The history of accounting and the transition to capitalism in England. Part one: theory

Description
To appreciate the social signi®cance of accounting today we must study it in changing socio-historical contexts and
understand its ideas and techniques as products and producers of history. This paper (Part One) and a subsequent paper
(Bryer, The history of accounting and the transition to capitalism in England. Part two: evidence, in press) argue for a
social history of accounting change. In social history no theme has been more important than the meaning of modernity,
and no explanation more debated than Marx's theory of the transition to capitalism in England. The papers argue that
historians of accounting can make a major contribution to this debate.

The history of accounting and the transition to capitalism in
England. Part one: theory
R.A. Bryer
Warwick Business School, University of Warwick, Coventry CV4 7AL, UK
Abstract
To appreciate the social signi®cance of accounting today we must study it in changing socio-historical contexts and
understand its ideas and techniques as products and producers of history. This paper (Part One) and a subsequent paper
(Bryer, The history of accounting and the transition to capitalism in England. Part two: evidence, in press) argue for a
social history of accounting change. In social history no theme has been more important than the meaning of modernity,
and no explanation more debated than Marx's theory of the transition to capitalism in England. The papers argue that
historians of accounting can make a major contribution to this debate. Part One uses accounting ideas to explain Marx's
theory. Many believe his theory is ambiguous or relies on teleology or economic determinism. Sociologists often repeat
Weber's argument that Marx overlooked the cultural foundations of socio-economic action; the need for a transition to
the calculative mentality of modern capitalism. Marxist historians dispute whether the primary cause was the rise of trade
or class con¯ict in agriculture. While historical evidence broadly supports the class con¯ict view, controversy continues.
This paper shows that, when translated into accounting ideas, Marx's theory is unambiguous; relies neither on teleology
nor economic determinism; is historically testable; includes class con¯ict in trade and agriculture, and calculative men-
talities as necessary and sucient causes of capitalism and, we argue, modern accounting. Part Two provides evidence
consistent with Marx's theory from accounting records produced during the English agricultural, commercial, and
bourgeois revolutions. It concludes that accounting for the transition to capitalism should have a high priority on the
research agenda of accounting historians. # 2000 Elsevier Science Ltd. All rights reserved.
To grasp the social meaning of accounting we
must engage with the ``important theoretical and
historical debates which have traversed the social
sciences'' (Miller & O'Leary, 1987). In these
engagements, not only may we understand more
of modern accounting, but its historians may con-
tribute to our understanding of social history. In
social history no theme has been more signi®cant
than the question of `modernity',
1
and no theory
of social change has aroused more controversy
than Marx's explanation of the transition from
feudalism to capitalism in England. Only Marxists
debated this in the nineteenth century. However,
following the publication of Moderne Kapitalismus
by Sombart in 1902, and Weber's articles on The
Protestant Ethic and the Spirit of Capitalism in
1905, the words feudalism and capitalism became
common currency among historians and sociolo-
gists. As Holton says, they ``became important
reference points in a wide-ranging debate over the
origins of modern Western society, a debate in
which Marxists and non-Marxists alike increasingly
0361-3682/00/$ - see front matter # 2000 Elsevier Science Ltd. All rights reserved.
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Accounting, Organizations and Society 25 (2000) 131±162
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1
That is, identifying and explaining the di?erences between
the economic and social structures and mentalities of the present
and the past.
came to think of capitalism as the phenomenon
whose historical appearance was to be explained''
(Holton, 1985, pp. 12±13). There is still no agree-
ment as to precisely what these words mean.
Contributors to the transition debate have used
three theoretical approaches. Neo-classical eco-
nomics in the tradition of Adam Smith; Marx's
idea of the mode of production; and Weber and
Sombart's idea of calculative mentality. No
approach commands general support, and there
has been no synthesis. The aim of this paper is to
use Weber's link between calculative mentalities
and accounting to explain Marx's theory of the
transition to capitalism as a history of account-
ing.
2
Part Two (Bryer, in press-c) argues that
Marx's theory is consistent with the accounting
evidence available.
From the perspective of this paper, implicitly or
explicitly all explanations of the di?erences
between past and current accounting presume a
theory of the transition to modern capitalism.
Theoretically, if not always in practice, `tradi-
tional' historians of accounting mirror neo-classi-
cal economic explanations of the transition (Miller
& Napier, 1991; Napier, 1998). Their central
problem is explaining the apparently long delay in
England from charge and discharge accounting in
the thirteenth century to the general appearance of
double entry bookkeeping and cost accounting
during the industrial revolution. Explicitly or
implicitly traditionalists explain the apparently
slow evolution of accounting, followed by an
apparently sudden change, by the absence or pre-
sence of economic `pressures' from an `environ-
ment' operating on presumed, transcendental
`economic needs' (Carnegie & Napier, 1996; Hop-
wood, 1987). Where traditionalists are not tele-
ological, their failure to specify the social
mechanisms behind accounting change reduces
their explanations to naive functionalism (Bryer,
1998b; Hopwood). In short, we cannot use the
traditional approach to write ``a history of the
emergence of accounting as it now is'' (Hopwood,
p. 211).
3
To avoid these problems, historians of account-
ing have increasingly turned to the work of philo-
sophers, sociologists and historians for models
and approaches to help uncover accounting as a
social reality. The work of Michel Foucault in
particular has inspired some important contribu-
tions (Napier, 1989). However, while his approach
addresses the question of social meaning, its tota-
lising discourses and its disdain for the material
world undermine its potential contribution to a
history of accounting change (Armstrong, 1994;
Neimark, 1994). Furthermore, Foucault's frame-
work is not an obvious choice for the historian
who seeks to implicate accounting in broad social
changes. Unlike Marx and Weber, to whom Fou-
cault is otherwise indebted, global social processes
are of no concern (Smart, 1983, p. 125, 1985,
p. 16). His view that economics is an empirical
science (e.g. Foucault, 1970, p. 345) also undermines
the applicability of his approach to accounting.
Although he does not say what he means by eco-
nomics, it is likely that Foucault included Marx's
political economy.
4
Like Marx, he identi®ed its
object as labour and production. He openly
accepted ``it is not possible at the present time to
write a history without using a whole range of
concepts directly or indirectly linked with Marx's
thought'' (Foucault, 1980, p. 53). He levelled his
criticisms at Marxists rather than Marx.
5
If he
includes Marx's political economy within eco-
nomics, and if, as I argue here and elsewhere, it
2
Note that I include methods of bookkeeping and auditing
within the domain of accounting. Although I shall use the
phrase `Marx's theory', this is to be understood as my reading
of Marx. As I give a novel reading for a particular purpose I
only selectively interrogate or call upon the Marxist literature
in this paper. Whether my reading helps to reveal the `true
Marx' is beyond its scope.
3
For historical and sociological criticisms of the Smithian
economic approach to the transition see, for example, Holton
(1985, Chapter 2).
4
Foucault's interest shifted away from Marx's `historical
materialism', and presumably his political economy, when he
was a student (Smart, 1985, p. 15).
5
Although Foucault did not think Marxism was a new
science (Smart, 1983, p. 79), he did appear to think it was scien-
ti®c in his sense, at least in the nineteenth century. Responding
to the ``reproach'' that ``You seem to have kept your distance
from Marx'', Foucault retorted that although he used Marx's
ideas he did not feel the need to quote him. ``When a physicist
writes a works of physics, does he feel it necessary to quote
Newton and Einstein?'' (Foucault, 1980, p. 52).
132 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
provides a plausible theoretical foundation for
accounting, then we should not try to understand
it as one of Foucault's inherently subjective and
unsystematic `human sciences'.
6
Many historians
of accounting would agree that, as Foucault has
argued for other social practices, we must under-
stand accounting in its social context as an instru-
ment of power and domination. However, the
above reading of Foucault suggests that we should
not, as Carnegie and Napier put it, necessarily
only perceive ``accounting as one social practice
among many'' (Carnegie & Napier, 1996, p. 7).
From the perspective developed here, accounting
is a practice whose social foundations are
objective and systematic (Bryer, 1998a, 1998b, in
press-a, in press-b). It is, therefore, amenable to
empirical scienti®c inquiry in Foucault's sense.
Only Hoskin and Macve (1986) try to explain
the transition to modern accounting using Fou-
cault's approach. It o?ers, they say, a coherent
explanation of the appearance of ``full-scale
accounting. . .in. . .re®ned single-entry systems like
charge-discharge, and especially in the new double-
entry systems (in the thirteenth and fourteenth
centuries'' (Hoskin & Macve, p. 107). At the same
time, it explains why double-entry and cost
accounting remain ``sporadically used until the
nineteenth century'' (Hoskin & Macve, p. 107).
Hoskin and Macve accept the traditional view
that, as they put it, there was a ``long delay'' in the
development of the ``modern discursive obsessions
with two now familiar constructs: accountability
and pro®tability'' (pp. 108, 123). They explain
``the much later social development of a discourse
of accountancy. . .in the nineteenth century''
(Hoskin & Macve, p. 106) by the invention of a
new disciplinary technology in education. Until
then, they say, these two constructs were ``absent''
(Hoskin & Macve, pp. 123, 124). The history of
accounting advanced here undermines the tradi-
tional chronology and, therefore, Hoskin and
Macve's explanation. It shows the obsessions of
modern accounting emerged over a much longer
period of transition through intermediate forms.
Their roots lie in the obsessions of their parents Ð
feudal lords and merchants. Their history embra-
ces the social upheavals in agriculture from the
end of the fourteenth century; the commercial
revolution of the sixteenth century; the civil wars
in the mid-seventeenth century; and the agrarian
revolution that followed. The modern obsessions
with pro®tability and accountability did not sud-
denly appear in the nineteenth century. Part Two
(Bryer, in press-c) shows they appeared during the
early seventeenth century, and argues they became
®rmly established in the discourse of the English
bourgeoisie from the middle of that century.
7
Missing from the accounting literature is
engagement with the historical theories of Weber
and Marx. Starting to ®ll this gap is the primary
purpose of this paper. The well-known `Weber-
Sombart' debate promoted by Yamey (1949)
almost ignores Weber.
8
Modern scholars only
rarely highlight that accounting and its history are
central to his work (see, for example, Burchell et
al., 1980; Miller & Napier, 1991). He is of rele-
vance to all historians of accounting who eschew
economic determination; all those who ``regard
accounting as predominantly a cultural phenom-
enon rather than a technique'' (Carnegie &
Napier, 1996, p. 16). The predominant basis of
social action in his sociology is economic culture,
his `sociological categories of economic action', or
6
Predictably in this interpretation, Foucault makes no
attempt to apply his approach to business as a discipline, and
therefore says nothing about accounting (Miller & O'Leary,
1987, p. 237; Hoskin, 1994, p. 73).
7
Hoskin and Macve (1986) say the Oxford English Diction-
ary's ®rst citation of the written use of the word `account-
ability' in 1794; its the absence from Johnson's 1754 dictionary;
and its presence in Webster's 1828 dictionary, supports their
case that the idea appeared around 1800. However, as we shall
see, the meaning of the word in Hoskin and Macve's sense of
``Calculability, i.e. the use of the accounting record as a means
for predictive control'', is as old as the word `account'. Use of
the words ``accountable'' and ``accountableness'' from the six-
teenth and seventeenth century also undermine their case.
Hoskin and Macve say these words have distinctly di?erent
meanings from accountability. However, they appear identical.
Accountability means `the state of being liable to answer for
one's conduct' and `accountableness' means the `quality of
being accountable' (1986, fn. 8). The Oxford English Dictionary
lists `accountable' used in the sixteenth century to mean `Liable
to be called to account; responsible (to, for)'. I discuss the his-
torical meanings of accountability later.
8
Part Two analyses Yamey's contribution to this debate.
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 133
calculative mentalities.
9
His history of modern
capitalism is a history of the transition from a pre-
capitalist calculative mentality of `budgeting' to
that of `pro®t-making activity'. His ``rationality
theme. . .provides the focal point for all Weber's
socio-historical interests'' (Cohen, 1981, p.
XVIII).
10
Central to this theme is ``a form of
monetary accounting which is peculiar to rational
economic pro®t-making; namely, `capital
accounting'. . .'' (Weber, 1947, p. 191). Capital
accounting provides the concrete foundation for
both elements of Weber's idea that modern capi-
talism has a calculative mentality embodied in the
`economic culture' of capitalist enterprises, and
the `spirit' of their entrepreneurs.
Weber traces the origin of the spirit of capital-
ism to the unintended consequence of certain
aspects of Protestant teaching, particularly its
unique idea of the calling Ð that success in earthly
work is visible evidence of salvation. The Prot-
estant ethic of diligent and methodical labour, of
frugality and improvement is, Weber argues,
appropriated by pre-modern capitalists as their
organising principle, production for pro®t. Weber
claims the Protestant ethic has an `elective anity'
with the spirit of modern capitalism.
11
Weber says
there is an anity between the continuous psy-
chological pressure exerted by the Protestant call-
ing, with its `moral accounting' by reference to
earthly works, and the de®ning feature of modern
capitalism, the rational organisation of labour in
production. Although only an elective anity,
Weber clearly implies that ``the Protestant ethic
was in some sense responsible for the spirit, then
the form of capitalism'' (MacKinnon, 1993, p.
211). Weber, however, provides us with no theo-
retical or historical link. He contents himself with
the assertion that Calvinism activated the spirit of
modern capitalism and that capitalists appeared
when the economic preconditions (free wage
labour, technology, commercial law, trade, etc.)
were also present. Sociologists recognise this is the
most important yet the weakest and least exam-
ined element in Weber's argument (Marshall,
1991, pp. 192±193). Some have accepted that
accounting could be a prime source of evidence of
the calculative mentalities of sixteenth and seven-
teenth century businessmen. For example, as Hol-
ton says, ``evidence of systematic expansionism
linked to book-keeping is. . .consistent with
Weber's argument about more modern forms of
the spirit of capitalism'' (1985, p. 116). The paper
explores Weber's capital accounting in some
depth. Given its central role in his sociology it is
``of great importance to understand what is
involved in this phenomenon'', as Cohen says
(1981, p. XXXIII). Weber claimed his sociological
categories of economic action ``entirely avoid the
controversial concept of value'' (1947, p. 158). He
presumably meant Marx's labour theory of value,
as Weber's only criticism of neo-classical econom-
ics was the presumed self-evidence of its assump-
tions.
12
His objective was to reconceptualise neo-
classical economic action as a system of rational
social action. However, Weber avoids labour
value by embracing the neo-classical idea of value.
His understanding of rational capital accounting
turns out to be a version of economic income
accounting. This conclusion undermines the claim
by Weberians, that, by providing a cultural expla-
nation of capitalism, he delivered a fatal blow to
Marx. As Weber put it, ``the view of historical
9
Note that by culture Weber ``intends to deal with economy
and society. . .not with economy and Kultur Ð literature, art,
science'' (Holton, 1985, p. 65; Roth, 1978, p. LXXIII). Note
also the contrast between Miller and Napier's (1991) Fou-
caultian ``genealogies of calculation'' that refer to ``multiple
and dispersed surfaces of emergence of disparate practices of
economic calculation'' (p. 631), and Weber's and our concern
with general, socially determined, calculative mentalities.
10
Weber's rationality theme is his overarching concern with
the penetration of a ``peculiar and unprecedented rationality''
into all aspects of western society. For Weber, this is a `formal
rationality' based on ``technical means involving precise calcu-
lations and abstract principles'', that has supplanted all `sub-
stantively rational' ethical values (Cohen, 1981, pp. XXVI±
XXVII).
11
In other words, historical actors could choose (elect) to
see a likeness (anity) between Protestant teaching and the
economic ethic of modern capitalism.
12
``[A]ccording to his wife at least, he expressed `great
admiration' for...[Marx's] `brilliant construction'. . .'' (Mar-
shall, 1982, p. 151). However, as Cohen says, ``While Weber
does emphasize the relationship between wage labor and capi-
tal, the surplus theory of value plays no central role in his
conception of modern capitalism'' (Cohen, 1981, p. XXIV).
134 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
materialism, frequently espoused, that the eco-
nomic is in some sense the ultimate point in the
chain of causes is completely ®nished as a scienti®c
proposition'' (quoted in Marshall, 1982, p. 151).
13
I argue that Weber's misunderstanding of modern
accounting renders his theory irrelevant, either as
a critique of Marx or as an explanation of the
economic culture or spirit of capitalism.
The reluctance of accounting historians to
engage with Marx is understandable given the
apparently insuperable obstacles, particularly his
supposed economic determinism (e.g. Hoskin,
1994; Keenan, 1998). Weberians also criticise
Marx's explanation for ignoring subjective human
meaning, for Weber the foundation of all social
action (Weber, 1968, p. 4). For example, Holton's
view:
[O]ne of the most serious consequences of the
Marxist theory of society has been to treat
the emergence of `capitalism' on the level of
culture and `mentalities' as relatively unpro-
blematic. In this way rational economic man,
while seen as a historical product, is none-
theless interpreted as the product, or at best
facilitator of an already pre-existent material
process of capitalist development. For since
`ideas' are viewed as but a re¯ex rationalisa-
tion of a material system, they cannot pre-date
the existence of such a system (1985, p. 101).
If we understand Marx's theory of the transition
as a social history of accounting, this problem
disappears in the same way that it does for Weber.
Even though Weber's explanation recognises the
need for economic preconditions before modern
capitalism appears, he avoids determinism because
``rational accounting. . .[is] presuppositional to
[his] institutional view of modern capitalism in the
same formal sense that the surplus theory of value
is presuppositional to Marx's view'' (Cohen, 1981,
p. XXXVI). However, whereas Weber pre-
supposes the appearance of capitalist rationality
and accounting, Marx does not presuppose his
theory of surplus value but provides a historical
explanation of its emergence. Furthermore,
Marx's theory of value provides a remarkably
insightful theory of modern capital accounting
(Bryer, 1993a, 1993b, 1994b, 1998a, 1998b, in
press-a, in press-b). The paper draws on this work
to show that Marx's ideas of the feudal and capi-
talist modes of production embody distinctive
economic cultures or calculative mentalities. It
follows that Marx is not an economic determinist,
as we shall see.
If Weberians accepted Marx's accounting is
superior to Weber's, they would still claim
Weber's implicit critique holds. Namely, that
Marx does not explain how, in Weber's terms, the
historical process that dissolved the feudal men-
tality created the capitalist mentality. On this fun-
damental point many Marxist historians agree, at
least implicitly. At the centre of the inconclusive
debate following Dobb (1946) (e.g. Aston &
Philpin, 1985; Hilton, 1976) is whether Marx's
prime mover, the necessary and sucient cause of
the transition, was the rise of trade or class con¯ict
between peasants and lords. As Brenner (1977,
1989) shows, those who have argued for trade
have relied on Marx's early work based on Adam
Smith's view that it promoted the division of
labour. By contrast, those who have argued for
class con¯ict in agriculture rely on the idea of
the mode of production developed in his later
works Ð Grundrisse (written in 1858) and the
volumes of Capital (Marx, 1973, 1976b, 1978,
1981). However, even those who accept that
Marx's later theory is broadly consistent with the
historical record, believe he did not fully explain
the transition. For example, Brenner thinks he
``did not systematically analyse the operation of
pre-capitalist systems, as he did that of capitalism;
nor did he explain how their own functioning
could bring about a transition to capitalism''
(1989, p. 293; see, also, for example, Holton, 1985,
pp. 70±71, 105; Rigby, 1998, pp. 157±158). The
paper draws upon the close links between
accounting and Marx's political economy to reject
this view. It builds on Weber's insight into the
13
Whether Weber directed this at Marx or Marxists is
unclear. However, as Marshall says, ``irrespective of the gen-
ealogy of Weber's argument, one of its inescapable results
is. . .to challenge directly the Marxist account of the relation-
ships between ideology. . .and the. . .productive base, and
between ideas, interests and actions in general'' (Marshall,
1982, pp. 150, 152).
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 135
importance of accounting for understanding cal-
culative mentalities. It argues that we must orga-
nise the history of the transition to capitalism
around the history of accounting. As Weber put it
in the German edition of his General Economic
History, ``The current economic system is. . . ratio-
nalised to a high degree, owing to the penetration
of bookkeeping, and in a certain sense, and within
certain limits the entire economic history is the
history of economic rationalism, which is based on
accounting and today has attained a triumph''
(quoted in Cohen, 1981, pp. LII±LIII).
Only if we take the accounting implications of
his political economy seriously is Marx's theory of
the transition visible. This theory develops his
insight that the essential di?erence between the
feudal and capitalist modes of production is their
way of extracting surplus value from labour. I
argue elsewhere that feudal and capitalist modes
of accounting correspond to these ways (Bryer,
1994a). Using these ideal-types, the paper derives
the transitional forms of accounting that should
appear from Marx's discussions of the transition.
In outline, his theory suggests a transition from
the feudal mentality of maximizing consumable
surplus, through a transitional `capitalistic' men-
tality. In its developed form, the capitalistic men-
tality maximizes what I shall call the feudal rate of
return on capital. This is feudal surplus (the con-
sumable surplus) divided by the initial capital
advanced. In Marx's theory, capitalistic tendencies
appear in both agriculture and trade. For capital-
ism to appear, Marx says, the peasants must
become `free' wage labourers, and face `free' capi-
tal. For Marx, a class of farmers becomes capita-
listic in the ®fteenth and sixteenth century with the
appearance of wage labour. While these farmers,
like modern capitalists, focus on the exploitation
of wage labour in production, they continue to
maximize feudal surplus. They are, Marx says,
only `formally' capitalists. Capitalistic tendencies
appear in trade with the ®rst joint stock compa-
nies and pursuit of the feudal rate of return. By
contrast, the modern mentality aims to maximize
Marx's capitalist rate of return, pro®t divided by
capital employed in production. In Marx's theory
this emerges from the historical interaction of the
capitalistic mentalities in agriculture and trade.
From the middle of the sixteenth century, landed
and mercantile interests pooled their wealth in
international trade. Following social con¯ict cul-
minating in the `bourgeois revolution' of the mid-
seventeenth century when overseas capital gained
its freedom from feudal control, the rate of return
on capital became the dominant economic ethic.
This capital from trade ¯owed back onto the land,
bringing with it the capitalistic rate of return
mentality. Harnessing this to capitalistic farming
produced the modern capitalist mentality. In
short, in Marx's theory capitalism resulted from
the fusion of the calculative mentality of the capi-
talistic farmer, itself derived from the feudal lord
seeking the maximum feudal surplus from labour
in production, and the calculative mentality of
merchant capitalists seeking the maximum feudal
rate of return on their capital. In this paper I
argue that Marx's theory provides a clear histori-
cal chronology and non-determinist explanation
of the emergence of capitalism, and that accounts
provide objective signatures to test it. Table 1
below summarises the signatures our history of
accounting must identify and explain. In Part Two
(Bryer, in press-c) I show the available accounting
evidence is consistent with Marx's theory. I con-
clude it provides a framework for a plausible his-
tory of accounting in England from the Middle
Ages that we should thoroughly test against the
evidence that lies untouched in many archives.
We proceed as follows. Part One ®rst links
Marx with accounting. It argues that his idea of
Table 1
Accounting signatures of the transition
Calculative mentality Feudal Capitalistic Capitalist
Accounting signature Consumable surplus (CS)
CS
Opening capital
Pro t
Capital employed
®
136 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
the mode of production embraces a socially deter-
mined calculative mentality. Second, it provides
an accounting critique of Weber's spirit of capit-
alism. Third, the theoretical core of the paper, it
explains Marx's theory of the transition as a his-
tory of accounting during the English agricultural,
commercial, and bourgeois revolutions, and high-
lights key confusions in the transition debate.
14
Part Two provides evidence on farmers' account
books from the late ®fteenth century to the end of
the sixteenth century on the appearance of Marx's
capitalistic farmers. It outlines the history of
accounting by merchants during the commercial
revolution from the mid-sixteenth to the late
seventeenth century. This evidence is consistent
with Marx's theory that only when merchants
pooled or `socialised' their capital in partnerships
and joint stock companies did they become capi-
talistic.
15
The centrepiece of Part Two is a case-
study of changes in accounting by the English East
India Company (EIC) from 1600 to 1657. This
shows accounting change embroiled in escalating
socio-economic con¯icts within the company ulti-
mately resolved by a bourgeois revolution that
abolishes its feudal directorate. Modern managers
replaced these great merchants, specialised wage
workers accountable to a `social capital'.
16
This
evidence is consistent with Marx's view that a
society-wide bourgeois revolution occurred in
mid-seventeenth century England. Finally, Part
Two (Bryer, in press-c) analyses available farmers'
accounts and agricultural texts and literature from
the seventeenth and eighteenth centuries. It con-
cludes that this evidence is consistent with Marx's
view that the modern capitalist mentality began to
spread in agriculture from the later seventeenth
century. In the concluding remarks I emphasise the
potential importance of the history of accounting
for understanding modern society and modern
accounting, and outline some opportunities for
archival research.
1. Marx and accounting
1.1. Modes of production and calculative mentalities
While ``the concept of the mode of production is
accepted by all Marxist historians as an essential
tool in undertaking historical investigation'', there
is, as Hilton says, continuing debate about its
precise meaning (1985, p. 6). It has become
accepted by some Marxists that in his early works
Marx left himself open to the charge of economic
determinism (e.g. Baechler, 1971; Brenner, 1977,
1989; Walton & Gamble, 1972). However, this
charge is unfounded for the mode of production
idea in his later works. At the core of Marx's
mode of production is a calculative mentality.
To understand a mode of production and how
one changes into another, it is necessary to
understand Marx's ``forces of production''; his
``social relations of production''; and their ``inter-
relations'' (Hilton, 1985, p. 6). By a society's
forces of production, Marx means its ``productive
power'', the potential ``means of production''
available (1971, p. 215). This includes not merely
material resources but ``the main force of produc-
tion, the human being himself'' (Marx, 1973, p.
422). It includes the knowledge and skills available
(`technology') to transform nature into commod-
ities; the social organisation of production; the
markets available, etc. Thus, although Marx often
wrote of ``material productive forces'', these were
always ``of society'', or of ``men'' and ``their material
forces of production'' (1971, pp. 20±21, emphases
added). In Marx's writings ``A productive force. . .
14
As this literature is vast, the references are necessarily
selective.
15
I use the terms socialised and social capital to describe an
empirical continuum of the social nature of capital from
recognisably social to fully social, what Marx called `total
social capital'. Socialised and social capital are both pooled.
Socialised capital involves pooling across a limited number of
investors for limited purposes. While this capital becomes
social by losing its identity with its owner, with socialised capi-
tal there are social restrictions on who can invest in the capital
and its purposes Ð on the transferability and the uses of capital.
For example, a partnership where entry of a new partner
requires the agreement of the other partners. By contrast, at its
upper limit fully social capital involves pooling across all
investors and all investments. All members of an investing
society can participate in a social capital; the capital is freely
usable for any lawful business and is freely transferable Ð for
example, marketable government debt and listed shares. Here
the identity of the owner with the functioning of capital is
completely lost and the social restrictions are minimal.
16
See footnote 15.
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 137
is the collective power of social production''
(Marsden, 1998, p. 104). It is ``the organization of
consciousness and human activity'' (Avineri, 1971,
p. 76). In short, the social forces of production
de®ne the material and social resources available
for production and its limits. Marx's social rela-
tions of production de®ne the organising principle
of production. In activating the social forces, the
social relations themselves become forces of pro-
duction. They are, Marx says, ``forms of develop-
ment of the productive forces'' (1971, p. 21). The
forces and relations of production, therefore,
while distinct, have a ``dialectical connection''
(Marx, 1971, p. 215).
In his early (pre-Grundrisse) works Marx clearly
``reject in theory Smith's working conception of
the human being as homo economicus'' (Brenner,
1989, p. 282). However, his stress on the role of
trade in fostering the division of labour and class
con¯ict, has opened Marx's early formulations to
criticism for their implicit reliance on Adam Smith
(Brenner, 1977, 1989).
17
In his later works Marx
developed his political economy as a critique of
Smith (and others). There he clearly elaborates
why, in the face of unprecedented developments in
the social forces of production, owners of wealth
changed from lords into capitalists. Marx freed
himself from Smith by arguing that driving the
transition was changing class interests, not indivi-
dual economic self interest. Marx's de®nition of
class interests comes from his insight that the
important di?erence between the social relations of
feudal and capitalist production is the way of
extracting surplus. The following section shows
that these di?erent ways correspond with di?erent
modes of accounting, with di?erent calculative
mentalities. If a mode of production embodies a
calculative mentality it is easy to dismiss the charge
of ambiguity and economic determinism regularly
levelled at Marx's classic passage where he summed
up his ``general conclusion'' from 15 years study.
In the social production of their existence, men
inevitably enter into de®nite relations, which
are independent of their will, namely relations
of production appropriate to a given stage in
the development of their material forces of
production. The totality of these relations of
production constitutes the economic structure
of society, the real foundation, on which arises
a legal and political superstructure and to
which correspond de®nite forms of conscious-
ness. The mode of production of material life
conditions the general process of social, political
and intellectual life. It is not the consciousness
of men that determines their existence, but
their social existence which determines their
consciousness. At a certain stage of develop-
ment, the material productive forces of society
come into con¯ict with the existing relations of
production or Ð this merely expresses the
same thing in legal terms Ð with the property
relations within the framework of which they
have operated hitherto. From forms of devel-
opment of the productive forces these rela-
tionships turn into their fetters. Then begins
an era of social revolution. The transforma-
tion in the economic foundation leads sooner
or later to the transformation of the whole
superstructure (Marx, 1971, pp. 20±21).
In terms of calculative mentalities this reads as
follows. Production is a social activity, it does not
depend on individuals. To each social basis of
production `correspond de®nite forms of con-
sciousness', that is, de®nite calculative mentalities
`appropriate' to the social material forces avail-
able. In other words, the capitalist mentality is
not compatible with feudal material forces, and
the feudal mentality is not compatible with capi-
talist material forces.
18
The calculative mentality
17
Marx's early works are almost invariably the source of
quotations at which to level the charge of `economic determin-
ism' or causal `ambiguity' (e.g. Holton, 1985, pp. 67±68).
18
From our perspective, Marx summarised this thought in
his much debated aphorism that ``The hand-mill gives you
society with the feudal lord; the steam mill, society with the
industrial capitalist'' (Marx, 1976, p. 166). From an accounting
point of view its meaning is clear: capitalist accounts could not
control feudal forces of production, and vise versa. As we shall
see, capitalist accounts presuppose that labour, the means of
subsistence, and the means of production are available as
commodities on competitive markets Ð Marx's general com-
modity production. Feudal accounts presuppose the avail-
ability of self-sucient peasants.
138 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
embodied in the social relations of production
`conditions' general consciousness, that is, pro-
vides the framework within which a `super-
structure' of general forms of mentality is built.
19
For example, it conditions the legal regulation of
property relations, who gets what from produc-
tion. The calculative mentality develops the forces
of production. However, eventually the existing
social relations and their calculative mentality
impose an unacceptable limit to the acquisition of
surplus by the owners of the means of production.
When this limit becomes recognised, a process of
class con¯ict begins which leads to a social revolu-
tion. This process undermines the existing social
organisation of production and its calculative
mentality, and a new social organisation and men-
tality emerge. The social organisation of produc-
tion around a particular calculative mentality is, we
shall argue, what Marx meant by the `economic
foundation' of society.
1.2. Accounting for feudalism and capitalism
For those who accept that Marx was no eco-
nomic determinist, the problem remains that no-
one has derived testable hypotheses from his idea
of the mode of production. Hilton highlighted this
in the ®rst transition debate. As he said, the test is
``not whether or no[t] it sounds convincing, but
whether it helps to interpret the facts and solve
some of the problems which confront the historian
of the middle ages'' (Hilton, 1976, p. 150). The
primary problem is ``how far older forms of eco-
nomic structure and social organisation persisted,
and how far they remained dominant'' (Hilton,
p. 150; see also Dobb, 1946; Dyer, 1991; Glennie,
1988; Rigby, 1998). The persistence of older forms
remains undecided because the question ``what is a
capitalist?'' remains unanswered (Tribe, 1978, p.
19). Neither the expansion of commodity produc-
tion, nor the expansion of population, of trade, of
wage labour, nor the size of enterprises, have pro-
vided generally accepted measures. The Marxist
Historians' Group suggested ``degree of separa-
tion of the producer from his means of produc-
tion'' (Tribe, p. 20). Hilton suggested observing
the development and use of production techni-
ques, and the way of employing labour (1976, pp.
152±154). No-one has elaborated which aspects of
Marx's idea of the mode of production these
measures test, nor what to observe.
Historians and Marxists have overlooked the
possibility of observing Marx's mode of produc-
tion by its accounting signature. Marx's distinctive
ways of extracting surplus value are the essence of
his social relations of production; his di?erent
ways of organising and controlling the process of
production. They are the de®ning feature, or `eco-
nomic base', of a society. As Marx put it, ``The
speci®c economic form in which unpaid surplus
labour is pumped out of the direct producers
determines the relationship of domination and
servitude as this grows directly out of production
itself and reacts back on it as a determinant''
(1981, p. 927). He stressed this was where ``we ®nd
the innermost secret, the hidden basis of the entire
social edi®ce'' (1981, p. 927). These di?erent ways
of extracting surplus correspond to historically
distinctive modes of accounting (Bryer, 1994b). It
follows that where we ®nd the feudal mode of
accounting, we have evidence of Marx's feudal
relations of production. Furthermore, as ``pro®t
assumes capital'' (Marx, 1981, p. 1022), where we
®nd modern capitalist pro®t we have evidence of
the social relations of capitalism.
From Marx's perspective, accounting is a poli-
tical intervention in production. If we organise
production to extract surplus value, for Marx we
organise it politically. As Meiksins Wood says,
Marx's idea ``treats the economy itself not as a
network of disembodied forces, but like the poli-
tical `sphere', as a set of social relations''. For
Marx, therefore, ``the productive base itself exists
19
The literature on Marx's supposed productive force
determinism is large [see Rigby (1998) for a review]. I do not
review this literature here as the focus is the relevance of
accounting and its past to a particular reading of Marx. This
reading has support. For example, as Giddens says, ``The main
point about the `superstructure' is not that it embodies ideas,
whereas the relations of production do not'' (1971, p. 43). In
other words, the relations of production do `embody ideas'. Or,
as Avineri says, ``Marx's method is not far removed from Max
Weber's thoughts on the subject. . .[, and] t would be false to
suggest (as has frequently been done) that, whereas Marx
reduced everything to the material conditions of production,
Weber thought that social consciousness determined social
change'' (Avineri, 1971, p. 157).
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 139
in the shape of social, juridicial, and political
forms Ð in particular forms of property and
domination'' (1981, pp. 68, 69). These di?erent
forms are his di?erent ways of surplus extraction.
When he says di?erent modes of production
describe di?erent `economic' systems, what he
means is di?erent systems of ``social production,
whose relations we call, precisely, economic rela-
tions'' (Marx, 1973, p. 489). In short, economics is
not about man's relation to the material world,
but about the political organisation of the social
relations of production. Central to this is a mode
of accounting that provides a foundation for
the social control of production (Bryer, 1994b,
1998a,b, in press-a, in press-b). Modes of
accounting are organic elements of their modes of
production. This makes the history of accounting
useful because accounting evidence can provide an
objective test of Marx's theory.
1.3. Capitalist and feudal modes of accounting
According to Marx's method, an accounting
history of the transition must start from a clear
understanding of modern capitalism.
Bourgeois society is the most developed and
the most complex historic organization of
production. The categories which express its
relations, the comprehension of its structure,
thereby also allows insights into the structure
and the relations of production of all van-
ished social formations out of whose ruins
and elements it built itself up, whose partly
still unconquered remnants are carried along
with it, etc. . . The bourgeois economy thus
supplies the key to the ancient, etc. . . Capital
is the all-dominating economic power of
bourgeois society. It must form the starting
point as well as the ®nishing point, and must
be dealt with before landed property [i.e. the
feudal mode of production]. After both have
been examined in particular, their interrela-
tion must be examined (Marx, 1973, p. 105).
Absent from the transition debate is the recog-
nition that Marx's history of capitalism culmi-
nated with the hegemony of `total social capital', a
world where investors collectively own all produc-
tion and trade and control it by means of the
general rate of pro®t (Bryer, 1994b). Marxists and
non-Marxists alike appear to believe modern
capitalism is dominated by individual capitalists
(e.g. Dobb, 1946, p. 18; Gerth & Mills, 1948, p. 68;
Hilton, 1976, p. 145; Holton, 1985, p. 66; Kriedte,
1980, p. 9; Mandel, 1981, p. 76; Steedman, 1977,
p. 16). By contrast, Marx recognised that in its
developed form ``Capital shows itself more and
more to be a social power, with the capitalist as a
functionary Ð a power that no longer stands in
any possible kind of relationship to what the work
of one particular individual can create, but an
alienated social power which has gained an
autonomous position and confronts society as a
thing'' (Marx, 1981, p. 373). For Marx the epi-
tome of modern social capital is the joint stock
company. Here the manager replaces the indivi-
dual capitalist. A manager is a worker whose job
is to administer capital Ð to control production
and the generation of surplus Ð in the interests of
social capital (Marx, 1981, p. 512).
20
The social nature of capital is a critical element
in Marx's explanation of the appearance, devel-
opment, and functioning of capitalism. As he
explained in a letter to Engels in 1858, his planned
book ``On Capital'' was to include sections on
``Credit, where capital, as against individual capi-
tals, is shown to be a universal element. . .[, and]
Share capital as the most perfected form'' (Marx
& Engels, 1983, p. 298). Share capital epitomises
the ``social character of capital'', revealed, Marx
says, by the fact that ``the average pro®t of the
individual capitalist, or of any particular capital, is
determined not by the surplus labour that this
capital appropriates ®rst hand, but rather by the
total surplus labour that the total capital appro-
priates, from which each capital simply draws its
dividends as a proportional part of the total capi-
tal'' (Marx, 1981, p. 742). In joint stock companies,
20
Although Marx often writes about ``individual capitalists''
he sees them and individual workers as ``simply embodiments
and personi®cations of capital and wage-labour Ð speci®c
social characters that the social production process stamps on
these individuals, products of these speci®c social relations of
production'' (Marx, 1981, p. 1020).
140 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
he says, the owners of wealth become alienated
from the process of production, which now
appears to them an ``icy water of egotistical cal-
culation'' (Marx & Engels, 1967, p. 82), and this
becomes the basis of their social solidarity. As
Marx put it in 1868, ``What the competition
among various masses of capital Ð invested in
di?erent spheres of production and di?erently
composed Ð is striving for is capitalist commu-
nism, namely that the mass of capital employed in
each sphere of production should get a fractional
part of the total surplus proportionate to the part
of the total social capital that it forms'' (Marx &
Engels, 1988, p. 23). In short, the social owners of
capital demand that `all capital is equal', that all
investors get the same (e.g., risk-adjusted) rate of
return on their capital. Within modern capitalism
every investor holds the market portfolio. As an
anonymous fraction of total social capital each
investor gets the same rate of return. Assuming
100% payout, this equals the rate of return on the
capital invested in all enterprises, the general rate
of pro®t, or required rate of return on capital for
the average ®rm (Bryer, 1994b). This, we shall see,
is what Marx means by `free' capital, capital that
was free to socialise around the maximum rate of
return on capital, for him the hallmark of the
bourgeois mentality. From Marx's perspective, the
signature for the social character of capital is
double-entry bookkeeping (DEB) employed to
provide the means for calculating the rate of
return on capital (Bryer, 1993a). However, there is
more to modern capitalism than social capital,
and more to capitalist accounting than DEB. The
other distinctive features for Marx are the ubi-
quity of wage labourers and general commodity
production within competitive markets. To
understand Marx's calculative mentality of mod-
ern capitalism it is, therefore, necessary to contrast
the appropriate mode of accounting when wage
labour is free with that appropriate when labour is
unfree.
From Marx's perspective the key to under-
standing the feudal mode of production is that,
unlike free wage labourers, peasants possessed
their means of production. To get a surplus,
therefore, the lords had, ultimately, to physically
coerce their peasants to perform additional labour
over that necessary for their subsistence (Brenner,
1977, 1985a; Dobb, 1946, 1976; Hilton, 1976,
Takahashi, 1976). Within feudalism there was no
idea of capital as money or equivalent to be
invested in production and recovered with a sur-
plus. `Labour rent' was the generally accepted
form of surplus Ð the consumable commodities
or cash directly appropriated in various ways (less
collection costs).
21
The peasants produced any
means of production the lord needed on his
demesne. To the lord, therefore, the construction
of `®xed assets' appeared as consumption. Given
the focus on maximizing consumption, it was,
Marx noted, so far as feudal lords were concerned,
``Not exchange value as such, not enrichment as
such, but life appropriate to a certain status or
condition Ð this was the purpose and result of the
exploitation of the labour of others'' (Marx,
1976b, p. 1030).
22
Here, therefore, the appropriate
mode of accounting is income and expenditure (or
receipts and payments) accounts, and this is
exactly what English lords received (Bryer, 1994a).
By contrast, capitalist pro®t is the value of unpaid
labour indirectly appropriated through the pro-
duction and sale of commodities. Here cost-based
accruals or `capital-revenue' accounting is appro-
priate (Bryer, 1993b, 1994b, 1998a, 1998b, in
press-a, in press-b). As Marx says, under the
capitalist mode of production the ``annual pro-
duct'', or turnover, ``is divided into capital on the
one hand and revenues on the other'' (1981, p.
1018). The capitalist must account not simply for
revenues and expenses, but also for the cost of
producing the commodity Ð including an element
for ®xed capital Ð and for the circulation of
capital and its return with a satisfactory surplus.
As Marx put it, a ``capitalist must calculate the
price of the individual commodity, that is, he must
represent the exchange-value of the individual
commodity in terms of money of account'' (1976b,
p. 969). Marx concluded, therefore, that for the
21
`Labour rent' is Marx's general form of surplus in feudal-
ism. It may come from forced labour or levies of commodities
or money (serfdom or peasantry); from plunder (`privateering');
or by right (Royal prerogatives and monopolies).
22
Which does not rule out a `status or position' with a huge
appetite for surplus.
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 141
feudal lord to become a capitalist, ``He need only
transform his workers into wage workers and
produce for pro®t instead of revenue'' (1973, p.
277). In other words, the lord need only employ
wage labour and change his calculative mentality.
He must become obsessed with the maximumrate of
return on the capital invested in production Ð with
`relative surplus value', as well as with `absolute
surplus value'.
23
Marx's mode of production embodies ``a mode
of exploitation'', ``a relationship of power''
(Meiksins Wood, 1981, p. 79). This implies a mode
of production should have a corresponding mode
of accountability Ð a form of accounting appro-
priate to the type of power being exercised. In
what senses do accounts hold the steward or the
manager accountable? There are at least two
meanings of the word `account'. In one sense it
means `counting, calculation, reckoning' Ð to
`render an account', to `narrate', `to relate,
recount, give an account of '.
24
To be held
accountable in this sense means requiring the
steward to provide an objective calculation of the
feudal rent, and the manager an account of the
circulation of capital and the pro®t or loss. In
another sense, to be accountable means the
requirement `to explain, to answer for' some
behaviour, result or state of a?airs. In this sense
the steward or manager is accountable by being
judged, and punished or rewarded. How does
being accountable induce the agent to control the
process of production in the interests of his or her
principal; to take the same decisions as the princi-
pal would have? The agent expects judgement
against the principal's target (e.g. against a
required feudal rent or required return on capital)
and scrutiny of his or her behaviour and explana-
tions. The requirement to produce accounts con-
strains the agent's behaviour to those actions
justi®able to the principal. To satisfy the principal,
and avoid punishment or gain rewards, the agent
must select behaviour which in the circumstances
they can justify to their lord or to social capital
was best calculated to pursue their target.
The di?erent power relationships under feudal-
ism and capitalism should be manifest in di?erent
forms of accountability. For Marx, feudal pro-
duction was coercive. As Brenner puts it, ``to
secure a rent Ð that is, to get the peasants to hand
over part of their labour or product Ð the lords
had to be able to exert a degree of control over
peasants' persons'' (Brenner, 1985b, p. 228).
Usually through agents, individual lords had to
directly control the process of production. There-
fore, feudal accountability meant the Lord's
agents and, therefore, their peasants, were, ulti-
mately, personally accountable to their lord. In
England, the steward was personally `charged'
with responsibility for the incomes received, and
`discharged' with responsibility for expenditures
and disbursements judged by the lord to be neces-
sary. In contrast, for Marx capitalism is the epoch
of the social rule of capital, and its accountability
is `economic'. Capitalist pro®t comes indirectly
from wage labour, and is distributed `fairly',
according to the size of the capital advanced by
each capitalist. Management is therefore accoun-
table to social capital for the realised rate of return
on capital employed in production, and investors
are accountable to each other, by means of pro®t
and loss accounts and balance sheets.
25
While the
lord could directly determine the steward's col-
lection of a speci®ed surplus, modern managers
are free to choose actions they believe are in their
own interests (for example, slacking). However,
because accounts expose the manager to question-
ing and to rewards or punishment, although a ``free
agent'', ``He learns to control himself '' (Marx,
1976b, p. 1033). With the transition to capitalism
the ``mode of compulsion [is] not based on personal
23
To increase absolute surplus value, the total value of
unpaid labour, the lord and the capitalistic farmer extend the
working day and cut wages. The uniquely modern addition to
this is capitalism's obsession with relative surplus value, the
ratio of surplus value to variable capital (the total cost of pro-
ductive workers). To increase relative surplus value, to secure
surplus pro®ts over the required rate of return, the capitalist
must invest to reduce necessary labour time per unit of output
below the social average. I discuss the importance of the
accounting correlates of these ideas for understanding Marx's
theory of the transition later.
24
References are to the Shorter Oxford English Dictionary
on Historical Principles (1973).
25
In Marx's framework in capitalism the principal is total
social capital whose economic interest is earning at least the
long-term required rate of return on capital.
142 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
relations of domination and dependency'' (Marx,
1976b, p. 1021). In Marx's view, free wage labour
becomes ``subordinated'' to capital by means of
``an economic relationship of supremacy and
subordination, since the consumption of labour-
power by the capitalist is naturally supervised and
directed by him'' (1976b, p. 1026). Therefore, a
change in the mode of accountability of labour
from a largely political relationship to, Marx says,
``a relationship of sale and purchase, a purely
®nancial relationship'', marks the transition to
capitalism. This is a relationship of supremacy and
subordination which ``is objective in nature,
voluntary in appearance, purely economic'' (Marx,
1976b, pp. 1027±1028). It follows that the history
of accountability should mirror the transition from
political control under feudalism to the economic
control of capitalism. Part Two provides evidence
from the EIC consistent with this prediction.
Modern accounting is also central to Weber's
theory of the transition. The appearance of capital
accounting is for Weber a precondition of modern
capitalism. Its techniques provide him with an
objective representation of its economic ethic and
its spirit. For us it provides a way to evaluate his
theory. In the following section I argue that,
whereas Marx's theory is consistent with modern
accounting, Weber's capital accounting is o?-target,
being derived from neo-classical economics, the
focus of Marx's critique.
2. An accounting critique of Weber's `spirit of
modern capitalism'
Weber argues that we cannot treat the pro®t-
maximizing mentality of economic man as an
ahistorical essence. The traditional mentality of
producing use-values for consumption, he says,
plainly contradicts this view. We must, therefore,
explain the origins of this new calculative mental-
ity (Marshall, 1991, pp. 191±192). For Weber, like
Marx, production for pro®t, and not commerce or
®nance, is the key to understanding modern
capitalism (Gerth & Mills, 1948, p. 68). Also like
Marx, Weber broadly characterised its calculative
mentality as the composition of two elements:
`pro®t', which is his accounting sign for capitalism
`in general', and the systematic organisation of
labour in production, which is speci®cally modern.
Capitalism is identical with the pursuit of
pro®t, and forever renewed pro®t, by means
of continuous, rational, capitalistic enterprise.
For it must be so: in a wholly capitalistic
order of society, an individual capitalistic
enterprise which did not take advantage of its
opportunities for pro®t-making would be
doomed to extinction (Weber, 1992, p. 17).
But in modern times the Occident has devel-
oped, in addition to this, a very di?erent form
of capitalism which has appeared nowhere
else: the rational capitalistic organization of
(formally) free labour (Weber, 1930, p. 21; see
also, p. 185).
On the surface Weber targets his Protestant
Ethic and the Spirit of Capitalism at Sombart who
depicts the spirit of modern capitalism as the
combination of the ancient `spirit of enterprise',
the spirit of ruthless acquisition (e.g. piracy), with
the modern `bourgeois spirit'. In Sombart's view
the bourgeois spirit arose with the growth in the
exchange of commodities for money and develop-
ments in rational bookkeeping that encouraged
precise calculation. Capitalism appeared from this
quantum leap ``in the capacity to think in the uni-
verse of ®gures and to transform these ®gures into
a well-knit system of income and expenditure''
(Sombart, 1915, p. 125). Although he traces its
origin to the Jews and Judaism, the appearance of
DEB in northern Italy in the fourteenth and ®f-
teenth centuries perfectly captured this spirit:
``Florence was `the Bethlehem of the capitalist
spirit'. . .'' (Holton, 1985, pp. 106±107). In
response, Weber criticised Sombart's spirit and
traced its origin to Calvin's teachings in the six-
teenth and seventeenth centuries.
Against Sombart Weber insisted, like Marx,
that ``the mere practice of trade for pro®t would
not have been sucient to produce the modern
capitalist spirit'' (Holton, 1985, p. 111). He criti-
cises Sombart's view that the spirit of capitalism is
simply systematically pursued economic greed.
This type of economic behaviour he calls `capitalism
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 143
in general'. The mentality underlying it has, he
says, existed in all previous civilisations through-
out known history. Associated with it is capital
accounting in general, that is, any calculation of
pro®t by comparing opening and closing balances
of capital.
The important fact is always that a calcula-
tion in terms of money is made, whether by
modern book-keeping methods or in any
other way, however primitive and crude.
Everything is done in terms of balances: at
the beginning of the enterprise and initial
balance, before every individual decision a
calculation to ascertain its probable pro®t-
ableness, and at the end a ®nal balance to
ascertain how much pro®t has been made.
. . .[A]ll that matters is that an actual adapta-
tion of economic action to a comparison of
money income with money expenses takes
place, no matter how primitive the form.
Now in this sense capitalism and capitalistic
enterprises, even with considerable rationali-
sation of capitalistic calculation, have existed
in all civilized countries of the earth (Weber,
1992, pp. 18±19).
Weber agrees with Sombart that rational
accounting is a precondition of modern capital-
ism, but he insists this must embrace the rational
organisation of free wage labour in production. As
Holton puts it, for Weber ``Exact calculation Ð
the basis of everything else. . .is only possible on
the basis of free labour'' (Holton, 1985, p. 125).
The unique cultural distinctiveness of the West
lay, not with capitalism in general, but in ``sober
bourgeois capitalism, with its rational organisa-
tion of free labour'' (Holton, p. 126). As we shall
see, for Marx, a capitalistic focus on the rate of
return on capital only emerges with the socialisa-
tion of capital in trade.
26
By contrast, for Weber
capitalism in general exists whenever there are
calculations of `pro®t'. Therefore, for him, the
``great merchant princes of the Renaissance
and the medieval period were fully capitalist''
(MacKinnon, 1993, p. 213) whether they were
individuals operating on their own, or they socia-
lised their capital.
27
Nevertheless, in Weber's view
they were not ``authentic'', that is, modern capi-
talists, because they did not systematically pursue
pro®t as an end in itself with a spiritual sanction
for methodical labour.
For Weber the distinctive spirit of modern
capitalism only came to life by harnessing DEB to
the rational organisation of labour in production
for pro®t. Here, in his distinction between the
general capitalist `form' and the `spirit' of modern
capitalism, Weber mirrors in outline Marx's dis-
tinction between the `formal' and the `real' sub-
sumption of labour under capital. In Marx's view,
those with capitalistic tendencies at ®rst only `for-
mally' take control of production with free wage
labour. This means they do not attempt to change
the process. They pursue absolute and not relative
surplus value.
28
Consistent with this, Weber char-
acterises the continental putter-out as not an
authentically modern capitalist (1992, p. 67).
However, other than refer to the views of Ben-
jamin Franklin, he provides no systematic evidence
of the motives and worldviews of his medieval
26
Recall that early calculations of the rate of return on
capital are `capitalistic' because at ®rst this is de®ned as the
feudal rate of return, feudal surplus divided by the initial capi-
tal advanced.
27
Weber accepts that what will become the most `perfect'
form of rational bookkeeping, DEB, only emerged when
groups of individuals pooled their capital (Weber, 1981, pp.
223, 225, 227). Even so, Weber has no equivalent to Marx's
idea of social capital. He puts ``an emphasis on. . .
`commercialisation'. . ., the formation and operation of joint-
stock companies [with]. . . negotiable instruments and securities,
which represent `a means for the rational assembly of
capital'. . .'' (Poggi, 1983, p. 33). For Marx social capital was
the `communism of capitalism', a social `conspiracy against
society', and in Germany ``The stock exchange had become a
symbol of the iniquity of capitalism in the political agitation of
the 1890s'' (Bendix, 1966, p. 23). By contrast, Weber thought
this view was naive and he set out to counter it. He accepted
there was ``irresponsible speculation''. He counters by empha-
sising that ``The stock market provides a mechanism whereby a
businessman, through use of rational planning, can facilitate
the progress of his enterprise'' (Giddens, 1971, p. 122). In other
words, that the function of the stock exchange is to help indi-
vidual `businessmen' raise the capital they need to allow them
to plan `rationally', not to promote the formation of a total
social capital.
28
I discuss this distinction later.
144 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
businessmen. As Marshall says, this omission is
signi®cant because ``The neo-Calvanist and Pro-
testant sectarian business communities ought,
according to Weber's thesis, to display an unam-
biguously `modern capitalistic' orientation
towards economic activity'' (Marshall, 1982, p.
100). Marshall summarises some of the ``traits''
that in Weber's view would ``count as evidence''
for the modern outlook, the attitude to `pro®t'
®guring strongly.
In the productive sphere itself the individual
would continuously be seeking to `improve'
his or her performance: rational expansion
would be pursued; less pro®table lines of
economic activity would be abandoned in
favour of more pro®table ones; a continual
balance of costs against returns would be kept
so that policies could be adopted which
increased productivity and utilized resources
in the most ecient manner. Investments
would result from careful costings and
informed predictions as to the pro®tability of
projected enterprises (Marshall, 1982, p. 101).
Marshall confesses this sort of ``data [is] dicult
to unearth and ambiguous where it exist'' (1982,
p. 45). For example, when is expansion rational?
What does pro®table mean? What are costs and
returns? What does it mean to be careful in cost-
ings, and informed in predictions? No help is
forthcoming from Weber. As Marshall concludes,
``A few generalizations based on `what we all
know' about the state of mind of pre-capitalist
merchants, alongside the illustrative quotations
from Franklin's texts, are scarcely sucient
documentation of Weber's argument'' (Marshall,
1982, p. 45). Unfortunately, Weber's under-
standing of modern capital accounting is ambig-
uous. This is the source of the impossible
empirical problem that Weber left for sociologists.
As Marshall laments, ``whatever the `elective a-
nities' between `form' and `ethos' at the rhetorical
level, there is nothing in the organizational basis of
any form of economic transaction which auto-
matically calls forth a speci®c meaning for the
pro®ts that are accrued and so permits us to conclude
that the practitioners are or are not interpreting their
conduct as the diligent application of a calling''
(Marshall, 1982, p. 117). In short, can we read the
social motivation of the preparer from their
accounts? We shall see that Weber insists this is
essential to the task of the sociologist. In fact it is
impossible with his understanding of modern
accounting.
Weber makes claims for bookkeeping and
accounting that modern scholars would discount,
particularly his view that DEB was a `technical'
precondition of capitalism.
[T]he estimation of pro®tability. . . is made par-
ticularly clear by the form of bookkeeping,
the double entry type, which is most highly
developed from a technical point of view. For
here, in the system of accounting, there is
introduced the ®ction of exchange transactions
between the di?erent parts of a single enter-
prise; or, between di?erent accounts in order to
develop a technique of estimating the bearing
of each particular measure on the pro®tability
of the enterprise (Weber, 1964, p. 195).
Weber is right that DEB makes the impact of
transactions and events on the rate of return on
capital clear, but it makes no contribution to esti-
mating pro®tability. This requires forecasts of
future transactions and events. Weber claims that
``The modern rational organization of the capita-
listic enterprise would not have been possible
without. . .the separation of business from the
household,. . .and closely connected with it,
rational book-keeping'' (Weber, 1992, pp. 21±22).
However, ®rst, DEB is not necessary to separate
the household from the business. Second, it intro-
duces no ®ction of exchange transactions between
di?erent parts of an enterprise ``thus permitting a
check in the most technically perfect manner on
the pro®tability of each individual step or mea-
sure'' (Weber, 1978, p. 93).
29
In a technical sense,
DEB was not a precondition of modern capital-
ism. Thus, the mere existence of accounts kept by
DEB provides no basis for identifying the authen-
tically capitalist mentality. Although for di?erent
29
This claim implies accounting at net realisable value
(NRV), as we shall see.
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 145
reasons, Weber also accepts this by his distinction
between the form of an enterprise and its spirit
(1992, p. 67). In Weber's theory, traditional enter-
prises employing free labour could use DEB. For
him, any calculation of `pro®t' by means of `bal-
ances' is evidence of capitalism in general, and the
use of DEB only signi®es the modern capitalist
mentality if it is being used to rationally organize
labour in production for pro®t. From Marx's per-
spective, by contrast, only if DEB calculates the
feudal rate of return on capital is there evidence of
the capitalistic mentality, and use of DEB is only
evidence of the capitalist mentality if it produces
the return on capital employed in production.
Marshall unconsciously illustrates the impreci-
sion of Weber's ideas when he uses them to tenta-
tively identify early modern capitalists. Marshall
examines accounting and other data and identi®es
Sir John Clerk, late seventeenth and early eight-
eenth century Scottish mine owner, as an authen-
tic capitalist. However, despite the `highly
calculative approach' to production, and the
apparent use of DEB, the accounts suggest Sir
John's aim was feudal surplus and feudal
accountability.
30
The so-called pro®t seems to be
net cash ¯ow. Every third Saturday the grieve who
ran the mine was to have Sir John ``clear accounts
with me and. . .receive the Said ballance''. Or, if he
could not come, ``to have the Said ballance always
in readiness and to pay it in to his order, or to
Send it to him''. The accountability was personal.
The grieve agreed, ``remarkably, to be personally
liable for any losses which he incurred through the
ability of customers or colliers to transact with
him a bargain unfavourable to Sir John'' (Mar-
shall, 1991, pp. 205±206, emphases added). Mar-
shall's other example is the Newmills Cloth
Manufactory, Haddingtonshire, from the middle
to the end of the seventeenth century, formed as
a joint-stock company in 1681. From Weber's
viewpoint, use of DEB and other evidence, again
suggests to Marshall the authentically modern
mentality. However, from Marx's viewpoint this
company is capitalistic. Newmills had a socialised
capital and used DEB to calculate the feudal rate
of return. The `pro®t', revenues less wages and
materials costs (Marshall, 1980, p. 143), is feudal.
There is no apparent allowance for depreciation,
merely a focus on prime cost (see: Scott, 1951,
Vol. 3, pp. 138±158). Using Weberian accounting,
it is indeed ``by no means an easy task to distin-
guish the modern capitalistic attitude from the
`spirits' of all other capitalisms'' (Marshall, 1991,
p. 195).
It is not the method of bookkeeping that makes
modern accounting socially rational, but the rules
for valuing assets and liabilities and the idea of
surplus, capitalist pro®t. Unlike Marx and modern
accounting, Weber makes no distinction between
the rules for productive capital and capital of cir-
culation. Nor does he distinguish between the
rules for ®xed and circulating capital. Weber, like
neo-classical economists, believes the general
valuation rule is net realisable value (NRV). In his
view, ``rational money accounting presupposes the
existence of e?ective prices and not merely ®cti-
tious prices conventionally employed for technical
accounting purposes'' (Weber, 1964, p. 194,
emphasis added).
31
As Poggi puts it, according to
Weber, pro®t-seeking enterprises ``monitor their
pro®tability in a most sophisticated manner by
means of double-entry bookkeeping, an account-
ing device whereby prevailing market prices are
attached also to internal, non market transactions
between separate parts or phases of the enterpri-
se's activities'' (Poggi, 1983, p. 20).
32
From Marx's
viewpoint, NRV as a general rule is consistent
with the feudal idea of surplus, which is reducible
to actual and expected net cash ¯ow. NRV is not
acceptable as a general rule in modern capitalist
accounting. Weber says he is only ``repeat[ing]
generally known things. . .[in] standard textbooks
of accountancy, which are, in part, excellent''
(Weber, 1964, p. 195). At the time Weber was
30
The contract between the grieve (Scottish steward) and Sir
John spoke of ``Debite & Credite'' (Marshall, 1991, p. 205), but
this is not conclusive evidence of DEB.
31
Weber mentions ®xed capital and working capital, but he
does not tell us their valuation rules. These items are, says
Poggi, along with liabilities, ``evaluated'' (1983, p. 20).
32
Poggi also believes ``typical modern capitalist unit['s]. . .
operations are controlled through double-entry bookkeeping'',
and that it ``separate the business's accounts from those of
the entrepreneur's or his family's wealth'' (Poggi, 1983, pp. 32,
42).
146 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
writing, following some spectacular stockmarket
frauds, under the Stock Corporation Act of 1884
German accounting required historical cost as the
upper valuation limit. This replaced the previous
Prussian General German Commercial Code of
1861. The latter had required Weber's ``inventory
and balance sheet at the close of each ®nancial
year'', and had allowed most assets and liabilities
to be accounted for at ``current value'' (Ballwieser,
1995, p. 1402). Following the 1884 Act, during the
late nineteenth and early twentieth centuries there
was in Germany `The Great Argument' whether
the balance sheet or the pro®t and loss account
was more important. In this argument, it seems,
Weber sided with the jurists from whom a ``new
point of view appeared'' (Schmalenbach, 1959).
This was that the balance sheet was most impor-
tant. As Schmalenbach put it, as ``the object of the
balance sheet was the ascertainment of the status
of capital'', assets were at ``the value in the open
market, i.e. the value on sale'' (pp. 19±20).
Weber's capital maintenance rule (CMR) also
reveals contrasts between modern and Weberian
accounting. There is, says Weber, a close elective
anity between the Protestant ethic of frugality
and accumulation, and the modern idea of capital
maintenance. As he says, the CMR is based on the
modern desire Ð to the traditional mind a wholly
irrational basis for economic action Ð to
``increase. . . capital only to increase capital fur-
ther, not to consume it'' (Marshall, 1991, p. 195).
However, while from Marx's perspective Weber is
right about the importance of this shift in attitude,
he again fails to grasp the realities of the CMR.
Weber advances a notion of ®nancial capital
maintenance with a strong anity with Adam
Smith's neo-classical economics. Weber helpfully
outlines for us his understanding of the essential
features of rational capital accounting.
In order to test the usefulness of the present
accounting term, which is increasingly
employed in scienti®c writings, again, it is
only necessary to ask the following simple
questions: (1) What does it mean when we say
that a company has an original capital of a
million pounds? When (2) that capital is
`written down'? When (3) laws dealing with
®nancing make rules which lay down what
may and may not be included in original
capital? The ®rst question means that when
pro®t is being divided, it is only when the
excess of credits over debits as stated in the
balance sheet exceeds one million pounds,
that it can be treated as pro®t and divided
among the shareholders. . . The second ques-
tion concerns the situation where there may
have been heavy losses. It means the division
of pro®t need not be postponed until a sur-
plus of over a million pounds has been accu-
mulated but that the division of pro®ts may
begin at a lower ®gure. . . .Finally, the pur-
pose of rules as to how capital liability can be
`covered' by acquisition of assets and when
and how it can be written down or up is to
give creditors and shareholders a guarantee
that the division of pro®ts will be carried
out. . .in such a way. . .that pro®tability is
maintained and. . . the security of the creditors
is not impaired (Weber, 1964, pp. 195±196).
In traditional capitalist accounting the role of
the CMR is to reveal the source of any payments
to shareholders and creditors, whether from capi-
tal or pro®t, to facilitate the smooth functioning
of the social relations of capital.
33
The contrasts
between Weberian and traditional accounting are
stark. First, the CMR does not provide security
for creditors, merely information that capital is in
circulation for pro®t. Second, whereas Weber
adopts a simple ®nancial capital CMR, from
Marx's and the traditional viewpoint the CMR
should use replacement cost for nonmonetary
productive assets, and requires capital main-
tenance adjustments. Third, Weber says losses of
capital that do not impair the maintenance of the
enterprise's pro®tability may be written-down so
that dividends can continue. This way, he says,
dividends become ``available for consumption. . .
without prejudice to. . . future chances of pro®t
making'' (Weber, 1964, p. 192). This was the
33
By `traditional' I mean the dominant view of accounting
in late nineteenth century Britain, a view I argue underlies
modern practice (Bryer, 1993b, 1998a,b, in press-a).
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 147
basis of the decision in the important English
case of Lee v. Neuchatel (1889), shown elsewhere
to be a judicial elaboration of Adam Smith's ana-
lysis of ®xed and circulating capital (Bryer, 1998a,
1998b). Weber, like Smith, imagines that some
capital, for Smith ®xed capital, earns no pro®t and
therefore its loss, as we shall see below, does not in
Weber's terms prejudice future chances of pro®t
making. This would only arise, according to Smith
and, presumably, Weber, by losing circulating
capital, as only this type of capital earns pro®t. By
contrast, in Marxist and traditional accounting,
whether ®xed or circulating, capital advanced is
only written-down when it is not recoverable,
and the court approves. In short, in capitalist
accounting the purpose of the CMR is not to
allow dividends by the write-down of capital for
heavy losses. Fourth, the aim of the CMR is not
to control dividends so that `pro®tability is main-
tained'. From Marx's perspective and in tradi-
tional accounting, management is accountable for
the circuits of capital, for a materially and socially
objective world (Bryer, 1998a, 1998b, in press-a).
By contrast, in Weber's accounting, just as in the
decision-relevance school today, management is
accountable for the `future chances of pro®t mak-
ing'. He reveals this when he expands on the
meaning of `pro®tability'.
A pro®t-making `enterprise'. . .is a system of
action capable of autonomous orientation to
capital accounting. This orientation takes
place by means of calculation. On the one
hand, there is calculation, prior to actual
action, of the probable risks and chances of
pro®t; on the other hand, at the conclusion of
a measure, veri®cation of the actual pro®t or
loss resulting. `Pro®tability'. . .means, in the
rational case, one of two things: (1) the
amount of pro®t estimated as possible by
previous calculations, the attainment of
which is made an objective of the entrepre-
neur's activity; or (2) that which an audit
shows actually to have been earned in a given
period and which is available for consump-
tion uses of the entrepreneur, without pre-
judice to his future chances of pro®t making. In
both cases it is usually expressed in ratios Ð
today, percentages Ð in relation to the capital
of the initial balance (Weber, 1964, p. 192,
emphasis added).
In other words, Weber says the auditor judges
the acceptability of dividends by whether or not it
prejudices future chances of pro®t making. This,
for Weber, determines whether the pro®t has
`actually. . .been earned'. However, it is not poss-
ible to hold management objectively accountable
for the future chances of pro®t making. Tradi-
tional accountants have, therefore, consistently
shunned this vision of accounting (Bryer, 1993b,
1998a, 1998b, in press-a). Nevertheless, it is poss-
ible to agree with Weber that within capitalism
accountability means that ``Each individual
operation undertaken by rational pro®t-making
enterprise is oriented to estimated pro®tability by
means of calculation'' (Weber, 1964, p. 192).
However, it makes a world of di?erence whether
we measure earnings using NRV or the valuation
rules of modern accounting.
I conclude that Weber did not penetrate the
mysteries of modern capitalist accounting, and
hence does not adequately theorise its calculative
spirit. Contrary to the views of sociologists,
Weber's elective anity between the Protestant
ethic and the spirit of modern capitalism is not
``adequate at the level of meaning'' (e.g. Holton,
1985, p. 109). It follows that Weber fails his test of
what counts as scienti®c sociology. As Weber
explains,
A motive is a complex of subjective meaning
which seems to the actor himself or to the
observer an adequate ground for the action in
question. The interpretation of a coherent
course of conduct is `subjectively adequate'
(or `adequate at the level of meaning'), inso-
far as, according to our habitual modes of
thought and feeling, its component parts
taken in their mutual relation are recognised
to constitute a `typical' complex of mean-
ing.. . . An example of adequacy of meaning
in this sense is what is, according to our current
norms of calculation or thinking, the correct
solution of an arithmetical problem (Weber,
1978, p. 11).
148 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
Thus, he says, if we observe someone writing
down the ``proposition twice two equals four'', or
``engaged in balancing a ledger or making a scien-
ti®c experiment'', ``we understand what make him
do this at precisely this moment and in these cir-
cumstances'' (Weber, 1978, p. 8). In short, ``we
understand in terms of motive the meaning an
actor attaches'' to his actions (Weber, 1968, p. 8).
If we see someone engaged in an action whose
ideal-typical rationality or `complex of meaning'
we understand, we can hypothesise its motive for
the actor, its subjective meaning. It follows, as
Weber says, that ``for a science which is concerned
with the subjective meaning of action, explanation
requires a grasp of the complex of meaning in which
an actual course of understandable action thus
interpreted belongs'' (1978, p. 9). For the scienti®c
sociologist it is, therefore, vitally ``necessary to know
what a `king', an `ocial', an `entrepreneur', a `pro-
curer', or a `magician' does, that is, what kind of
typical action. . .before it is possible to undertake the
analysis itself'' (Weber, 1978, p. 18). Clearly, there-
fore, to analyse the motives of an accountant it is
necessary to understand what one does Ð within
what complex of meaning he or she balances the
ledger. This Weber has singularly failed to do.
Weber's Protestant ethic theory has been subject
to widespread criticism for other failings (e.g.
Giddens, 1992). Nevertheless, many argue he at
least avoided the tautology that infects Marx Ð
that modern capitalism is simply the Hegelian
realisation of the idea of modern capitalism (Hol-
ton, 1985, p. 105; Marshall, 1982). Many believe
Marx does not explain the ``transition from feud-
alism to capitalism'' Ð how class con¯ict within
feudalism created the calculative mentality of
modern capitalism (Holton, pp. 8, 142). To show
that Marx does explain this we must understand
his theory as a history of accounting that encom-
passes the calculative mentalities of feudal mer-
chants and lords and their interactions. While the
socialisation of capital in trade is Marx's origin of
the rate of return on capital mentality, its historic
encounter with farmers employing wage labour is
responsible for the uniquely modern approach of
maximizing the rate of return on capital by max-
imizing labour productivity. Marx called this
the real subsumption of labour under capital.
Although he does not provide a detailed history of
this encounter, when we translate his views into a
history of accounting we ®nd a clear chronology
and an outline of the process.
3. The history of accounting and Marx's theory
of the transition
Marx said the appearance of modern capitalism
``presupposes a historic process. . .which. . .forms
the history of the origins of capital and wage
labour'' (1973, p. 489, emphasis added). Many
historians have acted on Marx's advice that it was
necessary to understand the ``historic presuppo-
sitions needed before the worker can be found as a
free worker'' (Marx, 1973, p. 498). However, few
historians understand exactly why it was just as
important to understand the history ``required so
that he ®nds himself up against a capital'' (Marx,
1973, p. 498). Following Marx's advice, a Marxist
history of accounting must embrace two inter-
connected histories. We shall see that, according
to his history, it must begin in the sixteenth cen-
tury with the English monopoly trading com-
panies, and trace their transition to joint-stock
companies through changes in their systems of
accounting. It must also trace the emergence of the
capitalist mentality in agriculture in farmers'
accounts over the same period.
3.1. Accounting for the freedom of capital
Facing free workers must be a ``free fund''. Both
appear simultaneously. The fund was created
when, from the sixteenth century, English pea-
sants began to be deprived of their ``land and soil,
raw material, necessaries of life, instruments of
labour,. . .[and] money''. Although the peasants
lose their possessions,
They are still there on hand, but in another
form, as a free fund, in which all political, etc.
relations are obliterated. The objective condi-
tions of labour now confront these unbound,
propertyless individuals only in the form of
values, self sucient values. The same process
which placed the mass of workers face to face
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 149
with the objective conditions of labour as free
workers also placed these conditions, as capital,
face to face with the free workers. . . Ð the
(potentially) free worker on the one side, capital
(potentially) on the other (Marx, 1973, p. 503).
The same historic process of class con¯ict that
obliterates all feudal relations on the land also
produces capital as a `free fund' in trade. Capital
®rst gains its freedom as commercial capital in the
international trading cities of northern Italy in
the fourteenth and ®fteenth centuries, where it
becomes socialised and investors demand an equal
return for equal capital (Bryer, 1993a).
34
This
``commercial capital is the ®rst independent mode
of existence of capital in general'' (Marx, 1981, p.
455). In other words, capital that was ``indepen-
dent'' of any particular individual; pooled or
socialised capital. The Italian communes, protect-
ing trade above all, appeared as a new social for-
mation in con¯ict with would-be feudal rulers, and
rose to previously undreamed of heights based
upon trading and money-dealing capital accumu-
lated in socialised forms. I argue elsewhere that
their use of DEB is consistent with Marx's view
that the signi®cance of the Italian communes for
the development of modern capitalism was the
appearance of socialised capital and the rate of
return mentality (Bryer, 1993a). Brenner says it
was only in his early work that Marx saw ``an
initial rise of Ð or at least movement toward Ð
capitalism in the ancient commercial society of the
Mediterranean'' (Brenner, 1989, p. 282). He sug-
gests this view was part of the Smithian baggage
Marx later jettisoned. However, it was not just
in his early works that Marx ``was drawn to
emphasize, theoretically and historically, the
importance of the medieval communal revolution
for the consolidation of bourgeois society and for
engendering its long-term evolution'' (1989, p.
283). While Smith's framework was abandoned,
Marx's ``interest. . .[on] discover[ing]. . .that the
term `catalla, capitalia', capital, came into being
with the rise of the communes' (Marx & Engels,
1983, p. 474), never was. Marx also emphasised
Italy's critical contribution to the development of
modern capitalism in his later work. In volume three
of Capital he says ``feudalism was. . .(broken
through by exceptional urban development. . .in
Italy'' (Marx, 1981, p. 937). Central to this urban
development was the commercial revolution (Lopez,
1976, 1987), for Marx the beginnings of an interna-
tional system of public credit that would eventually
form the foundation of total social capital.
The system of public credit, i.e. of national
debts, the origin of which are to be found in
Genoa and Venice as early as the Middle Ages,
took possession of Europe as a whole during
the period of manufacture. The colonial sys-
tem, with its maritime trade and its commer-
cial wars, served as a forcing house for the
credit system. Thus, it ®rst took root in Hol-
land. The national debt. . .marked the capital-
ist era with its stamp. . . .Public credit becomes
the credo of capital (Marx, 1976b, p. 919).
The modern credit system, the capital market, is
the foundation of total social capital. Today,
public debt provides a virtually riskless rate of
return on capital enabling investors to invest in
risky ventures and yet manage their total portfolio
risk to acceptable levels. In Marx's history, ``the
credit system. . .is itself on the one hand an imma-
nent form of the capitalist mode of production
and on the other hand a driving force of its devel-
opment into the highest and last possible form''
(Marx, 1981, p. 742). In particular, as he put it,
``the national debt has given rise to joint stock
companies, to dealings in negotiable securities of
all kinds, and to speculation: in a word, it has
given rise to stock-exchange gambling and the
modern bankocracy. . .whose full development
dates from the founding of the Bank of England in
34
From Marx's point of view, the demand for an `equal
return for equal capital' is the core `bourgeois value', the
necessary change in `substantive values' which Weber rightly
argues must underlie any sustainable and generalisable change
in formal rationality (Kalberg, 1980, p. 1171). This is why
socialised capital in trade is a precondition of modern capital-
ism. Marx would agree with Weber that ``Only ethical rational
action, not simply the thrust of interests, possessed. . .(the
potential e?ectively to rupture traditional ways of life and atti-
tudes''. As we have seen, Marx does not ``endow. . .economic
interests with a generalized signi®cance'' (Kalberg, 1980, p.
1171), in the positivist manner in which Weber understands
`economic'.
150 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
1694'' (Marx, 1976b, pp. 919±920). Just like the
credit system, the simultaneous development of
commercial capital, although a ``powerful lever'',
was ``only one element in connection with other
large-scale organic revolutions in the mode of pro-
duction itself'' (Marx, 1981, p. 743). Nevertheless,
for Marx it was to prove a critical element because
``one of the latest forms of bourgeois society, joint-
stock companies. . .appear. . .at its beginning, in the
great, privileged monopoly trading companies''
(1973, p. 108). As we have seen, joint-stock com-
panies are, for Marx, the epitome of social capital.
As we shall see in Part Two (Bryer, in press-c),
the history of accounting allows us to trace how
socialised and social capital eroded and eventually
overthrew ``the socio-political limits in which
capital was con®ned'' (Marx, 1976b, p. 1030).
Modern joint stock companies emerged from a
process of class struggle within feudalism, begin-
ning with the voyages of exploration in the late
®fteenth century, over who would reap the
rewards on international trade. First, con¯ict with
Portugal and Spain culminating in the Spanish Sea
Wars of the sixteenth century in which the English
base their success on the extensive socialisation of
capital in exploration and privateering drawn from
agriculture as well as trade. Second, con¯ict in the
late sixteenth and early seventeenth century
between the great, privileged monopoly trading
companies, and the new class of capitalistic mer-
chants who had emerged, and who went from
strength to strength with socialised capitals trading
and producing commodities in North America and
the Caribbean. However, the monopoly granted
the EIC in 1600 excluded the new merchants from
the most lucrative far Eastern trade. In Marx's
theory, class con¯icts culminate in mid-seventeenth
century England in the bourgeois revolution. In
our interpretation this results in victory for the
demand for an equal return for equal capital, the
beginning of the creation of modern industrial
capital as a social force driven by the rate of return.
To be consistent with this interpretation, the
individual English merchants who predominated
before the bourgeois revolution should be as feudal
as lords, conceiving their `pro®t' as consumable
surplus. Like the lords, the merchants should want
to maintain their lifestyles, not to maximize the
rate of return on their capitals. These merchants
should, therefore, also use receipts and payments
or income and expenditure accounts. Part Two
(Bryer, in press-c) presents evidence consistent
with this prediction. We shall see sixteenth and
early seventeenth century merchants using ele-
ments of DEB to calculate feudal surplus. How-
ever, the new merchants who socialise their capital
should evince the rate of return mentality in their
accounts by the full application of DEB. In Part
Two we showthat there is evidence of an association
between the use of DEB to allow the calculation the
return on capital and the socialisation of merchant
capital. Our prime example is the EIC, which
appeared to introduce DEB sometime in the 1630s
to foster the socialisation of its capital, but here we
go beyond associations to a detailed analysis of the
critical role accounting played in eroding and rede-
®ning the socio-political limits of its capital. We
show the EIC's accounting system changed in a
process of con¯ict between the great feudal mer-
chants who dominated it from its foundation, and
the generality of its investors who demanded its
`governors' be accountable as managers. The social
history of accounting by the EIC will enable us to
trace its bourgeois revolution. This climaxed in 1657
with the declaration that henceforth the Company
would only pay money dividends from its `pro®t'.
This implied a revolutionary change in its system of
accounting that signatured a revolutionary change
in its social relations, the creation of the ®rst modern
joint stock company in England.
The transition literature is devoid of the idea
that by the freedom of capital Marx meant its
freedom to socialise on equal terms, to pursue the
rate of return on capital. To many scholars it sig-
ni®es only that the means of production are avail-
able as commodities on the market (e.g. Dobb,
1946, pp. 7, 183). Capitalism does mean this, but
for Marx generalised commodity production was
only possible given a total social capital. Brenner
recognises that ``both capital and labour power
[must be] `free' to make possible their combination
at the highest possible level of technology''. He is
also aware that ``Only under such a system, where
both capital and labour power are thus commod-
ities Ð and which was therefore called by Marx
`generalized commodity production'. . .'' is modern
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 151
capitalism possible. However, by freedom of capi-
tal Brenner means ``the means of production
become commodities'' (1977, pp. 32±33). Kriedte
attempts to explain the transition in a way
``acceptable both in neo-classical and neo-Marxist
terms'' (Hagen, 1988, p. 14). In his view, even an
individual merchant's capital has its own internal
``dynamism'' (Kriedte, 1980, p. 1), is inherently
capitalist. Once merchants have made ``a pro®t by
selling goods at a higher price than they had pur-
chased them''; ``Once this cycle of exchange had
been completed, it made sense [sic] to continue on
a larger scale and thus to accumulate capital''
(Kriedte, p. 9). Kriedte does not recognise social-
ised capital, and always writes of individuals. For
example, ``This kind of economic behaviour was
all the more attractive to the merchant as an
expansion of his business promised economies
of scale'' (Kriedte, p. 9, emphases added). For
Kriedte the mere ``deployment and accumulation
of commercial capital became the decisive stimuli
to the development of the non agricultural econ-
omy until the onset of industrialization'' (Kriedte,
p. 9). Likewise, in his view, when in England in the
sixteenth century ``Merchant capital became
landed capital. . .[c]apitalist ground rent and the
system of feudal rents became inextricably inter-
meshed'' (Kriedte, p. 10). He again implies
merchant capital was itself capitalist Ð that the
ex-merchant's mere presence on the land was suf-
®cient to turn feudal rent into capitalist ground
rent.
35
As we shall see in Part Two (Bryer, in
press-c) contrary to Kriedte, the accounting
evidence shows the merchants of the sixteenth
centuries were feudal in their calculative mentality,
and only become capitalistic as commercial capital
becomes socialised from the mid-seventeenth cen-
tury, pursuing the feudal rate of return.
36
3.2. Accounting for free wage labour and
capitalistic agriculture
Capital is ®rst formed as commercial capital,
``But the merchant and usurer encounter the con-
ditions where free labour can be purchased only
when this labour has been released from its objec-
tive conditions of existence through the process of
history'' (Marx, 1973, p. 505). Although the
appearance of farmers employing wage labour
from the end of the ®fteenth century is an essential
step, in Marx's theory they are not modern capi-
talists. To understand why not, Marx explains
how we can identify the ®rst appearance of capi-
talistic behaviour in English agriculture. Sig-
ni®cantly, at this critical juncture in his exposition,
he directs us to the farmer's calculative mentality,
and to his accounts.
[T]o the extent to which agriculture. . .
becomes a capitalistically run branch of
industry (capitalist production sets up its stall
in the countryside), to the extent to which
agriculture produces for the market, i.e. pro-
duces commodities, articles for sale and not
for its own immediate consumption Ð so too,
and to the same degree, it calculates it costs,
treats each item as a commodity (regardless
of whether it buys it from another or from
itself, i.e. from production). . . .Apart from
the service they perform as use-values in the
process of production, all the means of
labour. . . serve as ingredients in the valoriza-
tion process. Where they are not changed into
actual money, they are converted into
accounting money; in short, they are used as
exchange values and the element of value they
add to the product in one way or another is
precisely calculated (Marx, 1976b, p. 952).
According to Marx's theory, even if early farmers
do precisely calculate costs and pro®t, we could
only call them capitalists if they also calculated the
rate of return on their capital in production. Until
then, they are only `capitalistic'. As Marx says,
with the dissolution of serfdom, certain tendencies
arise among the ``better-o? rent-paying peasants,
of exploiting agricultural wage-labourers on their
35
We shall see later that Kriedte does not understand
Marx's idea of capitalist ground rent.
36
Although in Kriedte's view the establishment of joint-stock
companies in England from the mid-sixteenth century ``went
hand-in-hand with a growing emphasis on calculability and
rationality that Max Weber has written about'', we shall see feudal
merchants dominated the important ones. We shall also see
that Kriedte's claim that ``Double-entry bookkeeping which had
been con®ned to Italy. . .now became widespread'' (Kriedte,
1980, p. 46), is not supported by the evidence available.
152 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
own account'', of a concern with ``the proportion
of production cost''. The possibility exists of a
surplus over rent for the peasant proprietor.
However, until farmers calculate the cost of pro-
duction and account for capital they are, in
Marx's sense, merely ``future capitalist''. All that
existed in the late ®fteenth and sixteenth centuries
was a ``seed-bed for the nurturing of capitalist
farmers'' (Marx, 1981, pp. 933±935, emphases
added).
To understand why a farmer who employs wage
labour, produces for the market, and precisely cal-
culates costs, is not an authentically modern capi-
talist, it is necessary to appreciate the accounting
implications of Marx's distinction between the for-
mal and real subsumption of labour under capital. If
Marx is right, this distinction should appear as
transitional forms between the capitalist and feudal
modes of accounting, indicating transitional forms
of the social relations of production. In his theory,
capitalistic tendencies in agriculture emerged within
a feudal shell, at a point where ``the disintegration of
the feudal mode of production had already reached
an advanced stage'' (Dobb, 1946, p. 20), but still
held sway. In this context, capital only formally
takes hold of production, and this is precisely how
the capitalistic farmer sees his embryonic `pro®t' Ð
any surplus he earns over his rent Ð as the direct
appropriation of a feudal surplus. As Marx puts it,
The labour process is subsumed under capital
(it is its own process) and the capitalist inter-
venes in the process as its director, manager.
For him it also represents the direct exploita-
tion of the labour of others. It is this that I
refer to as the formal subsumption of labour
under capital. It is the general form of every
process of capitalist production; at the same
time it. . .[is] a particular form (Marx, 1976b,
p. 1019, emphasis added).
It follows that when capital only formally takes
control of production we should expect to ®nd
pro®t in farmer' accounts still de®ned as feudal
surplus, the result of the direct exploitation of the
labour of others. Feudal surplus persists, Marx
says, because the formal subsumption of labour
under capital only involves ``the take-over by
capital of a mode of production developed before
the emergence of capitalist relations'' (Marx,
1976b, p. 1021). The farmer no longer extracts a
surplus by direct coercion, or, ``let us say, by
political constraints''. He relies on and develops
`economic' constraints. However, without grasp-
ing and revolutionising the process of production,
``surplus value can only be extracted by lengthening
the working day, i.e. by increasing absolute surplus
value'', and ``this is common to both forms'' (Marx,
1976b, pp. 1025, 1021). That is, common to feudal
and formal capitalistic relations. It follows that the
landlord and the capitalistic farmer should both
calculate their surplus as income minus expendi-
tures. The essential di?erence being only that one
deploys political coercion based on personal power,
and the other the power of markets and the pre-
rogatives of capital. Only when commodity produc-
tion becomes general does capital transform the
process of production, that is, pursue relative sur-
plus value by cheapening labour cost per unit of
output below the social average. Here surplus arises
only after recovering the costs of ®xed and circulat-
ing capital, and the farmer de®nes the rate of return
on capital as capitalist pro®t (revenues minus
expenses) divided by the capital employed in pro-
duction. Only when we ®nd such accounts have we
identi®ed ``the speci®cally capitalist mode of pro-
duction in its developed form''. As Marx said, ``To
these two forms of surplus-value there correspond
two separate forms of the subsumption of labour
under capital, or two distinct forms of capitalist
production'' (1976b, p. 1025), each implying a dis-
tinctive form of accounting. Only with the appear-
ance of the modern capitalist farmer does the
general idea of surplus change from feudal rent to
capitalist pro®t.
With the intervention of the capitalist farmer. . .
[t]he nature of rent thereby changes, not only
as a matter of fact and accidentally, which
happened in places already under the pre-
vious forms, but rather normally, in its
acknowledged and dominant form. From the
normal form of surplus-value and surplus
labour, it declines to the excess of this surplus
labour over and above the part of it that is
appropriated by the exploiting capitalist in the
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 153
form of pro®t. . .. Instead of rent, the normal
form of surplus-value is now pro®t, and rent
now counts as an independent form only under
special conditions, not a form of surplus-value
in general but of a particular o?shoot of this,
surplus pro®t. . . .[T]his transformation corre-
sponds to a gradual transformation of the
mode of production itself.. . .It is no longer
land, but capital, that has now directly sub-
sumed even agricultural labour under itself and
its productivity (Marx, 1981, pp. 935±936).
Understanding the accounting signatures of
Marx's formal and real subsumption contradicts
the common view that he thought capitalist
farmers appeared in the sixteenth century. For
example, Cooper believes that Marx ``saw an
`agricultural revolution' in which enclosures, sheep
farming, rising prices and long leases created `a
class of capitalist farmers' and expropriated
labourers by the end of the sixteenth century''
(Cooper, 1985, p. 146; see also Beckett, 1990, p. 1).
Marx certainly thought an agricultural revolution
had occurred by then, but this was only the formal
subsumption of labour. He also thought a class of
capitalist farmers existed. However, in the trans-
lation of Volume One of Capital that Cooper
references (the Everyman edition ®rst published in
1930), ``capitalist farmers'' are in quotation marks
(see Marx, 1933, p. 825). Arguably, Marx intended
these quotation marks to highlight that quali®ca-
tions are necessary to grasp the precise meaning of
this phrase, whereas Cooper omits them (as do
other translations). Although Cooper also refer-
ences the Moscow edition of Volume 3 of Capital,
where Marx describes the sixteenth century as ``a
nursery school for capitalist tenants'' (1959, p.
799), this is overlooked, and Marx's chronology is
dismissed as ``somewhat. . .vague'' (1985, p. 147).
The interpretations of Marx o?ered by Marxists
have certainly been somewhat vague. Dobb pro-
posed ``a period of two hundred years within which
no mode of production can be said to be domi-
nant'' and an unspeci®ed ``process of transition to
capitalism'' (Tribe, 1978, p. 14). Dobb ``date its
opening phase in England. . .in the latter half of
the sixteenth and early seventeenth century when
capital began to penetrate production on a con-
siderable scale'' (Dobb, 1946, p. 18). Saville says
Marx thought the ``historical processes which
created the landless labouring class also involved
the emergence of a class of capitalist farmer by the
end of the sixteenth century. . .and the develop-
ment of a capitalistic agriculture'' (Saville, 1969, p.
266). Saville does not distinguish between capita-
listic and capitalist. Marx's chronology is some-
what more vague in Brenner's interpretation.
Brenner says he uses Marx's de®nitions (Brenner,
1985a, fn. 3, p. 11). However, his chronology is
actually based on the claim that ``From the late
®fteenth century. . . n England we ®nd the land-
lords consolidating holdings and leasing them out
to large capitalist tenants who would in turn farm
them on the basis of wage labour and agricultural
improvement'' (Brenner, 1985a, p. 46). Brenner
implies that Marx thought there was real sub-
sumption in agriculture from the late ®fteenth
century Ð that, for example, Kerridge has shown
the existence in Wiltshire of ``a system of capitalist
farms in operation from the early sixteenth cen-
tury'' (Brenner, 1985b, p. 308). Brenner appears to
de®ne capitalism as an inherent property of large
farms. In his reply to his critics he emphasizes that
his ``argument is for the primacy of the social±
property relationships and not Ð as I may not
have made clear enough Ð the size of the farms
per se'' (Brenner, 1985b, p. 300). However, his
understanding of the capitalist surplus±extraction
relationship is super®cial. Brenner ``characterizes
the capitalist economy. . .[as one where] the work-
ing class must sell their labour power to the capi-
talists for a wage in order to survive. In the process
they must alienate a surplus (pro®t) to the employ-
ers, precisely because they do not possess the means
of production'' (1985b, p. 228). All this achieves is
the equation of wage labour with pro®t and the
equation of pro®t with capitalism. As we have seen,
in Marx's theory wage labour is consistent with
feudal surplus. Kriedte's chronology is also vague.
As Hagen puts it, in Kriedte's view, a crucial
development during ``the long sixteenth century
and afterward, w[as] the commercialization of
agriculture'' (Hagen, 1988, p. 17). For Kriedte
commercialisation means modern capitalist farm-
ing began at the end of the ®fteenth century when,
following enclosures and the appearance of wage
154 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
labour, ``The market became the mechanism
which regulated the relationship between the
landowner and those who rented his land. The
feudal rent had been transformed into a capitalist
ground rent'' (Kriedte, 1980, p. 75). Kriedte thinks
this although Marx says capitalist ground rent
only appears when, with the development of total
social capital, the general form of surplus is capi-
talist pro®t. Only then does capitalist ground rent
become a monopoly surplus over the general rate
of pro®t. As Marx put it, ``in forms of society
where it is not yet capital that performs this func-
tion of extracting all surplus labour. . . Ð i.e. where
capital has not yet subsumed society's labour or
has done so only sporadically Ð there can be no
question at all of rent in the modern sense, of rent
as an excess over and above average pro®t, i.e.
over and above the proportionate share of each
individual capital in the total surplus value that
the total capital produces'' (Marx, 1981, p. 918).
As we shall see in Part Two, there is account-
ing evidence of capitalistic farmers from the late
®fteenth to the late sixteenth century, and some
evidence of real subsumption in the early seven-
teenth. However, there is none to support the
existence of a class of modern capitalist farmers at
this time. Marxists have recognised the problems
for Marx's explanation of the transition created by
locating modern capitalist farmers at the end of
the sixteenth century. First, the absence of an
economic basis for the con¯icts leading to the
bourgeois revolution in the mid-seventeenth cen-
tury, as capitalism had already arrived. Second,
the unexplained gap that appears between ``the
social changes in the agrarian structure'' in the
sixteenth century, and the generalised ``technical
transformation of farming methods'' from the
middle of the eighteenth century (Saville, 1969, p.
252). Clearly, under this reading of Marx, ``The
timing of these two revolutionary changes do not
coincide'' (Saville, p. 252). However, in our read-
ing of Marx's theory the bourgeois revolution
arises from class con¯ict in trade and is a neces-
sary precondition for the real subsumption of
labour, for harnessing the driving force of the rate
of return on capital to the exploitation of wage
labour in production. Part Two shows the
accounting evidence is consistent with Marx's
theory and with the prevailing view amongst agri-
cultural historians that the technical revolution in
agriculture began in the second half of the seven-
teenth century. In this reading, therefore, the tim-
ings of the social and technical revolutions in
farming do coincide. To support this reading we
must understand the accounting signatures under-
lying Marx's explanation of the commercial revo-
lution and the real transition in agriculture.
3.3. Accounting for the commercial revolution and
the real transition
In Marx's mind,
There [wa]s no problem at all in understanding
why commercial capital appears as the historic
form of capital long before capital has sub-
jected production itself to its sway. Its exis-
tence, and its development to a certain level, is
itself a historical precondition for the devel-
opment of the capitalist mode of production
(1) as precondition for the concentration of
monetary wealth, and (2) because the capital-
ist mode of production presupposes produc-
tion for trade (transforming products more
and more into commodities). Even so, this
development, taken by itself, is insucient to
explain the transition from one mode of pro-
duction to the other (Marx, 1981, p. 444).
The development of trade to a certain level
requires socialised and social capital. This is the
only feasible basis for the necessary concentration
of monetary wealth to exploit opportunities that
new social forces of production had presented
(Marx, 1981, pp. 449±450).
37
As Marx says, ``This
37
In this context, Marx means the appearance of wage labour
in agriculture and new social forces of trade, the discovery of the
world. For example, the doctrine of du secret commercial (punish-
able by death in Venice) ``ceased to be tenable in the sixteenth
century. Prince Henry's cartographical school at Sagres, in the
®fteenth, had done much to render available the then existing
stock of knowledge regarding the undiscovered world. But it was
the application of the Flemish printer's and engraver's art to map-
making at the beginning of the sixteenth century that gave the
death-blowto secret commerce'' (Hunter, 1899, Vol. 1, p. 219). To
this must be added the many developments in shipping that
allowed mariners to face the oceans.
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 155
enlargement of scale constitutes the real founda-
tion on which the speci®cally capitalist mode of
production can arise if the historical circumstances
are otherwise favourable, as they were for instance
in the sixteenth century'' (Marx, 1976b, p. 1022).
He notes that price in¯ation from the mid-six-
teenth century and, initially, sticky rents that did
not increase as fast as prices, aided the transition
to capitalistic farming. However, he says that to
continue the transition to the real subsumption of
labour, the country concerned must `dominate the
world market'. The transition only occurs where
lords lease to farmers who employ wage labour,
and the gentry and merchants accumulate large
amounts of capital from overseas trade and rein-
vest it in agriculture. Only then can the rate of
return mentality from trade fuse with the mental-
ity of exploiting labour in production and real
subsumption occur. As Marx put it:
[O]nce rent takes the form of money rent and
the relation between rent-paying peasant and
landowner becomes a contractual relation Ð
a transformation which is only possible given
a certain relative level of development of the
world market, trade and manufacture Ð land
inevitably starts to be leased to capitalists,
who were formerly outside rural limits and
who now transfer to the land, and to the rural
economy, capital that has been obtained in
the town, together with the capitalist mode of
operation which has also been developed
there: the production of the product as a mere
commodity and a mere means of appropriat-
ing surplus-value. As a general rule, this form
can come about only in those countries that
dominate the world market during the transi-
tion period from the feudal to the capitalist
mode of production (Marx, 1981, p. 935).
38
England played the decisive role. Its commercial
revolution began in the sixteenth century with a
¯ourish of socialised capital in exploration and
privateering that, from the mid-seventeenth cen-
tury, gave England commercial domination of the
world. Given the relatively small scale of capital
required in agriculture, there was little need for
socialised capital, except for risky experiments
(Thirsk, 1985).
39
Nevertheless, from the middle of
the seventeenth century capital `obtained in the
town' was likely to be from trade with socialised
and social capital, and with it would come that
crucial element of the modern mentality, a ®xation
on the rate of return on capital.
40
Harnessing the rate of return on capital to the
exploitation of wage labour in production under-
lay and drove real subsumption. This provides
Marx's answer to ``the key problem'' in the tran-
sition debate, namely, ``why England was the ®rst
country to develop a form of agrarian capitalism''
(Rigby, 1998, p. 146).
In Marx's view, not only did the rate of return
mentality appear with socialised merchant capital,
it also appeared in agriculture during the sub-
stantial expansion of the land market from the late
sixteenth and early seventeenth century. Then, for
38
The translation of this passage from the Penguin edition
of volume three of Capital is misleading. It appears to contra-
dict the theory of the transition presented here Ð that the
`capitalist mode of operation' results from the fusion of capital
`from the town', socialised capital from trade, and capital from
agriculture. The Moscow edition's translation is consistent with
our theory: ``the capitalists. . .hitherto stood beyond the rural
limits. . . and now carry over to the country-side and agriculture
the capital acquired in the cities and with it the capitalist mode
of operation developed Ð i.e. creating a product as a mere
commodity and solely as a means of appropriating surplus
value (Marx, 1959, p. 799, emphasis added). In short, whereas
this plainly says that capital obtained in the town went to
agriculture and then the capitalist mode of operation devel-
oped, the Penguin translation says capitalist production came
from the town!
39
Large farms ``were called in the eighteenth century capital
farms, or merchant farms'' (Marx, 1976a, p. 886). Some farms
may have had socialised capital. Marx quotes an authority that
in the later eighteenth century ``It is no uncommon thing for
four or ®ve wealthy graziers to engross a large enclosed lord-
ship'' (1976b, p. 887).
40
As Marx says, anything other than ``relatively weak''
capital formation in agriculture ``assumes the concentration
and existence of a class of rich idle capitalists'' (1981, p. 947),
that is, passive investors living o? the returns from social capi-
tal in trade. Marx describes the ``beginnings of the conquest
and plunder of India'' as one of the ``chief moments of primi-
tive accumulation''. In his view, ``The treasures captured out-
side Europe by undisguised looting, enslavement and murder
¯owed back to the mother-country and were turned into capital
there'' (Marx, 1976b, pp. 915, 918). For both propositions
there is ample historical evidence, some of it reviewed in Part
Two.
156 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
the ®rst time, landlords begin to capitalise their
rents. The consequence, in Marx's view, redolent
with accounting signatures, was an acceleration of
the processes of transition.
[N]ot only can the former rent-payer trans-
form himself in this way into an independent
peasant proprietor, but also urban and other
holders of money can buy plots of land with a
view to leasing them either to peasants or to
capitalists, and to enjoy the rent on their
capital thus invested as a form of interest.
This factor, too, helps to promote the trans-
formation of the former mode of exploita-
tion, of the relationship between the owner
and actual tiller, and of the rent itself. . . .For
the buyer. . .[the capital parted with] functions
in his accounts as interest-bearing capital,
since he reckons the income he receives Ð as
rent from the land or as debt interest from the
government [or dividends on a share] Ð as
interest on the money that it cost him to pur-
chase the title to this revenue (Marx, 1981,
pp. 938, 946).
Reckoning income as a rate of interest gives the
rate of return on the capital advanced. As it hap-
pened in trade, so it happened on land. Part Two
(Bryer, in press-c) shows this fascination with
interest in seventeenth and eighteenth century
farmers' accounts. It was also the demand of the
generality of the EIC's investors to enjoy their
surplus as a form of interest that underlay the
transformation of their accounts and its merchant
elite from 1600 to 1657. As Marx says, ``the rela-
tion of labour to capital. . .presupposes a process
of history which dissolves the various forms in
which the worker is proprietor'' (1973, p. 497), not
merely the transition from peasant to wage
labourer and lord to capitalist. The generality of
investors who pooled their money in the EIC
would not tolerate its mastery by the feudal elite
who secured an additional surplus only on the
basis of ``politically-formed property'' (Brenner,
1993). That is, because of their legal monopoly of
international trade. The EIC's investors would
have agreed with Marx that ``The authority that
the capitalist assumes in the immediate production
process, as a personi®cation of capital, the social
function he dons as manager, and ruler of pro-
duction, is essentially di?erent from authority. . .as
political or theocratic rulers as in earlier forms of
production'' (Marx, 1981, p. 1021). The accounts
are also essentially di?erent. As the personi®cation
of the generality of its investors, the EIC's man-
agers became accountable to, and required to
serve, capital as their sole purpose in life. This
economic ethic appeared not only in the EIC.
Marx thought it appeared throughout Europe. As
he said,
Today, industrial supremacy brings with it
commercial supremacy. In the period of
manufacture it is the reverse: commercial
supremacy produces industrial predomi-
nance. . . It was the `strange God' who per-
ched side by side with the divinities of Europe
on the altar, and one ®ne day threw them all
overboard with a shove and a kick. It pro-
claimed the making of pro®t as the ultimate
and sole purpose of mankind (Marx, 1976b,
p. 918).
Marx gives his chronology of the appearance
and spread of the modern capitalist mentality in
agriculture in Volume 3 of Capital. In his view, it
is only between the ``latter third of the seventeenth
century'' and the ``®rst half of the eighteenth
century'' that ``the new mode of agriculture-
. . .extend beyond the mere subsumption of
agriculture under capital'' (Marx, 1981, p. 938, see
also, p. 943). As we shall see in Part Two (Bryer,
in press-c), the accounting evidence is consistent
with this prediction. Farmers begin to calculate
the rate of return on capital employed in the
seventeenth century, and this becomes common by
the middle of the eighteenth.
In contrast to Marx's insistence on the critical
role played by commercial capital, Brenner gives
all causal force to economic necessity within a
system of property relations determined by class-
con¯ict. As Hagen says, in Brenner's account
capitalist tenant farmers ``seem to descend from
heaven'' (Hagen, 1988, p. 42). After the break-
down of direct feudal control of production,
Brenner says, ``the organizers of production and
R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162 157
the direct producers were separated from direct,
non-market means of access to their means of
reproduction or subsistence. . ., [and] they had no
choice. . .but to buy and sell on the market. This
meant that they were compelled to produce com-
petitively by way of cost-cutting and, therefore,
that they had as a rule to attempt to specialize,
accumulate and innovate'' (Brenner, 1985b, pp.
214±215; see also, p. 297). Similarly, in Brenner's
view, in the late ®fteenth and sixteenth centuries,
``Lacking the ability to reimpose some system of
extra-economic levy on the peasantry, the lords
were obliged to use their remaining feudal powers
to further what in the end turned out to be capi-
talist development'' (Brenner, 1985b, p. 293).
Brenner's claim that the English lords were
``forced. . . to seek novel ways out of their revenue
crisis'' has been challenged, for example, by Hoyle
(1990). He shows that the early move to leases was
a traditional feudal response to cash shortage. It
was not until later in the sixteenth century when
prices began to rise that the lords took the initia-
tive, only to meet with court-backed peasant
resistance to the change (see also Overton, 1996, p.
205). As Croot and Parker say, the ``core'' of
Brenner's argument is that in England class con-
¯ict created ``capitalist landlords who. . .leased to a
capitalist tenant'' (Croot & Parker, 1985, p. 79).
However, these lordly initiatives are not those of a
modern capitalist as their objective was higher
feudal surplus. The consequence was not necessa-
rily capitalist as the lessees could have knuckled
under and returned to e?ective serfdom, or resis-
ted the lords' demands, etc.
41
Brenner's critics are
right to object to ``his failure to allow for the con-
solidation of land and the appearance of capitalist
forms of agriculture among the tenants, both
leasehold and copyhold. . .quite independently of
the manorial lords'' (Hoyle, 1990, p. 2). However,
they are wrong, ®rst, in that these tenants are not
modern capitalists. Secondly, they are wrong in
supposing that capitalist agriculture could be
simply the ``result of processes of di?erentiation
within the peasant themselves'' (Hoyle, p. 2), pro-
cesses that had existed as long as the peasantry. As
we shall see in Part Two, the accounting evidence
contradicts the common view, expressed by Croot
and Parker, that ``pioneering capitalist farmers. . .
had begun to emerge in the fourteenth and
®fteenth centuries'' (1985, p. 87). It also contra-
dicts their claim that this is supported by ``an
awareness of pro®t. . .apparent wherever farmers
have left accounts or diaries'' (Croot & Parker,
p. 80). It is not until the early seventeenth century
that there is any accounting evidence of an
awareness of pro®t in a capitalist sense, and not
until after the mid-eighteenth century that this
awareness is relatively common.
Socialised and social capital in trade and real
subsumption in agriculture set the stage for the
industrial revolution. As Saville puts it, ``Marx, in
his model of primitive accumulation, seems to
assume that around the middle of the eighteenth
century the basic framework for industrialization
was already completed'' (1969, p. 269). The
accounting evidence presented in Part Two (Bryer,
in press-c) supports Saville's view that ``It was a
society in which the penetration of the capitalist
ethos had reached into all important sectors of
economic life, in which economic a?airs were
closely articulated to the balances of pro®t and
loss'' (Saville, p. 269), and also to the capital
employed. Much of the capital for the English
industrial revolution must have come from sur-
pluses from the employment of capital in agri-
culture and trade. To achieve the necessary
magnitudes in the nineteenth century required the
appearance of total social capital (Bryer, 1991,
1993b). As Marx said, ultimately ``Capital must
increase the value of its operations to the point
where it assumes social dimensions, and so sheds
its individual character entirely'', and this, as we
have seen, only happens ``once labour and capital
have been set free'' (Marx, 1973, p. 1035). This is
why, even with socialised capital, lacking free
wage labour in agriculture, the transition to mod-
ern capitalism did not occur in late medieval Italy.
41
Why, without invoking the growth of the market and
economic necessity, in Brenner's model reversal of this parti-
cular breakdown of feudal control was not possible, whereas
the breakdown in the twelfth century was, is not clear. In
Brenner's account, the lords simply and irretrievably ``lost their
capacity to take a rent by extra-economic compulsion and the
peasants were separated from their possession of the means of
subsistence'' (1989, p. 273). While the former may be true, and
the latter is indisputable, neither makes capitalism inevitable.
158 R.A. Bryer / Accounting, Organizations and Society 25 (2000) 131±162
As Marx said, ``Manufactures may develop spor-
adically, locally, in a framework which still belongs
to a di?erent period, as e.g. in the Italian cities
alongside the guilds. But as the sole predominant
forms of an epoch, the conditions for capital have
to be developed not only locally but on a grand
scale'' (Marx, 1973, pp. 505±506). To achieve this
grand scale in England required not only a capi-
talist agriculture, but a bourgeois revolution in
trade. Part Two argues that embroiled in these
social revolutions were revolutions in accounting.
4. Conclusions
The paper has argued that historians of
accounting have much to gain from an engage-
ment with Weber and Marx's theories of the tran-
sition to capitalism. We found that although the
accounting focus of Weber is explicit, and his idea
of calculative mentality avoids economic deter-
minism, his vision of capital accounting is a dim
and distorted re¯ection of reality. While account-
ing is usually only implicit in Marx, its recognition
also allows him to avoid determinism, and his
vision is richly realistic. Recognising the account-
ing in Marx allowed us to interrogate his historical
writings for his explanation of the transition.
According to Marx's theory the calculative
mentality of modern capitalism appears in a his-
torical process, unique to England, where in the
sixteenth century merchant capital was pooled
with capital derived from a formally capitalistic
agriculture. Investment of surpluses from social-
ised and social capital from overseas trade in
agriculture followed the bourgeois revolution of
the mid-seventeenth century. This revolution
establishes the demand for an equal return for
equal capital as the dominant economic ethic. In
this historical process, the rate of return mentality
combines with the mentality of maximizing sur-
plus labour within production, to produce the
modern capitalist mentality, that pursues the
maximum rate of return on capital employed in
production. When we understand Marx's expla-
nation of the transition as a history of accounting,
it is not the deus ex machina many have claimed
(see: Holton, 1985; Martin, 1983). Furthermore, it
is open to historical investigation. Marx's theory
does not posit the pre-existence of modern capital-
ism Ð either as commerce or exchange relations or
wage labour, or as a calculative mentality Ð as an
external driving force in the dissolution of the feudal
mode of production. Rather, Marx explains capital-
ism as the outcome of the pursuit of monetary
wealth within feudalism Ð the ``historic process is
not the product of capital but the presupposition
for it'' (Marx, 1973, p. 505). This interpretation
contradicts the common view that ``the identi®ca-
tion of the dissolution of feudalism with the
necessary rise of capitalism. . .[was] a view which
Marx was well known for'' (Tribe, 1978, p. 15).
The question, of course, is the evidence. To
what extent does the history of accounting sup-
port Marx's theory? Part Two (Bryer, in press-c)
tests his theory against the available evidence. It
outlines social histories of accounting for the
agricultural, commercial and bourgeois revolu-
tions, and shows they are consistent with Marx's
theory of the transition. The paper calls for
extensive archival research.
Acknowledgements
I would like to thank Anthony Hopwood
(Oxford), Christopher Napier (Southampton), an
anonymous referee, Marianne Pitts (Warwick) and
particularly Roger Hulme for helpful comments.
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