Armory’s workforce
and by ?aws in Armory governance.
Hoskin and Macve (1994, p. 9) link Tyler’s 1831 time-
and-motion study and the West-Point-in?uenced, three-
man War Department board of inspection in September
1841 to substantial productivity improvements in 1841
(?rst identi?ed by Uselding, 1972). Until 1840, the main
output at SA was the French-style Charleville ?intlock
35
For example, the imprecise interpretation of Buckle’s time recordings at
B&W. Reference is also made to the effort involved in establishing piece
rates and tracking labor costs for the purposes of pricing and contract
enforcement (Fleischman et al., 1995, p. 171). Thus, the purpose of the
quote re Buckle would seem to be to support the Foucauldian conclusion
that B&W was an incentive-based, not a disciplinary-based, system.
36
Hoskin and Macve (1994) note that in 1817, Lee instituted an incentive
system and began monitoring output per worker (p. 21), but that he never
recorded the time taken by piece workers (p. 22).
37
Hoskin and Macve (1988, p. 38) attribute improvements in the
manufacturing process to Tyler.
38
Lt. Col. George Talcott, then Acting Chief of the Ordnance Bureau.
39
As Tyler’s autobiography makes clear, his visit to Klingenthal Armory in
1829 was instrumental in how he approached the problems at the
Spring?eld Armory (Tyler, 1883, p. 15).
10 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
musket (Uselding, 1972, p. 310), then replaced by the
Spring?eld Model 1842 percussion musket. Uselding, cit-
ing military authorities (e.g., Fuller, 1930, p. 83), suggested
the guns were technologically similar. However, these
authorities did not record the major retooling in 1840. As
a consequence of set-up costs, the average cost of a musket
produced in 1840 was $17.44 compared to the average of
$11.15 for the previous ten years. An estimate of Model
1842 production costs showed that they should have been
$3.25 cheaper, representing savings of $1.00 in raw mate-
rial, 25¢ for the new percussion lock, and $2.00 in labor
(Stearns, 1852, pp. 15–16).
40
In the period 1841–1851, the
average cost of a musket was $11.47 (higher than the aver-
age of the previous decade), although by 1851, the average
cost had fallen to $8.75. The 1851 ?gure was therefore closer
to what it should have been, given the $3.25 saving on the
Spring?eld Model 1842, but it took longer to realize than
it should have in light of Tyler’s 1831 time-and-motion exer-
cise and/or the appointment of the inspection committee in
1841. Indeed, the evidence suggests that Armory ef?ciency
declined for a substantial period after 1841.
41
Following Harrison’s election and the 1841 committee
report, the War Department placed the Armory under mil-
itary management, appointing Ripley as superintendent.
42
The inauguration of military control
43
did not unequivocally
improve ef?ciency as the musket unit-cost data suggest. A
possible reason was that it led to:
degrading restrictions of army discipline inconsistent
with the virtues of free and independent labor...[and
those] minutiae of discipline, which are the necessary
result of a Military Superintendency. . .which may be
proper in the organization of the Army and Navy, but
which are degrading, oppressive and tyrannical when
applied to intelligent and high minded citizen mechan-
ics. . .
[Stearns, 1852, pp. 9, 75]
Many employees either refused to sign-up for the new
rules or were dismissed, particularly those refusing to sub-
scribe to the Episcopal Church favored by Ripley. Inexperi-
enced and immigrant workers were recruited to replace
them, undermining Lee’s achievement of establishing a
permanent and socialized workforce (Stearns, 1852, p.
12). Punitive ?nes imposed by Ripley forced other workers
out. In these cases, workers were involved in experimental
methods that had a high risk of failure, but were assured in
advance that they would not be ?ned for materials wasted
as a consequence. In several cases, Ripley failed to honor
these promises and withheld wages for the entire month
and, in some cases, subsequent months. Ripley was able
to do this in part because he failed in his duty to publish
clear regulations on ?nes and other working procedures
as required by the War Department.
44
In summary,
although it is true that Ripley made good use of military dis-
cipline, its purpose was to enhance his own position and
prestige and to make others bear the risk of failure.
Even if ef?ciency improved, as Hoskin and Macve sug-
gest, we cannot ?nd evidence in their account of how gains
were appropriated. In other words, there is new wealth, or
an asset, but no follow through on who claimed it. As
Hoskin and Macve (1988, p. 41) argue: ‘‘The secret power
of the disciplinary lies in structures which produce such
self-discipline among workers, up and down a managerial
hierarchical system and laterally, i.e., a self discipline
which is also a reciprocal discipline, enforced by the self
on others and by others on the self,’’ suggesting that Ripley
should be as much a part of the disciplinary discourse as
everyone else. However, if the new self-discipline is more
ef?cient, it follows that value is transmitted up the hierar-
chy since output per worker rises which, without account-
ability mechanisms of value capture, will lead to
appropriation by managers within the hierarchy, just as
inside contractors were able to appropriate value from
their own superintendence. Although the labor process
changes, the appropriation of surplus by capital remains
problematic. Where self-discipline is more ef?cient, it fol-
lows that surplus appropriated within the managerial hier-
archy will create different incentives, such as the tendency
to consume perquisites, as demonstrated by Ripley’s activ-
ities. It is thus unlikely that the structure itself will create a
set of shared values of self-discipline throughout the
organization.
So, even where the disciplinary gaze can be accepted as
operating from within the factory, the Foucauldian view is
nonetheless in need of extension by perspectives that con-
sider who disciplines the managers. These should explain
how the disciplinary gaze extends from the ownership of
capital, through multiple agencies, to the factory ?oor
(Rowlinson, Toms, & Wilson, 2006, p. 698). At SA, gover-
nance failures, together with the War Department’s non-
chalant attitude towards cost reduction, reconciles
Uselding’s (1972) evidence of productivity improvement
after 1841 with the lack of any coincidental decline in
the unit costs of muskets. Speci?cally, Ripley was very suc-
cessful at obtaining special appropriations from the Ordi-
nance Department. These included costs of wear and tear
on factory and other buildings that had previously been
charged to costs of the muskets. As Tyson (1990, pp. 56–
58) and Hoskin and Macve (1994, p. 15) have acknowl-
edged, there were political reasons for showing the appar-
ent cost of muskets to be less than in the private armories.
40
The author of these calculations was Charles Stearns (1788–1860), local
mason, former senator, and leader of the opposition to the military
management of the Armory under Ripley (Chapin, 1893, pp. 350–351).
Although the Ripley-Stearns dispute is well documented in contemporary
pamphlets (Whittlesey, 1920, p. 3), it has not been referred to in the
accounting history literature.
41
Deyrup’s statistics show little secular productivity improvement after
1841 (barrels per man), but exponential increases at the onset of the Civil
War (Table 2, p. 233, appendix D, Fig. 2, p. 246). The reasons for this
subsequent increase are beyond the scope of the present paper.
42
James Wolfe Ripley, 1794–1870, graduated from West Point in 1814
(Chapin, 1893, p. 313), under the old curriculum, critiqued by Tyler, and
before Thayer’s reforms of 1817 (Tyler, 1883, pp. 2–4).
43
Lee had a military background, but managed the Armory in a civilian
capacity as did his successor, Rev. John Robb (Whittlesey, 1920, pp. 74–76,
359).
44
For examples of these practices respectively, see Stearns’ (1852, pp. 62–
66), testimony of workers refusing to sign up to new rules, (pp. 65–66) and
the Episcopal Church (pp. 66–69), punitive ?nes evidenced by testimonies
of Horace Camp and Amos B. Morrill, and failure to publish regulations (p.
72).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 11
Such practices, revealed by Stearns’s (1852) account of
funding ordinary wear and tear through additional capital
appropriations, would have helped achieve that objective.
Special appropriations also allowed Ripley to make sub-
stantial investments in land, buildings, and other improve-
ments, including reservoirs, ostensibly to create access to
water in the event of ?re.
45
Stearns (1852) presented ?nan-
cial evidence to show that these improvements were unnec-
essary and were funded by misleading the War Department
about the assets’ actual state of repair. Where improvements
were justi?ed, they could have been achieved at a fraction of
the cost because buildings were larger and more elaborate
than necessary, including the superintendent’s new house.
Far from representing the birth of modern management,
the episode of military control at the SA was in many
respects a reprise of the ‘‘Old Corruption’’ that characterized
18th-century business/state relations.
46
Military control was
more direct and governed the nature of labor management,
while permitting Ripley to channel more resources into
waste and extravagance than his civilian predecessors.
In summary, the evidence, including sources not previ-
ously consulted in the debates, shows the new mentality at
SA may have been a necessary but not a suf?cient condi-
tion for the establishment of modern management. The
institution of the new labor-control practices after 1841
coincided with a transition from civilian to military super-
intendence so that although factory discipline was tight-
ened and labor standards assisted as described by Hoskin
and Macve, these arose from a technical preoccupation
with interchangeable manufacture of pro?cient weapons.
Meanwhile, there were signi?cant managerial failures.
These arose from a lack of clear and integrated accounting
and accountability for the capital employed at SA that
allowed the of?cers in charge to make excessive capital
appropriations for expenditure on perquisites. In sum-
mary, changes in labor management which were decisively
implemented in 1841, according to Hoskin and Macve,
must be seen as part of a more gradual process of technical
evolution in production methods, on the one hand, and the
social relations between SA employees, their superinten-
dent, and his political masters, on the other.
Marxist
Marxist interpretations have stressed accounting’s role
in class struggle and modes of labor exploitation (e.g.,
Hopper & Armstrong, 1991; Bryer, 2005). For Bryer
(2005) in particular, accounting serves the purpose of pro-
viding the owners of the means of production with a
weapon for maximizing surplus value, as he argues
occurred at B&W. As with economic rationalist and Fou-
cauldian interpretations, we argue that Bryer’s approach
is limited by concentration on certain aspects of the
accounting transaction. So, while Bryer pays detailed
attention to labor process and to the implications of Marx’s
circuits of capital for accounting, the ‘‘capitalist mentality’’
is the change agent rather than the interaction of technical/
objective and relational/social conditions.
Consequently, whereas Bryer is the only Marxist to have
examined B&W, his analysis does not re?ect the work of
other historians (e.g., Hobsbawm, 1968; Polanyi, 1944;
Tawney, 1926; Thompson, 1963), who also consider labor
relations and industrialization. They have also argued that
a web of custom and archaic regulation protected the
working class until the major legislative program of the
early-19th century facilitated capitalist relations of pro-
duction. As the review of empirical evidence at B&W has
illustrated, these factors were indeed important determi-
nants of accounting practice. Admitting the possibility of
co-existing approaches to labor subsumption
47
over pro-
tracted periods, Burawoy (1984) developed a useful taxon-
omy for explaining different views of labor control and
pro?t appropriation. These approaches have been neglected
somewhat in Marxist interpretations of accounting history.
Nonetheless, the ATBV is consistent with variants of Marxian
perspective
48
by arguing that the regime of capital accumu-
lation, manifested by institutional rules and systems of gov-
ernance, was an important determinant of accounting
change. In common with the Foucauldian perspective, it
attaches fundamental importance to the process of monitor-
ing and controlling labor (Hoskin & Macve, 2000). It comple-
ments that approach by emphasizing the valorization stage
of the labor process in which controllable labor outputs
are converted into appropriable economic values mediated
by accounting (Toms, 2005).
Even so, explaining developments at B&W in terms of
the technical modernization of accounting, tempered by
the norms of 18th-century social and business practice,
for the most part contradicts the arguments put forward
by Bryer (2005). For Bryer (2005, p. 27), the accounting
system at B&W was modern and managerial although he
does not analyze the historical circumstances that brought
this about. Rather, the system’s modernity follows from
the capitalist mentality and behavior of Boulton, Watt,
and their respective sons. Bryer’s view therefore raises
the empirical question of whether Boulton and Watt were
capitalists. Considering this point, it is surprising that Bryer
notes that Watt professed a hatred of business and partic-
ularly keeping accounts, and that he wrote to a friend that
45
Ripley later revealed that his real motive for acquiring one piece of land
was to prevent the operation of a dram shop on the site (Whittlesey, 1920,
pp. 98–99).
46
‘‘Old Corruption’’ refers to sinecures and gratuitous emoluments
granted to of?ce holders by the British government (Rubinstein, 1983, p.
55).
47
Formal subsumption refers to control of the labor process by the
capitalist, whereas real subsumption refers to its transformation. Formal
subsumption allows capitalists to convert labor into pro?t only by using
more labor than is required for the sustenance of the worker (i.e., extending
the working day), whereas real subsumption allows capitalists to reorga-
nize production such that pro?t can be extracted within the con?nes of any
given working day (summary based on Marx, 1994) . Bryer (2005, p. 35)
suggests: ‘‘that the tell-tale signature of real subsumption is accountability
for the rate-of-return on capital employed,’’ whereas Marx’s de?nition only
implies the subordination of labor to capital without prescribing the
measurement technique used.
48
For example, Toms (1998, 2002, 2005, 2010) examines the relationship
between pro?t calculation, capital accumulation, and ownership using an
historical-materialist methodology which mostly complements, but in
some cases contradicts, the implications of mainstream Marxist scholar-
ship. For convenience, ‘‘Marxian’’ refers to the historical materialist line of
argument followed by some Marxist scholars (e.g., Puxty et al., 1987).
12 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
he ‘‘would rather face a loaded cannon than settle an
account or make a bargain’’ (Bryer, 2005, p. 47, citing
Rolt, 1962, p. 53). Bryer then argues that this did not mean
Watt did not share Boulton’s capitalist mentality since his
father was a general merchant and part owner of several
ships, as well as being a builder, contractor, shipwright,
and undertaker. However, in Bryer’s (2005, p. 46) interpre-
tation, being a merchant is not a suf?cient condition to
infer a capitalist mentality since, as he notes on the previ-
ous page, merchants of this time were ‘‘essentially feudal.’’
Boulton meanwhile ‘‘was an example of Marx’s revolution-
ary capitalist manufacturer who was also a merchant’’ (p.
46). It is not clear, therefore, whether his love of Watt’s
‘‘money getting ingenious project’’ (cited by Bryer, 2005,
p. 46) arose from his merchant background or his capitalist
mentality. For Dickinson (1937, p. 195), whom Bryer cites
as an authority for the quote, there is an important caveat:
‘‘The order of adjectives should be reversed: the project
had to be ?rst and foremost ‘ingenious’ to enable him to
exercise suf?ciently his eminently agile and inventive
brain; ‘money-getting’ was only important to him in that
it afforded the wherewithal to launch out into further
schemes.’’
Notwithstanding these confusing attempts at categori-
zation, Bryer (2005, p. 47) offers evidence of Boulton’s cap-
italist intent at the formation of his partnership with Watt
in 1775, suggesting that he wished to take control of pro-
duction to cheapen cost and maximize pro?t. In the mines
of Cornwall, B&W was indeed able to cheapen the costs of
production but did not seek to maximize pro?ts. Rather, as
demonstrated above, it aimed for a reasonable split in the
cost savings. Bryer also suggests that the patent was
exploited in ‘‘feudal fashion’’ without explaining why such
arrangements were feudal. Nor is feudal exploitation con-
sistent with Bryer’s argument elsewhere that ‘‘Boulton
knew he would need to make ‘heavy capital investment
and that many years might pass before the new business
would yield an adequate return on that capital’’’ (Bryer,
2005, p. 47, citing Rolt, 1962, p. 58). According to Rolt
(1962, p. 48), the need for such returns was the motive
for Boulton securing the extension to the patent in
1775.
49
Applying Bryer’s reasoning to these facts, the capi-
talist mentality, evidenced by maximizing ROCE, drove
B&W to extend the patent. However, the same mentality
was then applied in Cornwall in ‘‘feudal fashion.’’
If, regardless of these actions, Boulton is assumed a cap-
italist, then, according to Bryer (2005, p. 28): ‘‘The capital-
ist mentality pursues the. . . [ROCE] in production by
extracting surplus value from the sale of commodities or
services produced by wage labour, and the capitalist keeps
balance sheets and pro?t and loss accounts.’’ Bryer believes
that there is evidence for such behavior in the examples of
costing and pricing for engine ?tting supplied by Roll
(1930, pp. 247–248, appendix xix). An important aspect
of Bryer’s modernity thesis is that because Boulton and
Watt were capitalists, they measured their ROCE. Accord-
ing to Bryer (2005, p. 52, emphasis added), to direct costs
‘‘BW added a return on capital employed. This hallmark of
the capitalist mentality had not changed since the birth
of the ?rm in 1775.’’ In the example calculation provided
by Bryer (2005, p. 52, reproduced below as Table 3a), a
40% markup is added ‘‘[a]n allowance made in the ?tting
for hemp, tallow, oil, candles, Coals and Interest of Capital
expended in the shed and machinery and for trying the
machinery’’ (Tann, 1981, p. 246, cited by Bryer, 2005, pp.
52–53). The technical problems with this interpretation
are twofold. First, a markup is not the same as ROCE since
a markup does not require capital employed, and there is
no evidence that B&W calculated this or indeed that the
accounting system facilitated its computation. Second,
the markup was intended to allow for indirect overheads,
grouped, as the citation suggests, by class of expenditure,
not by activity. In the example, a 40% markup was added
to directly absorbed overheads, which included interest
of capital expended in the shed and machinery, and which,
for Bryer, represented a ROCE on the ?tting shed and its
machines. However, if the interest element is charged at
5%, there can be no suggestion that is suf?cient for, or con-
sistent with, ROCE maximization. In Roll (1930, appendix
xix), the markup is at a rate of 50% of metal material costs,
differing from the 40% used in ?tting. Moreover, as the
review of Williams’ evidence has shown, together with
archival evidence,
50
markups varied by customer and geo-
graphical location until the late 1790s. Prices were set in
the context of the patent and were varied by customer
according to the fuel saving potential of individual engines.
They therefore varied according to engine size and local coal
prices (Roll, 1930, pp. 141–142).
Tables 3a and 3b show the methods used by B&W to
establish the price charged by the customer. The ?rst panel
(Table 3a) is the same as used in Roll (1930, p. 248), which
is relied upon by Bryer (2005, p. 52) as the only evidence
that B&W was interested in ROCE. The second panel
(Table 3b) expands the calculation to show the full archival
record.
51
As can be seen from Table 3a, 40% (£15) is added to
?tting costs. As Roll (1930, p. 249) explains, the adjustment
is to cover indirect overheads. It is neither a ROCE calcula-
tion nor a markup on cost calculation. Interest on capital is
charged to production cost as an indirect overhead and is
included in the £15 for the purposes of arriving at a standard
cost. As Table 3b shows, a markup is charged at 50% on total
production cost. The purpose of these calculations was not
to manage or maximize ROCE. Rather, as Roll (1930, pp.
238–239, appendix xix) suggests, it was designed to produce
the same level of pro?t as under the patent-premium
method.
52
The addition of depreciation to product cost in
the form of charges for the use of machinery (Roll, 1930, p.
248), cannot infer the use of ROCE. It is clear from
Table 3a and 3b that there are no calculations of ROCE so
that Bryer’s ‘‘hallmark of the capitalist mentality’’ is there-
fore absent. There is no corresponding attempt to measure
49
B&W engines were protected by the patent for the separate condenser
obtained by Watt in 1769, which an Act of Parliament of 1775 had
prolonged until 1800.
50
For example, BWC MS/3147/4/76, ‘‘Calculations of Costs and Prices of
Small Engines’’.
51
BWC MS/3147/4/76 Calculations of Costs and Prices of Small Engines.
52
As Table 1 shows, pro?ts under this system were modest, notwith-
standing the patent protection, and in keeping with the standards of
business practice of the time.
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 13
the capital employed, and there is no indication of the
required rate of pro?t as distinct from the other indirect
charges included in the markup. These ?gures therefore pro-
vide no basis for ROCE measurement, which is even more
problematic where markup varies by customer.
In any event, 18th-century business practices tended to
restrict the pursuit, calculation, and declaration of excess
pro?ts using accounts (Toms, 2010). B&W aimed to obtain
a ?xed share of the ?uctuating savings and shared the risk
with its customers so that, for example, no premium was
paid when the engines were shut down. B&W’s business
policy therefore re?ected traditional doctrine by earning
high pro?ts only as a reward for risk and personal effort,
but did not to aim for usurious returns on risk-free invest-
ments which would have violated business norms. Prices,
and hence markups and pro?ts, accordingly varied by risk
and customer. Also, as explained earlier, the ?nancial
accounts were not integrated for all B&W’s activities and
were not separated from personal ?nancial transactions.
Under these conditions, B&W would not be concerned with
calculating or maximizing ROCE for the whole business.
The presence or absence of ROCE, as suggested by Bryer
(2005), is therefore an inappropriate yardstick for the
assessment of the ‘‘rationality’’ or ‘‘modernity’’ at B&W or
the characterization of its methods as ‘‘capitalist’’ or
otherwise.
If there is no evidence of ROCE measures, are there
other aspects of accounting technique that might explain
a capitalist mentality? A further reference by Bryer
(2005, p. 47) is to the capitalist mentality at the birth of
the ?rmin 1775, evidenced by the fourth point of the infor-
mal partnership agreement, explained in Watt’s subse-
quent letter to Boulton in which there is a reference to
interest being deducted before a balance is struck. For
Bryer, such post-interest pro?t amounts to ‘‘residual
income,’’ which is also ‘‘the hallmark of Marx’s capitalist
mentality.’’ However, this calculation does not resemble
residual income (RI). As conventional in pro?t-sharing
agreements between partners, interest was charged on
capital. Rates were ?xed in line with the legal maximum
permitted under the usury laws and used in contemporary
case law to differentiate between genuine partnerships
and illegal usury.
53
From 1713 throughout the period of this
study, the legal maximum rate was 5% (Campbell, 1933, p.
197). The partnership agreement of 1777 between Boulton
and Watt speci?ed that interest should be charged at ‘‘the
rate of £5 in every hundred per year’’ on the joint stock of
the partnership.
54
The same rate of 5% on opening capital
was used in the example cited by Roll for 1806.
55
These
appropriations of pro?t are not the same as the absorption
of interest charges for costing purposes referred to in Tables
3a and 3b above. Partners could easily appropriate pro?t
using interest charges without requirements to maximize
pro?ts or earn a higher ?gure above a 5% target. Charging
interest on capital is not therefore evidence of a capitalist
mentality, pursuing RI, or ROCE. Rather, it is evidence of
the continued restrictive impact of pre-modern ?nancial
practices on the developing productive base.
Bryer (2005) also argues that B&W is a case study of
transition from formal to real subsumption of labor. He
associates this with the internalization of production after
1795. From a Marxist point of view, replacing external sub-
contracting with factory organization would be prima facie
evidence of such a transition. It is certainly true that the
foundry required substantial ?xed-capital investment,
thereby creating the conditions for real subsumption.
Bryer (2005, p. 48), however, equates real subsumption
with depreciation. Of course, depreciation implies the exis-
tence of socialized capital but does not presuppose it. As
noted above, B&W remained a partnership, and insofar as
it accumulated capital, did so privately, outside the manu-
factory and foundry ledgers.
56
For Marx, labor is subordi-
nated to capital in formal subsumption, but the labor
Table 3a
Standard cost calculation.
£ s.d.
Wm Harrison’s charge for the total ?tting, turning, boring
and labour exclusive of packing £20 = 400s; 2s
6d = 160 days
20.0.0
Charge for use of tools, say 6d per day on 160 4.0.0
Charge for use of machinery, say 1s per day 8.0.0
Charge for weighing and loading 1.0.0
33.0.0
Plus 40% 15.0.0
?
48.0.0
Or say 45.0.0
??
Source: B&W Collection, calculation of cost of ?tting, 9 October 1801. M.R.
Boulton copy of agreement with W. Harrison for ?tting the small engines
1801.
Table 3b
Soho engine costings 3 hp engine for Mr. Clark of Bath, 1800.
£ s.d. £ s.d.
List of material parts (6 pages) 132.16.3
Cost of ?tting the governor 2.2.0
Labour cost (?tting) 40.13.7
40% on 40.13.7 16.5.5
56.19.0
Total per invoice of the cost 191.7.3
Invoice (including boiler) 206.2
Deduct extra charge of ?tting:
56.19
Standard cost 45
??
11
195.2
Add markup (50%) 97
Engine price 292
Say 290
Source: B&W Collection 3147/4/76, Calculations of Costs and Prices of
Small Engines (partly reproduced, Fig. 1a only, in Roll, 1930, p. 248 and
Bryer, 2005, p. 52).
Notes:
?
Referred to by Bryer (2005, p.52) as the required rate of return on
capital employed.
??
Refers to the result in Fig. 1a, carried forward into 1b.
53
Grace v. Smith (1775); Bloxham and Fourdrinier v. Pell and Brooke
(1775). For discussions of these cases, see Campbell (1933).
54
BWC, MS/3147/2/8–9.
55
From the table in Roll (1930, p. 259), one year’s interest (£793) divided
by the balance at the beginning of the year (£15,793/19s/2d), equals 5%.
56
Hybrid methods of labor subsumption; e.g., internal contracting, have
characterized discussions of accounting change, such as at the Waltham
Watch Company (Fleischman & Tyson, 1996).
14 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
process is otherwise unaltered (Marx, 1994, pp. 469–470,
chap. 6). The presence of capital therefore implies deprecia-
tion for both categories of formal and real subsumption. The
difference is that depreciation in real subsumption is part of
the process of obfuscation of the relationship between the
individual and the social value of the product. It is not clear
from the accounts of B&W how depreciation mediated this
relationship.
Another speci?c example of Bryer’s assertion of moder-
nity is the claim that B&W used activity-based cost man-
agement (ABCM):
Although there is no evidence that BW used a cost-allo-
cation formula to hold its managers accountable for
overheads, there is some that it used what we now call
activity-based cost management (ABCM) for this pur-
pose, and used the supposedly modern idea of activ-
ity-based costing (ABC) for pricing. In short, a closer
look suggests BW’s management accounting system
was as modern as ABCM is today.
[Bryer, 2005, p. 53]
Having made this claim about modern ABCM, Bryer
(2005, p. 54) then suggests B&W’s actual practice corre-
sponded more closely to Activity Based Management
(ABM) which following Drury (2000, p. 897), ‘‘[omits] the
?nal stage of assigning activity costs to products.’’ Bryer
thus acknowledges the incompleteness of the B&W system
in terms of an important component of modern ABCM.
There are, nonetheless, three other components of Drury’s
de?nition of ABM: (1) identifying the major activities that
take place in an organization; (2) assigning costs to pools/
cost centers for each activity; (3) determining the cost dri-
ver for each major activity. There is, however, little evi-
dence of any of these practices at B&W. Bryer suggests
that Lee, the cotton manufacturer referred to earlier,
advised James Watt Jr. to adopt ABM by ‘‘descending into
drudgery’’ to perform the necessary accounting calcula-
tions (letter dated March 11, 1797; Tann, 1981, p. 240,
cited by Bryer, 2005, p. 54). According to Bryer (2005, pp.
54–55, citing a letter fromM.R. Boulton to his cousin, dated
April 14, 1797), this is exactly what Boulton did, apologiz-
ing to his cousin for a long silence on the grounds that he
had been a regular attendant in the counting house.
However, there are no reasonable grounds to suppose
that Boulton spent his time in the counting house analyz-
ing costs for the purposes of creating an ABM system. On
the contrary, as the remainder of the letter points out
(Tann, 1981, p. 235), the purpose of his labors was to
defend the patent and plan the development of the foun-
dry. In writing to his cousin, Boulton was summarizing a
series of such activities over a substantial period of time
and could not have completed an ABM costing exercise
for the last 12 months in the space of the four weeks since
the dispatch of Lee’s advice. The advice, in any case, did not
amount to a suf?cient description of ABM. Lee stated (cited
by Bryer, 2005, p. 54) that ‘‘in the construction of Machin-
ery we never yet could reduce it to regular piece work or
divide the Labour of Making and Repairing it in such a
Manner as to determine the distinct cost of each.’’ How-
ever, it is unclear from this statement whether Lee was
referring to the cost of machinery or the costs of making
or repairing. The costs refer to labor costs and not the over-
heads or the indirect costs associated with any of these
activities or what the cost drivers were. Also, as the citation
shows, the key control mechanism for Lee was not the
analysis of accounts but ‘‘close personal inspection’’
(Bryer, 2005, p. 54). Lee’s advice therefore corresponded
vaguely to Drury’s de?nition, and all that can be concluded
from the two citations provided by Bryer is that Boulton
was prepared to spend time in the counting house as a
way of dealing with management problems.
The more general issue for Bryer’s interpretation is that
insofar as proto-ABCM systems might have existed (c.f.,
Roll’s 1930, p. 249 speculative discussion, cited by Bryer,
2005, p. 55), they were neither suf?cient nor necessary
conditions for the computation of ROCE. Conversely, if
ROCE calculations are the hallmark of the capitalist men-
tality, they can be computed without using other modern
methods, such as ABM/ABCM.
In summary, Bryer’s application of Marx to accounting
transition is anachronistic and empirically unconvincing.
It is dependent on identifying capitalists and associated
capitalist behavior, evidenced by the signatures of modern
accounting practice, but the juxtaposition of the modern
concepts of ROCE and ABCM into the pre-modern setting
of B&W is problematic empirically and methodologically.
The development of accounting techniques cannot be
explained simply by a capitalist/non-capitalist dichotomi-
zation without con?ating capitalism with modernity and
the consequential tautologies of capitalism and modern
accounting.
Bryer and Toms offer competing, and on the basis of this
review, incommensurable interpretations of the Marxian
labor-process perspective. Even so, recognizing dispersion
of Marxian interpretations, it can be argued that transi-
tions to and within capitalist forms of organizations can
also impact phases of transition in accounting, so that
accounting re?ects changes in the productive forces and
their ownership (Toms, 2010). Roll (1930, pp. 251–252)
echoed this view, arguing the reason for accounting
changes, particularly the adoption of statistical methods,
was that they represented a response to the increased divi-
sion of labor and the changed nature of the partnership.
Following Toms (2005, 2010), transitions follow from a
dynamic interaction of capital centralization and capital
socialization. At B&W, this was determined in turn by hier-
archical consolidation following the consulting phase and
the integration of production. So, the development of
new accounts followed from investment in the productive
forces (Toms, 2010); e.g., the setting up of the newfoundry.
The response was to compute markup on cost, but the per-
sistence of individual control meant the ?nancial accounts
lacked the integration necessary for business-level ROCE
calculations.
Synthesis
In summary, the above review has shown that the ATBV
offers a useful critique of existing paradigmatic
approaches. By examining associated changes in techni-
cal/objective and relational/social aspects of business
activity, the review illustrates potential ways forward for
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 15
economic rationalists (e.g., consideration of labor and gov-
ernance processes), Foucauldian genealogists of accounting
(e.g., technical, labor market, and governance/institutional
contexts), and the Bryer variant of Marxism (e.g., ‘‘feudal’’
limitations on the full application of capitalist accounting).
Rather than expect such responses from paradigmatic
approaches that, as the discussion has thus far re?ected,
for their particular philosophical reasons remain incom-
mensurable, the ATBV is required to stand as an alterna-
tive, likewise subject to critique from alternative
perspectives. To complement the above reviews of new
empirical evidence and prior interpretations, the next sec-
tion presents a taxonomy of accounting change.
Taxonomy of accounting change
Table 4 presents a taxonomy showing stages of
accounting development as industrialization proceeds. It
is illustrated with examples from B&W, as appropriate.
Based on the previous sections, it also illustrates generaliz-
able aspects of the determinants of accounting change.
Accounting change is shown as a function of the inter-
action of technical/objective and relational/social charac-
teristics at the transactional and business-entity level.
Technical and objective characteristics refer to the physical
location and degree of centralization. For example, the con-
centration of plant and its integration on a single site
would represent a high degree of centralization and lead
to speci?c accounting problems associated with transfer
prices, the allocation of joint costs, make-or-buy decisions,
etc., some of which are illustrated by B&W’s transfer of
production to Soho. Previously, the networked set of sub-
contracted relationships represented a more decentralized
productive base. On the other side of the accounting equa-
tion, capital centralization impacts the social and relational
aspect, creating challenges in terms of raising capital and,
depending on the maturity of capitalist institutions (such
as banks and money markets), results in regimes of
personal accumulation and distribution, relational invest-
ment (e.g., with banks), or the divorce of ownership and
control through the delegation of authority to professional
managers. This is represented in the second column of
Table 4.
The third column shows the relationship between capi-
tal and labor combining technical/objective and relational/
social aspects. The labor process is embedded in the pro-
ductive assets of the former and the transformation of its
activities into value, while the distribution of that value is
re?ected in the latter. Labor subsumption was de?ned ear-
lier in conventional Marxist terms for the purposes of
assessing prior Marxist contributions. In practice, as
acknowledged by industrial sociologists (e.g., Price, 1983),
real subsumption is not achieved and de facto control over
the labor process is a compromise based on subordination
and resistance. The transition described by Marx at the
end of the 18th century and the beginning of the 19th
was both premature and incomplete due to the persistence
of craft control (Steinberg, 2003). Piece rates, which ?gure
prominently in our discussion, are a good example. In patri-
archal systems of internal contracting, piece rates are con-
trolled by inside contractors in return for indirect
ful?llment of the supervisory process. Employers can con-
trol piece rates more directly when foremen are paid
explicitly for conducting supervisory activities as, for exam-
ple, in the mid-19th century British cotton industry (Cohen,
1985). In ATBV, the ability to regulate the piece rate is
therefore a crucial transition in accounting since, in theory,
effective resistance (as at B&W before 1815 and SA before
1841) implies delegation of rate setting and intermediate
distribution of valorized production to the shop ?oor,
whereas subordination implies direct accounting control
over rates and supervision of shop-?oor behavior.
Table 4
A taxonomy of accounting development.
Technical/
objective
characteristics
Social/
relational
characteristics
Subsumption
of labour
Sufficient
Accounting
technology
Accounting examples Transitional process
Decentralized,
specialized,
productive
resources;
arms ’-length
co-ordination
Regulated
pre-capitalist
relationships
None
Double -entry
bookkeeping
Arms’ -length transactions
between merchants
Systems for monitoring
quality and outputs and
sharing surplus
Transition Phase 1
Centralized,
integrated,
productive
resources;
administrative
co-ordination
Accumulation
of capital by
individuals
Low
Cost accounting
I: Accounting for
product -specific
input and output
values
Internal profit accounting
for individual labor
teams or ‘firms’.
Piece rates regulated and
negotiated
Transition phase 2
High
Cost accounting
II: Accounting for
general labor and
overhead costs
Accounting for joint costs
Piece rates integrated into
pricing decisions and
production efficiency
planning
Transition phase 3
Divorce of
ownership
and control,
professional
managers
High
Managerial
accounting:
Relating detailed
product costs to
overall business
performance
Cost and financial
accounting integrated;
Monitoring of returns on
investment
16 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
Re?ecting these uncertainties in accounting terms, sub-
sumption refers to the degree to which labor is separately
identi?able and measurable. In Table 4, labor subsumption
is characterized as ‘‘low’’ or ‘‘high,’’ re?ecting a continuum
with idealized categories of ‘‘formal’’ and ‘‘real’’ corre-
sponding to these. In the early-19th century, the transition
was driven by the changes in regulatory structure dis-
cussed earlier that led to the substitution of the former
with the latter. In pure market or highly decentralized sit-
uations, this is not an issue because with the high degrees
of specialization entailed, the cost of labor can easily be
attributed to the cost of the product. An interesting inter-
mediate stage at B&W was the inside-contracting phase
in which the labor team was given the responsibility for
output targets on speci?c tasks, thereby preserving an
identi?able pro?t or surplus to the labor team, keeping
labor subsumption on a formal basis. Real subsumption
occurs as production becomes more integrated or central-
ized when this direct relationship between the producer
and product disappears, or is subsumed, such that labor
cost is more dif?cult to allocate to speci?c products. Value
division between labor and capital is then determined
more by administrative ?at. Increasingly sophisticated
accounting is a necessary response on the technical side
in terms of monitoring labor for cost-allocation purposes
and on the relational side for determining socially accept-
able levels of remuneration within regulated or unregu-
lated norms. Both aspects were manifest at B&W with
the development of costing systems to assist the pricing
of engines and detailed calculations for the purpose of
developing and revising piece rates.
The capitalist does not face a straightforward choice
between formal and real subsumption because labor is dif-
?cult and costly to monitor. Historically, there is no reason
to suppose that the one progressively follows the other.
Formal and real subsumption are therefore alternative pos-
sibilities. Formal subsumption implies the persistence of
market-mediated relationships within a hierarchical struc-
ture (e.g., in the form of internal subcontracting). There-
fore, direct surveillance in the Foucauldian sense is only
possible when real subsumption exists as the use of hierar-
chical methods of control are presupposed. Similarly,
because hierarchical methods imply managerial functions
as opposed to personal superintendence by individual
entrepreneurs, a further implication is that the Foucaul-
dian view of labor control also presupposes a corporate
regime of capital accumulation. However, as argued above,
the Foucauldian explanation is incomplete insofar as it
ignores who disciplines the managers and how the sources
or absence of managerial discipline are traced back to the
supply of capital. Surveillance over the shop ?oor then,
even though the presence of managers is presupposed,
does not represent a suf?cient condition for managerial
accounting or the ?nal phase of development in Table 4.
Where there is hierarchy staffed by managers, the implica-
tion is that agency problems will arise, as the review of
new evidence at SA has shown, since managers will have
the incentive and opportunity to appropriate rents if insuf-
?ciently monitored by capital. To be effective, a managerial
system of accounting therefore must impose targets of
accountability at the enterprise level so that non-technical
investors using summary information can monitor mana-
gerial performance. ROCE succeeds in this respect as a per-
formance measure. Its computation relies on cost and
?nancial accounting system integration, not only so that
the ratio can be computed but also cascaded into func-
tional and specialist parts of the organization. ROCE can
then be integrated with costing and pricing decisions as
famously pioneered by DuPont in the 20th century
(Johnson & Kaplan, 1987, p. 89). It is this integration that
de?nes the ?nal phase of the taxonomy in Table 4 as man-
agerial accounting.
The taxonomy is intended to be non-teleological; in
other words, there is no necessary assumption of progres-
sion through time to the ?nal phase. For example, it is pos-
sible for market and formal subsumption categories to
persist as an economy industrializes or be reinvigorated
as it de-industrializes. Nonetheless, the transition from
one stage to the next is progressive in that it re?ects the
evolution of the economic institutions of capitalism. For
example, once feudal restrictions on the employment of
labor or incorporation are removed, it is unlikely that they
will be re-imposed on grounds of economic ef?ciency,
although it is possible they may re-emerge in different
forms.
Using the combinations implied by the taxonomy cre-
ates a series of accounting technologies of progressive
sophistication in phased stages from DEB to managerial
accounting. Recording transactions arising from market
relationships is the most straightforward of these, sup-
ported by transaction-based DEB. Where hierarchy is used
to sustain personal accumulation with formal subsump-
tion, the entrepreneur is essentially a subcontractor as,
for example, in consulting engineering. Cost accounting is
required as a complement to DEB in order to record input
and output values as they are passed from one individual
to another within the network (Cost Accounting I) and dif-
fers in this respect from pure market organization (transi-
tion phase 1).
57
Under this system, in the period c.1795–
1814, B&W saved costs of monitoring individual workers
by incentivizing team leaders through a piece-rate system
that allowed generous rewards, in some cases at least, while
the apprenticeship system regulated employment to the
bene?t of team leaders and the ?rm as a whole. Remnants
of pre-capitalist regulations, such as the Statute of Arti?cers,
while limiting the freedom of labor, also enhanced the
incomes of inside contractors and piece workers.
In the next phase therefore, managerial action and
accounting were aimed at limiting the ability of labor to
appropriate the proceeds of the productive process, partic-
ularly as regulatory changes allowed. The 1815–1816 revi-
sion to piece rates, conducted in a period of legislatively
supported attacks on wages, with greater reliance on
time-based rates, offers some evidence of transition to real
57
Each phase in Table 3a and 3b builds on the previous in complementary
fashion, such that, for example, cost accounting supplements and draws
from underlying books of account. Conversely, where cost reports do not
use DEB, it is supposed that the normal functions of DEB are continued for
the reasons they evolved in the previous phase. Charge and discharge
re?ected government ownership at SA, but otherwise played the same role
as DEB at B&W.
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 17
subsumption, using accounting calculations to assert con-
trol over the shop ?oor. Employers based wages on earn-
ings necessary for subsistence from the workers’
perspective as opposed to a mutually agreed contracted
rate. As labor is subsumed in industrial processes, the
cost-accounting system develops further (Cost Accounting
II) in order to trace aggregated labor and overhead cost
pools to speci?c products (transition phase 2). These activ-
ities became important for B&W around 1800 with the
expiry of the patent such that markups on individual
engines could be ascertained that were in line with custom
and practice and premiums earned under the license
arrangements. At B&W during this phase, piece-rate
reviews were conducted to economize on costs, as in
1816, but without attempting to maximize pro?t. Cost
Accounting II records costs and pro?ts at the level of the
individual product, process, or venture, but because capital
is accumulated at the personal level, they are not aggre-
gated for monitoring whole business performance.
Only with the combination of corporate accumulation
and enhanced real subsumption is accounting within a
managerial hierarchy sustainable. Managerial accounting
enables the processes of recording detailed product costs
and the calculation of aggregate business pro?ts and rates
of return to be potentially uni?ed (transition phase 3).
There was no evidence of such integration at B&W or of
the use of associated ROCE measures. Notwithstanding
the integration of production and the further subsumption
of labor in the productive process, barriers remained to the
development of modern managerial accounting. Principal
among these was the continued accumulation of capital
at the personal level. This is not simply that the business
remained under the personal control of its entrepreneurs
since it was possible for them to delegate full responsibility
to a managerial team and associated hierarchy. Rather, it
refers to the con?ation of the business with the private
?nancial affairs of the owners, such that managerial
accounting could not develop since separable and aggre-
gate business costs, pro?ts, and rates of return could not
be obtained. Instead, it was only possible to cost individual
items of output or processes, albeit with some
sophistication.
Conclusions
In summary, B&W used accounting calculations to
design incentive systems that also economized on supervi-
sion costs, but not to support the process of personal cap-
ital accumulation by the proprietors. They used internal
subcontracting and were able to do this within the regu-
lated framework of wage and employment control before
1815. Subsequently, their attention turned to labor-cost
control as the signi?cant downward revision in 1816 illus-
trated. The examples of accounting transition at B&W were
a consequence of attempts to improve ef?ciency in the
context of an evolving regulatory regime of accumulation.
Although drawing on Marxian categories, such as capi-
tal accumulation and labor subsumption, this explanation
differs from Bryer’s (2005) Marxist interpretation of these
developments. Bryer argued that piece rates are attractive
‘‘if the capitalist can dominate production and draw up
standard labor costs, when they become ‘the most fruitful
source of reductions of wages and capitalistic cheating’’’
(Marx, 1994, p. 552, chap. 6, cited by Bryer, 2005, p. 50).
The evidence above has not been suggestive of any such
dominance; indeed, piece rates were just as important in
the putting-out system (Marx, 1996, p. 695) or at B&W
when using contractors on external work (e.g., Harrison,
Table 3a). Piece rates then re?ected the regime of accumu-
lation but did not necessarily promote rapid capital accu-
mulation through the exploitation of labor. The B&W
accounts were not suf?ciently coherent at an aggregate
level to assist the owners in measuring such a process.
By separating the possibility of sophisticated cost
accounting from the inception of managerial accounting
using a labor-control taxonomy, the above analysis also
helps set the Foucauldian genealogical approach in a wider
context. B&W did use sophisticated methods of labor con-
trol as the experiments in the early 1800s illustrate. These
did not depend on the exercise of direct supervision
through a managerial hierarchy. As the review of the evi-
dence at the SA has shown, surveillance was used in the
fashion described by Hoskin and Macve (1988, 1994,
2000) and was an advance further into Cost Accounting II
than B&W achieved. However, real subsumption of labor
through the disciplinary gaze was not in itself suf?cient
for ‘‘modern’’ management. The state suppliers of capital
to the military superintendent deviated from ef?ciency
objectives and exercised inadequate control, so that there
was inadequate ultimate accountability. In short, account-
ing control and accounting for capital were not integrated,
and the system lacked the modern features later developed
by DuPont and others.
There are many cases where ?rms have created mana-
gerial hierarchies only subsequently to revert to subcon-
tracting and vice versa.
58
At B&W, accounting systems and
calculations were set up to support subcontracting arrange-
ments. However, they were moderated by survivals of com-
mercial custom, practice, and regulation that had pervaded
in England since feudal times. The regime of accumulation
was not therefore fully modern and awaited the laissez-faire
legislative program of mid-19th century liberalism. Finan-
cial accounting was accordingly incomplete, error prone,
and non-integrated.
By presenting and testing a framework that integrates
the technical/objective and relational/social aspects of
accounting, the paper has critiqued aspects of economic
rationalist, Foucauldian, and Marxist literature. The review
has shown that these single philosophical paradigms tend
to result in mono-causal explanations; e.g., administrative
co-ordination in Chandler, the West Point connection in
Hoskin and Macve, or Bryer’s capitalist- mentality argu-
ment. The alternative offered here is based on understand-
ing the changes in organizations’ asset structures,
including the process of value creation, the reordering of
liabilities that arise from them, and the consideration of
accounting as the means of capturing these relationships.
58
For example, the recent tendency to replace managerial hierarchies
with franchising, joint ventures, and other quasi market-based relation-
ships (Toms & Wright, 2002, 2005).
18 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
The research is clearly limited by the application of the
taxonomy to a single empirical case although evidence has
also been provided from other relevant contexts, including
the SA that ?t the framework quite well. Transition phase 3
was not fully completed at B&W because the business
never achieved the scale that would have necessitated it
at a time when capital accumulation was personal not cor-
porate. Further studies of the combined impact of market
to hierarchy substitution, the emergence of corporate cap-
ital accumulation, and the real subsumption of labor to
explain their joint impact on the development of modern
accounting are therefore likely to be of value. In the period
before 1850 at least, the B&W and Spring?eld cases suggest
that the management of internal-contractual relationships
and a preoccupation with ef?ciency rather than pro?t or
control through surveillance were the dominant explana-
tions of accounting change.
Acknowledgements
We are grateful to the participants at a session of the
2009 Accounting Business and Financial History Confer-
ence at Cardiff Business School for helpful comments on
an initial version of this paper.
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20 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
doc_878195650.pdf
The paper argues that by examining accounting’s technical/objective and relational/social
characteristics simultaneously, a deeper understanding can be gained of accounting transition
at key stages of economic development. Using the case of Boulton & Watt (B&W),
a pioneering firm of the British Industrial Revolution (BIR), the paper critiques prior interpretations
and applies a taxonomy using new archival evidence, contrasting these with
developments at the Springfield Armory.
Accounting fundamentals and accounting change: Boulton &
Watt and the Spring?eld Armory
q
Steven Toms
a,?
, Richard K. Fleischman
b
a
Leeds University Business School, Room 2.09, Maurice Keyworth Building, University of Leeds, Leeds LS2 9JT, United Kingdom
b
John Carroll University, University Heights, OH 44118, United States
a b s t r a c t
The paper argues that by examining accounting’s technical/objective and relational/social
characteristics simultaneously, a deeper understanding can be gained of accounting tran-
sition at key stages of economic development. Using the case of Boulton & Watt (B&W),
a pioneering ?rm of the British Industrial Revolution (BIR), the paper critiques prior inter-
pretations and applies a taxonomy using new archival evidence, contrasting these with
developments at the Spring?eld Armory. Results show that the management of internal
contractual relationships and a preoccupation with ef?ciency rather than pro?t or control
through surveillance were the dominant explanations of accounting change.
Ó 2014 Elsevier Ltd. All rights reserved.
Introduction
There has been a substantial literature examining the
process of accounting change, focusing on signi?cant his-
torical events such as the BIR, incorporating a dispersion
of methodologies across and within philosophical view-
points. Most approaches tend to be partial. Positivist
accounting research (Watts & Zimmerman, 1978, 1986)
concentrates only on empirical regularities, while social
and market structures are taken as given. Critical account-
ing, by contrast, has increased methodological diversity
(Baxter & Chua, 2003) and in accounting history has led
to a greater appreciation of accounting’s interconnections
with social relationships, contexts and arenas (Napier,
2006).
In this paper, we argue that importations of theories
from the wider social sciences into accounting tend to be
incomplete because they do not take the fundamentals of
accounting as their point of departure. By fundamentals
we mean that there is a dual technical and social aspect
to an accounting transaction or a ?nancial statement such
as a balance sheet. Accounting simultaneously contains
speci?c technical/objective and relational/social character-
istics at the transactional and business-entity levels which
should therefore be combined for a suf?cient theory of
accounting change.
1
Grounding theory in the nature of
accounting itself, applied to historical investigation, allows
us to trace value through the processes of innovation and
development of the productive base (manifested in the nat-
ure and speci?cation of assets) and its reinvestment or
appropriation (manifested in the associated structure of
liabilities).
Following this approach, the paper advocates the
accounting transaction as the basis of analysis (hereafter
referred to as the ‘‘accounting transaction-based view’’http://dx.doi.org/10.1016/j.aos.2014.09.001
0361-3682/Ó 2014 Elsevier Ltd. All rights reserved.
q
We are grateful for ?nancial support from John Carroll University and
thank Wai Fong Chua and two anonymous reviewers whose exceptional
attention to detail and constructive advice have substantially added to
this paper. Any remaining errors are the authors’.
?
Corresponding author. Tel.: +44 (113) 3434456.
E-mail addresses: [email protected] (S. Toms), [email protected]
(R.K. Fleischman).
1
In the technical/objective dyad, the physical properties of asset and/or
their technical representation, speci?es their objective characteristics or
form of objecti?cation. The relational/social dyad generalizes the relational
properties of an asset, which might assume speci?c or historically
conditioned social properties.
Accounting, Organizations and Society 41 (2015) 1–20
Contents lists available at ScienceDirect
Accounting, Organizations and Society
j our nal homepage: www. el sevi er. com/ l ocat e/ aos
(ATBV)). The ATBV provides a means of contextualizing
accounting change at a societal level, relating the material
properties of assets to the ?nancial claims upon them, with
the former governed by technical and labor-process innova-
tions and the latter settled through the evolution of institu-
tions of arbitration and enforcement (law, tax, etc.).
Practical accounting, most obviously in the form of dou-
ble-entry bookkeeping (DEB), re?ects this distinction,
where in the resulting balance sheet, the debit side refers
to the existence of assets and the credit side to the claims
upon those assets. A change in one presupposes a change
in the other, and herein lays the power of accounting using
the ATBV. The transaction is conceptualized as a dichoto-
mous relation, to go beyond DEB, as a sui generis tool of his-
torical and organizational analysis. For example, a technical
innovation implies the re-evaluation of ?nancial claims on
existing and newassets. A ?nancial crisis implies a reorder-
ing of the purpose and value of physical assets. The ATBV
also requires consideration of the labor process because,
on the one hand, it adds to the stock of the ?rm(the techni-
cal/objective element), while on the other, creates poten-
tially con?icting claims as to the division of the value (the
social/relational element). A full discussion of value theory
is beyond the scope of the paper, but it is important for cur-
rent purposes to show that recording value created by the
labor process and its distribution are the tasks of account-
ing, such that changes in the process explain accounting
change.
Accounting is a set of technical approaches that must
respond to some goal- related function as determined by
the institutional and organizational setting. For example,
constructing an accounting system for an armory is deter-
mined by the asset structures required to produce weap-
ons and the goals implied by the accountability
structures created by the deployment of those resources.
Asset and accountability structures make the role of
accounting problematic in ways that lead to accounting
innovation and evolution of technique as methods learned
in one setting are transferred to others. In this sense, there
is a constitutive role for accounting as part of a symbiotic
relationship with technology and the ?nance of technology
for productive purposes. Despite appearances, our view is
not essentialist, as the transaction’s physical and relation-
ship aspect takes on different forms through time, which
are historically and socially conditioned and develop dee-
per institutional complexity. For example, specialization
and the division of labor create complexity in asset struc-
ture and valuation and in the credit-based relationships
between individuals’ claims on assets and laws governing
them.
Conceptually, the main features of the ATBV are as fol-
lows: In the abstract equilibrium sense, the technical side
of the transaction is governed by the material properties
of asset creation, in other words their physical and loca-
tional characteristics, and therefore described as objective.
The social side of the transaction refers to the relationships
between the parties involved in value creation and its dis-
tribution. For example, in the abstract, a business entity is
represented in accounting terms by the accumulation of
accounting transactions, of valorized wealth on the one
hand, and social structures of ownership of that wealth
on the other. At the same time, accounting has a dynamic
and constitutive role, linking the technical/objective and
the relational/social so that the equalization of asset values
and claims on those values provide visible and historically
speci?c representation of the business entity in its various
stages of development. In this sense the ATBV offers a
structured analysis of competing claims over valorized
production and wealth. Subjective claims on assets can
be in con?ict with the material conditions implicit in their
creation. For example, the physical and technical orienta-
tion of assets in the labor process means that the time
and intensity of effort are in contradiction with the mone-
tized claims to the value created. While there may be spec-
i?able conditions of equilibrium between value of effort
and value of claim (for example where equilibrium pro?t
equals social contribution [Makowski & Ostroy, 2001, p.
502]), the normal situation of disequilibrium is where cer-
tain claims to revenues are given visibility by accounting
and achieve priority, so that resulting values become
established as facts (Latour, 2013, p. 447). In this respect,
accounting reinforces power relations (see, e.g., Ezzamel,
2009, 2012), allowing accounting methods to become
entrenched until they ossify and are subsequently under-
mined either by technologically driven changes in the nat-
ure of the asset base or reordering of competing claims
arising from crises. The paper uses these processes and
relationships to investigate the potential of the ATBV to
provide a generalizable theory of accounting change
which, for the BIR, is presented as a structured taxonomy,
deployed later in the paper to analyze developments at
B&W.
The analytical structure of the ATBV potentially com-
plements certain theoretical approaches but contradicts
others. Economic rationalists typically stress the techni-
cal/objective (e.g., Edwards & Boyns, 2013), and Marxists
(e.g., Tinker, 1980) the relational/social determinants of
accounting practice, but not necessarily both or their
inter-relation. The Foucauldian view, in its genealogical
variant, explains the emergence of accounting in terms of
successive modes of naming and counting, including tech-
niques of educational instruction and grading (Hoskin &
Macve, 1986, 1988), but does not therefore ?t logically into
our technical/objective and relational/social framework.
2
Even so, because ?nancial transactions have a physical
aspect (monetary and ?xed assets) and a relationship aspect
(creditors and equity holders’ claims on those assets), such
characteristics could precede genealogical accounts. Where
there is no money; e.g., in gift-based societies, the posses-
sion of gifted assets bears reciprocal obligations (Mauss,
1922). The challenge then, in the Popperian sense is falsi?ca-
tion; that is, to ?nd instances of transactions that do not pos-
sess a physical and relationship aspect. Other Foucauldian
variants overlap more closely with the ATBV, such as those
based on the sociology of translation (Callon, 1986), which
see accounting techniques developing as part of constella-
tions of institutions and practice (Miller & Rose, 1990;
Miller, 1991), based on expertise (Miller & O’Leary, 1987),
2
Recognizing that accounting precedes writing (Ezzamel & Hoskin, 2002,
p. 339) but that once developed, writing in?uences modes of naming and
counting.
2 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
and constitutive of social relations (McKinlay, Carter, Pezet,
& Clegg, 2010).
3
The paper uses the ATBV in the next section to examine
accounting evidence from B&W, the pioneering steam-
engine manufacturing ?rm of the BIR. It is organized
according to key developmental phases. Each phase is
introduced with a synopsis of current empirical knowl-
edge, which hitherto has concentrated on the years imme-
diately following the Soho Foundry’s establishment in
1795, particularly the bonus-system experiments and
piece-rate revisions in 1800–1802, followed by an applica-
tion of the ATBV using new archival evidence
4
up to and
including the piece-rate revision of 1816. A third section
re-examines three competing perspectives, economic ration-
alist (e.g., Fleischman, Hoskin, & Macve, 1995; Williams,
1999), Marxist (e.g., Bryer, 2005) and Foucauldian (e.g., Hos-
kin & Macve in Fleischman et al., 1995), used to explain the
role of B&W’s accounting in the BIR and to develop interpre-
tations of the origins of ‘‘modern accounting,’’ including the
alternative hypothesis that later developments in the U.S.,
particularly at the Spring?eld Armory (SA), were more sig-
ni?cant (Chandler, 1977; Hoskin & Macve, 1988, 1994). In
the fourth section, the reviews of recent contributions on
B&W, empirical evidence, and alternative perspectives are
drawn together in a taxonomy used to contextualize the
empirical cases, allowing evidence of the development of
accounting in the BIR to be evaluated. The ATBV is advocated
as a means of critiquing previous approaches and as a theo-
retical approach in its own right. We argue that as a conse-
quence, debates can be moved beyond the social relations
and positivist dividing lines, developing new insights into
accounting as a response to technical change, mediated by
institutional arrangements. These points are elaborated in
the concluding section.
Accounting change at B&W
This section develops a chronology of B&W c.1770–
1820, concentrating on the dual-nature technical/objective
and relational/social aspects of accounting transactions. It
considers evidence in two respects: (1) the origins of value
through the processes of innovation and development of
the productive base, and (2) how the value thereby created
was reinvested or appropriated as mediated by social rela-
tions. In each case, we focus on the role of accounting,
which in (1) refers to the cost-accounting methods used
to integrate technological change and its impact on the
labor process, and in (2) to the mainly ?nancial-accounting
processes used to recognize and allocate surplus. The
review provides historical background, highlighting impor-
tant stages in the development of the ?rm that impacted
its methods of accounting. These were the consulting-engi-
neering phase, the internalization of production at Soho in
1795, experiments with incentive payment systems in the
1800–1802 period, and a previously un-researched, piece-
rate revision in 1816. The paper re-evaluates the empirical
evidence chronologically, concentrating on apprenticeship
records, piecework accounts, and ledgers.
The consulting-engineering phase, 1775–1795
The ?rst phase of the ?rm’s development followed the
establishment of the partnership between Boulton and
Watt and the con?rmation of the patent on Watt’s engine
in 1775. Installing engines in Cornish tin mines to pump
water accounted for a signi?cant proportion of the ?rm’s
business (40% of the total c.1777–1782, Tann, 1996, p.
29). Outside Cornwall, London breweries and water com-
panies were also signi?cant customers (Smiles, 1874, p.
484). To build engines for these markets, the ?rm devel-
oped an extensive network of subcontracted supplier rela-
tionships; e.g., John Wilkinson (Melling, 2013).
5
Application of the ATBV illustrates how the decentral-
ized scope of the business, together with custom, practice,
and regulation, explain accounting developments during
the consulting- engineering phase. In these respects, the
technical nature of Watt’s inventions and the 18th- cen-
tury, pre-capitalist regime of feudal regulation in?uenced
how the gains generated were appropriated. Extensive
monitoring of patent licenses was required at remote loca-
tions and explains the complex negotiations affecting roy-
alty payments and the personalized and decentralized
process of securing accountability from contractors. For
example, books of the mines were liable to inspection by
B&W (Roll, 1930, p. 75). Consequently, B&W was better
able to monitor remotely without taking direct control of
production. It was only by ‘‘force of circumstance’’
(Dickinson, 1937, p. 131) that they took shares in certain
mining companies. A method was required that reduced
monitoring cost and conformed to expectations arising
from custom and practice. In common with other ?rms,
B&W faced trade-offs between external contracting and
direct supervision.
6
In the Black Country and Birmingham,
employers in saddlery, iron, lock, nail, and other trades con-
tinued to struggle with worker absenteeism (Allen, 1929).
Contractors embezzled, substituted inferior materials,
reneged on agreements, and traded effort for leisure time
(Marglin, 1976, p. 34; Toms, 2005). B&W’s subcontracting
arrangements also evolved under the aegis of regulations
for just prices, restrictions on usurious lending, regulated
wages, and the indentured apprenticeship system.
7
These
principles directly impacted business (Hobsbawm, 1968,
pp. 347–350; Thompson, 1971) and accounting practice
(Toms, 2010). Market manipulations were legislated against;
e.g., forestalling and withholding goods to manipulate prices
3
Where critical accountants have analyzed social and institutional
contexts from an ostensibly Foucauldian perspective, they represent
applications of Foucauldian theorizing to institutional settings rather than
Foucauldian work as such (a point acknowledged by Miller & Rose, 2008, p.
8). We thank a reviewer for pointing this out.
4
Birmingham Central Library, Boulton & Watt Collection (BWC).
5
John Wilkinson (1728–1808) had an exclusive contract to supply high-
quality cylinders until 1794 when his works was closed by an injunction
(Roll, 1930, pp. 157–158).
6
Subcontracting was common (the ‘‘butty’’ system in iron founding or
the ‘‘family economy’’ in the cotton industry), whereby craftsmen super-
vised teams of family members and acquaintances (Fleischman, 1985;
Fleischman & Tyson, 1996, p. 62).
7
Bread prices, in particular, created social con?ict (Thompson, 1971);
e.g., the Assize of Bread calculated the baker’s allowance, set according to
the ruling price of wheat (Webb & Webb, 1904).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 3
could provoke riots, seizures, and redistribution at ‘‘fair
prices.’’
8
These included threats to disrupt the networks dis-
tributing hoarded and unfairly priced goods, including the
canals upon which B&W depended for transportation to
and from Soho.
9
Monopoly was an important feature of 18th-century
regulation (Tawney, 1926, p. 270) and a theme in the ?rst
phase of B&W’s development, whether through the use of
blocking patents or controlling supply chains and markets
otherwise at risk. In 1785, Boulton was instrumental in
forming the Cornish Metal Company, which, until 1792,
operated as a cartel (Dickinson, 1937, pp. 131–132) com-
parable to a Stuart monopoly of purchase and sale
(Pollard, 1965, p. 20).
10
In Cornwall, the tin miners were
particularly robust at enforcing fair prices through direct
action against recalcitrant merchants (Rule, 1970, pp. 90–
91). Matthew Robinson Boulton wrote to James Watt Jr. in
1798 that without the precaution of price reductions ‘‘. . .
we shall have much dif?culty in steering clear of Disputes
on this subject and certainly not succeed in accomplishing
the alteration without exciting public attention’’ (cited in
Williams, 1999, p. 78).
B&W solved its monitoring problems by developing
new technical measurement methods corresponding to
social expectations. Watt responded to disputes over mea-
surement by inventing a counter that accurately measured
the number of engine strokes for one year, allowing sav-
ings to be precisely quanti?ed (Muirhead, 1858, pp. 290–
291). Rather than maximize pro?ts, B&W used a mecha-
nism that was ‘‘quite fair’’ (Dickinson, 1937, p. 96), which
split the fuel-cost savings between B&W and the mine
adventurers 1:2.
11
The principle adopted was similar to
the ‘‘three-rents’’ notion from Cantillon’s Essai of 1755.
12
Although the principle used re?ected traditional methods
of division dating back at least to Petty in the 1660s
(Tribe, 1978, pp. 92–93), the measurement method relied
on new technology and resulted in disputes. As a conse-
quence, through technical ingenuity, accounting was
embedded in the process of contract speci?cation and debt
enforcement with prices negotiated by reference to cost
and cost savings.
Table 1 shows the internal rate of return (IRR) arising
from the 1:2 split of realized savings for an 8-horsepower
engine with an invoice cost of £525. B&W’s returns might
be described as ‘‘fair,’’ or indeed surprisingly low factoring
dif?culties associated with disputes and court arbitrations.
Certainly the partners showed no interest in carrying out
sophisticated ?nancial calculations relating to their own
wealth accumulation, notwithstanding Watt’s consider-
able ability with technical calculations. According to
Muirhead (1858, p. 418), ‘‘Watt made a very moderate esti-
mate of the remunerative nature of the business . . .in
. . .1782 he mentioned that the clear income realised by it
was £3000 per annum, and might be £5000, he at the same
time added that it might be less or nothing.’’
Against this highly regulated background of disinte-
grated and limited capital accumulation, neither partner
had a clear idea of his income. In summary, in the consult-
ing-engineering phase, B&W paid serious attention to
recording and monitoring and developed technical solu-
tions to assist monitoring dispersed assets. On the other
hand, social norms determined how the patent was
exploited in a manner that limited excessive capital
accumulation.
The internalization of production and incentive payment
systems, 1795–1802
In 1795, the Soho Foundry commenced operation,
allowing full-scale engine production (Fleischman et al.,
1995). Technical improvements, including the rotative
engine, allowed component standardization and created
pressure to internalize production (Roll, 1930, p. 194).
Meanwhile, B&W continued subcontracting, external and
internal, as a means of avoiding fraud and other risks
(Pollard, 1965, p. 218). To achieve ef?ciency with internal
sub-contracting, standard prices were used. Following the
establishment of production departments, the ?rm was
concerned with accurate costing, transfer pricing, and con-
trolling material and labor processes. As Roll (1930, p. 244)
suggested, establishing departments ‘‘tended to raise the
Table 1
Internal rates of return on patented engines.
B&W Client Total
(1) (2) (3)
Cost of engine (£) 435 525 525
Annual Premium at £3.85 per HP per year for 8 hp engine = £30.8 30.8
Annual cost saving (client) 61.6
Total cost saving 92.4
Internal rate of return (IRR) 4.96% 10.84% 17.27%
Source: Calculated from Roll (1930, pp. 239, 312).
Note: IRR is based on cost savings over 25 years, corresponding to the length of the patent. (1) Calculated using production cost to B&W against premium
earned by B&W; (2) calculated using selling price including margin to the client against net savings achieved by the client; (3) calculated using selling price
and total savings for the client and B&W combined.
8
Part of this practice was to account for the pro?t to the offender,
calculated according to what would have been earned had ‘‘fair prices’’
been charged (Thompson, 1971).
9
Josiah Wedgwood (Wedgwood, 1783, pp. 12–13) heard it ‘‘threate-
ned...to destroy our canals and let out the water,’’ because provisions were
passing through Staffordshire to Manchester from East Anglia.’’
10
Boulton petitioned Parliament in 1766 for a monopoly to prevent
buckle chape exports (Dickinson, 1937, pp. 31–33).
11
Writing in 1827, Thomas Thredgold described the one-third rule as a
‘‘fair rate of licence’’ in exercising the patent (cited by Muirhead, 1858, p.
402).
12
According to Cantillon (1755/1959), rents were split, 1/3 costs of the
farmer, 1/3 pro?t of the farmer, 1/3 rent to the landlord. In the position of
patent holder, analogous to the landlord, B&W took 1/3 of the savings.
4 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
standard in the methods of accounting’’. Like Roll (1930),
Fleischman et al. (1995, p. 166) argued that complexity
in calculation arose from ‘‘the greater standardisation of
products and specialisation of labour’’ following the foun-
dry opening and that most accounting innovations were
‘‘necessitated by the decision to produce locally compo-
nents. . . previously. . . subcontracted.’’ A new pricing strat-
egy based on markups instead of royalties was introduced
in 1795 (Roll, 1930, p. 312; Williams, 1999, p. 72). Engine
standards contained hundreds of components costed in
huge volumes with many pages given over for each engine.
Standard costs were facilitated by numerous engine trials
and the development of inter-departmental transfer prices
(Fleischman et al., 1995).
Under a premiumsystem, labor bonuses were related to
output, particularly where output could be measured at
low cost (Roll, 1930, pp. 205–206; c/f Lazear, 1986). B&W
developed precise calculations (theorems) to relate labor
time to different-sized outputs (Roll, 1930, pp. 205–206).
Roll gives the example of ?tting nozzles for which there
is a standard price of 22s per inch (Roll, 1930, p. 198).
13
In the illustration, the days required at standard labor rates
resulted in a lower production cost than the standard price,
which is recorded as ‘‘men’s pro?t.’’ For nozzles, the work
was subcontracted to Joseph Turner & Co., a group consisting
of Joseph Turner, John Turner, William Smallwood, and
Joseph Turner Jr., who, as an assistant, received a lower rate
for his time only (4s per day). These wages were added to
production cost, but the resulting pro?t (cost of production
less standard price) was only shared among the senior team
members.
14
Following the patent’s expiry in 1800 and Boulton’s par-
tial retirement, the management of the ?rm was increas-
ingly conducted by the founders’ sons, Matthew Robinson
Boulton (1770–1842) and James Watt Jr. (1769–1848).
The latter was trained in management and accounting
(Fleischman, 1993) and actively sought advice on best prac-
tice from established managers and innovators like George
Lee, a Manchester cotton manufacturer (letter dated March
11, 1797, Tann, 1981, p. 240).
15
In 1802, the method of
accounting was revised. The premium system was replaced
by piece-rates with disbursements related directly to output
(Tann, 1981, p. 13; Fleischman et al., 1995, p. 169).
16
Both
systems used supervisor incentives rather than direct over-
sight by the partners or managers. In common with the pre-
mium system, only supervisors were paid piece rates, with
day rates administered to other workers. There is some evi-
dence of less formal piece-working agreements in the early
1790s, but formalized piece rates were only made possible
by the internalization of all engine-part production at Soho
(Roll, 1930, p. 194). The period 1800–1802 has been charac-
terized as an ‘‘outburst of calculating activity’’ (Fleischman
et al., 1995, p. 167). During 1800–1802, moulder-team fore-
men submitted to management piece-rate tender offers for
the numerous components produced at Soho. Based on time
trials and the piece-rate offers, B&Wnegotiated and awarded
contracts to internal subcontractors. For two years, data were
kept on quarterly productivity of nine moulder teams with
their performances commented upon (Tann, 1981, pp. 257–
267).
Using the ATBV, it can be seen how the technical/objec-
tive changes, particularly investment in factory capacity,
posed new questions about measuring and appropriating
surplus against a backdrop of changing social norms. The
new foundry signi?cantly integrated the business so that
the orientation of accounting shifted from measuring and
monitoring external contractors to inside teams of produc-
tion workers. The premium system provided an internal
subcontracting solution to the supervision problem and
the scarcity and power of skilled labor. Where incentive-
based contracts were granted, employees could earn
bonuses over and above their indentured wage rates; but
if output was suf?ciently low or payments to team mem-
bers too high, their earnings fell below the contracted
time-based rate. B&W received supporting accounts from
the supervisors about performance during the period
under review. It was observed that ‘‘James Middleton has
worked exceedingly hard during the quarter and done his
work very well,’’ and ‘‘. . .during the last three quarters Col-
lier has done a very small proportion of work to what he
did in the ?rst having been absent during the great part
of them’’.
17
Using combined weekly wages and piece rates
guaranteed that B&W did not pay for absent workers or
for work that did not get done, and ensured that workers
bore much of the risk associated with reduced output. Not-
withstanding his hard work and high-quality output, Mid-
dleton was left with insuf?cient funds for his own wages
after paying his men and was left dependent upon an
advance from the partnership. Similarly, George Croft had
scarcely suf?cient funds for his own wages.
18
Middleton also
had to stand the cost of wasters.
19
While facilitating supervision in the face of signi?cant
sunk-cost investment, the premium system did not pro-
vide the partners with suf?cient information about pro-
duction ef?ciency or incentive mechanisms to increase
output. Although passing considerable risk onto foremen,
most of the gains were appropriated within the contracting
teams. Labor shortages created constraints on manufactur-
ing capacity, so B&W used the new piece-rate system to
ensure that scarce labor was used as productively as possi-
ble and the piece-rate revision resulted in signi?cant
13
In pre-decimal units of coinage referred to here and elsewhere, s
denotes shillings (20s = £1), d denotes pence (240d = £1; 12d = 1s) and in
weights and measures, cwt denotes hundredweights, equivalent to 112 lbs
or 50.8 k.
14
In the 1803 wage list, rates were not prescribed for certain junior
employees, labeled ‘‘underage’’ (Arrangement of the Foundry men, 1802–
1803, Tann, 1981, pp. 250–252).
15
George Lee was regarded as ‘‘the most able manager in the trade,’’ who,
?rst applied B&W rotative engines to mule spinning, thereby cutting labor
costs by one-third (Brown, 1996, p. 64).
16
From then on, B&W used pre-determined listed wages for individual
employees (Arrangement of the Foundry men, 1802–1803, Tann, 1981, pp.
250–252).
17
Tann, 1981, pp. 264, 267. In the latter case, Young appears to have
compensated by achieving higher output so that the joint income of Collier
and Young did not decline.
18
Tann, 1981, pp. 264, 266. In Croft’s case, B&W estimated his wages to be
up to 1/3 less than they would normally have been (12/À; c.f. 18/À).
19
Conditions upon which Piece Work is let to James Middleton, 1802
(Tann, 1981, pp. 259–268). ‘‘Wasters’’ refer to lost castings in the moulding
process (West, 1892, p. 4).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 5
improvements (Tann, 1981, pp. 13, 268). Accounts were
maintained between the piece men and the partnership
so that supervisors could draw down funds to pay their
teams as they determined.
20
At any given time therefore,
a debit or credit balance existed on the supervisor’s account
with the ?rm.
21
Narrative comments indicate that B&W
management had little knowledge of disbursements within
teams, and that such activities were, in any case, dif?cult
to monitor. For example (Tann, 1981, pp.261–262),
Samuel Williams has drawn various sums weekly
according to the number of men employed under him
and it is supposed the whole has gone to pay them
and his own wages. . .and it is doubtful whether he
may owe a part or not (of the balance) for Chipping.
It is supposed that the sum drawn weekly by Isaac Croft
during the above quarter has been suf?cient to pay his
Man, himself and all his Chipping.
[(emphases added)]
As implied here, chipping was not always performed by
directly employed labor and might be further subcon-
tracted.
22
Apprenticeship contracts stipulated a weekly
wage at commencement but also automatic increases each
year thereafter.
23
The new piece-rate system helped the ?rm
attract and retain experienced workers, but offered little
knowledge or control over appropriation of gains from
improved productivity.
As a consequence, in part because of these changes,
pro?ts began to accumulate as they had not done previ-
ously, but these were still accounted for as sources of
income indistinguishable from the personal estates of the
partners.
24
In the period 1811–1815, the ledger provides a
full set of double-entry accounts for the foundry and manu-
factory. They show balances for stock carried forward in
both departments and the value of production transferred
from foundry to manufactory. A balance account shows
the inventory for the manufactory but not the balance car-
ried forward from the foundry. Instead, there is a balancing
?gure with an opposite entry to ‘‘sundries.’’ It is possible to
estimate the capital from these accounts by adding the man-
ufactory stock and sundries together.
25
However, it is not
possible to ascertain the composition of the ?gure for ‘‘sun-
dries’’ since the sundries account is not in the ledger. It
might be supposed that they are recorded in the partners’
private accounts. Indeed, there are a large number of busi-
ness transactions involving the partners in the departmental
accounts. The integration of the transactions in this fashion
creates dif?culties in terms of separating the capital of the
foundry and manufactory from the capital held in monetary
and other assets by the partners elsewhere. Transactions
involving partners do not differentiate between drawings
and ordinary business transactions. The sundries ?gure in
the balance account comprises the foundry balance carried
forward, but this forms only part of a total that arises from
other unspeci?ed sources. The ledger also reveals that pro?t
in the manufactory was calculated once costs and sales had
been adjusted for the stock valuation. In addition, there was
a further transfer to the pro?t-and-loss account of premium,
showing that this income was accounted for separately and
in addition to pro?t.
So, although using accounting more effectively to con-
trol labor, notwithstanding the closer integration of the
business at Soho, B&W did not use accounts to measure
or regulate return on capital employed (ROCE) or capital
accumulation. Financial accounting methods only partially
applied the business-entity concept. Adding this evidence
to Pollard’s (1965, p. 65) identi?cation of errors in the
accounts, it is doubtful that they formed a suitable basis
for performance measurement even if B&W had been con-
cerned with directly measuring it in ?nancial terms. Not-
withstanding the opportunity arising from investment in
integrated production to account for capital accumulation
and use ROCE to measure ef?ciency, productive depart-
ment activities were not separated from partners’ private
accounts. There is no sign here of Weber’s capital account
or of Bryer’s ROCE.
26
Subsequent developments and the piece-rate revision of 1816
Following the establishment of the new piece rates,
there were further periodic reviews in 1808, which
increased time allowances but reduced rates and a further
more general review in 1810 (Fleischman et al., 1995, p.
169). James Watt Jr. settled piece rates annually (Tann,
1981, p. 14). However, apparent sophistication was belied
on closer scrutiny, as was the case with labor standards.
Productivity studies conducted by managers (Haden in
the 1810s and Buckle in the 1830s) referred to costs and
outputs by weight, but did not measure time taken for spe-
ci?c tasks, with quarter days the smallest recorded interval
(Fleischman et al., 1995, p. 169). Notwithstanding the
establishment of labor standards and piece rates, arithme-
tic comprising total cost was frequently shoddy. Compo-
nent costs were rounded to the nearest shilling or even
?ve shillings, grouped at convenient numbers. Perhaps
most telling was the use of past costs as a measure of
future costs and the arbitrary allocation of joint costs. An
important piece of evidence in this respect is a comment
that appeared in an 1830s instruction book: ‘‘The exact
time put down by Mr. Buckle must not always be taken
for the real time a job has been in completing, but in many
instances and indeed in general the person who makes out
20
BWC, MS/3147/8/26 &27, Apprenticeship Indentures. For further
examples of cash accounts between James Watt and certain employees,
see BWC, MS/3147/54, Cash Account Abstract, July, 1810–1827.
21
Statement of the quantity of castings by Moulders in different quarters,
1800–1802 (Tann, 1981, pp. 259–268). B&W clerks provided bookkeeping
services for some of the internally contracted ?rms (BWC, MS/3147/4/196,
Personal piece-work accounts, Edward Molyneaux and Edward Seager).
22
‘‘Chipping’’ refers to the removal of slag from welds with hammers and
chisels. In the case of Collier and Young’s team, chipping was hired out to
the air-furnace man (p. 267).
23
BWC, MS/3147/8, Apprenticeship Indentures.
24
BWC MS/3147/1/2, ledgers, 1810–1848.
25
For example, in 1814, the manufactory stock balance was £20,916 and
sundries £41,646, giving a total in the balance account of £62,562. The
balance is not carried forward, but is transferred by a corresponding credit
entry to sundries (BWC MS/3147/1/2, ledgers, 1810–1848).
26
For a summary of Weber and Bryer on calculative mentalities, see
Robertson and Funnell (2012, p. 345) and also for an explanation of how
accounting at the Dutch East India Company re?ected a long tradition of
ownership obviating ROCE computations.
6 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
the ?tting must be governed by his knowledge of the arti-
cle ?tted’’ (cited in Fleischman et al., 1995, p. 171).
Evidence from the prior literature then is not suggestive
of progressive sophistication in accounting applications.
Even so, applying the ATBV to new evidence shows that
B&W used accounting to achieve progressively tighter con-
trol over labor costs, supported by an increasingly favor-
able regulatory framework. These aspects of accounting
change are explained in turn.
To achieve tighter control, calculations were carried out
in 1816 on the performance and earnings of four employ-
ees.
27
These are summarized in Table 2a under headings
showing material cost, weight of output, and labor cost
(shown as ‘‘balance’’ in the document). An example calcula-
tion of the proposed reduction is shown in Table 2b. As
Table 2b illustrates, the four employees were raising their
output year on year so that their piece-based wages were
also rising.
28
Rate reductions were computed to correspond
to what would be considered a reasonable weekly wage
rather than to custom and practice. Also, by referring to
the amount the employee could or needed to earn in the
1816 piece-rate revision, the ?rm implicitly set output tar-
gets based on the high levels achieved in 1815.
Calculations were made with reference to the individ-
ual’s perceived performance. For example, in the case of
John Philips, his balance of £20/18s per annum was con-
verted to a weekly equivalent of 8s and added to his
weekly wage of 23s, to make ‘‘his whole gain per
week = 31s.’’ The note then states: ‘‘This would not be
too much for a good workman to make, but as he is an
indifferent one, it is too much and no distinction can be
made between him and other green sand moulders.’’ For
John Philips, the effect of the 2d per cwt. reduction was
quanti?ed as a reduction from 8s per week to 2s/10d.
The effect was his retaining only 35% of the previous bal-
ance, with 65% reverting to the ?rm.
29
In contrast, the effect
on Thomas Philips was less onerous, as illustrated in
Table 2b, whose reduction left him still with 8s/8d per week
or 31s/8d in total, closely corresponding to the rate
approved by the ?rm for a good workman. The consequence
was that Thomas Philips had a 14% wage cut, but would
keep 63% with 37% reverting to the ?rm. In such fashion,
accounting calculations were used to determine appropria-
tion between labor and capital. The reduction was based
on a desired outcome for the employee rate rather than
related to a reduction in the value of output, so any addi-
tional surplus realized would represent greater pro?t or
unpaid labor input. Based on the ?gures in Table 2, the
1816 revision constituted an effective wage cut of just under
16%, re?ecting legislative encouragement of greater
employer control over rates and some managerial oversight
in supervision, based on comparative output data.
Methods of labor control at B&W increasingly re?ected
a regulatory environment in which employer rights were
reinforced and protection for employees and apprentices
in particular began to wither. A distinct phase of retrench-
ment and attacks on traditional notions of moral economy
and just price made headway in 1812–1813, with the
repeal of the Statute of Arti?cers and the Assize of Bread
(Hilton, 2006, pp. 233–234). The statute had governed inter
alia the employment of apprentices, typically on seven-
year indentures, allowed magistrates to ?x minimum
wages (Frank, 2010), and required an annual review of
prices for designated skilled tasks. It thereby legally
empowered skilled master craftsmen over teams of jour-
neymen and apprentices. As the system eroded during
the Napoleonic wars, the threat of losing legal privileges
became a source of grievance to this aristocracy of labor,
but was an opportunity for owners to take more direct con-
trol (Thompson, 1963, pp. 245, 275). Elizabethan laws
were undermined progressively through the courts for this
reason.
30
During the 18th century, masters petitioned for
Table 2
Piece-rate revisions 1816.
Material cost Output Balance
£ s.d. cwt. £ s.d.
(a) Memoranda respecting individual employees
?
Thos. Philips
1813 76.15.9 1395 27.13.10
1814 96.15.8 1686 31.3.10
1815 100.17.6 1533 35.7.6
Barnabus Croft
1813 112.14.4 1239 32.1.10
1814 161.3.8 1736 41.5.0
1815 194.10.6 2087 48.2.6
John Saunders
1813 108.13.11 1368 39.8.10
1814 117.16.4 1600 38.17.6
1815 144.9.6 1973 47.14.4
John Philips
1813 70.15.10 668 16.11.3
1814 82.12.0 1153 14.2.2
1815 100.0.7 1626 20.18.0
(b) Example calculation for Thos Philips (all ?gures refer to 1815,
panel a above)
£37/7/6 is = 13s 7d per week above the wages he draws of 23/– per
week making the whole gain
Per week = 36s 7d
Suppose 2d per cwt be deducted upon all work done by him
1533 @ 2d = 12/5/6 which taken from 35/7/6
12/15/6
Leaves 22/12
Which is £22/12 = 8/8 per week and
This added to his wages of 23/– will allow him to gain
31/8 per week
?
Dated June, 1816.
Source: B&W Collection, Accounts of piecework, 3147/4/182.
Note: Some roundings have been taken, ignoring 1/2d monetary units and
weights rounded down to complete cwts.
27
BWC MS/3147/4/182, Accounts of piecework. Separate calculations by
employee: Thos. Philips, Barnabus Croft, John Philips, and John Saunders.
28
Annotations in the document suggest that more could be earned in
green sand than dry sand (MS/3147/4/182, Accounts of piecework, John
Philips). Real wages were falling due to wartime in?ation (Feinstein, 1998,
Table 5, p. 648).
29
BWC, MS/3147/4/182, Accounts of piecework.
30
For example, assize judge Sir Michael Foster advocated the repeal of the
‘‘Acts of Queen Elizabeth’’ because they no longer protected the public
interest (Manchester Mercury, April 3, 1759). Although potential repeal was
closely associated with the interests of the emerging capitalist class, the
statute remained useful for undermining strikes on the pretence that ring-
leaders had left their work un?nished (Thompson, 1963, pp. 507, 543).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 7
legislation to assist workplace discipline. Between 1720 and
1792, ten acts were passed under the master and servant
laws, with High Court rulings in 1806 and 1817 generalizing
applicability to most forms of employment. The principle
feature was the asymmetric contract, where breach by the
employer was regarded a civil matter, but breach by the
employee was regarded a criminal offence (Steinberg,
2010). Furthermore, employers enjoyed rights to determine
custom and judge work quality (Frank, 2010). Magistrates
were often the arbiters of custom and in areas where
employers dominated the judiciary, workers frequently
complained of bias (Deakin & Wilkinson, 2005).
Contracts also re?ected circumstances at B&W. These
included moral priorities, stipulating behavioral rules such
as requirements to avoid taverns and gambling.
31
There is
little evidence, however, of the use of criminal sanctions.
According to Hay (1988, pp. 14–15), a typical clause at
B&W provided that unjusti?ed absences would be made up
at the end of the contract by two days’ labor for each day
absent. Archival evidence suggests such disproportionality
in contracts was a feature only of the earliest days of the
foundry (examples include moulders Edward Collier and
Thomas Mousley, 1797).
32
Later contracts only speci?ed that
wages should be foregone in proportion to absence, includ-
ing sickness (e.g., William Turner, ?ler and ?tter, 1818).
33
All
contracts speci?ed a weekly wage rate in shillings, which
was clearly a necessary condition for the ?rm to make pro-
portionate deductions of wages for absence. The Soho Insur-
ance Society, which paid sickness bene?ts to employees,
based its contributions and bene?ts on weekly wage rates
(Roll, 1930, pp. 230–231), thereby further underpinning
the importance of specifying time-based rates.
A consequence of contract speci?cation for accounting
then was that all employee wages required a time-based
element. Incentive-based premium and piecework meth-
ods were superimposed over and above the basic wage.
Pure piecework payments were possible, but risky because
although the Statute of Arti?cers rules on piece work pre-
vented workers quitting unless speci?c pieces of work
were complete, the courts found it increasingly dif?cult
to enforce, particularly where the increasing division of
labor made identi?cation of individual responsibility for
units of output more dif?cult (Johnson, 2010, pp. 75–76).
The scale of the proposed cuts in rates suggests that
rewards for increased productivity had thus far predomi-
nantly accrued to labor over the longer run, speci?cally
to the supervisors, notwithstanding poor returns to some
foremen in some years. Legislative changes that weakened
labor protection meant it was easier to impose a signi?cant
reduction in rates. While successive changes in practice led
to increasing control over labor using accounting, there
remained a disjuncture between accounting for plant-level
managerial decisions, on the one hand, and the absence of
integral ?nancial accounts to record the valorization and
accumulation of capital on the other. As this review has
shown, in line with the ATBV, accounting change can be
explained by a dynamic that combines changes in charac-
ter and location of assets and corresponding alterations in
ownership interests and the arrangements for monitoring
the ownership interests in those assets.
Prior interpretations: a critical review
The ATBV contrasts with some major claims in the
recent literature. For the purposes of analysis, we consider
the three broad schools of thought (economic rationalist,
Foucauldian, and Marxian), re?ecting both the dispersal
and commonalities of interpretations. The ATBV is used
to inform the critique, highlighting gaps and possible
extensions. The review of the economic rationalist account
concentrates on interpretations of B&W by Fleischman and
others (Fleischman et al., 1995; Fleischman & Parker, 1997;
Williams, 1999), and, in a more general context, the role of
administrative coordination in explaining the origins of
managerial accounting (Chandler (1977). The review of
the Foucauldian literature re-examines the conclusions
on B&W in Fleischman et al. (1995), which notably
included an unfavorable comparison of B&W with SA. For
Hoskin and Macve (1986, 1988, 1994), the absence of
detailed time-based monitoring of workers’ activities is
interpreted as the lack of the ‘‘disciplinary gaze’’ needed
for the truly modern management later instituted at the
SA (Fleischman et al., 1995, p. 169). Evidence on the SA is
therefore also considered as part of this review. Finally,
the review of the Marxist approach concentrates on
Bryer’s (2005) account and juxtaposes this with Toms’
(2010) alternative perspective, including Bryer’s (2005)
assertion that the changes after 1795 amounted to an
activity-based cost and management (ABCM) system to
assist the partners in maximizing the ROCE.
Economic rationalist
Roll (1930) described operations at Soho as the apogee
of scienti?c management, resulting from carefully planned
production ?ow, component and process standardization,
and the division of labor. Pollard (1965, p. 252), who was
unimpressed with BIR cost accounting generally, observed
that B&W’s Soho operation was ‘‘rightly compared with
best practice of the 20th century’’ and an ‘‘astonishingly
fertile pioneer of scienti?c management practices’’
(Pollard, 1965, pp. 79, 248). Fleischman and Parker
(1991) qualitatively rated B&W ‘‘excellent’’ in all four of
their identi?ed cost-accounting activities: cost control,
overhead accounting, decision making, and standard cost-
ing. Dickinson (1937) likewise felt B&W akin to the best
practice of his day (the 1930s). To some extent its develop-
ment is well explained by the economic rationalist per-
spective, in terms of external (competition, etc.) and
internal (B&W’s technology and factory organization) con-
ditions (Fleischman et al., 1995, p. 171).
Williams (1999) provides a further reason for the devel-
opment of new accounting methods; namely, that the new
market-sensitive business environment necessitated more
31
BWC, MS/3147/8/26 & 27, Apprenticeship Indentures, 1796–1810 (e.g.,
Richard Cartwright, indentured in 1798). The parish apprenticeship
scheme, widespread in other industries in the 1790s, was not used at
B&W with the exception of Thomas Cox, apprenticed in 1792 at age 13.
32
BWC, MS/3147/8/11/1 & MS/3147/8/17/13, Apprenticeship Indentures.
33
BWC, MS 3147/8/22/9, Apprenticeship Indentures.
8 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
attention to pricing decisions. Williams’ (1999, p. 74)
thesis also explains why James Watt Jr. became concerned
with indirect costs and recording them, together with
departmental markups at the production-department
level, may have allowed more effective price determina-
tion. Fleischman et al. (1995, p. 166, note 8) acknowledged
that the review of markups was for the purposes of cost-
plus pricing and expenditure control rather than feedback
control over managers and departments. The comparative
pro?t-and-loss account referred to by Williams (1999, p.
74), showing losses in the smithy and pro?ts in the foun-
dry and ?tting departments, may have been used for either
of these purposes.
Notwithstanding apparent complementarities with the
economic rationalist view, these accounting changes might
also be explained by the ATBV. As Pollard (1963) and
Williams (1999) suggest, adding markups to accumulate
costs across departments had its origins in the traditional
practice of subcontracting, treating each department inde-
pendently. Pricing and markup systems re?ected the cen-
tralization of multiple processes at Soho. Separate
charges could be made for engines built at the foundry or
assembled at the manufactory (Williams, 1999, p. 72). Wil-
liams’ approach complements the economic rationalist
view by adding the product-pricing decision as a motiva-
tion for accounting change. However, the purpose of the
accounting system’s technical aspects was to achieve the
same return as under the old royalty system. The objective
continued to re?ect 18th-century business norms. Watt
felt that they had ‘‘no title to pro?t’’ on boilers not made
by the ?rm, although a small markup of 10% would be
required to cover bad-debt risk (Watt to M.R. Boulton, June
1, 1796, cited by Williams, 1999, p. 73). Watt believed the
pricing issue could not be settled until there was a fuller
picture of the year’s transactions and the conclusion of
the patent.
For the economic rationalist, greater labor ef?ciency
was not required because external conditions (the compet-
itive environment) and internal conditions (B&W’s tech-
nology and factory organization) did not warrant
amendment of labor standards. However, as the above
review has shown, concern with pro?tability was at ?rst
mitigated by norms of business practice going beyond
the patent, and labor standards were later signi?cantly
amended, resulting in an increased partnership share of
value added.
The impact of regulation explains why c.1800 eco-
nomic rationalists have hitherto agreed (Fleischman
et al., 1995) that B&W practices were less advanced than
at SA, where there were signi?cant innovations in
accounting (Chandler, 1977). According to Chandler
(1977), Superintendent Col. Roswell Lee instituted this
shift towards modern management by the simultaneous
use of inspections and DEB, ‘‘complete accountability’’
was achieved.
34
Although Chandler too can be character-
ized as an economic rationalist, his interpretation diverges
from the economic rationalist view applied to B&W.
Chandler (1977, pp. 6–8, 11) suggests three propositions
that explain the emergence of the modern enterprise. The
?rst is that market co-ordination is superseded when there
are savings, not just in transaction-cost terms, but, more
importantly, by administrative coordination, which delivers
more effective scheduling, more intensive use of facilities
and personnel, greater certainty of cash ?ow, and more
rapid payment for services rendered. Second, these bene?ts
only arise once a managerial hierarchy has been created.
Third, ef?ciencies implied by administrative coordination
were determined by an expansion in the volume of activity.
However, it is evident that transition from market to
hierarchy can be explained in the absence of any of these
conditions. Poor supplier relations or rents created by sup-
plier monopolies might, for example, be suf?cient for the
internalization of previously outsourced activities. Dif?cul-
ties in controlling labor, the costs of monitoring quality, and
the risk of embezzlement created pressures for the replace-
ment of the putting-out system with factory production
(Marglin, 1976). In other words, Chandler’s analysis is not
in itself a suf?cient basis for understanding accounting
change because corporate governance and associated
transaction costs of imposing accountability are absent
from his analytical framework (Toms & Wilson, 2003;
Toms &Wright, 2005). Chandler therefore provides no anal-
ysis of the liabilities arising from investment in the strate-
gic assets that create scale-and-scope economies. He also
pays little attention to the labor process (Rowlinson,
Toms, & Wilson, 2007). For these reasons, the economic
rationalist perspective is helpfully complemented by the
ATBV with its emphasis on the valorization aspects of the
labor process through the social relations of production.
Furthermore, Chandler’s claims about the role of DEB are
incorrect, given the use of charge/discharge accounting
before the Civil War (Deyrup, 1948; Tyson, 1990). Empirical
examination of these aspects at Spring?eld, discussed
below, con?rms that the supervision of labor was poor
and that governance procedures were inadequate, leaving
the apparent superiority of accounting at SA relative to
B&W open to some doubt, whether under the superinten-
dence of Lee, as claimed by Chandler, or following the
establishment of ‘‘total human accounting’’ by Daniel Tyler
and his colleagues, as claimed by Hoskin and Macve.
Foucauldian
The Foucauldian conclusion applied to B&W in
Fleischman et al. (1995) was that the labor standards,
which have impressed so many historians, were not the
modern type of labor-control mechanism, that allow man-
agement to order workers about (p. 328). The article con-
cluded that from a Foucauldian perspective, labor and
engineering standards did not justify the praise Pollard
(1965) and Fleischman and Parker (1991, 1997) accorded
B&W. Focusing on labor standards, they observed that
the effort undertaken at the turn of the 19th century was
not only a one-off, but produced standards that failed to
achieve the labor discipline and calculability found at the
SA decades later. To examine the hypothesis that factors
important at SA were likewise absent at B&W, this conclu-
sion warrants further investigation. Indeed, it is necessary
34
According to an 1819 Inspection Report (cited in Chandler, 1977, p. 74).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 9
to review evidence of modernity at SA through the same
lens used to analyze the BIR.
The rigorous ‘‘time and motion, watch in hand’’ study
undertaken by West Point graduate Tyler at Spring?eld in
1831 (Hoskin & Macve, 1994, p. 9) would certainly seem
to be an advance on the methods at B&W.
35
However, by
how much is unclear from the literature. There has been
an unresolved debate (Edwards & Boyns, 2013; Hoskin &
Macve, 2000; Tyson, 1990; Tyson, 1993) as to whether or
not the methods at SA constituted modern management.
Undoubtedly, successive regimes at SA imposed tighter hier-
archical control over the workforce. Lee’s accounting system
determined the cost of muskets, including allocation of indi-
rect overheads and depreciation (Hoskin & Macve, 1994, pp.
15–16). Charge-and-discharge accounting was suf?cient and
suitable for such an organization. Materials and tools were
furnished by the government and workers credited at the
month end for inspected work of appropriate quality
(Deyrup, 1948, p. 161).
However, for Hoskin and Macve (1994, p.17), to be
managerial an accounting system must be linked to work
discipline and normalized labor practices. Lee’s charge/dis-
charge system as a method for tracking labor and material
cost was similar to those used in many 18th and 19th cen-
tury factories. Indeed, there were very strong similarities
with B&W c.1800 (Hoskin & Macve, 1994, p. 18 et seq.),
including steps towards stronger labor control.
36
Even so,
as early as 1832, Tyler had ‘‘set wage rates (mostly in
piece-rate form), based on the requirement of all workers
doing an ‘‘honest day’s work of ten hours’’ (Hoskin &
Macve, 1994, p. 10). The schedule was suspended almost
straight after and replaced by a new one drawn up in
1833, applying a general wage increase (Deyrup, 1948, p.
172). Tyler’s in?uence was therefore partial and temporary.
Meanwhile, other important technical and political
in?uences impacted accounting developments at Spring-
?eld. A series of improvements, notably Blanchard’s gun-
stock lathe, gave the impetus towards interchangeable
parts, led by Charles Bomford at the War Department
and John H. Hall at Harpers Ferry, which in?uenced the
later period of Lee’s superintendence, promoting the
authority of technical experts. Thomas Warner, the master
armorer at SA, convinced Robb, Lee’s successor, to allow a
‘‘thorough reorganization’’ of Spring?eld’s production sys-
tem (Hounshell, 1984, pp. 44, 38–45). Stearns (1852, p.
37) noted some consolidation of previously disparate phys-
ical assets post-1841.
37
By the 1850s, the plant re?ected the
design priorities of Warner’s successor, Cyrus Buckland
(Hounshell, 1984, p. 45). These changes impacted the labor
process, with standard gauges replacing operative judgment
and revisions to job descriptions arising from further sub-
divisions (Hounshell, 1984, p. 44). Inside contracting was
forbidden in 1838 when all workers were directly employed.
Internal contracting was problematic as it afforded the
chance of advancement to only a few unskilled workers, cre-
ating the risk of high labor turnover (Deyrup, 1948, p. 162).
Before 1841, absenteeism was rife with little done to pre-
vent it, such that workers might be absent for substantial
periods and still receive wages for work done on their behalf
by others (Deyrup, p. 173). New attempts to impose norms
in 1841, with which Tyler was also involved, depended
heavily on recording time worked for the speci?c purpose
of ensuring that workers were only paid for work done.
Alongside the technical changes in production, political
and economic governance of the Armory was also impor-
tant. This explains how, if ef?ciencies were achieved, the
value created was subsequently appropriated. The com-
mon feature of the above initiatives is that the ?nancial
resource provider imposed them, via the of?cial represen-
tatives of the Ordnance Department. The deployment of
?nancial resources and the associated structure of
accountability were therefore important dimensions of
the management process.
The inauguration of President William Henry Harrison
in 1841 provided the Department with the excuse to
remove the patronage associated with civilian leadership
and break up traditional working methods at the armories,
including SA (Roe Smith, 1981, pp. 92–94). In accounting
terms, this meant monthly reports of known quantities;
i.e., the ‘‘quantity of labor performed, or product, and the
time during which it is effected. . .The degree of diligence
is also known and hence results a knowledge of what is a
fair price to be paid for piece work!!!’’ (Talcott,
38
writing
to the Secretary of War, cited in Roe Smith, 1981, p. 94).
As noted above, in the review of piece rates for 1816, this
objective of ‘‘fair prices’’ was similar to B&W practices. Even
so, despite ‘‘pretenses to the contrary, the War Department
never really expected signi?cant cost reductions,’’ having
achieved its goal of solid, easy-to-repair weapons with inter-
changeable parts (Hounshell, 1984, p. 44). As Roe Smith’s
account also illustrates, changes were politically motivated
and re?ected imperatives for the new political establish-
ment that went well beyond that fraction represented by
West Point in?uences.
39
Moreover, evidence not previously
consulted in these debates suggests that the link between
military method and modern management was undermined
by the crucial technical changes that explain the apparent
improvement in performance after 1841, by the precise rela-
tionship between the military and the Armory’s workforce
and by ?aws in Armory governance.
Hoskin and Macve (1994, p. 9) link Tyler’s 1831 time-
and-motion study and the West-Point-in?uenced, three-
man War Department board of inspection in September
1841 to substantial productivity improvements in 1841
(?rst identi?ed by Uselding, 1972). Until 1840, the main
output at SA was the French-style Charleville ?intlock
35
For example, the imprecise interpretation of Buckle’s time recordings at
B&W. Reference is also made to the effort involved in establishing piece
rates and tracking labor costs for the purposes of pricing and contract
enforcement (Fleischman et al., 1995, p. 171). Thus, the purpose of the
quote re Buckle would seem to be to support the Foucauldian conclusion
that B&W was an incentive-based, not a disciplinary-based, system.
36
Hoskin and Macve (1994) note that in 1817, Lee instituted an incentive
system and began monitoring output per worker (p. 21), but that he never
recorded the time taken by piece workers (p. 22).
37
Hoskin and Macve (1988, p. 38) attribute improvements in the
manufacturing process to Tyler.
38
Lt. Col. George Talcott, then Acting Chief of the Ordnance Bureau.
39
As Tyler’s autobiography makes clear, his visit to Klingenthal Armory in
1829 was instrumental in how he approached the problems at the
Spring?eld Armory (Tyler, 1883, p. 15).
10 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
musket (Uselding, 1972, p. 310), then replaced by the
Spring?eld Model 1842 percussion musket. Uselding, cit-
ing military authorities (e.g., Fuller, 1930, p. 83), suggested
the guns were technologically similar. However, these
authorities did not record the major retooling in 1840. As
a consequence of set-up costs, the average cost of a musket
produced in 1840 was $17.44 compared to the average of
$11.15 for the previous ten years. An estimate of Model
1842 production costs showed that they should have been
$3.25 cheaper, representing savings of $1.00 in raw mate-
rial, 25¢ for the new percussion lock, and $2.00 in labor
(Stearns, 1852, pp. 15–16).
40
In the period 1841–1851, the
average cost of a musket was $11.47 (higher than the aver-
age of the previous decade), although by 1851, the average
cost had fallen to $8.75. The 1851 ?gure was therefore closer
to what it should have been, given the $3.25 saving on the
Spring?eld Model 1842, but it took longer to realize than
it should have in light of Tyler’s 1831 time-and-motion exer-
cise and/or the appointment of the inspection committee in
1841. Indeed, the evidence suggests that Armory ef?ciency
declined for a substantial period after 1841.
41
Following Harrison’s election and the 1841 committee
report, the War Department placed the Armory under mil-
itary management, appointing Ripley as superintendent.
42
The inauguration of military control
43
did not unequivocally
improve ef?ciency as the musket unit-cost data suggest. A
possible reason was that it led to:
degrading restrictions of army discipline inconsistent
with the virtues of free and independent labor...[and
those] minutiae of discipline, which are the necessary
result of a Military Superintendency. . .which may be
proper in the organization of the Army and Navy, but
which are degrading, oppressive and tyrannical when
applied to intelligent and high minded citizen mechan-
ics. . .
[Stearns, 1852, pp. 9, 75]
Many employees either refused to sign-up for the new
rules or were dismissed, particularly those refusing to sub-
scribe to the Episcopal Church favored by Ripley. Inexperi-
enced and immigrant workers were recruited to replace
them, undermining Lee’s achievement of establishing a
permanent and socialized workforce (Stearns, 1852, p.
12). Punitive ?nes imposed by Ripley forced other workers
out. In these cases, workers were involved in experimental
methods that had a high risk of failure, but were assured in
advance that they would not be ?ned for materials wasted
as a consequence. In several cases, Ripley failed to honor
these promises and withheld wages for the entire month
and, in some cases, subsequent months. Ripley was able
to do this in part because he failed in his duty to publish
clear regulations on ?nes and other working procedures
as required by the War Department.
44
In summary,
although it is true that Ripley made good use of military dis-
cipline, its purpose was to enhance his own position and
prestige and to make others bear the risk of failure.
Even if ef?ciency improved, as Hoskin and Macve sug-
gest, we cannot ?nd evidence in their account of how gains
were appropriated. In other words, there is new wealth, or
an asset, but no follow through on who claimed it. As
Hoskin and Macve (1988, p. 41) argue: ‘‘The secret power
of the disciplinary lies in structures which produce such
self-discipline among workers, up and down a managerial
hierarchical system and laterally, i.e., a self discipline
which is also a reciprocal discipline, enforced by the self
on others and by others on the self,’’ suggesting that Ripley
should be as much a part of the disciplinary discourse as
everyone else. However, if the new self-discipline is more
ef?cient, it follows that value is transmitted up the hierar-
chy since output per worker rises which, without account-
ability mechanisms of value capture, will lead to
appropriation by managers within the hierarchy, just as
inside contractors were able to appropriate value from
their own superintendence. Although the labor process
changes, the appropriation of surplus by capital remains
problematic. Where self-discipline is more ef?cient, it fol-
lows that surplus appropriated within the managerial hier-
archy will create different incentives, such as the tendency
to consume perquisites, as demonstrated by Ripley’s activ-
ities. It is thus unlikely that the structure itself will create a
set of shared values of self-discipline throughout the
organization.
So, even where the disciplinary gaze can be accepted as
operating from within the factory, the Foucauldian view is
nonetheless in need of extension by perspectives that con-
sider who disciplines the managers. These should explain
how the disciplinary gaze extends from the ownership of
capital, through multiple agencies, to the factory ?oor
(Rowlinson, Toms, & Wilson, 2006, p. 698). At SA, gover-
nance failures, together with the War Department’s non-
chalant attitude towards cost reduction, reconciles
Uselding’s (1972) evidence of productivity improvement
after 1841 with the lack of any coincidental decline in
the unit costs of muskets. Speci?cally, Ripley was very suc-
cessful at obtaining special appropriations from the Ordi-
nance Department. These included costs of wear and tear
on factory and other buildings that had previously been
charged to costs of the muskets. As Tyson (1990, pp. 56–
58) and Hoskin and Macve (1994, p. 15) have acknowl-
edged, there were political reasons for showing the appar-
ent cost of muskets to be less than in the private armories.
40
The author of these calculations was Charles Stearns (1788–1860), local
mason, former senator, and leader of the opposition to the military
management of the Armory under Ripley (Chapin, 1893, pp. 350–351).
Although the Ripley-Stearns dispute is well documented in contemporary
pamphlets (Whittlesey, 1920, p. 3), it has not been referred to in the
accounting history literature.
41
Deyrup’s statistics show little secular productivity improvement after
1841 (barrels per man), but exponential increases at the onset of the Civil
War (Table 2, p. 233, appendix D, Fig. 2, p. 246). The reasons for this
subsequent increase are beyond the scope of the present paper.
42
James Wolfe Ripley, 1794–1870, graduated from West Point in 1814
(Chapin, 1893, p. 313), under the old curriculum, critiqued by Tyler, and
before Thayer’s reforms of 1817 (Tyler, 1883, pp. 2–4).
43
Lee had a military background, but managed the Armory in a civilian
capacity as did his successor, Rev. John Robb (Whittlesey, 1920, pp. 74–76,
359).
44
For examples of these practices respectively, see Stearns’ (1852, pp. 62–
66), testimony of workers refusing to sign up to new rules, (pp. 65–66) and
the Episcopal Church (pp. 66–69), punitive ?nes evidenced by testimonies
of Horace Camp and Amos B. Morrill, and failure to publish regulations (p.
72).
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 11
Such practices, revealed by Stearns’s (1852) account of
funding ordinary wear and tear through additional capital
appropriations, would have helped achieve that objective.
Special appropriations also allowed Ripley to make sub-
stantial investments in land, buildings, and other improve-
ments, including reservoirs, ostensibly to create access to
water in the event of ?re.
45
Stearns (1852) presented ?nan-
cial evidence to show that these improvements were unnec-
essary and were funded by misleading the War Department
about the assets’ actual state of repair. Where improvements
were justi?ed, they could have been achieved at a fraction of
the cost because buildings were larger and more elaborate
than necessary, including the superintendent’s new house.
Far from representing the birth of modern management,
the episode of military control at the SA was in many
respects a reprise of the ‘‘Old Corruption’’ that characterized
18th-century business/state relations.
46
Military control was
more direct and governed the nature of labor management,
while permitting Ripley to channel more resources into
waste and extravagance than his civilian predecessors.
In summary, the evidence, including sources not previ-
ously consulted in the debates, shows the new mentality at
SA may have been a necessary but not a suf?cient condi-
tion for the establishment of modern management. The
institution of the new labor-control practices after 1841
coincided with a transition from civilian to military super-
intendence so that although factory discipline was tight-
ened and labor standards assisted as described by Hoskin
and Macve, these arose from a technical preoccupation
with interchangeable manufacture of pro?cient weapons.
Meanwhile, there were signi?cant managerial failures.
These arose from a lack of clear and integrated accounting
and accountability for the capital employed at SA that
allowed the of?cers in charge to make excessive capital
appropriations for expenditure on perquisites. In sum-
mary, changes in labor management which were decisively
implemented in 1841, according to Hoskin and Macve,
must be seen as part of a more gradual process of technical
evolution in production methods, on the one hand, and the
social relations between SA employees, their superinten-
dent, and his political masters, on the other.
Marxist
Marxist interpretations have stressed accounting’s role
in class struggle and modes of labor exploitation (e.g.,
Hopper & Armstrong, 1991; Bryer, 2005). For Bryer
(2005) in particular, accounting serves the purpose of pro-
viding the owners of the means of production with a
weapon for maximizing surplus value, as he argues
occurred at B&W. As with economic rationalist and Fou-
cauldian interpretations, we argue that Bryer’s approach
is limited by concentration on certain aspects of the
accounting transaction. So, while Bryer pays detailed
attention to labor process and to the implications of Marx’s
circuits of capital for accounting, the ‘‘capitalist mentality’’
is the change agent rather than the interaction of technical/
objective and relational/social conditions.
Consequently, whereas Bryer is the only Marxist to have
examined B&W, his analysis does not re?ect the work of
other historians (e.g., Hobsbawm, 1968; Polanyi, 1944;
Tawney, 1926; Thompson, 1963), who also consider labor
relations and industrialization. They have also argued that
a web of custom and archaic regulation protected the
working class until the major legislative program of the
early-19th century facilitated capitalist relations of pro-
duction. As the review of empirical evidence at B&W has
illustrated, these factors were indeed important determi-
nants of accounting practice. Admitting the possibility of
co-existing approaches to labor subsumption
47
over pro-
tracted periods, Burawoy (1984) developed a useful taxon-
omy for explaining different views of labor control and
pro?t appropriation. These approaches have been neglected
somewhat in Marxist interpretations of accounting history.
Nonetheless, the ATBV is consistent with variants of Marxian
perspective
48
by arguing that the regime of capital accumu-
lation, manifested by institutional rules and systems of gov-
ernance, was an important determinant of accounting
change. In common with the Foucauldian perspective, it
attaches fundamental importance to the process of monitor-
ing and controlling labor (Hoskin & Macve, 2000). It comple-
ments that approach by emphasizing the valorization stage
of the labor process in which controllable labor outputs
are converted into appropriable economic values mediated
by accounting (Toms, 2005).
Even so, explaining developments at B&W in terms of
the technical modernization of accounting, tempered by
the norms of 18th-century social and business practice,
for the most part contradicts the arguments put forward
by Bryer (2005). For Bryer (2005, p. 27), the accounting
system at B&W was modern and managerial although he
does not analyze the historical circumstances that brought
this about. Rather, the system’s modernity follows from
the capitalist mentality and behavior of Boulton, Watt,
and their respective sons. Bryer’s view therefore raises
the empirical question of whether Boulton and Watt were
capitalists. Considering this point, it is surprising that Bryer
notes that Watt professed a hatred of business and partic-
ularly keeping accounts, and that he wrote to a friend that
45
Ripley later revealed that his real motive for acquiring one piece of land
was to prevent the operation of a dram shop on the site (Whittlesey, 1920,
pp. 98–99).
46
‘‘Old Corruption’’ refers to sinecures and gratuitous emoluments
granted to of?ce holders by the British government (Rubinstein, 1983, p.
55).
47
Formal subsumption refers to control of the labor process by the
capitalist, whereas real subsumption refers to its transformation. Formal
subsumption allows capitalists to convert labor into pro?t only by using
more labor than is required for the sustenance of the worker (i.e., extending
the working day), whereas real subsumption allows capitalists to reorga-
nize production such that pro?t can be extracted within the con?nes of any
given working day (summary based on Marx, 1994) . Bryer (2005, p. 35)
suggests: ‘‘that the tell-tale signature of real subsumption is accountability
for the rate-of-return on capital employed,’’ whereas Marx’s de?nition only
implies the subordination of labor to capital without prescribing the
measurement technique used.
48
For example, Toms (1998, 2002, 2005, 2010) examines the relationship
between pro?t calculation, capital accumulation, and ownership using an
historical-materialist methodology which mostly complements, but in
some cases contradicts, the implications of mainstream Marxist scholar-
ship. For convenience, ‘‘Marxian’’ refers to the historical materialist line of
argument followed by some Marxist scholars (e.g., Puxty et al., 1987).
12 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
he ‘‘would rather face a loaded cannon than settle an
account or make a bargain’’ (Bryer, 2005, p. 47, citing
Rolt, 1962, p. 53). Bryer then argues that this did not mean
Watt did not share Boulton’s capitalist mentality since his
father was a general merchant and part owner of several
ships, as well as being a builder, contractor, shipwright,
and undertaker. However, in Bryer’s (2005, p. 46) interpre-
tation, being a merchant is not a suf?cient condition to
infer a capitalist mentality since, as he notes on the previ-
ous page, merchants of this time were ‘‘essentially feudal.’’
Boulton meanwhile ‘‘was an example of Marx’s revolution-
ary capitalist manufacturer who was also a merchant’’ (p.
46). It is not clear, therefore, whether his love of Watt’s
‘‘money getting ingenious project’’ (cited by Bryer, 2005,
p. 46) arose from his merchant background or his capitalist
mentality. For Dickinson (1937, p. 195), whom Bryer cites
as an authority for the quote, there is an important caveat:
‘‘The order of adjectives should be reversed: the project
had to be ?rst and foremost ‘ingenious’ to enable him to
exercise suf?ciently his eminently agile and inventive
brain; ‘money-getting’ was only important to him in that
it afforded the wherewithal to launch out into further
schemes.’’
Notwithstanding these confusing attempts at categori-
zation, Bryer (2005, p. 47) offers evidence of Boulton’s cap-
italist intent at the formation of his partnership with Watt
in 1775, suggesting that he wished to take control of pro-
duction to cheapen cost and maximize pro?t. In the mines
of Cornwall, B&W was indeed able to cheapen the costs of
production but did not seek to maximize pro?ts. Rather, as
demonstrated above, it aimed for a reasonable split in the
cost savings. Bryer also suggests that the patent was
exploited in ‘‘feudal fashion’’ without explaining why such
arrangements were feudal. Nor is feudal exploitation con-
sistent with Bryer’s argument elsewhere that ‘‘Boulton
knew he would need to make ‘heavy capital investment
and that many years might pass before the new business
would yield an adequate return on that capital’’’ (Bryer,
2005, p. 47, citing Rolt, 1962, p. 58). According to Rolt
(1962, p. 48), the need for such returns was the motive
for Boulton securing the extension to the patent in
1775.
49
Applying Bryer’s reasoning to these facts, the capi-
talist mentality, evidenced by maximizing ROCE, drove
B&W to extend the patent. However, the same mentality
was then applied in Cornwall in ‘‘feudal fashion.’’
If, regardless of these actions, Boulton is assumed a cap-
italist, then, according to Bryer (2005, p. 28): ‘‘The capital-
ist mentality pursues the. . . [ROCE] in production by
extracting surplus value from the sale of commodities or
services produced by wage labour, and the capitalist keeps
balance sheets and pro?t and loss accounts.’’ Bryer believes
that there is evidence for such behavior in the examples of
costing and pricing for engine ?tting supplied by Roll
(1930, pp. 247–248, appendix xix). An important aspect
of Bryer’s modernity thesis is that because Boulton and
Watt were capitalists, they measured their ROCE. Accord-
ing to Bryer (2005, p. 52, emphasis added), to direct costs
‘‘BW added a return on capital employed. This hallmark of
the capitalist mentality had not changed since the birth
of the ?rm in 1775.’’ In the example calculation provided
by Bryer (2005, p. 52, reproduced below as Table 3a), a
40% markup is added ‘‘[a]n allowance made in the ?tting
for hemp, tallow, oil, candles, Coals and Interest of Capital
expended in the shed and machinery and for trying the
machinery’’ (Tann, 1981, p. 246, cited by Bryer, 2005, pp.
52–53). The technical problems with this interpretation
are twofold. First, a markup is not the same as ROCE since
a markup does not require capital employed, and there is
no evidence that B&W calculated this or indeed that the
accounting system facilitated its computation. Second,
the markup was intended to allow for indirect overheads,
grouped, as the citation suggests, by class of expenditure,
not by activity. In the example, a 40% markup was added
to directly absorbed overheads, which included interest
of capital expended in the shed and machinery, and which,
for Bryer, represented a ROCE on the ?tting shed and its
machines. However, if the interest element is charged at
5%, there can be no suggestion that is suf?cient for, or con-
sistent with, ROCE maximization. In Roll (1930, appendix
xix), the markup is at a rate of 50% of metal material costs,
differing from the 40% used in ?tting. Moreover, as the
review of Williams’ evidence has shown, together with
archival evidence,
50
markups varied by customer and geo-
graphical location until the late 1790s. Prices were set in
the context of the patent and were varied by customer
according to the fuel saving potential of individual engines.
They therefore varied according to engine size and local coal
prices (Roll, 1930, pp. 141–142).
Tables 3a and 3b show the methods used by B&W to
establish the price charged by the customer. The ?rst panel
(Table 3a) is the same as used in Roll (1930, p. 248), which
is relied upon by Bryer (2005, p. 52) as the only evidence
that B&W was interested in ROCE. The second panel
(Table 3b) expands the calculation to show the full archival
record.
51
As can be seen from Table 3a, 40% (£15) is added to
?tting costs. As Roll (1930, p. 249) explains, the adjustment
is to cover indirect overheads. It is neither a ROCE calcula-
tion nor a markup on cost calculation. Interest on capital is
charged to production cost as an indirect overhead and is
included in the £15 for the purposes of arriving at a standard
cost. As Table 3b shows, a markup is charged at 50% on total
production cost. The purpose of these calculations was not
to manage or maximize ROCE. Rather, as Roll (1930, pp.
238–239, appendix xix) suggests, it was designed to produce
the same level of pro?t as under the patent-premium
method.
52
The addition of depreciation to product cost in
the form of charges for the use of machinery (Roll, 1930, p.
248), cannot infer the use of ROCE. It is clear from
Table 3a and 3b that there are no calculations of ROCE so
that Bryer’s ‘‘hallmark of the capitalist mentality’’ is there-
fore absent. There is no corresponding attempt to measure
49
B&W engines were protected by the patent for the separate condenser
obtained by Watt in 1769, which an Act of Parliament of 1775 had
prolonged until 1800.
50
For example, BWC MS/3147/4/76, ‘‘Calculations of Costs and Prices of
Small Engines’’.
51
BWC MS/3147/4/76 Calculations of Costs and Prices of Small Engines.
52
As Table 1 shows, pro?ts under this system were modest, notwith-
standing the patent protection, and in keeping with the standards of
business practice of the time.
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 13
the capital employed, and there is no indication of the
required rate of pro?t as distinct from the other indirect
charges included in the markup. These ?gures therefore pro-
vide no basis for ROCE measurement, which is even more
problematic where markup varies by customer.
In any event, 18th-century business practices tended to
restrict the pursuit, calculation, and declaration of excess
pro?ts using accounts (Toms, 2010). B&W aimed to obtain
a ?xed share of the ?uctuating savings and shared the risk
with its customers so that, for example, no premium was
paid when the engines were shut down. B&W’s business
policy therefore re?ected traditional doctrine by earning
high pro?ts only as a reward for risk and personal effort,
but did not to aim for usurious returns on risk-free invest-
ments which would have violated business norms. Prices,
and hence markups and pro?ts, accordingly varied by risk
and customer. Also, as explained earlier, the ?nancial
accounts were not integrated for all B&W’s activities and
were not separated from personal ?nancial transactions.
Under these conditions, B&W would not be concerned with
calculating or maximizing ROCE for the whole business.
The presence or absence of ROCE, as suggested by Bryer
(2005), is therefore an inappropriate yardstick for the
assessment of the ‘‘rationality’’ or ‘‘modernity’’ at B&W or
the characterization of its methods as ‘‘capitalist’’ or
otherwise.
If there is no evidence of ROCE measures, are there
other aspects of accounting technique that might explain
a capitalist mentality? A further reference by Bryer
(2005, p. 47) is to the capitalist mentality at the birth of
the ?rmin 1775, evidenced by the fourth point of the infor-
mal partnership agreement, explained in Watt’s subse-
quent letter to Boulton in which there is a reference to
interest being deducted before a balance is struck. For
Bryer, such post-interest pro?t amounts to ‘‘residual
income,’’ which is also ‘‘the hallmark of Marx’s capitalist
mentality.’’ However, this calculation does not resemble
residual income (RI). As conventional in pro?t-sharing
agreements between partners, interest was charged on
capital. Rates were ?xed in line with the legal maximum
permitted under the usury laws and used in contemporary
case law to differentiate between genuine partnerships
and illegal usury.
53
From 1713 throughout the period of this
study, the legal maximum rate was 5% (Campbell, 1933, p.
197). The partnership agreement of 1777 between Boulton
and Watt speci?ed that interest should be charged at ‘‘the
rate of £5 in every hundred per year’’ on the joint stock of
the partnership.
54
The same rate of 5% on opening capital
was used in the example cited by Roll for 1806.
55
These
appropriations of pro?t are not the same as the absorption
of interest charges for costing purposes referred to in Tables
3a and 3b above. Partners could easily appropriate pro?t
using interest charges without requirements to maximize
pro?ts or earn a higher ?gure above a 5% target. Charging
interest on capital is not therefore evidence of a capitalist
mentality, pursuing RI, or ROCE. Rather, it is evidence of
the continued restrictive impact of pre-modern ?nancial
practices on the developing productive base.
Bryer (2005) also argues that B&W is a case study of
transition from formal to real subsumption of labor. He
associates this with the internalization of production after
1795. From a Marxist point of view, replacing external sub-
contracting with factory organization would be prima facie
evidence of such a transition. It is certainly true that the
foundry required substantial ?xed-capital investment,
thereby creating the conditions for real subsumption.
Bryer (2005, p. 48), however, equates real subsumption
with depreciation. Of course, depreciation implies the exis-
tence of socialized capital but does not presuppose it. As
noted above, B&W remained a partnership, and insofar as
it accumulated capital, did so privately, outside the manu-
factory and foundry ledgers.
56
For Marx, labor is subordi-
nated to capital in formal subsumption, but the labor
Table 3a
Standard cost calculation.
£ s.d.
Wm Harrison’s charge for the total ?tting, turning, boring
and labour exclusive of packing £20 = 400s; 2s
6d = 160 days
20.0.0
Charge for use of tools, say 6d per day on 160 4.0.0
Charge for use of machinery, say 1s per day 8.0.0
Charge for weighing and loading 1.0.0
33.0.0
Plus 40% 15.0.0
?
48.0.0
Or say 45.0.0
??
Source: B&W Collection, calculation of cost of ?tting, 9 October 1801. M.R.
Boulton copy of agreement with W. Harrison for ?tting the small engines
1801.
Table 3b
Soho engine costings 3 hp engine for Mr. Clark of Bath, 1800.
£ s.d. £ s.d.
List of material parts (6 pages) 132.16.3
Cost of ?tting the governor 2.2.0
Labour cost (?tting) 40.13.7
40% on 40.13.7 16.5.5
56.19.0
Total per invoice of the cost 191.7.3
Invoice (including boiler) 206.2
Deduct extra charge of ?tting:
56.19
Standard cost 45
??
11
195.2
Add markup (50%) 97
Engine price 292
Say 290
Source: B&W Collection 3147/4/76, Calculations of Costs and Prices of
Small Engines (partly reproduced, Fig. 1a only, in Roll, 1930, p. 248 and
Bryer, 2005, p. 52).
Notes:
?
Referred to by Bryer (2005, p.52) as the required rate of return on
capital employed.
??
Refers to the result in Fig. 1a, carried forward into 1b.
53
Grace v. Smith (1775); Bloxham and Fourdrinier v. Pell and Brooke
(1775). For discussions of these cases, see Campbell (1933).
54
BWC, MS/3147/2/8–9.
55
From the table in Roll (1930, p. 259), one year’s interest (£793) divided
by the balance at the beginning of the year (£15,793/19s/2d), equals 5%.
56
Hybrid methods of labor subsumption; e.g., internal contracting, have
characterized discussions of accounting change, such as at the Waltham
Watch Company (Fleischman & Tyson, 1996).
14 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
process is otherwise unaltered (Marx, 1994, pp. 469–470,
chap. 6). The presence of capital therefore implies deprecia-
tion for both categories of formal and real subsumption. The
difference is that depreciation in real subsumption is part of
the process of obfuscation of the relationship between the
individual and the social value of the product. It is not clear
from the accounts of B&W how depreciation mediated this
relationship.
Another speci?c example of Bryer’s assertion of moder-
nity is the claim that B&W used activity-based cost man-
agement (ABCM):
Although there is no evidence that BW used a cost-allo-
cation formula to hold its managers accountable for
overheads, there is some that it used what we now call
activity-based cost management (ABCM) for this pur-
pose, and used the supposedly modern idea of activ-
ity-based costing (ABC) for pricing. In short, a closer
look suggests BW’s management accounting system
was as modern as ABCM is today.
[Bryer, 2005, p. 53]
Having made this claim about modern ABCM, Bryer
(2005, p. 54) then suggests B&W’s actual practice corre-
sponded more closely to Activity Based Management
(ABM) which following Drury (2000, p. 897), ‘‘[omits] the
?nal stage of assigning activity costs to products.’’ Bryer
thus acknowledges the incompleteness of the B&W system
in terms of an important component of modern ABCM.
There are, nonetheless, three other components of Drury’s
de?nition of ABM: (1) identifying the major activities that
take place in an organization; (2) assigning costs to pools/
cost centers for each activity; (3) determining the cost dri-
ver for each major activity. There is, however, little evi-
dence of any of these practices at B&W. Bryer suggests
that Lee, the cotton manufacturer referred to earlier,
advised James Watt Jr. to adopt ABM by ‘‘descending into
drudgery’’ to perform the necessary accounting calcula-
tions (letter dated March 11, 1797; Tann, 1981, p. 240,
cited by Bryer, 2005, p. 54). According to Bryer (2005, pp.
54–55, citing a letter fromM.R. Boulton to his cousin, dated
April 14, 1797), this is exactly what Boulton did, apologiz-
ing to his cousin for a long silence on the grounds that he
had been a regular attendant in the counting house.
However, there are no reasonable grounds to suppose
that Boulton spent his time in the counting house analyz-
ing costs for the purposes of creating an ABM system. On
the contrary, as the remainder of the letter points out
(Tann, 1981, p. 235), the purpose of his labors was to
defend the patent and plan the development of the foun-
dry. In writing to his cousin, Boulton was summarizing a
series of such activities over a substantial period of time
and could not have completed an ABM costing exercise
for the last 12 months in the space of the four weeks since
the dispatch of Lee’s advice. The advice, in any case, did not
amount to a suf?cient description of ABM. Lee stated (cited
by Bryer, 2005, p. 54) that ‘‘in the construction of Machin-
ery we never yet could reduce it to regular piece work or
divide the Labour of Making and Repairing it in such a
Manner as to determine the distinct cost of each.’’ How-
ever, it is unclear from this statement whether Lee was
referring to the cost of machinery or the costs of making
or repairing. The costs refer to labor costs and not the over-
heads or the indirect costs associated with any of these
activities or what the cost drivers were. Also, as the citation
shows, the key control mechanism for Lee was not the
analysis of accounts but ‘‘close personal inspection’’
(Bryer, 2005, p. 54). Lee’s advice therefore corresponded
vaguely to Drury’s de?nition, and all that can be concluded
from the two citations provided by Bryer is that Boulton
was prepared to spend time in the counting house as a
way of dealing with management problems.
The more general issue for Bryer’s interpretation is that
insofar as proto-ABCM systems might have existed (c.f.,
Roll’s 1930, p. 249 speculative discussion, cited by Bryer,
2005, p. 55), they were neither suf?cient nor necessary
conditions for the computation of ROCE. Conversely, if
ROCE calculations are the hallmark of the capitalist men-
tality, they can be computed without using other modern
methods, such as ABM/ABCM.
In summary, Bryer’s application of Marx to accounting
transition is anachronistic and empirically unconvincing.
It is dependent on identifying capitalists and associated
capitalist behavior, evidenced by the signatures of modern
accounting practice, but the juxtaposition of the modern
concepts of ROCE and ABCM into the pre-modern setting
of B&W is problematic empirically and methodologically.
The development of accounting techniques cannot be
explained simply by a capitalist/non-capitalist dichotomi-
zation without con?ating capitalism with modernity and
the consequential tautologies of capitalism and modern
accounting.
Bryer and Toms offer competing, and on the basis of this
review, incommensurable interpretations of the Marxian
labor-process perspective. Even so, recognizing dispersion
of Marxian interpretations, it can be argued that transi-
tions to and within capitalist forms of organizations can
also impact phases of transition in accounting, so that
accounting re?ects changes in the productive forces and
their ownership (Toms, 2010). Roll (1930, pp. 251–252)
echoed this view, arguing the reason for accounting
changes, particularly the adoption of statistical methods,
was that they represented a response to the increased divi-
sion of labor and the changed nature of the partnership.
Following Toms (2005, 2010), transitions follow from a
dynamic interaction of capital centralization and capital
socialization. At B&W, this was determined in turn by hier-
archical consolidation following the consulting phase and
the integration of production. So, the development of
new accounts followed from investment in the productive
forces (Toms, 2010); e.g., the setting up of the newfoundry.
The response was to compute markup on cost, but the per-
sistence of individual control meant the ?nancial accounts
lacked the integration necessary for business-level ROCE
calculations.
Synthesis
In summary, the above review has shown that the ATBV
offers a useful critique of existing paradigmatic
approaches. By examining associated changes in techni-
cal/objective and relational/social aspects of business
activity, the review illustrates potential ways forward for
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 15
economic rationalists (e.g., consideration of labor and gov-
ernance processes), Foucauldian genealogists of accounting
(e.g., technical, labor market, and governance/institutional
contexts), and the Bryer variant of Marxism (e.g., ‘‘feudal’’
limitations on the full application of capitalist accounting).
Rather than expect such responses from paradigmatic
approaches that, as the discussion has thus far re?ected,
for their particular philosophical reasons remain incom-
mensurable, the ATBV is required to stand as an alterna-
tive, likewise subject to critique from alternative
perspectives. To complement the above reviews of new
empirical evidence and prior interpretations, the next sec-
tion presents a taxonomy of accounting change.
Taxonomy of accounting change
Table 4 presents a taxonomy showing stages of
accounting development as industrialization proceeds. It
is illustrated with examples from B&W, as appropriate.
Based on the previous sections, it also illustrates generaliz-
able aspects of the determinants of accounting change.
Accounting change is shown as a function of the inter-
action of technical/objective and relational/social charac-
teristics at the transactional and business-entity level.
Technical and objective characteristics refer to the physical
location and degree of centralization. For example, the con-
centration of plant and its integration on a single site
would represent a high degree of centralization and lead
to speci?c accounting problems associated with transfer
prices, the allocation of joint costs, make-or-buy decisions,
etc., some of which are illustrated by B&W’s transfer of
production to Soho. Previously, the networked set of sub-
contracted relationships represented a more decentralized
productive base. On the other side of the accounting equa-
tion, capital centralization impacts the social and relational
aspect, creating challenges in terms of raising capital and,
depending on the maturity of capitalist institutions (such
as banks and money markets), results in regimes of
personal accumulation and distribution, relational invest-
ment (e.g., with banks), or the divorce of ownership and
control through the delegation of authority to professional
managers. This is represented in the second column of
Table 4.
The third column shows the relationship between capi-
tal and labor combining technical/objective and relational/
social aspects. The labor process is embedded in the pro-
ductive assets of the former and the transformation of its
activities into value, while the distribution of that value is
re?ected in the latter. Labor subsumption was de?ned ear-
lier in conventional Marxist terms for the purposes of
assessing prior Marxist contributions. In practice, as
acknowledged by industrial sociologists (e.g., Price, 1983),
real subsumption is not achieved and de facto control over
the labor process is a compromise based on subordination
and resistance. The transition described by Marx at the
end of the 18th century and the beginning of the 19th
was both premature and incomplete due to the persistence
of craft control (Steinberg, 2003). Piece rates, which ?gure
prominently in our discussion, are a good example. In patri-
archal systems of internal contracting, piece rates are con-
trolled by inside contractors in return for indirect
ful?llment of the supervisory process. Employers can con-
trol piece rates more directly when foremen are paid
explicitly for conducting supervisory activities as, for exam-
ple, in the mid-19th century British cotton industry (Cohen,
1985). In ATBV, the ability to regulate the piece rate is
therefore a crucial transition in accounting since, in theory,
effective resistance (as at B&W before 1815 and SA before
1841) implies delegation of rate setting and intermediate
distribution of valorized production to the shop ?oor,
whereas subordination implies direct accounting control
over rates and supervision of shop-?oor behavior.
Table 4
A taxonomy of accounting development.
Technical/
objective
characteristics
Social/
relational
characteristics
Subsumption
of labour
Sufficient
Accounting
technology
Accounting examples Transitional process
Decentralized,
specialized,
productive
resources;
arms ’-length
co-ordination
Regulated
pre-capitalist
relationships
None
Double -entry
bookkeeping
Arms’ -length transactions
between merchants
Systems for monitoring
quality and outputs and
sharing surplus
Transition Phase 1
Centralized,
integrated,
productive
resources;
administrative
co-ordination
Accumulation
of capital by
individuals
Low
Cost accounting
I: Accounting for
product -specific
input and output
values
Internal profit accounting
for individual labor
teams or ‘firms’.
Piece rates regulated and
negotiated
Transition phase 2
High
Cost accounting
II: Accounting for
general labor and
overhead costs
Accounting for joint costs
Piece rates integrated into
pricing decisions and
production efficiency
planning
Transition phase 3
Divorce of
ownership
and control,
professional
managers
High
Managerial
accounting:
Relating detailed
product costs to
overall business
performance
Cost and financial
accounting integrated;
Monitoring of returns on
investment
16 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
Re?ecting these uncertainties in accounting terms, sub-
sumption refers to the degree to which labor is separately
identi?able and measurable. In Table 4, labor subsumption
is characterized as ‘‘low’’ or ‘‘high,’’ re?ecting a continuum
with idealized categories of ‘‘formal’’ and ‘‘real’’ corre-
sponding to these. In the early-19th century, the transition
was driven by the changes in regulatory structure dis-
cussed earlier that led to the substitution of the former
with the latter. In pure market or highly decentralized sit-
uations, this is not an issue because with the high degrees
of specialization entailed, the cost of labor can easily be
attributed to the cost of the product. An interesting inter-
mediate stage at B&W was the inside-contracting phase
in which the labor team was given the responsibility for
output targets on speci?c tasks, thereby preserving an
identi?able pro?t or surplus to the labor team, keeping
labor subsumption on a formal basis. Real subsumption
occurs as production becomes more integrated or central-
ized when this direct relationship between the producer
and product disappears, or is subsumed, such that labor
cost is more dif?cult to allocate to speci?c products. Value
division between labor and capital is then determined
more by administrative ?at. Increasingly sophisticated
accounting is a necessary response on the technical side
in terms of monitoring labor for cost-allocation purposes
and on the relational side for determining socially accept-
able levels of remuneration within regulated or unregu-
lated norms. Both aspects were manifest at B&W with
the development of costing systems to assist the pricing
of engines and detailed calculations for the purpose of
developing and revising piece rates.
The capitalist does not face a straightforward choice
between formal and real subsumption because labor is dif-
?cult and costly to monitor. Historically, there is no reason
to suppose that the one progressively follows the other.
Formal and real subsumption are therefore alternative pos-
sibilities. Formal subsumption implies the persistence of
market-mediated relationships within a hierarchical struc-
ture (e.g., in the form of internal subcontracting). There-
fore, direct surveillance in the Foucauldian sense is only
possible when real subsumption exists as the use of hierar-
chical methods of control are presupposed. Similarly,
because hierarchical methods imply managerial functions
as opposed to personal superintendence by individual
entrepreneurs, a further implication is that the Foucaul-
dian view of labor control also presupposes a corporate
regime of capital accumulation. However, as argued above,
the Foucauldian explanation is incomplete insofar as it
ignores who disciplines the managers and how the sources
or absence of managerial discipline are traced back to the
supply of capital. Surveillance over the shop ?oor then,
even though the presence of managers is presupposed,
does not represent a suf?cient condition for managerial
accounting or the ?nal phase of development in Table 4.
Where there is hierarchy staffed by managers, the implica-
tion is that agency problems will arise, as the review of
new evidence at SA has shown, since managers will have
the incentive and opportunity to appropriate rents if insuf-
?ciently monitored by capital. To be effective, a managerial
system of accounting therefore must impose targets of
accountability at the enterprise level so that non-technical
investors using summary information can monitor mana-
gerial performance. ROCE succeeds in this respect as a per-
formance measure. Its computation relies on cost and
?nancial accounting system integration, not only so that
the ratio can be computed but also cascaded into func-
tional and specialist parts of the organization. ROCE can
then be integrated with costing and pricing decisions as
famously pioneered by DuPont in the 20th century
(Johnson & Kaplan, 1987, p. 89). It is this integration that
de?nes the ?nal phase of the taxonomy in Table 4 as man-
agerial accounting.
The taxonomy is intended to be non-teleological; in
other words, there is no necessary assumption of progres-
sion through time to the ?nal phase. For example, it is pos-
sible for market and formal subsumption categories to
persist as an economy industrializes or be reinvigorated
as it de-industrializes. Nonetheless, the transition from
one stage to the next is progressive in that it re?ects the
evolution of the economic institutions of capitalism. For
example, once feudal restrictions on the employment of
labor or incorporation are removed, it is unlikely that they
will be re-imposed on grounds of economic ef?ciency,
although it is possible they may re-emerge in different
forms.
Using the combinations implied by the taxonomy cre-
ates a series of accounting technologies of progressive
sophistication in phased stages from DEB to managerial
accounting. Recording transactions arising from market
relationships is the most straightforward of these, sup-
ported by transaction-based DEB. Where hierarchy is used
to sustain personal accumulation with formal subsump-
tion, the entrepreneur is essentially a subcontractor as,
for example, in consulting engineering. Cost accounting is
required as a complement to DEB in order to record input
and output values as they are passed from one individual
to another within the network (Cost Accounting I) and dif-
fers in this respect from pure market organization (transi-
tion phase 1).
57
Under this system, in the period c.1795–
1814, B&W saved costs of monitoring individual workers
by incentivizing team leaders through a piece-rate system
that allowed generous rewards, in some cases at least, while
the apprenticeship system regulated employment to the
bene?t of team leaders and the ?rm as a whole. Remnants
of pre-capitalist regulations, such as the Statute of Arti?cers,
while limiting the freedom of labor, also enhanced the
incomes of inside contractors and piece workers.
In the next phase therefore, managerial action and
accounting were aimed at limiting the ability of labor to
appropriate the proceeds of the productive process, partic-
ularly as regulatory changes allowed. The 1815–1816 revi-
sion to piece rates, conducted in a period of legislatively
supported attacks on wages, with greater reliance on
time-based rates, offers some evidence of transition to real
57
Each phase in Table 3a and 3b builds on the previous in complementary
fashion, such that, for example, cost accounting supplements and draws
from underlying books of account. Conversely, where cost reports do not
use DEB, it is supposed that the normal functions of DEB are continued for
the reasons they evolved in the previous phase. Charge and discharge
re?ected government ownership at SA, but otherwise played the same role
as DEB at B&W.
S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20 17
subsumption, using accounting calculations to assert con-
trol over the shop ?oor. Employers based wages on earn-
ings necessary for subsistence from the workers’
perspective as opposed to a mutually agreed contracted
rate. As labor is subsumed in industrial processes, the
cost-accounting system develops further (Cost Accounting
II) in order to trace aggregated labor and overhead cost
pools to speci?c products (transition phase 2). These activ-
ities became important for B&W around 1800 with the
expiry of the patent such that markups on individual
engines could be ascertained that were in line with custom
and practice and premiums earned under the license
arrangements. At B&W during this phase, piece-rate
reviews were conducted to economize on costs, as in
1816, but without attempting to maximize pro?t. Cost
Accounting II records costs and pro?ts at the level of the
individual product, process, or venture, but because capital
is accumulated at the personal level, they are not aggre-
gated for monitoring whole business performance.
Only with the combination of corporate accumulation
and enhanced real subsumption is accounting within a
managerial hierarchy sustainable. Managerial accounting
enables the processes of recording detailed product costs
and the calculation of aggregate business pro?ts and rates
of return to be potentially uni?ed (transition phase 3).
There was no evidence of such integration at B&W or of
the use of associated ROCE measures. Notwithstanding
the integration of production and the further subsumption
of labor in the productive process, barriers remained to the
development of modern managerial accounting. Principal
among these was the continued accumulation of capital
at the personal level. This is not simply that the business
remained under the personal control of its entrepreneurs
since it was possible for them to delegate full responsibility
to a managerial team and associated hierarchy. Rather, it
refers to the con?ation of the business with the private
?nancial affairs of the owners, such that managerial
accounting could not develop since separable and aggre-
gate business costs, pro?ts, and rates of return could not
be obtained. Instead, it was only possible to cost individual
items of output or processes, albeit with some
sophistication.
Conclusions
In summary, B&W used accounting calculations to
design incentive systems that also economized on supervi-
sion costs, but not to support the process of personal cap-
ital accumulation by the proprietors. They used internal
subcontracting and were able to do this within the regu-
lated framework of wage and employment control before
1815. Subsequently, their attention turned to labor-cost
control as the signi?cant downward revision in 1816 illus-
trated. The examples of accounting transition at B&W were
a consequence of attempts to improve ef?ciency in the
context of an evolving regulatory regime of accumulation.
Although drawing on Marxian categories, such as capi-
tal accumulation and labor subsumption, this explanation
differs from Bryer’s (2005) Marxist interpretation of these
developments. Bryer argued that piece rates are attractive
‘‘if the capitalist can dominate production and draw up
standard labor costs, when they become ‘the most fruitful
source of reductions of wages and capitalistic cheating’’’
(Marx, 1994, p. 552, chap. 6, cited by Bryer, 2005, p. 50).
The evidence above has not been suggestive of any such
dominance; indeed, piece rates were just as important in
the putting-out system (Marx, 1996, p. 695) or at B&W
when using contractors on external work (e.g., Harrison,
Table 3a). Piece rates then re?ected the regime of accumu-
lation but did not necessarily promote rapid capital accu-
mulation through the exploitation of labor. The B&W
accounts were not suf?ciently coherent at an aggregate
level to assist the owners in measuring such a process.
By separating the possibility of sophisticated cost
accounting from the inception of managerial accounting
using a labor-control taxonomy, the above analysis also
helps set the Foucauldian genealogical approach in a wider
context. B&W did use sophisticated methods of labor con-
trol as the experiments in the early 1800s illustrate. These
did not depend on the exercise of direct supervision
through a managerial hierarchy. As the review of the evi-
dence at the SA has shown, surveillance was used in the
fashion described by Hoskin and Macve (1988, 1994,
2000) and was an advance further into Cost Accounting II
than B&W achieved. However, real subsumption of labor
through the disciplinary gaze was not in itself suf?cient
for ‘‘modern’’ management. The state suppliers of capital
to the military superintendent deviated from ef?ciency
objectives and exercised inadequate control, so that there
was inadequate ultimate accountability. In short, account-
ing control and accounting for capital were not integrated,
and the system lacked the modern features later developed
by DuPont and others.
There are many cases where ?rms have created mana-
gerial hierarchies only subsequently to revert to subcon-
tracting and vice versa.
58
At B&W, accounting systems and
calculations were set up to support subcontracting arrange-
ments. However, they were moderated by survivals of com-
mercial custom, practice, and regulation that had pervaded
in England since feudal times. The regime of accumulation
was not therefore fully modern and awaited the laissez-faire
legislative program of mid-19th century liberalism. Finan-
cial accounting was accordingly incomplete, error prone,
and non-integrated.
By presenting and testing a framework that integrates
the technical/objective and relational/social aspects of
accounting, the paper has critiqued aspects of economic
rationalist, Foucauldian, and Marxist literature. The review
has shown that these single philosophical paradigms tend
to result in mono-causal explanations; e.g., administrative
co-ordination in Chandler, the West Point connection in
Hoskin and Macve, or Bryer’s capitalist- mentality argu-
ment. The alternative offered here is based on understand-
ing the changes in organizations’ asset structures,
including the process of value creation, the reordering of
liabilities that arise from them, and the consideration of
accounting as the means of capturing these relationships.
58
For example, the recent tendency to replace managerial hierarchies
with franchising, joint ventures, and other quasi market-based relation-
ships (Toms & Wright, 2002, 2005).
18 S. Toms, R.K. Fleischman/ Accounting, Organizations and Society 41 (2015) 1–20
The research is clearly limited by the application of the
taxonomy to a single empirical case although evidence has
also been provided from other relevant contexts, including
the SA that ?t the framework quite well. Transition phase 3
was not fully completed at B&W because the business
never achieved the scale that would have necessitated it
at a time when capital accumulation was personal not cor-
porate. Further studies of the combined impact of market
to hierarchy substitution, the emergence of corporate cap-
ital accumulation, and the real subsumption of labor to
explain their joint impact on the development of modern
accounting are therefore likely to be of value. In the period
before 1850 at least, the B&W and Spring?eld cases suggest
that the management of internal-contractual relationships
and a preoccupation with ef?ciency rather than pro?t or
control through surveillance were the dominant explana-
tions of accounting change.
Acknowledgements
We are grateful to the participants at a session of the
2009 Accounting Business and Financial History Confer-
ence at Cardiff Business School for helpful comments on
an initial version of this paper.
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