Louis Goldberg and the journey into accounting thought

Acknowledgements: I am indebted to Steve Zeff, Phil Cobbin and John Richard Edwards for comments on earlier drafts. I am also obliged to Stewart Leech for fascinating discussions about the background to Journey, and to Garry Carnegie for his (perhaps misguided) faith in my ability to produce a work of the required scope and analytical depth.

Background

In 1959, my first undergraduate year at Melbourne University, Lou Goldberg gave several lectures. He seemed old - he was actually a decade younger than I am now - learned, and unenthralling. Two years later I enrolled in an Accounts III seminar, effectively an honours class, with only ten students. Utterly absorbing, it was enhanced by Lou's dry wit, scholarship - Plato's Republic was somehow brought into our discussions - precise expression and historical perspective. Inter alia, we examined the proprietary, entity, and fund theories of accounting. Trevor Johnson also participated in these seminars. Once, when I was querying some matter with Trevor (who was always "Dr Johnson" in those more-formal days), he mentioned that Lou was more dissatisfied with current theories of accounting than he had indicated in class and was developing his own theory. I particularly emphasised the limitations of extant theories in the inevitable exam question on the topic.

Joining the staff of the University of Melbourne in 1971, I was variously Lou's colleague, his student in a research-methods class, and the youngest lecturer in accounting. Another colleague, even more junior, was Stewart Leech. Of the Melbourne staff in the early 1970s, we were probably the two least likely to be Lou's future collaborators. Following his retirement in 1973, Lou remained associated with the Department. Occasionally over lunch he would mention his late colleagues, the Fitzgerald brothers, Alec (Sir Alexander) and Garry (Garrett), always with great respect and affection. In my decade away from the University, Lou's Inquiry into the Nature of Accounting (Goldberg, 1965) had appeared. I skimmed through it when I joined the department but the material appeared remote from my immediate needs. I vowed to read it later.

Lou's retirement - and he might have appreciated the chance link - coincided with the onset of double-digit inflation in Australia. Virtually alone amongst his contemporaries, he retained a studied neutrality in the ensuing debate over the virtues and vices of the CCA, CCP and CoCoA measurement systems. In Goldberg (1976, pp.659-67), he adopted the standpoint of the "gentle voice of moderation and balanced inquiry" to advance ten "outlandish propositions" on inflation and inflation accounting - including that "nobody really knows how inflation operates" - mocked advocates of the various schemes for their "proselytising zeal", and suggested that his own "commander" theory of accounting raised ethical considerations that made "absolute concepts ... impractical". I remember being slightly shocked at Lou's attitude which seemed to represent virtuoso fiddling while Rome was burning.

Sometime during 1989, "Bob Clift asked if he could include a draft "allocations" paper of mine in a Festschrift that he and Jean Kerr were preparing in Lou's honour. Bob confessed that I was not on their original list of invited authors but they had been let down by several contributors. Doubting Lou's interest in allocations, I undertook, instead, to write about Alec Fitzgerald. I quickly read all I could about Fitzgerald, contacted his three daughters and some of his former colleagues and threw the whole thing together quickly to meet the publishing deadline. Despite my efforts, Burrows (1989) was criticised by Edwards (1991) for breaching oral-history protocols.

Several years later, Lou and I jointly prepared an entry on the Fitzgerald brothers for the Australian Dictionary of Biography (ADB) (Goldberg & Burrows, 1997). Co-authorship is an intimate relationship, akin to marriage in some respects. Each partner gains insights into the other's interests, style and sensibilities. Our study of Garry Fitzgerald's 1955 journal of a world tour revealed different Goldberg-Burrows outlooks: I was interested in what Garry said, particularly about World War 1 battlefields and opera performances at Covent Garden, whereas Lou was more interested in why Garry wrote what he did. "Who was Garry really writing for", mused Lou at one stage, "was it his family or future biographers?" In the course of this research we spent considerable time chatting while we motored to various appointments. I was surprised to learn that although Lou's daughter, Loretta, had been a professional pianist, Lou was not a devotee of classical music but relished Gilbert and Sullivan operettas.

On one memorable day, I spent a morning driving Lou around the various inner-Melbourne houses and schools associated with the Fitzgeralds. As I took Lou's photograph outside Alec Fitzgerald's first home, a bemused, and slightly spaced-out young man opened the door. I explained our interest and he invited us in. We spent a fascinating 20 minutes slowly going through what had become a student "squat", with Lou speculating on the way the Fitzgerald's would have lived. After lunch we drove around inner-suburban Carlton where Lou had grown up. He pointed out two of his childhood residences, the site of the house where he was born, the small factory in which his father produced army uniforms during World War 1, and another house which had doubled as a synagogue, to which he was occasionally summoned to make up a minyin (religious quorum).

Work on the ADB entry coincided with research for my history of the Australian Accounting Research Foundation (AARF) (Burrows, 1996) on which body Lou was an early committeeman. The AARF's minutes record Lou's opposition to the mandating of accounting standards. From our discussions, I gathered that he was uninterested in the details of financial reporting. We never discussed AARF's conceptual framework, but I know that the research body's staff were annoyed when Lou's only public comment on the framework (Goldberg, 1993) was a cynically-witty sustained metaphor about a dog called AARF carrying out four sacks (SACs) which were full of words, not all of which made sense. Again, I was shocked by his contribution to a public debate, and wondered at his motivation. I suspected he disliked the use of economic concepts to underpin accounting standards.

When my history of AARF was published I was mortified when Lou (Goldberg, 1997) - whose eyesight I thought too weak for sustained reading - took issue both with my somewhat cavalier treatment of him and with the concept of oral history. In framing a response (Burrows, 1999), I re-read some of his own historical writings. His "Search for Scouller" (Goldberg, 1977), with its seamless integration of topic, motivation and methodology, struck me as a classic, worthy of a place in a general historical-methods course (also see Goldberg, 1984b). With his history of the AAANZ (Goldberg, 1987) he succeeded in an approach which challenges even the best historians: structuring a work thematically rather than chronologically.

Journey into accounting thought

While Barbara Syme and I were collaborating with Lou on a paper about the Fitzgerald brothers (Goldberg et al., 1997), I was aware that Lou was working on a larger project with Stewart Leech. Despite their earlier collaboration (Goldberg & Leech, 1984a), the accounting theorist and the systems expert were, ostensibly, an odd couple. The product of this collaboration, A Journey into Accounting Thought, appeared in 2001, four years after Lou's death in October 1997. It is almost certainly - and equivocation is warranted when attributing finality to Lou - his last publication. In his editor's foreword, Stewart describes how the Goldberg-Leech collaboration was intended as a co-authorship, but that, although influencing "some chapters", providing "references and paragraphs in selected sections" and being willing to "listen, argue, assist and collaborate" over a decade, he finally opted to be described as "editor". Fortunate is the scholar like Lou who has the collaborator like Stewart.

The objective of Journey is to "enquire into and assess what accountants do in carrying out their functions as accountants" (p.3) in order to alert accountants to "the existence, and importance of fundamental issues which are often ignored or bypassed in much of the ... discussion in the literature of accounting". To this end the work is organised into four sections. Part I, "Background", consists of an overview plus four other chapters: "'accounting' and the activities of accountants", "approaches", "classification" and "accounting as a field of knowledge". The first substantive chapter, examining the activities of accountants, is indicative of Lou's style and approach. It is divided into several sections - "accounting community", "practitioners", "administrators/monitors", "educators", and "regulators" - with a mini-essay on each type of participant. While his focus is essentially anthropological, his approach is intuitive rather than empirical in that he does not refer to any survey-data about how accountants actually spend their working time. While in a technical sense, this means a lack of rigour - a term which Lou would, doubtless, have queried - it does give greater freedom for speculative insights.

Part II, "perceptions and concepts", provides the framework for what is probably Lou's major theoretical contribution. In chapter 6, the crucial "unit of experience" is argued to be the individual human being who, ultimately, "commands" the utilisation of resources. Chapter 7, "communication", outlines how humans communicate, identifies the symbolic and linguistic tools used in this process, and examines the several levels at which it occurs. In chapter 8, the key "units of activity" for the purposes of accounting are "occurrences" and, particularly, "ventures", from which perspective (p.l 13):

the activities of a corporation may be regarded ... as comprising an indeterminable venture which is composed of a vast number of determinate ventures beginning and ending at numerous and various points of time within its life, overlapping and interwoven in a complex pattern. The accountant's task is to segregate each of these ventures for appropriate accounting treatment, but at the same time he has to determine the relationships between the various ventures and assess the overall result of their interactions.

In chapter 9, "observational", "interactive" and "fiduciary" relationships are all examined as well as, crucially, "command". Chapter 10 is divided between "entity", a construct argued to be artificial and misleading compared with "command" with its realistic assumption that resource flows are determined by flesh-and-blood humans rather than artificial legal or economic entities. Two chapters on decisions round off this section: chapter 11, a dissection of decisions (ranging from Simon's work to "expert systems" and concluding with "decisions and command") and chapter 12 "relevance and reason in decision-making".

Part III "constraints" contains three chapters analysing what Lou labelled accounting's "tripodal paradigm". In chapter 13, "the accounting equation reconsidered", Lou interprets the familiar accounting identity in terms of suppliers and users ("commanders") of resources. In chapter 14, while recognising double-entry as the dominant concept in accounting, he argues that purported alternatives, such as Mattessich's "matrix" recording format and Ijiri's "triple entry" and "multi-dimensional" constructs, still embody the core "duality" concept and, thus, represent differences of form rather than substance. However, he is concerned that only financial measures can be recorded in this manner, leaving other important attributes to be captured outside the double-entry system. The key argument of chapter 15, "the overworked balance sheet", he summarises thus: "the balance sheet seems to be getting close to the limits of its capacity to inform; indeed, many balance sheets have probably gone beyond them. The multiplicity and detail of notes is often now so cumbersome that even experts are puzzled, at times, to interpret them" (p.302).

That the three chapters in part III, with their lucid exploration of basic accounting concepts, are perhaps the most outstanding in the book should not surprise readers coming as they do from the author of a Philosophy of Accounting (Goldberg, 1939 et seq.). In this work, retitled An Outline of Accounting in its final edition, Lou gave wonderful accounting shape to the capital-income nexus which had been first articulated only three decades earlier by Irving Fisher.

Part IV "loosening shackles" contains only chapter 16, in which the main ideas of earlier chapters are recapitulated and a number of challenges outlined, among which are:

* devising new recording paradigms which both recognise alternative values and account for expectations;

* applying venture concepts to "current procedures to accounting for specific decisions related to the responsibilities of identifiable people";

* recognising non-financial factors in cost/benefit analysis of "business, economic, social and cultural activities and policies";

* providing at "appropriate levels of public availability, more information about human activities".

In summary, Lou argues that, by focusing on market exchanges and monetary representations of other occurrences, modern financial reporting fails to capture the human interactions and social contexts associated with these transactions and occurrences. He sees highly-aggregated corporate financial reports prepared for heterogeneous, artificial entities, as failing to meet user requirements and expectations. His preferred "commander" solution would involve reporting on activities of human scale and compass, using venture-accounting concepts.

Journey is a rich work, revealing Lou's scholarship, idiosyncrasies, prejudices and disappointments. The range of sources is amazing: as well as a predictable array of historic accounting figures, there is Shakespeare (a six-page analysis of "Hamlet" from a decision-making perspective), Antarctic explorer R.F. Scott (stores recording), and philosophers Alfred Ayer and Bertrand Russell. His anthropological view of accountants and accounting is always thought-provoking, as is his discussion of "communication" in which he peels away the veneer of specialised professional activities to examine the fundamental processes at work.

Readers familiar with Lou's earlier works, particularly his Enquiry into the Nature of Accounting, will recognise many topics and themes (Goldberg, 1965). Understandably, in his final odyssey, he revisited many of his favourite intellectual haunts. It is no criticism to regard Journey as akin to a second edition of Enquiry. despite new topics and some repackaging and changes of emphasis with older material, there is substantial overlap between the two publications. The key differences are the two chapters on decision-making, a greater stress on the balance sheet in Journey compared with Enquiry (in which profit concepts and measurement issues were emphasised), and, doubtless reflecting Stewart Leech's influence, Journey's coverage of the influence of technology on accounting systems, data-base communication, and expert systems.

Like its predecessor, Journey largely by-passes the field of economics. While there are brief references to "consumption", 'scarcity" and "rationality in markets", topics such as incentives, agency and transaction costs which underpin much current accounting research, but which largely evolved in Lou's later years, are ignored. When Lou deals with contracting, it is not surprising that he focuses on ethics and equity rather than incentives and externalities. Similarly, while various facets of information are intensively analysed, information-economics is not mentioned. Iconoclastically, Lou even queries the reverential status accorded price-data in business research, arguing that (pp.308-9):

A price is a result of human activity and represents a contractual arrangement for exchange between two or more people. The arrangement says nothing about such aspects of the activities as the respective individual or social strengths of the parties, or the degree of exploitation of freedom between them, or any other circumstances which may affect them before or after or at the time of the exchange. The price may be as various as the amount paid for a specific commodity, an hourly wage rate, or a professional fee for technical advice, or an insurance premium and so on. The uniqueness of each price is rarely acknowledged but the trend of prices is often taken to be significant by researchers ... .

In other words, prices are simply one element of the information set associated with market exchanges and may be affected by special factors and opportunism to a greater degree than is generally acknowledged. However, in his challenge to the current research paradigm, Lou's disdain for economics can occasionally lead him astray. For example, he deplores the position of lenders "irrevocably bound by a legal contract to receive, in times of rising prices, an inequitable and decreasing payment in terms of purchasing power" and queries whether this relationship should not be accounted for in "some adjusted terms" (p.300). However, providing such lenders are paid positive real interest rates, the situation may not be inequitable at all.

Despite Lou's silence concerning the themes underlying much current research, he is outspoken about empirical research and researchers, many of whom, he asserts (p.43):

give the impression of having mastered an investigative technique, usually borrowed from some other discipline, and then having sought a topic in or related to the field of accounting in order to apply it. In their findings, negative and tentative outcomes abound. It is as if an army of research technicians have been limping around in circles waving their intellectual armory in a frenzied display of future offensives against an imaginary foe.

This is vintage Lou, but such passages also serves to illustrate a frustrating feature of his work: often it is easier to identify what he is against rather than what he is for. In Journey, he provides no examples of accounting research which he endorses nor any specific suggestions about how research should be conducted. There is the merest hint in a comment he makes about standard-setters, viz., that "one may well ask whether, and to what extent ... [they] have undertaken empirical research, for example, among users of balance sheets, to justify the mandated rigid adherence to such regulatory requirements" (p.280). However, in Goldberg and Clift (1968), he had participated in exactly such an exercise. It is a pity he did not expand on this issue in the light of his own experience.

In the category of Lou's dislikes, measurement-system zealots remain high on the list. In Journey, the 1970s critic of "CoCoA-vendors" and "current-costers" remains unrepentant,1 observing that (p.55):

much time and energy was devoted for some years in discussing the shortcomings of what became widely known as "historical cost" reporting and in suggesting various methods of overcoming them; much warmth but little light was generated by the discussion, since most of the protagonists were engaged in advocating a specific point of view with its inevitable mode of "solving" the problem and in decrying the features of the suggested remedies of their dissenting fellows. The issue is ... currently sleeping ... .

Similarly, his long-standing aversion to accounting standards and the standard-setting process is evident in his declaration that (p.56):

The widespread move towards standards has been one of prescribing treatments laid down by authoritarian groups of people who seek, with the best of intentions, to impose a uniformity of recognition and measurement of publicly reportable phenomena. They are more akin to the law from Mount Sinai or the bye-laws of a municipal council than to any scientifically expressed law or theory. The "due process" by which these pronouncements are reached is not remotely like the processes by which any advance in scientific knowledge is made. It is, if anything, more like a politico/legal procedure. The so-called research which is claimed to lie behind such pronouncements is, broadly, neither conceptually fruitful nor empirically impartial. When it is issued, a standard is not a statement of a "principle" or theory based on and supported by available unbiased and replicable evidence, but a pronouncement of a judgement arrived at by an approximation to consensus of a small group of people.

Hyperbolic it may be, but at core Lou's critique of the standard-setting process contains many truths. But again, his favoured alternatives remain unspecified. What sort of "unbiased and replicable evidence" would have satisfied him? Or did he prefer, as I suspect, a financial-reporting regime involving minimal regulation but a great deal of professional discretion, (based, presumably, on non-AARF fundamental concepts)? If it was the latter, its viability must be questioned, at least in current circumstances.

Journey also indirectly acknowledges what was probably Lou's greatest disappointment, the neglect of his "commander" theory of accounting. In criticising the "entity" concept, as a "distorted" linguistic figment, he explained that (p.140):

it was in order to avoid such obfuscation that the notion and expression of "commander" was suggested some years ago. It seems to have attracted little notice from accounting policy-makers in particular ... . It was, in fact, an attempt to direct attention towards a more realistic interpretation of accounting occurrences than can be vouchsafed by the adoption of an imagined entity endowed with personal powers in order to provide accountants with a theoretical justification for their accepted procedures. The attempt obviously failed. It seems that, to use a metaphor, nobody in accounting academia took it up and ran with it. As a result, it has lain largely idle and unused; whether it is unusable had not been established.

He did concede that an accounting system based on venture concepts "may involve a potentially more complicated structure of accounting records than is usually encountered at present, but one which would be better adapted to the social, and, indeed, the economic needs of a complex society" (p. 142). This observation together with the earlier comments about viewing corporations as sets of overlapping and interacting ventures are as close as he came to articulating the measurement system that would flow from his "commander" theory.

Lou's eschewal of financial-reporting practicalities may explain why he exercised less influence on the "urgent issues" of his time, particularly measurement, than his three great Australian contemporaries, Russell Mathews, Reg Gynther and Ray Chambers. Mathews saw his trading-stock valuation adjustment implemented in the late 1970s. Gynther was one of the instrumental players in the development of the Australian inflation-accounting standard and monetary-items exposure draft. Chambers had the satisfaction of seeing his CoCoA approach introduced piece-meal in relation to several asset-disclosure accounting standards. All three energetically marketed their schemes with Chambers being the most indefatigable. In contrast, Lou seems to have hoped that others would operationalise his ideas, raising an obvious question: why didn't he do more himself? After introducing his "commander" approach in Goldberg (1965), he had over three decades to refine, explain and advocate this concept, but chose to remain mute. He never, to my knowledge, argued his case in academic forums or engaged in more-private advocacy.

Personal style is relevant. Lou liked to project himself as a voice of reason, moderation and balanced inquiry, and as one to whom stridency, prosyletising and even too much enthusiasm, were unseemly. His idealised academic seems to have been the painstaking researcher, who read widely, considered carefully all arguments, eschewed ersatz scienticism, and slowly diffused his/her ideas in understated, careful prose. This near-parody of an old-fashioned Oxbridge don, is mostly true of Lou except that when he disliked something, his prose was by no means understated. Yet, basically, Lou's financial-reporting ideas were quite revolutionary. If he really wanted to get his ideas accepted, he needed to mount at least some sort of campaign, modifying in the process, his authorial persona of balance and tolerance. He may have simply underestimated what was needed to effect the changes he desired. Whatever the explanation, Lou's "commander" theory has been ignored by academics. He remained an armchair radical who was unable to mobilise a group of followers. It is as an accounting historian, rather than as a theorist, that his reputation endures.

Alternatively, it may be that Lou's revolution is based on impossible constraints and expectations which he privately recognised. Assuming it could be done at all, a system of recording and reporting which combines social-context data with venture-accounting concepts, would be formidably difficult to develop and implement cost-effectively. Lou himself acknowledged that it was easy to counsel an unachievable perfection. Accordingly, it is probably better to read Journey as both a fascinating anthropological view of accounting and its practitioners as well as a critique of current practice and research, rather than as a workable solution to the problems and limitations he identified. To suggest that Lou is the W.S. Gilbert of accounting academia is not to damn with faint praise: Gilbert (whom he admired) was a perceptive and entertaining social anthropologist and critic.

Overall, Journey represents the fascinating last statement of a scholar who was an outstanding educator and chronicler of accounting education, a dedicated bibliophile, an insightful, challenging, and (occasionally) mischievous critic, but an indifferent advocate.2 In commenting on Lou's achievements both in Journey and more generally, I must acknowledge the human factors which he continually emphasised. Different Burrows-Goldberg sensibilities affect my view of his work, particularly my criticism of his failure to develop his "commander" theory. Compared with Lou, I lean to the pragmatic, the utilitarian and the immediate. My reservations about his fine, but flawed, achievement in Journey probably reflect what could be construed as the shallowness of my outlook and knowledge compared to his. I suspect that readers of a more philosophical bent will regard Journey, without qualification, as an outstanding contribution to the accounting literature, even as a masterpiece. It certainly deserves a wide readership and a place on the shelves of all academic and professional libraries. As the first of the new Routledge Studies in Accounting, A Journey into Accounting Thought sets a high standard, in terms of production values and content, for those which follow.