Accounting,greed,and beliefs in a nineteenth century communal religious society

Introduction

An article in Accounting History by Carmona and Ezzamel in 2006 cited the scarcity of research on accounting in religious organizations. They posed questions and pointed out areas where more work is needed. This article attempts to address some of those issues by studying a unique nineteenth century communal religious society, the Harmonists. Accounting, both financial and managerial, is a product of its environment, and as pointed out in Jacob Soll’s 2014 book, The Reckoning, the environment of a society can also be a product of the quality of the accounting in that society. The Harmony Society, led by George Rapp, was a religious commune that started in Germany and settled in several areas of the United States, primarily in western Pennsylvania and southwestern Indiana. Surprisingly, the group’s early accounting records were quite sophisticated, at least for the early 1800s. However, members worked without receiving wages and labor costs were not recorded. These records (Arndt, 1975, 1978, 1980a, 1980b, 1982, 1984), which cover a long span of time and a wide geographical area provide an excellent opportunity to study the accounting practices of a large religious commune and its relevance to the environment in which those records developed. During the period of thorough record keeping, the commune was quite successful, but as the group and their beliefs changed, so did their accounting, and the group eventually disbanded. As the group relocated, there were dramatic changes in the group dynamics, beliefs, recordkeeping, and transparency and the social experiment ultimately failed.

This is a study of the accounting system of the Harmonists (also known as the Harmony Society, Rappites, or Economites), a communal religious society led by George Rapp. For the purpose of this study, a communal society is defined as

a group of people who are attempting to establish a new social pattern based upon a vision of the ideal society and who have withdrawn themselves from the community at large to embody that vision in experimental form (Heni, 1953: 5).

These groups may be religious or secular. Common ownership is a characteristic of these societies. The Harmonists adopted a communal lifestyle out of necessity since many of the members were older and this lifestyle allowed them to share the workload and resources. This idea was derived from biblical interpretations and not political ideology. The Harmony Society was the ‘most successful, wealthiest, and longest lived of the many nineteenth century groups in America that wanted to improve life on earth by communal living’ (Arndt, 1984: xvi). The progress of the Harmonists will be evaluated in light of the accounting systems in use in the United States during the same period of time.

Intentions and method

This work is an extension and update of the 1979 Flesher and Flesher article on the Indiana decade of the Harmony Society. This study continues the saga of the Harmonists after they left Indiana to settle in Pennsylvania until the demise of the group in 1916. In the years since the original article appeared in 1979, the accounting literature has developed, particularly in the area of studies of accounting in religious organizations. There now exists theoretical underpinnings, which will be relied on in this article.

Primary and secondary sources have been examined and summarized. ¹ Karl J. R. Arndt compiled and edited the extensive collection of letters, books, papers, and business records found in the Harmony Society Archives of the Pennsylvania Historical & Museum Commission at Old Economy in Ambridge, Pennsylvania (Arndt, 1975: xix). Also, Arndt traveled to the Harmonists’ homeland in Germany, and to their other colonies in Pennsylvania and Indiana in search of materials and published his findings in a six-volume set of over 5,000 pages (Arndt, 1975, 1978). The early documents were written in an archaic German form, which Arndt translated (Arndt, 1975: xx).

The structure of the remainder of the article is as follows: review of the literature; background history of the Harmonists; the accounting system in the Harmony Society; the state of the art of accounting at the time of the Harmonists; the unique spiritual dimension of religious institutions and its impact on accounting and the sacred/profane divide; and contributions and conclusions.

Background

George Rapp, the founding father of the Harmony Society, announced in 1803 that he was coming to Louisiana. This was at the time that the Louisiana Purchase was consummated, and the Louisiana Territory was transferred from French ownership to that of the United States. Rapp came to the United States from Germany in 1804, along with his son Frederick Rapp. Upon arrival in the United States, Rapp and his followers came to the conclusion that a place of abode in the more civilized part of the country would be preferable to the far-off southwestern wilderness in Louisiana (Duss, 1914: 7). ² Some of these followers did eventually leave the Harmony Society in 1833 and settled in Louisiana where they established Germantown, a community similar to Rapp’s, under the leadership of an individual called Count Leon (Arndt, 1941, 1980a). In Germany, Rapp had advocated a social order that he had derived from the New Testament. He and his group of followers had suffered persecution for these ideas. One of the primary reasons for their move to America was avoidance of the German military draft, since the group did not believe in fighting (Arndt, 1980a). Thus, at the age of forty-six, Rapp used his life savings to buy land in America. He purchased 5000 acres of land north of Pittsburgh. Six-hundred of his followers arrived that same year. In 1805, they formed the Harmony Society. Because the Society had many members who were too old or incapacitated to work, a communal way of life was adopted. All possessions were placed in a common fund and clothing and lodging were standardized. The group adopted a statute: Articles of Association. The Articles included the following provision: ‘Each for all and all for each, in sickness and in health’ (Duss, 1914: 9). These Articles required that all property would be conveyed to Rapp and his associates and that upon the withdrawal of a member, the value of property brought into the community would be refunded without interest in one, two, or three annual installments. Those who had not contributed anything would receive a donation based upon their service and length of stay at the time of their leaving. These provisions required records of membership and contributions.

In 1807, celibacy and the prohibition of tobacco were adopted. The practice of celibacy furthered the group’s financial prosperity because there were few children to care for and educate. Most of the members were very poorly educated and were willing to follow their leader, George Rapp. The Society’s belief in the imminence of the end of the world made the members willing to give up material possessions. All property was stored in a common warehouse. A store was operated in which members were granted permission to make purchases.

Early on, Rapp decided that ‘agriculture alone does not pay, therefore he advocated diversification of industries’ (Duss, 1914: 10). This, in turn, led to the realization that the Harmony Pennsylvania site was inadequate because surplus produce had to be wheeled 12 miles to the Ohio River for shipment to buyers. Thus, a move to Indiana Territory was prompted by this lack of a water route to the outside world and a shortage of the proper soil for vine-growing. In 1814, the group bought 30,000 acres of land in southwestern Indiana, which was to be their home for a decade.

In 1818, the book containing the records of property contributed by each member was destroyed with the unanimous consent of members to show their satisfaction and contentment. The Society became prosperous during the decade spent in Indiana. The community became the business center of the region. Branch stores were established. This prosperity brought new members from Germany. One entire block of the town was devoted to manufacturing enterprises such as a cocoonery and silk factory, a sawmill, brickyard, brewery, distillery, and woolen mill (Lockwood, 1971: 16). Skilled tradesmen included carpenters, blacksmiths, wagonmakers, coopers, shoemakers, tailors, hatters, masons, wheelwrights, and saddlers (Duss, 1914: 9). Orange and lemon trees were grown by using a mobile greenhouse that could be rolled in to cover the trees during cold weather. The water needed for the whisky distillery was pumped by two dogs who moved alternately (each one for an hour) around a tread wheel (Arndt, 1982: 348). The society’s reputation for honesty was one of the keys to its financial success. Its brands became known for their quality in all parts of the country.

When the Rappites came to America, their wealth averaged 25 dollars per person; when they left Indiana, it was 2000 dollars per member. Their average wealth was 10 times the average wealth in the United States, and 13 times that of the average resident of Indiana (Lockwood, 1971: 28). This wealth attracted the jealousy of their neighbors. Because of persecution by their neighbors and an outbreak of malaria fever, the Rappites sold the community to Robert Owen, a Scotsman who was to establish his own commune on the same site (Pollard, 1963). Owen renamed the town New Harmony, but his experiment was to last only two years. Following the sale to Owen, the Rappites bought land north of Pittsburgh within 15 miles of their original location. That was to be their final site. The first group of Harmonists left for the new colony called Economy in 1824. The majority stayed in Indiana to maintain order until full possession was transferred to Owen. The last group departed in 1825 (Arndt, 1982: xiii). This was a period of transition for the Harmonists as they prepared their third community. Their progress was closely monitored in the United States and most of Europe. ‘Rapp’s success had been proclaimed to the world several years before because the Harmonists had become internationally famous for their achievements’ (Arndt, 1982: xiv). Much of the extant correspondence reveals the political and economic influence the Harmonists had in Indiana (Arndt, 1982). The settlement, Economy, in Pennsylvania, was to be the best of the three communities because this was the expected location of the ‘Second Coming of Christ’ to dwell among his chosen people (Arndt, 1984: xi).

Although the group’s success never again reached the per-capita level achieved in Indiana, the Rappites continued living the communal life and by 1874 their net worth was estimated to be from two to three million dollars (which was about the same or slightly less than their net worth 50 years earlier: Nordhoff, 1966: 93). In the beginning, the members shared all personal assets in the formation of the common treasury. As the common treasury increased as the group became more successful after the move to Indiana, George Rapp and his favorites benefited from the wealth. Once the group returned to Pennsylvania, Rapp continued to live a good life, while the multitude of the members suffered in misery and poverty. Rapp’s sermons stressed the importance of living frugally, and this the members did (Arndt, 1984: xvi-xvii). The great wealth of the Harmony Society had come from the personal contributions of the membership, including inheritances, which Rapp’s agents collected in Germany, their hard and unpaid labor, their frugality, and ‘Frederick Rapp’s brilliant ability as business manager of the Society and unquestioned controller of all funds and well-informed investment genius of these funds’ (Arndt, 1984: xvii). Frederick Rapp died in 1834, and his demise took away the group’s primary business leader. The Society’s founder and leader, George Rapp, died in 1847 just weeks before reaching the age of 90 years old.

A number of factors, including George Rapp’s death, the old age of the members, and lawsuits by former members, which ended up in the Supreme Court, led to the Society’s decline, although it persevered into the twentieth century. In the period between 1868 and 1874, the group was losing members in large numbers due to the aging of the population. This decrease in the labor forces led to the hiring of outside help and the gradual decline of prosperity (Duss, 1970: 157). By 1889, only 25 members remained of which 10 were men. Since only men could serve on the Board of Elders, vacancies on the Board could not be filled and the community would be left without a governing body (Duss, 1970: 223–224). However, in 1890 after new members joined, the number increased to 44, including 20 men. Initially, this influx of new members seemed to be cause for hope, but in fact only led to internal dissensions. The hired helpers had grown to such extent that they far outnumbered the members and became a cause of much trouble. In addition to strife between the hirelings and the greatly outnumbered members, there was discord among the members due to religious differences. Furthermore, the community was harmed by competition, jealousies, decline in the cooperative spirit, waste, disloyalty, and lack of work ethic (Duss, 1970: 233–235). Much of the discord was due to the divergence in religious beliefs between the members and the hirelings, which also led to different lifestyles within the community (Duss, 1970: 227). Interestingly, the public perceived that there was great wealth in Economy. The headline of an article in the Philadelphia Times on 2 August 1891, was ‘One Million to Each’ and the article stated that ‘Economy was all peace, harmony, and quiet good living backed by fabulous wealth’ (Duss, 1970: 239). According to the financial reports by a public accountant that were used in a court case in 1892, the Harmony Society had assets of 1,964,589.49 dollars; however only 13,185.95 dollars of net assets after subtracting liabilities and worthless securities (Duss, 1970: 421). Most of the group’s stockholdings had become worthless or the stocks had been lost or mislaid. In 1916, the group was dissolved, and the property was distributed to the individuals:

The enormous wealth acquired mainly by his [Frederick Rapp’s] business genius was to be placed at the feet of Jesus in His second coming, but He never claimed it, so the lawyers and unworthy heirs divided the “church fund” of the Society among individuals completely strange to Rapp’s message. . . (Arndt, 1984: xvii)

As a result of this legal case, the Harmony Society is recognized as the first example of tontine insurance in the United States (Arndt, 1984: xviii). ³ See Figure 1 for a timeline for the Harmony Society.

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Figure 1.

Timeline of the harmony society.

The accounting system in the harmony society

Any accounting that was done in the Society must have had managerial purposes as there were no outsiders to require reports from this isolated group. The Harmonists’ limited business affairs conducted with outsiders did not require any accounting as they only sold goods to outsiders through agents from whom they asked for an accounting. Since they did not borrow money (until much later), financial statements were not required or demanded.

In fact, George Rapp began preparing annual pastoral reports as early as 1793. At that time, the group was nothing more than a church movement (albeit a large church movement with more than 12,000 members); thus, the annual reports were not in monetary terms but in terms of souls saved and persons confirmed (Arndt, 1980a: 234).

At the start, the society did not believe in incurring debt. Once the group moved to America, the communal system was in operation and is described as follows. Homes were owned by the community. Each member had an allotment of milk cows and poultry. The community furnished all other supplies. Members did not receive payment for their labor. Each family had an account to prevent overindulgence. If a family overindulged, Rapp would require those members to reduce expenses. At first, some members argued that they should receive a greater share because they had contributed more. However, this was not in accord with the principle of equal sharing.

The accounting system referred to in this section relates only to the decade when the Harmonists lived in Indiana. There was little or no accounting after the group moved to Pennsylvania. Examples of the Harmonists’ accounting methods are given below to show the sophistication of their accounting for the time. Readers who desire more details about the accounting procedures are encouraged to read the 1979 Flesher and Flesher study of the Indiana era.

Frederick Rapp, the adopted son of George Rapp, kept the records and was the business leader of the community. Frederick trained the man who was to succeed him as bookkeeper and financial leader. Frederick was noted for his business skills. He helped to organize the banking system in Indiana and later became president of a bank. He was also a member of the committee that selected the site of Indianapolis as the future state capital. The Society was very active in American politics. Frederick Rapp was ‘one of the most influential and powerful manufacturers and private bankers of the United States. . .’ (Arndt, 1984: xviii). Rapp’s influence and that of his colleague, Philadelphia banker Joseph Solms, have not been recognized in economic history, because their correspondence was in German and much of it was confidential (Arndt, 1984: xviii). ⁴

The Society never required any financial reports from the administrators during its first two decades of community. Later, in a suit brought by former members, the lawyers tried to prove misappropriation of funds by the administrators, but failed (Nordhoff, 1966: 93). Rapp has been described as ‘a strong willed and honest business man in dealing with the world, but he was more often than not a cruel and dishonest Christian who took full advantage of the naive faith of those Harmonists. . .’ (Arndt, 1984: xvii). Rapp was able to use his political and economic influence and his knowledge of how to use the American system to successfully fend off Congressional investigations of charges brought by disenchanted former members (Arndt, 1984: 86–88).

One of the most noteworthy aspects of the record-keeping system was the attention to detail and preservation of records. This may be illustrated by the fact that many bills exist to this day for assets purchased (which are now in Society museums). This type of attention to detail was paid to other assets. For instance, a record was maintained of finished goods inventories. However, it is interesting to note that although the inventory amount was recorded, it was not deducted from costs on the financial statements. Thus, the Society used a modified cash-basis system. Frederick carefully checked the records that were submitted to him. In one letter he mentioned that he had found a one-dollar error in adding the debit side and had corrected it (Arndt, 1982: 443).

It was important for the Society to keep good accounts receivable records since orders were often received from itinerants and were shipped in the same manner. All correspondence was kept as a business record. One letter instructed a clerk at the Harmony store to offset a customer’s receivable against the same person’s payable. The Society also had to keep records of its human resources. Although the group did not have slaves, it did have indentured servants for which monies had been paid. The amounts paid had to be kept available since the servants could buy their freedom (Flesher and Flesher, 1979: 300).

Managerial accounting in the Harmony Society

The accounting system was established to reflect the organization of production and materials within the complete Harmony enterprise, and work flowed from one department to the next. All of the Harmonists’ business operations were divided into segments (called companies) with a foreman in charge of each segment. The concepts of departmentalization and responsibility accounting were utilized, as may be evidenced in the reporting of revenues, expenses, and surpluses by departments on the financial statements. The statement of income and expenditures for the year 1816 shows the revenues, expenditures, surplus, and inventories for each department (see Table 1). The columns were totaled, but the total for surplus is meaningless since losses are not deducted from the surpluses. Consequently, even though the total revenues are less than the total expenditures, there is still a surplus. Even those departments that had a surplus may not have been profitable since it was the practice at that time to not charge overhead costs against production.

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Table 1.

Income and expenditures for 1816.

Names	Main sum of outlay	Main sum of income	Sum of surplus	Goods produced on hand
	$     ¢	$     ¢	$     ¢	$      ¢
Hatter	1131.21	2276.02	1144.81	1023.00
Saddler	1212.21	1541.34	329.07	1514.94
Shoemaker	1110.88	1477.15	366.27	270.80
Blacksmith	1322.47½	1556.53	234.05½
Tanner	1074.60	1261.74	187.14
Tinner	174.37½	216.40	42.02½
Innkeeper	280.32	1071.00	790.68
Stocking weaver	121.41	318.75	197.34	258.50
Tailor	1.95	89.06	87.11
Cooper	8.62½	83.37½	74.75
Potter	65.67	80.00	14.33
Wagon maker	4.37½	11.50	7.12½
Weaver	4.18½	11.45	7.26½
Society plus factories and mill	17396.05	2208.76		19,596.80
Store	8929.54	15124.98	6195.44
Nailsmith	365.14	593.28	228.14
Doctor	1451.27	1032.58		318.69
	34654.35	28953.91	9905.55	22982.73

Source: Arndt, 1975: 278.

Other accounts found in Arndt’s translations of Frederick Rapps’ records of the Harmonists’ enterprises show evidence of the use of transfer pricing. The accounts that Rapp maintained for the activities of the shoemaker and the saddler both show transfers to the Society account (see Table 2 below). These accounts are internal financial statements, which show transfers from the Society to the members, not bookkeeping records. Most of the entries are summaries of the transactions between segments of the Society for the entire year. Note that these internal reports do take inventories into consideration in the calculation of profit (Flesher and Flesher, 1979: 301). Thus, modern accounting practices were used in the measurement of departmental productivity, but the overall financial statements were prepared on a modified cash basis (Flesher and Flesher, 1979: 301). It is not possible to determine how the inventories were valued in the shoemakers’ account shown in Table 2, but it seems plausible that the current retail market value might have been used, since the unit values are all shown in round figures, such as nine dollars per pair of boots. Either these were current market values or else some form of standard costing, but even standard costing seems unlikely given the round figures. Note that in Table 2, the debits to the account of 1110.88 dollars were for leather and other materials. There is no labor shown because no wages were paid to workers. The 788.41 dollar amount on the credit side represents the shoes that were given to members of the community (This amount is only the cost of the leather because no labor or overhead was charged to the account.) Even with the free distribution of hundreds of pairs to members of the community, there was still a sizable profit from the shoes sold to outsiders.

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Table 2.

Shoemakers’ account.

Shoemakers
Dr.		Cr
To leather & other material	1110.88	By cash for shoes sold		1477.15
To balance for work and profit	1425.48	By leather for shoes for society		788.41
		By amount for shoes on hand
		7 pair boots	9.00	63.00
		24 pair fme mans shoes @	2.50	60.00
		7 coarse mans shoes	2.50	17.50
		34 coarse mans shoes	2.00	68.00
		8 coarse mans shoes	1.75	14.00
		5 fine women’s shoes	1.62½	8.12½
		6 slippers	1.50	9.00
		13 coarse women’s shoes	1.50	19.50
		5 boy’s shoes	1.37½	6.87½
		6 children’s	80	4.80
	2536.36			2536.36
General account*
Dr.		Cr
To amount of sundries from the store etc.	3385.47
Leather from the saddler	63.29
Leather for shoes	788.41
Amount of family store account	1050.51

*

The general account of the society had many entries and is not reproduced in its entirety here.

Source: Arndt, 1975: 281.

Note that the 1425.48 dollars balance of the shoemakers’ account in Table 2 does not match the number shown in the listing of income and expenditures of 1, although the numbers can be reconciled. The amount shown as surplus of the shoemaker account in Table 1, 366.27 dollars, is a cash-based figure, whereas the account for the Shoemakers, shown in Table 2, considers ending inventories and distribution of shoes to members in its calculation of profit. In some respects, this can be seen as a motivational device to evaluate departments on the basis of work performed whereas the overall income and expenditures statement was based on cash flows. Thus, the departmental accounts were truly managerial tools, while the overall financial statements may have been an internal control to compare departmental cash receipts and payments with banking records.

Forecasted income statements and budgets were used for purposes of planning and managerial decision making. There was recognition of the concept of sunk and relevant costs in the reports (Flesher and Flesher, 1979: 301). In a report on the silk business, a footnote offered an explanation that the expense of growing the mulberry trees and the use of the ground was not shown because the mulberry trees had been planted around the houses in places where nothing else would have been grown (Arndt, 1965: 580).

Other internal reports showed selling prices allocated on a percentage basis to material, labor, and profit (as mentioned earlier, it was typical throughout the country for overhead not to be included as a cost at that period of time) (Arndt, 1975). Very little labor was actually paid, but labor was estimated in the statements for pricing purposes (Flesher and Flesher, 1979: 301). As was pointed out by Williams (1999: 66), in the late 1700s, each business developed an accounting system that suited its particular needs. For the Harmonists, that need included setting prices for products produced by unpaid workers. Similarly, McKendrick (1970), Edwards (1989), and Fleischman and Parker (1992) reiterated examples of cost accounting records being used for management purposes in a variety of firms. The only oddity with respect to the Harmonists was that the Society was supposedly not a profit-oriented entity organized for the benefit of investors. However, profits did accrue, and at a high level.

State of the art of accounting in the United States

The next step is to evaluate the Harmonist’s system in light of the state of the art of accounting during the same period of time. American accountants lagged behind the Europeans before 1900. In nineteenth-century America, most non-agricultural businesses were run by merchants. Knowledge of double-entry bookkeeping was common, but single entry was often found in practice. Accounting methods did not change significantly from colonial times to the early twentieth century. Annual income was not always computed because there was no need to report to stockholders or government agencies. Only in joint ventures or partnerships was the calculation of profit important. The ledger was the most important book (although many ledgers were never closed, see Soll, 2014).

Little effort was made to estimate or predetermine costs before 1920 although job cost systems could occasionally be found in use. Finished goods were often recorded. Raw materials and labor were accounted for, but overhead was ignored before 1900. Since most businesses were operated by the owners, who had a good ‘feel’ for their costs, there was little need for a sophisticated system of management accounting (Garner, 1954). Admittedly, there are exceptions to the previous statement as pointed out by Hoskin and Macve (2000) and Tyson (1998). Indeed, the defining characteristics of modern managerial accounting did exist in various companies long before the modern era, but such characteristics were not widespread.

Spiritual dimension of religious institutions and its impact on accounting and accountability and the sacred-profane divide

The Harmony Society makes for a case that is difficult to categorize. As mentioned above, this study is principally a micro study of the influence of accounting on the commune, but there are macro elements related to Rapp’s use of biblical interpretations as related to accounting and business practices. Under Cordery’s (2015) schema, this would be a case study with theoretical frameworks focused on accountability and the sacred-secular divide. Much of the confusion can be traced to the personality flaws of the Rapps as discussed earlier. George Rapp was a hypocrite in that he preached to his followers about sharing, frugality, and honest dealings; while at least in later years, he did not personally live out his teachings. Frederick Rapp’s dealings with the community’s outside businesses were motivated by earning profits. The greed of George and Frederick tipped the scale from sacred to profane. The vast difference between the inside world of the community where the members lived mostly isolated from the outside and the lives of Frederick and George also make characterization and analysis difficult.

Soll (2014) claims that the environment of a society can be a product of the quality of the accounting in that society. However, in the case of the Harmonists, the problem is isolating and identifying the environment. Societies were successful, according to Soll (2014: 207), when they ‘integrated accounting into their educational curriculum, religious and moral thought, art, philosophy, and political theory.’ Soll (2014: xxii, 208) says that accounting failures persist because ‘humans have a regular habit of ignoring, falsifying, and failing in accounting,’ that ‘a lesson so simple has rarely been learned.’ He concludes that the reason is ‘cultural ambition’ (Soll, 2014: xxii, 208). The Harmony Society members were primarily farmers, tradesmen, and laborers who relied on the leaders in matters related to accounting and finance and who did not have the ‘cultural ambition’ to do good accounting.

In the early years, Frederick seemed to be dedicated to making a proper accounting of the Society’s activities. The communal lifestyle made a strict accounting of member contributions and distributions mandatory in the early years. However, after the member records were destroyed, this need no longer existed. The Rapps were motivated to be profitable, and this may have been the reason that Frederick continued with his conscientious recordkeeping until George’s declaration that the Bible did not call for an accounting. George seemed to use his biblical interpretations to justify accountability or nonaccountability as it fit his purposes. Here again is the influence of both the sacred and the divine on the accounting records.

One of the reasons the Harmonists left Germany is that they believed that the Old World (Europe) was doomed, and that America would provide the setting for ‘a new golden age in which spiritual and earthly happiness would both be attained’ (Versluis, 2007: 27). The Harmonists saw ‘their worldly empire as simultaneously earthly and spiritual’ (Versluis, 2007: 32). This unity of spiritual and earthly would be the setting for the thousand-year reign of Jesus on earth. It might be said that the Harmonists, in theory, did not believe that there was a divide between the sacred and the profane.

Eventually, the financial successes of the group overwhelmed the spiritual life of the group. The ‘sheer material wealth of the society soon completely overpowered and suffocated what had brought the society into being’ (Versluis, 2007: 43).

Contributions and conclusion

This study of the Harmony Society adds to the accounting literature in several ways. The Harmony Society was a unique and successful group about which has been much studied. However, little has been written about their accounting system, as this seems to be only the second time it has been analyzed, the first being Flesher and Flesher, 1979. This is in spite of the fact that the Harmonist’s accounting system was sophisticated for the time, especially in comparison with the almost non-existent record-keeping of contemporary communal groups. This research extends and updates the 1979 Flesher and Flesher article and adds some theoretical underpinnings. This study responds to the call by Carmona and Ezzamel (2006) for more research on accounting in religious organizations. Specifically, it addresses their call for more discussion of the following: (1) the unique spiritual dimension of religious institutions and its impact on accounting; and (2) the sacred-profane divide. This work extends the research by Laughlin (1988), Booth (1993), and Cordery (2015) on the sacred-profane divide.

After investigating the accounting system of the Harmonists, in light of contemporary accounting practices that existed in capitalistic enterprises of America, the early Harmonists seem to have been ahead of their time. The accounting system included nearly all the practices that were found in the capitalistic firm’s recordkeeping at that time. In addition, the Harmonists seemingly were pioneers in some areas. However, no entries were made to record the labor costs provided by members who were not paid in cash.

As discussed earlier, methods of accounting develop to meet the needs of the environment and increase with the complexity of the business. Originally, accounting was important to the Harmonists to keep track of member contributions and then evolved as a control over craftsmanship and other business activities and efficiency. Internal controls acted as safeguards over members and outsider transactions. The environment of the Harmonists called for a more sophisticated accounting system than other businesses of the time. Whereas most businesses of the time were single proprietorships and required few records, the Harmonists were many craftsmen united in a common cause. Other communal societies failed to meet this challenge and incurred financial difficulties due to the lack of attention to accounting practices. Unlike the typical capitalistic mercantile business prevalent in America in the early nineteenth century, the Harmony Society was a prosperous conglomerate, which necessitated a more sophisticated accounting system (Previts and Merino, 1998: 30–31 and 34–35). There were many causes of the downfall of the Harmonists, among them the practice of celibacy and the reluctance to add new members that led to the decline in membership, which resulted in the need to hire large numbers of workers. The hiring of outsiders resulted in dissension, jealousy, mistrust, lifestyle differences, and indolence. There was discord among members over religious beliefs. Some members were persuaded to follow another leader and left to form a new community. Many members became disenchanted when George Rapp died because of his promise that the Second Coming would happen in his lifetime. Furthermore, the Society strayed from their early belief and started borrowing money. The Board of Elders made bad investments and made withdrawals from the bank resulting in losses of hundreds of thousands of dollars as the Society struggled to stay afloat. Securities were lost or mislaid. In the end, there were lawsuits by former members and negative publicity in newspapers. Had they not abandoned their record-keeping, accounting could have at least alerted them to the coming financial difficulties. Better accounting and financial reporting might have led to better decision-making and stewardship over the Society assets. The members were lulled into a sense of well-being because everyone was making a living and the leaders were hiding what accounting information existed. Lenders continued to make loans to the Harmonists probably because, lacking accounting reports, the reputation of the wealth of the Society was greatly exaggerated. Proper accounting might have revealed many of the secret dealings of the Harmonist leaders.

In their article, Carmona and Ezzamel (2006) point to two issues, both of which affected the Harmonists. First was the unique spiritual dimension of religious institutions and its impact on accounting. George Rapp based much of his ideas about accounting on his interpretations of the Bible. Second, the greed of the Rapps is an example of the sacred-profane divide in that they preached about the biblical underpinnings of their practices to enlist the trust of their members at the same time that they were personally profiting from the contributions and labor of the members (Carmona and Ezzamel, 2006). The case of the Harmonists supports the call by Carmona and Ezzamel (2006) for more research into the accounting systems of religious organizations.

George Rapp’s motivations for his financial secrecy are not known. He could have believed that he was divinely led, or he could have had more sinister intentions. Religion could have been used as a smokescreen for the profane. George had complete control after Frederick Rapp was no longer monitoring his actions.

As concluded by Soll (2014: 207): ‘If there is an historical lesson to be learned here, it is that those societies that managed to harness accounting as part of their general cultures flourished.’ Unfortunately, when the culture ceased to value accounting, that culture was to decline. Soll (2014: 205–206) quoted Charles Dickens (1857), who said in Little Dorrit that even in financially literate cultures, ‘finance is splendid, massive, overpowering, and impracticable. Indeed, Dickens felt that accounting was so beyond human control that only luck could extricate his characters from the labyrinth created by numbers and paperwork.’ ⁵ Unfortunately, the characters in George Rapp’s Harmony Society did not have the ‘luck’ that accompanied the characters in Dickens’ (1857) novels. When they were extricated from the labyrinth of the finances, the Harmony Society faced decline in numbers and eventually bankruptcy.

While this case study of the Harmonists does not disprove Soll’s (2014) hypothesis, it clearly shows that there were a multiplicity of reasons for their demise and the factors are interrelated, such that one facet cannot be separated. For instance, celibacy led to a scarcity of workers such that outsiders had to be hired, which led to jealousy, conflict, and discontent. The practice of celibacy doomed their future from the start, when the world did not end as George Rapp promised. Greed, mistrust, dishonesty, conflicts, jealousy, lack of accountability, outside interference, dissension, labor problems due to loss of members, and poor financial management following the death of the financial and accounting leader could all be identified as causes. Soll (2014) may be correct, but it is difficult, if not impossible, to isolate accounting from the cultural environment.