Maureen H. Berry, Editor
UNIVERSITY OF ILLINOIS
DOCTORAL RESEARCH
Sound accounting research can only proceed from a thorough un-derstanding of the political, social, and economic roots of the ac-counting problem. This edition of doctoral dissertation reviews moves away from customary reference to work by accounting scholars to present some recent studies in economic and social history— both to increase understanding of the accounting environment as well as to suggest areas for possible accounting investigation. In keeping with the universal nature of the accounting discipline, these studies have an international flavor. They are also related in their macrolevel focus and public policy concerns.
Collins’ study of taxation in Brittany in the early 17th century suggests a rich area for research by pointing out that very little is known of the French taxation system, particularly indirect taxation, of the time and its consequent economic effects. Moving through time and space to Brazil towards the end of the 19th century, Moreira examines the relation of subsistence agriculture to the process of capital accumulation. The perennial problem of public / private relationships is addressed in Frankel’s consideration of the role of businessmen in the Canadian government’s program of economic intervention in the 1930s. We remain in Canada, but move ahead one generation, to review its problems of capital accumulation, in a study by Tam whose econometric model suggests two important policy considerations for governments wishing to encourage capital investment. Capital accumulation is also at the heart of another vexious problem—that of inflation. Examined from the perspective of a developing nation, Divecha has used a structural model, adapted from Latin America, to analyze the nature and cause; of inflation in India and to suggest policy considerations when pursuing development goals. Inflation, deflation, and rates of price change are studied by Kahn as she compares the adaptive expectations and rational expectations approaches, using data from the United States in the latter part of the 19th century. The interrelated theme of fixed versus flexible exchange rates is taken up by Zervoudakis in the final study which examines the behavior of the floating dollar-sterling rate from 1919-25.
Taxation in Bretagne, 1598-1648 (Columbia University, 1978, 608 pp.; 39/4, p. 2472-A)1 by James Barry Collins. This dissertation had three main objectives: to trace revenue flows from 1598-1648 in Brittany, as well as the rest of France to the extent possible; to examine the evolution of taxation in Brittany and in France generally; and to examine the effects of taxation on the province of Brittany. The author views this research as the first stage of a larger effort to throw light on the tax system of early seventeenth century France.
The work commences with a review of the development of the French tax system prior to 1598 and a description of its administration and income-producing capabilities from 1598-1648, emphasizing direct taxation. It continues by turning to the Breton tax system. This section concentrates on the pre-1598 evolution of taxation in Brittany and, for the period 1598-1648, examination of such topics as: direct taxation and military levies; the wine duties of the Estates and the portions of these duties allocated to the king and to the Estates; and the regular indirect taxation, domanial income, and sales of offices. The study concludes with a review of the Breton economy and social structure and the effects of the tax system on Breton society.
As a result of his investigation, Collins suggests that we need to reexamine traditional views of the concept of absolutism, as well as understandings of the inter-relationships between Crown, officers, and population. He also evaluates the heavy effect of taxation on the French economy, particularly after 1634, and the impact of French government spending around 1639-40, as well as the Thirty Years’ War, on the economic collapse of the 1640s.
The Accumulation of Capital and the Subsistence Agriculture in Brazil Since 1889 (Cornell University, 1978, 298 pp.; 39/4, p. 2427-A) by Roberto Jose Moreira. Moreira analyzes the process of capital ac-cumulation in Brazil, following the opening of a free labor market after the emancipation of the slaves in 1888, emphasizing the role played by subsistence agriculture.
The history of economic development in Brazil during the past century can, according to Moreira, be segregated into three stages based on observed shifts in financial support for different markets. For the first 40 years or so, until about 1930, primary focus was on agricultural exports. For the next quarter of a century, until 1954, industrial mass consumption goods achieved preeminence. During the current period, capital accumulation shifted to industrial capitalist consumption goods.
Links in this three-sector model were then examined from the standpoint of the main area of interest: agriculture. Moreira again used a tri-partite approach by segregating the agricultural sector into agriculture for subsistence, on which he placed heaviest emphasis, as well as the export market and the import market. According to the author, these intersectoral linkages are formed by continuous processes weaving through the model which he identified by analyzing available data on prices and the structure of production. Among his observations he remarked that relations in industrial capitalist production developed simultaneously with relations in agricultural non-capitalist production. These agricultural relations involved an increase in small farmers, the employment of wage labor, and the use of sharecropping. Sharecropping was gradually replaced by family subsistence units. However, both approaches made significant contributions of food for the internal market and raw material for industry, and also provided rural labor forming a potential reservoir for industrial employment.
This expansion of the agricultural sector had two consequences which played important roles in industrial accumulation: an increase in rural labor productivity and exploitation. The resulting transfers of income served to benefit certain regions, certain crops, and certain types of farmers – thus increasing social inequalities.
Canadian Business & ‘The Reform’ Process in the 1930s (University of Toronto (Canada), 1976; 39/4, p. 2470-A) by Alvin Finkel. The basic question underlying this study concerns the process of public intervention in the private economic sector. Finkel has approached this by examining the origins of major new agencies, primarily at the federal level, established by Canadian governmental units in the 1930s, as well as government-business relations during that period.
The author first dealt with the matter of the often-cited claim that businessmen of the time were “outcasts” by evaluating whether or not certain selected officials at various levels of government could be considered representative of the population. He then turned to the new agencies themselves, including: the Dominion Trade and Industry Commission; the Natural Products Marketing Board and related marketing agencies; the Canadian Wheat Board; the Unemployment Insurance Commission; the National Housing Authority and other construction and housing-related agencies; and the Bank of Canada. This review covered the origins and activities of these agencies, as well as broader issues concerning the appropriateness of government intervention, the mechanisms it uses, and the level: federal, provincial, or municipal, which is or should be involved. The attitude of business towards these questions received his particular attention.
In performing this research, Finkel’s major sources of data were: the manuscript collections of leading politicians and businessmen of the time; Parliamentary debates; presentations made by business-men to government commissions and committees, industry associa-tions’ records; and business journals.
Finkel’s conclusions were that, for the period reviewed, business played a dominant role in the formulation and management of most economic reforms. Businessmen, while not united as to ways and means, were, as a group, concerned with maintaining the free-enterprise system, and the power of the big corporations within it, through a government-sponsored reform program. What they envisaged, as Finkel sees it, was a combination of positive government economic participation and restrictive legislation.
An Econometric Study of Canadian Capital Formation By Industry (University of Toronto (Canada), 1976; 39/4, p. 2434-A) by Cham-Kau Tam. The Canadian economy is also the focus of Tam’s study—but for a generation later and covering the period 1951-72. His purpose was to analyze the investment behavior of 10 industries with respect to 2 types of capital expenditures: non-residential construction and machinery and equipment, and thereby evaluate the impact of government policy on each type of capital investment in each industry. The 10 industries selected were: agriculture, fishing, hunting, and trapping; forestry; mining, quarrying and oil wells; manufacturing; construction; transportation, storage, and communications; electric power, gas, and water systems; finance, insurance, and real estate; and commercial services. To build the theoretical model of investment, Tam used a two-step procedure in the empirical study of investment. He first derived the optimal capital and then used a partial adjustment mechanism to specify the adjustment process by which the actual capital moves towards its optimal level. Tam describes the construction of the model as follows:
The optimal capital is determined by output, the parameters in the production function and the relative prices between capital good and labour. The rate of adjustment is governed by the parameters in the cost of adjustment function and the gap between optimal capital and lagged actual capital. Since the optimal capital is not linear in its determinants unless the parameters in the production func-tion are predetermined, the parameters in the production function are therefore estimated from the employment func-tion before investment function can be estimated by linear squares methods.
He goes on to relate this to the data analysis process:
As a rather general lag structure is specified between change in optimal capital and investment and the policy instruments such as tax rate and interest rate are included in determining optimal capital, the lag structure of investment can be characterized and the response of investment to policy changes can be identified for each type of capital expenditure in each industry.
Tam’s principal findings were that there were both inter-industry variations between the lag structure of investment and the responses of optimal capital to its determinants (which include output change and the tax and interest rates) as well as intra-industry variations between one type of capital investment and the other. Consequently, there are differences in each case between the magnitude and time path of change in investment after change in the determinants of optimal capital.
Tam suggests two policy implications from these findings: (1) policy measures aimed at increasing capital expenditure should be applied to the industries with higher responses of optimal capital to these measures, and (2) in order to maximize desired effects on in-vestments, policy makers should consider not only the magnitude but also the timing of proposed intervention because of the time lags involved in implementing policy changes.
An Indian Structural Model of Inflation: An Analysis of Nature and Causes of lnflation From 1951-52 To 1967-68 (Bryn Mawr College, 1976, 301 pp.; 39/4, p. 2438-A) by Rohini Vishnu Divecha. Divecha adapted a Latin American structural model to analyze the nature and causes of inflation in India, with special reference to the 1951/52 to 1967/68 Indian Planning Experiment.
The author identified the Indian structural model of inflation as “rooted in the desire to grow and industrialize faster than the present structure of the economy would accommodate.” As in other developing nations, planning for economic growth received first priority. Because of the substantial resources devoted to development, budgetary deficits arose as well as large increases in monetary resources and the money supply. This resulted in public-sector bottlenecks, leading to problems in the balance of payments—as well as blockages in other sectors of the Indian economy, notably agriculture. In Divecha’s view, such factors as war, weather, and the propagation mechanism of increasing money wages, accentuated rather than initiated India’s inflation—the most important determinants of the general price level being the government’s policy goal and the structural factors. Government, the author claims, must use several policy instruments simultaneously in pursuit of its development goals.
Also, the market must be able to send the right signals to producers who, in turn, have to be able to bring about the required adaptive responses. It is up to the policy maker to identify those market areas where government action and assistance is required. As Divecha points out: “Money plays a significant role in monetarists’ and structuralists’ models. In the former case it is activating, in the structuralists’ model it is accommodating. It suggests that price stability has to be sacrificed in the short-run in favor of economic growth and that price stability can be attained in the long-run through economic growth.”
Price Expectations in the 1860s And 1890s (Columbia University, 1978, 196 pp.; 39/4, p. 2416-A) by Brenda Joyce Kahn. This dissertation tested two different views of how expectation of future rates of price change are formed: the adaptive expectations approach and the rational expectations approach, using a new body of data for the periods 1860 to 1870 and 1890 in the United States. This new data consisted of yield differences between assets denominated in currency and those denominated in gold. During the 1860s and 1870s, the price of gold moved with other commodity prices within a flexible exchange rate system. The additional 1890 period was se-lected, even though gold and currency were by then linked in a fixed exchange rate system, because of claims by economic his-torians that this period was fraught with concern about the probability of devaluation.
In testing whether expectations are revised in either an adaptive or a rational manner, Kahn assumed that differences in yields between currency assets and comparable gold assets were composed of two elements: the expected rate of change in prices and a risk premium. When inflation is expected, a higher return on currency assets will be demanded in that a currency asset will only be held if the expected real return is equal to the real return on gold. If a constant risk premium can be assumed, then changes in the differential yield can be said to measure changes in market expectations of rates of price change.
Kahn used various ways of controlling for validity of the constant risk premium assumption. For example, all currency bonds involved the same parent company and maturity date and, to the extent possible, the criteria of trading in the same market and comparable issue were applied to the selected gold and currency assets.
Kahn’s findings were that, with respect to short-run expectations of rates of price change, interpretation of the results of regression analyses did not support the hypothesis of rational expectations, al-though this hypothesis could not be rejected for the long-run case. Kahn concluded that “the short run expectations of rates of price change could be explained only by a very slow adaptive expectations adjustment mechanism.” Because of the very small differential yield during the 1890s, Kahn challenged the conventional wisdom about anxieties over maintaining prevailing exchange rates.
Determinants of the Dollar-Sterling Rate 1919-25, and Some Related Issues (The University of Rochester, 1978, 170 pp.; 39/4, p. 2423-A) by Emmanuel John Zervoudakis. The topic of fixed versus flexible exchange rates is taken up by Zervoudakis who examined the behavior of the floating dollar-sterling rate from 1919 to 1925 in his evaluation of the alternative approaches to exchange rate determination.
Zervoudakis found that the main determinants of the dollar-sterling rate were: monetary conditions in the two countries; a seasonal variation in the level of U.S. goods imported by Britain; and commercial capital movements in anticipation of the seasonal variation. These factors were incorporated into a model which used the ratio of the money supply in both countries as an index of the first factor. The effect of the second factor on the exchange rate was assumed to be demands for money in each country. Observation of turning points formed the basis for expectations about the path of the exchange rate. Because of commercial capital movements there was a lack of periodicity in those fluctuations of the dollar-sterling rate not attributable to monetary conditions, even though originating in seasonal factors. Zervoudakis claims that an inefficiency in the flexible rates system is indicated by the fact that speculation only modified the path of the exchange rate, rather than smoothing out sharp, seasonal fluctuations.
The author also considered the relevance of the Purchasing Power Parity (PPP) Theory and the forward exchange market. Research in both areas, he claims, have led to incorrect inferences about the de-terminants of the dollar-sterling rate.
