Why Marx's Labour Theory is Superior to the Marginalist Theory of Value: The Case from Modern Financial Reporting

Abstract

Abstract At the heart of all theories of accounting lies a theory of value and the origin of profit. Two conflicting theories of value have dominated the history of Western thought: the marginalist theory of economics and Marx's labour theory of value. Which theory provides the best foundation for a theory of accounting? Most accounting theorists uncritically accept the marginalist theory. Only a few pioneers have pointed out its logical inconsistencies, and begun to articulate a system of accounting based on the labour theory of value. Their work is developed here through an exploration of the relevance of Marx's labour theory of value for a theory of accounting in modern capitalism. It is argued that Marx's analysis of the socialization of capital around the general rate of profit anticipates the description of capitalism embodied in the principles of modern finance theory, and that his analysis of the capitalist process of production provides a remarkable description of the principles of modern financial reporting. It is concluded that Marx's labour theory of value is clearly superior to the marginalist theory as the foundation for describing and explaining the role and practices of financial reporting in capitalism.