Reviewed by Konrad W. Kubin Virginia Polytechnic Institute and State University
This book highlights some of the major contributions of German accounting thought to complex issues confronting the profession around the world. Previously, these contributions have not been widely known in English-speaking countries due to (1) the language barrier, (2) the fact that accounting in that country is not considered a separate academic field of inquiry, but an integral part of business economics, and (3) the intuitive rejection of thoughts that originated partially during a totalitarian era.
Forrester’s book helps to overcome all three of these obstacles. By retracing the evolution of German business economics, he identifies the leading German accounting academicians as well as their thoughts on inflation accounting, uniformity, and social accounting, which have influenced the development of accounting around the world. Forrester also helps us to understand how rational theorems can be promulgated and professional objectivity and integrity can be preserved during a totalitarian era with its repeated harassments, academic boycotts and even threats to one’s life.
Although the book analyzes the historical development of German accounting thought and refers to the contributions of numerous in-dividuals, it is at the same time a biography of Eugen Schmalenbach (1873-1955), the undisputed leader among German accounting academicians. It consists of nine chapters and a unique “Index of Persons and Authors, with References” which should prove to be especially valuable for future research efforts.
The introductory chapter outlines the approach taken by Forrester in presenting Schmalenbach and his major accomplishments.
Chapter II describes Schmalenbach’s early years, his brief engineering and manufacturing experience which is reflected in many of his later contributions to product costing and transfer pricing, his years at the universities of Leipzig and Cologne, his marriage to Marianne Sachs and their family life, Schmalenbach’s emergence in the 1920’s as a leading business economist and consultant, his persecution during the Third Reich, and his last years.
Chapter Ill summarizes the evolution of business economics and business administration in Germany. Repeated references to Schmalenbach show how this development has been fundamentally influenced by him and his disciples.
In the following chapter, Forrester sketches the German camera-list form of accounting and the influence of state and farm accounting on commercial accounting. Schmalenbach was attracted to farm accounting because it allowed him to study pricing and allocation problems in situations where production and consumption are often so closely interrelated that transfer prices established by a free market system are unavailable. These studies are in effect the embryonic thoughts of today’s “shadow prices”.
Justifiably, the chapter on “dynamic accounting” is the longest one since it deals with Schmalenbach’s best known contributions to accounting theory. It includes elaborations on inflation accounting, valuation, and the approach taken in Germany towards the development of accounting principles. It also discusses the evolution of the German income statement from the 1920’s to the present time and the conservative measurement of income which permits the creation of hidden reserves.
Chapter VI discusses the development of uniform charts of ac-counts in the 1920’s, the adoption of such charts by the Third Reich, and the current efforts in the EEC and elsewhere to harmonize accounting with the help of similar charts of accounts. This chapter is followed by further elaborations on Schmalenbach’s perceptions of cost and prices. Forrester discusses such concepts as marginal pricing, fixed costs, budgets, and Schmalenbach’s notion of “management by prices” instead of rationing or management interventions.
Investment decisions, cost of capital, the valuation of the enterprise as a whole, and the interrelationship between capital, credit and interest are discussed in Chapter VIII. Also summarized are Schmalenbach’s deliberations on capital formation by the state through taxes and the relation between capital and labor, including the well known German phenomenon of “worker participation” or “co-determination.”
The book closes on a philosophical note when Forrester attempts to extrapolate Schmalenbach’s accomplishments. He seems to submit that Schmalenbach’s greatest contributions for future generations may very well be threefold: (1) the realization that the individual accountant needs to stand up for professionalism, ethics and integrity instead of capitulating to the economic and political system, (2) the demand for economizing through waste avoidance, and (3) Schmalenbach’s emphasis on dissemination of decision-making powers during a time when we rely more and more on professionally trained valuators and other specialists.
To borrow Schmalenbach’s philosophy that “too great leniency in criticism is a sin against the profession,” it needs to be pointed out that this book is far too short to do justice to Schmalenbach and the development of German business economics in general. Readers who possess only a very sketchy familiarity with Schmalenbach’s work will be easily lost without additional background. The very worthwhile introductions to the literature at the beginning of most of the chapters can only partially overcome this problem. Hopefully Forrester will build on his expertise of Schmalenbach and expand this book into a more comprehensive and further cross-referenced volume.
Despite this criticism, the book represents an excellent contribution towards familiarizing the English-speaking world with the thoughts of one of the leading accounting pioneers. The Hour Glass Award given to Forrester by the Academy of Accounting Historians for his achievement is truly deserved. The book should be well received not only by accounting historians, but also those interested in international accounting, accounting theory, cost and managerial accounting, social accounting, as well as business administration and economics in general. It can only be hoped that additional research studies about Schmalenbach and the development of accounting in Germany will be forthcoming as a result of this stimulating publication.
