Occasional Accountants
Several important Faculty contributions at the intersection of accounting and economics extend beyond the themes outlined so far. These include work in microeconomic theory, macroeconomic theory, and environmental economics.
Microeconomic Theory of Accounting for Business
Although he is primarily known for his contributions to economic theory and the history of economic thought, Geoff Harcourt’s PhD in the Cambridge Faculty was actually an empirical piece on replacement cost accounting.
This experience combined with his theoretical interests led to his famous 1965 paper, ‘The Accountant in a Golden Age’. He showed that, even under helpful ‘Golden Age’ assumptions, comparisons of the accountant’s rate of profit for different industries, or the same industry in different countries, could not be reliably used for inferences about relative economic profit rates—internal rates of return. He showed the distortions which are introduced by different lengths of lives for machines, patterns of quasi-rents, and depreciation methods.[1]
These issues were revisited two decades later in the Faculty by Jeremy Edwards and his co-authors (Edwards et al. 1987 (EKM)).[2] This followed a renewal of interest in profit measurement in the aftermath of aborted attempts to introduce inflation-adjusted accounts in the USA and UK. EKM addressed the problem posed by Harcourt, and provided a crisp argument that amendments are possible to conventional accounting profitability measures which would permit legitimate comparisons across activities. In particular they propose the use of deprival value (value to the owner) conventions for valuing capital employed, and full articulation of the income statement and the balance sheet (all changes in book value flowing through the income statement). Since that work the accounting mainstream has flowed in a different direction, preoccupied with current market valuations. But now that the limitations of marking-to-market have become more obvious (Whittington 2008; Amel-Zadeh and Meeks 2013) the approach of Harcourt and EKM—moti- vated by the managerial decisions that accounting data have to inform—is overdue for a revival.
- [1] Harcourt is also well known for his work on the capital controversies involving the ‘two Cambridges’.Since much of accounting is devoted to measuring capital, it is perhaps surprising that those controversieswere not more evident in the accounting studies in the Faculty at the time. In relation to one of the qualified accountants, Feinstein, Offer comments in his chapter in this book: ‘Charles took no part in thetheoretical debates convulsing Cambridge, on whether capital was a coherent and tractable category. Hisjob, he said, was merely to measure its historical cost. But the acrimony of the debate unsettled him’.Although the debate and some of the participants were indeed acrimonious, this is not a description thatcould ever be applied to the generous Harcourt. Those controversies will be presented elsewhere in thisbook—by experts.
- [2] Their theoretical discussion was buttressed with data from the Cambridge/DTI databank of companyaccounts discussed earlier.
