Knowledge that Transforms

In this article economist Werner Sombart attempts to trace several causal factors which led eventually to the emergence of a capitalist civilization. The essential features are the profit motive and rationality; an exchange economy, in which the material requirements of several trades are satisfied by free exchanges of equivalent goods or money, may be either artisanal or capitalistic. Sombart takes as his point of departure a precapitalistic feudal society in early medieval Europe when a sufficiency for existence was the goal of every man. The spirit of enterprise manifests itself in personalities like the "freebooter," the "speculator" and the "projector" who rely on robbery of economic surpluses created by others to form the capital necessary for their undertakings. Sombart was undistinguished as a forecaster. Writing shortly before World War I he predicted an end to large-scale wars, a declining world population and the impending disappearance of capitalism. Besides a defective telescopic vision, however, he also displayed attenuated historical perspective, attributable in some measure to the paucity of source material then at his disposal.

This article presents information on cost coefficients in a linear programming model. The discussion indicates that opportunity cost is not necessarily the appropriate definition. A product mix linear programming (LP) model is used to illustrate ideas. In considering what definition of input prices is relevant in LP, other researchers have concluded that input quantities should be prices using an opportunity cost per unit of input, which is the highest return foregone because the input is used in the system modeled. Researcher H.G. Jensen assumes that the best alternative foregone from which these opportunity costs are derived is either the alternative of not acquiring the inputs or the sacrificed alternative of selling the inputs if they are on hand. If opportunity costs per unit are used to price inputs on hand, then the optimal solution indicates the excess profit obtained by using these inputs in the system modeled over what could be obtained by immediately liquidating them. This profit measure, therefore, reflects a short-run view of the firm.

The article highlights the report of the Committee on the Certified Public Accountant (CPA) Examination of the American Accounting Association. The charge to this committee is to examine the educational implications of the content of the CPA examination, make recommendations for improving the content of the CPA examination, and to cooperate with the American Institute of Certified Public Accountants (AICPA) Board of Examiners in developing suitable problems and questions for the CPA examination. To foster a healthy interaction between parties in charge of the CPA examination and accounting educators the Committee asked the AICPA to make an effort to send copies of each examination to educators on a timely basis. Over 60% of the full-time faculty had previous public accounting experience and a slightly higher percentage of part-time faculty had such previous experience. 82% of the respondents indicated that a faculty member would not be recognized as having the equivalent of a published manuscript for a question used on the CPA examination. Certainly, it is true that the material which has emerged in the most recent examinations also has been structured into the accounting program, but this is not primarily because the questions have appeared in the CPA examination.

The results of this study indicate that a significant part of the variation in changes in performance not explained by the other variables in the model is explained by changes in productivity for the three firms studied. To the extent that the particular specification of variables is successful, this relationship indicates that the expected relationship between technical change and performance can be discerned empirically. Also, it appears that on the average the expected positive effects on earnings due to management decisions to make technical changes are being realized. While this favorable result is encouraging, it does not mean that this result can be extended to other firms even if they are drawn from the same industry. Several additional favorable replications of the experiment in the electric power industry chosen to include firms that used hydro-generated power, that are from other geographical regions, and that are of different sizes than the firms included in this study would be required to make generalized statements about the industry as a whole. An extension of this study that would make its results potentially useful for evaluating technical change decisions would be to develop a means of estimating the relationship between these decisions and measured technical change. This extension may be relatively difficult because of the likelihood of considerable time lags between the decisions and their physical outcome. If successful, a manager might then be able to evaluate on average both the effectiveness with which the technical change decisions are carried-out and the effect of that outcome on reported earnings.

This article presents information on audit management. The audit of management has received increasing attention in recent year. If the need for such an audit gains widespread support, the public accounting profession will face yet another challenge and a number of problems will require solution through the collective efforts of the public accounting profession, management and professional analysts. Justification for the audit could also be argued on the basis of the importance of management as a resource. American business attributes much of its success to its vast reservoir of professional managers, and is quick to identify the lack thereof as one of the barriers to success in other countries. If management is such an important resource and if it is in the interests of stockholders and the rest of society for that matter, that a particular business organization survive and grow, then it seems reasonable to conclude that these interested parties would be as interested in information concerning "management condition" as in financial condition and other indicators of ability to survive and grow.

This article presents information on growth of corporations. The article is also a response from the author A.J. Curley to the comments made by author U.E. Reinhardt on conglomerate growth. His argument is not convincing, a position the author Curley will support subsequently. But he presents his case forcefully and with occasional sleight of hand and his paper is very persuasive on a casual reading. There is a problem in defining any growth measure and the solution the author reaches adopts accounts for disagreement. The difficulty arises because firms seldom acquire other firms on dates corresponding to the interval selected for reporting purposes. Focusing on real growth diverts attention from transitory growth, a more likely cause of inflated expectations. Under the current reporting scheme, the transitory element cannot be evaluated. He offers no other argument aside from some comments in the second section as to the number and complexity of the measures the author proposed. There is an attempt, with a sample size of one, to provide support by way of a specified example, which implies that the Reinhardt measure successfully dispelled hyperoptimistic growth projections.

The article highlights the report of the Committee on Research Methodology in Accounting of the American Accounting Association. The charge to this committee is to prepare a report which identifies, explains, and illustrates the various methodological approaches which are appropriate for research in accounting. A glance at the accounting literature reveals that there has been a broadening of what accountants perceive to be appropriate research questions. Since technology is a crucial factor in the establishment of a communication system, in addition to the fact that the computer is a powerful research tool, computer science is pertinent. It is in the pursuit of internal validity that experimenters attempt to control or offset the extraneous variables so that these variables will not influence the outcome of the experiment. The fundamental difficulty is that a lot of the research involved deals with improvements in decision making. This is an unstructured, complex task, and it is extremely hard to assess the impact of a particular model on the decisions made by managers. There is no other experimental vehicle which has quite this same capability of monitoring a human engaged in complex problem solving. Ready access to the decision process has tremendous power in helping us look for cause and effect relationships between what the user sees in his accounting information and the actions he takes with that information.

The article describes the usefulness of introducing redundancy into accounting messages. It has also suggested two systems for developing redundancy. These are the use of multiple income reporting including a concept of price changes and a reporting system of historical cost income with physical and environmental information added. The last section discusses their cost and value problems. This cost and value approach has, admittedly, a number of limitations. Some of the variables and the constants in the above formulas have no means of evaluation at present, the annual social loss from continuing the historical cost system. Also, there might be some variables left out of consideration, and even as to those taken into account the above functions may not be true reflections of the realities. Because of these limitations this study would be conceptual, illustrative and introductory rather than operational, all-inclusive and final. Finally, the multiple reporting system and the physical and environmental information system are not incompatible. For example, an accounting system would be conceivable which contains at the same time redundancy in the form of explicit real income and also that physical and environmental information which would aid in the prediction of future economic resources of the firm.

Reviews the book "Internal Audit of Inventory Control and Management."

Presents a reply by Thomas R. Dyckman to the author's article on "Discounted Cash Flows, Price-Level Adjustments and Expectations." Information on price-level adjustments that have generally been defended as translations of cost information; Discussion on objective of accounting, which was not to maintain the real assets of the firm; Comparison of $317 income to a price-level adjusted income of $87.