This summary discusses a document analyzing Tony Tinker's paper "Towards a Political Economy of Accounting". The document discusses two main points: 1) It agrees with Tinker that neoclassical economics is logically inconsistent and fails to adequately explain the functioning of the economic system, particularly around income distribution. 2) It analyzes Tinker's case study of the Delco mining venture, finding that the case study effectively illustrates the advantages of periodization analysis over marginal analysis. However, it notes that more details in the case study would aid evaluation.

1. Accounting, Organizations and Society. Vol. 5, No. 1, pp. 161-166.
Pergamon Press Ltd, 1980. Printed in Great Britain.
0361-3682/80/01034161$02.00/0
Discussion of Towards a Political Economy of Accounting*
DAVID COOPER
University of Manchester
“Practical men who believe themselves to be
exempt from any intellectual influences are
usually the slave of some defunct economist”
(Keynes, 1936, p. 383). Lord Keynes’ observation
that practical men often depend on out-dated
theories and theorists seems to be a starting point
for Tony Tinker’s paper. This observation would
seem to be as applicable to practical or
instrumental sciences - such as accounting - as it
is to practical men.
In this note I intend to examine the importance
of Tinker’s contention that “the marginal
underpinnings of accounting are deficient on
logical grounds”. After reviewing the arguments
for analysing economic performance using political
economy, the Delco case study is examined.
Finally, I consider some implications of Tony
Tinker’s paper, particularly in terms of the view
that accounting be regarded as ideology.
The observations made in this note are largely
motivated by my belief that neo-classical
economics will not ‘wither away”. There are
many reasons that lead me to that belief and I
examine some of these alternative explanations.
This note therefore is in general sympathy with
Tinker’s paper and seeks to explore issues and
possible areas for future research that are related
to Tinker’s argument.
DEFICIENCIES OF
NEO-CLASSICAL ECONOMICS
Tinker’s paper proceeds by the relatively
uncommon but fundamentally important exercise
of examining the logical validity of the theory that
forms the intellectual underpinnings of much of
practical and academic accounting. Tinker stresses
that his critique of marginalism refers “to
marginalism as a theory, not necessarily to
capitalism as a system of economic organization”.
This is an important distinction and in this
Section, I will concentrate on the problems of
neo-classical economics and Tinker’s criticism of
the theory.
Following Sraffa (1960) and Robinson (1961),
Tinker demonstrates the logical inconsistency of
neo-classical theories of capital and income
distribution. The conclusion is that the theory is
either tautological or indeterminate. The inability
to distinguish the quantity of capital from the
value of capital without prior reference to some
rate of profit means that there is no unique or
determinate production function. Further, the
prescriptive usefulness of the theory is limited by
the necessity to assume that the preexisting
distribution of income is socially desirable.
I think the logical inconsistency of the theory is
indisputable. We are then left with the methodo-
logical question of the appropriateness of the
neo-classical (marginalist) theory of capital as a
basis for (accounting) policy prescriptions, both at
the firm and economy level. Here I wish to argue
that neo-classical theories are likely to prove
robust due to two methodological positions taken
by economists and accountants. However I do not
think either of these positions is sound, for reasons
that will become clear.
The first position is that logical validity is only
one means of evaluating a theory. Most positivists
- and the positivist position dominates the social
sciences in Britain and North America - are more
concerned about the empirical validity of a theory;
how far the theory corresponds to observation.
Friedman’s stance (1953) has proved particularly
persuasive in economics and associated subjects.
For Friedman the realism of a theory is relatively
unimportant - the crucial issue is the empirical
validity of the predictions derived from the
theory. According to this position the logical
*I am grateful to Richard Laughlin, Tony Lowe and Bob Scapens for comments on this draft.
161

2. 162 DAVID COOPER
inconsistency of the marginal theory is secondary
to the predictive power of the theory. Demon-
strating the logical inconsistency in neoclassical
theory is comparatively unimportant. There are
several problems with this philosophical stance. Of
most relevance in the present context is the
problem of understanding how capitalism
operates. Without a theory that provides an
explanation of how the economic system works
(in particular how income is distributed in firms
and societies) it is difficult to have confidence in
any prescriptions that are suggested to help
manage that system.
This observation leads to the second philo-
sophical defence of marginal economic theory.
This defence amounts to a statement about the
division of labour in theory construction and
refutation. Modelling any system - the economy
included - necessitates some variables being
regarded as exogeneous whilst others are endo-
geneous. Neoclassical economic theory treats the
existing distribution of income (and wealth) and
existing institutional arrangements as exogeneous.
The student of economics has usually been taught
that these exogeneous variables are best treated by
others: political scientists, philosophers and the
like. Economics, according to this view, has plenty
to do investigating production and exchange
conditions in an economy independently of
distributional conditions.
It seems to me that the plea for division of
labour is bogus in this instance. Current levels of
unemployment and inflation, industrial unrest and
continuing racial tension all suggest the failure of
current economic management. It is no wonder
that economic management is so unsuccessful
when the marginalist theory that is used to guide
such management omits major variables. Within a
business context, it is perhaps unsurprising that
the techniques that have been developed from
neoclassical marginal theory are rarely imple-
mented. Many managers recognize the simplistic
and partial nature of the models and therefore
have little confidence in the validity of their
prescriptions.
There are, of course, other explanations for the
survival of neoclassical economics. In the final
section of this note I will consider an alternative
explanation.
Before proceeding to analyse the Delco case
study I will briefly mention one issue that could
usefully be developed or incorporated into
Tinker’s criticism of marginal economics. A major
concern of the recent literature in marginal
economics is the incorporation of risk and
information into the analysis (e.g. Markowitz,
1952; Arrow, 1962; Spence, 1974). For example
profit is sometimes seen as the price for taking non
diversifiable risks; the reward for accepting the
possibility of unfavourable realizations of states of
nature. Profit is also sometimes considered in
terms of the marginal productivity of information;
profit is then the reward for knowledge. I think it
may be a useful clarification if Tinker were to
extend the analysis to explicitly consider know-
ledge as a form of capital. Such an extension
would open up the important dimension of where
capital (e.g. knowledge) originates. The labour
theory of value might shed some light on the
production, initial allocations and subsequent
reproduction of capital and knowledge. The
neoclassical theory that Tinker considers is largely
static, assumingefixed stocks of labour, capital and
technology (e.g. knowledge of production func-
tions). In the paper there is a brief discussion of
the “longer term” including the notion that
equilibrium is governed by relative net marginal
productivities of resources. But there is no
discussion of the mechanisms that produce
technology. I suggest that a political economy
approach to the construction of capital in an
economy might be another means of illustrating
the advantages of that approach, in comparison to
the rather sterile neo-classical arguments (Reder,
1957).
THE DELCO CASE STUDY
Tony Tinker has taken the rather unusual step
of illustrating the usefulness of political economy
(presumably in comparison to marginal analysis)
by studying the history of one multinational
mining venture. The single case study is rarely used
in social sciences. In part this is due to the
problems of generalizability that are inherent in
such a study. In this instance the case study
provides a wealth of detail that facilitates the
periodization analysis. Yet I would have liked to
see some discussion of the generality of such
analysis; Delco could be regarded as an aberration
rather than an example of a general mode of
analysis.
Leaving issues of generality aside, the Delco
case study is used to show that neo-classical partial
equilibrium analysis cannot provide an evaluation

3. DISCUSSION OF TOWARDS A POLITICAL ECONOMY OF ACCOUNTING 163
of the efficiency or justice of the allocations made
to the various parties involved in the venture. The
alternative, periodization, analysis is designed to
show that the respective allocations between the
parties were a reflection of the social and political
regimes that existed in Sierra Leone.
This alternative argument is unusual in the
accounting (and economic) literature. It also
makes sense. It is a pity that the presentation in
the paper omits detail that would help an
evaluation of the case study as data for the
analysis. Even after referring to the Hoogvelt &
Tinker (1978) paper, I felt frustrated with the
analysis because of the lack of detail. The problem
of how much to include in any empirical work is
always difficult to resolve, but in this case I feel
Tinker has erred towards too little. In conse-
quence, I felt I had to take much of the analysis
and interpretation “on trust”.
Consider the identification of the periods in the
periodization analysis. In Hoogvelt & Tinker
(1978) we learn that the periods are identified by
the series of agreements (contracts) between the
company and the agents of the Sierra Leone state.
But in what way do these agreements mark
changes in the social and political institutions in
Sierra Leone? Are the discrete changes in society
in 1930, 1947, 1956 and 1967 when new
agreements were made? In the paper Tinker also
refers to a 1972 agreement - why does that
agreement not represent a new (if brief) period?
Detail about the social and political organization
(and their changes) of Sierra Leone is required if
the periodization analysis is to be accepted. The
problem for Tinker is that such acceptance will
not come easily from a sceptical accounting
audience who are being faced with logical
inconsistencies in their theoretical edifice.
Another example of the need for more detail
relates to the explanations of the changing
distributions of proceeds (which, incidentally, 1
assume to refer to gross revenues). The pressure
for indigenization is used as an explanation of
alterations in the distributions and ultimately the
Company leaving Sierra Leone. Are there alterna-
tive explanations and why was indigenization
chosen as the “additional variable which progres-
sively frustrated the financial position of the
company”? Although Table 5 shows black salaries
consistently rising through the period 1960-1975,
Table 4 indicates that even in the period
1968-1975 black salaries amounted to little over 4
per cent of total proceeds. I think that Tinker
needs to justify his choice of variables. Indeed,
Table 4 indicates temporal variability in the
proportion of total proceeds accruing to virtually
all the categories of participants identified. The
Hoogvelt & Tinker paper (1978) provides some
explanations for this variability, but surely these
explanations are crucial for the Tinker (1979)
paper to demonstrate that “each regime consists of
a configuration of socio-political forces that
determine the distribution of revenue shown in the
income statement”.
Finally there is little evidence presented about
who benefited from the distribution of proceeds
shown in Table 4. Some of the identified
participants - e.g. U.K. and Sierra Leone
Government, shippers and suppliers may have
provided indirect benefits to other participants,
e.g. black labour, owners and investors. Although
the Hoogvelt & Tinker (1978) paper argues that
the company produced little permanent infra
structure for Sierra Leone, I would like to see
some evidence to support the assertion that “none
of the . . . government revenues directly or
indirectly ever benefited the native workers,
people and local authorities in the iron producing
province”.
Each of these requests for further evidence may
be regarded as nit-picking. But, taken together, the
lack of detail reduces the power of the
“explanation of the social forces that determine
market prices”. And that is a pity if the paper
seeks to convince us that market prices are not
determined by impersonal and non-partisan forces,
as the neoclassical story would suggest.
ACCOUNTING AS IDEOLOGY
The observations in the previous sections
notwithstanding, I believe that Tinker has
substantiated the argument that “in order to
understand the processes of price formation and
income distribution within advanced industrial
societies one needs to take into account the
second dimension of ‘capital’ i.e. the state of social
relations. . . Institutional and social forces . .
must become central to the analysis”.
We may return to an earlier theme of why
neo-classical economics is likely to remain the
basis of accounting; why institutional and social
forces are unlikely to become central to much of
accounting analysis. But first let us be under no
illusion about the pervasiveness of marginal

4. 164 DAVID COOPER
economics as the theoretical backbone of account-
ing. Tinker has shown that neo-classical economics
cannot evaluate the justice of alternative alloca-
tions (distributions) of income. His discussion is
presented largely in the context of allocations of
proceeds to participants in enterprises (i.e. the
various participants in the Delco project). It would
seem that accountants cannot talk of an optimum
allocation of resources because there is no logically
consistent notion of optimality. The quantitatively
orientated management accountant cannot rely on
the optimality of the techniques often suggested -
linear programming, inventory models, capital
budgeting techniques, etc. These techniques take
for granted a specific distribution of resources, a
particular interest rate and equilibrium in all
markets in the economy.
Tinker’s analysis also applies to other contexts.
For example, much of the literature on divisional
performance measurement is affected by the
prescriptive weakness of neo-classical economics.
It would seem that we cannot logically demon-
strate the fairness or efficiency of alternative
allocations of divisional profitability. Further, the
optimality or social desirability of alternative
allocations of resources within a society cannot be
demonstrated and national income accounting
becomes suspect; the categories used in this
accounting are problematic and by and large
reflect only market exchanges. If the implications
of Tinker’s analysis (which is, of course, following
the analysis of such notable radical economists as
Dobb, Meek, Robinson, Sraffa and Sweezy) are so
profound, why will not neo-classical economics
wither away? In the earlier sections of this note I
referred to some more or less “technical”
explanations. I now consider an alternative and I
think more persuasive explanation for the
continued vigour of neo-classical economics and its
applied branch which we may call neo-classical
accounting.’
I suggest that the assumptions of capitalism
overwhelm current accounting. Accountants -
theorists and practitioners alike - accept the
socioeconomic institutional structure, thereby
exhibiting a remarkable lack of historical perspec-
tive. We take for granted that legal and social
institutions - the most obvious examples being
the existence of markets and private property -
.-
have always existed, currently exist and will
continue to exist. We assume that the classifica-
tions that form the basis of our theories of
accounting have never changed and will never
change. The institutions of capitalism define the
boundaries of our theories and the task of
accountants is delineated within these boundaries.
It is only a small additional step to assume the
appropriateness of this particular social, economic
and political arrangement. No wonder Pareto
“optimality” - a criterion of social welfare that
considers only local shifts from an existing
position - is the dominant criterion for judging
improvements in social welfare.
Accounting may be viewed as a means of
sustaining and legitimizing the current social,
economic and political arrangements. This view
treats accounting as a form of ideology? although
accounting prescriptions may suggest the need for
change at the margin, the basic structure of the
status quo is regarded as desirable. The over-
whelming acceptance by accountants of neo-
classical economics - an acceptance that is likely
to continue for decades - reflects an unwillingness
to consider alternative institutional forms.
“Ideology are world views which, despite their
partial and possibly crucial insights, prevent us
from understanding the society in which we live
and the possibility of changing it. They are world
views which correspond to the standpoint of
classes. . . . Because they assume (the framework
of bourgeois society, ideologies) are condemned to
reproduce the problems and to reproduce the same
one sided answers which will not solve them in
reality” (Shaw, 1972, pp. 33-34).
Accounting theories represent ideology in a
manner somewhat akin to a “market for excuses”
(Watts & Zimmerman, 1979). Basing prescriptions
for income distribution and optimal allocations of
resources on imposing theoretical edifices like
neo-classical marginalism legitimizes such prescrip-
tions. Further, the imposing edifice of neo-classical
economics means that the theory can be used as a
form of mystification, obscuring the question
about the social desirability of the existing society.
Rather than providing a valid economic rationale
for action, accounting information is used as a
means to support those groups who are currently
powerful in society. By failing to provide a
1Parts of the argument that follows are considered more fully in Cooper (in press).
ZThe notion used here regards ideology as false consciousness. Larrain (1979) discusses the concept in great detail.

5. DISCUSSION OF TOWARDS A POLITICAL ECONOMY OF ACCOUNTING 16.5
framework for considering the justice of this
system of economic organization, accounting faces
the danger of being a mere tool of these powerful
groups. Wages are a cost yet “interest” to investors
is a distribution. Residual funds are allocated
(accounted for) as additions to capital, rather than
any other allocation. The insistence on main-
taining owners’ capital intact or the technical
operating capacity intact is commonplace in
accounting theory (and recent suggestions for
practice). We do not seem to have systematically
considered maintaining human capital or human
potential. Indeed, rather than consider each factor
as independent, accounting could adopt a more
holistic approach to organizations and their
effectiveness.
Let me indicate some of the characteristics of
accounting that represent taken-for-granted
assumptions of the world. Accounting is usually
based on the notion of market transactions; these
transactions are regarded as objective and free
from bias. Accounting reports are based on
“private” costs and revenues; property rights are
implicit. Aspects of performance that are
measured tend to be those aspects of behaviour
that are regarded as crucial. Performance is
assessed in terms of profitability or cash flows to
investors. Yet the correspondence between
investor and societal welfare is problematic unless
we are willing to assume the social optimality of
existing distributions of resources in society,
equilibria in all markets in the economy,
exogeneous independent and equally important
preferences for all people and simultaneously deny
the problem of social choice and the theory of
second best. Indeed the restrictive nature of these
assumptions led one writer to observe that “the
measure of acceptance . . . (neoclassical welfare
economics) has won among professional
economists would be astonishing were not its
pedigree so long and respectable” (de Graaf, 1957,
p. 142).
Neo-classical economics and accounting are
examples of ways of encouraging the belief that
the present institutional arrangements in society
are the only possible arrangement. It seems a pity
that a large number of accounting academics seem
oblivious to their own social role in examining the
status quo (as “positive scientists”) and obtaining
money from organizations committed to study
only the extant system. Tinker in his paper points
out the logical problems with neoclassical
economics and indicates how a study of social and
political structures is necessary to explain market
phenomena and distribution of resources. The
paper may thereby encourage accountants to
consider their own role in society (Gambling,
1974). I hope it is successful.
CONCLUSION
In some respects this is a frustrating paper. I
want to know more about the deficiencies of
neoclassical economics and the implications of
these deficiencies for the prescriptions accountants
have made and continue to make. Capital
maintenance concepts, human resource accounting
and value added statements for example, might all
be re-considered in the light of these deficiencies. I
also want to know more about the Delco case
study and the insight and understanding that is
provided by an analysis using political economy.
Future investigation, using social and political
analysis, might consider several issues. One issue is
the social construction of market prices. A second
issue is the relationship between individual
welfare, societal welfare and continued individual
and societal viability. And a third issue is the role
of accounting in organizations and in society,
including an investigation into its role in
rationalizing as well as providing rationales for
human activity. Tinker will no doubt feel
particularly aggravated by my observations; the
paper is the synthesis of two earlier papers that
considered some of these issues.
Only time will show whether his arguments
have got across to an accounting audience. I hope
they do because, as I endeavour to show in this
note, the implications of the argument are
profound for accounting theory and practice.
Many of our prescriptions are based on little more
than faith. Accountants (and economists) should
recognize that the consequences of their prescrip-
tions are unknown due to the problems with the
theory underlying the prescriptions. If we are to
look for the purpose of these prescriptions and the
associated role that accountants play in our
society, then I suggest that we may regard our
“theories” as ideology and ourselves as ideologists.
Wither accounting science?

6. 166 DAVID COOPER
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