the social origins of accounting


The business historian John Steele Gordon, author of Empire of Wealth, has a fascinating little piece in Barron’s looking at the origins of modern accounting standards. In the article, Gordon discusses how accounting was a self-imposed mechanism for ensuring transparency in a market dense with secrecy and corruption.

Accounting, the application of statistics that most concerns the world of business, has encountered damn lies many times since the first accountant put on an eyeshade in ancient times. Today, the rules of accounting are highly elaborated and legally mandated. Sarbanes-Oxley is only the latest attempt in a more than century-long quest to make sure that corporate books are not cooked.

Regulators might wish you believed it was the government that introduced Generally Accepted Accounting Principles and independent auditors to the marketplace — to keep the players there honest. It was not. It was the players in the marketplace themselves….

Few public companies issued annual reports. When in 1866 the New York Stock Exchange asked the Delaware, Lackawanna, and Western Railroad for its financials, the railroad curtly replied that it “makes no reports” and “publishes no statements.” Translation: Drop dead….

Matters were changing. In 1869, the New York Stock Exchange merged with its chief rival, the Open Board of Brokers, and became the overwhelmingly dominant institution on the Street. For the first time it became important for brokerage firms to belong to the exchange and for companies to have their securities listed. The NYSE quickly began to impose rules on both brokers and on the companies that sought listings.

As the country’s industrial economy exploded in size in the last decades of the 19th century, the need for capital exploded as well. Increasingly, that capital could only come from the great Wall Street banks, of which J.P. Morgan & Co. was the apotheosis. These banks needed to be sure the books were honest before floating an issue of securities.

To ensure honesty, the stock exchange and the banks increasingly required that the books be certified by independent accountants, a profession that quickly grew at this time. As late as 1884, only 81 self-employed accountants were listed in the city directories of New York, Chicago, and Philadelphia combined. Five years later, there were 322 listings.

While there isn’t a ton of research on the sociological aspects of accounting, there is some good stuff out there (mainly coming from the journal Accounting, Organizations, and Society). Wendy Espeland’s and Paul Hirsch’s 1990 paper examines the symbolic effect that accounting had in legitimating the conglomeration movement in the 1960s. In 1991 AJS paper Bruce Carruthers and Espeland argue that accounting practices not only serve a technical function through rationalization (following Weber) but accounting also has a rhetorical function by lending legitimacy to business ventures. And Carruthers’ 1995 AOS paper explores the implications that new institutional theory might have for understanding accounting practices’ effects on organizations.


Written by brayden king

August 22, 2007 at 3:33 pm

6 Responses

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  1. Though I know little about accounting and am puzzled by poststructuralism, I quite enjoyed the article below, written by some of the folks across the hall from me who do this type of thing. What I enjoyed was the historical look back to the Sumerians as early accountants :)

    Macintosh, NB, Shearer, T, Thornton, DB & Welker, M. (2000) “Accounting as simulacrum and hyperreality: perspectives on income and capital,” Accounting, Organizations and Society 25(1), 13-50

    or on ScienceDirect, here:



    August 22, 2007 at 9:07 pm

  2. Another interesting article for the list is Eve Chiapello’s piece on the role of accounting in the origin of the concept of “capitalism”:

    Also available as a working paper here:



    August 22, 2007 at 9:22 pm

  3. Great post! It is true that there is not nearly enough sociological research about accounting practices and especially about the political economy of setting accounting standards (well, I would say that, being a sociologist in an accounting department).Thanks for the reference to Barron’s paper. Mentioning relevant references, I think that one of the pioneering collections of articles in what can be referred to sociology of accounting is
    “Accounting as Social and Institutional Practice”



    August 23, 2007 at 2:24 pm

  4. Thanks for all of the reading suggestions. I’m now more convinced that I need to add a section on accounting to my markets and society class.



    August 23, 2007 at 2:38 pm

  5. Brayden,

    Absolutely … knowing so little of the evolution of accounting we remain in blessed ignorance of its profound impact on managerial practice – something Tony Hopwood has struggled mightily to correct without doing more, I fear, than create a fine and truly scholarly journal (AOS).

    That’s curious really. We have moved to accepting institutional theory (new, that is, not the real stuff) but still ignore accounting standards and practices as a set of rather differently constructed and legitimated ‘institutions’.

    The links to the Carruthers & Espland paper in your initial post is a bit odd – not revealing the references to the article before JSTOR denies access.



    August 26, 2007 at 1:56 am

  6. Thanks JC. I fixed the link.



    August 26, 2007 at 4:49 am

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