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An Evaluation of the Past and Potential Role of Accounting in National Economic Analysis This dissertation has been 65—1180 microfilmed exactly as received GORDON, Agnes Marshall, 1904— AN EVALUATION OF THE PAST AND POTENTIAL ROLE OF ACCOUNTING IN NATIONAL ECONOMIC ANALYSIS. The Ohio State University, Ph.D., 1964 Economics, commerce—business University Microfilms, Inc., Ann Arbor, Michigan AN EVALUATION OP THE PAST AND POTENTIAL ROLE OP ACCOUNTING IN NATIONAL ECONOMIC ANALYSIS DISSERTATION Presented In Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy In the Graduate School of The Ohio State University By Agnes Marshall Gordon, B.A., M.A. The Ohio State University 1961* Approved by Department of Accounting ACKNOWLED GMENTS The author wishes to express appreciation for the guidance received from all the staff members who served on her committee. Professors Paul Paul E. Fertig, Alvin E. Coons, and Clayton R. Grimstad o ffe re d many h e lp fu l comments and suggestions. Inspiration and advice was also provided by others who had previously served In an advisory capacity. Acknowledgment of this Is extended to Professors George W. Eckelberry, James R. McCoy, Daniel M. Shontlng, William E. Dickerson, Robert D. Patton, and the late L. Edwin Smart. Grateful appreciation is expressed to Professor Eric L. Kohler who kindly permitted the use of his suggested format for the National Income and Product Account. And last, but not least, this project would not have been possible without the forbearance and encourage­ ment of my husband and three children. Agnes Marshall Gordon Columbus, Ohio June, 1961}. II VITA November 2, 19Olj. Born - Columbus, Ohio 1 9 2 6 . B.A., The Ohio State University Columbus, Ohio 1927 M.A., The Ohio State University Columbus, Ohio 1929-1937 • t » » Auditor of Student Organizations The Ohio State University 19S7-1960 . Teaching Assistant, Accounting Department, The Ohio State University 1960-196U . Instructor, Accounting Department The Ohio State University FIELDS OF STUDY Major Field: Accounting Studies In Accounting Theory and Practice. Professors George W. Eckelberry, Paul E. Fertig, James R. McCoy, W illiarr B. Jen ck s, D a n ie l M, S h o n tin g , and Eric L. Kohler Studies In Tax Accounting. Professor William E. Dickerson Studies in Economic History and Theory Professors Robert D. Patton and Clifford L. James Studies in Statistics Professors L. Edwin Smart and Alva M. Tuttle i l l TABLE OP CONTENTS Page ACKNOWLEDGMENTS...................................................................................... i l LIST OP TABLES........................................................................................... vi PART I . Chapter I . SCOPE OP THE PROBLEM.................................................. 2 PART I I . ORIGINS AND EARLY DEVELOPMENTS I I . ORIGIN OP DOUBLE-ENTRY BOOKKEEPING .... ll+ I I I . ORIGIN OP NATIONAL INCOME STATISTICS . 2$ IV. ORIGIN OP ECONOMIC THEORY AS A SEPARATE SCIENCE................................................................................. 3U V. NINETEENTH-CENTURY DEVELOPMENTS......................... 1+2 PART I I I . TWENTIETH-CENTURY DEVELOPMENTS VI. ECONOMICS: THEORETICAL AND APPLIED .... 63 V II. ACCOUNTING: GENERAL DEVELOPMENTS.................... 70 V III. ACCOUNTING: DEVELOPMENTS IN THEORY .... 111+ IX. ACCOUNTING: COMMENTS ON NATIONAL ECONOMIC ANALYSIS............................................................................ l£3 I t Pa^e PART IV. ACCOUNTING EVALUATIONS OP NATIONAL ECONOMIC ANALYSIS C hapter X. BASIC CO N CEPTS................................................................... 196 Purpose Unit of Measurement Classifications XI. BASIC CONCEPTS, CONTINUED .................................... 219 Transactions XII. TECHNIQUES.............................................................................. 266 X I I I . REPORTS ................................................................................... 293 PART V. POTENTIAL DEVELOPMENTS XIV. REALISTIC APPRAISAL OF POTENTIAL DEVELOPMENTS..................................................................... 31? XV. RECOMMENDED DEVELOPMENTS......................................... 3U& BIBLIOGRAPHY ..................................................................................................... 365 v « LIST OP TABLES Table Page 1 . Imputed Net Rental Income Compared to Total Rental Income of Persona, for the Years 1959-1962 236 2. Imputed Space Rental Values of Owner-occupied Nonfarm Dwellings Compared to Total Housing, Total Personal Consumption, and Gross National Product, for the Years 1959-1962 . 239 3 . Effect of Transfer of Estimated Depreciation on Owner-occupied Nonfarm Dwellings from Savings of Business Sector to Savings of Personal Sector for the Year 1962 2U2 I4.* National Income and Product Account, 1962, as Presented in Table I by the Department of Commerce ............................................................................ 308 Presentation of the National Income and Product Account for the Years 1961 and 1962, as Suggested by Eric L. Kohler .... 309 vi PART I 1 CHAPTER I SCOPE OP THE PROBLEM The vital role which accounting might play in national economic analysis provides a challenging opportunity to broaden the horizons of the accounting profes sion. Theoretically there is a common bond between the two disciplines because both are dealing with the same fundamental activities of men engaged in earning a living. Accounting measures and interprets these transactions from the viewpoint of individual business firms, while national economic analysis measures and interprets them from the viewpoint of society as a whole. Although the explanations may vary because the subject matter is approached from different angles, the underlying facts still remain the same. Practically, there is mutual dependence, even though it is not always fully acknowledged. The national economic statisticians must rely on accounting figures to a great extent, for most of the data they use comes from business records. On the other hand, individual firms are 2 3 greatly Influenced by the general economic climate In which they operate. If accountants as a group were aware of the importance attached to aggregate analysis by those planning our Federal fiscal and monetary policies, they would realize their business clients can be affected directly and indirectly by decisions based on that analy­ sis. Thus there are practical as well as theoretical reasons for being interested in its development. The thesis is herewith advanced that recognition of this fundamental interrelationship of the disciplines, accompanied by a better correlation of activities, would provide more accurate data and more perceptive analysis on both an Individual and aggregate level. This Is certainly not a new concept, for there have been attempts to effect better integration of accounting and economic analysis by a few members of both professions. Nevertheless*continued effort must be exerted by those Interested in expanding the accounting function In this direction, for the idea of active participation by accountants in aggregate analysis Is probably not generally accepted at the present time. The biting criticism of Sir Josiah Stamp^ has been quoted on several occasions by accountants idio wished to ^Sir Josiah Stamp was a prominent English business­ man and economist who was very much interested in national Income statistics and in promoting better Integration of economic and accounting data. k Jolt their fellow practitioners out of what they considered to be a narrow business rut, and to direct their attention toward wider horizons and broader social responsibilities. In 1921 Lord Stamp said, "I make this serious indictment of accountants. Scientific accountancy has now been develop­ ing for some fifty years but I cannot trace that it has made a single substantial contribution to economic science over its own field of analysis of the results of Industry, although it has practically a monopoly grip of the required d a t a . ”l P. Sewell Bray, the eminent English accountant who has been an ardent advocate of cooperation between econo­ mists and accountants, was one of those who referred to this quotation but 1*10 commented in 191*7# "It is probable that accountants have in the past tended to take too narrow a view of their functions, but there are clear signs that this is changing and it may well be that in the future the accountancy profession will have much to do with the p developing technique of economic changes." Later activities by accountants would certainly have caused Lord Stamp's indictment to be less severe had 1 P. Sewell Bray, Precision and Design of Accountancy (London: Gee and Co. Publishers, Ltd., 191*7)# p . 33 . Ibid.. p. 38- 5 he commented on them, hut it cannot yet be said that Bray's hopeful prediction has come true. The official definition of "accounting” adopted in I 9I4.I by the American Institute of (Certified Public) Accountants was purposely phrased in such a way that the scope of accounting would not be limited to any specific area, indicating an awareness of the possibility of ex­ panding functions. The definition is as follows: Accounting is the art of recording, classifying, and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof With this choice of language the term "accounting" can be used in connection with nonprofit institutions as well as profit-seeking enterprises; it may be used to describe work done for a region or nation as well
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