Schumpeter's economic theory and the dynamic accounting view of the firm
Neglected pages from the Theory of Economic Development
Bibliographic Data
| ID | 7759001 |
|---|---|
| Authors | Yuri Biondi (0000-0002-5545-5550) |
| Year | 2008 |
| Volume | 37 |
| Issue | 4 |
| Pages | 525-547 |
| Publication date | 2008-11-01 |
| Open Access | No |
| Type | ARTICLE |
| Venue | Economy and Society (JOURNAL) |
| Journal identifiers | ISSN: 0308-5147 • E-ISSN: 1469-5766 |
| Publisher | Informa UK Limited (PUBLISHER • GB) |
| DOI | 10.1080/03085140802357927 |
| OpenAlex | W2107959275 |
| Language | EN |
| Citations received | 2 |
| References cited | 18 |
The first English translation of some of Schumpeter's (1926) pages of the Theory of Economic Development is presented. These neglected pages are remarkable because they significantly add to Schumpeter's masterpiece on a number of issues concerned with accounting, law and economics of the firm. They show that Schumpeter considered understanding the firm, together with innovation, as important scientific problems. Schumpeter doubts the explanatory value of proprietary entrepreneurship and provides an early justification of the dynamic entity view of business activity generated by the firm as a becoming concern. He discusses its implications for understanding issues of economic organization and corporate governance, and suggests some theoretical insights concerning business capital and money under conditions of real dynamics and complexity. The doors opened by Schumpeter indicate that money and accounting are fundamentally coupled as complementary institutions in framing and shaping the economic and monetary process of the firm as an enterprise entity. Keywords: economic theory of the firmeconomic organizationcorporate governanceenterprise entityintangiblesfair valueaccounting and economicsbusiness law and economicsdynamic theory of capital and money Notes 1. The following remarks aim at understanding the contribution of Schumpeter's translated text, and do not, therefore, deal further with its connection to evolutionary and neo-Schumpeterian economic theories, contrary to Cantner (Citation1997), Fagerberg (Citation2003), Foster (Citation2000). For a general overview of Schumpeter's economic theory, see Blaug (Citation1992) and Giersch (Citation1984), both providing further references. 2. Known also as the process of ‘creation and allocation of resources’ or of ‘production and distribution’. 3. The connection between money and accounting is further testified by Schumpeter's work on money, which he was preparing in the same period as the revised editions of the Theory of Economic Development (McCraw, Citation2007, pp. 155ff.). This work jointly considered money and accounting under the socialistic (ch. 4) and the capitalistic (ch. 6) economic processes. According to Guillebaud, ‘Schumpeter was concerned to drive home certain fundamental truths: above all, that the essential function of money is to act as a unit of account, and that its practical link with gold or silver or any other commodity, is to be explained by historical causes and is not an inherent quality of money as such’ (Citation1971, p. 171). 4. His theoretical attention to the economic analysis of the firm is also testified by the American Economic Review round table that Schumpeter (Citation1942) was in charge of. 5. Schumpeter (Citation1934b) discussed the nature and role of the price system in a valuable note. 6. Fantacci (Citation2005a, Citation2005b) provides a historical inquiry on the joint evolution of these monetary functions at the theoretical and practical levels. 7. The entrepreneur's role appears to shift from that of a socio-historical personage to that of a peculiar economic function, between the first and the second editions, cf. Becker & Knudsen (Citation2002); Langlois (Citation2002); Pesciarelli and Santarelli (Citation1986); Shionoya (Citation1990). Cf. also Schumpeter (Citation1947a). 8. Schumpeter (Citation1926, p. 185, 187–9) refers especially to Menger, whom he opposes to Boehm-Bawerk, to Hawley, who influenced Knight, but also to Davenport and Veblen, as having the nearest theoretical positions to his own. 9. Schumpeter calls this working process of the firm ‘Betrieb’, which is also the fundamental notion at the basis of the emergent dynamic accounting theory in Germany (Betriebswirtschaftslehre). In Italy, this meaning is expressed by ‘azienda’ and in English-speaking countries by ‘enterprise entity’ and ‘going concern’. 10. Though traced back to the sixteenth century, the entity theory gained steady acceptance only after the turn of the twentieth century, especially through Nicklisch and Schmalenbach in Germany (Betriebswirthschaftslehre), CitationZappa in Italy (Economia Aziendale) and Littleton and Paton in the USA (business economics). In German-speaking countries, the key writings promoting the entity view were published at the beginning of the twentieth century, cf. Fischer (Citation1909), Nicklisch (Citation1903, Citation1912) and Schmalenbach (Citation1908–9, Citation1911–12, Citation1919). In the field of accounting and law, a further role is played by Beigel and Simon (the latter is quoted in Schumpeter's text), especially in Germany, where juridical accounting theories stressing income determination were opposed to static accounting theories that rested upon the valuation of assets and ownership, cf. Biondi (Citation2002), Mattessich (Citation2003), p. 136) and Richard (Citation1996). 11. He followed here the French theoretical tradition of Say, Walras and Pareto. 12. In this context, when Schumpeter calls for recognition of all equity-providers as creditors of the firm, he is also justifying the recognition of shareholders’ equity interest. This may be done either by computation on the actual funds provided in the past, as advocated by Anthony (Citation1983), or by allocating only a quota of net earnings to them, as established by German law. Equity interest may then be considered as the accounting way of recognizing and protecting shareholders’ interest together with the enterprise entity's necessities. 13. This also explains why Schumpeter did not recognize the role of depreciation and other accruals in actively modifying the ‘capital account’ for reasons of ‘wear and tear’ and other changing conditions. We shall later discuss the role of accruals in the overall accounting representation that encompasses book-keeping. 14. On this point, cf. also Perroux (Citation1935) and Stauss (Citation1944). 15. Schumpeter (Citation1954), pp. 156-57, 944–5, 872) has three references to accounting, the first two being disclaimers and the third a remark on Fisher (Citation1906) as ‘presenting the first economic theory of accounting’ and ‘the basis of modern income analysis’. 16. For the theoretical critique of this idea, see Schumpeter (Citation1947b). 17. In a dynamic and complex context, the accounting function has indeed to pay heed to the entity's web of events, processes and transactions as well as to the ‘has been’/‘ought to’ distinction related to actual or intended results. See Biondi (Citation2005, Citation2006) for further details. Bornemann (Citation1943) early suggested considering accounting as an economic institution. 18. In fact, under the general equilibrium framework that makes money and credit neutral, ‘each individual at the start of the trade has implicitly available a credit line equal to his net worth “at market” – i.e. at the worth of his initial assets at the final market price’ (Shubik, Citation1993, p. 230, emphasis added). The dynamic accounting and economic view of money (and financial devices) is very different, and, as Schumpeter clearly recognized, allows the presence of money (and credit) to play an active role in the economic and monetary process. Foster (Citation2000) claims Schumpeter's dynamic perspective as a non-equilibrium one, which is different from any stated equilibrium or disequilibrium perspective. See Biondi (Citation2008) for further developments. 19. See also Ijiri (Citation1975, p. 188). The dynamic entity view fundamentally relies on flow method and the historical (or invested) cost basis. In fact, under conditions of real dynamics and complexity, and the separation between ownership, management and control, the accounting system affects the economic and monetary process of the firm regardless of which accounting framework is retained. See Biondi (Citation2008) for further developments. 20. As Schumpeter (Citation1934a, p. xii) recognized, his book proved to be very refractory to English translation. We have indeed not hesitated to use some clumsy or inelegant phrases to render the original meaning without rewriting the whole. 21. Cf. the definition of capital as the adding-together of ‘monetary amounts required to be employed’ [werbender Geldbetraege] provided by the civil code of the German Reich (Schumpeter's note). 22. Cf. here Spiethoff, Das Verhältnis von Kapital, Geld und Güterwelt, The relationship between capital, money and the world of goods, Schmollers Jahrbuch, 1909, p. 42. By capital market, he actually means just the market for ‘enterprise's equities and long-term credit’, while he limits the ‘monetary market’ (Geldmarkt) to the market for shorter-term credit (Schumpeter's note). 23. By having recourse to the word ‘Pfund’, Schumpeter perhaps alludes here to the German adage on ‘the sterling that people exploit’ (‘Das Pfund mit dem man wuchert’). 24. Schumpeter's text suggests translating ‘Aufwendung’ by ‘expenditure’. In this context, we might further speak of ‘durable expenditures’ which are capitalized as assets on the balance sheet, as distinguished from ‘transitory expenditures’ that pass through the income statement as expenses. 25. Knappe, Bilanzen der Aktiengesellschaften (Financial statements of corporations), argues against Simon (Citation1899) about the expression ‘debts’ (Schulden) in this context. He is obviously right from the legal viewpoint (Schumpeter's note). See also note 10 above. 26. Schumpeter alludes here to the so-called process of ‘primitive accumulation’ analysed by some classical economists and Karl Marx
Corporate governance · Economics · Entrepreneurship · Evolutionary Economics · Management · Neoclassical economics · Positive economics · Economic theories and models · Economic Theory and Institutions · Political Economy and Marxism · Finance
| Citations per year | 0.25 |
|---|---|
| Citation span | 2018 - 2025 (8) |
| Highly cited | No |