Classification_chart_of_Factory_Ledger_Accounts,_1919_(2)

A capitalist economic system involves human relationships being extensively mediated by capital. Capital is generally used as a term to denote productive resources; however in a capitalist system the meaning of ‘productive’ is a very narrow one: a resource is ‘productive’ if and only if it can be used to generate monetary return. Domestic labour, for example, is only productive in this sense if mediated by a monetary relationship. If mediated by familial love such labour is, under capitalism, unproductive.

It is for this reason that capitalist economies are dominated by investor-owned corporations (IOCs). In IOCs control and profits are tied to supply of a particular type of input, namely capital. Directors of IOCs must act “in the best interests of the corporation”, which the law understands as the best financial interests of shareholders. Other interests can be taken into account only so far as this is consistent with shareholders’ financial interests. Interests other than financial interests are thus filtered out.

IOCs, with their sole emphasis on financial gain, are quite distinct from co-operatives. This is in two key ways.

First, co-operative members must use, support or maintain a relationship with the co-operative in order that the co-operative can carry on its primary activity. This contrasts to members of IOCs, who are required only to provide capital and can otherwise be passive, leading to the predominance of investor “absentee-owners”. Second, co-operative member control is detached from the financial worth of members thereby enshrining the democratic nature of co-operatives. Thus, interests other than financial interests, rather than being filtered out, in a co-operative are positively encouraged.

A co-operative therefore services the economic, social and cultural needs of its members, including future members, with directors maximising member ‘value’. Co-operatives do not maximise production in the capitalist sense of maximising monetary return. Rather, they maximise production in the holistic (or human) sense of member well-being.

Accounting Standards

As would be expected from the above discussion, accounting standards developed for IOCs focus almost exclusively on financial flows. This is shown by the recent move by the International Accounting Standards Board to replace the expression ‘IAS’ (International Accounting Standards) with ‘IFRS’ (International Financial Reporting Standards). Labardin and Nikitin comment that this “semantic shift is not necessarily innocent… financial markets have recently taken over international accounting harmonisation, and they just need financial reporting, not accounting”.

So what is accounting? The etymological roots of ‘accounting’ are in ‘accountability’. In a corporation controlled by and for shareholders, and therefore run purely in order to maximise financial return, the corporation will be primarily accountable for its financial performance. As we have seen, however, co-operatives do not look just at just financial return – they look to member “value”.

It is likely that if co-operatives operate using accounting standards which concentrate only on financial flows, as they are currently legally obligated to do, then they will tend to focus on financial return rather than member value. They will therefore function more like IOCs than as co-operatives. An accounting standard which concentrated instead on member value would help ensure that co-operatives functioned as true co-operatives. There is good evidence, for example, that having entities report on matters such as environmental impact is effective at integrating sustainability into the thinking and practices of the entity. This suggests that in order to keep co-operatives accountable to their members, co-operatives will require accounting standards which look at more than just financial flows.

One reason that this has been glossed over is that ‘money’ has been held to be a perfect measure of value. Mainstream economics, for instance, understands money as an illusion due to its supposed perfect synonymy with value and so has not included money in its models. This idea of money, however, has been increasingly found wanting. George Monbiot, for one, has pointed out that the idea of “Natural Capital” – which involves pricing the value of nature is unworkable since comparing the value of money and the value of nature involves comparing “non-commensurable” things. It is an inappropriate reductionism to attempt to measure value in purely financial terms. Indeed, researchers have found that such attempts are counterproductive.

There are already moves to address this issue. The Global Reporting Initiative, for example, has developed “Sustainability Reporting”. This involves communication of a range of qualitative, quantitative and financial information about a company’s economic, environmental and social performance to key stakeholder groups. Companies using Sustainability Reporting must “identify its stakeholders and explain in the report how it has responded to their reasonable expectations and interests”. See also here, here, here and here.

If we are to escape from a system where social relations are mediated by money, to a system based more properly on our common humanity and which recognises the importance of love and affection in our productive activities, then we must come up with new ways of holding ourselves accountable. A place to start is to implement accounting standards looking at more than just financial flows.


Duncan Wallace studies law at the University of Melbourne. CoopWorkshop looks forward to future contributions from this cooperative thinker and doer. Also you can read his BCCM report (Accounting Standards and Co-operatives: Proposed Solutions to the Problem of AASB 132) on this topic.