Business budgeting as a tool of scientific management and rationalisation in Poland in the interwar period

The essence of scientific management and rationalisation

Accounting historians have presented SC and business budgeting as an essentially American phenomenon of the early twentieth century that was connected with the development of a scientific approach to business management (for example, Berland et al., 2002; Johnson and Kaplan, 1987; Miller and O’Leary, 1987; Sowell, 1973). Scientific Management was initiated by an American engineer, Frederick W. Taylor (1856–1915), in a series of lectures delivered at the turn of the nineteenth and twentieth centuries and in the publication entitled Shop Management, issued in 1903. He developed SM principles and contributed to its implementation in American enterprises (Nelson, 1992). Taylor is named the father of SM (Mattessich, 2008). His publications and works on implementation were of epochal importance not only for modern industry but for all types of economic activity in the first half of the twentieth century.

The concept of SM is a manifestation of the philosophy of American pragmatism, advocated by William James (1842–1910) and John Dewey (1859–1952). Pragmatism created the concept of man as an acting subject, not an object that is subordinate to the laws of nature where at best, he/she observes processes independent of him/her. Pragmatism was observed in the national culture as people focused on manipulation and control. The most significant contribution of pragmatism to the development of social thought was the awakening of faith in the effectiveness of ideas and novelty. Pragmatists argued for man's freedom and control of the environment (Szacki, 2012: 545–546).

The principles of SM began to be popularised in Europe from 1911–1913. Taylor's book The Principles of Scientific Management, published in 1911, ‘became an inspiration to those on both sides of the Atlantic who equated industrial or social progress with increased efficiency’ (Nelson, 1992: 9). There was considerable interest in these principles after World War I in almost all European countries, largely due to the awareness that the only sure path to rebuilding an economy devastated by the Great War was persistent and efficient work. Nelson (1992) emphasised that after World War I, SM became a potent force for economic and political renewal with engineers initiating the establishment of research associations and institutions at that time in Belgium, Switzerland, Italy, Spain, and Czechoslovakia. Their aim was to develop SM and to instil its principles into practical life.

Although Professor Henry Le Chatelier in France thoroughly explained the importance of Taylor's work, it was Germany that was most interested in SM, where the government spared no expense implementing it under the slogan of rationalisation (German: Rationalisierung) ¹ (Adamiecki, 1929). At first, German rationalisation was equated to the mechanisation of production (after World War I, it was about rebuilding the economy due to the possession of outdated machines), and from 1927 this term meant the ‘rational shaping of economic life in all its manifestations’ (Reuter, 1934: 192). According to Nelson (1992: 23), rationalisation ‘was a seamless web, a measure of the large implications of Taylor's ideas’. The rationalisation was also developed in other European countries as a broad social concept aimed at leading to a ‘better society’ (Nelson, 1992: 2) and ‘striving for rational shaping of economic life’ (Reuter, 1934: 193).

Due to the various interpretations of the terms ‘rationalisation’ and ‘scientific management’, they were considered by the International Labor Bureau and the Advisory Commission of the Scientific Labor Organisation in Geneva, and then defined by the Commission in 1937. SM was defined as ‘management based on principles and methods of scientific research’, and rationalisation (in the general sense) as ‘all reform activities aimed at replacing obsolete and routine practises with ways and methods based on logical reasoning’ (Przegląd Organizacji, 1938: 73–74).

Standard costing and budgeting before World War II

Parker (2002: 306) emphasised that in the first three decades of the twentieth century in the USA, publications including budgeting increasingly focussed on the development and implementation of standard costs. It happened under the influence of the ‘scientific management school which had been actively promulgating operational, and, later, cost standards’. The way to SM was opened by Frederick W. Taylor, who introduced the setting of systemic work standards (Mattessich, 2008). Another US author, John Whitmore, highlighted the use of the modern concept of standard costs in the article entitled Shoe factory cost accounts, published in the Journal of Accountancy in 1908. At the same time (1908–1909), Harrington Emerson, an American engineer and management consultant, was the author of a series of articles on SM published in Engineering Magazine. He advocated developing an information system specifically directed towards achieving efficiency objectives and noted the role of accounting in this drive for efficiency. Emerson was possibly the first to argue that information about standards allows managers to differentiate cost variances caused by factors that are dependent on and beyond their control. Meanwhile, in 1918, George Charter Harrison published the first set of equations for the analysis of cost variances (Drury, 1992: 2–3). According to Sowell (1973), in the NACA Bulletin, issued by the National Association of Cost Accountants, forty articles were published on SM between 1920 and 1930 (cited in Zimnovitch, 1997).

Although there was writing on the subject of business budgeting in the USA at the turn of the twentieth century, it was not until the early 1920s that the management literature began substantively to pick up the theme. James O. McKinsey made a major contribution to the development of the theory of business budgeting through his series of articles in the journal Administration in 1921 and the book Budgetary Control published in 1922 (Fleischman, 2016).

In Britain, the use of budgets was hardly encouraged by the pre-1918 literature. One important exception was the book authored by Harvey Preen, issued in 1907, which included a chapter entitled The Budget System (Boyns and Edwards, 2013). Initial discussion on SM and budgetary control appeared in the British literature in the 1920s, with SM beginning to achieve more widespread recognition in business and political circles in Britain after World War I (Boyns and Edwards, 2013). Thomas Downie Jr. began descriptions of the technical aspects of SM in a textbook in 1927, ² although the first book devoted to budgetary control (Business Budgets and Budgetary Control) was issued by A.W. Willsmore in 1932. As stressed by Boyns and Edwards (2013), budgetary control featured far less prominently in British textbooks than SC.

The authors of textbooks in this field published before World War II in the Anglo-American area include, among others, W. Strachan (1928), G.P. Norton (1931), J.H. Williams (1934), and J.A. Scott (1939) (see Parker, 2002). According to Scott, ³ budgetary control and SC could have helped achieve the ‘primary function of accounting’, namely assisting ‘the management in the efficient conduct of business’ because they were based on the ‘principle of exceptions and expressed all variations and all causes of profit and loss in financial terms’ (Boyns and Edwards, 2013: 262).

Research by Parker (2002) into the manner in which English-language texts on budgeting dealt with the issue indicates, among others, different definitions of a budget. In the 1930s and 1940s, a budget was characterised as ‘a machine’, ‘a tool of management, not accountancy’, ‘an aid to clear thinking’, ‘a set of explicit instructions’, ‘a scientific attempt in profit making’ and ‘an aid of management’ (Parker, 2002: 308).

As for practice, George Charter Harrison designed and implemented the first full SC system in an American enterprise, the Boss Manufacturing Company in Kewanee, Illinois, in 1911 (Solomons, 1994). Johnson and Kaplan (1987) suggest that some USA companies, most notably the Du Pont Powder Company and General Motors, had begun to utilise budgetary control in the 1920s. Three surveys of the use of budgeting and SC, which were carried out from the early 1930s, showed budgeting usage rates of 50 per cent or more among the surveyed American companies. However, Berland et al. (2002: 132) pointed out that ‘these techniques had only been partially introduced and/or their use was still being developed’. A survey in 1940, which covered 325 American companies, revealed that 168 used SC (Sowell, 1973). Thus, the literature on the subject shows that budgetary control systems were implemented before World War II, initially in American companies (Boyns, 1998; Johnson and Kaplan, 1987). This was related to the growth of large corporations in the USA, whose development was analysed by Chandler (1977).

According to Boyns (1998), some British enterprises had begun to experiment with budgets and budgetary control long before 1945, and some of them (for example, Austin Motors, Renold Ltd) had possibly developed budgetary control in the interwar years as fully as their American counterparts. This conjecture has been confidently supported in subsequent historical publications that have utilised archival documents (Boyns and Edwards, 2013; Edwards et al., 2002; McKinstry et al., 2019). Edwards et al. (2002) presented the adoption of SC and budgetary control in the interwar period in Britain by a single economic unit, United Steel Companies Ltd, where innovation was attributed to the engineering and scientific background and US experiences of key personnel. McKinstry et al. (2019) described the history of the introduction and use of SC at J&P Coats Ltd, the large British-based multinational thread manufacturers, between 1925 and 1961. The introduction of SC within Coats began in its more independent USA operations in 1925. It was intended to bring financial discipline within each of Coats’ home and overseas mills and to add to the central discipline and control that already existed across this company. Boyns and Edwards (2013) synthesised what is known of the development of SC and budgetary control in British enterprises. They indicated the names of 39 British firms for which there is archival or other documented evidence of the existence of budgetary control (c. 1942–1943), and they pointed out 23 cases of SC in British industry to the beginning of the 1940s.

The outlined publication status and the practise of budgetary control and SC before World War II in these two leading countries had an impact on the continental European development of knowledge in this field at that time, including Poland. Among others, the following statement by the French author, Robert Satet (1936: 40), confirms this thesis:

More than a decade ago, a new business planning method was established in the United States of America based on numerical recognition of these predictions. This method, practical and beneficial in its application, has evolved over time into the whole system, called ‘Budgetary Control’. This system began to spread throughout Europe.

In the interwar period, SC began to come of age, not only in the USA and Britain but also in continental Europe (Antonelli et al., 2008). Along with this concept, management control and cost accounting texts began to devote significant attention to the overall budget and its role since the 1930s. Discussions on business budgets and budgetary control also took place at international conferences on both sides of the Atlantic. They included the International Congress on Accounting held in New York in 1929, the Oxford Management Conferences organised annually in the UK in the 1920s, and, first of all, the International Conference on Budgetary Control (ICBC) in July 1930, hosted by the International Management Institute in Geneva, Switzerland (Parker, 2002: 306–307). In this last conference, almost 200 people from 25 countries participated, including five from Poland (Chodorowski, 1932).

The definition of budgeting and budgetary control formulated at the Geneva conference in 1930 became a reference point for subsequent Western writers of the 1930s and 1940s (Parker, 2002), and also for authors of Polish texts on budgeting before 1940. According to ICBC, ‘Budgeting is not merely control; it is not merely forecasting; it is an extant and rigorous analysis of the past and probable and desired future experience with a view to substituting considered intention for opportunism in management’ (De Paula, 1984: 174, cited in Parker, 2002: 308).

Despite the growing interest in budgeting in continental Europe before World War II, there are few studies on the dissemination and the use of budgetary control, and the relationship between the development of SC and budgeting in different countries. Berland and Boyns (2002) compared the dissemination and diffusion patterns of budgetary control in France and Britain between the 1920s and 1960s. They concluded that the dissemination process of new ideas appears to have been similar in the two countries, although there were specific differences in this process. Berland and Boyns (2002: 339) stated that in France between the mid-1920s and the mid-1960s, the idea of budgetary control underwent rapid early dissemination in the literature, but diffusion in practice ‘was [a] more long-winded process, and, after several years of slow [growth], only experienced rapid adoption several decades after the process of dissemination’. In the opinion of Zimnovitch (1997), in France until 1950, SC was hardly mentioned in the literature, possibly suggesting an absence of its use in practice. He added that the theoretical framework relating to the calculation of cost excluded the methods of standards.

According to Berland and Boyns (2002), most texts on budgeting published in France before 1936 were written by professionals (business executives, managers, consultants, professional journalists, and some accountants). Academics were hardly interested in this issue, except for Robert Satet, the author of articles and a book. He thought budgetary control for the group CPA, ⁴ was involved in disseminating SC. Certain key French authors on the subject, such as Charles Penglaou and Gaston Commesnil, were accountants, but French accountants were generally reluctant to engage in the new practice before World War II. French engineers were more positive about budgeting. Several privately organised groups were involved in the promotion of budgetary control. Organisations established by engineers prompted the use of budgetary control, regarding it as consistent with their wider aim, that is, the promotion of SC.

In France, the most significant case of budgetary control implementation in the 1920s was Les Imprimeris Delamas. Berland and Boyns (2002) indicated 32 known cases of the use of budgets in French enterprises before 1940. A review by the author of this article of English-language literature on accounting history shows that there is little mention of the dissemination and use of budgetary control and SC in other European countries before 1940. Antonelli et al. (2008) stated that some Italian companies (for example, Fiat, Magneti Marelli) began to adopt some SC practises in the 1920s and early 1930s. They examined the records of the Italian company Ansaldo for evidence of links between accounting change and SC developments during the interworld period. Antonelli et al. (2008) provided evidence of piecemeal experimentation with SC in Ansaldo before 1930, indicating factors that meant that SC innovations lacked the fertile soil within Italy in which to establish themselves in the interwar period. In turn, Coenenberg and Schoenfeld (1990), in their analysis of the development of management accounting in Germany during the period 1900–1933, mentioned the emergence of early developments of SC. However, Mattessich (2008) stated in his monograph that German cost accounting was primarily based on realised data, and estimated costs were not used for planning and control before World War II. In Germany, SC was first presented by E. Michel in 1941.

A special case of the treatment of SC occurred in the USSR in 1929–1934, as recently reported by Sidorova et al. (2021). They investigated the influence of state policy on the transformation of SC methodology during the construction of the Soviet economy. After initial interest in SC, which had been imported from the USA, and attempts to implement it in some state-owned enterprises in 1930–1931, this system was heavily criticised. It was considered bourgeois, incomplete, a capitalist technique, and that it did not correspond to the goals of the socialist state. Soviet researchers, therefore, formulated principles of normative cost accounting based on SC. This version was greatly simplified and lost its analytical focus, but it became a popular cost accounting method in the Soviet Union for many years (Sidorova et al., 2021). The Soviet version of SC was also a model for the normative costing recommended by legal provisions in socialist Poland from the 1960s and used in enterprises (see, for example, Fedak and Karmańska, 2018).

The numbers of British and French enterprises in which budgetary control was used (as above) did not mean, however, that business budgeting had been rapidly diffused in Britain and France before 1940, as Berland and Boyns (2002) point out. The adoption process was probably even slower in other European countries. However, this supposition requires further research. Thus, the lack of sufficient historical studies on this subject justifies research on the dissemination of information on business budgeting through Polish publications in the interwar period. Before the findings of the study in Poland are presented, the approaches to the SC and budgeting study in the English-language literature are outlined below.

Research approaches to the emergence of standard costing and budgeting

There are many research publications in English on SC and budgeting and their alliance with SM. Authors rely on different explanations of the emergence, dissemination, and application of these accounting techniques, mostly in the Anglo-American environment. These publications are the results of research conducted following both the traditional (old) and the new history of accounting. ⁵

The former considers accounting to be merely a technical practise, and the historical development of accounting as evolutionary, natural, and inevitable. Accounting technology is described as ‘emerging because of changing economic and social needs’ (Oakes and Miranti, 1996: 571). For example, Epstein (1978) believed that social and political crises in the progressive period in the USA contributed to the prominence of SM. This approach also includes publications whose authors (for example, Garner, 1954; Solomons, 1994; Sowell, 1973) present the ideas and techniques chronologically in terms of those who developed or articulated them. The work of Solomons (1968) also belongs to the old history of accounting, viewing SC and budgeting through the lens of progress. The development of these novel practices is a part of the unfolding of a socially useful theoretical-technical complex, whose underlying logic was one of progress (Miller and O’Leary, 1987).

New accounting historians perceive accounting and its techniques as a social practice. They draw inspiration mainly from Michel Foucault (1972, 1977), a French philosopher-historian, using his analyses of power and his philosophical terms such as ‘governmentality’, ‘political rationalities’, ‘technologies of government’, and ‘calculable man’. Miller and O’Leary (1987), Miller and Rose (1990), and Mennicken and Miller (2012) showed that accounting technologies, such as SC and budgeting, helped bring about a significant shift in how power is exerted in advanced industrial societies. Miller and O’Leary (1987: 235) reinterpreted the emergence and development of SC and budgeting, not as a refined technique for more efficient management, but as ‘an important calculative practise which is part of a much wider modern apparatus of power’ that emerged conspicuously in the early years of the twentieth century. They based their considerations on the notion of the ‘calculable man’, promoted by Foucault (1977: 193), and linked SC with phenomena such as the ‘discourse of national efficiency’ in the UK and the USA, that is, pragmatic philosophies that support the idea of rational public administration, the notion of intelligence testing, and mental hygiene, interlinked movements that focus on the notion of measuring the individual in the cause of the social (Napier, 2006). According to Miller and O’Leary (1987), SC has a distinctive contribution, that is, it contributes to a much wider process, whereby a person's life comes to be viewed in relation to standards and norms of behaviour. Thus, as emphasised by Mennicken and Miller (2012), the rise of SC and budgeting in the 1930s provided a new way of thinking and intervening that promised to render visible the inefficiencies of individuals within the enterprise.

The concept of national efficiency was present in the political debate and popularised by journalistic writings before World War II. It was related to the pursuit of the ‘rational administration of the social and the active promotion of progress. The state was to play a central role in such a programme’ (Miller and O’Leary, 1987: 243). This issue is included in the insightful considerations of Miller and Rose (1990) on governing economic life. They applied Foucault's concept of ‘governmentality’ to analyse the complex and different ways in which social authorities have sought to shape and regulate economic, social, and personal activities. They believe that Taylorism was one of a set of programmes articulated as ‘efficiency’, which involved an alliance between macro-political aspirations and the powers of ‘experts’. Standard Costing and budgeting, therefore, served ‘to increase the national wealth and international competitiveness of states’ (Miller and Rose, 1990: 19). They are techniques to make the most productive use of natural, mechanical, and human resources. The article by Miller and Rose (1990: 9) also draws attention to the importance of indirect mechanisms that link the conduct of individuals and organisations to political objectives through ‘government at a distance’.

The growing interest in SM and SC in the USA was addressed by Oakes and Miranti (1996). They analysed Louis D. Brandeis’ role in transforming SM and SC from narrowly recognised concepts to a significant national debate in the USA after 1910. ⁶ Brandeis was a lawyer, heavily involved within the Progressive Movement. He argued before the Interstate Commerce Commission (ICC) in 1910 that US railroads could save a million dollars a day if they introduced SM (in particular, SC) into their organisations. Oakes and Miranti (1996) explored the construction of the position of agency, which Brandeis occupied, by asking how he came to speak on SM and SC, and how he came to be heard and believed. They were convinced that although these techniques were known previously, they became increasingly prominent in the American public discourse after Brandeis spoke before the ICC. It happened because Brandeis campaigned extensively on behalf of the Taylorites and remained an advocate of accounting in the press (Oakes and Miranti, 1996).

The historical research outlined above shows the complexity, importance, and multifaceted nature of SC and budgeting as tools of SM and rationalisation, which together are treated as techniques for increasing efficiency, governing behaviour, and achieving goals set in enterprises and formulated in state policy. Against this background, the issues of promoting and applying business budgeting in interwar Poland are presented below.

Socio-economic context

As a result of Poles striving for liberation from foreign powers and the defeat of the Central Powers in World War I, Poland regained independence (after 123 years) in November 1918. Reborn Poland was the largest country to emerge after the Great War. With an area of 388,000 km², it was almost twice the size of Great Britain and the fourth largest country in Europe. In terms of population, with around 28 million, it was ranked 11th in Europe (Sierpowski and Żerko, 2002).

In 1918, each of the former partitions had territories with varying levels of economic development. Large areas had been ruined during World War I and by the wasteful exploitation of the partitioning states. Thus, the most urgent tasks for the state authorities included socially integrating the population of the former partitions, the codification and unification of national law, and the unification of administration, education and currency and tax systems.

The political situation in interwar Poland was characterised by variability – from parliamentary democracy in the initial period to the authoritarian system of the 1930s. The system of parliamentary democracy adopted in 1919 ensured the Sejm (lower house of Parliament) a dominant position among state organs. As a result of the coup by Józef Piłsudski in May 1926, the president and the executive power gained an advantage over the legislative power. During the 1930s, the basic part of the government camp was shifting towards nationalist and anti-liberal slogans (Żarnowski, 1992b: 12–13). The frequently changing governments (the prime minister was replaced 28 times) resulted in a changing, heterogeneous economic policy, while during the Great Depression they followed a passive and not very prudent economic policy (Kostrowicka et al., 1984; Sierpowski, 1994). In the economic development of interwar Poland, four periods are distinguished: the reconstruction of the economy (1918–1925), economic recovery (1926–1929), the great economic crisis (1929–1935), and state interventionism (1936–1939) (for example, Morawski, 2011; Sierpowski and Żerko, 2002).

The beginnings of the country's economic reconstruction were very difficult and required huge funds ⁷ , which the state budget lacked, and foreign capital was not interested in investing in Poland. A low level of GNP alongside the state's large budgetary deficit, aggravated by the war with the Soviet Union (1919–1921) and lack of foreign aid, led to hyperinflation between 1923 and 1924, which was suppressed by monetary reform carried out in 1924. The Bank of Poland was then established as a central bank, and the old currency (the Polish marka) was replaced by a new one – the Polish zloty. Treasury reform and the tough monetary policy pursued by the Prime Minister and the Finance Minister, Władysław Grabski, initiated economic revival, though this was not immediate.

Between 1926 and 1929, the economic situation in Poland improved (due to a relatively rapid increase in production and employment), and the income of the population increased significantly, which was to some extent influenced by the inflow of foreign capital and the policy of moderate interventionism supported by Eugeniusz Kwiatkowski, Minister of Industry and Trade from 1926 to 1930. Kwiatkowski, a chemist by profession, was a promoter of economic development, associating the interests of the private person with an equal or, in some circumstances, overriding interest of the community best expressed by the state. He encouraged Poles to think about the economy in a modern way (Sierpowski and Żerko, 2002). The government supported investments by enterprises, and in 1927, enterprises established in the port of Gdynia were exempted from taxes and fees. During this period, there was an inflow of foreign capital, mainly from American, German and British concerns, and in 1927, the government received a loan from American banks and some European countries on relatively favourable terms. However, Poland had to accept an American advisor, Charles S. Dewey, who joined the Council of the Bank of Poland in order to control the financial management of the Polish state (Kostrowicka et al., 1984).

The Great Depression (1929–1934) did not spare Poland, where its effects were overcome by about 1935. The recession was stronger and lasted longer in Poland than in other countries due to its economic structure (the advantage of agriculture over industry), agrarian overpopulation, the dependence of the Polish economy on foreign capital, and the government's deflationary monetary policy (Morawski, 2011). Symptoms of the crisis included a drastic drop in production in industry and a drop in the prices of agricultural products. When the crisis hit its peak in 1932, production globally decreased by an average of 33 per cent compared to 1928. In Europe, the figure was closer to 25 per cent; however, in Poland, it was as much as 41 per cent (Kostrowicka et al., 1984).

Between 1936 and 1939, the economic situation in Poland improved drastically, with the government attempting to create an economic programme based on state investments. It financed the construction of the Central Industrial District (CID), which covered approximately 15.4% of the country's territory, and sought to reduce unemployment and the fiscal burden of enterprises. An important role in the reform of the economy was again played by Kwiatkowski, who was deputy prime minister and minister of the treasury. The government's pro-investment policy resulted in an increase in the number of enterprises and industrial production, and the economic condition of the country improved at the end of the 1930s (Sierpowski and Żerko, 2002).

Generally speaking, economic growth in interwar Poland was slow and uneven, and the lack of stability in internal policy was not conducive to satisfactory economic progress. However, Poland started to economically integrate the lands of the three former partitions, developed new industries, including the armaments, machine-building and chemical industries, and partially created transport connections between the areas of former partitions (Żarnowski, 1992a). Poland's most important achievements between 1918 and 1939 are considered to be the emergence and development of the port city of Gdynia and the commencement of the construction of the CID, which began the country's struggle for industrialisation and its transformation from an agro-industrial to an industrial-agricultural country. The government tried to convince society that Poland was entering a new phase of economic development to improve the living conditions of the working masses (Kostrowicka et al., 1984).

Accounting regulations

In the initial period of the reborn Poland, four different fundamental legal acts concerning bookkeeping were applied. In central Poland (the former Congress Kingdom), the French Commercial Code of 1809 was in force, while in the other former partitions, the provisions of the German, Austrian and Russian commercial codes were applied (Szychta, 2020). Hence, it was difficult to agree on scattered and different regulations and create uniform Polish accounting legislation. Interwar Poland's economic goal of shaping a uniform state economic organism was eventually achieved in many areas. A unified administrative apparatus was organised, and fiscal and economic legislation was unified, including tax and accounting legislation.

The process of developing legal regulations in the field of accounting was complicated and lengthy. It required the unification and harmonisation of diverse regulations contained in the many various legal acts in the partitioned states, alongside the introduction of new rules intended to provide answers to demands stemming from the economic development of the country and new socio-political conditions. The act on cooperatives was introduced first (1920), followed by the banking law (1924), tax laws (1925), the law on joint-stock companies (1928), the law on limited liability companies (1933), and finally, the Commercial Code (CC, 1934). To some extent, these regulations also concerned accounting.

The first Polish CC, introduced in July 1934 (partly in force until 2000), unified the rules of commercial accounting, which had previously been laid down in four codes, and included regulations set out in various other legislation, mainly relating to joint-stock and limited liability companies. The general balance sheet requirements contained in the CC was supplemented by the Presidential Decree of 27 October 1933 on rules for balance-sheet preparation, accounting closures, and reporting by entities required to keep account books (Rozporządzenie Prezydenta, 1933). It was then detailed in the Decree of 20 April 1934, issued by the ministers of industry and trade and of the treasury (Rozporządzenie Ministrów, 1934). The Presidential Decree contained a provision stating that all data necessary to accurately present the condition and economic development of a legal entity should be shown in balance sheets and annual reports. The latter regulation (from 1934) contained the layout of the balance sheet to be used by enterprises, and it indicated the detailed components that should be included in the profit and loss account.

Special accounting regulations in the interwar period were issued for state-owned enterprises in 1922, 1925 and 1927. Double-entry accounting was introduced in state-owned enterprises by the provisions of 1925 on uniform cash and accounting principles as well as on balancing and inventorying assets. Such accounting was to be adapted to the individual needs of each enterprise, include total assets and technical and commercial calculations, provide the necessary material to derive commercial results and statistics, and it should consider a detailed layout of a special budget (financial and economic plan). The regulations issued in 1927 concerned the commercialisation of state-owned enterprises (separated from the state administration), which were obliged to publish financial statements as an attachment to their budget estimates (Szychta et al., 2018).

Only for municipal enterprises was there a Presidential Ordinance on drawing up budgets (in force 1926–1933) and explanations for this matter from the Minister of Internal Affairs (in force from 1933). Although the regulations stated that the method of determining the budget should be adapted to the requirements of commercial accounting and the character of a given municipal enterprise, the budget included only expenses and receipts. It was therefore only based on a cash basis and not on a business basis (Scheffs, 1936; Waczyński, 1939).

Numerous legal regulations that related directly or indirectly to accounting were issued gradually after 1918. This led to a situation in the 1930s that Scheffs (1936: 7) characterised as follows: ‘Accounting legislation is very heterogeneous and, what is more, people working in this field find it uncoordinated, inconsistent and scattered over various codes, acts, decrees, etc’. Scheffs calculated that there were 72 different sources of accountancy regulation in Poland at that time.

Despite this criticism, the provisions of the CC (1934) and the accounting regulations of 1933–1934 were groundbreaking, as they uniformly regulated the principles that economic entities throughout the country should use in preparing financial statements. They were important legal regulations that extended the subjective scope of applying double accounting and rationalising its organisation in enterprises.

Scientific management, the idea of rationalisation, and accounting in interwar Poland

SM grew out of the philosophy of American pragmatism. However, the development of this knowledge in interwar Poland and popularisation of techniques such as the harmonisation of production activities, standardisation, product cost calculation methods, and budgeting, which would enable the achievement of the goals of SM, were a manifestation of Poles following the theory of progress. Its founders were de Condorcet ⁸ (1743–1794), the French political activist and philosopher of the Enlightenment era, and Turgot (1727–1781), a distinguished economist and Minister of Finance in France under Louis XIV (see e.g., Faccarello, 2016). According to Condorcet (1957), progress is inevitable. Its main driver and guarantor is the continuous development of the human mind, the use of new inventions by mankind, the spread of education, and the overcoming of prejudices. The theory of progress was the best manifestation of Enlightenment optimism, an unwavering belief in the power of knowledge and its beneficial effects. In the theory of progress, history is perceived as ‘the history of the struggle between innovation and routine, and a component of human nature is a specific drive for innovation, which does not allow one to be satisfied with what has been achieved’ (Szacki, 2012: 99). History is governed by the law of progress, which determines the general direction of changes and decides the order. The source of progress is human nature, and the axis of progress is the belief in the stability and unity of human nature. As Szacki states (2012: 100), Turgot believed that in the all-encompassing progress of the human spirit, all nations start from the same point, pursue the same goal, and follow, more or less, the same path, though at a very uneven pace.

The SM concept has demonstrated new paths to economic progress since the beginning of the twentieth century. Understanding the great importance of SM for the healing and development of economic life began to penetrate deeper and deeper into the minds of the whole world, as emphasised by Professor Karol Adamiecki (K.A. 1926), a leading Polish management thinker before World War II. The dissemination in the literature and diffusion in the practice of this concept in Poland after it regained independence in 1918 was considered necessary for lifting the country from a low level of economic development and a key factor for the nation, liberated from the political power of the three forces, to enter the path of progress. Following this path would bring the Republic of Poland closer to Western countries.

The USA was a model in technology, management, and industrial accounting for many Poles (see, for example, Czasopismo Księgowych w Polsce, 1927a; Drzewiecki, 1926; Kucharzewski, 1929; Moczulski, 1927b, Przegląd Organizacji, 1927). Although the USA recognised the reborn Polish state as far back as January 1919, the authorities and American capital showed little interest in Polish affairs in the interwar period (Sierpowski, 1998). Despite this, factors that engendered the admiration and gratitude of Poles towards the USA, ⁹ and which provided the basis for increasing knowledge in many fields, included the economic and military power of the USA, the involvement of President Woodrow Wilson in the programme of peace for Europe at the end of World War I, the American Relief Administration's (ARA) food aid for Central Europe programme between 1919 and 1922 (which included Poland), the work of young Americans in Poland under the ARA and the aid programmes of the Polish-American community for Poland (Adamiecki, 1926; Borkowski, 1926; Potocki and Reed, 2019; Przegląd Organizacji, 1927).

In the development of organisation science and the application of SM in economic entities, a way was seen to heal and develop economic life by increasing the efficiency and rational use of all production factors (Drzewiecki, 1928a, 1929a, 1938; K.A., 1926). SM was recommended by engineers and economists in Poland as a ‘new banner of progress’, with the ultimate goal of contributing to the economic development of the country (Mileski, 1929: 158).

Scholars and engineers (for example, Adamiecki, 1926; Drzewiecki, 1929a), as well as accountants (Buchalter Polski, 1928b; Czasopismo Księgowych w Polsce, 1927b), argued that the development of economic life requires order in industry, trade, and finance, and that this cannot be done without properly organised accounting. It was stated that it is impossible to imagine rationalising industry and reducing production costs without calculation and bookkeepers. The calculation and reduction of own costs, production planning, and the preparation of budgets were treated as important areas of interest for SM (for example, Adamiecki 1927; Chodorowski, 1932; Sadowski, 1928). Unfortunately, in Poland, enterprises showed no interest in reducing costs by rationalising work in the first five years after regaining independence (1919–1924) due to the very bad condition of the economy. However, during this period, Polish organisational thought, which had already been initiated by Karol Adamiecki, Edwin Hauswald, and Aleksander Rother between 1903 and 1915, started to develop. For example, lectures on SM were given at Warsaw University of Technology (Politechnika Warszawska – PW) and Warsaw University of Life Sciences (Szkoła Główna Gospodarstwa Wiejskiego). Additionally, research was conducted at the Department of Labor Organization at PW, the Association of Technicians in Warsaw was actively interested in SM, and attempts were made to establish an organisation for SM on a national scale.

Professor Adamiecki (1866–1933) played a key role in developing the scientific organisation of work in Poland. He made a serious theoretical and practical contribution to SM by developing a method of harmonising activities using graphs and formulating the law of harmony ¹⁰ (Adamiecki, 1924). He contributed to the dissemination of information about the essence and methods of SM thanks to publications and lectures, and managing the Department of Scientific Management at PW, which led to the establishment of the Institute of Scientific Organization ¹¹ (ISO) in 1925, of which he was the director. Many other theorists and practitioners also contributed to the development of organisational thought in Poland. The most significant of these include Rothert, Hauswald, and Drzewiecki (Adamiecki, 1929; Bielski, 1967).

The above-mentioned ISO and the monthly Przegląd Organizacji ¹² published from April 1926, undeniably contributed to the dissemination of the principles of SM and the presentation of examples of their application in Polish enterprises. In the preamble to the inaugural issue of the journal, there is a sentence by Harrington Emerson, an American expert in SM, that contains a thought that is consistent with the theory of progress: ‘An efficient nation competes successfully with other nations and moves forward, while the non-productive one collapses and slows down, but inexorably loses the ground under its feet’ (Przegląd Organizacji, 1926: 1). In addition to articles by Poles, the journal also published texts by foreign (mainly American and French) experts of management such as Emerson (1926, 1928), Clark (1927, 1928), Satet (1936), and Le Chatelier (1926). This was because ISO established and maintained close contacts with the most important foreign institutions and activists in the field of SM, especially those from the USA (Adamiecki, 1926). The aim of Przegląd Organizacji was to familiarise the public with the development of SM and its practical applications, both in Poland and abroad (Przegląd Organizacji, 1928: 2). Polish authors of articles published in this journal expressed admiration for America's achievements thanks to the implementation of SM, presenting them as examples to follow (for example, Drzewiecki, 1926). This is confirmed, among others, by Taube (1928: 57), who wrote:

A feature of the spirit and mind of the twentieth century are rationalism and utilitarianism, the source of which is American genius. William James even created a philosophical system called pragmatism, which makes utility the criterion of truth. Emerson, Taylor, Hoover, and Ford introduced this spirit of pragmatism into the methods of work and production in the form of principles of rational organization, and in view of the extraordinary results achieved thereby, the whole world follows America.

However, Emerson (1928) recommended that pioneers of SM in Poland establish achievable national ideals for the development of Poland – ideals of their own nation, and not of any other. Undoubtedly, he believed that the main task for the successful development of Poland should be to increase efficiency in all fields, and he recommended increasing the profitability of enterprises through reducing production costs by properly organising work (Drzewiecki, 1929b).

Many Polish authors from the accounting community were aware of the importance of SM and advocated the rationalisation of cost calculation methods and the rational organisation of accountants’ work to create national wealth (for example, Czerwiński, 1927; Fijałkowski, 1928; Goldzamt, 1927; Jabłkowski, 1927; Tomanek, 1935). The rationalisation solutions recommended and implemented in the sphere of organising and managing enterprises and production processes were termed ‘Americanization’, assuming primarily the changes taking place in the USA as a pattern (Drzewiecki, 1926; Kucharzewski, 1929). The use of Americanization in industry and trade determined the development of Polish enterprises, and sometimes even their existence. Although the word ‘Americanization’ was given various meanings, the essence of the matter expressed by this term was to implement the methods recommended by Taylor, Ford, and Scott, to improve work by the rational use of both material and psychological factors (Jabłkowski, 1927). Tomanek (1935: 5) wrote that in the twentieth century, ‘culture at work is being sought, that is to base it on the foundations of rational intellectualism’, and the scientific organisation of work entered the activities of enterprises and private farms. New approaches, such as standardisation, harmonisation, and rationalisation, largely found their way into accounting.

To some extent, the activities of accounting organisations and the professional journals they issued contributed to this. The most important in Poland was the Union of Bookkeepers, established during the partitions in 1907 under the original name Związek Buchalterów w Warszawie (Union of Bookkeepers in Warsaw), which covered the entire Kingdom of Poland (Bień, 2007). The aim of the union was, inter alia, to increase the professional and general education of bookkeepers, bringing them to the highest level of practice and increasing work efficiency (Czasopismo Księgowych w Polsce, 1932). From November 1907, this organisation (in the form of an association) published a periodical entitled Kronika Buchaltera (Chronicle of a Bookkeeper), which in 1921 became a monthly entitled Czasopismo Księgowych w Polsce (The Journal of Bookkeepers in Poland). Another organisation was the Polish Union of Bookkeepers-Experts, Bookkeepers-Balance Sheet Preparers, and Their Helpers in the Republic of Poland, established in 1928, whose motto was ‘the proper setting up of the profession of an accountant for the economic power of Poland!’ (Szyller, 1928: 7). This union had published a monthly periodical entitled Buchalter Polski (Polish Bookkeeper) from March 1928 to August 1939. The editors of this journal referred to Polish Romanticism, the other key idea of which – after Poland regained independence – was to strengthen the economy and to strive for Poland to catch up to the economic development of Western countries (Buchalter Polski, 1928a).

Studies of the interwar literature in the field of management and accounting show that, in Poland, SM was treated as a matter of general rationalisation of economic life; these studies proposed that rationalisation must cover as many areas of social life as possible, including state power and state offices (Punicki, 1928). According to Landauer (1928: 205–206), the term ‘rationalisation’ was adopted at the International Economic Conference in Geneva, where it was understood as ‘disseminating SM on the national and international territory.’ This term began to be used in Poland instead of the term ‘scientific management’, under the influence of various German authors and activists, such as Fritz Reuter (1934), editor of the collective work entitled Handbuch für Rationalisierung. Landauer (1928) argued that rationalisation equated to SM bringing the desired results only if it is widespread. However, according to Adamiecki (1930: 7), rationalisation was a general term, meaning ‘all methods aimed at improvement in all economic fields,’ and it should not be used as a substitute for the name ‘scientific management’. This understanding of rationalisation coincided with the explanation of its meaning in 1937 by the Advisory Commission of Scientific Labor Organization in Geneva. As mentioned earlier, this committee defined rationalisation in general terms as all reform activities to replace outdated and routinised practises with methods based on logical reasoning (Przegląd Organizacji, 1938).

Thus, the idea of rationalisation was wide-ranging. Although in the minds of the masses it was associated with increasing the use and intensity of work and reducing employment, in the field of technology and management it led to an increase in efficiency and a reduction in unit costs of production. Interwar economists and engineers (for example, Adamiecki, Drzewiecki, Hauswald, and Mileski) repeatedly explained that an increase in work efficiency thanks to the use of SM tools does not contribute to an increase in unemployment or a crisis; rather, it may bring benefits to the national economy and increase social welfare (Bielski, 1967; Hauswald, 1934). Żarnowski (1992a) emphasises that the result of rationalisation in the sphere of technology in interwar Poland was that the production capacity of the existing production equipment was better used.

Despite these different opinions, the terms ‘rationalisation’ and ‘scientific management’ in interwar Poland were associated with knowledge, activities, and the use of tools that were supposed to contribute to overcoming economic problems, putting Poland on the path of economic progress and social welfare. Apart from the proper organisation of production and improving administrative processes, the tools for rationalising the operations of enterprises were properly conducted bookkeeping and business budgeting.

Articles in Polish on budgeting before 1940

The topic of budgeting was relatively rarely addressed in Polish accounting journals published before 1940, that is, Czasopismo Księgowych w Polsce and Buchalter Polski. The Polish scientific journal which contributed the most to disseminating knowledge about various aspects of budgeting was Przegląd Organizacji, a monthly periodical devoted to organisation and management issues. It published 23 articles, while the first two journals had a total of nine, including five on budgets in private enterprises and four in municipal and local government enterprises. The articles published in the three journals are listed in Table 1.

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Table 1.

Articles on budgeting in Polish journals before World War II.

Przegląd Organizacji (Organization Review) issued in 1926–1939
Year and no.	Author	Title of the article	Title of the article in English
1927: 2	Roman Moczulski	Uwagi nad zestawianiem budżetu produkcji i budżetu sprzedaży w przedsiębiorstwie przemysłowym	Comments on the compilation of the production budget and the sales budget in an industrial enterprise
1929: 1	T. Tomaszewski	Preliminowanie i kontrola robót polowych w gospodarstwach wiejskich	Budgeting and control of field work in rural farms
1930: 10	Jan Dąbrowski	Budżetowanie kosztów warsztatowych	Workshop costs budgeting
1930: 11	M. Bunbury	Budżet państwowy w porównaniu z budżetem przedsiębiorstwa	The state budget compared to the enterprise budget
1931: 1	Ewaryst Czarnecki	Organizacja aparatu budżetowego w Stanach Zjednoczonych A.P.	Organization of the budget apparatus in the United States of America
1931: 11	Marian Kałuski	Istota budżetu	The essence of the budget
1932: 12	Cezary Łagiewski	O kontroli buchalteryjnej	About bookkeeping control
1933: 1, 2	Mieczysław Łopuszyński	Kontrola kosztów własnych i zarządzanie na podstawie budżetu w przedsiębiorstwie budowlanem	Cost control and management based on a budget in a construction company
1933: 1, 2, 3	Benedykt Nawrocki	Budżet jako podstawa określania i kontroli kredytów udzielanych przez banki	The budget as the basis for determining and controlling loans granted by banks
1933: 5	Konstanty Słomiński	Uwagi w sprawie planowania sprzedaży i układania planu produkcji w przedsiębiorstwie włókienniczym	Comments on sales planning and production plan planning in a textile company
1934: 11	Stanisław Wojnarowicz	Warunki ułożenia i wykonania wzorcowego budżetu przedsiębiorstw miejskich	Conditions for arranging and implementing a model budget of urban enterprises
1935: 3	M. Omeljanowicz	Budżet a plan finansowy w samorządzie	Budget and financial plan in local government
1935: 7–8	Władysław Baliński	System kontroli budżetowej	Budget control system
1936: 1	Marian Kasiński	Amerykański przykład budżetowania sprzedaży	An American example of sales budgeting
1936: 2	Robert Satet	Kontrola budżetowa jako narzędzie zarządzania przedsiębiorstwem	Budgetary control as an enterprise management tool
1936: 2	Charles Penglaou	Kontrola budżetowa	Budgetary control
1936: 4	Stanisław Guzicki	Kontrola preliminarza, wydatków i zaliczeń na koszty	Budgetary control, expenditures and cost control
1936: 8–9	Marian Kałuski	Podstawy organizacji aparatu budżetowego	Basics of organizing the budget apparatus
1936: 11	M. Kasiński	Nowa metoda uproszczona budżetowania sprzedaży. Metoda kontyngentów miesięcznych.	A new simplified method of sales budgeting. Method of monthly quotas
1937: 2	Marian Kałuski	Kontrola budżetowa a kalkulacja	Budgetary control and calculation
1938: 2	Stanisław Wojnarowicz	Metodyka opracowania planu gospodarczego	Methodology for developing the economic plan
1938: 7–8	M. Gałęcka	Technika wypełniania schematów na budżety i sprawozdania instytucji społecznej	Technique of filling out schemes for budgets and reports of a social institution
1939: 4	Władysław Baliński	Harmonogramy	The schedules
Czasopismo Księgowych w Polsce (The Journal of Bookkeepers in Poland) issued in 1921–1939
Year and no.	Author	Title of the article	Title of the article in English
1937: 7–8	Teofil Seifert	Budżet kupiecki jako kontrola rozwoju i dochodowości przedsiębiorstw przemysłowo-handlowych	Merchant budget as a control over the development and profitability of industrial and commercial enterprises
1938: 6–7	Marcin Jordan	Komercjalizacja rachunkowości przedsiębiorstw samorządowych	Commercialisation of local government accounting
1939: 2	Jan Kocur	Księgowość i budżet jako podstawa działalności kierownictwa	Bookkeeping and budget as the basis of management‘s activities
1939: 7–8	Władysław Waczyński	Budżet przedsiębiorstw komunalnych	Municipal enterprises budget
Buchalter Polski (Polish Bookkeeper) issued in 1928–1939
Year and no.	Author	Title of the article	Title of the article in English
1931: 2	–	W sprawie rozporządzenia o budżetowaniu i rachunkowości w przedsiębiorstwach komunalnych	On the ordinance on budgeting and accounting in municipal enterprises
1931: 4–5	AT	Kontrola budżetowa	Budgetary control
1932: 2–3, 4, 5, 6, 7	Jan Chodorowski	Budżet wzorcowy jako podstawa zarządzania	Model budget as the basis of management
1932: 5	Józef Bronisław Marszałek	Budżet a rachunkowość administracji publicznej	Budget and accounting of public administration
1938: 11	Marian Frank	Preliminarze w rachunkowości przemysłowej	Budgets in industrial accounting

Source: author's own study.

Przegląd Organizacji also published the first article on this subject area, by Moczulski (1927a). The author, a Pole who lived in Detroit in the USA, wrote about the essence of budget control, its benefits, and the principles and stages of drawing up sales and production budgets based on an article by Morris A. Copeland, which was published in the Journal of Political Economy (December 1920), and a book, Budgetary control, by James O. McKinsey, from 1922.

Among the articles published in Przegląd Organizacji in the 1930s, texts by Nawrocki (1933), Baliński (1935), Kałuski (1937), and the French authors Satet (1936) and Penglaou (1936), deserve special attention. Nawrocki (1933) stated that budgeting was then a significant branch of practical knowledge and covered a large part of management and organisation science. Baliński (1935) explained the essence of the budgetary control system, which he considered an important means of enterprise management. On the other hand, Kałuski (1937) emphasised that budgeting is a method of improving work, and he characterised the mutual dependencies of budgeting and the cost calculation system in an enterprise. These authors considered in their explanations the definition of budgetary control formulated by the International Institute of Scientific Management in Geneva, which in its opening statement, emphasised that budgetary control is a method of SM.

Nawrocki (1933) showed in his three-part article that to heal the Polish credit market and the economy, it was necessary to introduce budgetary control in enterprises as the basis for controlling the repayment of loans granted to them by banks. Baliński (1935), in turn, wrote a relatively extensive article motivated by the low interest in budgeting issues among practitioners in Poland and their low awareness of the possible benefits of using budgets. He also wrote about the need to correct the narrow perception of budgetary control in Poland that was due to the literal translation of the English term ‘budgetary control’. The term actually referred to a holistic process that included forecasting in the form of budgets, execution control, and coordination and command, to adjust the state of affairs, forecasts, and actions to changing conditions.

Selected excerpts from articles by two French authors were translated from their original publications from 1934–1935. The text by Satet (1936) included an explanation of the essence, significance, and benefits of budgetary control, as well as the sequence and principles of drawing up the recommended budgets in a manufacturing enterprise, that is, sales, production, purchasing, costs, investment, financial, and general budgets. In turn, Penglaou (1936) presented guidelines relating to creating and updating individual partial budgets that make up the overall budget of the enterprise.

Although Czasopismo Księgowych w Polsce and Buchalter Polski were edited by members of the accounting community and were intended for bookkeepers, there were fewer articles on budgeting in total than in Przegląd Organizacji. In 1932, Buchalter Polski published a comprehensive five-part article by Jan Chodorowski, who indicated his affiliation to Columbia University in the USA, where he had stayed for a certain period. He detailed the rules and procedures for creating all budgets and the organisation of budgeting in enterprises. Chodorowski (1932, no. 2–3) wrote that industrial budgeting was a key issue that SM dealt with, and he explained that the reason for the development of SM and budgeting was the economic change in the previous few decades that had taken place in the USA. There was a fundamental change in the structure of the market, that is, ‘transfer from the seller's market to the buyer's market’. He first quoted a brief definition of budgeting – following the president of Walworth Co. in Boston – stating that budgeting ‘is an accounting system for the future, as opposed to regular accounting that digitally includes operations that have already been made’ (Chodorowski, 1932, no. 2–3: 3). He described in detail the method of drawing up a budget, and he called it a model budget because ‘it has all the features of a model (…) and it is a measure of the efficiency of individual people in the enterprise; it is also a means of control’ (Chodorowski, 1932, no. 7: 4).

Frank (1938), the author of another article published in Buchalter Polski, considered budgeting to be a new part of accounting that arose due to the concentration of capital in large industry, difficulties in the sales market, and the need to adapt sales to the requirements of consumers. He emphasised that companies would be forced to create budgets that were as accurate as possible, and the aim was ‘to represent the company's future economic relations as accurately as possible’ (Frank, 1938: 4).

The second monthly periodical for accountants, Czasopismo Księgowych w Polsce, did little to popularise budgetary control. Only four articles relating to certain aspects of budgeting were published between 1937 and 1939. Articles by Seifert (1937) and Kocur (1939) concerned the issue of budgeting in private enterprises, while the texts by Jordan (1938) and Waczyński (1939) looked at budgets in municipal enterprises.

The article by Seifert (1937) concisely described the role of the budget in controlling the income of manufacturing and trading enterprises. He argued that a budget should be prepared in each enterprise ‘as an indicator of future activity’ and ‘an indicator of enterprise development’ (Seifert, 1937: 235). Seifert recommended that the budget of the balance sheet should be prepared in accordance with the layout of the general ledger accounts, and he believed that the budget should be audited by sworn accounting experts. The budget audit should establish and identify the differences between the budget and the balance sheet after the end of the year, identify the reasons for the differences, and draw management's attention ‘to how to run an enterprise’ (Seifert, 1937: 242).

Kocur (1939: 42) also wrote about the relationship between accounting and budgeting, explaining that accounting can become ‘an instrument of economic activity of the management’ only ‘when it is harmoniously combined with the budget, as its control’. For this purpose, the chart of accounts must be closely harmonised with the budget chart. He claimed that such linking of accounting with budgetary data would make it ‘an instrument of waste elimination, organisation improvement and, consequently, increase the company's profitability’.

Of the two articles on municipal companies, the text by Jordan (1938) deserves attention. The author presented an example of good practise in preparing budgets in Municipal Electrical and Water Works in Chorzów. The method of bookkeeping and budgeting introduced there made it possible to determine the financial results in accordance with the principles of commercial accounting applied in private enterprises.

As for SC, prewar Polish journals did not describe its principles. However, authors wrote synthetically about the need to establish model costs (Pol. koszty wzorcowe) (for example, Adamiecki, 1927). Some authors recommended using the overhead budget to establish a normal fixed overhead rate to calculate the cost of products for the entire year (for example, Kałuski, 1937). Thus, the lack of significant considerations about SC in Poland before World War II was analogous to France and Germany, for example.

This review of Polish articles on budgeting in interwar journals showed that budgets and budgetary control were explained similarly to foreign publications. Budgetary control was explained as defined at the Geneva International Conference in 1930. Business budgeting was combined with SM, and budgetary control was considered a management tool. Budgeting was intended to contribute to reducing the waste of resources and increasing the profitability of enterprises, which were conditions for improving the economic situation of independent Poland.

Budgeting as a topic of Polish books from 1918 – 1939

The issues of planning or drawing up budgets were mentioned only in a few of the Polish books published during the partitions (1795–1918). ¹³ The review of titles and/or content of Polish books published in the interwar period showed only five books that contain chapters or sections about budgeting issues. The list of books that described budgeting issues – although to different extents – is presented in Table 2. All works were published in Warsaw.

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Table 2.

Polish books on budgeting published in the interwar period.

Author and year of publication	Information about the author	Book title / translated title in English	Number of pages
Józef Aseńko (1934)	Professor, author of books on accounting, financial control, and economic arithmetic	Analiza bilansów / Balance sheet analysis	95
Władysław Baliński (1937)	Adviser, consultant, and promoter of rational organisation and scientific management, author of books and many articles, editor of Przegląd Organizacji	Zasady organizacji i budżetowania / The principles of organization and budgeting	161
Jerzy Witowski (1938)	Engineer, author of several books on organisation and management of an enterprise, interested in cost calculation and reduction	Obliczanie kosztów własnych / Calculation of own costs	310
Aleksander Bajkowski (1937)	Engineer, organisational advisor, author of books on the organisation of the office and materials management	Koszty własne i ich charakterystyka / Own costs and their characteristics	49
Aleksander Bajkowski (1939)		Elementy kosztów własnych / Elements of own costs	62

Source: author's own study.

Books in Polish about business budgets were not published until the second half of the 1930s. In 1934, Professor Józef Aseńko (1934: 85–91), who lectured on, among others, the analysis of balance sheets in the Higher Accounting Courses for Bookkeepers ¹⁴ in Warsaw, included the analysis of budget execution in the book that contains his lectures on these courses. He wrote that the company's budget ‘is a test of the correctness of forecasts, the right to make expenses within certain limits, and an instrument allowing for the coordination of the activities of individual departments and their adjustment to the sales department’ (Aseńko, 1934: 86). He explained how to determine and interpret budget variance for administrative costs and production costs. Aseńko proposed using the concept of flexible cost budgeting.

The issues of budgeting in enterprises, mainly in production, were fully explained in monographs by Baliński (1937) and Witowski (1938). Both were interested in the SM principles and popularising them in Poland. Baliński (1889–1978) worked in banks and the State Air Defence League in the interwar period, where he carried out organisational tasks. He was an active member of the Institute of Scientific Organization and Management (ISOM) and an author of numerous publications in the field of organising office work, the economy, budgeting, and propaganda in social work (Czech, 2013). Meanwhile, Witowski was an engineer and author of many books on the basics of enterprise management, the organisation of office work, materials management, and reporting in the enterprise.

Baliński (1937: 189) divided his book into two parts, entitled I. Organization, and II. Budget, because achieving the full benefits of a ‘budgetary management system requires the good organisation of the business’. In the first part of the book, he characterised the principles of SM based on the publications of foreign promoters of SM (mostly French, Henry Fayol and Henry Le Chatelier) and the works of Professor Adamiecki. He appealed to practitioners to learn about these principles and apply them in adapting to the identified, changing conditions of the activity of each organisation because, in order to achieve ‘successful results of organisational activity, the knowledge acquired in practise alone is not enough in our times’ (Baliński, 1937: 192). He modelled the second part of the book on the publications of French authors, that is, articles by Penglaou published in 1934–1935 and the book by Satet, entitled Le contrôle budgetaire issued in 1936.

Baliński explained completely the features of a good budget, budgeting rules, detailed procedures for drawing up partial budgets, and controlling budget execution with the use of budget reports. He also provided guidelines for the implementation of a budgeting system in the enterprise. He emphasised: ‘In particular, all the works that make up the company's accounting should be properly organised and interconnected: statistics, bookkeeping and cost calculation, which is the main basis of budgeting’ (Baliński, 1937: 189).

Witowski (1938) stated that the business planning system, termed ‘budgetary control’, was widespread in the United States and Germany at the time, and he merely presented budgeting connected with the issues of cost calculation, bookkeeping, and statistics in the enterprise. He emphasised not only the retrospective but also the prospective function of the cost calculation system and argued that the system ‘must include the possibility not only to precisely define all costs actually incurred, but also to establish benchmark costs. Otherwise, any kind of calculation of the selling price and the cost of a product unit [was] completely false’ (Witowski, 1938: 112). He described the principles and detailed guidelines for preparing operating budgets in the enterprise and controlling the implementation of budgets. He stated that the scope of budgetary control is wide, as it covers all areas and units of the enterprise and, in its essence and activities, it goes beyond the notion of budget, which was then known as the state or local government budget. Witowski (1938: 251) claimed that the use of a budgetary control system can provide a company with many benefits, but the same system by itself cannot increase sales or improve production efficiency because ‘it is only a tool in the hands of management for rational and efficient management’.

At the end of the 1930s, the ISOM in Warsaw published two books by Bajkowski (1937, 1939) – although they were slightly different in content – in which there were references to the issue of cost control. He did not deal with the principles of preparing budgets. However, by stating that ‘constant cost control can be a powerful means of precise and successful management of a business’, he informed readers about the role of determining and analysing actual cost deviations ‘from the normal cost of production’ in detecting sources of waste and organisational errors (Bajkowski, 1939: 12).

Although few books were published in interwar Poland on business budgeting in comparison to the USA and Great Britain, two of them (Baliński, 1937; Witowski, 1938) gave a comprehensive presentation of the issues of budget preparation and budgetary control, as well as their relationship with bookkeeping and cost calculation. Due to their publications being only one or two years before the outbreak of World War II, it was not possible to widely disseminate the information they contained among Polish management and accounting practitioners. They were forgotten in Poland during the socialist economy (in 1945–1989) and were only recently more widely characterised (Szychta et al., 2018).

Budgeting as an element of accounting in enterprises

The analysis of the content of Polish publications showed that at the end of the interwar period, accounting in Poland was to include budgeting and statistics, in addition to bookkeeping and cost calculation. This was the opinion of authors associated with both the management and engineering circles (Baliński, 1937; Guzicki, 1936; Kałuski, 1937; Witowski, 1938) and accounting (Łagiewski, 1932, 1936b). It was believed that preparing budgets and budgetary control, as an SM tool, should be part of enterprises’ accounting systems. Cost calculation should form the basis for budgeting, and the financial budget should be the starting point for correct bookkeeping in the enterprise. Witowski (1938) recommended creating a reporting and statistics system in enterprises to obtain the necessary data to analyse the enterprise's activity. The important tasks of the statistics department were intended to determine the sources, causes, and fluctuations of various cost categories, to provide information on the expected costs and expected results during the month before the actual cost calculation was made, and to establish patterns for the different cost categories.

The opinions of the above-mentioned authors and their recommendations to ensure connections in the enterprise between budgeting, the costing system, bookkeeping records, as well as statistics and cost analysis, demonstrate that the issues presented in Polish publications before World War II refer to tasks and activities that today belong to operational management accounting. The development of SM and business budgeting in the interwar period undoubtedly influenced the transformation of bookkeeping in Poland at that time into accounting and outlined the directions of rationalisation activities in the work of accountants (e.g., Fijałkowski, 1928; Goldzamt, 1927; Sadowski, 1928).

Since SC was not the subject of publications in prewar Poland, and budgeting issues were presented mainly in connection with the organisation and management of an enterprise mainly by economists and engineers interested in SM, this Polish subject literature was not treated in the same way as in English-speaking countries, where the literature on SC and budgeting ‘profoundly transformed cost accounting and massively expanded its domain’ (Miller and O’Leary, 1994: 98). Nevertheless, budgetary control was considered by some Polish authors to be closely related to cost accounting.

Scientific management and budgeting practise in interwar Poland

In contrast to the USA and the developed countries of Western Europe, the complicated socio-economic relationships in interwar Poland, especially until 1925 and during the long lasting economic crisis (1929–1935), were not conducive to the speedy implementation of SM into practice. SM tools were applied in relatively large enterprises (although companies employing more than 100 workers constituted only 8% of the total number of companies) (Bielski, 1967).

According to Bielski (1967), the applications of scientific production methods in Poland in the interwar period were numerous and covered many industries. The strongest development of these methods took place in mining, the chemical industry, the sugar industry, and in mechanical workshops (mainly in railway repair shops) (for example., Adamiecki, 1929; Clark, 1927; Raźniewski, 1934). The practical solutions were based primarily on the American experience and recommendations contained in the American literature on SM. They were also drawn directly from American experts coming to Poland, including eminent specialists such as Harrington Emerson and Wallace Clark (see Drzewiecki, 1928b, 1929b). Emerson visited Poland twice (1928 and 1929) at the invitation of the Institute of Scientific Organization in Warsaw. Meanwhile, Clark (a long-time collaborator of one of the pioneers of SM, HL Gantt), while staying in Poland between 1926 and 1933, organised many industrial enterprises, including Lilpop, Rau, and Loewenstein in Warsaw, Zakłady Starachowickie, the Steinhagen and Saenger Cellulose and Paper Factories in Włocławek and Pabianice, Dietel in Sosnowiec, as well as one bank, Bank Zachodni in Warsaw (Lutosławski, 1947).

The accounting practice in Poland before World War II was diverse in terms of technique and detailed accounting solutions. The overall assessment of the level of accounting in enterprises by the authors of the time is low (Szychta et al., 2018). However, Skrzywan (1964) believed that in Poland before World War II, there was a certain number of large enterprises, mainly industrial ones, in which the records were kept at a high level, in accordance with individual plans of synthetic and analytical accounts. In many cases, the cost accounting was based on anticipated costs (planned, normative) and closely related to bookkeeping. The financial reporting in these companies was fast, timely, and adapted to management needs of the time.

Little is known about the budgeting practices in enterprises in Poland in the years 1918–1939 from publications issued at the time or works published after 1945. The situation was assessed by Baliński (1937: 135), who stated that in private enterprises in the 1930s, too little attention was paid to the budget:

When the auditor must fill in the columns of the report stating in what, how many and for what reasons the deviations from the budget in its implementation, it is usually forced to conclude that there is no budget at all, which is and must be understood as evidence of unplanned management.

A similar opinion was expressed by Seifert (1937), who wrote that enterprises did not prepare economic plans in the form of a main budget and its components. Only a few firms compiled a profit and loss account estimate that contained some of its supposed components. In companies obliged to submit an economic plan for approval, the structure of the budget used in state administration was followed.

Despite these unfavourable general opinions, there are examples of the use of budgeting in enterprises in interwar Poland. One of them was Lilpop, Rau, and Loewenstein (LRL), the largest and oldest factory of wagons and equipment in Poland, which was based in Warsaw from 1818–1944. Information on this can be found in the book by Lutosławski (1947) on organising the procurement process, production, material supply, the operation of warehouses and general departments, and the control process in this enterprise before World War II. The author worked in LRL, cooperating with Clark, who advised on the reorganisation of this company which was carried out between 1928 and 1933.

An analysis of the content of this publication showed that the LRL factory used highly structured budgeting, bookkeeping, and costing solutions based on the principles of SM. In the factory, the budget was prepared in December for the following year based on the production programme developed by the Sales Office. The annual budget covered all costs and was the basis for preparing budgets for individual production departments. It consisted of two parts: costs that were dependent on their managers and costs that were independent of managers. The production cost budget consisted of four parts: A – Land and buildings, B – Department costs, C – Idle machine costs, and D – Machine running costs. Factory, storage, general administration, and commercial costs were also budgeted. The figures shown in the budgets were made known to all departments and offices. Particular attention was paid to the costs of inactivity, which were shown in the report as a loss in the enterprise, with the aim of directing the administration to the proper use of devices (Lutosławski, 1947).

Control in LRL was an extensive process that covered the entire production and non-production sphere, including cost and profitability control of orders, as well as financial and cash register control. Cost control consisted of controlling workshop costs and controlling the profitability of orders. The first was based on an annual budget, and the order cost control consisted of comparing three factors: the cost estimate, the actual cost of the order, and the selling price. All cost control work was concentrated in the Cost Center Office.

The implementation of Clark's organisational recommendations, including budgeting and costing, brought significant quantitative and qualitative benefits to LRL. For example, assembly time was reduced from 180 days in 1928 to 40 days in 1932, there was an increase in production efficiency per worker (by 76 per cent), and departmental costs were reduced. Ultimately, it contributed to a reduction in the cost of production, and thanks to LRL, it lowered the prices of wagons, for example, by about 11 per cent for the main Polish customer – the Ministry of Transport (Lutosławski, 1947: 111–120).

Similar solutions in the field of enterprise organisation, including budgeting, were probably introduced in the 1930s in other Polish enterprises mentioned above, advised by Clark, the American expert in SM.

A study by the author of this article of archival documentation from the interwar period – unfortunately very incomplete – of several leading enterprises in Łódź, that is, three textile factories (Scheibler, Poznański, and Geyer) and the J. John textile machinery factory, revealed materials that proved a certain scope of budgeting during this period in the K. Scheibler and L. Grohman United Textile Works (S&G for short). This company was established in 1921 as a result of the merger of Karol Scheibler's industrial empire, which was set up in 1854, and Ludwik Grohman's cotton factory, established in 1842. Until World War II, this enterprise was the largest in Poland and one of the largest textile companies in Europe, employing an average of 8000 workers (Skrzydło, 1999; Stefański, 2014).

In S&G, in 1928 and 1932, monthly budgets for inflows and outflows were drawn up, and these were divided into weeks. The outflows budget included production, settlement, and total expenditure. Actual outflows were manually entered in the budget table above the planned amounts. A detailed list of the types of production expenditures was attached to the monthly outflows budget, which was also divided into weeks. In the monthly budget of inflows, also on a weekly basis, the types of inflows were presented and divided into three groups: trade in goods, receipts from settlements, and total (APŁ, syg. 2273 and 2274). The document preserved in the archive, entitled The real budget, is the cost and profit budget of S&G Plants for 1932. It contains planned values and describes the method of determining the individual cost components. The real budget, which was drawn up for the assumed degree of utilisationsof the production capacity of individual departments (for example, 75 per cent for weaving mills, 91 per cent for finishing mills), was contrasted with the theoretical budget of costs and profit, that is, assuming full use of the production capacity of individual departments. The description of the method of calculating the annual planned cost components shows that the division into costs that were dependent on and independent of the degree of capacity utilisation was taken into account, although the terms ‘variable costs’ and ‘fixed costs’ were not used (APŁ, syg. 2275).

The budget documents of the J. John company, which was established in Łódź in 1860, have not been preserved in the archive, but most probably, they included budgets for the production and sale of textile machinery in the interwar period. In the company's management report for 1938, there is a mention of comparing the actual results with the budget (APŁ, Księga Protokołów).

The literature review and archival searches lead to the conclusion that business budgeting in interwar Poland was used relatively rarely, and usually in large production companies. Enterprises prepared different numbers and types of budgets. It seems that the information on the principles of budgeting presented in the professional journals and in the few books published in Poland in the 1930s was not yet widely known to practitioners before World War II. Compared to the USA, the use of business budgeting in 1930s Poland was only at an early stage.