A CRITICAL EVALUATION OF COMPARATIVE FINANCIAL
ACCOUNTING THOUGHT IN AMERICA 1900 to 1920
GARY JOHN PREVITS
A DISSERTATION PRESENTED TO THE GRADUATE
COUNCIL OF THE UNIVERSITY OF FLORIDA IN PARTIAL
FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
UNIVERSITY OF FLORIDA
Gary John Previts
WilZiard Everard Stone
Accountant, Educator, Historian
It is customary, and thus often dismissed as
unfelt, to acknowledge the assistance of those the writer
calls upon in the process of his research. My hope is
that these acknowledgements, brief though they be, will
be recognized as reflecting the abiding sense of gratitude
they convey: To the Arthur Andersen Foundation for finan-
cial support; To the members of my supervisory committee,
Dr. Ralph H. Blodgett, Dr. Robert E. Nelson, Dr. Joseph
M. Perry and Dr. Jack R. Vernon; To the staffs of the
University library (Messrs. J. R. Jones and S. L. Butler),
the AICPA library (Mrs. K. Michaelsen), and the Price,
Waterhouse & Company library (Rosemary Demerest and Ann
Alexanian); To Professors H. T. Deinzer, N. R. Kaylor
and W. Woodruff, who led me to develop a sense of inquiry,
a desire for self-fulfillment and an appreciation of
history; To Professors G. L. Harris, J. J. Klein,
W. A. Paton and Messrs. A. B. Foye and J. W. Queenan,
whose first hand knowledge of the times of this study
aided in developing a relevant outlook; To Professors
R. P. Brief and S. A. Zeff who provided valuable insights;
To my parents for a "lift"; To Fran for her patience and
Robbie for tolerance unusual in a five year-old; and
finally de profundis, Deo gratias.
TABLE OF CONTENTS
ACKNOWLEDGEMENTS ................... ................ iv
LIST OF TABLES ..................................... viii
LIST OF FIGURES ...................................... ix
ABSTRACT ............................................. x
I. INTRODUCTION ............... .................. 1
Scope ....................................... 1
Purpose .................................... 4
Hallmarks of Preclassical
Accountants .......... ............. ....... 5
Limitations ........ ......... ............ 6
Methodology ................................ 8
Expected Contribution .................... 10
II. SOME PRECLASSICAL ACCOUNTANTS AND A
SCHOOL OF THOUGHT NOTION ................. 14
Introduction ............................. 14
Biographical Material .................... 14
Identifying a School of Thought .......... 42
Chapter Summary .......................... 48
III. THE CONDITIONING ENVIRONMENT ............... 61
Introduction ............................. 61
The General Pattern of American
Economic Growth and Techno-
logical Change 1900 to 1920 ............ 63
The Private Sector-Business and
Financial Environment .................. 70
The Public Sector-The Changing
Role of Government in Business ........ 76
An Accepted Economic Model .............. 80
TABLE OF CONTENTS-Continued
III. The Rise of the Accounting Profession ..... 83
Chapter Summary ........................... 86
IV. CONSIDERATION OF THE BASES OF
PRECLASSICAL FINANCIAL ACCOUNTING
THOUGHT ................................... 95
Introduction ...................... ......... 95
The Conditioning Environment:
Indirect and Direct Influences
on Preclassical Accounting
Functions ............................... 95
Initiating the Inquiry for A Set of
Financial Accounting Principles ......... 104
Chapter Summary .................... ...... 108
V. PRECLASSICAL ASSET VALUATION THEORY ......... 117
Introduction .............................. 117
An Historical Transformation of
the Duality Premise ..................... 117
A Preclassical Valuation Model ............ 120
Inventory Valuation ....................... 122
Depreciation Theory ........................ 125
Appreciation Theory ....................... 131
Investment Valuation ...................... 135
The Valuation of Intangibles ......... .... 140
Development of Disclosure Premises ........ 144
Chapter Summary .......................... 145
VI. PRECLASSICAL INCOME DETERMINATION
THEORY ...................................... 159
The Transformation of Income
Determination ........................... 159
Economic Theory and Accounting
Profit ................................. 161
The Technique of Income Measurement ....... 163
"Two little pieces of paper,"-
A Beginning ............................. 166
Principles of Preclassical Income ......... 168
Some Examples of Preclassical Thought ..... 173
Chapter Summary ......................... .. 181
VII. A CRITICAL EVALUATION OF PRECLASSICAL
ACHIEVEMENTS .............. ................ 191
The Import of Preclassicism ............... 191
TABLE OF CONTENTS-Continued
VII. Signal Contributions of Individual
Preclassicists .......................... 194
Culminating Remarks ...................... 200
APPENDIX ............................................ 205
SELECTED BIBLIOGRAPHY ................................. 242
BIOGRAPHICAL SKETCH .................................. 258
LIST OF TABLES
1. Trusts and Mergers 1860-1919 ............... 62
2. Growth Trends in the American
Economy 1879-1959 ........................ 63
3. Real Per Capita Income in the United
States during 1900-1919 .................. 64
4. Selected U. S. Business Cycle Data
1899-1920 .................................... 65
5. Annual Automotive Production in the
United States 1900-1920 .................. 66
6. American Foreign Investment 1897-1919 ...... 69
7. Some Early Industrial Trusts ............... 71
8. U. S. Capital Formation 1889-1918 .......... 73
LIST OF FIGURES
1. Life spans of some Preclassical
accountants .............................. 15
2. Index of prices of industrial stocks
1900-1930 ................................ 67
3. Hatfield's hedge illustrated ................ 177
4. Dickinson's Income Statement Format ......... 180
Abstract of Dissertation Presented to the Graduate Council
in Partial Fulfillment of the Requirements for the
Degree of Doctor of Philosophy
A CRITICAL EVALUATION OF COMPARATIVE FINANCIAL
ACCOUNTING THOUGHT IN AMERICA 1900 to 1920
Gary John Previts
Chairman: Williard E. Stone
American financial accounting was significantly
transformed as the result of the contributions of a group
of accounting writers of the period 1900 to 1920. Desig-
nated as the Preclassical period in recognition of its
important influence on later (Classical) accounting
theory, selected works of William Morse Cole, Arthur
Lowes Dickinson, Paul-Joseph Esquerr6, Henry Rand Hatfield,
Roy Bernard Kester, Robert Heister Montgomery, Charles
Ezra Sprague and John Raymond Wildman are explicated and
examined in this study with the presumption that they
are representative of the leading thought of the age.
Commencing with a colligatory examination of the
life histories of these individuals and the environment
of the period, the theoretical research is divided
between an analysis of Preclassical value theory and
income determination theory, the inquiry being based upon
the relationships existing among: (1) the triad (audit,
advise and attest) of duties undertaken by Preclassical
accountants; (2) the role of "professional" judgment in
the joining of these duties with (3) the need for a set
of fundamental precepts to underlie the discharge of
accountants' professional functions.
A comparative functional mode is employed in the
inquiry, stressing the warrantability of notions in their
initial definitional setting, with dialectical considera-
tions added to achieve pre and post transformational
perspective. The structure of accounting value theory
is outlined in terms of an accounting primitive-the
duality premise, from the original Italian version
(property = claims) to Preclassical types, including
those identified with Esquerr4 (goods = liabilities);
Sprague (assets = liabilities + proprietorship); and
Wildman (assets = liabilities + accountabilities).
The analysis of value theory, recognizing
important corresponding economic theories, identifies a
strain of Classical economics in accounting's exchange
price notion of value and in the assumptions of Pre-
classical profit concepts. The essential principles of
the profit determination and disclosure theories of the
period are traced to the doctrines and format found in
Dickinson's 1904 address to the Congress of Accountants,
including the prescription that:
1. All waste, both of Fixed and Circulating Assets,
incident to the process of earning Profits by
the conversion of Circulating Assets must be made
good out of the Profits earned.
2. Profits realized on sales of Fixed Assets should
be first applied to make good estimated depreci-
ation (if any) in other Fixed Assets not resulting
from the ordinary conduct of the business. If
there is no such depreciation, such Profits may
be distributed as dividends, but should be
distinguished from the Operating Profits.
3. A sufficient surplus should be accumulated (in
addition to the provisions required to maintain
Wasting Capital Assets under Clause 1) for the
purpose of making good Losses due to shrinkage
in value of Fixed Assets arising from causes
other than the ordinary operations of the Company.
The signal contributions of Preclassical writers
are summarily evaluated at the conclusion of the study and
presented with regard to criteria indicative of a School
of Thought. The achievements of Preclassicism which
warrant the assertion of such a School recognition include
the development of a "modified historical cost" valuation
paradigm, based upon advancing notions of depreciation
and appreciation. As well, the roots of modern income
determination and disclosure thinking are evident in
Preclassical concepts, presaging the important shift from
an indirect (balance sheet) approach to the operational
emphasis of profit determination.
Brief,* Littleton,2 Garner,3 Peragallo,4
Littleton and Zimmermans and Zeff6 among others have
provided important works in the history of cost and
financial accounting thought, but these writings are not
strictly comparative, nor are they inclusive of all
periods and topics. As a result, certain periods of
accounting theory development, and constituent segments
of the history of financial accounting thought, have yet
to be investigated.
One such time period can be identified with the
beginning of this century through the close of World
War I, approximately 1900 to 1920. This period corre-
sponds at the initial date to the upper limits of both
Brief's and Littleton's analyses, as their efforts do not
extend into the twentieth century. At the latter juncture,
1920, a Classical group of accounting theorists came into
prominence, responding to the economic expansion and
prosperity of the post war period.7 Classicists undertook
the initial formulation of accounting principles, a
*Notes are located at the end of each chapter.
- 1 -
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distinct accomplishment which separates them from previous
thinkers. Leaders of the Classical group include W. A.
Paton of Michigan and G. O. May, a senior partner of
Price, Waterhouse & Company.
Paton's ". . influences on accounting thought,
beginning with Accounting Theory (1922) have continued
undiminished for a generation."8 Stabler sets the period
of May's greatest contributions after 1926 when ". . he
relinquished his administrative duties as senior partner
of Price, Waterhouse & Co., in order to pursue a broader
field of activity."9
While there are clear distinctions between the
two groups (those principally active before and after
1920), the accountants of the Classical persuasion were
affected by their immediate predecessors. For example,
May noted in his memoirs the influence which Arthur Lowes
Dickinson had on reshaping his personality and his
professional views.10 In order to preserve the existence
of what are probably strong and important links between
these two clusters, the writers being studied in this
work, identified with the era 1900 to 1920, are designated
as a distinct Preclassical group.
Preclassicists are deemed to have been a source
of stimulative thinking in establishing the pattern of
financial accounting thought adopted by the early profes-
sion, providing the basis from which formal accounting
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principles would evolve.'1 This implies that accounting
thought during the Preclassical period had advanced to
a point where it can be depicted as a body of accounting
knowledge. Several factors seem to support this view,
1. The appearance of a distinctive American
professional accounting literature consisting
of books, pamphlets and journals.12
2. The initiation of unified internal professional
action. For example, as early as 1909 a special
committee of the American Association of Public
Accountants was formed to ". . collate and
arrange accounting words and phrases and show
in connection with each the varying usages to
which they are put. . ."13 This was the
advent of a series of definitional inquiries
into divergent terminological usages among
early practitioners. In 1915 this committee
reported out ". . an initial list . felt
to be adequately defined in such a manner that
the committee would be justified in recommending
that the Association give its definite approval
and ratification thereto."14 The definitional
approach did not prevail however, but the
profession's concern with accounting terminol-
ogy, apparently born of these efforts, continued
for many years as evidenced by the important
role which the terminology committees have held
upto their supercession by the Accounting
Principles Board in 1959. s
3. The recognition of the emerging external role
or professional accountancy with the acceptance
of limited attest responsibility as a first
step toward later attacks on the customary
secrecy in disclosure.16 By 191717 the
profession provided what appears to be their
first formal attempt through a committee of
the American Institute'B to suggest standards
for use on a national scale by merchants and
manufacturers seeking credit.
4. The rise of American accountancy to a position
of international prominence. An event which
supports this proposition is the first Congress
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of Accountants held in 1904 at St. Louis under
the sponsorship of the Federation of Societies
of Accountants in America. Less than 10 percent
of the delegates were foreigners, but the
Congress is recognized as a first multi-national
meeting20 of professionals and served as well
to secure a wider stature for its American
These factors among others witness the origination
of an approach to accountancy which would become distin-
guishable from the British methods that seem to have long
dominated American systems from the earliest of colonial
times. That a structure of accounting concepts was
emerging during this period was evident in the literature
of American accountancy. Sanders, a leading educator
suggests why this important maturation process went
largely unrecognized. He explained that while it was
". true that accounting literature at the time was in
general less articulate on the subject of principles and
standards [since the term principle was not commonly used]
this does not mean that there were no standards, nor that
standards were not followed by a large body of reputable
Significant influences upon the development of
financial accounting thought can be traced to the
writings of a group of professional accounting pioneers
of the period 1900 to 1920. In particular, William Morse
Cole, Arthur Lowes Dickinson, Paul-Joseph Esquerr6,
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Henry Rand Hatfield, Roy Bernard Kester, Rober Heister
Montgomery, Charles Ezra Sprague and John Raymond Wildman,
among others, enunciated basic concepts which are
believed to have transformed earlier accounting notions
into those which served as a foundation for subsequent
advances in accounting theory.23
This research is concerned with providing a
comparative evaluation of selected financial accounting
conceptions as evident in the works of Preclassical
accountants with the presumption that this body of
thought constitutes an identifiable phase in the develop-
ment of American financial accountancy.24
Hallmarks of Prectassical Accountants
The eight Preclassical writers chosen to
represent the period were devoted professionalists; most
are known to have held important offices or committee
posts within professional and academic groups. Almost
all were active as practitioners or consultants and were
noted academicians as well, holding teaching positions at
several levels, including accounting professorships at
major universities for long periods. Usually these men
were among the first accounting professors at the
collegiate institutions with which they were associated.
This uncommon blend of professionalist-
practitioner-professor is the hallmark of the Preclassicist.
- 6 -
Prior to this period the academic and professional
prominence of accountancy had not advanced far enough to
warrant accountants' claim to this triad of distinctions.
Later as accountancy became more specialized between
teaching and practice it was highly unusual to find men
with all these active credentials.
As to time period designated.-The temporal
barriers of 1900 and 1920 have been placed upon this
inquiry with the recognition that in historical investi-
gations such divisions are not a perfect delineation of
human activity, which itself is at the heart of all
historical inquiry. But while certain members of the
Preclassical group were active before and after the
period in question, these efforts are considered supple-
mental to their role in the early years of this century.
As such these other contributions are left for future
examination and except in occasional instances do not
constitute the primary source material for the functional
analysis of this undertaking.
As to topic area considered.-The fact that
Garner's important study of cost accounting evolution
parallels in part the time frame of this examination does
not of itself preclude investigation into the cost
accounting achievements of Preclassical accountants.
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However as a matter of efficiency and practicality no
attempt is made in this study to examine cost accounting
topics per se. It should be noted nevertheless that
Garner cites several of the writers as having made
contributions to cost accounting theory.25
As to the accountants selected.-Just as the
temporal limits imposed upon the scope of this study are
somewhat historically affected, so the selection of
individuals as representatives of the period must be the
function of a process of structured elimination subject
to imperfection. The selection process employed was based
upon the hallmark criteria cited above, namely a consid-
eration of one's authoritative stature among fellow
academicians, professionals and practitioners. Guidance
for these evaluations was sought from several accounting
octogenarians including Dr. W. A. Paton of Michigan,
Dr. Joseph J. Klein of New York, Professors Fayette H.
Elwell of Wisconsin and Gould Harris of New York Univer-
sity. Also Mr. Arthur B. Foye and Mr. Maurice Peloubet
were consulted, among others. All of these men were
personally knowledgeable with regard to the subjects and
individuals considered. Among accountants considered but
not included as Preclassical representatives were Harry
Clark Bentley, Seymour Walton and Earl A. Saliers.
- 8 -
The analytical chapters of this research are
structured in a comparative mode. This approach contrasts
the individual notions of the members with one another,
focusing upon reasons which provide the basis for agree-
ment or disagreement among the individuals compared.
The contrasting analysis proposed in this
research also conforms to other methodologies. For
example, the analysis will discriminate between the
functional and dialectical approaches wherein the evalu-
ation of a proposition follows either from the view of
how it came into existence in its contemporary setting
and how it operated in that setting (functional) or it
must be evaluated as to its role in the ongoing process
of change, namely how it has participated in shaping
extant notions via the Hegalian dialectic: thesis,
antithesis and synthesis.26
The structure of the work proposed is intended
to be primarily functional as opposed to dialectical.
However, the conclusions with regard to the contributions
of the Preclassicists incorporate a dialectical aspect
in order to consider the "link-up" between the thought
of that period and adjacent periods, especially the
- 9 -
Sequence of Explication
The investigation of Preclassical accountancy
begins with depthful biographical descriptions of each
of the selected representatives. With the exception of
Montgomery, who has been the subject of previous bio-
graphical and autobiographical works, the other members
of the group have been less thoroughly considered.27
Chapter II provides this information as well as initiating
a consideration of the applicability of a School of
Thought designation with regard to Preclassical writers.
The school device is reviewed in terms of its analytical
criteria and in light of previous propositions regarding
its use in research. The elements of government, society
and economics which constituted the environment of the
Preclassical era are considered in Chapter III. Chapter
IV examines the duties which accountants were called upon
to discharge in the first decades of this century with
the purpose of noting the functions for which an under-
lying theory was sought. Taken together these chapters
constitute the backcloth upon which the comparative
analysis of Chapters V and VI will be performed. The
first of these chapters undertakes an inquiry of the
contribution of Preclassicists to asset valuation theory;
the second chapter will be concerned with their offerings
to advance the state of income determination theory.
- 10 -
Chapter VII structures the outcome of the study
with regard to the principal achievements and the indi-
viduals identified with them. At this point the theoretical
contributions of the Preclassical period will be evaluated
in terms of their adequacy to constitute a distinct School
of Thought. An appendix will also be provided which con-
tains a unique chronological listing of the known works of
each of the selected Preclassicists.
The product of this research should assist
accounting students, scholars and nonaccountants in at
least the following manner:
First, the biographical and bibliographical
citations should provide a useful compendium as a pure
research source for historians of accounting thought
interested in extending the boundaries of this research.
Second, it is conceivable that because of the
novel approach of this study, via the functional and
school procedures, a fruitful explicative technique may
emerge which will serve to refine historical research
models proposed for use in studying accounting thought.
Principally though, it is believed that this
undertaking will serve to provide the material to estab-
lish the theoretical import of the Preclassical era, a
significance as yet uncatalogued in the history of American
financial accounting thought.
1. Richard Paul Brief, Nineteenth Century Capital
Accounting and Business Investment, Ph.D. disserta-
tion, Columbia University, 1964.
2. A. C. Littleton, Accounting Evolution to 1900, New
York: Russell & Russell, 1966 (copyright, 1933).
3. S. Paul Garner, Evolution of Cost Accounting to 1925,
Tuscaloosa: University of Alabama Press, 1954.
4. Edward Peragallo, Origin and Evolution of Double-
Entry Bookkeeping, New York: American Institute
Publishing Co., 1938.
5. A. C. Littleton and V. K. Zimmerman, Accounting Theory:
Continuity and Change, Englewood Cliffs: Prentice-
Hall Inc., 1962.
6. Stephen Addam Zeff, A Critical Examination of the
Orientation Postulate in Accounting, with Particular
Attention to Its Historical Development, Ph.D.
dissertation, University of Michigan, 1962.
7. William W. Werntz, "The Influence of the Securities
and Exchange Commission on Standards of Corporate
Accounting," William W. Werntz: His Accounting
Thought, New York: AICPA, 1968, p. 434;
Reed K. Storey, The Search for Accounting Principles,
New York: AICPA, 1963, pp. 6-15.
8. Williard E. Stone, editor, Foundations of Accounting
Theory, Gainesville, Fla.: University of Florida
Press, 1971, p. iii.
9. Henry F. Stabler, A Study of Selected Contributions
of George 0. May to Accounting Thought, Ph.D.
dissertation, University of Alabama, 1968, p. 7.
10. Paul Grady, editor, Memoirs and Accounting Thought of
George 0. May, New York: The Ronald Press Co., 1962,
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- 12 -
11. Kenneth MacNeal, Truth in Accounting, Lawrence,
Kansas: Scholars Book Co., 1970 (copyright, 1939),
For a capsule review of the writings of some of the
Classical authors see: J. D. Edwards and R. F.
Salmonson, Contributions of Four Accounting Pioneers,
East Lansing: Bureau of Business and Economic
Research, Michigan State University, 1961.
12. John Carey notes in his Rise of the Accounting
Profession, v. I, that the Journal of Accountancy
appeared in November, 1905, as the successor to a
publication called the Auditor which was published
by the Illinois Society. Many periodicals less
highly regarded and now out of print also contained
samples of the accounting thought of the period.
Among these is Accountics, first published in April,
1897, shortly after the passage of the first CPA
law, by the New York Institute of Accounts. It was
perhaps the foremost professional journal in the
years prior to the Journal of Accountancy and has
probably not been adequately regarded as a source of
Each of the eight writers of the Preclassical
period contributed at least one accounting volume to
the literature in addition to numerous articles
during the first two decades of this century. These
early works included:
1904 The Accountancy of Investment, Sprague
1905 Dicksee's Auditing, Authorized American Version,
1907 The Philosophy of Accounts, Sprague
1908 Accounts: Their Construction and Interpretation,
1909 Modern Accounting, Hatfield
1913 Principles of Accounting, Wildman
1914 Applied Theory of Accounts, Esquerr6
Accounting Practice and Procedure, Dickinson
1917 Accounting: Theory and Practice, Kester
13. Report of the Special Committee on Accounting
Terminology, 1909 Yearbook of American Association
of Public Accountants, p. 159.
14. Report of the Committee on Accounting Terminology,
1915 Yearbook of American Association of Public
Accountants, p. 160.
15. Carey dates the initial efforts toward terminological
investigation somewhat later, beginning with the work
of a 1921 committee, op. cit., v. I, p. 206.
16. David F. Hawkins, "Development of Modern Financial
Reporting Practices among American Manufacturing
Corporations," Business History Review, 1963, p. 167.
17. James Don Edwards, History of Public Accounting in
the United States, East Lansing: Bureau of Business
and Economic Research, Michigan State University,
1960, p. 134.
18. Paul Grady, op. cit., p. 36.
19. William W. Werntz, "The Search for Accounting
Principles," op. cit., p. 36.
20. Mary Murphy, "International Accounting Practice,"
Advanced Public Accounting Practice, Homewood, Ill.:
Richard D. Irwin Co., 1966, p. 525.
21. Paul Grady, op. cit., p. 28.
22. Thomas H. Sanders, "A Review of Reviews of Accounting,"
Journal of Accountancy, January, 1946, pp. 9-26.
23. W. L. Green, History and Survey of Accountancy, New
York: Standard Text Press, 1930, p. 134.
24. The notion of "transformation" is preferred over the
term "evolution;" see note 1, Chapter VII.
25. In Garner's work cited in note 3 he mentions Dickinson's
role in the interest as a cost debate, see pp. 151-2.
As well hefrequently refers to Wildman, Cole and
26. M. M. Postan, "Function and Dialectic in Economic
History," The Economic History Review, 1962, no. 3,
27. A. R. Roberts, Robert H. Montgomery: A Pioneer Leader
of American Accounting, Ph.D. dissertation, University
of Alabama, 1971; R. H. Montgomery, Fifty Years of
Accountancy, New York: Privately printed by The
Ronald Press Company, 1939.
SOME PRECLASSICAL ACCOUNTANTS AND
A SCHOOL OF THOUGHT NOTION
The objective of this chapter is twofold: First,
to furnish personal information which will assist in
recognizing the position which each of the men selected
achieved in the early profession by means of biographical
sketches.' Second,to propose and enumerate a set of
criteria from which the propriety of the School of Thought
concept can be determined with regard to the association
of ideas found in Preclassical writings. These criteria
will provide the basis from which some of the conclusions
of this research can be deduced in Chapter VII.
William Morse Cole (1866-1960)
Born in Boston on February 10, 1866, Cole
received a high school education in Portland, Maine, and
attended Portland Business College. He earned an A. B.
(1890) and an A. M. at Harvard, the institution at which
he would become associated as a faculty member.
Prior to becoming an instructor of political
economy at Harvard, Professor Cole worked as a
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I I I
I I I
1840 1860 1880 1990 1920 1940 1960 1970
Figure 1. Life spans of some Preclassical accountants.
- 16 -
clerk-bookkeeper for several wholesalers and as an
auditor for two corporations.2 His first known manuscript
coincides with the start of his academic career. In 1890
he prepared an article entitled "Cooperative Insurance
and Endowment Schemes," for publication in the Quarterly
Journal of Economics.3
Before the business school opened at Harvard he
offered a course in accounting principles to seniors at
the college. No credit was given for the work as it was
considered a ". . vocational training course." When
the first faculty of the Business School was appointed in
1908, Cole was among its members, serving as an assistant
professor. In 1913 and 1916 he received promotions, and
upon his retirement in 1933 he held the rank of Professor
Emeritus of Economics and Social Philosophy. What is
believed to be his last article, "Our Outdated Accounting,"
appeared in the July, 1933, issue of the Harvard Business
Though not active as a CPA, Cole maintained ties
with the practitioners, and was an honorary member of the
Massachusetts Society of Certified Public Accountants.
His career of service outside accounting included teaching
English and composition. At that time, under the pseudonym
Christopher Craigie, Cole wrote An Old Man's Romance (1895).
From 1894-1895 he was secretary for the Massachusetts
- 17 -
Commission for the Unemployed and during World War I he
held a commission as a Captain in the Quartermaster Corps.
Cole married in 1898 and raised two daughters,
Catriona and Elizabeth. In 1909 he wrote a major non-
accounting work The American Hope,6 a commentary on the
principles of American life as he viewed them.
Cole's classroom techniques were recalled by
Walker who said:
Many of Professor Cole's Business School students
will remember his precise speech, his refusal to use
or to attempt to understand slang expressions, his
meticulous explanations and his impatience with
slovenliness and carelessness.7
Accounts: Their Construction and Interpretation,
Cole's important financial accounting treatise, appeared
in 1908 and was revised in 1915.8 Fundamentals of
Accounting a widely used textbook which he coauthored
with Anne Geddes was published in 1921. Professor Cole
authored books and many articles on the subject of
institutional and hospital accounting and cost accounting.
His death on December 15, 1960, ended a career of
service of which over forty years had been spent teaching
Arthur Lowes Dickinson (1859-1935)
Arthur Lowes Dickinson was born in London, England,
on August 8, 1859. Much of what is known of his ancestry
is through the biography of his brother, Goldsworthy Lowes
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Dickinson, the noted poet and writer.9 The Dickinson
family included three sisters in addition to the brothers.
Dickinson was educated at Charterhouse School and
Cambridge, graduating in 1882 as a Wrangler in Mathematical
Tripos, the highest honors in mathematics at the school;
in 1888 he received an M. A. At Cambridge he was tutored
by John Neville Keynes. Later when Dickinson was living
in America he was host to the son of his former tutor,
John Maynard Keynes and introduced the young Keynes to
George O. May.'
In her study of Dickinson's career, Mary Murphy
When Arthur Lowes Dickinson came down from
Cambridge in 1882, he considered with some care the
various occupational avenues open to a young English-
man possessed of the additional qualification of a
First in mathematics. Many fields beckoned to him,
both at home and in the Empire. . .
After deep consideration of all occupations
open to him, Dickinson selected for himself a
fledgling profession--public accountancy. This
profession, because of rapidly expanding business
opportunities, offered him a promising field for
a career, and afforded him the chance of using
his mathematical training in an occupation dedicated
to public service.1
Dickinson was first prizeman of the 1886
Institute examinations and began to practice as a chartered
accountant in 1887. On May 17, 1887, he delivered his
first paper, "Life Assurance Accounts."12 He and Mary
Jennings were married in 1888 and they raised two
daughters, Mary and Dorn.
- 19 -
Under an arrangement with the controlling English
firm, Dickinson was sent to the United States in April,
1901, to assume the senior partnership of the American
accounting practice which was to become Price, Waterhouse
& Company.3 During the twelve years Dickinson resided
in America he embraced the country as his own, obtaining
citizenship in 1906 and establishing his professional
credentials in Illinois (1903) and New York (1913) by
obtaining his certificate as a public accountant.14
Dickinson acted to unite the many independent
state accounting groups by sponsoring the Federation of
Societies of Public Accountants in Americals and serving
as President in 1903. In the best tradition of the
British profession Dickinson, through his efforts and
example, played an important part in encouraging account-
ants to build strong ties with academicians and other
In 1904 the Federation undertook sponsorship of
the Congress of Accountants, the first attempt at a
national and international meeting of North Atlantic
accounting professionals. Dickinson was instrumental in
assuring the meeting's success and delivered the significant
paper "Profits of a Corporation."17
During 1905 Dickinson served as secretary of the
American Association of Public Accountants (which was to
absorb the Federation). He was a member of many other
- 20 -
professional groups including the New York State Society
of CPAs, the Royal Statistical Society (England) and the
Institute of Actuaries (England).
One of his first contributions as an American
practitioner was to devise a unique format for the annual
accounts of the United States Steel Corporation, a mile-
stone in the advance of adequate disclosure in corporate
The strain of developing a national practice and
the efforts put forth in behalf of the profession during
his decade of leadership and participation in the American
profession led Dickinson to resign his senior partnership
in New York and return to England in 1913, shortly before
the outbreak of World War I.19 In England he continued
to work in behalf of the public interest and the
profession, receiving knighthood from King George in
recognition of his services to that country during the
While he lived in England Dickinson's presence
continued to be felt in America. The publication of his
book Accounting Practice and Procedure (1914)21 and several
other contributions to the literature, combined with
occasional visits to the states, kept him abreast of the
American accounting scene. His retirement in 1923 was
acknowledged internationally in tribute to his leadership
and influence.22 He continued even after retirement to
- 21 -
add to his record of public service by accepting a
government appointment to investigate the condition of
the railways in India.23
During his retirement Dickinson found time for
several return visits to New York and until his death on
February 28, 1935, he was in constant touch with the
profession.24 In tribute to Dickinson, Maurice Peloubet
He was first of all a practical professional
accountant. He was the advisor of many of those
responsible for the conduct of some of our largest
industries. In the period of consolidation and
reorganization of corporations at about the turn
of the century, his influence was felt in many
of the most important of these. Beyond this,
however, he was a profound scholar and a clear
and illuminating writer.25
This natural scholarly ability never drew
Dickinson into the classroom formally as professor or
instructor. However, in 1929 the Arthur Lowes Dickinson
Fund was established at the Harvard Graduate School of
Business in recognition of Sir Arthur's contributions to
American accountancy. The income from this fund has been
used to conduct research and for the appointment of a
distinguished accountant to serve as the "Dickinson
In 1951 Dickinson was admitted to the Accounting
Hall of Fame at the Ohio State University. The nominating
- 22 -
He brought to his task much more than theoretical
and practical training in accounting, he brought a
broader intellectual background, a rugged integrity,
an eager desire to advance the profession and a
personality that commanded respect and inspired
those with whom he worked.27
Paul-Joseph Esquerra (1872-1934)
Born in Plaisance, Gers, France, on May 16, 1872,
Esquerr6 was a student at the Lyceum of Auch, the Academy
of Toulouse and the University of France. He held a
B. bs L. and earned his CPA certificate in New York (1911).
In 1893 he had come to America to work as a bacteriologist
at the New York Pasteur Institute.28 Previously he had
served with the French Army (2nd Regiment Zouaves) in
On July 10, 1905, he was hired by the firm of
Haskins & Sells, probably in connection with the audits
of insurance companies instigated by the Armstrong
investigation, for he had acquired his accounting skills
working in the insurance field. Before leaving to begin
a teaching career at NYU Esquerr6 was promoted by the firm
and a note on his resignation form indicates that he had
worked satisfactorily and would be reemployed upon
It has been said of Esquerrd that he ". was
primarily a teacher. He said it was his function to make
his students 'think like accountants.'"31 In 1917
Esquerr4 became a member of the City College of New York
- 23 -
where he taught accounting theory and problems.32
Between his positions on the faculties of the New York
schools he had undertaken the development of his own
school, The Esquerr6 Postgraduate School of Accountancy,
which Peloubet recalls as offering ". . the first really
successful . [review] course for the CPA examina-
A 1913 article by Esquerre, "Goodwill, Patents,
Trademarks, Copyrights and Franchises," was selected by
Moonitz and Littleton as one of the significant accounting
essays of the period. They noted that it ". . raises
the relevant issues concerning intangibles in a clear and
forthright manner." 3
Esquerrd's book, Applied Theory of Accounts (1914)
was widely used and later reissued as Accounting (1927).
This work may have been significant for its nonconformity
of view above all else. As the publisher remarked
regarding the later edition:
In this . book [Esquerr6] turns his guns
on the conventional ways of handling a number of
major problems, as statement preparation and
valuation procedure. He shows where in his
estimation, existing practice falls short and advances
sound, refreshingly flexible methods which he feels
accomplish better the objectives in view.35
Of what is known of Paul-Joseph Esquerrd there
seems to be evidence that he was a colorful individual
with a "Napoleonic flair."36 An original thinker, he
- 24 -
provided a continental influence on early accounting
thought in America.
Esquerrd was a member of the American Institute
and the New York Society. Homer Pace, editor of The
American Accountant, commented on Esquerr6's role among
professional groups as follows:
His humor, satire and constructive thinking
have enlivened many a meeting of the New York State
Society of Certified Public Accountants, and his
fame has extended far beyond the environs of this
One of his last works, on the topic of depreciation,
appeared in 1928. He died at the age of 62 on August 15,
1934, and was survived by his wife, Alice Macdona Esquerre.
Henry Rand Hatfield (1886-1945)
Hatfield was born in Chicago on November 27, 1866,
the same year as Cole. He was raised in a religious
environment, the son of the Rev. Robert W. and Elizabeth
(Taft) Hatfield. In 1892, he received a bachelor's degree
from Northwestern and in 1897 he earned his doctorate at
From 1886 to 1890 he was affiliated with the
municipal bond business. He began his teaching career
at Washington University (St. Louis) where he remained
as an instructor in political economy until he
returned to the University of Chicago. At Chicago he
served as an instructor from 1898 to 1902 and as an
- 25 -
assistant professor and Dean of the College of Commerce
and Administration (1902 to 1904).
He moved West in 1904 and from that date until his
death he was associated with the University of California
(Berkeley) rising to the position of Dean of Faculties.38
As an accounting instructor, Hatfield was apparently an
innovator as noted by Allen:
It is interesting to know that as early as 1902
a departure from the regular method of teaching the
elementary course was made by a well-known teacher
of accounting [Professor Hatfield]. In this course
accounts were studied and interpreted from the
point of view of the businessman rather than of the
Hatfield's most memorable work is not necessarily
his most theoretically important. His "An Historical
Defense of Bookkeeping," a fondly regarded effort tracing
the heritage of accountancy, came long after his major
treatise Modern Accounting (1909).4o "Defense" was given
as a speech before the American Association of University
Instructors in Accounting on December 29, 1923.41 It is
oft quoted and was also chosen by Moonitz and Littleton
as a significant essay of the period. In 1927, Modern
Accounting was reissued under the title of Accounting
after substantial updating and revision. The appeal of
this work continues to the present day, with a 1971
reprint offered by the Scholars Book Co. headed by
Professor Sterling of Kansas.
- 26 -
Hatfield apparently spoke and wrote German
fluently and enjoyed travel on the Continent.42 One of
the products of his trips abroad appears to have been his
earliest article length manuscript 'Zwei Pfadfinder' (Two
Pathfinders) published in Germany in 1909 on the subject
of the accounting contributions of Jones and Foster, two
nineteenth century American writers.43
Hatfield was among the college professors who
gathered at the Deshler Hotel in Columbus, Ohio, in
December, 1916, to organize a national association of
college instructors in accounting. He served that
organization as the first Vice President and as President
during the third year.44 Among his other professional
activities Hatfield served as Vice President of the
American Economics Association in 1918, as a Senator of
Phi Beta Kappa, 1923 to 1928, and in 1929 was appointed
the United States representative to the International
Congress on Commercial Education in Amsterdam.
His service to the accounting profession was
highlighted by participation with Thomas Sanders of
Harvard and Underhill Moore of Yale during the 1930s in
the preparation of A Statement of Accounting Principles,
an early attempt to formulate the basic concepts upon
which accountancy functioned in the American business
- 27 -
His interest in accounting history, as evidenced
by "Defense," was a source of inspiration to many including
A. C. Littleton who dedicated his own important research
Accounting Evolution to 1900 to Professor Hatfield in
recognition of the latter's influence.45
Hatfield received many distinctive honors during
his lifetime.46 In 1951 he was elected to the Accounting
Hall of Fame with these remarks:
Professor Hatfield was an inspiring teacher,
gifted author and one whose keen insight and
independent thinking were potent influences in the
early development of accounting theory.47
Hatfield married in 1898 and had two sons, Robert
and John,and one daughter, Elizabeth. His later works
include "Replacement and Book Value," which appeared in
the Accounting Review in 1944. Hatfield died on Christmas
day,1945,a month before his seventy-ninth birthday.
Several years after his passing he was remembered
by Peloubet in these words:
Professor Hatfield is the type of the pioneer
scholar and the formative writer in accountancy.
It is to men like him that we owe the development
of the large and varied accounting literature we
have today and the educational opportunities which
enable us to train men for the ever increasing
difficulties and complexities of the profession.48
Roy Bernard Kester (1882-1965)
Kester, born in Cameron, Missouri, September 11,
1882, is the junior member of the accountants selected to
represent the Preclassical period. He received an A. B.
- 28 -
in 1902 from Missouri Wesleyan College. "Kester also
studied at Colorado College in Colorado Springs in 1906
and at the University of Chicago in 1907."49 He received
a B.C.S. (1911) and an M.A. (1912) at the University of
Denver and received his doctorate at Columbia in 1919.
His dissertation topic was A Study in Valuation of the
Commercial Balance Sheet.
Kester's teaching career began as an instructor
in mathematics at Missouri Wesleyan in 1902. Later he
taught in Denver and East Denver High School and finally
at the University of Denver. From 1915 until his retire-
ment in 1949 he was on the Columbia University faculty,
serving twenty-seven of those years as full Professor of
Kester's practical experience included several
years in Denver as a public accountant, having received his
certificate in Colorado in 1914. After 1917 he was
associated with the firm of Boyce, Hughes and Farrell in
New York and served continually in the capacity of a
consultant, including important assignments with the
Being the youngest of the Preclassicists, many of
Kester's publications overlap into the Classical era-the
years after 1920, but his major work Accounting Theory and
Practice is clearly a product of Preclassical thinking.50
- 29 -
One of Kester's first articles appeared in 1920 in the
Spice Mill a journal of the spice and coffee trade.51
Professor Kester married in 1915 and had a daughter; his
wife died at an early age leaving him a widower before
His wide influence within the early profession can
be appreciated from the list of important assignments he
undertook. For example, as early as 1920 he was appointed
to chair the National Association of Cost Accountants'
special committee investigating the topic of interest
A paper he delivered at the 1920 program of the
American Association of University Instructor's meeting
was noted by Scovill as the forerunner of the important
role Kester would play in the development of that organi-
zation, as Vice President from 1922 to 1924 and as Presi-
dent in 1925.53 Prior to coming East, Kester had served
as President of the Colorado State Board of Certified
Public Accountants and from 1925 to 1928 he was research
director of the National Association of Cost Accountants.
He also served on the committee on accounting procedure
of the American Institute.5" His influence upon accounting
instruction is apparent when considering the number of
editions of his popular texts. Originating in 1917, his
Advanced Accounting was last revised in 1946 and Principles
of Accounting in 1939.
- 30 -
In 1957 he was inducted into the Accounting Hall
of Fame.55 His last noted article "Sources of Accounting
Principles," appeared in the Journal of Accountancy of
1942 and was selected by Moonitz and Littleton as a
significant accounting essay.56
Professor Kester died in 1965.
Robert Heister Montgomery (1872-1953)
Like Hatfield and Sprague, Montgomery was the son
of a minister. Born in Mahanoy City, Pennsylvania,
September 21, 1872, young Montgomery moved often as the
needs of his father's calling demanded.57 He received
his formal education in public schools and night schools.
"On Monday morning, February 4, 1889, sixteen-
year-old Robert H. Montgomery entered the building at
58 Walnut Street, Philadelphia to take up his duties as
an office boy [in the employ of John Heins, public
accountant]. . ."5B Nine years later Montgomery had
risen to the level of partner in the newly formed firm
Lybrand, Ross Brothers and Montgomery. Today that firm
is among the largest in international public accounting
1899 he became a charter member of the
Pennsylvania Institute of Certified Public Accountants,
having received his certificate under the laws of that
state. During the Spanish-American War he volunteered
and served in the Puerto Rican Campaign.59 Again in 1917
- 31 -
he was called upon to serve in the military with the rank
of Lieutenant Colonel. His duties limited him to the home
front as a planner with the War Industries Board even
though he made several attempts to obtain an overseas
Between his periods of military service
Montgomery supplemented his interest in accounting by
undertaking the study of law. In 1900 he was admitted to
the Bar in Pennsylvania. This legal background and his
auditing experience were readily adaptable to meet the
complications which arose when national tax laws were
enacted in 1909 (excise) and 1913 (income). After the
war when the permanent character of the income tax became
apparent Montgomery continued to provide leadership in
The emergence of Montgomery as an authority on
accounting can loosely be placed during the period
1904 to 1914. He first attracted widespread
attention with his presentation of a paper at the
Congress of Accountants in 1904. The next year he
edited and published an American Edition of
Dicksee's Auditing: A Practical Manual for
Also in 1905 he contributed an important article
to the initial issue of the Journal of Accountancy on the
topic of professional ethics.62
When the Pennsylvania Institute began evening
classes for accountants in September, 1902, Montgomery
taught the accounting theory portion of the course.63
- 32 -
This was the start of a teaching career which saw him
lecture at the University of Pennsylvania and New York
University during the years 1904 to 1906. Montgomery
Evening courses in accounting were established
at Columbia University in 1910. I assumed the task
of teaching the first class and of obtaining
instructors to take over all additional classes.
In due course as the number of classes increased
I was made full Professor of Accounting in 1919. . .6
From as early as 1899 Montgomery worked to promote
the professional organizations of American accountancy.
He was the President of the American Association of Public
Accountants (now the American Institute) from 1912 to 1914;
of the New York Society of Certified Public Accountants,
1922 to 1924; and of the American Institute from 1935 to
1937.65 His interests, as did Hatfield's, transcended
the American profession. In 1926 Montgomery headed the
New York delegation to the International Accounting Congress
in Holland. In 1929 he served as President of the Third
International Congress in New York City.
Montgomery was a dedicated collector of early
accounting texts and books of account. In 1926 he donated
his collection to the Columbia University library. It is
a group of works which represent several centuries of
accounting thought and serves as an important research
source.66 Montgomery's distinguished service to his
country and the profession was recognized in 1949 with the
- 33 -
award of the American Institute's Gold Medal.67 In 1951,
along with Paton and May,he was one of the charter
inductees to the Accounting Hall of Fame. The Hall of
Fame citation read: "As one who was steadfast in the
demand for high ethical standards and as a teacher and
author, Colonel Montgomery was one of the Founders of the
profession of accounting in the U. S."68
Montgomery died May 2, 1953, in his Miami home
at the age of eighty,being survived by his wife.
Charles Ezra Sprague (1842-1912)
Charles E. Sprague, senior member of the
Preclassical group, served a variety of professions during
his lifetime. Born October 9, 1842, in Nassau, New York,
he was the son of the Rev. Ezra Sprague and his second
"In the fall of 1856 [Sprague] enrolled at Union
College, Schenectady, as a freshman; the youngest student
[age 14] to be admitted to the freshman class up to that
time."69 He was a brilliant pupil winning all the prizes
for which he was eligible and was elected to Phi Beta Kappa
at graduation in 1860. In 1862 he received a Master of
Arts degree from the same school. In 1893 he was awarded
an honorary Ph.D. also from Union.70
Having taught at Greenwich Union Academy after
graduation, he enlisted in the Union Army in May, 1862, at
- 34 -
the start of the War of the Rebellion. His letters to
his mother which are included in the biography by Mann,
provide a valuable insight of young Sprague as he witnessed
the bloodshed of that period.
"I was not so lucky this time" read a short note
by Sprague. Rebel fire had torn a hole in his left
shoulder at Little Round Top. . .
The title "Colonel" by which he was known for
so many years came to him for his "gallant and
meritorious service at the Battle of Gettysburg .
On December 30, 1868, he was made a brevet colonel
in the New York Volunteers in recognition of his
courage and sacrifice.71
Upon discharge from active service in 1864 and
until 1870 he taught at various military academies in New
York State and authored a number of articles on military
tactics. Later he was asked to assist the commandant of
the U. S. Military Academy (West Point) in revising the
book of tactics used there. In 1866 he married Ray
Ellison of New York City; they had four daughters; two
died before reaching their twenty-first birthdays.
His career as a banker began in 1870. Partially
because of his skill as an interpreter his application for
a clerk's position at the Union Dime Savings Bank in New
York City was accepted. He rose through several positions
to become President of that institution in 1892.
As early as 1880 he was involved in the
publication of financial news. In August of that year he
- 35 -
assumed the editorship, along with Seldon Hopkins, of
the Book Keeper,a fortnightly business publication.72
Between 1880 and 1900, Sprague's influence on
American accountancy, then in its formative stages, became
pronounced. His efforts to provide a continuing number
of stimulating articles on the problematic aspects of
practice were but one example of his role.73 In 1895 when
public accountants in New York were soliciting passage of
the very first CPA law:
Col. Sprague took the draft of the bill to
Albany, and there saw his friend Mr. Melvil Dewey,
the . Secretary of the Regents of the University
of New York, whose counsel was eagerly sought and
In an analysis of the evolution of the CPA
Movement Wilkinson adds:
I wish to emphasize that the program . .
which . was later embodied into law was
initiated by three men whom we should revere. .
Major Henry Harney . .; Colonel Charles
Sprague .. .; Honorable Melvil Dewey. . 75
Upon passage of the law Sprague served on the
first Board of CPA Examiners which was appointed by the
Regents of New York. As a CPA (certificate #11) Sprague
was active in the affairs of professional groups. He was
President of the Institute of Accounts (now defunct) and
it is believed he did much to promote the publication of
Accountics, a pioneering professional accounting magazine
first issued in April, 1897.76
- 36 -
When the New York University School of Commerce,
Accounts and Finance commenced operation in 1900, Sprague
was appointed to the faculty to teach the theory of
accounts, and he established a wide reputation as an
accounting teacher and author during the first decades of
this century.77 "In 1902 Professor Sprague . offered
a course entitled 'Philosophy of Accounts.' In this,
accountancy was considered from the standpoint of science.
Illustrations were fully used but emphasis was upon the
philosophy of the subject as a phase of economic theory."'8
As an author he wrote two accounting classics, The
Accountancy of Investment (1904)79 and The Philosophy of
In addition to his multiple vocations as a
soldier, banker, teacher and accountant Sprague was also
a linguist. He is reported to have spoken sixteen
languages"1 and, as an avocation, was an American authority
on Volapik (world's speech) and Esperanto, two of the so-
called universal languages.82 Volapuk was devised in the
1870s by the German priest Johann Martin Schleyer and
adopted by Sprague in some parts of his own vocabulary.
The simplified prose noted in his writing is the by-product
of this influence. In 1902 he prepared a Handbook on
Volapuk in an attempt to draw serious attention to the
commercial applications to which the language could be
- 37 -
Sprague's death on March 21, 1912, came after a
short illness from pneumonia.84 He was admitted to the
Accounting Hall of Fame in 1953.
John Raymond Wildman (1878-1938)
A direct descendant of William Brewster of
Mayflower fame, John R. Wildman was born in Yonkers,
March 15, 1878.s5 He entered Yale University, but when
the Spanish-American War came he elected to enter govern-
ment service, being assigned as a hospital steward in the
Puerto Rican Regiment. Later he entered the employ of
the Department of Education of Puerto Rico on August 15,
1900, as a bookkeeper and became disbursing officer and
Chief of the Division of Disbursements and Accounts. As
such he was charged with the supervision of the accounting
for forty-six school boards and the devising and installing
of a system of accounts for them.
Upon returning to New York in 1905 he applied to
Haskins & Sells for employment. There was no immediate
opening, but in July, 1905, the requirements of the
Equitable Life Assurance Society engagement led to his
employment on July 24, 1905, as an assistant accountant
at $25.00 a week.
Wildman enrolled in accounting courses at New York
University in 1906, taking the work at night. He graduated
in June, 1909, the recipient of the accounting prize, with
a B.C.S. (cum laude) and was offered an appointment as
- 38 -
instructor in accounting which he accepted effective
August 30th. Earlier that same year he had taken and
passed the CPA examinations. In 1911 Wildman received
the degree of Master of Commercial Science also from NYU.
Wildman is the personification of the attributes
cited in Chapter I as hallmarks of the Preclassicist. He
was a professionalism, a respected practicing accountant
and an inspiring and popular teacher. His classroom
manner is described by Peloubet:
In the college year 1912-1913 I took a course
in cost accounting under John Raymond Wildman . .
Professor Wildman was a man of great dignity and
impressive presence, but was at the same time a
well-liked and popular teacher with the under-
graduates . .
One of Professor Wildman's characteristics or
gifts was the ability to write on complex subjects
with great clarity.8
"His influence extended beyond New York University
through his books and his many articles on accounting."67
Wildman's major works include Principles of Accounting
(1913), Cost Accounting (1913), and Principles of
Auditing (1916).88 Several early issues of the Journal
of Accountancy contain the series "Department of Practical
Accounting," a problem oriented sequence of discussions
prepared by Wildman to provide instruction in problem
solving and ". . to show the application of accounting
He continually made addresses to businessmen,
bankers and lawyers with the intention of encouraging a
- 39 -
stronger interest in formal commercial education,
particularly as it related to accounting.
Professor Wildman was one of the founders of the
American Accounting Association. The Association's
formative meeting was held in Columbus, Ohio, in 1916 with
about seventeen in attendance, including Professor Hatfield.
Wildman was elected the first President.9s
Mr. Wildman rejoined Haskins & Sells on
January 16, 1918, charged with organizing ". . the H & S
research and training unit.""9 On December 1, 1918, he
was admitted to partnership; however, he continued to be
Professor of Accounting at NYU until 1923. One of his
innovations upon returning to the firm was to sponsor the
publication of an intra-firm magazine, The Haskins & Sells
Bulletin, which was first issued in March, 1918. Printed
monthly and usually containing eight pages, it was a
compendium of firm policy statements, theoretical vignettes,
practical audit advice and personnel news. As one of the
first such publications it was a credit to Wildman's fore-
sight and evidenced his respect for the power of the
printed word as a means of strengthening the internal
operation of a growing professional organization.
Wildman pioneered technical research and
innovation in practice. As early as 1926 he outlined a
research program designed to eliminate the arbitrary
approaches which appeared as the result of purely pragmatic
- 40 -
applications in accounting practice.2 Earlier, in 1924,
he had served as chairman of the New York Society's special
technical committee which was considering the feasibility
of various forecasting duties which had been proposed for
Wildman was a prolific but careful writer. His
later works in particular evidence the product of an
orderly and mature approach to accounting. He abhored
publication for publication's sake, commenting to his
colleagues that ". . there was a great deal of trash on
the market . ." because of the lack of critical thinking
before writing for print.3
Wildman's personality has been variously described.
For example, Dean Madden of NYU recounts: "Mr. Wildman
was always a hard worker, dominant yet quietly so,
aggressive but never unpleasantly, tense but not appearing
so, with a doggedness that survived all discouragements
that beset his path toward the objective he was seeking to
attain."'9 Dr. Joseph J. Klein, a contemporary of Wildman,
made reference to what must have been Wildman's attention
to detail, suggesting that Wildman was always proper and
somewhat of a "stuffed shirt."95 To the contrary,
Howard C. Greer pointed out, ". . he had red hair and a
flamboyant demeanor-[he] once said in a meeting that a news-
paper headline reading WILD MAN AT LARGE must have
referred to him."96
- 41 -
Whether "flamboyant" or a "stuffed shirt" Wildman
left his mark on his co-workers, fellow practitioners and
students. Two of the young men he was directly responsible
for recruiting to work for Haskins & Sells, Arthur B. Foye
and John W. Queenan, later became succeeding managing
partners of that large international accounting firm.
Wildman was very closely associated with the
undertaking of The Statement of Accounting Principles.
Foye notes that when the ". . Haskins & Sells Foundation
projected the 'Statement of Accounting Principles' in
July, 1935, Mr. Wildman through his knowledge of and
acquaintance with distinguished educators . arranged
for Professor Thomas H. Sanders . and Professor Henry
Rand Hatfield . to be two of the three independent
Regarding Wildman's role in the project, Sanders
The work which the Foundation has entrusted
to the committee has required frequent and intimate
association between Mr. Wildman and myself.
Although I have for years known and admired his
ability and character . I have been constantly
surprised by his penetration, understanding and
unfailing sound judgement.98
The death of his wife of thirty years, Louise M.
Wildman on October 18, 1932, was a severe emotional shock
and caused him to submit to an extended period of rest.
Later he remarried but further illness led Wildman to
request that his retirement be commenced June 1, 1936, at
- 42 -
the age of fifty-eight. He died of a heart attack on
September 21, 1938, in Upper Montclair, New Jersey.99
Identifying a School of Thought
In the early twentieth century significant
achievements in the development of financial accounting
thought occurred in America. Tempered by British theory,
American accountancy developed through professional action,
legislation and formal education during the first two
decades of this century, establishing a base of experience
and theory from which later developments would flow.
The historical identification and explication of
a body of knowledge, such as accounting thought from 1900
to 1920,could be nicely refined by the application of a
suitable frame of reference. Or, alternatively expressed:
How can a body of theoretical material be compactly and
In economics a common method is to designate
related theories as evidencing a School of Thought, such
as that of the Mercantilists, Physiocrats, Austrians and
Monetarists. But accounting thought has scarcely ever
been considered in this fashion. Lack of a suitable
precedent requires reviewing the notion of a School of
Thought and identifying those properties which can be used
to structure it in a program of research.'00
- 43 -
For example, one way of identifying a School of
Thought in accounting would be to establish schools
parallel to those which have accepted meaning in economics.
This method would provide some preexisting analysis as a
guide, assuming a type of historical parallelism between
economics and accounting.
Another approach would be to group scholars whose
ideas (as revealed in previous research) can be identified
as exhibiting a consistent theme. Studies by Littleton
and Zimmerman,101 Heakal,'02 Skadden,103 Donley,'04
Hansen105 and others can be described as attempts to
furnish parts of a unified and coherent articulation of
the beliefs that have attended the evolutionary develop-
ment of various topical substrata in the body of accounting
Criteria for a school could also be derived in
isolation--with the period under study being set out
totally apart from its relationship with other periods.
Based on the existing knowledge of the Preclassical
writers and the forthcoming analysis of their contributions
such a singular composition could be proposed and justified
on the basis of analytical expediency.
A Derivative Notion for a School
Each of the three approaches cited as possible
means of identifying a School of Thought in accounting
- 44 -
have their advantages and failings. The potential
failings are of interest at this point and are thought
to be the following:
Economic similarity.--This method rests on the
attributes of analogy between the manner in which
accounting thought and economic thought relate. Though
there is much discussion on this point it is presumed that
accounting theory and economic theory seek to serve
sufficiently different ends so that it is not expected
that they would be so strongly parallel to justify
constructing a notion for accounting Schools of Thought
based solely on those extant in economics.107
The Littleton-Zimmerman premise.--With stress
upon a "unified and coherent articulation" this approach
might be interpreted as precluding from a school any
notion which is even slightly at variance with peer
precepts. For while the notion of a school should evidence
agreement on what are identified as the main issues, it
should not require blanket conformity as an admission fac-
tor. The stringency suggested by this format seems to
dampen its attractiveness as a singular school concept.
The isolative notion.--This notion seems to
contradict an important attribute of what Professor
Deinzer and others would hold out as a valid portion of
the historical premise, namely recognition of antecedents
and consequences. As Deinzer asserts:
- 45 -
The historical premise is that events are
interactions; the latter have both antecedents and
Recognition of this suggestion requires denoting the
influence of events before the period and the effects of
the events of the period on subsequent activities (given
that events represent ideas as well as other phenomenon).
If this is to be the situation a School of Thought cannot
be established in the isolation of its own environment,
for such would fail to regard the broader issues of
theoretical heritage and legacy.
It would seem proper now, recognizing the
limitations of each method, to propose a derivative con-
cept of a School of Thought. Such a notion should attempt
to preserve the strengths and minimize the weaknesses of
the other notions already examined.
A derivative notion.--As a point of departure,
portions of a definition used in research at the Univer-
sity of Illinois have been selected:
A school of thought is an observed pattern 
of evolution which arose as the result of
criticism  advanced to previous patterns  of
thought regarding their . adequacy  in the
face of changing conditions . 9 (Emphasis and
At least five reference points are discernible in
 Reference to result as in observed pattern.
 Reference to ideation as in criticism.11'
- 46 -
 Reference to antecedents as in previous patterns.
 Reference to relativity as in adequacy.
 Reference to environment as in changing condi-
All of these points seem to properly relate to the
process of thought and suggest elaboration.
While it is not evident that a pattern  is an
absolute, it does appear that agreement on basic issues
as set out, is an element of a pattern. For example,
comparable positions on such a general concept as
historical cost valuation would constitute a pattern in
the sense understood.112 Such a view would not require
agreement in regard to less general issues within a body
Reference points  and  relate to the
transformative character of knowledge. For example a
consideration of Brief's research reveals precedents of
the historical cost concept well before the period under
study.113 This would indicate that the Preclassical
writers did not originate such a notion but accepted and
transformed it in a fashion peculiar to their needs.
Points  and  recognize that the acceptability
of such a transformation is a relative matter within a
given environment. Further, a stable environment would
be expected to evoke activity which would be more tradi-
tional than innovative and a changing environment would be
expected to stimulate altering propositions for action.
- 47 -
The deficiency in the points listed thus far
would appear to be partly terminological and partly
omissive-namely, lack of reference to transformation (in
lieu of evolution) and lack of reference to consequences
as noted in the Deinzer premise. To resolve these matters
the Illinois proposition is modified and a provisional
derivative notion of a School of Thought is now proposed
as discernible in the following definitional form.
A School of Thought is an observed pattern of
conceptual transformation which:
1. Arises in response to criticism of extant
paradigms with regard to their warrantability
in the face of changing conditions.114
2. Furnishes viable modifications to and/or
unique formulations of paradigms required
by changing conditions.
3. Provides a significant influence on the
development of subsequent paradigms.
This notion, with the amendments cited, adds a sixth
reference point, namely:
 Reference to consequences as in subsequent
It is not supposed that this derivative notion is
free from defects with respect to historical methodology
or historiography, for this reason it was introduced as
"provisional."'15 However, it is deemed that the criteria
which it infers provide a sufficient basis for developing
a later judgement with regard to the existence of a
- 48 -
School of Thought among writers of the Preclassical era.
This evaluation will be made in the concluding chapter.
The first part of this chapter introduced synoptic
personal data about the eight writers selected to repre-
sent the period of financial accounting development from
1900 to 1920. This information was provided as colligatory
evidence-setting out the backcloth for forthcoming
The latter portion of the chapter set forth a
provisional notion of a School of Thought. The criteria
discernible from this concept will be used in evaluating
the importance of the theoretical contributions of Pre-
classicism as a part of the concluding chapter.
1. Notes to the chapter will contain supplemental
accounts about some of the personal views and inter-
relationships between the writers. These observations
are not offered as evidence of a theoretical dependence
but are considered useful in providing a more complete
background of the group as needed for historical
2. John J. Kahle, American Accountants and their
Contribution to Accounting Thought, Master's thesis,
Catholic University of America, 1956, p. 17.
3. W. M. Cole, "Cooperative Insurance and Endowment
Schemes," Quarterly Journal of Economics, v. 5,
1890-1, pp. 466-89.
4. Mark C. Walker, "William Morse Cole," Massachusetts
CPA Review, January, 1961, pp. 178-9.
5. W. M. Cole, "Our Outdated Accounting," Harvard
Business Review, July, 1933, pp. 478-89.
6. The American Hope, New York: D. Appleton
& Co., 1910.
7. Walker, loc. cit.
8. Montgomery considered the merits of the Revised
Edition of Cole's Accounts, in the American Economic
Review, September, 1915. He prefaced his review with
the remark that he considered Cole to be an ". .. un-
questioned authority on accounts."
9. E. M. Forster, Goldsworthy Lowes Dickinson, London:
Edward Arnold Publishers Ltd., 1934, p. 44.
10. Paul Grady, editor, Memoirs and Accounting Thought
of George 0. May, New York: The Ronald Press
Company, 1962, p. 35.
11. Mary Murphy, "An Accountant in the 'Eighties-I,'"
Accountant, July 26, 1947, p. 53.
- 49 -
- 50 -
12. A. L. Dickinson, "Life Assurance Accounts,"
Accountant, August 6, 1887, p. 464.
13. C. W. DeMond, Price, Waterhouse & Co. in America,
New York: Price, Waterhouse & Co., 1951, p. 50.
14. N. E. Webster, The American Association of Public
Accountants: Its First Twenty Years 1886-1906, New
York: American Institute of Accountants, 1954,
15. Mary Murphy, "Arthur Lowes Dickinson: Pioneer in
American Professional Accountancy," Bulletin of the
Business Historical Society (Business History Review),
April, 1947, p. 28.
16. In 1910 Dickinson and Cole exchanged views during
the annual meeting of the American Economic Associa-
tion in St. Louis. The subject of their papers
considered the role of accounting in the determination
of costs and prices. One of the issues involved was
the treatment of interest as a cost. That topic
became widely discussed and later sparked an important
17. Official Record of the Proceedings of the Congress of
Accountants at St. Louis, New York: Federation of
Societies of Public Accountants, 1904, p. 175; see
Chapter 6 for the significant remarks of this
Montgomery and Dickinson became well acquainted
as a result of the Congress in St. Louis. Both gave
important papers at the meeting. A rare photo of
some of the delegates appears in volume 1 of Carey's
The Rise of the Accounting Profession, p. 208. In
that picture Dickinson and Montgomery appear seated
next to one another in the front row.
18. Proceedings of the Annual Institute on Accounting,
1950, The Ohio State University, pp. 86-7.
19. In a series of nine articles published in the
Accountant during July and August, 1947, Mary
Murphy traces the life of Dickinson upon his return
20. Fred May, "Sir Arthur Lowes Dickinson," Accountant,
May 5, 1925, p. 707.
- 51 -
21. Hatfield reviewed Accounting Practice and Procedure
in the December, 1914 Journal of Accountancy. It is
a thorough analysis of Dickinson's book and points
up some apparent disagreements between author and
22. Dickinson's retirement was commented upon in several
sources, to include: Accountant, July 21, 1923,
p. 85; Canadian Chartered Accountant, September,
1923, p. 128; Journal of Accountancy, September,
1923, p. 202; London Times, July 13, 1923, p. 18,
23. The results of this study were reported in Report on
the System of Accounting, Audit and Statistics of
the Railways owned and managed by the Government of
India, 1926-7, 3v.
24. Notices of Dickinson's death appeared in the New
York Times, March 2, 1935; Accountant, March 9,
1935; Canadian Chartered Accountant, v. 26, 1935,
25. M. E. Peloubet, "The Imprint of Personalities on the
Accounting Profession," New Jersey Society of CPA's,
Fifty Years of Service, 1898-1948, p. 18.
26. T. H. Sanders, Dickinson Lectures in Accounting,
Cambridge: Harvard University Press, 1943, p. vii.
27. Proceedings of the Annual Institute on Accounting,
1950, The Ohio State University, pp. 86-7.
28. "P. J. Esquerre Dead After Brief Illness," New York
Times, August 17, 1934, p. 15, col. 5.
29. Rita Perine, editor, The Accountants' Directory and
Who's Who--1920, New York: The Forty-Fifth St.
Press, 1920, p. 385.
30. As the result of an interview with Mr. John W.
Queenan, retired senior partner of Haskins & Sells,
on May 23, 1972, I received a copy of the firm's
personnel report citing Esquerr6's history with the
firm as an employee and Esquerr6's reason for
Both Wildman and Esquerre obtained their public
accounting experience on the staff of the New York
office of Haskins & Sells. They joined the firm in
the same month, July, 1905. When Wildman departed
- 52 -
Haskins & Sells in 1909 he joined the teaching staff
at New York University. In 1912 when Esquerrd
resigned from the firm the records note: "Became
attached to teaching staff of New York University
School of Commerce, Accounts and Finance." There
seems to be evidence to indicate that Esquerrd had
been teaching at NYU for several years before 1912
(see "Announcements" Journal of Accountancy, March,
1912, p. 235) and opened his own office at 32 Broadway
in the spring of that year. The discrepancy between
the reports is unexplained and has not been further
investigated. If Esquerre was a faculty member at
NYU before 1912, however, as suggested in the
"Announcements" it increases the probability that he
was acquainted with Sprague who taught at NYU until
his death in 1912. At that time Wildman was an
assistant professor and involved in administering
the department of accounting at New York University.
In correspondence dated July 10, 1972, Professor
Emeritus Gould Harris of NYU recalls the account of
an exchange involving Esquerr4 and Wildman apparently
when both were teaching there. "He [Esquerr6] hurled
a text of John R. Wildman's viz., Principles of
Accounting, across the room with a devastating
comment. The comment was to the effect that he
[Esquerrd] did not agree with Wildman's statement
that Capital is an accountability. Esquerrd said,
'It is a liability.'" The significance of this
remark is considered in Chapter VI.
31. Maurice E. Peloubet, letter of correspondence to
Gary J. Previts, May 16, 1972.
32. Committee on History, "The City College of New York:
A History of Beginnings," New York Certified Public
Accountant, November, 1956, p. 666.
33. Peloubet, letter of May 16, 1972.
34. M. Moonitz and A. C. Littleton, Significant Accounting
Essays, Englewood Cliffs: Prentice-Hall, Inc., 1965,
35. "Advertisement," The American Accountant, June, 1927,
36. In the preface to his Applied Theory of Accounts,
Esquerre said, "It is the purpose of this book to
instruct the student in the principles of accounting,
as the practice drills with tin soldiers instructed
- 53 -
Napoleon the First in the principles of war." (p. iv)
This statement followed a brief reference to the value
of theory in preparation for actual involvement in the
real world of business of war.
Some of Esquerrd's personal traits were added to
recollections about him. Mr. Queenan, in the inter-
view cited above with Dr. Joseph J. Klein, an early
faculty member of the City College of New York,
offered their rememberances. Apparently Esquerrd's
"forgetfulness" was a characteristic as well known
among fellow staff men as was his expectoratory
speech among his faculty colleagues.
37. Homer S. Pace, "Introductory Comments," The American
Accountant, July, 1928, p. 19.
38. Kahle, op. cit., pp. 50-1.
39. C. E. Allen, "The Growth of Accounting Instruction
Since 1900," Accounting Review, June, 1927, p 154.
40. Modern Accounting received a searching review from
Cole in the Journal of Political Economy, 1909. "On
the whole," commented Cole, "the book is to be
heartily commended for the sanity of the author's
individual judgements, for its gathering of infor-
mation about the practice or lack of uniformity in
practice, of modern accounts, and for its encyclopaedic
41. H. R. Hatfield, "An Historical Defense of Bookkeeping,"
Moonitz and Littleton, op. cit., p. 3.
42. Stephen A. Zeff, "Introductory Comments," Journal of
Accounting Research, Autumn, 1966, p. 169.
43. H. R. Hatfield, 'Zwei Pfadfinder,' Zeitschrift fur
Buchhaltung (Linz), no. 4, 1909, pp. 80-6. For a
discussion of Jones and Foster, see Chapter V.
44. Professor Zeff has documented Hatfield's role in
promoting the development of the American Accounting
Association in The American Accounting Association:
Its First 50 Years. He has also prepared, but not
published, a brief chronology of Hatfield's life
which was provided for my use in this research.
45. A. C. Littleton, op. cit., dedication page.
- 54 -
46. "Award of Merit for Hatfield Books Should Stimulate
Authors," The American Accountant, January, 1929,
pp. 28-30. "Remarks accompanying presentation . ."
by John F. Forbes, American Institute library, New
47. Proceedings of the Annual Institute on Accounting,
1951, The Ohio State University, pp. 34-5.
48. Peloubet, "Personalities," op. cit., pp. 18-20.
49. Kahle, op. cit., p. 61.
50. Kester's "modern" approach to accounting instruction,
which was based upon acquainting the students with
the form and use of statements before introducing
them to fictitious transactions was noted with a
hint of disapproval by W. H. Lawton in his review
of Kester's book in the Journal of Accountancy,
December, 1917, p. 489.
51. R. B. Kester, "Standardized Costs," Simmons Spice
Mill, December, 1920, pp. 1982-96.
52. "Report of the Special Committee," 1921 Yearbook of
the National Association of Cost Accountants, pp. 45-7.
53. H. T. Scovill, "Reflections of Twenty-Five Years in
the American Accounting Association," Accounting
Review, June, 1941, p. 170.
54. Moonitz and Littleton, op. cit., p. 51.
55. Proceedings of the Annual Institute on Accounting,
1956, The Ohio State University, p. 81.
56. Moonitz and Littleton, op. cit., p. 151.
57. A. R. Roberts, Robert H. Montgomery: A Pioneer
Leader of American Accounting, Ph.D. dissertation,
University of Alabama, 1971.
58. Ibid., p. 21.
59. R. H. Montgomery, Fifty Years to Accountancy, New
York: Privately printed by The Ronald Press Company,
1939, p. 179.
60. Ibid., p. 184.
- 55 -
61. Roberts, op. cit., p. 230. Montgomery's editorship
of an American version of Dicksee's Auditing was made
possible by Dickinson's intervention. Montgomery
commented in his published memoirs that if it had
not been for Dickinson's advice and guarantee to
Mr. Dicksee the book probably would not have been
Littleton (Accounting Review, July, 1952, p. 405)
felt that Montgomery's contribution in editing Dicksee
was minimal saying that he had "made a page by page
comparison" between the British text and the American,
and that it was clear that the British text had been
faithfully redone but for changes in money figures
(pounds to dollars) and elimination of British case
law and statutory rules.
When Montgomery brought out his Auditing Theory
and Practice in 1912 the preface noted: "I am .
indebted to John R. Wildman, CPA of the New York
University who . read my manuscript and from
whom I received many suggestions which I am sure
will make this book more helpful to students."
Hatfield reviewed the book in the Journal of Politi-
cal Economy in 1913. "The primacy among treatises
on auditing," he said, "which until the present has
been held by Dicksee's work, now passes to Montgomery's
Auditing Theory and Practice.
Montgomery's influence in tax accounting as well
as in auditing and financial accounting is well known.
Incorporated in the 1916 edition of his auditing
theory book was a 100-page appendix on income tax
procedure. Later Montgomery prepared a separate
volume entitled Federal Income Tax Procedure.
Cole praised the second edition of Auditing in the
American Economic Review of March, 1917. "Montgomery's
Auditing is standard," said Cole, "and it is so
largely because it puts emphasis where emphasis
belongs--on intelligence and judgement. . "
62. Moonitz and Littleton, op. cit., p. 519.
63. T. Edward Ross, "Random Recollections of an Eventful
Half Century," L. R. B. & M. Journal, January, 1937,
64. Montgomery added in his memoirs, Fifty Years, p. 53:
"At a time when I needed a good assistant I was
fortunate in being able to induce Roy B. Kester to
come on from Denver. Professor Kester proved to be
a good administrator, a good teacher and a good
- 56 -
In Van Metre's history of the Columbia business
school it was noted that: "Kester was . .
Montgomery's right-hand man . he managed to
encompass the theory and principles of accounting,
which he and Montgomery developed, in two thick
volumes which had become the most widely used
accounting textbooks in American business schools."
65. Appendix II of Roberts' work contains a list of
positions held by Montgomery in various accounting
66. Peragallo's Origin and Evolution of Double-Entry
Bookkeeping made extensive use of the collection.
67. X. Bender Tansill, "Lest We Forget-Lest We Forget,"
a personal unpublished research project on early
accountants, 15p, American Institute library, New
68. The Accounting Hall of Fame, pamphlet published by
the Dept. of Accounting, College of Administrative
Science, The Ohio State University, 1968.
69. Helen Scott Mann, Charles Ezra Sprague, New York:
New York University, 1931, p. 3. This is a bio-
graphical work and does not attempt to analyze
Sprague's theoretical contributions.
70. Ibid., p. 9.
71. Ibid., pp. 32-2.
72. The Book Keeper, August 31, 1880, p. 56.
73. In the two decades before the turn of the century
Sprague authored no less than a dozen articles
relating to finance, banking and accounting.
74. George Wilkinson, The CPA Movement, New York:
Wilkinson, Reckitt, Williams & Co., 1903, p. 3.
75. George Wilkinson, "The Genesis of the CPA Movement,"
The Certified Public Accountant, September, 1928,
76. Zeff notes that the term "accountics" has been
traced to a lecture given by Sprague in 1887. The
American Accounting Association: Its First 50 Years,
- 57 -
77. Committee on History, "The School of Commerce, Accounts,
andFinance of New York University," New York Certified
Public Accountant, April, 1953, p. 262.
78. C. E. Allen, loc. cit.
79. Proceedings of the Annual Institute on Accounting,
1952, The Ohio State University, p. 64.
80. One of Hatfield's first book reviews appeared in the
Journal of Accountancy in November, 1908. The subject
was Sprague's work The Philosophy of Accounts. Such
was his regard for the book that Hatfield described
his review as ". . the pleasant, though superfluous
task of paying tribute to the masterly . trea-
tise, with which no other American work can properly
even be compared. .." In 1923, Hatfield commented,
in the preface to the fifth reissue of Philosophy
that works on accounting which have appeared since
Sprague's ". . show clearly the influence of
81. Kahle, op. cit., p. 124.
82. Mann, op. cit., p. 42.
83. C. E. Sprague, Handbook of Volapuk, Grammer, Exercises
and Vocabulary, New York: Steiger, 1902.
84. Mann, op. cit., p. 66.
85. A. B. Foye, "John Raymond Wildman," Unpub. personal
research, February 16, 1970. Since early 1970 the
writer has had correspondence with Mr. Arthur B.
Foye, retired senior partner of the accounting firm,
Haskins & Sells, with regard to John R. Wildman.
Mr. Foye supplied a multipage biography which was
used, in part, in the writing of the firm's history.
Reference to the Foye Biography will be dated
February 16, 1970, when the initial material was
86. Maurice E. Peloubet, letter of correspondence to
Gary J. Previts, dated June 22, 1970, pp. 1-2.
87. Principles of Auditing was the object of Cole's
consideration in a 1916 critique appearing in the
American Economic Review. Cole concluded, "No
discussion of auditing is complete without the sort
of things that this book gives, and many of the
things are not available . anywhere else in
- 58 -
88. Foye, op. cit., p. 3.
89. John R. Wildman, "Department of Practical Accounting,"
Journal of Accountancy, January, 1912, p. 58.
90. Haskins & Sells Our First Seventy-Five Years, New
York: Haskins & Sells, 1970, p. 44.
91. Ibid., p. 43.
92. John R. Wildman, "Research in Accounting," Bulletin
of the American Institute of Accountants, February 15,
1926, pp. 2-5.
93. J. R. Wildman, "A Research Program," Accounting
Review, March, 1926, p. 49.
94. John T. Madden, letter of correspondence to Haskins
& Sells, dated September 21, 1938.
95. Interview with Dr. Joseph J. Klein, May 26, 1972,
New York City.
96. Howard C. Greer, letter of correspondence to Gary J.
Previts, postmarked April 21, 1970.
97. Foye, op. cit., p. 10. Wildman's passing prompted
these remarks from John T. Madden, Dean of the School
of Commerce at NYU and an accountant:
His death on the eve of the meeting of the
American Institute of Accountants, which is to
devote a considerable amount of time to 'The
Statement of Accounting Principles,' will
doubtless overshadow that session.
98. Foye, op. cit., p. 11.
99. "John R. Wildman," The Certified Public Accountant,
October, 1938, p. 14.
100. H. D. Marshall and Natalie J. Marshall, The History
of Economic Thought, New York: Pitman Publishing
Corp., 1968. School of Thought is used loosely by
Peragallo in his magnum opus (see Chapter V, note 1)
and by Hatfield in his review of The Philosophy of
101. A. C. Littleton and V. K. Zimmerman, Accounting Theory:
Continuity and Change, Englewood Cliffs: Prentice-
Hall, Inc., 1962.
- 59 -
102. Mohamed Sabry Mohamed El-Tayib Heakal, A Classification
of the Schools of Accounting Thought, Ph.D. disserta-
tion, University of Illinois, 1968.
103. D. H. Skadden, Accounting Theory and Practice
Concerning the Use of Net Worth Reserves, 1900-1950,
Ph.D. dissertation, University of Illinois, 1955.
104. H. E. Donley, The Evolution of Corporate Surplus
Theory, Ph.D. dissertation, University of Missouri,
105. R. E. Hansen, An Historical Development of Accounting
for Joint Ventures, Ph.D. dissertation, Indiana
106. Littleton and Zimmerman, op. cit., p. v.
107. R. J. Chambers, Accounting Evaluation and Economic
Behavior, Englewood Cliffs: Prentice-Hall, Inc.,
1966, pp. 13-4; K. Shwayder, "Economic Income as an
Accounting Concept," Abacus, August, 1967, pp. 23-35.
108. H. T. Deinzer, Development of Accounting Thought,
New York: Holt, Reinhart, Winston, 1965, p. 10;
S. Ratner, "Dewey's Contribution to Historical
Theory," in John Dewey, Philosopher of Science and
Freedom, New York: Dial Press, 1950, pp. 134-52.
109. Heakal, op. cit., p. 65.
110. Ludwig von Mises, Theory and History, Binghamton,
New York: Vail-Ballou Press, 1957, p. 159.
111. von Mises, loc. cit.
112. Stephen Addam Zeff, A Critical Examination of the
Orientation Postulate in Accounting, with Particular
Attention to Its Historical Development, Ph.D.
dissertation, University of Michigan, 1962.
113. Richard Paul Brief, Nineteenth Century Capital
Accounting and Business Investment, Ph.D. disser-
tation, Columbia University, 1964. The specific
meaning of transformation appears in Chapter VII,
note 1 below.
114. T. S. Kuhn, The Structure of Scientific Revolutions,
Chicago: The University of Chicago Press, 1962.
Paradigm is used in the sense of being a "dominant
115. Friedrich Gundolf, "Historiography," Philosophy and
History, R. Klibansky and H. J. Paton, editors, New
York: Harper & Row, 1963, pp. 277-82.
THE CONDITIONING ENVIRONMENT
The industrial revolution in America which
began prior to the War of the Rebellion completed another
phase before the end of the nineteenth century-a period
of business growth characterized by horizontal inte-
gration and the formation of the first large corporations.'
"Finance capitalism," the next step in American economic
development had its birth about the start of the twen-
tieth century, and was evidenced by a wave of vertical
mergers.2 This pattern of merger activity, after a
tremendous spurt at the turn of the century, continued
steady over a span of two decades (Table 1). During
these years other important changes took place as well,
to include the beginnings of America's rise to a
position of world power in the wake of the Spanish-
American War and, with the advent of World War I, its
growing dominance in the arena of international finance.
Inroads made by big business in the pattern of
the nation's economy brought efforts to preserve the
competition of rugged individualism revered in the
- 61 -
- 62 -
Decade Ending Number of Combinations in Millions
1869 2 $ 13.2
1879 4 135.2
1889 18 288.0
1899 157 3,151.2
1909 1903 4,897.0
1919 1076 3,668.0
W. W. Jennings, A History of Economic
Progress in the United States, New York:
T. Y. Crowell Co., Publishers, 1926, p.
634; Historical Statistics of the United
States Colonial Times to 1957, Department
of Commerce, Bureau of the Census,
Washington, 1960, p. 572.
American pioneer spirit, with the government beginning to
abduce laissez-faire attitudes in favor of regulatory
The pressures of rapid growth within the industrial
sector and significant changes in the economic environment
affected the accounting profession. As the newly recognized
advisors of the financial community, accountants found
themselves challenged to develop new methods to report
the financial results of this economic activity. The
purpose of this chapter is to inquire about and set out
- 63 -
those broad factors evident in the conditioning
environment which can be related to the developing role
which professional financial accounting was becoming
identified with during the first two decades of this
The General Pattern of American Economic
Growth and Technological Change
1900 to 1920
A substantial rate of growth in gross national
product was achieved during the vicenary period beginning
in 1900. Table 2 focuses attention on the growth of that
era of combination and contrasts it to the growth achieved
during the later period after 1920.
Growth Trends in the American Economy
1879-1959 (percentage increase
Item 1879-1919 1919-1959
GNP in constant prices 3.72 2.97
Population 1.91 1.30
Per capital GNP in constant prices 1.76 1.64
Adapted from: Joint Economic Committee, Congress of the
United States, Employment, Growth and
Price Levels, Washington: Government
Printing Office, 1960, p. 34.
- 64 -
The effects of these impressive gains can be seen
in the rising level of individual income as well. As the
population data in Table 2 suggests, the demographic
profile of the country was changing rapidly,3 swelled by
a peak immigration of about 1i million in 1907.' But in
spite of these increases and an unprecedented price
inflation of just under 2h percent a year the trend of
real per capital income was on the rise during the period.5
Table 3 indicates the trend of real per capital income
Real Per Capita Income in the United States
Year Amount Year Amount
1900 $460 1912 $520
1904 482 1916 560
1908 496 1919 590
Adapted from: Harold M. Somers, "The Performance
of the American Economy, 1866-
1918," in Growth of the American
Economy, Harold F. Williamson,
editor, New York: Prentice-Hall,
Inc., 1951, p. 658.
The Scale of Business Activity
Table 4 summarizes the turning points of important
cycles of business activity during 1900-1920.6 While cycle
- 65 -
Selected U. S. Business Cycle Data 1899-1920
Peak Date Trough Date Ascending Descending
June 1899 Dec. 1900 18
Aug. 1902 Aug. 1904 20 25
May 1907 June 1908 33 12
Jan. 1910 Jan. 1912 19 23
Jan. 1913 Dec. 1914 13 23
Aug. 1918 Mar. 1919 44 6
Jan. 1920 10
A. F. Burns, The Business Cycle in a
Changing World, New York: National Bureau
of Economic Research, 1969, p. 16.
data is not designed to show the growth which occurred it
indicates the rhythm of the alternating expansion and
contraction of total production and sales. Such information
suggests the uncertain character of the times as well as
the significant economic turning points of the period,
inferring the importance of events which occurred at or
near these points in time.
The opening of the century was marked by a mild
recession of activity. The next trough, a moderate one,
occurred in 1904. A third one-this time more severe-
occurred in 1908. It was preceded by the spectacular
- 66 -
financial panic of 1907. Each of these troughs, as it
happened, came in years of presidential elections. Before
World War I subsequent low points, marking turnings of the
cycles, occurred in early 1912 and 1914.7
The phenomenal increase in auto production which
took place during the first two decades of this century
accented the new age of American industrialism.8
Annual Automotive Production in
Cars and Trucks
the United States
Cars and Trucks
Adapted from: Walter P. Chrysler, "The Automobile
Industry," in The Development of American
Industries: Their Economic Significance,
New York: Prentice-Hall, Inc., 1933,
- 67 -
America was slowly but unquestionably transforming
into an automobile economy. Consider the output of 1916,
1918 and 1920 in relation to industrial stock price activity
during the same period as shown in Figure 2.9
1900 1905 1910 1915 1920
Figure 2. Index of prices of industrial stocks 1900-1930.
Adapted from: G. F. Warren and F. A. Pearson, Prices,
New York: John Wiley & Sons, Inc., 1933,
- 68 -
While changes in the popular means of transportation
were becoming apparent, developments in the use of elec-
trical energy,brought about by Edison's genius, had
altered mechanical and illuminating applications of power.
Demand for electricity sired large public utility companies
and equipment manufacturers such as Westinghouse and
General Electric. It stirred the interest of other
inventors, leading to the wireless transmission of sound,
so that by 1920 the first full time commercial radio
station was in operation." Amidst these innovations in
late 1903, the Wright brothers made their first successful
flight; by 1919 the Midwest had been united by air service
and by 1920coast-to-coast air travel was established.1
America's Growing Presence in the World Economy
The United States' success in the Spanish-American
War, the Roosevelt Corollary to the Monroe Doctrine12 and
the rise of the American Navy to second position inter-
nationally contributed to a growing awareness of the young
nation's presence in the world.13 America's population,
which in 1800 had consisted of about 5 million people
(chiefly of British stock) exceeded 100 million by 1914.
This twentyfold increase compared to a fourfold increase
for Russia, a threefold increase for the United Kingdom
and a twofold increase for the total world population.14
- 69 -
In addition to these developments there were other
reasons for America's growing international influence:
1. In 1914 the Panama Canal was opened giving the
United States an effective route for its two-
2. From 1897 to 1919 American investment in the
Western Hemisphere and the world increased
tenfold, as shown in Table 6. Because of this
increased investment, the United States became
net lender internationally before the twentieth
century,'5 although it remained a net debtor
because of its own past borrowings.
American Foreign Investment 1897-1919 (cumulative
direct and portfolio investment in millions)
Total Investment Times Times
in Europe and Increased World Increased
Year Canada Since 1897 Total Since 1897
1897 $ 340.7 $ 684.5 -
1908 1,086.4 3.19 2,524.8 3.68
1914 1,559.0 4.58 3,513.8 5.13
1919 3,529.6 10.37 6,955.6 10.16
Cleona Lewis, America's Stake in
International Investments, Washington:
Brookings Institute, 1938, p. 606.
3. In 1915 for the first time in history, U. S.
exports exceeded imports by $1 billion and, with
the balance of payments shifting as a result of
World War I,16 America became a creditor nation
with the center of international finance moving
from London to New York City.17
- 70 -
These factors combined with insular possessions
in two hemispheres gave the United States a potential
voice in the affairs of Europe and Asia which it could not
have claimed just a few years earlier.18
The Private Sector-Business and Financial
The Era of Vertical Integration
When the U. S. Steel Corporation was "Morganized"
in 1901 it represented a new level of "Money Power"
dominance,19 beyond the limits conceived even in the large
trusts already in existence (Table 7).
The U. S. Steel merger epitomized the era of
"vertical" combination of industry (1898-1904) as distinct
from the "horizontal" era of earlier years (1879-1893).20
This giant holding company represented Carnegie's
producing mills added to a majority of the nation's most
important steel fabricators, with the coup being completed
by the acquisition of Rockefeller's Mesabi ore fields.21
Steel was a likely choice of this exemplar undertaking
since in 1900 American output had grown such that it almost
equaled that of Great Britain and Germany combined.2j
This early era of industrial combination was
unique, occurring when the ingredients, which made such
large scale industry feasible, matured around 1900 after
having fermented for decades. Among these factors were
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Some Early Industrial Trustsa
Standard Oil Co.
1899 c. 400
N. J. 1899
N. J. 1899
N. J. 1901 c. 155
N. J. 1901 c. 785 1,319,000,000
N. J. 1902
John Moody, The Truth about the Trusts, New
York: Moody Publishing Company, 1904,
aSome 298 lesser trusts are summarized in Moody's work.
These units controlled some 3400 plants with a combined
capital of approximately $4 billion.
the marked specialization of the period, the establishment
of a nationalized system of markets, the opening of new
international markets, the availability of large concen-
trations of capital, the formulation of an industrial work
force and the development of new management and mass
- 72 -
production techniques. Furthermore cut-throat competition,
sanctioned by many of the first large trusts, threatened
the profitability of small scale firms leading them to
submit to buy-out pressures of large corporations who
were exhibiting the benefits of large scale operation. In
the two decades after 1900,American manufacture, spurred
by consolidation and the war effort, responded favorably
to its new environment doubling the volume of production
and exhibiting a rate of technological growth which
increased at twice that of population.23
The Extent of Concentration
By 1900 the corporate form of organization had
been adopted by the majority of industrial sector
enterprises. Ripley noted that in 1904, 70 percent of
industrial wage earners were employed by corporate
businesses, accounting for 73 percent of the value of
Table 8 depicts the vast amounts of capital formed
during the period, in substantial part through sales of
stocks and bonds to the general public. The experts at
tapping this market were the investment bankers of New
York led by J. P. Morgan. As such statistics suggest the
growth of big business and large scale finance was
dependent upon the activity of these men.
- 73 -
U. S. Capital Formation 1889-1918
Gross Net Gross Net
Decade (Millions of 1929 Dollars) (Percent per Annum)
1889-1898 6,499 3,922 4.7 5.4
1899-1908 8,932 5,059 4.0 4.3
1909-1918 12,556 6,590 3.6 3.0
S. S. Kuznets, National Produce Since 1869,
New York: National Bureau of Economic
Research, 1946, p. 119; J. Steindl,
Maturity and Stagnation in American
Capitalism, Oxford, England: Basil
Blackwell, 1952, p. 185.
The Evolution of Finance Capitalism
Following a line of reasoning expressed
particularly by German economic historians . .
capitalism [developed] through a series of stages.
The mercantile stage, in which America had grown up,
was characterized by the importing and exporting
merchant as the most important type of entrepreneur.
This stage was superseded in the early nineteenth
century by individual capitalism, with the independent
small-scale factory proprietors as the dynamic or
The industrialists were the important entrepreneurs during
the era of horizontal integration, having developed such
corporate empires as Standard Oil and the New York Central.
As business grew larger and more corporate the
need for raising capital from the investing public
brought the investment banker into prominence until
by 1900 he was conceived to be the most important
figure in a stage called finance capitalism.26
- 74 -
Aided by state laws designed to encourage large
capitalizations (New Jersey in 1890; Delaware in 1899) the
holding company concept enabled promoters to skirt initial
Federal antitrust regulations because its formation
involved no contracts or agreements between competitors.27
New ownership instruments such as no par stock and low
state incorporation taxes abetted Morgan's syndicates which
coordinated new capital offerings with an ease that
betrayed his power.28 The half-dozen banking partnerships
handling American security floatations were so closely
associated and were so important in the formation of new
companies that they were condemned as a "Money Trust."29
In 1911 and 1912 a committee of the U. S. House
of Representatives, headed by Congressman Pujo of
Louisiana, investigated the "trust." The report of the
If by a "money trust" is meant an established and
well-defined identity and community of interest between
a few leaders of finance which has been created and is
held together through stockholdings, interlocking
directorates and other forms of domination over banks,
trust companies, railroads, public service and
industrial corporation, and which has resulted in a
vast and growing concentration of control of money
and credit in the hands of a comparatively few men-
your committee has no hesitation in asserting as a
result of its investigation that this condition-exists
in this country today.30
The Politics of Adjustment
The public's concern over a "money trust" was a
manifestation of their covert anxiety regarding the broad
- 75 -
scale of change which the American economy was undergoing.
The spector of business combinations ran counter to the
principles to which Americans had become accustomed in a
self-reliant agrarian society. As the nation became
industrialized the factory worker, the farmer and the
small merchant31 sought to cushion the impact of change
by obtaining assistance from the government.32 In 1905
popular pressure led the State of New York to authorize
a legislative investigation (the Armstrong committee) of
the relationship between the investment bankers and the
three largest insurance companies in the country, New
York Life, the Mutual of New York and the Equitable Life
Assurance Society.33 Disclosures by the committee
included the fact that J. P. Morgan and Co. had gained
control of the three insurance firms via interlocking
directorates or exchanging officers, assuring a ready
market for Morgan's offerings through the never failing
resource of reserves created by small policyholder
Further, the Armstrong investigation noted the
control of commercial bank stock by the life insurance
companies which effectively extended the ownership of the
investment bankers to large commercial banks. As a
result of these findings legislation was ordered requiring
insurance companies to divest their bank stock holdings.
- 76 -
Later it was discovered that the insurance companies had
sold their bank stocks to investment bankers who were
controlled by or closely associated with the initial
insurance group, thus preserving the status quo.
As early as 1911 states such as Kansas began to
require registration of security issues. These so-called
"Blue Sky" laws (allegedly to prevent sharps from selling
even the clear blue sky) were a common device in attempts
to control investment fraud. The "Blue Sky" concept was
held to be within the bounds of constitutionality when
challenged in the Supreme Court in 1916.35
In 1913 under Gov. Woodrow Wilson, New Jersey
passed the "Seven Sisters Acts" aimed at preventing a
variety of corporate abuses. These forthright laws only
served to demonstrate the futility of an individual state's
action, since corporations simply elected to change
domicile from New Jersey to a less restrictive state in
order to avoid prosecution. Investor protection and
financial disclosure, when considered in light of state's
rights,were considered to be matters for state control and
therefore on what seemed to be constitutional grounds,
Federal law fell silent on the matter.36
The Public Sector-The Changing Role of Government
Progressives and Their Legislation
Popular suspicion of big business, accented by the
journalistic expose of the "muckrakers"37 directed public
- 77 -
opinion against industry on a national level so that by
the presidential campaigns of 1908 and 1912 the issue of
restoring "old-fashioned" competition through Federal
legislation was foremost. In 1912 the Democratic candidate
Woodrow Wilson of New Jersey stated:
American industry is not free, as once it was
free. . Why? Because the laws of this country
do not prevent the strong from crushing the weak.3
Wilson won the 1912 election and with the
assistance of a sympathetic Congress gained passage of
the greatest list of progressive legislation in any
like period of American history to that time. . ."
Some of the most important pieces of this legislation were:
The Underwood Tariff (October 5, 1913).-In 1909
in response to challenges, the Supreme Court upheld the
corporate tax of the Payne-Aldrich Act as a constitutional
excise tax. It further stipulated, however, that an
amendment to the Constitution would be necessary before a
direct income tax could be imposed.'" Upon ratification
of the 16th amendment early in 1913 the Underwood-Simmons
Act levied a nominal but direct income tax which was
designed to offset a deficiency in revenues expected to
arise from the revision of tariff rates.4" The income tax
became law in October, 1913, effective retroactively to
March of that year.
The Federal Reserve Act (December 12, 1913).-The
concentration and control of capital funds brought to light
- 78 -
by the Armstrong investigation and Pujo committee,
together with the experiences of the panic and bank crisis
in 1907, led to proposals for national bank reform.42 Under
the provisions of this law a central banking system com-
posed of twelve reserve bank districts and a supervisory
board was created.43 The nation had been without such a
central agency under government supervision since the
dissolution of the Second United States Bank before the
The Federal Trade Commission Act (September 26,
1914 and the Clayton Act (October 15, 1914).--The 1914
legislation was enacted in an attempt to provide a remedy
for the apparent shortcomings of the Sherman Act of 1890.44
There were several singular principles of substantive law
embodied in the 1914 acts relating to trade competition
and monopoly to include:45
1. Condemning the general use of "unfair methods of
competition," these being declared unlawful
(Section 5, Federal Trade Commission Act).
2. Forbidding the use of tying and exclusive dealing
arrangements and price discrimination where such
would "substantially lessen competition" (Sections
2 and 3, Clayton Act).
3. Imposing limitations on interlocking directorates
and intercorporate stockholdings as determinable
by effects on competition (Sections 7 and 8,
The War Industries Board
Where progressive legislation left off the War
Industries Board picked up the role of asserting
- 79 -
governmental influence over the business community. The
Board, created during World War I, succeeded in establishing
an experience base for price, wage and profit controls.46
Under the chairmanship of Bernard M. Baruch, the Board
exercised absolute power over the process of manufacture,
fixing prices and determining priorities of production and
Altogether these developments established a
precedent for governmental participation in the adminis-
tration of the economy. But whether these acts were more
than symbolic is a matter of debate since each legislative
attempt to reduce competitive obstacles encountered a
sort of "Newton's law of regulatory control,"48 whereby
the restrictive force was met by an equal and opposing
reaction from industry. This led to a bureaucracy of
regulation so complex that neither the commission involved
or the regulated industry could clearly discern the intent
of the law.
The courts were of little assistance in unscrambling
the tangle, having themselves reversed their field from
a trend of early"antibigness"decisions-as in the Northern
Securities case,49 to a position characterized by the 1911
"rule of reason" decision which held that size alone did
not evidence illicit intentions and that the basis of
government action must be proof of monopolistic intent.50
- 80 -
An Accepted Economic Model
Americans were wary of a corporate society,
where the impersonal seemed to dominate every business
from the ". . local beauty shop to the United States
Steel Corporation."1" During American industrial maturation
popular and intellectual sentiment became divided with
regard to a posture for social justice and the ability of
the macroeconomy to be regulated without government action.
Some felt as Charles W. Eliot, the President of Harvard,
who said: "It is quite unnecessary in this country to
feel alarm about the rise of a permanent class of very
rich people."52 Eliot believed, in the Classical
tradition, that the natural influences over man and the
economy would provide for redistribution of the wealth in
the long run.
Eliot's beliefs were not shared by President
Arthur Twining Hadley of Yale who feared that the great
concentrations of wealth foretold the coming of ". . an
emperor in Washington within twenty-five years."53
Professor Bullock of Harvard echoed this common suspicion
saying that, "If experience ever demonstrated that the
argument of many economists are correct than we shall
be confronted with the grim fact that competition is dead
and that monopoly is inevitable. .. "
- 81 -
Such was the concern over basic economic doctrines
that the need for reexamination of the assumptions under-
lying extant theory was apparent. Economists prepared
explanations of the forces at work in the market, often
in sharp contrast with one another.
A Reshaping of Economic Thought
The doctrines of the Classical school, guided by
the logic of John Neville Keynes, adapted and advanced by
Alfred Marshal under the banner of Neoclassicism, provided
an accepted model for American business during the years
around the turn of the century. Marshall's teaching was
characterized by static equilibrium analysis with changes
being studied through the device of the "representative
firm."5" Essentially, Classical models possessed self-
regulating features, insuring long period equilibrium
through price and wage adjustments. But some shortcomings
in the British doctrine became apparent as the era of
combinations and "growth and development" progressed.
Schumpeter notes that there was, for example, a general
lack of any economic theory with regard to costs and prices
for large industries such as railroads, public utilities,
trusts and cartels-pointing out that what did exist was
. . merely a rich crop of historical and 'descriptive
This void, combined with the challenges to
assumptions about perfect competition and industrial
- 82 -
efficiency of scale encouraged criticism by so-called
"social economists."57 Some of these reformers were
unorthodox, like the followers of Henry George the single
tax advocate;58 others were clearly more liberal like
Hobson;59 and some were notable theoretical gadflies, like
Among American academic economists acquiring a
substantial reputation were J. B. Clark and Irving Fisher.61
Fisher's treatise, The Nature of Capital and Income (1906)
attempted to furnish an economic foundation for business
ownership analysis through what he called ". . a sort
of philosophy of economic accounting, . [to] supply
a link long missing between ideas and usages underlying
practical business transactions and the theories of
abstract economics." 62 Fisher distinguished between
capital and income on a stock vs. flow basis and attempted
to clarify the meaning of total income and profit.
Confusion among economists about notion of profit
was surrounded by a misunderstanding about physical
productivity and service as criterion. This led to the
remark in 1921 that, ". .. it is not surprising that
the theory of profit has remained one of the most unsatis-
factory and controversial divisions of economic doctrine."63
Frank Knight's comment prefaced his work which attempted
to unravel parts of the knotty problem of profit under
conditions of risk and uncertainty.64 While Knight's
- 83 -
effort was separated from Fisher's by more than a decade
their contemporary influence represented tips of an
emerging theoretical iceberg which evidenced the mass of
economic ideas in flow below the surface of print. In this
respect Neoclassical writers provided the cornerstone
material for important notions which subsequently appeared.
Sraffa's paper of the 1920s for example was destined to
stimulate a new branch of thought, detailed in the works
of two writers, Chamberlin and Robinson. They proposed
the concept wherein the hitherto separate theories of
monopoly and competition were fused in a reconstituted
value theory of imperfect competition.65
The Rise of the Accounting Profession
As the changes which grew out of the puissant
environment of the early twentieth century had caused
economists to restudy their doctrines,so this new industrial
epoch placed unique demands on accountancy. An editorial
which appeared in the January, 1900, issue of The Public
Accountant (Pennsylvania) describes the trusted position
attained by accountants at the dawn of the new century.
At no time in our history has such great prosperity
been known in this country. Money is plentiful .
and manufactures and trade are springing into new
life all over the country. The revival . and the
great prosperity has had its effect very considerably
on accountants. The starting of new business
enterprises has caused them to be retained in cases
larger and more important than ever before.
- 84 -
The profession is slowly, but surely forcing
itself into its proper place among the other
professions and is becoming more and more important
each day. It is becoming known to the manufacturer,
to the merchant and to the banker and financier.
Such a state of affairs was comparatively unheard
of . that a new enterprise, involving millions of
capital, should retain a Public Accountant even before
its counsel, yet such is the case and it is not a
single case either. Were we at liberty to do so, we
could state case after case in which the accountant
was the trusted advisor of the promoters of the
largest business combinations the world has ever seen.66
Written a year before the formation of the United States
Steel Corporation these remarks bear out the important
advisory function which accountants were called upon to
perform during the era of consolidations.
The Growth of Certified Public Accountancy
There were less than 250 CPAs in America at the
beginning of this century. By 1920 over 5000 original
certificates had been issued, with those from New York,
New Jersey and Pennsylvania accounting for about one in
every four.67 In attempts to harness this surge of growth
accountants formed professional associations, including the
American Association of Public Accountants and the
Federation of Societies of Public Accountants in America
which merged in 1905 and became known as the American
Institute of Accountants in 1917.68
The young American profession, lacking the depth
of experience, borrowed theoretical premises and procedures
- 85 -
from the British who had pioneered the professionalization
of accountancy a few decades earlier.
In England accountants were trained by a strict
apprenticeship routine which required that the aspirant
be articledd" with an established accounting firm. When
it became apparent that British methods were not fully
suited or adaptable to American ways the latter were quick
to establish their own standards.b9 For example, under
New York law a certificate was issued only after successful
completion (waivers ignored) of the four part CPA
examination covering Accounting Theory, Commercial Law,
Auditing and Practical Problems. Five years of accounting
experience was required in addition to a high school
education and certain moral, character and citizenship
The rigorous nature of the CPAs educational
standard can be appreciated relative to typical levels of
formal education at that time. For example, in 1900, the
median level of schooling attained in America was 7.9
years; by 1910 this figure had increased to 9.7 years and
by 1920 the level had reached 10.1 years-still well below
the minimum requirement set for admission to the profession
as in New York.7'
The Theoretical Adaptation of Practical Knowledge
In the early stages of its professional life
accountancy relied almost exclusively on the doctrine of
- 86 -
pragmatism as the means of determining individual solutions
to important accounting questions. The practical answer
alone was viewed as a "sufficient" answer. But under the
pressure of economic growth and social change, pragmatism
failed to offer the sophisticated broad and flexible base
of consistent fundamental doctrine required in an industrial
society served by the accounting profession. What was
needed was a complementary approach to "practical" experience
which would delineate financial accounting precepts in
such a way that they could be readily identified and easily
applied to changing situations. Accountants turned to
theoretical adaptation as a means of defining the set of
financial accounting principles needed. The theoretical
approach became useful particularly in formal course
instruction which was being introduced at the collegiate
level.72 Wide scale acceptance of theory as a teaching
and problem solving device and the recognition of its
important role in the search for a conceptually consistent
body of financial accounting principles is one of the
peculiar and important achievements of accountancy during
the Preclassical period.7
The years around the turn of the century through
the First World War constituted the age which felt the
initial impact and consequences of American industri-
alization. Technology and manufacture advanced at a pace
- 87 -
never before achieved. Change and growth were rapid and
had to be faced by the executive and the accountant
without benefit of historical precedent. People were
drawn to the urban industrial areas such that by 1920 the
census revealed that for the first time more Americans
lived in urban areas than rural.7'
Significant political events marked these years.
The death of Queen Victoria of England in 1901 signaled
the passing of an era of reserved propriety just as the
assassination of President McKinley that same year opened
the way for the personality politics of Teddy Roosevelt.75
In 1908, Taft succeeded his protg4e Roosevelt but by 1912
the politics of adjustment had set in and Woodrow Wilson
was elected to succeeding terms on a progressive platform.76
World War I plunged the United States headlong into a
world economy it had entered less spectacularly a
generation earlier causing individual and economic
adjustments of a type never before experienced by
Americans.77 By 1919, at the close of the war period, the
Eighteenth Amendment (Prohibition) was ratified and in the
following year women's suffrage was recognized with the
passage of the Nineteenth Amendment.
The size of business enterprises during these
years led to a need for large amounts of capital which in
turn required financing on an unprecedented scale.