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G. A. Swanson, Department of Accounting & Business Law

Tennessee Technological University

Cookeville, TN 38505


Living systems theory (LST) provides insights into accounting processes. For more than a decade, LST has been applied to various aspects of the accounting discipline. This paper overviews accounting from the perspective of LST, summarizing concrete process analysis (CPA) at the organization level and macro accounting at the societal level.

Keywords: living systems theory, concrete process analysis, accounting theory, macro accounting, society, supranational system, input-output models


Accounting is a near universal information system that contributes significantly to the development of levels of living systems higher than organisms. An accounting system is identified by four fundamental characteristics.

1. It is a component of a particular higher-level living system such as a group, an

organization, a community, a society, or a supranational system.

2. It processes concrete system information.

3. It observes, records, processes, and reports, inputs, throughputs, and outputs

of matter energy and information transmissions at the boundary of the system of which it is a component and at sub-boundaries forming other components of that system.

4. It attempts to observe and record entire populations of particular types of transactions and exchanges that cross the boundaries observed.

Input-output accounting theory concerns (1) the study of accounting systems that have emerged in living systems, (2) the demonstration of cross-level formal identities among accounting systems at different levels of living systems, (3) the extension of useful emergents found at one level to another level and among different systems at a particular level, and (4) the construction of useful input-output models for examining nonliving physical systems and conceptual systems from insights gained from the emergent accounting components of living systems.

Accounting Evolution

The archeological record provides evidence of a long evolution of accounting beginning about 10,000 B.C. and progressing as human civilization advanced (Schmandt-Besserat, 1979a, 1979b, 1986, 1987; Swanson, 1984; Swanson and Miller, 1989). The interaction of advances in accounting and in civilization are prominent and contribute alternatively one to the other. Accounting is a fundamental concrete information process without which complex modern societies could not exist as they do. It is likely that written language and early mathematics emerged from a prehistoric recordkeeping system about 3100 B.C. The system is documented in artifacts found throughout the Middle East. Modern money is a society-level accounting emergent. Just now, the world is attempting to evolve a purely accounting monetary system based on debt instrumentation.

The development of a modern science of accounting has been inhibited by identification of accounting with the practice and technology of a small fraction of its function. Accounting is generally viewed as an application of more fundamental sciences. It actually is a fundamental concrete process of all living systems above the organism level.

Input-output accounting theory builds on living systems theory (LST)[Miller, 1978; Swanson, 1982, 1987a, 1987b, 1987c; Swanson and Marsh, 1991; Swanson and Miller, 1986, 1988, 1989]. LST is a conceptual framework that identifies life as certain types of systems organized hierarchically in eight levels of complexity, ranging from cells to supranational systems. Although each level is differentiated by critical emergents, due to their evolutionary development each type also has certain similar kinds of critical subsystems. Twenty have been identified.

Accounting and Living Systems

Accounting is an identifiable fundamental information process in the group, the organization, the community, the society, and the supranational system levels of living systems. All such systems have a charter and a discipline of agreements (formal or implicit) among component organisms that control their processes and structures. The accounting process is the connection between those disciplinal conceptual systems and the concrete processes (matter-energy processes) of the higher-level living system. By accounting processes, ideas are materialized into actions and structures that persist according to the discipline of the higher-level conceptual system rather than according to the individual private conceptual systems of different component organisms.

Accounting and Organization Level Living Systems

Accounting is most commonly associated with organizations. That common perception is encouraged by a prominent and visible accounting profession and the development of explicit procedures that are used by organizations and are taught in colleges and universities. Because groups often disperse outwardly, to organizations or organisms, many of their critical matter-energy processing subsystems, the accounting functions at the group level are not as explicitly recognized. Much of community, society, and supranational system accounting is implicit in the matter-energy exchanges and, consequently, also is not widely recognized as accounting.

Accounting for exchanges at the boundaries of organizations using an input-output model is the dominant method of organizational accounting. The input-output model is a direct outgrowth of the fundamental exchange processes characteristic of modern market economies. In such economies, transactions (transfers of matter-energy forms and transmissions of information markers across boundaries) are motivated by reciprocating transactions. This coupling of reciprocal transactions in exchanges makes the exchange–not the transaction–the most basic economic unit of the system. Analyses that decouple transactions as though they occur independently do not describe a market economy. They leave out the dynamic that makes the system function. The input-output model commonly used for accounting records in organizations incorporates the dynamic that makes the market system work. The record, however, is limited because it observes the input-output from within the organization and because the model used does not include terms for substances produced and consumed within the organization.

The common accounting model accounts for an empty container. (Asset=Liabilities + Owners Equity, 100 = 40 + 60, 100 - 40 - 60 = 0. Inputs always equal outputs. All net inputs are distributed to owners and creditors by the model.) This is the case despite a strong emphasis placed on the accounting entity concept by practicing and academic accountants.

No term is included in the model for the substances consumed or produced inside the organization. This weakness of the model is contributing significantly to a general confusion in management and cost accounting and is one reason it has not been easily adapted to societal and ecological accounting. Such terms are necessary because things are originated someplace and cease to exist somewhere. They are not only imported and exported. On the other hand, the input-output constraint is possibly the most important single characteristic of a free-market economy. Perhaps the most important economic advancement in the next decade will be to learn how to account for organization-generated increases and decreases without disrupting the powerful discipline of the input-output monetary accounting equality of the market economy.

Organization-Society Cross-Level Accounting Signals

Organizational double-entry bookkeeping is not simply an error control device, nor is it only a recordkeeping method. Some of the records generated in organizations can themselves be traded for economic value in the societal suprasystem. They, consequently, constitute cross-level signals between organizations and societies that set limits on the activities that can occur within organizations. Such negotiable accounting records are termed money-information markers (MIMs?). MIMs? are concrete societal emergents that are generated within a society's component organizations.

MIMs? may be classified in the two major categories: (1) currency and (2) time-lagged. Currency MIMs? are introduced into societies by highly specialized organizations generally closely tied to governmental organizations chartered for that purpose. Currency MIMs? are instruments and processes such as coins, bills, checks, credit cards when used to purchase goods and services, and certain electronic funds transfers. Time-lagged MIMs? may be usefully subclassified as (I) owner documents, (2) creditor documents, and (3) social documents. Owner documents provide legal private prior clairns on the control (processes) and negative income of organizations, and private legal residual claims on their structures and incomes. Creditor documents do just the opposite. They provide legal private prior claims on income and structure and legal private residual claims on control (processes) and negative income. Together, different types owner documents and creditor documents form a continuum on which these descriptions are the extremes. Organizations issue literally hundreds of different types of financial instruments with various degrees of these opposing characteristics, attempting to balance certain risks, costs, and benefits. Social documents provide public legal mandates for actions. These actions arise out of a consensus, conceived and instituted society-wide, rather than from the mutual motivation of reciprocating transactions in specific market exchanges


These MIMs? constitute powerful information signals by which societies self-regulate their components (individuals, groups, organizations, and communities). Concrete process analysis (CPA) is a set of procedures developed to analyze those signals at the organization level. Macro accounting is a set of procedures derived to study them from the perspectives of societies and supranational systems. These procedures may be used in tandem with such methods of ecological analyses as Odum and Arding's [1991] energy analysis, Allen and Starr's [1982] hierarchy theory, Burkhardt's [1987] substance accounting, and Heiskanen's [1975] linguistic-mathematical theory.

Both CPA and macro accounting utilize input-output modeling. The two pro-cedures, however, focus on different sets of inputs-outputs. At the organization level (using CPA) the input of one transaction and the output of the coupled reciprocating transaction are observed and entered into the model. Macro accounting simulates both the outputs and inputs of both of the coupled reciprocating transactions of an exchange.

Concrete Process Analysis (CPA)

Modern accountants typically mix the concrete process measurements observed at the boundaries of organizations with interpretive adjustments obscuring the record of concrete processes. The procedures of CPA may be used to unscramble the signals and determine what the information on the concrete processes is.

The flows of modern market economies may be described at a general level by the following identity:



MIMO is aggregate money-information market outflows during a particular period,

MIMI is aggregate money-information marker inflows during the same period,

MEI is aggregate matter-energy inflows during the same period, and

MEO is aggregate matter-energy outflows during the same period–all terms are stated in the monetary values of the specific exchanges that occurred.

The identity is actually an interlocking system of equations (balancing equations) composed of the following two equations that each describe net matter-energy flows (NME) in terms of specific exchange monetary values.



The system converges naturally on NME because MIMs? are information signals transmitted in the economy to facilitate the transfer of different forms of matter-energy (real goods and services). Actually the MIMs? introduce time lags into basic trades of valuable goods and services on the basis of executory contracts that give future rights to valuable goods and services. That action inputes the future value of the goods and services to the legal document of these rights (MIMs?) empowering the documents to be-traded for value presently. The modern money emerging in that process is the signal that activates modern economies.

The balancing equations can be expanded as follows to incorporate the types of MIMs? already discussed and other useful classifications of matter-energy flows.

(CrO? + OO + SO + SyO? + MoO?) - (CrI? + OI + SI + SyI? + MoI?) = NME

(MAI + PI + EI + COI) - (MAO + PO + EO + CoO?) = NME


Cr is creditor MIMs?, O is owner MIMs?, S is social MIMs?, Sy is system-(organization) generated increments and decrements, Mo is currency MIMs?, Ma is materials, P is personnel, E is energy, Co is communications, and the suffix O is outflows and the suffix I is inflows. All typical accounts used by modern accountants can be classified into these more general categories and the category accounting adjustments, thereby sorting common accounting information into information on an organization's concrete processes. The concrete process information can then be analyzed for important cross-level feedback signals. Swanson and Miller [1989] and Swanson and Marsh [1991] provide examples of specific types of analyses of the dynamic steady states of organizations.

Macro Accounting

Macro accounting's pivotal idea is that modern economic processes, notwith-standing their high complexity, are combinations of one fundamental type of process. That process is the exchange. Macro accounting procedures simulate related exchanges, tracing them through an economic system, subject to the dynamic of coupled reciprocating transactions motivating each other.

The simulations are symbolized, for example, as the following: TLM is a debt instrument (time-lagged MIM), CM is a currency MIM, ME is a form of matter-energy such as people, machines, goods, and services. Superscripts indicate the living systems involved in the exchanges, for example: S is society, P1 is one producer, P2 is another producer, C1 is one consumer/laborer, C2 is another consumer/laborer. Subscripts indicate amounts in terms of monetary units. Four terms are required to symbolize an exchange, for example:

TLM-1p1 TLMl? s CMs?-1 CMp1? 1


the first term is the outflow of the initiating transaction, the second term is the inflow of that transaction, the third term is the outflow of the coupled reciprocating transaction, and the fourth term is the inflow of that reciprocating transaction. This notation describes Producer 1 transmitting a debt instrument to society in exchange for a transmission of currency MIM from society. The values of the debt instrument and the currency MIM both are one monetary unit. Outflow is indicated by a minus sign and inflow is indicated by a plus (or no) sign. The position of terms also indicates the outflow-inflow characteristics.

Notations of related exchanges are combined into chains that form circuits or cycles. A circuit is a chain of exchanges that leaves no residuals in the system. A cycle leaves residuals that may act as motivators for a following cycle as the system attempts to complete a circuit.

Macro accounting may be used to study the effects of various monetary and fiscal policy decisions. It clearly identifies the physical limits of the cross-level MIM signals within and between societies. It may be used to estimate psychological effects as well. Macro accounting simulations clearly demonstrate that interest and profit signals introduced in some ways can limit rather than enhance production over time [Swanson, 1991].


Audit information is accounting information of the second degree. It is accounting information on accounting information. As higher-level living systems extend in physical space and time, their decider subsystems are increasingly separated spatially and temporally from their other components and subsystems. To effectively act, deciders must have information on the integrity of the information used to control their systems. The processes that provide that second degree accounting information are commonly termed auditing.

Input-output accounting theory suggests two major types of auditing: (1) technical and (2) professional. Technical auditing is an organization-level information process that confirms or disconfirms the integrity (stand-alone characteristics) of objects and the validity (the information represents what it purports to represent), the objectivity (the fidelity of the representation), and the reliability (the consistency of the valid and objective representations) of information about objects controlled by deciders in organizations. Professional auditing is a process that is concerned with information connections and disconnections within societies and among organizations and other components. Future societal forms and, consequently, individual human freedoms and restrictions will depend significantly on the continuing emergence of professional auditing. Input-output accounting theory may expedite the development of professional auditing [Swanson and Marsh, 1991].


Input-output accounting theory instructs investigations of important information processes found in all higher level living systems. It provides insights into the evolving structures and processes of modern market societies. Universal accounting procedures may be used to construct integrative analyses and syntheses of the highly complex evolution now occurring with the collapse of communist systems. They also may be extended to include analyses of the ecological systems that form part of the environment of living systems.


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Input-Output Accounting

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