Government/business synergy: Early American innovations in budgeting and cost accounting

              The Accounting Historians Journal Vol. 19, No. 2 December 1992
R. Penny Marquette UNIVERSITY OF AKRON and
Richard K. Fleischman JOHN CARROLL UNIVERSITY
GOVERNMENT/BUSINESS SYNERGY: EARLY AMERICAN INNOVATIONS IN BUDGETING AND COST ACCOUNTING
Abstract: This paper examines certain interactions between American government and business which resulted in important innovations in the areas of budgeting and cost accounting early in the twentieth century. The evidence suggests that budgeting methods were initially developed by municipal reformers of the Progressive era and were subsequently adapted by business for planning and control purposes. In like fashion, standard costing and variance analysis were signifi-cant cost accounting techniques born to an industrial environment which came to contribute markedly to a continuing improvement of governmental budgeting procedures.
Budgeting is a major tool of business and government in the contemporary world. Its central role in planning and control is so well established that it is difficult to remember that, unlike double-entry accounting, budgeting is a very recent innovation. Budgeting in the United States is barely a century old, intro-duced and refined in the first three decades of the twentieth century as a product of governmental and business synergies. This paper examines the early history of municipal budgeting with particular reference to the interaction between governmen-tal reformers and scientific management specialists of the pe-riod. The importance and value of budgeting as a control mechanism was initially appreciated by a host of Progressive era municipal figures at the turn of the century. With the pas-sage of time, this lesson was communicated to the world of business. However, early governmental budgets were limited in their effectiveness, particularly as a planning device, until pur-
This work was supported by a grant from the Stoller Foundation, College of Business Administration, University of Akron. The authors are grateful for sug-gestions from two anonymous reviewers of The Accounting Historians Journal.