Simon Duindam

Theory for Accounting or Accounting Theory: An Essay on the Interaction between Economics and Accounting

The disciplines of general economics and business economics have been growing apart. Business economics has a more practice oriented and multidisciplinary focus. The background for this paper is the question whether, and in what manner, general economics can contribute to the development of business economics. This paper delves into the roots of the old-institutional economic school, in particular into the ideas of Schmoller. More specifically, it is a preliminary investigation into the question whether the insights of the old-institutional school can have a bearing on (management) accounting research. Some future directions in this respect are suggested at the end.

Gustav Schmoller: an evolutionary economist

Evolutionary Economic Thought explores the theoretical roots of the evolutionary approach, and in so doing, demonstrates how it fits squarely into the theoretical mainstream. Focusing on the institutions of evolutionary change and the processes – such as competition – that generate change, this book takes account of important European contributions to the discipline, hitherto overshadowed by the American paradigm. As such, the book serves to broaden the current discourse. Whilst evolutionary economics itself is a well-researched and widely documented field, this book will be credited with establishing a history of evolutionary economic thought.

The interaction between society and the armed forces

The armed forces are a part of our society. There have always been armed forces. We can not think about times without them. But, if armed forces want to survive than it is necessary that they are accepted by society. If society does not see the necessity of armed forces, than the armed forces will no longer have a right to exist. Beside the social acceptance of the armed forces in a general sense, the armed forces need a certain level of social acceptance in a specific sense too, in order to function: “People do need the will to work there, not only related to the social accepted aims of the organization, but related to the legal status, the character of the work and the working conditions too”.1

The transformation of a conscription force into an all-volunteer force

The Dutch constitution, article 97, states: “Alle Nederlanders daartoe in staat, zijn verplicht mede te werken tot handhaving van de onafhankelijkheid van het Rijk en tot de verdediging van zijn grondgebied”. The constitution continues in article 98: “Tot bescherming van de belangen van de staat is een krijgsmacht, bestaande uit vrijwillig dienenden en uit dienstplichtigen”2

The public good “Defense”

Military conscription is part of the manner in which members of a society want to protect themselves against attacks from outside their society. In other words, military conscription is part of the public good defense.

Economics and Conscription

Military conscription is a public phenomenon, which has been part of Dutch society since the Napoleonic age. Conscription is a complicated phenomenon. A number of committees studied the issue of conscription in the Netherlands, but could not come to the conclusion to abandon conscription. Contrary to many other social issues, conscription has not been at the centre of much attention. It was not until the last decades of this century that scientists showed interested in the economics of the conscripted soldier.

The demand for and the supply of volunteers

In chapter four and five we used the “opportunity cost” instrument to investigate military conscription. With the opportunity cost instrument we analysed the social costs of conscription in terms of the conscription tax and we used these social costs for the social cost price of conscripts to analyse the allocation questions in the armed forces.

The history and existence of conscription in the Netherlands

For many ages now, mankind has been busy with the protection of its possessions. Sometimes the enemy is water and dikes and mounds are erected. Other times human beings rise up in arms and require them to defend themselves man against man. In the thousand-year period that proceeded the introduction of the general and personal conscription system in the Netherlands, military service has been a class privilege up until the beginning of the middle ages, becoming a profession until the downfall of the Republic, and after which it became an obligation, which was assigned to one class, especially to the poorer classes in society. In contradiction to earlier times it became a privilege to be exempted from military service.1

The conscription tax

Conscription provides the possibility to keep the budgetary costs of military labour low and can be seen as an instrument of economic policy. Because conscription lowers the tax that has to be gathered by society, conscription can be seen as a tax. It can be defined as a compulsory contribution without a reciprocal contribution by the party who receives the contribution. Conscription also provides the possibility to bypass the market in the process of filling the open positions in the armed forces, at which point it also raises a few economic questions. This does not infer that the choice for or against conscription can be made on the basis of economic arguments alone, but it does indicate that the use of conscription has economic consequences for the armed forces in particular and for society in general.

Conscription and the allocation of production factors

As demonstrated in chapter 2, the use of production means in the armed forces, implies a withdrawal from such means from civil society. In civil society these means are relatively scarce with regard to occurring needs. Therefore, it can be said that means of production in the armed forces are also scarce. The output of the armed forces may be provided outside a market regime, however in regards to their inputs they are actually taking part in a civilian exchange process. Both on the labour market and on the capital market the armed forces have to satisfy the market demands.