Accounting, Auditing & Accountability Journal

Inside contracting at the Waltham Watch Company: Reassessing the economic rationalist and labour
process perspectives
Richard K. Fleischman Thomas Tyson
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Richard K. Fleischman Thomas Tyson, (1996),"Inside contracting at the Waltham Watch Company", Accounting, Auditing &
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 The Waltham
Inside contracting at the Watch Company
Waltham Watch Company
Reassessing the economic rationalist
61
and labour process perspectives
Richard K. Fleischman
John Carroll University, University Heights, Ohio, USA, and
Thomas Tyson
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St John Fisher College, Rochester, New York, USA

Controversy surrounds the nature of inside contracting (IC) and its impact on
the development of cost accounting procedures in late nineteenth century US
businesses. Conventional historians have argued that IC had to be replaced by
more detailed cost information in order to co-ordinate complex manufacturing
processes and to respond to competitive pressures (Chandler, 1977; Johnson and
Kaplan, 1987); while critical scholars have stressed a variety of political, social
and ideological factors which effectuated both the demise of IC and the
institution of subsequent cost accounting methods designed to control labour
processes (Braverman, 1974; Hopper and Armstrong, 1991; Puxty, 1993;
Stewart, 1992). While both schools have tied cost accounting developments to
the termination of IC, they have disagreed regarding the rationales for IC in the
first instance and the reasons for its later abandonment.
Clawson (1980) presented a detailed overview of IC at several prominent US
manufacturing establishments[1]. Although the majority of his remarks
referenced studies conducted by other scholars, Clawson utilized directly the
Waltham Watch Company (WWC) archives to bolster his most salient points.
These remarks are particularly germane because they have formed a basis for
certain central arguments advanced by critical scholars who have contributed
prominently to the new accounting history.
In this paper we discuss initially the nature of IC in nineteenth century US
mass-production industries. We recount in some detail the labour process
perspective, its rationales for IC’s abandonment, and its impact on cost
accounting developments. We then evaluate arguments presented by Clawson
and accounting historians in light of specific WWC archival data that relate to
both the economic rationalist and labour process perspectives.

Accounting, Auditing &

Accountability Journal,
The authors recognize, with gratitude, funding support from Arthur Andersen LLP and KPMG Vol. 9 No. 3, 1996, pp. 61-78 . ©
Peat Marwick LLP. MCB University Press, 0951-3574
 AAAJ The nature of inside contracting
9,3 Owing to resource constraints most owners of small businesses, both in the
nineteenth century and today, participate initially in all key facets of their
enterprises. As businesses grow and become more complex, owners typically
become preoccupied with technology and marketing concerns and assign
operational tasks to trusted and highly skilled workers. These employees
62 necessarily share certain decision-making responsibilities (staffing, organizing,
monitoring, etc.) which typically are described as managerial. IC was at one
time a common form of shared decision making in both the UK and USA. See
Tyson (1988) for a discussion of the managerial and cost accounting procedures
which were undertaken by a small entrepreneurship in Canton, New York in the
late nineteenth century.
Subcontracting, external and internal, was a prominent feature of the UK
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industrial revolution a century before its widespread use in the USA. During the
eighteenth century the extensive mining operations of the major iron founders
were controlled by the “butty system”, wherein subcontractors had managerial
responsibility over operative teams and negotiated piece rates (“tribute
bargains”) based on the depth and quality of the ore seams being mined
(Ashton, 1963; Harris, 1988; Raistrick, 1970; Trinder, 1973). In similar fashion,
the cotton textile industry was organized along the lines of a “family economy”,
with the master spinners supervising family members and acquaintances who
functioned in a variety of subordinate capacities (Collier, 1965; Fleischman,
1985; Smelser, 1959).
A classic example of the evolution of subcontracting occurred at Boulton &
Watt, the famous UK steam engine enterprise. In its early history (1775-1795),
the firm externally subcontracted a substantial percentage of the engine
components required. Commencing with the construction of its Soho Foundry
in 1795, however, Boulton & Watt effectively terminated external
subcontracting in order to reserve for itself profits associated with component
production, as well as to guarantee the timeliness and quality of supply.
Accounting innovations were introduced to control and co-ordinate the wide
variety of labour skills necessary to construct a highly complex product. The
end result was the articulation of an intricate IC system in 1800-1802, which has
contributed to the firm’s renown as a cost accounting pioneer (Fleischman et al.,
1995; Pollard, 1965; Roll, 1930; Tann, 1981).
In the USA the specific features of IC varied from company to company, but
individual contractors were often responsible for setting wage rates, directing
and regulating work tasks, hiring and firing workers, and distributing pay
(Nelson, 1975). Unlike pure capitalists, contractors utilized the owner’s
equipment and floor space but did not purchase raw materials. Though they
frequently were accountable to a department or a factory superintendent, they
could earn substantial profits from large spreads between the contracted piece
rate and the wages paid to contract workers. Brown (1992, p. 173) perceptively
characterized inside contracting as “managerial piecework”. Clawson (1980,
 p. 75) spoke to the significance of IC, observing that “it was one of the key The Waltham
systems, perhaps the most important such system, in the transition to the Watch Company
modern organization of production”.
Scholars have identified a variety of drawbacks and benefits associated with
IC. Duncan (1920) noted that the IC system could develop slave-driving habits
and increase labour unrest. Buttrick (1952) argued that while contracting
relieved capitalists of their supervisory and productivity-enhancing 63
responsibilities, individual contractors were loosely monitored and could defer
technical innovations until after contract prices had been set. Chandler (1977)
felt that IC enabled owners to avoid detailed costing systems because
contractors were responsible for setting wage rates. Brown (1992, p. 174) argued
that contractors at Baldwin Locomotive enhanced productivity by “splitting up
the labor force and transforming some leading skilled craftsmen into quasi-
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managers”.
Other scholars have noted that the form and impact of wage payments to
contract workers varied in different venues. Wright (1904) observed generally
that workers’ day rates were reduced when contractors were forced to take piece
rate cuts. However, Navin (1950, p. 145) indicated that at Whitin Machine Works
employees who were supervised by job workers were paid on a piece rate basis
because “this method of payment followed logically from the fact that the
department head was paid according to the number of pieces produced on his
job-work contract with the shop”. Englander (1987) felt that IC benefitted
owners at Whitin Machine Works by standardizing direct labour costs and
precluding the need for cost accounting for bid work. Wright (1904, p. 19)
explained how the IC system could be detrimental to worker interests:
The contract or subcontract system is resisted in the same way as are the pace-setters and
bonus foremen, because under this system the contractor who works along with the wage-
earners takes the place of the foreman, and a part of his earnings is derived from a speculative
margin of profit on the output of his fellows. This is the essence of the sweating system as seen
by the workman, where speed-inciting methods of payment are carried to the extreme limit of
“driving” or “slaving”, while the gain from the increased output goes to the driver and not to
the workman. Wherever this system exists (clothing, machinery, building trades) the unions
demand either its abolition or safeguards and modifications.
Litterer (1961) felt that IC systems were effective as long as owner/managers
could avoid making decisions that required a “managerial perspective”. Many
inside contractors rose through the worker ranks and may have lacked
managerial skills. Chandler (1977) similarly contended that loose and highly
autonomous IC systems had to be replaced by a more centralized and
bureaucratic hierarchy armed with a set of systematic management procedures,
the “visible hand”. Unlike Litterer, Chandler, and most conventional historians,
Clawson believed that contracting was a feasible alternative to bureaucracy
even in complex organizations (1980, p. 86):
The basic facts about inside contracting – the extensive use of the system, the advanced
character of the industries where it was employed, and the ability of contractors to generate
technological change – not only demonstrate its historic importance but also provide solid
 AAAJ evidence against the view that bureaucracy is necessary in order to use sophisticated
machinery or achieve mass production.
9,3
The context of IC and labour process rationales
Clearly, accounting history literature is replete with varying assessments of the
advantages and disadvantages of an IC system, as well as reasons for its
64 eventual abandonment. It is especially noteworthy that IC spanned many
industry sectors and a substantial number of chronological periods; thus, the
socio-political contexts of IC changed markedly over time. For example,
contracting began at Baldwin Locomotive, a Philadelphia, PA capital
equipment builder, in 1872 and continued until 1942 (Brown, 1992). Contracting
was used by Winchester Repeating Arms Company and other New England
mass-production industries as late as World War I (Buttrick, 1952)[2]. At WWC,
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employees who had served as internal contractors in the 1860s were paid
relatively modest day wages and appeared to function as salaried foremen
rather than managers by the mid-1870s.
Widely divergent start and stop dates suggest that contracting’s presence
depended more on a firm’s social relations than either the skill levels of
employees or the degree of factory automation. For example, Buttrick (1952)
indicated that contracting was abandoned at Winchester Arms because it
resulted in pay differentials for the same type of work. It appears that IC could
be sustained in those companies where the production side of the business
predominated and where class boundaries between workers and managers
were crossed easily. At both WWC and Winchester Arms, the conscious effort
to stress salesmanship, to fend off competitors, and to prioritize customer needs
brought the drawbacks of their IC systems under greater scrutiny. Brown’s
comments about the “producer ethos” at Baldwin Locomotive characterized an
environment which would help to sustain the IC system (1992, p. 138):
Where managers existed in the mid-nineteenth century, at Baldwin and other industrial
companies, they were quite often promoted from the ranks of labor. In passing from labor to
management, these men came to espouse a producer ethos – which combined regard for the
work ethic and the manual skills and labor of their blue collar days with an individualism that
their own promotions and rising fortunes seemed to amply justify.
Not only is the context of IC difficult to categorize, but IC’s abandonment cannot
be tied to particular factors. Chandler (1977) and Johnson and Kaplan (1987) are
well-known proponents of the economic rationalist perspective that greater size
and complexity, the need for co-ordination, and competitive pressures all
warrant greater managerial controls provided more efficiently by cost
accounting than by labour control mechanisms such as IC. Litterer (1961, p. 472)
summarized the economic rationalist perspective:
Operations had become large, the work subdivided into many small detailed tasks, and
knowledge of what was going on scattered among many people. This resulted in a loss of
direction, a decrease in efficiency, and a basic need for much greater coordination of activities
and operations.
 Alternatively, scholars adopting social power or labour process perspectives The Waltham
have maintained that economic efficiency issues were of relatively minor Watch Company
importance in the elimination decision. Nelson (1975, p. 38) argued in this vein
that “the power and independence of the contractors ultimately led to the
abandonment of the system, even in firms where it remained an effective
method of reducing costs”. Taking a more extreme position, Clawson (1980) and
Hopper and Armstrong (1991) indicated that social, class-based factors 65
stimulated owner/managers to dominate and disempower workers and, because
of the audacious behaviour of certain contractors, eventually compelled them to
eliminate IC. Thus, Buttrick’s (1952) remarks about company officials
expressing jealousy over contractors’ life styles (driving to work in carriages,
carrying canes, sporting stickpins) at Winchester Arms were embraced by
Clawson (1980, p. 119) in preference to the many economic factors Buttrick cited:
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Why was the system of inside contracting abolished? The two most important reasons were,
first, the attempt to shift income from contractors to the company, and second, the wish to
establish and maintain an “acceptable” social hierarchy. Neither considerations of efficiency
nor dissatisfaction with inside contracting’s technical capacity to perform the work were
significant issues at the time[3].
Clawson’s remarks are an extension of Braverman’s (1974) application of
Marxist theory to the industrial workplace. The viability of Marxism as a major
social sciences research paradigm has been possible only because scholars in
disciplines such as economics, history, sociology and accounting have adapted
Marx’s vision of conflictual economic and social classes to correspond to new
stages in capitalism’s development. A major twentieth century Marxist revision
is the perspective identified universally as “labour process”. Braverman, whose
1974 seminal work has given birth to two decades of a rich and voluminous
labour process literature, underscored the centrality of labour control within the
history of industrial organizations. Braverman narrowed the focus of
investigation to the production process as opposed to Marx’s more general
concern with the totality of exchange relations (Littler, 1986). Braverman
chronicled how different methods of labour control were developed at various
stages in capitalism – from the domestic system, to internal subcontracting, to
piece rate structures, to Taylorism (Braverman, 1974; Clawson, 1980;
Thompson, 1984a) – though his major emphasis was on the monopolistic
capitalism phase born when earlier control attempts failed in the competitive
environment of the 1880s (Armstrong, 1984; Littler, 1986).
Braverman identified subcontracting as an early phase of capitalism in
which labour was simply purchased much like raw materials. In terms of labour
control it was a “method of evading management” (Pollard, 1965, p. 38).
Braverman (1974, p. 63) concluded:
the early domestic and subcontracting systems represented a transitional form, a phase
during which the capitalist had not yet assumed the essential function of management in
industrial capitalism, control over the labor process; for this reason it was incompatible with
the overall development of capitalist production...
 AAAJ Labor and Monopoly Capital has been called “an invitation and a challenge to a
9,3 younger generation of Marxist economists and sociologists” (Braverman, 1974,
p. xii). Indeed, the theme has been picked up strongly in these disciplines,
though more typically in the form of critique. Gordon et al. (1982) and
Thompson (1989) investigated factors (diversity of working class origins, ethnic
antagonisms, unionization, class alliances, gender issues) in labour history
66 which contributed to the segmentation of workers rather than the homogeneity
Braverman assumed.
Many scholars have criticized Braverman’s virtual ignoring of labour
resistance and the impact of working class consciousness (Boreham et al., 1986;
Clawson, 1980; Gordon et al., 1982; Thompson, 1984a; Thompson, 1984b). It was
particularly in the work of Burawoy (1979, 1985) that the consensual aspect of
labour process came to be studied along with more traditional issues of conflict
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between economic classes. The interests of capital and labour need not be
viewed as necessarily antagonistic given political and ideological parameters
(Knights and Willmott, 1990; Littler and Salaman, 1982).
It was particularly Armstrong and Hopper (Armstrong, 1986, 1987; Hopper
et al., 1986, 1987) who first theorized accounting as a significant component of
labour process. For example, Hopper et al. (1986, p. 110) observed:
We particularly emphasise that accounting, through its espousal of particular reporting
structures, its pattern of segmental reporting, and modes of calculation, is a significant plank
in efforts to manufacture subjectively the compliance of labour.
More germane for this paper, Hopper and Armstrong (1991) built on the
economic and sociological labour process literature to reinterpret the early US
industrial period formerly studied by economic rationalists Chandler (1977) and
Johnson and Kaplan (1987). They attempted to demonstrate how cost
accounting came of age to accomplish labour intensification through “speed
ups” on the production line, the extension of the work day, and seasonal layoffs.
Their thrust, as well as their debt to Clawson, was reflected in the following
statement of purpose (Hopper and Armstrong, 1991, p. 417):
If, as is suggested by Clawson’s work, the establishment of these early costing systems had
nothing to do with the efficiency of the conversion process (and, in the event, actually reduced
it), but was a means of redistributing profits, the general applicability of Johnson and Kaplan’s
historical model is thrown into question. If relatively permanent changes in systems of
organisation and accounting can be shown to occur which have nothing to do with gains in
efficiency (or reductions in transaction costs), it follows that the latter cannot be a sufficient
explanation of the former.
In summary, scholars attributing economic rationalist and labour process
perspectives to the elimination of IC assess the underlying motives far
differently. To the former, owner/managers were forced by organizational (size,
complexity, co-ordination) and environmental (market forces, competition)
factors to eliminate contracting. To the latter, the power elite was responding to
the social and political intrusions of a lower class that had achieved inordinate
economic successes. Notwithstanding, scholars from different perspectives
have argued that IC’s demise was tied necessarily to the evolution of more
 detailed cost accounting procedures. For example, Chandler (1977, p. 272) The Waltham
indicated that owners who utilized IC “knew relatively little about the precise Watch Company
costs of labor and materials in contracted departments and by the enterprise as
a whole”. Littler (1982, p. 66) noted that “systems of internal contract acted as a
substitute for accounting”, while Hopper (1990, p. 120) discussed “accounting’s
role in the destruction of sub-contracting”.
67
Inside contracting at Waltham Watch Company
WWC was organized in the early 1850s and became one of the most innovative
and important US mass-production firms during the 1870-1900 period[4].
According to Clawson (1980, p. 78), “the Waltham Watch Company was the first
company anywhere in the world to produce watches through extensive use of
machinery and interchangeability”. By 1885, the firm had issued over two
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million dollars in capital stock and employed 2,400 operatives who produced
over 1,200 movements per day using automatic machinery and simplified
designs (Marsh, 1889). From its inception WWC faced extensive domestic and
foreign competition which, according to several participant observers,
necessitated ongoing attention to cost and quality issues. E.A. Marsh, a master
mechanic, described the environment of watchmaking at WWC (Marsh, 1889,
pp. 21-2):
But the attempts of foreign makers to retain their markets in America, and the competition
resulting from the multiplication of watch factories, has had the effect of continually reducing
prices, and so compelling a corresponding reduction in the cost of manufacture, either at the
sacrifice of quality, reduction of wages, or in greatly increased production.
Despite competitive pressures and steadily falling prices, WWC was
continually profitable during the 1864-79 period. According to Marsh, the WWC
factory was steadily at work except for the fall and winter of 1873-74, and
Waltham, MA suffered far less during the depression of the 1870s than any
other factory town. Notwithstanding its economic viability, WWC sought
continually to improve financial and managerial performance. In 1874, Mr
Woerd became mechanical superintendent of the factory, but according to
Marsh (1889, p. 31), “he was not so well equipped to act as manager, and his
administration on the broader scale was not so successful”. When Woerd retired
in 1883, he was replaced by Ezra C. Fitch, who was to become president in 1886.
Fitch, who had an extensive sales background, re-oriented control of
manufacturing from production managers to sales agents and divided factory
work into 22 departments, each under the direction of a foreman. Moore (1945,
p. 56) attributed WWC’s continuing success to its ongoing efforts to automate,
simplify production and reduce the skill levels and labour costs of its workforce.
“Not only was less labor required, but workers of relatively little skill could be
substituted for many of the craftsmen previously employed”. Moore also
suggested that continual competitive pressures stimulated the sales orientation
and other organizational changes initiated by Fitch (Moore, 1945, pp. 75-6):
Until 1883 the factory had dominated the whole enterprise; factory executives had told the
selling agents what Waltham would produce, and the agents had sold the product for the best
 AAAJ price obtainable. Such an arrangement could not be successful under competitive conditions.
In 1883 it was necessary that the factory produce the kinds of goods required by the market in
9,3 exactly the amounts that could be sold to advantage.
Although Ezra Fitch was hired as general manager to turn around a declining
operation, it is unclear whether he implemented cost accounting and systematic
management procedures or if they were already in place. Charles H. Fitch (1883,
68 p. 677) indicated that bookkeepers were available to assist foremen in their
managerial activities[5]:
Under this uniform system the greater proportion of the operatives are paid by the piece. At
the works of the American Watch Company, at Waltham, monthly cards are prepared by the
superintendent for each foreman, stating the number and kind of watches to be made. Each
foreman makes a daily report of work done and of the transfers of work between the several
departments, and to facilitate this each foreman has a book-keeper, who is responsible to the
superintendent.
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In light of Fitch’s comments, as well as Navin’s description of accounting at

Whitin Machine works[6], Clawson’s (1980, p. 116) remarks about WWC’s lack
of knowledge about costs and wages appear problematic and might only be
applicable to a time period precedent to the early 1870s:
At Waltham Watch, for example, the contractor of 1870 was simply given a sum of money
based on the contract price and the number of units delivered. The contractor had complete
control over this money and paid his employees. The company had no records or formal way
of knowing the number of the contractor’s employees, their names, their earnings, or how
much money the contractor kept for himself.
Although differing from Clawson in their rationale for IC’s elimination, Johnson
and Kaplan (1987, p. 49) spoke similarly about the contract system and top
management’s lack of knowledge about operational matters:
While the system reduced the cost to owners of supervising and controlling a diverse and
often highly skilled work force, it meant that owners knew very little about cost and
efficiencies in factory departments. Moreover, the immediate beneficiaries of improved
efficiency were the contract foremen and their workers, not the firm’s owners who supplied the
basic machine technology.
Our initial examination of the Waltham archives focused on IC in the 1860s and
1870s. We attempted to determine if the economic rationalist, labour process, or
some alternative interpretation explains best the decision to eliminate the
contract system. More specifically, we investigated what Waltham’s top
management knew about its contractors’ activities, when contracting was
eliminated, and whether the volume of cost accounting data increased after IC’s
elimination.
Unfortunately, the WWC archives contain no written contracts and precious
little other data which relate directly to contracting. The only narrative
comments that pertain appear in R.E. Robbins’ annual treasurer’s reports.
Robbins was elected treasurer in 1858, a position he held continuously for 32
years. In his 1862 report (Waltham Watch Archives, AD-1), Robbins noted that
the object for the year had not been to make money, given that sales were only
one-third of usual levels, but rather “not to create new debt, to keep in employ
 the principal hands and to lose by such contracted operations as little as might The Waltham
be”. Robbins went on to acknowledge the financial sacrifices that certain Watch Company
contractors had made:
The gap as proved by the accounts has been $4010.85, that it is not larger, is owing in a great
degree to the extreme generosity of the contract hands, who with but one or two exceptions in
recognition of the extraordinary state of things, allowed their contracts to be suspended
during the entire year, and accepted from one quarter to one half less pay that to which the 69
Company was legally bound. At least ten thousand dollars have been saved to the Company
by these worthy and unselfish men.
These remarks suggest to us that in 1862, WWC executives were
knowledgeable about the total costs of IC as well as the amount of savings that
were obtained through wage concessions[7]. Similarly, job rates shown in the
1874-75 wage rate book (Waltham Watch archives, KB-1), the earliest of such
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books in the archive, can be multiplied by the number of days worked in the
corresponding payroll book (Waltham Watch archives, KC-7) to yield the
amount of wages a job worker received[8]. This integrated record keeping
system suggests that at least by 1874, top management knew unequivocally its
job workers’ earnings.
The 1871 treasurer’s report did not address contracting per se, but it did
reveal certain aspects of the employment relationship at WWC. Robbins
acknowledged that new machinery and “experience” had enabled the firm to
reduce costs and improve quality every year. Perhaps to make automation and
simplification more palatable to the remaining workers, Robbins wrote that “we
have had the benefit to a certain degree of a common interest in the profits on
the part of a large number of the employees”. The report also noted that 203 out
of nearly 500 total employees owned 1,379 shares in the company (Waltham
Watch archives, AD-1, 1871).
In his 1875 report Robbins discussed the need for better managerial co-
ordination and further cost reduction[9]. The WWC archives disclose that by
that year contractors who previously had received large monthly remunerations
now received far smaller daily amounts. For example, E.H. Owen, who had
received $61,578 in 1870, was paid $7.00 per day in 1875 (Waltham Watch
archives, KB-1, 1874-75). It is unlikely that Owen or other highly paid
individuals would have accepted these seemingly huge reductions unless they
had served merely as middlemen, recipients of their employees’ pay for later
distribution. Furthermore, it is inconceivable that WWC would have paid Owen
and other contractors seemingly large amounts in 1870 given what they were
able to pay several years later. The 1862 treasurer’s report had indicated that
large concessions of between 25 and 50 per cent were obtained from contractors.
Robbins’ failure to mention the need for contract reductions in 1875 suggests to
us that wages had already been cut to reflect the depressed conditions of the
previous two years (Waltham Watch archives, AD-1, 1875):
The factory is now a unit in its operations every department working effectively under one
mechanical and general superintendance. Important reductions have recently been made not
only in the day pay and piece work pieces [prices?] but also in the salaries of all officers and
 AAAJ clerks of the company as well as in those of the Superintendent and some of the foremen.
These reductions have been cheerfully submitted to in the part of every one concerned.
9,3
Given the data that we discovered in the WWC archives, Clawson’s remarks
about contractors’ remuneration should be re-evaluated. Clawson (1980)
specifically identified five contractors who received significant remuneration
during 1870: E.H. Owen ($61,578), J.B. Gooding ($35,578), Leonard Greene
70 ($30,011), James T. Shepard ($19,947), and Charles Moore ($8,091). Clawson
(1980, p. 87) concluded, “obviously, contractors running operations of this size
have to be seen more as managers than as workers”. We re-examined the
archives carefully to determine if these men received these monies as wages and
if they continued to serve as contractors after 1870. Information summarizing
contractor remunerations is presented in Table I.
In our opinion, Clawson’s analysis of WWC wagebooks from the early 1870s
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has created an erroneous impression of why IC at the manufactory ceased

shortly thereafter. As noted above, Clawson (1980) observed that five big ticket
employees were enjoying extravagant salaries. Although Clawson must have
realized that the bulk of these monies were distributed to operatives under the
subcontractor’s charge, he intimated that the IC system was extremely lucrative
for the individuals receiving lump sum payments. Given the large amounts
involved, economically rational behaviour would have induced WWC
executives to attempt the appropriation of surplus wages for themselves and
the shareholders. Alternatively, from a labour process perspective, the firm may
have wanted greater managerial control over the contractors and their
employees.
Clawson, however, was wrong on several counts. The elimination of IC at
WWC was more complex than either of his explanations suggests. Contractors
were modestly recompensed despite the large payments they had received in
prior years; yet, they remained loyal to WWC after the transition to day wages.
In addition, the firm had intimate knowledge of piece rate arrangements
between the inside contractors and their operatives.

(Monthy receipt at key dates US$)

Contractor 1870a 10/71 11/71 3/72 4/72 11/73 2/74 1/75 3/75

Gooding, J.B. 35,578 3,086 3,723 4,380 4,629 1,190 1,169 3,537 2,152
Greene, L. 30,011 3,026 3,541 3,089 3,350 637 5.50b 6.50b 6.50b
Moore, C. 8,091 748 723 900 6.50b 6.80b 5.25b 6.00b 6.00b
Owen, E.H. 61,578 5,637 8.00b 8.00b 8.00b 5.95b 6.00b 7.00b 7.00b
Shepard, J. 19,947 1,800 1,927 1,823 1,768 421 659 2,990 6.20b
Notes:
a yearly receipt (Clawson)
b daily wage
Table I.
Contractor remuneration Source: Clawson (1980); WWC, K1-K7, Vols 327-33.
 Had Clawson tracked his five internal contractors through extant wagebooks The Waltham
for the next half decade (Waltham Watch archives, K-1 through K-7, Watch Company
Vols. 327-33), he would have seen that in four instances these heads of
department commenced working for relatively modest day wages[10]. The first
of the managers Clawson identified who went on day wages was E.H. Owen, the
head of the Case Department. In October 1871, Owen received the seemingly
munificent salary of $5,637. The next month he was paid eight dollars a day; 71
however, the operatives of the Case Department, including Owen, collectively
received $5,635. Thus, it would appear that Owen had been receiving the
payroll for his division, and that the transition to day wages had not changed
the pay structure materially.
In February 1872, Charles Moore, head of the Enamelling Department, was
paid $757. By April, his wage had been commuted to $6.50 per day. During that
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month the collective wages paid to Moore and other enamellers was $756. One
might hypothesize from these data that the firm knew the wages paid by the
subcontractors to the underlings before their transition to day rates.
As typical of US manufacturing firms, WWC faced financial exigencies
during the economic depression of the early 1870s. Various manufacturing
processes were closed to a greater or lesser degree between November 1873 and
February 1874. Leonard Greene, one of WWC’s highly paid contractors and
head of the Plate Department, collected $2,570 in October 1873. With the partial
operating time of the next month, Greene signed for a more modest $637. After
a complete shutdown in December, Greene was back on the payroll in January
1874 at a wage of $5.50 per day.
In February 1874, J.G. Shepard received the entire pay for the Steel
Department in the amount of $659. However, the month before the operatives in
the Steel Department had signed for their wages individually. In this instance,
at least, there is definitive proof that the company knew the subcontractor’s pay
structure even as it continued to make a lump sum payment to the department
head. Shepard went on day wages permanently in March 1875 at the daily rate
of $6.20. Two months before he had received $2,990 on behalf of his underlings.
The amount individually signed for by Shepard and the department’s
operatives totalled $2,169 and $2,619 in the two months immediately following
the institution of Shepard’s day wage.
The mystery employee at WWC was J.B. Gooding, the only individual still
receiving substantial lump sums by 1875. Gooding’s name did not appear on a
detailed list of workers by department at this time, so we have not even been
able to identify his function within the firm. The amounts paid to Gooding
fluctuated wildly on a month-to-month basis. For instance, he received $4,603 in
May 1872, and $2,456 and $3,788 in the two succeeding months. The lump sum
was $5,005 in April 1873, down to $979 in July, and back up to $4,246 by
September 1873. Although J.B. Gooding continued to receive a large
remuneration, the firm was cognizant of his activities and the costs he incurred.
From 1872 to 1876, and perhaps beyond, Gooding was accorded a separate
account listing in the ledger (C-l, 1864-76 Ledger, pp. 466-7). Gooding’s account
 AAAJ contained debit entries for materials, machinery, labour, rent, “Mrs G.”, and
9,3 cash. The amounts were not insignificant, reaching a 31 January 1874 balance
of $13,294. Clearly, top management was monitoring the costs incurred by this
one remaining contractor from 1872 onward[11].
The annual treasurer’s reports for 1875 and 1879 (Waltham Watch archives,
AD-1, Vol. 24) extolled the virtues of the workforce in accepting short-term
72 wage reductions for the good of the company. The two inside contractors on day
wages precedent to the 1873 plant shutdown had accepted significant pay cuts.
E.H. Owen’s $8.00 wage was reduced to $5.95 in November 1873, at which level
it remained until April 1874 when a partial restoration to $7.00 was granted.
Charles Moore’s daily wage rate slipped from $6.80 in November 1873 to $5.25
in February 1874, precedent to a recovery to $6.00 in January 1875. Meanwhile,
Leonard Greene, who went on day wages during the economic downturn, saw
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his situation gradually improve as his rate rose from $5.50 in February 1874, to
$6.25 in April, and $6.50 in January 1875. The payroll records during these
years contained not only the amounts the higher paid personnel were actually
receiving but their normal day rates as well.
Substantial cost reductions in non-contractor labour wages were also
realized during the later half of the 1870s. For example, R.A. Winsor’s day rate
of $3.89 in October 1874 was reduced to $2.50 by November 1878. Similarly,
W.H. Johnson, a job worker, had his daily job rate cut from $3.22 to $2.23 during
the same period (Waltham Watch archives, KB-1 and KB-2)[12]. A loose sheet of
paper found in a wage rate book (Waltham Watch archives, KB-2) contained
calculations of average job rates for several operative functions in April and
August 1878. We believe that management was tracking changes in job
workers’ labour costs.

Discussion, summary and conclusions

Although this paper focuses on the economic rationalist and labour process
interpretations of subcontracting, a Foucauldian perspective may contribute to
enrich the discussion. Though accounting historians of the Foucauldian
persuasion have not addressed specifically the issues of IC in early US
industrialization, it might be possible to extrapolate their thoughts from
significant work they have done in examining the period. Hoskin and Macve
(1988, 1994) have detailed the advance of cost accounting methods in evidence
at the Springfield Armory in the 1830s and 1840s. These techniques provided a
structure of “hierarchical surveillance” which rendered labour “calculable” and
“total human accountability” achievable. The structure of control typified what
Hoskin and Macve (1986, pp. 41, 49) called “grammatocentricism”, a series of
written rules and regulations giving rise to a distinctive discipline. In a similar
vein, Miller and O’Leary (1987, p. 241) attempted what they called a “different
interpretation” of the development of standard costing and budgeting in the
USA during the age of scientific management and beyond. Miller and O’Leary
(1987, p. 241) wrote that:
 We do not view the development of standard costing and budgeting as part of the unfolding of The Waltham
a socially useful theoretical-technical complex, whose underlying logic is one of progress. We
wish to locate it rather as an important contribution to a complex of practices which consist in Watch Company
a form of socio-political management whose concern is with individual persons and their
efficient functioning.
In summary, our examination of the WWC archives suggest, albeit tentatively,
a number of observations which contradict conclusions and intimations drawn
by Clawson (1980) and echoed by Hopper and Armstrong (1991) and Puxty 73
(1993):
• Although inside contractors distributed large dollar amounts to the
workers under their charge, they were paid modest wages, particularly
as contrasted to the salaried officials of the firm.
• Wages were reduced in times of financial exigency and were increased
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during periods of greater success. Subcontractors reduced contract rates

in recognition of competitive pressures and falling selling prices.
• The firm was cognizant of the wage structure for the operative teams
that worked for the various subcontractors.
• The cessation of the subcontracting system in the 1870s was part of a
continuing effort to reduce costs. The action may have been taken to
accomplish greater co-ordination and control.
We believe that contracting had run its course at WWC for a variety of reasons.
Perhaps contracted workers wanted to receive their pay directly from the
company rather than through an intermediary. Perhaps increased automation
meant that the special technical skills of individual contractors were no longer
needed and that managerial skills (planning, organizing and controlling) had
become paramount. Alternatively, the decision to prioritize customer needs
meant that individuals with a sales orientation had gained prominence.
Unfortunately, the WWC archives do not facilitate precise conclusions about
these questions, top management’s real intentions, or the relationship between
IC and cost accounting.
We did find that contract wage concessions were granted in the early 1860s
and that the IC system was gradually eliminated during the mid-1870s;
however, we found no evidence to indicate that more detailed labour cost
records were introduced in consequence. Thus, Brown’s (1992) discovery that
Baldwin Locomotive instituted unit cost accounting in the late 1870s, decades
before it had fully eliminated IC, is not surprising. In summary, we are unable to
support the contention, made by both economic rationalist and labour process
proponents, that the elimination of IC should be linked to the expansion of cost
accounting activities. Englander’s (1987, p. 445) comments about the uniqueness
of company or industry factors appear fitting and perhaps typify the
elimination of IC at Waltham Watch:
The evidence we have, although greatly limited in quantity, reveals a wide variety of reasons
– from company to company and industry to industry – for the end of the inside contracting
system besides Chandler’s efficiency and cost control arguments and Clawson’s class conflict
arguments.
 AAAJ If Marsh’s (1889) contemporary assessment and Robbins’ annual treasurer
9,3 reports are believed and accepted as reasonably objective, then WWC faced
significant competition from the 1860s onward and continually sought to reduce
costs primarily in response to corresponding selling price declines. The need for
continual cost reduction efforts was recognized widely and accepted
grudgingly by the majority of Waltham employees, including most inside
74 contractors. With the exception of J.B. Gooding, all of the contractors eventually
received comparatively modest day wages and apparently functioned as
salaried foremen rather than autonomous managers.
We support the notion that the interests of capital and labour were
accommodated at WWC during and immediately following the IC period. As
evidence we point to the wage cuts that were made, the contract concessions
that were granted, and the acceptance (in the form of continued employment) by
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contractors of foreman status. We conclude from the data we examined that

external competitive pressures and the need for continual cost reduction were
perceived as real factors threatening the viability of the firm. Burawoy’s (1985,
p. 28) general assessment of social relations in the work place, albeit for a later
era, may explain how this accommodation would occur:
History suggests, however, that the outcome of class struggle mollifies the opposition of
interests and frequently coordinates the interests of capital and labor.
We would be more forgiving of Clawson’s remarks if they had been expressed
hypothetically, given the limitations of the WWC archives, but his open-ended
conclusions are unqualified and seem to suggest that top management never
knew the amount of a contractor’s earnings or the wages a contractor paid his
workers, and that contracting threatened a system of power relationships based
on class differences. We differ in our interpretation of the data.
It would appear that our observations on IC at WWC would support basic
Foucauldian principles as to the extent of the “panoptic gaze” and the creation
of the “governable person” as Miller and O’Leary (1987) called it. The
knowledge that Waltham’s management had of the pay structures among the
various IC operative teams clearly established the worker visibility so central to
Foucauldian theory. Moreover, the knowledge imparted through this payroll
accounting supports the Foucauldian paradigmatic definition of power. It
would appear that the co-operation reflected in the raising and lowering of wage
rates, as well as partial operative ownership of the enterprise, was more
suggestive of a power nexus to attain the common good (the firm’s wellbeing)
than the labour process vision of single-purpose exploitation.
Unfortunately, detailed cost accounting information is not contained in the
Waltham archives. Thus, neither we nor others are able to conclude definitively
that cost accounting procedures preceded, were derived from, or were
independent of the demise of IC and the creation of a managerial hierarchy.
Archives from other firms or industry sectors may furnish clearer insights on
this relationship. But at present, given the knowledge we have about the
 nineteenth century workplace, scholars should be more restrained in linking the The Waltham
elimination of IC to subsequent cost accounting developments. Watch Company
Notes
1. A review of the Social Scisearch database in Dialog revealed that Clawson (1980) had been
cited 119 times in published articles through August 1994. Clawson is referenced no fewer
than 15 times in Hopper and Armstrong (1991), whose work might be regarded as the most 75
comprehensive study of early US industrialization undertaken by accounting historians
subscribing to the labour process paradigm.
2. Buttrick (1952, p. 206) noted that in 1910, the IC system was still in place in many plants
“up and down the Connecticut Valley”. He also referenced Lane (1934) who reported that
inside contracting was used in the fiftheenth century at the Venetian arsenal. Fleischman
et al. (1995) have chronicled the workings of an internal subcontracting system at the
Boulton & Watt engine manufactory during the British Industrial Revolution.
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3. More recently, Puxty (1993, p. 93) extended Clawson’s perspective by disputing the
possibility of neutral accounting information:
He (Clawson) argued that in the nineteenth century the management of large organizations moved
from internal subcontracting…to totalizing hierarchies. They did so not because these were more
efficient but because they provided a better means of controlling the workforce and making its
activities transparent through the cost accounting systems that grew up. Accounting, in other
words, was not a neutral source of information that led to the socially-desirable goal of efficiency,
but a system to reinforce the power of the owners over their employees by permitting control over
every aspect of their work through the minutiae of cost analysis.
4. All primary source materials regarding the Waltham Watch Company that we examined
are contained in a special collection at the Baker Library at Harvard Business School in
Boston, MA. References to the collection are identified by the volume number and the date
or page number of the document.
5. Unfortunately, we do not know the relationship, if any, between Ezra and Charles Fitch.
6. Navin (1950, pp. 143-4) indicated that top management could easily derive a contractor’s
labour costs at Whitin Machine Works:
He [Henry F. Woodmancy, head of the Spindle Department who worked on a jobbing basis from
1864 until 1898] was required to submit to the paymaster an itemized report of his department’s
output. The paymaster then computed the amount of his job-work earnings on a so-much-per-
piece basis and credited the amount to his account … Since the paymaster also entered on the debit
side of Woodmancy’s account all the wages of the men in the spindle department, Woodmancy’s
net income per spindle was very small compared to his gross income – at no time more than a cent
or two.
7. We base this conclusion fully on Robbins’ 1862 report and agree with a reviewer that there
is no clear indication that management determined an optimal reduction based on detailed
knowledge of IC. We also agree that an alternative conclusion could be that the workers
were willing to do whatever was necessary to keep an existing job.
8. According to our calculations, the daily pay for job workers is computed by multiplying
the piece rate by the number of pieces completed. The total monthly pay per month is the
sum of the daily pay amounts. The total monthly pay divided by the number of days
worked in a month equals the job rate per month that is listed in the wage rate books.
Finally, the number of days worked multiplied by the job rate or day rate produces the
worker’s actual pay that is shown in the payroll books.
9. According to Hoke (1990, p. 181); “Once a minimum technical capability enabled the
company [WWC] to produce watches successfully, about 1857, Waltham mechanics were
driven for twenty years by the desire to lower prices and increase output to satisfy
demand”.
 AAAJ 10. To establish a perspective, Mr A. Bacon, the president of WWC, received a monthly salary
of $416.67 in the mid-1870s. Two other salaried officials received the same amount.
9,3 11. The WWC archives do not contain any ledgers from the 1877-89 period. Unfortunately,
there are no references to J.B. Gooding in the Baker Library indices and there is no other
evidence to reconstruct an audit trail of some kind. Thus, our conclusions about
monitoring are based exclusively on the monthly ledger entries.
12. It is worth noting that the panic of 1873 initiated an economic downturn which
76 significantly depressed general price levels. Thus, job and day wage reductions of 25-35
per cent were not unreasonable in this broader context.

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