DOCTORAL RESEARCH

Maureen H, Berry, Editor
UNIVERSITY OF ILLINOIS

Two interrelated themes are dealt with in this selection of recent doctoral dissertations: government fiscal policy and economic de-velopment under certain social and political conditions. Rather than attempting to separate these issues, the topics are presented in their historical sequence. Thus, the reader may become aware of some of the inherent similarities in research approach: such as the fact that two authors chose to examine tax policy by studying the men who influenced it.

The political perils of attempting to initiate and administer un-popular fiscal policy are illuminated in McCollim’s study of Nicolas Desmaretz. Desmaretz, who served as controller general of the finances in the reign of Louis XIV, suffered the consequences of designing a tax system which both extended its coverage and equalized its load. He was not only the first to introduce this innovation, he was also the first controller general to be dismissed for it. He was, of course, ultimately vindicated, but this took some 80 years or so. In the meantime, the rights of privileged interests had already been questioned, violently, in the American Colonies. We hear the echoes of fears for economic survival amid financial turmoil in Larew’s research which evaluated banking practices of the Cincinnati branch of the Second Bank of the United States.

The Cincinnati area was undoubtedly rescued from financial disaster by the expansion of industry which took place in the early 1830s. Dyer takes up the study of antebellum business activity, moving northwards to Wisconsin, to examine concentration of own-ership in newspaper publishing and its effects on editorial opinion. In the meantime, the lower American continent was also experiencing an economic boom. Lamia analyzed the various economic cycles in Argentina, during the remainder of the nineteenth century, using a new theoretical model which identified primary causal factors and reinterpreted the several crises of the period.

Returning to North America, Gallacher studied the collieries of Vancouver Island in the last quarter of the nineteenth century. He, as did Dyer in Wisconsin, pointed out the crucial role played by the enterprise manager, although Dyer was faced with more evidence of group ownership interests. We cross over into the twentieth century with Lamoreaux’s examination of the great merger movement in American industry. She attributes this to a combination of high fixed cost and excess capacity in firms hit by the economic depression of the 1890s.
The turn of the century also marked the beginning of the career of Judge Learned Hand. He had just left Harvard, law degree, plus two others, in pocket and ready to devote his professional life to shaping the nature of tax law interpretation and administration. Flesher’s dissertation is a worthy example of the contributions which the study of accounting history can make towards the appreciation of contemporary phenomena.

Our travels end in Iran with Alavi’s analysis of the oil industry’s influences on so many aspects of domestic experience. Written before the recent change in political administration, this dissertation could well serve as foundation for other studies of cross-cultural or interdisciplinary interest.
The Formation of Fiscal Policy in the Reign of Louis XIV: The Example of Nicolas Desmaretz, Controller General of Finances (1708-1715) (The Ohio State University, 1979, 435 pp.; 40/8, pp. 4709-10-A)1 by Gary Bruce McCollim. This study examines taxation strategy during the reign of the Sun King, particularly as it was influenced by Louis’ last controller general, Desmaretz.

Rather than impose a direct income tax on its wealthy citizens, a very hazardous undertaking politically, Louis XIV’s government generally depended on various indirect forms of taxation for its support. Collection of these revenues was farmed out to private financiers, who either paid a farm fee or extended credit to the French crown for this privilege. During the last 25 years of Louis’ reign, however, the State’s fiscal needs, bolstered by wars and the consequent increased government spending, brought on a search for new revenue sources which reached out to tap the sensitive wealthy sector. As a result, the government adopted two new taxes: the capitation, or per capita, and the dixieme, or one-tenth. The author chose to concen-trate his research on the latter tax because of the availability of documents in the G7 series in the French National Archives.

Oversight of the collectors of royal revenues was exercised by various state officials whose activities were gradually centralized into specialized councils, notably the Council of Finances, established in 1661. The most influential official in these government councils, given their preeminent concern with financial problems, was the controller general of finances, who eventually assumed authority for setting fiscal policy. At its inception, the Royal Council was under the sway of the great statesman, Jean Baptiste Colbert, who Louis XIV had appointed to the post of controller general of finances after the death of Colbert’s patron, Mazarin. With the goal of making France economically self-sufficient, Colbert cut back on public debt and set up an accounting system aimed at keeping the state within its income. These and other attempts were undermined, however, by the unpopularity of Colbert’s attempts to widen and equalize the tax system, coupled with the king’s military and personal spending excesses. Colbert’s protege and apprentice was his nephew, Nicolas Desmaretz, who went into exile when his uncle, after losing power and popularity, died in 1683.

Twenty years later, having published works on political economy, fiscal policy, and the role of finance minister, Desmaretz returned in 1703 to assist with the government’s finance administration. He took over the post of controller general from Chamillart in 1708. During his absence from France, various experiments in taxation strategy had been attempted, including the capitation and the dixieme mentioned earlier, none successfully. By the time Desmaretz returned to office, France, having lost the War of the Spanish Succession, was on the verge of disaster: both military and financial. In order to liquidate the war debts, Desmaretz made determined but politically ruinous attempts to enforce these tax expedients in the face of heavy resistance from the ruling class. Following Louis’ death, he was dismissed: the first controller general to lose office over the issue of extending the tax burden over all sectors of the economy. A similar fate befell those of his successors who attempted to exercise the same philosophy. It took the events of 1789 to settle this conflict over the rights of privileged interests.

The Cincinnati Branch of the Second Bank of the United States and Its Effect on the Local Economy, 1817-1836 (University of Maryland, 1978, 345 pp.; 40/3, pp. 1650-1-A) by Marilynn Melton Larew.

This dissertation evaluated, by means of a case study, two early and divergent views of sound banking practices which had been expounded by an economist and a banker: Adam Smith and Henry Thornton. Briefly stated, Smith posited that, under conditions of specie convertibility, banks would not issue excess amounts of notes because these would be returned to them for conversion into coin. Thornton contested this, stating that, in the short run, banks would be pressured by merchants into continued expansion if the interest rate were lower than the profit rate. The research question asked to what extent the experience of the Cincinnati branch of the second Bank of the United States (BUS) supported either of these claims.

The period covered in this study dates from 1817, the year following the establishment of the second central bank, until 1836 when its charter would have expired, had not Andrew Jackson effectively put it out of business in 1833. The Cincinnati branch was one of 25 through which the central bank operated nationwide from its Philadelphia headquarters. Regulation of branch activities by Philadelphia was easy-going and, as a result, the Cincinnati bank management chose to disregard, or disobey, central bank direction. For example, when the state banks were called on by the central bank and the Treasury to return to payment in specie, all of the nation’s banks started to expand credit. Instead of enforcing official policy, the Cincinnati branch actively assisted local banks in expansion practices. It did this by accumulating state bank notes in its vaults, continually renewing notes, and expanding debts to sister branches in the central banking system. When, in 1819, Philadelphia headquarters demanded that Cincinnati collect its debts, which by that time had accumulated to over $2 million, and cease expansion, the branch suspended operation. It was finally ordered to close in 1820.

At the time, the closing of the Cincinnati branch had a crippling effect on the local economy. However, after two years the situation picked up as new industry moved into the area, and within 5 years the crisis had been overcome. Overall, the central bank only suffered bad debt losses of about $140,000 because its claims had been settled in exchange for real estate which it subsequently managed, rented, and sold. Larew concluded that both theories of banking practice were supportable: Thornton’s in the short-run and Smith’s in the long-term, at least as far as Cincinnati’s experience was concerned. Despite the mismanagement of the Cincinnati branch, damage to both the local and central interests was short-lived and minimal.

Berry: Doctoral Research 139
The Business History of the Antebellum Wisconsin Newspaper, 1833-1860: A Study of Concentration of Ownership and Diversity of Views (The University of Wisconsin-Madison, 1978, 683 pp.; 40/6, p. 2959-A) by Carolyn Stewart Dyer. Dyer’s research was under-taken to test two generally-held assumptions: that establishing a newspaper in the nineteenth century was relatively easy and inexpensive as compared with today, and that frontier newspapers, generally, were independent institutions. She selected Wisconsin for her geographical sample and found that, rather than being independent, about one-fourth of the 400 newspapers published in antebellum Wisconsin were operated as parts of groups. This discovery led her to extend her work to test for any relationship between ownership concentration and diversity of expressed views.

The data collection and analysis techniques included: (1) searching the 1850 and 1860 federal censuses, and the 400 newspapers published during that period, to prepare quantitative collective biographies on 1,000 newspapermen. This work included comparisons of personal wealth distribution between newspapermen and all Wisconsin men; (2) analyzing the financial reports of 50 newspapers in the 1860 industrial census to learn the details of material and labor costs, capitalization, and newspaper establishment production value; (3) sifting through information from county histories, newspaper guides, and various personal papers, to identify groups of newspapers and their means of financing; and (4) analyzing editorial opinion on the 1846 Wisconsin constitution, through the Rice-Boyle cluster-bloc analysis techniques, to identify the sharing of opinions by newspaper groups.

Dyer’s personal wealth distribution comparisons showed that, as a group, Wisconsin newspapermen did not have the personal re-sources to operate newspapers without financial assistance. The various types of support they relied on included contributions and patronage, as well as mortgages and public office. The conventional wisdom that owners were printer-editors did not hold true. Publishing a newspaper was an expensive, and not necessarily a profitable, operation and jobbing out the printing was an economic necessity. As for the second research question, the cluster-bloc analysis showed more sharing of opinions on the 1846 Wisconsin constitution between two groups of related newspapers than between similar, but unrelated, ones. Dyer interpreted this as evidence of a relationship between an absence of diversity of views, given ownership concentration.

Money, Sheep, and Economic Crisis in Argentina, 1852-1900: Questions About The Principles of Economics (New York University, 1979, 357 pp.; 40/5, p. 2833-A) by Jeffrey Alan Lamia. Lamia brought to this study a new approach to economic analysis, focusing on the economic history of Argentina following the fall of Juan Manuel de Rosas in 1852 until the end of the century.

The modern state of Argentina, the second largest nation of South America and more than one-third the size of the United States, suffered a troubled genesis. Following the 1816 proclamation of the independence of the United Provinces of La Plata, Argentina ex-perienced almost permanent civil war and innumerable coups d’etat from factions representing regional, social, or political interests. The research period was one of agricultural transformation, large-scale immigration from Western and Eastern Europe, including an influx of Welsh, Scottish, and English sheep ranchers, and heavy capital investment: particularly by the British. The dissertation’s historical survey: “(1) discusses the socioeconomic division in Argentina from 1852 to unification in 1862; (2) examines the rise of sheep farming, the trade patterns, the monetary system, and the political community conflicts, all leading to the economic breakdown of the middle 1870s; (3) traces Argentine economic development from 1880 to 1885 with special attention to increased production to mitigate the crisis of 1885, and; (4) shows that agriculture neither displaced the dominance of sheep to 1900 nor grew directly to its twentieth-century characteristics in Argentina and that sheep raising was central to the 1890 crisis.”

The economic analysis took the form of a theoretical model, building on the work of John Williams and Alec Ford, in which the severity of the period’s crises was hierarchically structured, by economic levels and associated political conflicts, as follows: (1) macro-economic crisis through money; (2) micro-economic crisis through return on equity; and (3) crisis in foreign transaction. This more inclusive model emphasized the preeminent economic importance of sheep farming and reinterpreted the crises of the middle 1870s, 1885, and 1890.

Men, Money, Machines: Studies Comparing Colliery Operations and Factors of Production in British Columbia’s Coal Industry to 1891 (The University of British Columbia [Canada], 1979; 40/4, p. 2212-A) by Daniel Thomas Gallacher. The coal mining industry’s rapid expansion from 1871 to 1891 in the Vancouver Island region of British Columbia provides the setting for Gallacher’s research.

His purpose was “to describe the coal industry’s rise, account for its fast growth in the seventies and eighties, and assess the coal trade’s general impact upon the region’s economy.”
Two of the most effective agents in industry expansion were de-termined to be market demand and management technique, the most successful proprietor being the owner-manager. Entrepreneurs and promotors could only succeed, however, if they had strong experience in mining and as managers. Obtaining labor was one of their biggest hurdles: a considerably greater problem than attracting venture capital which came to them from heterogeneous sources. As a result, labor-saving technology was imported, principally from Britain. Management also adopted the expedient of hiring Oriental workers at considerably less than going wage rates. This wage policy, coupled with difficult working conditions in the mountainous terrain and consequent work safety concerns, aggre-vated problems between employer and work force and led to numerous disruptions.

The industry’s major customer, accounting for about 75 percent of its output, was California. This market was easily accessible through the ports of Victoria and San Francisco, where the major owners maintained their sales offices. Although Vancouver Island’s economy was boosted, there was little spillover on the rest of the province of British Columbia. The colliery owners concentrated on developing and maintaining the California market and, consequently, did not invest in coal production-related secondary industries.

Industrial Organization and Market Behavior: The Great Merger Movement in American Industry (The Johns Hopkins University, 1979, 423 pp.; 40/5, pp. 2840-1/A) by Naomi Raboy Lamoreaux. During a 4-year period, neatly bridging the turn of the twentieth-century, a wave of mergers transformed the American business population from many small and competing enterprises to market domination by many fewer and much larger corporations. Lamoreaux’s research task was to determine why this happened and how it impacted on industry’s organizational structure.
The study’s main hypothesis was that the merger movement was prompted by the competitive struggle of the 1890s, brought about by the following interrelated factors:

(1) opportunities for growth offered by transportation and communications facilities, which gave rise to widespread, capital-intensive, mass-production enterprises;
(2) the expansion of these enterprises in the late 1880s and early 1890s, leading to excess capacity; and
(3) the depression of 1893 which prevented the excess capacity problem from being dealt with.

The author takes issue with the conventional wisdom that the high fixed-cost structure of capital-intensive firms calls for maximization of output in order to yield lower per-unit costs, leading to debilitating price competition, and hence, to consolidation as an inevitable outcome. Based on her quantitative analysis of manufacturing sector data, and case studies of the steel and paper industries, she concluded that merely having a high proportion of fixed cost was not sufficient to bring a firm to the merger table. High fixed cost had to be allied to some other factor. The most likely additional causal factor was having excess capacity at the time of the depression of the 1890s.

The merger movement led, inevitably, to institutional adjustment in the organization of American industry. In the mass-production sectors, this took the form of a shift in patterns of market behavior from competitive to oligopolistic. Another feature of structural change involved strategic planning to forestall competition, dictated by events occuring after the first merger waves. The higher prices which larger economic units could command because of their mar-ket domination attracted additional investment. This led, once more, to excess capacity as the economic cycle repeated itself. However, the successful firms recognized the need to combat such degenerating outcomes by trying to ward off the likelihood of their occurring. Thus, Lamoreaux concluded: “the consolidation movement . . . was not the inevitable result of long-run trends in the economy, but instead the product of a particular historical conjunction of events . . . [and] only one phase in a long-term process of institutional adjustment to modern conditions of production.

An Analysis of The Tax Opinions of Judge Learned Hand and His Contributions to The Development of the Federal Tax System (The University of Mississippi, 1979, 383 pp.; 40/7, pp. 4103-4-A) by Tonya Kay Flesher. Given the centrality of Judge Hand’s role in the history of taxation, Flesher’s dissertation provides a necessary bridge for those interested in understanding present-day tax prac-tice as well as speculating on its possible future directions.

Learned Hand was born in Albany, New York in 1872. He ob-tained the LL.B. degree from Harvard in 1896, and became judge of a Federal district court in 1909. Just four years later, the 16th Amendment to the U.S. Constitution was adopted and Judge Hand emerged as the primary shaper of tax law and administration. Dur-ing his years in Federal district court, and later, from 1924 to 1951, in a Federal circuit court of appeals, he authored almost 300 tax case opinions and sat on a considerable number of others. Neither was he idle in retirement. In 1952, a collection of his papers and addresses was published as The Spirit of Liberty and in 1958, a series of lectures was published as Bill of Rights.
Summarizing Judge Hand’s prolific contributions to the tax field would be a challenging assignment, given the volume of current practices whose roots may be traced to his guiding philosophy. One could, as an example, point to his decision in the landmark case of Helvering v Gregory. This provides an instance of Hand’s pragmatism in breaking from a literal interpretation of the law in order to test for business purpose. Flesher’s study is an apt illustration of achieving the intellectual and utilitarian aims of research in accounting history.

History of Oil Industry in Iran (California Institute of Asian Studies, 1978, 315 pp.; 40/4, p. 2208-A) by Seyed Ahmad Alavi. Alavi’s research project was to review the historical development of the Iranian oil industry from its origins at the beginning of this century, and analyze the impact of the oil sector on the development of the country’s social, political, and economic life.

The Iranian oil concession of 1901 to a British national, D’Arcy, was yielded out of internal turmoil and financial crisis. The concession granted “exclusive privileges for exploration, development, and marketing of oil throughout the country except in five northern pro-vinces.” Shortly thereafter, in 1909, the Anglo-Persian Oil Company was established, with protective interest from the British govern-ment, one of Iran’s major creditors. Another, at that time, was Russia. After World War II, a third major foreign power, the United States, made its presence felt. In 1951, the Iranian oil industry was nationalized, causing international concerns, a boycott of oil from that country, and consequent deleterious effects on the domestic social and political scene. In 1954, however, a working agreement was arrived at with an international consortium, and the Iranian government subsequently concluded agreements with other foreign-owned oil concerns. The National Iranian Oil Company began to expand and the country’s revenues climbed from $30 million in 1954 to $1 billion by 1970. Prices of crude oil then started to jump, with the result that in the next seven years, revenues reached $22 billion: a staggering expansion in just over two decades. Even further ex-pansion of the economy was promised by recent discoveries of natural gas, copper, and coal. Given the recent swing away from the dominance of the industrial sector and industrial expansion, Alavi’s study provides a rich base for further research into the impact of culture on economic development.