Reviewed by Dieter Schnedier Ruhr-Universitaet Bochum
Proposals for inflation accounting, developed at the begin-ning of the “hyper-inflation” after World War I (1919-1923), be¬long to the most remarkable contributions of German authors to accounting theories. Moreover, “there is a considerable simi¬larity between the motivations for, and the supporting argu¬ments in favor of, injecting replacement cost or reproduction cost depreciation and inventory calculations into accounting in the post-World War I German accounting literature and the post-World War II U.K. and U.S. literature. … In many respects it has been a case of déjà ju” [p. 33].
Graves, Dean and Clarke explicate this idea by presenting abstracts, commentary and translations of ten articles published in 1920 on depreciation, cost accounting and financial account-ing procedures in times of inflation, written by well-known Pro-fessors of Business Economics in Germany (Prion, Mahlberg, Geldmacher and F. Schmidt with two chapters of the first edition of his Organic Accounting in the Framework of the Economy and now forgotten managers and professors.
The translation gets into the spirit of the articles and only rarely lacks conviction, e.g., Geldmacher did not mean in “Bilznxsorgen” unspecified “Accounting Problems”, but “Ac-countants’ Anxieties or Distresses”. The abstracts [pp. 3-18] are very informative but the commentary [pp 21.39] seems partly disputable.
To present the origins of inflation accounting to the Anglo-American readership is a laudable effort in the research of ac¬counting history. However, in comparing the discussion after World War I in Germany with the post-World War II U.K. and U.S. literature, it seems a bit odd to restrict the presentation to the first and rudimentary articles written mainly in periodicals for managers. By this procedure, for example, the outstanding inaugural lecture at the University of Freiburg by Ernst Walb about the problem of paper profits (“Das Problem der Scheinge-winne,” Leipzig, 1921) is excluded. Mahlberg and Geldmacher have published clarifications of their first ideas in later mono¬graphs (Mahlburg, Bilanztechnik und Bewertung bei schwanken-der Währung, Leipzig, 1921; Geldmacher, Wirtschaftsunruhe und Bilanz, Berlin, 1923). Nicklisch (Professor at the Business Eco¬nomics School, Berlin) developed in a book review (Zeitschrift für Handelswissenschaft und Handelspraxis, 1921-22, p. 45) the concept of nominal or inflation corrected profit, whichever is lower, an often repeated idea in the 1920s and from the 1950s on.
To thoroughly compare the German literature after World War I with its Anglo-American counterpart after World War II, it would be necessary to analyze the whole period from 1920-1930. This period includes the 4th edition of Schmalenbach’s Dynamic Accounting (1926), the 3rd edition of Fritz Schmidt’s Organic Accounting and the antithesis by Rieger. Therefore the contribution of Graves, Dean and Clarke can only be seen as a useful beginning of accounting history research on inflation ac-counting procedures.
The preface contains a survey of the politico-economic background in 1918-19 [pp. XI-XVII]. I cannot see any connec¬tions between the socialist revolution 1918 in parts of Germany, the counter-revolution by parts of the former army in spring
1919 and the accounting problems resulting from price control and inflation. Without these events the same accounting prob-lem would have existed.
The editors do not mention the fundamental changes in the tax structure in 1919 (Erzbergersche Steuerreform), an intellec-tual feat at the beginning of Weimar republic. The Prussian pre-war income tax which excluded capital gains had been changed to the Schanz (Haig-Simon) concept (nevertheless this attempt failed because of inflation and was then soon abandoned). The highest tax rate increased from Prussian’s 6% to Weimar’s 60%. Regarding this and the inflation, the section named “Taxation lobby” [pp. 25-29] in the commentary seems to be inappropri-ate.
Concerning replacement costs and price fixing, the articles translated in this anthology should have been compared with the state of the art of “cost accounting” in Germany before World War I. The use of cost accounting for pricing had already extensively been discussed for the first time in 1906-08 (23 ar¬ticles from a prize competition had been published in the Zeitschrift für handelswissenschaftliche Forschung), accompa¬nied by research in the theory of costs by Schmalenbach. There¬fore, the conclusion [p. 36] “Pre-World War I accounting in Ger¬many is best summarized as being balance sheet oriented” is not correct. Before 1914, the balance sheet was mainly a re¬search object for jurists. Schmalenbach acknowledges as prede¬cessors of his Dynamic Accounting, the Prussian revenue offi¬cial, von Wilmowsky (1896-1907) and the Saxon lawyer, R. Fischer (1905-08).
Discussions in the economic function of depreciation as a replacement fund date from the 19th century. During that time, confusion between depreciation and reserves was common and some of the articles in the anthology partly repeat this confu-sion. The commentary lacks a thorough evaluation of the ar¬ticles in the historical context before 1914 and after 1920. Espe¬cially, the articles do not reflect the two main directions which the discussion of inflation accounting procedures in German-speaking countries have followed from 1920 up to now: the “vol¬ume-reproduction” approach (Substanzerhaltung, in 1920; Geldmacher and with variations, Schmidt) and the “maintaining purchase power” approach (in 1920, Mahlberg; later Walb and Schmalenbach) whose ideas had been presented to the
Anglo-American audience by the same authors in a publication in 19891.
NOTES
1O. F. Graves, Dean, G. W. and Clarke, F. L., Schmalenbach’s Dynamic Ac-counting and Price-Level Adjustments (Garland Publishing Inc., 1989).
