Group Title: critical evaluation of comparative financial accounting thought in America 1900 to 1920
Title: A Critical evaluation of comparative financial accounting thought in America 1900 to 1920
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Title: A Critical evaluation of comparative financial accounting thought in America 1900 to 1920
Physical Description: xii, 259 leaves. : ; 28 cm.
Language: English
Creator: Previts, Gary John, 1942-
Publication Date: 1972
Copyright Date: 1972
Subject: Accounting -- History -- United States   ( lcsh )
Accounting thesis Ph. D   ( lcsh )
Dissertations, Academic -- Accounting -- UF   ( lcsh )
Genre: bibliography   ( marcgt )
non-fiction   ( marcgt )
Thesis: Thesis -- University of Florida.
Bibliography: Bibliography: leaves 242-257.
General Note: Typescript.
General Note: Vita.
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Bibliographic ID: UF00098198
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: alephbibnum - 000582636
oclc - 14152211
notis - ADB1013


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Copyright by
Gary John Previts


WilZiard Everard Stone

Accountant, Educator, Historian

"Satis Verborum"


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.



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

SCHOOL OF THOUGHT NOTION ................. 14

Introduction ............................. 14
Biographical Material .................... 14
Identifying a School of Thought .......... 42
Chapter Summary .......................... 48


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


Chapter Page

III. The Rise of the Accounting Profession ..... 83
Chapter Summary ........................... 86

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


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

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

ACHIEVEMENTS .............. ................ 191

The Import of Preclassicism ............... 191


Chapter Page

VII. Signal Contributions of Individual
Preclassicists .......................... 194
Culminating Remarks ...................... 200

APPENDIX ............................................ 205

SELECTED BIBLIOGRAPHY ................................. 242

BIOGRAPHICAL SKETCH .................................. 258


Table Page

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



Figure Page

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



Gary John Previts

December, 1972

Chairman: Williard E. Stone
Department: Accounting

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 -

- 2 -

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

- 3 -

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

- 4 -

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,

- 5 -

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.

- 7 -

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.

Expected Contribution

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,
p. 25.

- 11 -

- 12 -

11. Kenneth MacNeal, Truth in Accounting, Lawrence,
Kansas: Scholars Book Co., 1970 (copyright, 1939),
p. 25n.
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
important information.
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.

- 13

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,
pp. 397-407.

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.




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.

Biographical Material

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

- 14 -














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

Review. s

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

- 18 -

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

financial statements.18

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

remarks stated:

- 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-

tion. ."3

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
professional bookkeeper.39

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

Federal government.

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

tax accounting.

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
very useful.74

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

Accounts (1907).80

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

properly characterized?

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 [1]
of evolution which arose as the result of
criticism [2] advanced to previous patterns [3] of
thought regarding their . adequacy [4] in the
face of changing conditions [5]. 9 (Emphasis and
enumeration supplied.)

At least five reference points are discernible in

this expression:

[1] Reference to result as in observed pattern.

[2] Reference to ideation as in criticism.11'

- 46 -

[3] Reference to antecedents as in previous patterns.

[4] Reference to relativity as in adequacy.

[5] 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 [1] 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

of knowledge.

Reference points [2] and [3] 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 [4] and [5] 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:

[6] 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.

Chapter Summary

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

theoretical analysis.

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,
pp. 344-5.

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
theoretical controversy.

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
to England.

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,
col. G.

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,
pp. 243-4.

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,
p. 479.

35. "Advertisement," The American Accountant, June, 1927,
p. 49.

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
York, 3p.

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,
p. 20.

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,
p. 264.

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,
p. 15n.

- 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
Sprague's teaching."

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
book form."

- 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
University, 1968.

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.

60 -

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 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 -

Trusts and


Mergers 1860-1919

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

Adapted from:

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
per year)

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
during 1900-1919

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

Months Duration

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

Adapted from:

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

Production of
Cars and Trucks




the United States

Production of
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,
p. 642.



- 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

1925 1930

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,
p. 281.

- 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-
ocean navy.

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

Adapted from:

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

- 71 -


Some Early Industrial Trustsa


Standard Oil Co.

Copper Co.

Smelting and

Tobacco Co.

United States
Steel Corp.

Marine Co.


N. J.

ition Plants

ition Plants
Date Controlled

1899 c. 400

N. J. 1899

N. J. 1899

N. J. 1901 c. 155


$ 95,500,000




N. J. 1901 c. 785 1,319,000,000

N. J. 1902

6 170,786,000

Adapted from:

John Moody, The Truth about the Trusts, New
York: Moody Publishing Company, 1904,
p. 453.

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

Adapted from:

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
formative influence.2s

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

committee asserted:

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
in Business

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

Civil War.

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,
Clayton Act).

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

Chapter Summary

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.

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