The Victory of the Prussian Railway "Dynamic" Accounting over the Public Finance and Patrimonial Accounting Models (1838-1884): An Early Illustration of the Appearance of the Second Stage of Capitalist Financial Accounting and a Testimony against the Agency and the Market for Excuses Theories

By Richard, Jacques | Accounting Historians Journal, June 2012 | Go to article overview

The Victory of the Prussian Railway "Dynamic" Accounting over the Public Finance and Patrimonial Accounting Models (1838-1884): An Early Illustration of the Appearance of the Second Stage of Capitalist Financial Accounting and a Testimony against the Agency and the Market for Excuses Theories


Richard, Jacques, Accounting Historians Journal


Abstract: The history of accounting for private railway companies in Germany shows that these companies played a major role in the diffusion of historical cost accounting principles and gave birth, together with big other joint stock companies, to the "dynamic" or second stage of capitalist accounting, at least in continental Europe.

If the representatives of such railway companies did not develop new concepts of accounting, notably as concerned depreciation, they had, by 1875-1879, elaborated a new theory of accounting (historical cost or dynamic theory). This theory had a profound impact at least on the German theorists of the late 19tb century and early 20tb centuries such as Simon, Rieger and Schmalenbach.

This new theory was needed to justify a new law favoring shareholders in a hun-y for returns on their investments rather than company creditors. It also defeated the ideology of public finance and patrimonial (or static) theories of accounting. This new theory preceded the law which promulgated the new approach and clearly defended the private interests of shareholders as opposed to those of the public in the strict sense. It appears to contradict Watts and Zimmermann's basic hypothesis of the « theory of market excuses ». Agency theory seemingly does not to apply either, for the new theory was proposed by managers allied to shareholders, specifically those « hurried share-holders », against creditors. This is why a kind of « theory of alliance » appears to be more consistent with these developments. The main reasons for developing the new accounting theory were linked to the issue of dividends. It was necessary to find an accounting approach which would allow the distribution of dividends at the very beginning of an investment cycle. It was also intended to find an accounting approach which would ensure that profits were distributed as evenly as possible throughout the entire investment cycle and among the different shareholders who had financed the investment.

Hence, the second stage of the capitalist accounting development was not connected to measure of performance or information problems (monitoring and bonding) but seems to have been caused by the need to regulate profits and dividends in the interests of managers and shareholders. However, as this change took place within the framework of prudence, it was impossible, at that stage of capitalist accounting, to achieve a perfect smoothing of the rate of accounting profit. The solution to this problem was only to be found at the end of the 20rh century with the onset of the third or actuarial stage and the "discovery" of fair value.

Acknowledgements: The author would like to thank the two anonymous referees for their very useful comments on earlier versions of this paper.

INTRODUCTION

Accounting for railway companies is considered to have played a major role in the evolution of accounting thought and practice. This role increased, at least from a theoretical point of view, as leaders of the positivist school referring to Anglo-Saxon accounting literature concerning railways, demonstrate that accounting theories are normative and used as excuses for political action [Watts and Zimmerman, 1979, pp. 273 and 290].

In America and England the history of railway accounting is relatively well known thanks to a wide range of references written over the last seventy five years [Mason ,1933],[Littleton ,1933],[May, 1936],[Pollins, 1956],[Brief, 1966,1967],[Kitchen, 197 4],[Boockholdt, 1978],[Glynn, 1984],[Edwards, 1985,1986,1989] and [Bryer, 1991]. By contrast, recent literature on the history of accounting for German railway companies is sparse and does not deal with the subject specifically [Oberbrinckmann, 1990], [Schneider, 1987]. There is also some older rather technical literature which is rarely referred to because it is written in German [Reden, 1843], [Passow, 1919], [Barth, 1953] and [Mieles, 1932]. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Victory of the Prussian Railway "Dynamic" Accounting over the Public Finance and Patrimonial Accounting Models (1838-1884): An Early Illustration of the Appearance of the Second Stage of Capitalist Financial Accounting and a Testimony against the Agency and the Market for Excuses Theories
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.