The Economic Calculus: Accounting and Social Thought in Modern Central Europe

Abstract

From the late 19th century until the middle of the 20th, German-speaking economists, social scientists, and philosophers explained human reason in terms of accounting and bookkeeping. To answer the question of what it means to be a reasonable person, they referred to historical accounting methods and contemporary business practices. Accounting was seen as a discipline that inculcated rational habits of thinking, transforming human beings into rational subjects. In particular, accounting was used to theorize instrumental rationality, an essential concept in German-language social thought, referring to the rational disposition of limited means to attain given ends. Instrumental reason was understood as a mode of rationality characteristic of modern capitalism, and of a newly dominant social class, the bourgeoisie. The chapters of this dissertation each concern a major figure in the intellectual history of this period for whom accounting was essential, and who believed that the analysis of accounting methods could answer the urgent political questions of the day – the character of the German nation, the nature of capitalism, and the prospects for a socialist revolution. These thinkers are usually treated in disparate literatures. Yet all participated in an evolving, but nonetheless continuous, accounting discourse. By clarifying the relationship between accounting and reason, which was fundamental to their work, this dissertation offers a new perspective on Central European intellectual history during this period. The conception of rationality as accounting put the idea of reason as a universal endowment of all human beings in conflict with the particular history of accounting practice. Accounting methods and techniques were manifestly products of history, a history thought to be unique to certain regions of Europe. The idea of rationality as accounting therefore limited reason to Europeans, or to one group of Europeans in particular, that is, the German-speaking bourgeoisie. The definition of rationality in terms of accounting posed the problem of the universalism or provincialism of bourgeois rationality. The relationship of accounting to German nationalism is the subject of the first part of the dissertation. The first chapter concerns Gustav Freytag’s Debit and Credit, published in 1855. This novel makes clear that German nationalism was a bourgeois project – an attempt by the German-speaking bourgeoisie to understand itself, and to define the values, the culture, and the political agenda of liberalism in opposition both to the aristocracy and to putatively foreign subjects of German-speaking states. Accounting became associated with certain norms and virtues that defined what it was to be a German, excluding the Polish and Jewish subjects of German states from the imagined German nation. Because women typically kept the books for their households, the chapter also covers accounting’s implications for the ideal of German womanhood. The second chapter deals with Werner Sombart’s well-known claim that capitalism originated from the development of double-entry bookkeeping in medieval and early modern Europe. Sombart argued that double-entry bookkeeping had altered the values of the people who practiced it, inducing them to pursue wealth and capital not merely as means to the enjoyment of other ends, but as ends in themselves. To make sense of this transposition of values, this chapter explicates the concepts of value employed in the sciences of mind in Wilhelmine Germany, covering the psychologist Max Wertheimer and the philosophers Heinrich Rickert and Georg Simmel. Sombart is also well known for his anti-Semitic writings, and in this chapter and the previous one, the history of anti-Semitism and the history of accounting illuminate one another. Freytag, Sombart, and other anti-Semitic authors did not consistently associate the Jewish mind either with rationality or with economic calculation. Change over time in anti-Semitic representations of Jews thus reflect changing beliefs about what it meant to be rational, and whether rationality is a universal endowment of all human beings. The next chapter covers Max Weber, who defined capitalism in terms of the forms of rationality imposed by accounting. He also argued that accounts require a stable and predictable social order, which modern states enforce through rational, impersonal bureaucratic administration. The possibility of calculation (and by extension, of rationality) depended on these conditions, which he called calculability or accountability. The legal and political system generated the data that could be subject to calculation, required the performance of certain kinds of calculations, and ensured the existence of a predictable, stable social reality that could conceivably be described in numbers. Calculability was both epistemological and political, a matter not only of calculation, but also of control, of power as well as knowledge. According to Weber, this state of affairs was a unique, but fragile and uncertain, achievement of European capitalist modernity. The accounting concept of rationality differentiated German-speaking social science from Francophone and Anglophone economics, which simultaneously developed the neoclassical definition of instrumental reason as the maximization of utility. Supply and demand curves cannot be straightforwardly derived from accounting data. For this reason, a recovery of the accounting concept of rationality offers a perspective on the history of economic thought that contrasts with the existing scholarship’s emphasis on neoclassical maximization. The dissertation’s second part concerns the accounting concept of economic rationality developed by three Viennese economists. Otto Neurath envisioned a utopian in-kind accounting system for a society in which money had been abolished. In-kind accounting can be understood as an attempt to rectify the deficiencies of accounting practice, and to develop a new method of economic calculation that would correspond to the conventional theoretical description of the economic process as exchange in kind. Although Neurath’s later research in the philosophy of science has enjoyed ample scholarly attention in recent years, less is understood about his economic theory. The dissertation’s fourth chapter reconstructs Neurath’s economics. His reluctant participation in the soviet rebellion in Munich in April 1919 illustrates the entanglement of accounting and politics, that is, of calculative methods with problems of legitimacy and sovereignty. Like many of his contemporaries, Ludwig von Mises thought that accountancy was essential to capitalism and indeed, to human rationality as such, as the fifth chapter of this dissertation shows. In his later work, however, he began to circumscribe the significance of accounting, and to argue that the economy depended on intuitions that were, to some extent, incalculable. Mises’s student, F.A. Hayek, further minimized accounting’s significance. As the sixth and final chapter shows, accounting concepts are present, but not important, to his understanding of rationality. In Hayek’s work, therefore, the discourse on accounting that is the subject of the rest of the dissertation attains its denouement. He believed that there existed absolute limits to the numerical representation of social reality. His anti-quantitative, anti-calculative epistemology derived from neo-Kantian philosophy and from contemporary research in psychology and neuroanatomy. Mises and Hayek were prominent members of the Austrian school of economics, which is defined by its interest in the problem of economic calculation. The place of accounting and calculation in liberal Austrian economic theory changed over time, however. By charting this development, the final chapters contribute to a historical understanding of the Austrian school and its influence on neoliberalism in the late 20th century. German-speaking social scientists’ understanding of rationality as the historically situated and socially conditioned practice of accounting, which depended on specific personal virtues and political institutions, was displaced in the middle of the 20th century by an algorithmic concept of rationality as the execution of a series of formal, mechanical, and unambiguous rules. Algorithmic rationality abstracts from the norms, conventions, legal structures, and systems of discipline and control that always govern calculation. The conclusion shows how an algorithmic concept of rationality may misrepresent the character of economic calculation in non-capitalist economic systems, a topic of special interest to Mises and Hayek.