Accounting for the fictitious: living death by mainstream economics

Accounting for the fictitious: living death by mainstream economics
By Christine Cooper
Discussant: Nadia Albu, Bucharest University of Economic Studies, Romania
The paper challenges the characteristics of mainstream economics (neo-liberalism) and
comments on the implications for the accounting profession. It draws on a Marxist theoretical
perspective as a foundation to criticize accounting and auditing standards resulted from a
mainstream economic thought.
The paper starts by presenting the notion of ‘fictitious capital’ based on Marx’s labour theory
of value and on Harvey’s writings about Marx’s work. The fictitious capital is a result of the
capitalist system, based on the speculative search for profitability and on expectations of
future returns. The author summarises the effects of the economic system as follows (page 5):
“Thus the large, glossy and prestigious financial institutions of the 21st century have been
constructed upon a form of capital which cannot, on its own, produce any real value, while at
the same time, has the power to create financial havoc. The role of finance capital in the
recent banking crisis was that in the search for profitable returns, new and sophisticated
financial instruments were created which were increasingly removed from the value creation
After this critique of the economic underpinnings of contemporary (mainstream) economic
thought, the author discusses the social, economic and political context which enables the
economic process. In this context, the social legitimation mechanisms of the mainstream
economics are discussed. “The underlying principle is that everyone should maximize their
own wealth and that governments should do everything to enable that wealth maximising
process.” (page 7).
As illustrations for the fictitious capital and conceptual underpinnings of mainstream
economics, the author investigates some contemporary examples, especially financial
instruments (stocks, shares and derivatives etc.) traded on different markets. Also, the
importance of the derivative market in the current economy is underlined, being “four times
larger than the combined global equity and bond markets measured by market capitalization”.
But the investment in derivatives is not considered the only cause of the recent crises, and the
author presents the Marxist view on the surplus capital, surplus labor and the legitimating
structures which are at the origin of speculative bubbles.
Since accounting is considered as “part of the legitimating structures of society”, the author
then leads the discussion towards the role of standard setters and accounting professionals in
the current (mainstream) economic environment:
The standard setters (IASB and FASB) have a private, international orientation, with
less control from the state, and are under pressure from fractional interests;
The development of the Conceptual Framework as a “political resource” in the
professionalization of accountants;
The orientation of accounting towards investors’ needs and departure from the
stewardship function;
The expansion of the fair value measurements.
As a corollary, the role of accounting in economic crises is underlined in the paper’s
conclusion, with the idea that the Marxist theory can be used to warn of the fictitional capital,
speculation and self-interest.
The paper contributes to the literature focused on criticizing mainstream economics
(capitalism) and on its consequences upon, as well as role of, accounting within this context.
The recent economic crises raise the interest in these areas, as recent works in the field also
indicate (Hopwood, 2009; Zhang, 2011).
In the Abstract, the author states that the paper “presents a modest contribution to the debates
surrounding the culpability of the accounting profession in the recent financial crisis”. In my
view, the main contribution of the paper resides in the intellectual inquiry of the mainstream
economic model in relation with the role of accounting and accountants. Considering the
paper’s structure, the length of its different parts, and the arguments provided, the discussion
of accounting issues is not prevailing.
The theoretical underpinnings are well developed. Further, the author explains the use of
social legitimation to link the discussion on the economic thought to accounting as a
legitimation structure. On the other hand, the discussion of the implications for accounting
still has in my view potential for further development and clarifications.
In my view, further developments in the discussion of accounting implications would
potentially aid the author to better outline the paper’s contributions to literature. For example,
McSweeney (2009) also discusses the role of accounting in the financial crises, and states
that “accounting has not been an innocent activity. It reinforced the illusion of continuous
growth and helped fuel speculation” (p. 844). The author of this paper also touches upon the
inability of the accounting profession of impeding the crises and the role of valuation models
(mark-to-model) in the exacerbation of economic phenomenon, but I feel readers would
benefit from further positioning against previous literature.
Previous papers criticize the standard setting process in the context of the current crises and
the pitfalls of the neoliberalism (Bengtsson, 2011; Flower, 2010; Zhang, 2011 for example),
fair value accounting (Laux and Leuz, 2009 for example), the accounting and auditing
profession or the role of international organizations such as the World Bank or IMF
(Annisette, 2004 for example). The merit of this paper might reside in bringing together these
issues and discussing them using a solid theoretical perspective. In this line, the focus of the
paper could lean for example from a critique of the mainstream economic thought towards
how accounting is shaped and shapes the environment under this thought. In fact, the author
states that “it is not the role of Marxist theory to solve the problems of capitalism”
(Conclusion) but Marxist theory “could play a central role in the conceptual discussion about
accounting and its role in the crises” (Introduction) and I feel that the paper could develop on
this assertion furthermore.
Some of the points where closer attention would be beneficial in my opinion are:
The accounting profession’s image, professionalization and quest for legitimacy – the
honesty and independence are presented as “skills not specific to accountants”; the
conceptual framework is presented as a means of “counteracting the threat from other
professions” – are these the result of a mainstream economics mentality (just like any
other persons, accountants intend to maximize their benefits) or a part of the manner
in which the accounting profession adapts to the economic environment?
The underlying principles and concepts in accounting – stewardship versus the
information usefulness for decision making, valuation basis (fair value versus
historical costs) – to what extent are these principles and concepts the result of some
economic thought or legitimation actions?
To what extent accounting (standards, standard setters, profession etc.) is able to play
a role in the economic environment, considering that at least part of its role is ascribed
externally (by the State, users etc.)? How can Marx and the legitimation strategy help
us understand how accounting is shaped in an economic environment (dominated
today by the neo-liberalism) and to what extent accounting might be different? In this
respect, Flower (2010) discusses neo-liberalism, the effects on accounting and the
need for “a just and fair distribution of output”. In a review of this book, Alexander
(2011) writes: “accounting has to realize what it is, and will always be, incapable of
doing”. I consider this aspect very interesting, and the intellectual inquiry of this
paper might contribute to fundamental conceptual questions like this one.
Overall, I found the paper very well written and intellectually stimulating. The essay
questions the validity of the current economic thought and challenges the manner in
which accounting “works” today. It deals with recent phenomena that match economic
and social enquiries about society in general terms (such as the ones dealt with by Edward
Bellamy in his utopian Looking Backward: 2000-1887 and Equality novels for example),
and I appreciate the author’s transgression of these aspects to accounting matters. With
further development of the part devoted to accounting, with a tighter integration of the
theoretical part and the conjectures about accounting, with a rounder discussion of
various accounting issues, the paper can bring significant contributions to a scarce
literature challenging and discussing the foundations and rationales of accounting within
its environment. I wish the author all the best in her scientific endeavours.
Additional references
Alexander, D. (2011) “Book reviews – Accounting and distributive justice, John Flower”,
The International Journal of Accounting, vol. 46: 483-484
Annisette, M. (2004) “The true nature of the World Bank”, Critical Perspectives on
Accounting, vol. 15: 303-323
Flower, J. (2010) Accounting and distributive justice, Routledge
McSweeney, B. (2009) “The roles of financial asset market failure denial and economic
crisis: Reflections on accounting and financial theories and practices”, Accounting,
Organizations and Society, vol. 34: 835-848
Zhang, Y. (2011) Accounting and neoliberalism: A critical reading of IASB/FASB
Conceptual Framework for Financial Reporting 2010, Critical Perspectives on
Accounting Conference 2011