University of Wollongong Research Online University of Wollongong Thesis Collection University of Wollongong Thesis Collections 1995 Accounting for management as an expression of eighteenth century rationalism: two case studies Robert Bernard Williams University of Wollongong Recommended Citation Williams, Robert Bernard, Accounting for management as an expression of eighteenth century rationalism: two case studies, Doctor of Philosophy thesis, Department of Accountancy, University of Wollongong, 1995. http://ro.uow.edu.au/theses/999 Research Online is the open access institutional repository for the University of Wollongong. For further information contact Manager Repository Services: [email protected]. Accounting for Management as an Expression of Eighteenth Century Rationalism: Two Case Studies A Thesis submitted in fulfilment of the requirements for the award of the degree: DOCTOR OF PHILOSOPHY from the UNIVERSITY OF WOLLONGONG UNIVERSITY' WOLLONGONG LIBRARY By Robert B Williams B.Com, M.Com(Hons), Dip.Ed. Department of Accountancy 1995 iii Abstract This study is concerned with the use of management accounting in an eighteenth century context through the examination of the accounting systems employed by two firms which operated, in England, in the latter part of that century. The study begins with a discussion of the movements, both social and intellectual, which originated in the Enlightenment of the seventeenth century. Revised attitudes towards science and the search for knowledge led to the notion of 'useful knowledge' which could be applied for the betterment of mankind. Accountancy was considered to be one source of such useful knowledge. The eighteenth century was a time of great change, especially in the processes of manufacture, which in a number of industries changed from a domestic based system to a factory based system. This change was influenced by and in turn influenced a number of social changes which are illustrated in the lives of James Watt jnr and Samuel Oldknow as they dealt with the day to day problems of managing their respective businesses. Both men came from different backgrounds yet held a number of similar attitudes, it is suggested that these attitudes led to their use of accounting as an aid to management. Oldknow was involved in the cotton industry, which developed in Britain towards the end of the eighteenth century, and was for a time the leading manufacturer of muslins. Oldknow1 s accounting records IV reflect the transition from the domestic system to the factory system of manufacture and indicate the changing demand for management information. On the other hand, Watt jnr was a second generation industrialist, trained for his job and appointed to run the Soho Foundry, an enterprise established to manufacture steam engines. The accounting records of this organisation display the use of sophisticated management accounting techniques and are presented as an example of the use of accounting knowledge in the period of the 'Industrial Revolution'. The examples of Watt jnr and Oldknow show uses of accounting information that is in accord with current definitions of management accounting and it is suggested that both men saw accounting as providing knowledge that was both useful and important to them in managing the businesses that they each operated. V Dedication for Ruth "Many women do noble things but you surpass them all Proverbs 31:29 VI Acknowledgments It is with sincere appreciation that I acknowledge the patience, understanding and encouragement of my wife Ruth and my family, for without such encouragement this project would never have been completed. I also express my gratitude to my supervisor Michael Gaffikin for his helpfulness and assistance during the course of undertaking this study. I am grateful also to David and Dell Cook who generously provided accommodation whilst I undertook archival research in England, and to colleagues Warwick Funnell and Janet Moore for their support. vii NOTE: The original spelling, punctuation, grammar and, as far as possible, formatting used by the original authors has been maintained in quotations. As well, the system of weights, measures and money in force in the eighteenth century has also been maintained. Relevant weights and measures include: LENGTH: Lineal measure was regulated by the yard. It was divided into 36 inches [1 inch = 25.4 millimetres]. When used for measuring cloth, the yard was divided into 4 quarters, and each quarter further subdivided into 4 nails. The English ell was equal to a yard and a quarter, or 45 inches [Hamilton, 1788]. Cotton was spun into hanks of 840 yards in length, the number of hanks to the pound weight was called the 'count' and was a measure of fineness. WEIGHT: The basic measure was the ounce [28.35 grams]. 16 ounces make one pound (lb), 14 pounds equal one stone, two stones or 281b make one quarter, four quarters or 1121b equal one hundredweight (cwt) and 20 cwt equal one ton or 22401bs. MONEY: All money is recorded in Pounds (£), Shillings (s) and Pence (d). 12 d= Is or 1/- 20/-= £1 TABLE OF CONTENTS Page Certificate // Abstract /'/'/' Dedication v Acknowledgments vi Note vii CHAPTER 1 INTRODUCTION 1 Management Accounting 2 Definitions and Recent Understandings 2 The Rise of Management Accounting in Eighteenth Century 8 Britain The Industrial Revolution in Britain 11 The Role of Biography In Constructing Historical Narrative 18 Plan of The Thesis 21 Plan of the Study 24 CHAPTER 2 KNOWLEDGE IN USE TO USEFUL KNOWLEDGE 29 New Philosophies 31 The Role of Calculation 38 Accounting for Management 41 The Accounting Methods That Were Common During the 45 Eighteenth Century Charge/Discharge Accounting 45 Mercantile Accounting 51 Double Entry Accounting 53 Manufacturer's Accounting 57 Manufacture 61 The Putting-Out System 62 The Establishment of the Factory System of Manufacture 76 The Development of the Steam Engine 82 The Steam Engine Developed by James Watt 84 The Cotton Industry in Britain in the Late Eighteenth Century 91 Conclusion 98 CHAPTER 3 A CALCULATING AND INDUSTRIOUS PEOPLE 101 Changes in Agriculture and Their Effect on Labour 102 Social Changes Prompted By Agrarian Reform 105 Sources of Capital in the Industrial Revolution 108 The Recruitment and Employment of Labour in the Factories 110 A New Concept of Time for the Workers 113 Religion as an Influence in the Development of Manufacturing 117 Quakers 122 Unitarianism 124 Methodism 128 Freemasonry 131 The New Industrialists 132 Josiah Wedgewood 136 Networks 144 The Lunar Society of Birmingham 146 The Manchester Literary and Philosophical Society 152 Conclusion 155 CHAPTER 4 SAMUEL OLDKNOW 157 Introduction 157 The Records of Samuel Oldknow 159 Samuel Oldknow the Man 161 An Overview of Oldknow's Business Activities 167 The Business atAnderton 168 The Establishment of Business at Stockport 171 Expansion of Business to Heaton Mersey 173 Expansion at Stockport 175 MellorMill 180 OLDKNOW'S ACCOUNTING 184 OUTWORKERS 184 Pickers 185 Spinning Records 187 Spinners' Ledger 188 Winding 191 Weaving Records 192 Weavers' Taking Book 193 Weavers' Ledger 194 Weaving Prices 196 FACTORY PRODUCTION 199 Recording Employees 200 Cutting Frames 202 Report Book 204 Warping 206 Spinner's Accounts - Stockport 210 Time Books 214 Wage Payment Papers 216 Recording the Product 219 Output Records - Mellor 224 Monthly Output Book 227 Stock Sheets 233 Profitability 239 Other Business at Mellor 243 Summary 244 CHAPTER 5 JAMES WATT JNR 248 Introduction 248 James Watt jnr 250 James Watt jnr's Early Life 251 Some Early Influences on the Life of James Watt jnr 252 Education 253 James Watt jnr in Manchester 256 James Watt jnr in France 259 Home in England 262 Watt's Introduction to Business 264 The Steam Engine Business 268 Soho Foundry 272 The Organisation of the Soho Foundry 275 The Accounting System of the Soho Foundry 276 The Organisation of the Accounting Records at the Soho 279 Foundry The Ledger 280 The Operating Departments 281 Costing Records 287 The Engine Book 288 The Fitting Book 291 Inventory 294 Internal Control 296 Accounting Information as a Basis for Calculation 297 Piece Rates for the Moulders 297 Piecework Determinations 302 Prices 313 Buildings & Equipment 326 Other Calculations 328 Summary 329 CHAPTER 6 CONCLUSION 336 How Accounting Assisted in Management 345 Organising 345 Control 346 Decision Making 348 Accounting as an Expression of Objectivity 349 BIBLIOGRAPHY 351 APPENDIX Appendix A - Soho Foundry Accounts 374 Appendix B - List of Metal Materials 375 Appendix C-1 - Fitting and Construction Book 376 Appendix C-2 - Fitting and Construction Book - Detail 377 Appendix D-1 - Engine Book 378 Appendix D-2 - Engine Book - Detail 379 Appendix E - Journal Entry 380 Appendix F - Journal Entry 381 Appendix G - Engine Day Book 382 Appendix H - Foundry Department Account 383 Appendix I - Smithy Department Account 384 Appendix J - Rotative Engine 385 Appendix K - Notice of Auction 386 Appendix L - Monthly Statement 387 Appendix M - Pay Tickets 388 TABLE OF ILLUSTRATIONS Page Beighton's engraving of a Newcomen engine 1717 83 Boulton and Watt engine built for Whitbread's Brewery in 1785 88 Water-frame 96 Crompton's Mule 97 Joseph Priestley from a medallion produced by Wedgewood 126 Josiah Wedgewood from a jasper ware medallion 137 Wedgewood's Etruria works opened in 1769 138 Examples of Jasper ware produced by Wedgewood 144 Matthew Boulton (1728-1809) 148 James Watt (1736-1819) 149 Samuel Oldknow 157 Highgate Factory - Stockport, Cheshire 178 Mill at Mellor 181 Date stone from Mellor Mill 182 Oldknow's Wharf Buildings alongside the Peak Forest Canal 245 James Watt jnr in 1795 250 Entrance to Soho Foundry 272 Sketch of the Soho Foundry 273 Boulton and Watt rotative beam engine 275 Casting Box with pattern 298 Cast iron beam 326 TABLES Table 4.1 237 Compilation of Statistics and performance indicators from SO 814 Stock Sheets relating to Mellor Mill for the period 31 March 1804 to 28 February 1807 CHAPTER 1 INTRODUCTION The factory masters of late eighteenth century Britain had a problem, not only of developing products in a competitive market, but of managing developing businesses at a time when there were no existing models on which to base solutions.