Progressive Stuff Essay, Research Paper

TRUTH AND THE EVOLUTION OF THE PROFESSIONS: A COMPARATIVE STUDY OF `TRUTH IN ADVERTISING’ AND `TRUE AND FAIR’ FINANCIAL STATEMENTS IN NORTH AMERICA DURING THE PROGRESSIVE ERA

Both advertisers and auditors wrestled with the truth of their text during the Progressive Era (1880-1940). Although in North America, advertisers adopted “truth in advertising” as a theme, auditors rejected “true and fair” as a description of financial statements. Auditors instead adopted the weaker statement that financial statements were “consistent with accepted accounting principles.” It is paradoxical that auditors compared with advertisers made the greatest progress toward professionalization during this era. This article documents debates about the concept of “truth” in each profession during the Progressive Era and examines the professional and legal consequences of each profession’s engagement with truth.

The Progressive Era, roughly the period from the depression of the late 1880s through to the late 1930s, represents a period of institutional, technical, and social innovation. During this period, most developed economies made the transition from rural to urban and from agrarian to manufacturing economies. It is a period when sectional interests, including many of the modern professions, developed. The Progressive Era is particularly marked by the conjunction of scientific knowledge and traditional values. It is a period when science and technology were thought capable of providing for the material wants of all and that the issue of social justice could be resolved through knowledge. This conjunction provides the setting in which “truth” is seen as an achievable state.

The modern professions emerged from this milieu as occupations concerned with the moral and technical mysteries of life. The exemplars of the professional model were medicine, the law, and teaching. The successful professions lay claim to areas of expertise that were used to define what is normal or “right,” mediating the client’s individual needs and the values institutionalized in society (Richardson 1997). The process of professionalization requires an occupation to legitimate its claims to status and authority. An occupation might adopt certain structural features such as codes of ethics or university training as a means of establishing a claim to professional status. In this process, the ability to claim to have found and practice the “truth” could be a powerful rhetorical weapon.

Coincident with the rise of the modern professions, large business firms developed during this period (Galambos 1983). Two characteristics of these firms provided opportunities for the developing professions. First, the modern corporations needed significant amounts of capital to create the infrastructure necessary to carry out their missions. In North America, this capital was typically raised through public offerings in the stock markets. The reliance on outside capital created the need for financial audits, and the accounting profession organized around this opportunity. The key to the success of the audit profession was the ability to add credibility to financial statements (i.e., to tell the “truth” about the financial state of the company). Second, large corporations achieved economies of scale through the use of technology, but this required a mass market for their products. Customers without firsthand knowledge of a company or its products had to be convinced to spend their money. The advertising industry developed to meet this need.

Financial statements and advertisements represent the major forms of communication between large corporations and two groups of stakeholders: investors and customers. Auditors and advertisers emerged as the occupations that mediated these links, and each wrestled with the problem of the “truth” of these corporate communications. Each of these occupations had professional aspirations. Consistent with commonsense definitions of what constituted a profession, they organized professional associations, created codes of ethics, and attempted to set educational standards for their members.

The literature of this period provides an indication of the success of these professionalization attempts by advertisers and accountants. Palmer (1914) was willing to concede that a broad definition of professions might include some members of the advertising industry. He offered that “nowadays… we should… probably be inclined to place as a kind of intermediary between the minister and the lawyer the philanthropist and the publicist as those who study the well being of the community” (p. 43). Carr-Saunders and Wilson (1933, 29) undertook “a review of those vocations which by common consent are called professions.” They devoted eighteen pages to accountants but failed to mention any of the occupations in the advertising industry. Schultze (1982) later studied the advertising industry’s efforts during this era to establish standardized instruction and licensing or certification requirements (two of the three common characteristics of a profession identified by Schultze, the other being codes of ethics) and concluded that the industry did not succeed; even with university instruction in advertising, they were unable to create a profession. Laird (1998, 242) added that none of the many advertising associations formed during this era ever succeeded at formulating the standards for preparation and admission to a profession such as medicine and law; furthermore, their efforts to pressure members to conform to codes of ethics went unenforced. As we will see below, the language used by the advertising industry itself during the Progressive Era makes clear the gap between their perceived status and their professional aspirations. By the end of the Progressive Era, only one group, accountants, had successfully established their claim to professional status.

The success of the auditors in achieving professional status and the failure of advertisers stand in a paradoxical relationship to these groups’ positions on the truth. In Canada and the United States, the advertising industry lobbied successfully for legislation requiring “truth in advertising,” while auditors successfully lobbied against the requirement that they attest to financial statements being “true and fair.” The purpose of this article is to examine the relationship between these groups’ engagements with the “truth” and their success or failure as professionalizing occupations.

The remainder of the article is organized as follows. The next section examines the meaning of truth in philosophical perspective. This section provides a vocabulary for understanding the various ways in which truth may be interpreted and used. This is followed by two sections that summarize the history of truth among advertisers and auditors. The discussion then draws out the key factors that explain the observed differences between these occupations’ engagements with the truth.

THE MEANING OF TRUTH

For a word with wide currency in everyday use, the meaning of truth remains surprisingly elusive. Many philosophers are willing to concede that no adequate theory of truth has yet been found (Horwich 1990, 1). If theorists of truth have met with limited success, it is perhaps a result of the nature of the task itself. Truth theories set for themselves the goal of characterizing the essence of truth in all of its various linguistic uses. The truth theorist, in other words, seeks to answer the following question: what do we say of something when we say that something is true?(n1)

Historically, three classes of answers to this question have emerged as dominant: correspondence theories, coherence theories, and pragmatic theories (see Table 1). Like most efforts to specify typologies, this one is stymied by ambiguous cases that seem to fit neatly into none of the categories or that seem to belong to more than one. For our purposes, however, it is sufficient to focus on the paradigmatic example of each of the three classes, leaving the ambiguous cases for the philosophers to entertain.

Correspondence Theories

Of the three classes of truth theories, correspondence theories are both the oldest and the most intuitively appealing. Originally espoused by some of the early Greek philosophers (most notably, Aristotle and the Stoics) and revived again in the modern era by Descartes, Locke, Hume, Russell, Wittgenstein, and others, correspondence views hold that the essence of truth is a relationship of correspondence between what is asserted and some state of the world in which we live. In other words, truth is that which corresponds to the facts.

The paradigmatic correspondence theorist is committed to ontological realism. For the realist, objects exist independently of the human mind; the linguistic assertion and the state of affairs to which it refers are therefore distinct and independent of one another. The truth of an assertion is, then, a matter to be adjudicated by reference to the independent object world. It is true that the book is on the desk because, indeed, the book is on the desk.

Despite strong intuitive appeal, correspondence theories suffer from one major weakness that has rendered them less than satisfactory in the eyes of many philosophers. This weakness consists of an inability to specify what constitutes a fact. For the proposition that the book is on the desk to be true, it must be a fact that the book is on the desk. Yet what can the correspondence theorist mean by the fact that the book is on the desk, except that it is somehow true that the book is on the desk? The theory threatens only to say that a proposition is true when what it names is a truth (Johnson 1992, 42). This, it is argued by some, does not go very far in identifying the essence of truth.

Coherence Theories

This theoretical shortcoming in the correspondence view of truth helps one to appreciate why alternative–and, for most people, less intuitive–theories also have been advanced. Coherence theories are the most widely held of these alternatives (Horwich 1990, 9). For coherence theorists (e.g., Bradley, Blanshard), the truth of a proposition is judged by its coherence with a body of propositions that are held to be true. It is true that the book is on the desk because such a proposition coheres with an entire web of interrelated beliefs that we also hold to be true. This web of beliefs comprises what Johnson (1992, 25) calls “the world of our awareness,” within which books, desks, their roles, and their meanings are understandable. It is only by recourse to this “world of our awareness” that the truth of the proposition “the book is on the desk” can be assessed.

The paradigmatic coherence theory is informed by a metaphysics of absolute idealism. Absolute idealism makes the object world dependent on the mind, such that “brute facts,” in the realist’s sense of an independent object world, simply do not exist. In their place, the idealist posits an absolute reality, in which all things are what they are only by virtue of their relationship to other things. This reality, moreover, is accessible only through the human mind.

Given these metaphysical presuppositions, there is no independent object world to which we might appeal in adjudicating truth. Instead, for the idealists, there is only the one large web of interrelationships that comprises the totality of what we currently know of the absolute. The truth of any given proposition, therefore, can only be judged on the basis of how well that proposition coheres with the body of propositions that determines what we presently know of absolute truth.

But even if one is willing to accept that coherence is a reasonable way to assess the truth of at least some propositions, this does not imply its adequacy as a description of the essence of truth. To serve as an adequate theory of truth, there must be no truths that cannot be said to be so on coherence grounds. For many critics, coherence theory fails in this regard. The point of contention generally is that coherence theory does not seem to admit a distinction between what we would, given our existing corpus of beliefs, be warranted in holding to be true and what is, in fact, true. While the coherentist might well respond that this is merely indicative of an incomplete knowledge of the absolute, critics with less faith in idealist metaphysics remain unconvinced.

Pragmatic Theories

Around the turn of the century, the American philosophers Peirce, James, and Dewey elaborated versions of an alternative theory of truth, inspired by the philosophy of pragmatism for which they are known. Although there are important differences in how each of these thinkers conceptualized truth, all pragmatic theories assert that in one way or another, truth is what is useful to believe. For Peirce, “usefulness” was inextricably bound up with scientific methodology and the resulting scientific knowledge. For him, as for Dewey after him, “truth” was that which is or would be agreed to on investigation. For James, by contrast, “usefulness” was operationalized as “long-term expedience,” a criterion that was meant to extend the definition of truth beyond science and into religion and metaphysics as well (Johnson 1992, 64-65).

Pragmatic theories of truth, unlike the correspondence and coherence theories to which the pragmatists explicitly opposed them, are not concerned with identifying the essence of truth (Allen 1993, 63). Instead, the pragmatists provide an account of the practical value of truth, where this value is measured by the favorable outcomes that the belief makes possible. Such a conception of truth is consistent with pragmatic philosophy, which holds that all meaning is anchored in practice. Thus, a difference in meaning–such as the difference between a “true” and a “false” belief–must involve some difference in practice. “True” beliefs, therefore, are simply those that work out well in practice.

Pragmatic theories of truth have been criticized as being too subjective to serve as an arbiter of truth. What is useful to believe, it is argued, depends on what is useful to the individual holder of the belief. In addition, what is useful in the long run to the holder of the belief may well differ from what is immediately useful to the holder of the belief. In response to numerous criticisms such as these, pragmatists have refined the concept of usefulness, resulting in many different variations of the theory, some of which are only marginally compatible with one another. Nonetheless, objections of this sort have remained major stumbling blocks for pragmatic theories of truth.

Truth Theories and Truth Criteria

Each of the theories discussed above seeks to provide an account of the nature of truth in all of its various linguistic uses. Thus, for any given claim or belief, each theory would provide its own account of what makes the claim or belief true. Consider the proposition that “the sun rises in the morning.” Supposing that theorists of each of the three camps were willing to ascribe truth to this claim, the differences in theory manifest themselves as differences in the reasons each group would give for its willingness to grant that the proposition is true. For the correspondence theorist, it is true that the sun rises in the morning because such an assertion corresponds to a state of the world that is independent of the person who is making the assertion. For the coherence theorist, the proposition that the sun rises in the morning is true because it coheres with numerous interrelated propositions about the relative position of the earth, the sun, and the observer–propositions that themselves cohere with the one absolute reality. For the pragmatists, in turn, the proposition that the sun rises in the morning is true because such a belief produces beneficial results in practice–it allows, perhaps, one to gauge the passage of the day by the position of the sun, or it suggests where to look in the sky to observe the appearance of the morning sun.

When proponents of the different theories appeal to different reasons for asserting that a proposition is true, they are effectively proposing different criteria by which truth may be assessed. For correspondence theorists, the relevant criterion is correspondence with an external reality. For coherentists, it is coherence with accepted belief. For the pragmatists, truth is assessed by its usefulness in practice. Because of the emphasis on truth criteria, it is easy to lose sight of the fact that each theory sees itself not as identifying merely a criterion of truth but as capturing the very essence of truth. Indeed, the distinction between truth criteria and the essence of truth has been invoked by proponents of one theory to grant the criteria while rejecting the essence of a rival theory.

With the exception of a handful of philosophers, most people probably do not hold any particular theory of truth. That is, most of us have probably never considered–much less resolved–the issue of what essential attribute identifies “truth.” By contrast, we routinely employ truth criteria in our interactions with others. Truth criteria are evident in the reasons people give for believing what they do or the reasons that speakers offer for why their claims should be accepted as true. Truth criteria, in short, play a prominent role in the linguistic activities of justification and persuasion. Thus, by examining what a speaker says, it is possible to discern the truth criteria employed by that speaker, even if the speaker has never considered the underlying issue of the nature of truth.

In the discussion that follows, this article draws on the concept of truth criteria to illuminate the types of truth claims proposed or opposed by auditors and advertising agents. In doing so, we avoid attributing truth theories to either professional group or to either of the two principal stakeholder groups with which they were communicating. The historical records that inform this analysis do not permit one to make further inferences.

TRUTH IN ADVERTISING

In the movie Miracle on 34th Street, there were actually two miracles. We learn that there really is a Santa Claus. More miraculous, however, was seeing the Macy’s managers tell customers the truth, the whole truth, and nothing but the truth. Truth has been an issue of concern in advertising for centuries and remains so today. However, a significant movement from within the industry for truth in advertising began with magazine publishers’ campaigns against patent medicine companies during the 1880s and culminated in the 1910s with efforts by the Associated Advertising Clubs of America (AACA) to enshrine truth in state legislation supported by an industry-organized police force of vigilance committees. By 1914, the movement had spread to Canada as the AACA became the Associated Advertising Clubs of the World (AACW), and the American strategy was largely mimicked in Canada.

By the late nineteenth century, fraudulent advertising was commonplace in North America (Wood 1958). Reputable manufacturers of branded products generally were truthful in their advertising. Some disreputable ones were relatively harmless, such as the mail-order company in the 1880s that offered a “Potato-Bug Eradicator” for ten cents and delivered two pieces of wood with instructions to place the potato bug between them and press together. However, many others were reckless and irresponsible, none worse than the patent medicine companies. Some of those “medicines” contained as much as 40 percent alcohol; others contained poisonous drugs. Brown’s Vegetable Cure for Female Weakness promised to cure “a dragging sensation in the groin, sparks before the eyes, hysteria, temple and ear throb, a dread of some impending evil, morbid feelings, and the blues” (Wood 1958, 331).

In 1892, the Ladies’ Home Journal announced that it would no longer accept advertising from patent medicines and followed with a long and bitter campaign of editorials and articles against the entire patent medicine industry. It even attacked other magazines that accepted and published patent medicine advertising. Lydia E. Pinkham became rich and famous during the 1870s for her cure-all Vegetable Compound. It was advertised as

a sure cure for Prolapsus Uteri, or Falling of the Womb …. Pleasant to taste, efficacious and immediate in effect. It is a great help in pregnancy and relieves pain during labor …. For all weaknesses of the generative organs of either sex. It is second to no remedy that has ever been before the public and for all diseases of the kidney it is the Greatest Remedy in the World. (Wood 1958, 327)

But for years after she died in 1883, the Pinkham company kept Mrs. Pinkham’s picture in their ads and invited women to write to her for advice. By 1904, the Ladies’ Home Journal had had enough and reproduced some of these ads together with a photo of Mrs. Pinkham’s gravestone showing that she had been dead for twenty years (Wood 1958,327). That juxtaposition of the actual circumstances with the statements in the ads clearly relied on the lack of correspondence between them to demonstrate rather dramatically the lack of truth.

What many of the publishers were really after was passage of food and drug legislation to drive the patent medicines from the market. In 1906, they were successful as the U.S. government passed the Food and Drug Act. Two years later, the Canadian government followed suit with the Proprietary Medicines Act. In both cases, the intent was to protect the public against unsafe food and drug products; false advertisements of such products came under the acts’ jurisdictions. Government wanted truth in advertising to protect consumers from harmful products; publishers wanted truth in advertising to create greater public confidence in advertising and generate more advertising business.

As early as 1888, there was concern from even deeper within the advertising industry over the issue of truth in advertising. Printers’ Ink (PI) was the first advertising industry trade journal. The first issue of PI featured an editorial that included the following:

It is no greater mistake for him that has something good and genuine to sell, to leave the public to find it out for themselves than to attract people by a “taking” advertisement that lacks the element of truth. In the profession of the law, the capable yet conscientious advocate makes use of all the address and skill of which he is possessed, to present his client’s case in its most favorable aspect or bearing, yet he never departs from the evidence. So with the advertiser–he should commend his wares or services to the public in the strongest and most skillfully arranged light they will bear; but the things commended should be the things he has at his disposal and he should never represent them as having properties they do not possess. (Quoted in “It’s Still Good” 1938, 31)

Advertisers were not expected to understate their claims, just to tell the truth. Here, truth meant using only properties that the product actually possessed. That appeal to correspondence criteria of truth would reappear in 1911, when PI joined forces with the AACA.

The AACA was formed in 1905 when a dozen local advertising clubs in various U.S. cities organized themselves into a national association. By 1911, the AACA had more than 100 member clubs with thousands of members. In 1914, the name was changed to Associated Advertising Clubs of the World when the Toronto Advertising Club was added and the annual convention was held in Toronto. By 1916, AACW membership numbered more than 15,000. Although the original purpose of the local clubs may have been social, the AACA was formed “to advance the advertising profession through such activities as teaching professional skills, correcting abuses, exposing fraudulent advertising, and maintaining a bureau for the registration of advertising men” (Schultze 1982, 196). Its aim was thus the professionalization of the advertising industry.

Although formal education was a founding ideal for the association, its members were never able to agree on how to implement that ideal. Some believed that the industry should provide course materials and choose the teachers. Universities at that time were beginning to offer business programs, but many were unwilling to offer advertising; certainly most were unwilling to allow business to design their curricula. When universities did begin to teach advertising between 1900 and 1910, it came in two forms. Business schools taught the subject as part of the study of management and marketing. At some institutions, though, journalism departments taught advertising as part of newspaper publishing. Thus, there emerged two very contrasting approaches to instruction, and the advertising industry was largely powerless over the formal education it had hoped to control. As Schultze (1982, 206) concluded, “Although advertisers wished to create a profession, that was a dream that would not become a reality even with university instruction.”

Like Pinnochio, many advertisers believed they could become a real profession if only they told the truth. In its founding year (1905), the AACA resolved “to expose fraudulent schemes and their perpetrators,” described in the following ways:

1. Misleading statements, insinuations, and illustrations that give impressions of value or service not inherent in the product.

2. Suggestions of cures and palliatives, and lures of beauty and health building that are not founded on scientific fact.

3. Part truths of scientific information that imply a benefit not supported by science.

4. Claims of general underselling not capable of proof and untrue in their insinuations and impressions. (Kenner 1936, xvii-xviii)

The theme throughout these examples was a lack of correspondence between an advertised claim and the actual circumstances-and science was held as the ultimate arbiter of truth. Less clear in these early attempts to define truth were the industry’s motivations, beyond the wish for professional status.

A speech given at the 1911 AACA convention made the connection between truth and professional status in the following way. “If you are to become a profession, you must here and now formulate a code. That code need spell but the one word, Truth, and all other worthy things shall be added unto you” (quoted in Kenner 1936, 21). And another at the same meeting added,

[When] the goods advertised are exactly as described …. Such a state of affairs would make the advertising man a sort of auditor or expert accountant, whose one object is to present the truth of the case to his employer, who is not so much the man who pays the salary as the people at large whose buying power makes that salary possible. (Quoted in Kenner 1936, 22)

Again, the criterion of correspondence between the actual product and the advertised claim seemed to be the basis for truth. It is also interesting, as an aside, to note the citation of accountants as role models for professionalism in advertising. The idealized role of the auditor in this quotation, however, is one that the accounting profession debated throughout this period and ultimately rejected.

As early as 1907, the AACA endorsed in principle the use of legislation to penalize false advertising. However, its early efforts focused more on self-regulation. This came in the form of codes, statements of principles, and annual conventions that resembled religious crusades for truth in advertising. At the 1913 convention, the symbolism and ceremony that had come to characterize the AACA’s crusade became almost comical with the adoption of a truth emblem (see Figure 1) and the official slogan “truth in advertising.” There was even a truth trophy awarded that year and for several afterwards to the member club judged to have done the most work for truth over the preceding year (Kenner 1936, 39). These efforts were imaginative but not very effective because the association had little power to enforce truth in advertising. In addition, large numbers of small firms and individuals still had no enthusiasm for exercising control over the temptation to stretch the truth. Because of other regulations on antitrust issues that characterized the framework of government regulation in the United States, the groundwork was laid for greater future dependence on government regulation (Miracle and Nevett 1988).

As early as 1911, it was apparent to John Romer, editor of PI, that self-regulation was not working. Romer had covered the AACA convention that year for PI and recognized that while the association had aroused sentiment, it had no plan of action. “The time has arrived,” he said, “when we can do something more than talk about suppression of objectionable advertising” (quoted in “Truth and Consequences” 1938, 256). Soon afterward, Romer hired a New York lawyer, Harry Nims, to investigate existing laws against untruthful advertising (there were two state laws, but neither had ever been used) and to write a model state law directed at sponsors (rather than publishers). The PI model statute read in part as follows:

Any person, firm, corporation or association who… makes, publishes, disseminates, circulates, or places before the public… an advertisement of any sort regarding merchandise, securities, service, or anything so offered to the public, which advertisement contains any assertion, representation or statement of fact which is untrue, deceptive, or misleading, shall be guilty of a misdemeanor. (”Truth and Consequences” 1938, 257, emphasis added)

The declaration then elaborated on what constituted “untrue, deceptive, or misleading” by enumerating several practices, including the following:

1. false statements or misleading exaggerations;

2. indirect misrepresentations of a product or service through distortion of details, either editorially or pictorially;

3. pseudo-scientific advertising, including claims insufficiently supported by accepted authority or that distort the true meaning or application of a statement made by professional or scientific authority. (”Editorial” 1932, 52)

Of course, the theme here was the lack of correspondence between actual product characteristics and those claimed in an advertisement. Words such as exaggeration and distortion are particularly illustrative.

The model statute was published in PI on November 11, 1911. Romer offered it to the AACA with the suggestion that its member clubs undertake the job of making the statute a working piece of legislation wherever it became enacted into law by watching for infractions, collecting evidence, and seeing that the cases were pressed. The AACA did this by forming a national vigilance committee, and in 1913, when the statute was first passed into law in the state of Ohio, the committee’s work began in earnest. Eventually, forty-three states passed the PI model statute into law, although many added the word knowingly to require proof of intent to mislead. This seriously weakened the legislation’s effectiveness. The AACA’s vigilance committees evolved into the Better Business Bureaus, and by 1938, there were fifty-six such bureaus guarding the American public against fraudulent advertising.

The Canadian counterpart to PI, a trade journal titled Economic Advertising (EA), waited until March 1913 to voice its support for the PI model statute, but like most in the industry, it had supported for years the principle of legislation to control untruthful advertising (”Straight Talks” 1913). Its endorsement of the PI model statute was backed by the opinion that such a law would protect the public and create public confidence in advertising. One year later, the Canadian government created the Fraudulent Advertising Act, which read, in part, as follows:

Every person who knowingly publishes or causes to be published any advertisement… containing false statement or false representation which is of a character likely to or is intended to enhance the price or value… shall be liable upon summary conviction to a fine not exceeding two hundred dollars, or to six months imprisonment or to both fine and imprisonment. (”Retailers Would Put Teeth” 1921, 190)

The Canadian government, in passing the Fraudulent Advertising Act, had followed some U.S. states in implementing a watered-down version of legislation requiring proof of intent to deceive. This, of course, made it very difficult to obtain convictions. Fifteen years later, the act had yet to be used and was soundly criticized by a Canadian lawyer writing in the retitled EA, now called Marketing. “It [the Fraudulent Advertising Act] serves only to bring law into general contempt; for though it proscribes lying in advertising, lying continues to flourish with impudent impunity” (Wilson 1929, 285).

Meanwhile, the American vigilance committees were not really having much success with the PI-modeled state legislation either. It was an inefficient way to deal with regional and national advertisers, and the number of those was growing rapidly. Since many states that had passed the PI statute had opted for the “knowingly” clause, prosecution in those states was almost impossible. When the Federal Trade Commission Act (FCTA) was passed in 1914, the association saw an important new ally in its fight for truth in advertising. Although the Federal Trade Commission (FTC) was formed to deal specifically with unfair competition (specifically section 5 of the FTCA), the AACW saw false advertising as just that. In 1915, a delegation of six officials from the association met with the FTC in Washington to see if the new federal legislation could be used against fraudulent advertisers.

What the AACW wanted, explained its president, was a “ruling or an expression of willingness to receive from us these interstate cases that are coming up constantly …. We believe that we are a natural ally to the Federal Trade Commission.” Another witness observed: “When it goes out that this Commission has taken the position that dishonest advertising is unfair competition, that that is the position of the federal government, there are a lot of these men who are going to stop and say, We had better be a little bit more careful; while the vigilance committees can make us some trouble, we can handle them, but we do not care to get mixed up with the federal government.” (Tedlow 1981, 47)

The FTC shifted the focus of regulation from the harm done to consumers by false advertising to the role of false advertising as unfair competitive practices among firms. It made no difference to the AACW if the net effect would be to stop false advertising practice. This approach was undermined in 1938 by the Wheeler-Lea Act that changed the focus again from the consequences for competition between firms to the material effects on the consumer by defining false advertising in this way:

The term “false advertisement” means an advertisement, other than labeling, which is misleading in a material respect; and in determining whether any advertisement is misleading, there shall be taken into account (among other things) not only representations made or suggested by statement, word, design, device, sound, or any combination thereof, but also the extent to which the advertisement fails to reveal facts material in light of such representations or material with respect to consequences which may result from the use of the commodity to which the advertisement relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual. (Section 15-a, quoted in Tedlow 1981, 53)

Here, at last, was legislation with teeth. But as Tedlow (1981) observed, after an initial zeal on the part of the commission, its interest in advertising regulation degenerated for a variety of reasons.

The advertising industry’s attempts to secure legislation, combined with the industry’s publicity of its codes of ethics, slogans, and emblems, had the public clamoring for truthful advertising by the 1920s. The version of truth adopted by the industry was one based on the correspondence between advertised claims and the facts or actual products and prices offered by advertisers. When the AACA and others during this era used the term truth, they usually had a fairly broad concept in mind. Their targets included ads described variously as fraudulent, false, misleading, and deceitful. Even puffery, which is legal today and has been for centuries, would have been stopped by some participants in the “truth in advertising” movement.

Puffery is “advertising which praises the item sold with subjective opinions, superlatives, or exaggerations, vaguely and generally, stating no specific facts” (Preston 1975, 17). It is legal because the law holds that “reasonable” people will automatically distrust it and therefore not be deceived by it. In other words, it is considered by the law to be false but not deceptive. Puffery can coexist with a correspondence version of the truth because the correspondence criterion leaves subjective opinion and exaggerations outside the realm of truth claims. Statements of puffery are not subject to truth claims because they state “no specific facts”; that is, they make no reference to an objective object world. It is less clear that puffery would be consistent with truth claims anchored in pragmatism or coherence theory.

An advertisement goes beyond puffery when deception occurs. An advertisement is regarded as deceptive when an individual is injured (materially or physically) by acting on the claims stated in the advertisement. That stricter interpretation of truthful was clearly the intention of most of the early legislation in both the United States and Canada. It was true with the Food and Drug Administration in 1906 and still so in 1938 with the Wheeler-Lea Act cited above. Nevertheless, all false advertising was considered by most in the truth movement to be harmful to their aspirations of professional status. Their reliance on a strict correspondence between advertised claims and the facts left them no room for error, as this 1927 Canadian trade journal commentary pointed out:

Honesty may be the best policy, but has anyone fully tried it? I admit that many have, up to a certain point, and that they have found it profitable. But can 75 per cent of the truth be called complete honesty? And if 75 per cent honesty is profitable would not 100 per cent be more so? Is the troth, the whole truth, and nothing but the truth in advertising impracticable?… Can you think of any greater business asset than to have people believe implicitly, without modification, everything you say in your advertising? (Smith 1927, 431)

Despite the extreme position adopted by many, the advertising industry still had untruthful advertising, and it was no closer to becoming a profession.

TRUE AND FAIR (FINANCIAL STATEMENTS)

The history of truth in accounting is most clearly played out in the evolution of the auditor’s certificate. The auditor’s certificate specifies the standards to which the auditor may be held responsible and, derivatively, the extent to which others should rely on the contents of the financial statements that have been audited. F. Whinney (1894, 558-59), founder of one of the major accounting firms, held that “no auditor should sign any balance sheet unless he believed it was true, and he must take all reasonable means to satisfy himself that it is true.” The truth was to be determined by checking “the facts.” “An auditor should be sure that the figures represent facts, because the whole object of an audit was to ascertain whether figures were facts.” Whinney clearly subscribed to a correspondence version of truth.

The importance to the profession of seeking the truth was reinforced in an editorial in the Canadian Chartered Accountant. The editorial proposed “truth” as the essential attribute of the auditor:

The truth is the only thing that should concern him and on all questions of fact he should be unwavering …. Confront the accountant with a requirement to present facts in a light solely or chiefly favourable to a client and you take away from him the very foundation upon which the growth of the profession and its value to the community are built. (”Editorial” 1919, 105-6)

The version of the truth suggested by Whinney and others early in the profession’s history was not widely accepted. The difficulty was that while a check of the consistency of the balance sheet to the books was possible, two further issues arose: (1) were the entries in the books “real”? and (2) were the results reflective of the expectations of the public regarding their use of the statements? While the auditors of the day could reject the suggestion that “figures should be fictions” (Whinney 1894, 962), they also argued that the need to use estimates of asset values, the useful lives of assets, and probability of successful sales of inventories meant that any auditor’s certificate was an opinion and not necessarily “true.”

Authors such as Parton (1917) noted the impossibility of auditors attesting to the correspondence between financial statements and the underlying reality of the firm. His recommendation is that the auditors limit themselves to those historical facts that could be verified by the auditors:

The Auditor is advised to “select a few items of importance and compare with the things themselves.” Unfortunately, however, we are none of us possessed of sufficient knowledge to make such an examination effective… an appraisal being always the result of an individual opinion while original cost is an undeniable fact. (Parton 1917, 95)

In practice, accountants and auditors routinely prepared financial statements that varied from a commonsense or correspondence version of truth. There are two major financial statements: the balance sheet and the income statement. The balance sheet reports on the assets and liabilities of the company; it is a representation of the stock of wealth at a particular point in time. The income statement reports on the change in wealth between two points in time. The generally accepted accounting principles that are used to create these statements require the use of historic costs (original costs). There are exceptions to this rule. Current assets, assets that can be liquidated within a year, for example, are reported at the lower of cost or market, and long-term assets that have suffered a permanent loss of value are also “written down” to reflect this loss. These exceptions reflected a principle of conservatism that requires that all losses be recognized but no gains until they are realized. The use of historic cost and conservative valuation principles results in a distinction between the intended truth value of accounting reports and the actual truth value of those reports.

Hatfield (1913, 83), the first professor of accounting in the United States, talks at length about the economic uses of accounting information but then cautions that

in all the foregoing discussion it has been assumed that the purpose of accounting is to present facts fully and without reservation; but argument is sometimes made that the statement set forth in the balance sheet does not even profess to be true; indeed, that a variation from truth, provided only that it understates the wealth of the concern, is really a merit rather than a fault.

There are alternatives to the commonly accepted approach to reporting financial information. For example, if the balance sheet is meant to provide a measure of the value of a company at a particular time, then all numbers can be restated in terms of the present or market value of assets and liabilities, or when no market exists, the cost to replace assets can be used. MacNeal ([1939] 1970) was an early proponent of a present value approach to accounting. He claimed that

financial statements are undoubtedly the principal means by which investors are informed. They are relied upon by millions of investors. But they can never become the key to the solution of the basic problem of protecting the small investor until the faulty accounting principles underlying their preparation are changed to permit a presentation of truth as it is instinctively understood by laymen everywhere. (P. 57)

MacNeal ([1939] 1970, 39) held that truth “in an economic sense” was the key to the success of the profession and that the failure of the profession to adopt this version of truth put the future social standing of auditors at risk. He recognized, however, that the adoption of present-value accounting or replacement cost accounting requires skills that the accountant does not possess and opens up the field of auditing and financial statement preparation to competition from appraisers and engineers, respectively.

While Hatfield and MacNeal were critical of the principles underlying financial reporting on theoretical grounds, others were concerned about any attempt to define a set of rules for accounting. The call for a science of auditing was equated with the de-skilling of the profession and the replacement of professional judgment with rules. This view was also reflected in comments in the Canadian Chartered Accountant:

As the desire for health justifies the existence of the medical profession, the desire for truth or accuracy in accounts justifies the existence of the accounting profession …. This truth is so obvious that it is in danger of being overlooked, yet I suggest that until one has fairly gripped it the whole practice of auditing may degenerate into the mere observance of certain rules which are sometimes called the principles of auditing and which have produced so many inferior auditors. (McCall 1924, 105-6)

These criticisms deny the ability of any set of rules and procedures to grasp the reality of a firm’s financial position. These concerns become even more pronounced as financial statements became more important in the operation of the capital markets.

During the speculative boom of the late 1920s, concern was raised about auditors’ certificates becoming associated with public offerings of shares and hence being relied on as an indication of future performance rather than just as a report on the firms’ past stewardship of resources. The change in focus required that auditors become concerned with the reliance of third parties on their certificates and hence with a pragmatic test of truth.

The self-respecting accountant should constantly apply this touchstone to the circular [prospectus] and every part of it. Is the picture not only true to the facts but is it drawn in such a way as to convey a true and reasonably understood story to the prospective investor? (Dilworth 1928, 146)

The discussions reviewed above exhibit a curious tension between a desire to claim that auditors presented the truth behind the financial statements and recognition that they could not claim to present truth as understood by the layman. Moreover, the tendency of third parties to impose a pragmatic criterion of truth on the audit certificate threatened to expose the auditor to legal risks. The need to resolve this tension was finally brought to a head in the aftermath of the Great Depression. The accounting profession was called on to help shore up the capital markets by restoring faith in corporate reporting. The vehicle by which this was to occur was the auditor’s certificate.

Prior to the U.S. Securities Act of 1933, the auditor’s certificate was not standardized. In negotiations surrounding that act, the profession found itself in the uncomfortable position of lobbying to ensure that auditors were not required to attest to the “truth” of financial statements. The FTC was empowered under the act to regulate the standards of financial reporting and issued a statement requiring auditors to attest to the truth of the financial statements. Auditors were successful in lobbying against this construction of their responsibilities, and on April 7, 1934, the commission announced a change in the wording of the auditor’s certificate. The form adopted, which continues to the present, is a legally weaker statement that the financial statements “truly and fairly reflect the application of accepted accounting principles to the facts disclosed.” Note that there are two caveats in this statement: (1) the truth is defined by a set of rules on which there has been previous agreement, and (2) the truth is limited to that which has been disclosed by management.

A report to the U.S. Department of Commerce, dated August 2, 1934, captures the essence of the position adopted:

Regardless of how conscientiously the statements have been prepared, it will still remain true that no reader can fully understand them who has not informed himself of the accounting principles which underlie them. (Gifford, duPont, and Harriman 1934, 112)

The truth criterion adopted by the profession was thus coherence with a network of a priori beliefs. The audit profession was in the enviable position of both defining truth and certifying its presence. Rather than conforming accounting to the expectations of the public, the version of truth adopted committed the profession to training the public to understand the truth of financial statements. The potential gap between naive expectations and the coherence version of truth adopted in financial statements has resurfaced repeatedly in the history of the profession, most recently during the recession of the late 1980s.

Although the coherence version of the truth in accounting was enshrined in the U.S. Securities Acts of 1934, other approaches continue to appear in the literature. One construction of that debate is as a conflict between views of auditing as a science or an art (e.g., Green 1966). The attempt to construct auditing as an art, however, leaves the truth claims of auditors’ reports in a precarious position. As Previts and Merino (1979, 163) note, “The artist does not seek fundamental truths but relies instead upon the independent, informed judgment of the individual in the interpretation of the phenomenon.” Deutsch (1979) argues that artistic truth (i.e., to recognize a true work of art) is not based in a correspondence theory of truth. A work of art is not simply a copy or representation of some other object or event. Rather, art is recognized as true when it is an authentic expression of its own intentionality (Deutsch 1979, 38). In other words, a true work of art is recognized by its unique expression of a particular vision; it is judged existentially. Applying this view of artistic truth to audits would require that the audit be judged as a performance with intrinsic value and not subject to external norms. Perhaps the artistic concept of an audit’s truth value reflects White’s (1970, 118) observation: “A particular statement (or artwork) could be perfectly true without containing more than a minute proportion of the whole truth even about a single topic. Being wholly true is not the same as being the whole truth.”

By the end of the Progressive Era, auditors were well established as one of the modern professions in North America. In their literature, they wrestled with the truth of their communications, often using the rhetoric of correspondence theory in claiming to present nothing but the facts while clearly recognizing that such claims were not defensible. The literature suggests that accountants believed that a “true financial state of the firm” existed and could be apprehended by a professional auditor. In practical terms, however, the auditor could only rely on a set of common beliefs about the measurement and disclosure processes (i.e., accounting and auditing principles) that, if followed, would most likely reveal this true state of affairs. The true professional achievement of the auditors in this period was to take control of the process by which these principles would be set and resist legislation that would have locked them into a version of the truth easily accessible to lay interpretation.

DISCUSSION

Why did advertisers and auditors take different approaches to “truth”? Several factors appear relevant. First, the audiences for advertisers’ and auditors’ truth claims were different. Advertisers faced an audience of mass consumers. Compared with auditors, advertisers had little direct contact with their audience by which to educate and negotiate a definition of troth. Advertisers were then constrained to use criteria that had broad intuitive appeal. In addition, false advertising, which misled or deceived consumers, could and often did lead to serious consequences for those consumers, creating not only bad press for the advertiser in question but also negative impressions of the advertising industry in general. That is why truth in advertising was so often justified on economic grounds. Deception could hurt consumers and thus indirectly hurt the advertising industry, or so the reasoning went. Legislators were never interested in truth in advertising for the same masons as advertisers. As Preston (1975, 11) puts it, the law was not really regulating the message but rather the fate of the consumer, but in so doing it became an ally for the truth in advertising movement.

Auditors routinely addressed groups of bankers and creditors who were the key audience for financial statements during the Progressive Era. These occasions were used to reinforce the contingent nature of the auditor’s truth claims. Consider the following example:

You will sometimes come across a statement signed “audited and found correct” but I would call your attention to the fact that only an inefficient and unqualified man would give such a certificate …. No man who understands the risks, who appreciates the importance of truth and who sets a high value on his signature is going to give such a sweeping statement as the one mentioned …. A certificate should give exactly the shade of meaning the auditor is trying to convey. (Gibbs 1928-1929, 298)

One of the purposes of the 1933-1934 U.S. Securities Acts was to democratize the capital markets. The stability of the capital markets was to be enhanced through the broad distribution of shareholdings and by refocusing financial reporting from the needs of creditors to the needs of investors. In this way, the audience for financial statements after the Progressive Era became more like the audience for advertisements. It is not surprising, then, that the auditors’ coherence truth claims became problematic. By the 1970s, the conflict between what the average investor thought the auditor’s certificate meant and what the auditor thought it meant had become so severe that it was given a name: “the expectations gap.” The accounting profession is still wrestling with this disruption to their philosophy.

Second, advertisers and auditors did not face the same consequences for equivalent statements about their products. For simplicity, imagine that both advertisers and auditors are reporting on some verifiable claim about a company or its products. There are three possibilities about the statements made by these groups: they can understate the claim, provide “truthful” reports, or overstate the claim. The consequences for the groups in each situation are different.

In auditing, the audit firm is expected to provide a conservative report on the company (i.e., it is required by standards of the profession and social expectations to understate the quality of the company). Of course, if an audit firm is consistently too conservative (as defined by management), it will lose business and possibly face legal liability; if an audit firm overstates the qualities of a company, it will face legal liability for losses incurred by those who have relied on the statements. The auditor is thus “between Scylla and Charybdis” (Gregory 1894, 960).

In advertising, an agency that systematically understates clients’ qualities will most certainly lose business. The advertising agency also faces legal liability for overstating the claims of a client, but there appears to be greater leeway for an advertising agency to emphasize positive qualities. The 1888 PI editorial, cited above, reminded the advertiser to tell the truth but, while making “use of all the address and skill of which he is possessed, to present his client’s case in the most favorable aspect of bearing… in the strongest and most skillfully arranged light they will bear” (quoted in “It’s Still Good” 1938, 31). Puffery is, perhaps, an extreme example of this.

Part of the differences in the structure of legal liability facing these groups may stem from the nature of their discourses. Auditors are expected to use denotative language. The references made by auditors to the firm’s assets and liabilities are expected to refer to specific things. Advertisers, on the other hand, use connotative language. The most effective ads tie together consumption with broader social values (e.g., “the good life”) and often establish these links through metonymy (i.e., through the juxtaposition of words and images) rather than through analogy or other more direct techniques.

Third, the advertising industry was disorganized compared with the accounting profession and was unable to generate a consistent vision of its craft or the institutional structures to implement such a vision. The advertising clubs, for example, included publishers, advertising agents, and sponsors. The interests of these groups were not always closely aligned. Accountants had worked consistently to bring closure to their occupation and had well-established training programs and legislative protection of their titles before they had fully developed their technique. The closure of the accounting profession facilitated the development of a set of truth claims built around the profession’s own standards.

One of the roles of the occupations that have successfully claimed professional status in Western societies is to define appropriate behavior in specific domains. This is reflected in their claims to collegial control (since laypersons cannot evaluate the quality of professional practice) and in their exercise of professional powers with respect to the definition of clients’ needs and how they should be handled (Richardson 1997). This role is premised on society’s belief in the expertise of the professions, particularly in the independence and integrity of their judgment. The Progressive Era nurtured this view of expertise as well as the aspirations of professional status. Accountants were better positioned than advertisers to draw on these cultural expectations.

CONCLUSION

Advertisers and auditors faced the same issue: their texts were used by people to make decisions and as such were subject to an evaluation of their “truthfulness.” Through the Progressive Era, these groups wrestled with the concept of truth and came to different accommodations. The codes of ethics, standards of practice, and moral suasion used by the advertising industry to control its own were only partially effective. Many were truthful; many more were not. The halo of science at that time had two effects on the advertising industry. Scientific knowledge held much promise for advertising’s professional aspirations. Science also helped define the criteria for truth in advertising–those criteria reflected a correspondence version of truth. Correspondence criteria also seemed the easiest to legislate, inasmuch as self-regulation seemed doomed to only partial success.

Auditors rejected correspondence criteria as appropriate standards for their work, adopting instead a coherence concept of truth that held them accountable only to their own standards. The auditors’ version of truth provided the impetus for accountants to begin standard setting. Initially, this was simply a codification of existing practice, but ultimately the standard-setting process served to define what would be regarded as truthful reporting in North America. Recently, this version of the truth has been subject to severe criticism. A Canadian case, for example, has rejected generally acceptable accounting principles and generally accepted auditing standards as a sufficient defense for financial statements that conceal material economic realities (Kripps v. Touche Ross Co. and Victoria Mortage Ltd. 1999).

The ontological status of accounting continues to be debated in the literature (e.g., Morgan 1988; Shapiro 1997). It has been suggested that accountants have adopted a realist view of financial reporting, seeing “themselves as objective appraisers of reality” (Morgan 1988, 477). This view of accountants’ engagement with the truth is too narrow. As we have shown, accountants have debated the truth and adopted a version of the truth that can be regarded as “objective” only in reference to a set of a priori commitments about what exists and how it should be represented. This debate explicitly rejects a naive view of financial accounts as “objective reality.” Morgan (1988, 484) suggests that “rather than cling to an outdated concept of objectivity, they should confront the basic subjectivity of their craft.” The historical record suggests that accountants have confronted the subjectivity of their craft as part of a professionalization project and successfully resolved the dilemma of constructing “truth.”

NOTE

(n1.) Marketing scholars are well acquainted with the following question: “What do we say of something when we say that something is true?” Hunt (1990) summarizes the various challenges to the “traditional” view of the truth of marketing theories and research that have been raised by proponents of relativistic views of truth (e.g., Anderson 1988; Peter and Olson 1983). Against these challenges, Hunt argues that relativistic views of truth are incoherent and untenable and advocates instead a view of truth based in the philosophy of scientific realism. That debate, which has enlivened the pages of marketing journals for nearly two decades, illustrates the extent of the controversy that surrounds the meaning of truth. This article does not contribute to that debate. Rather, the concern here is to use three conventional theories of truth to inform understanding of the persuasive and justificatory appeals uttered by marketing and accounting practitioners in the period under study. This study makes no claims, either for or against, any of the three truth theories to which this article refers.

TABLE 1 COMPETING THEORIES OF TRUTH

Legend for Chart:

A – Truth Theory

B – Defining Attribute

C – Philosophical Root

D – Major Criticism

A B

C

D

Correspondence Correspondence with the independent

object world

Ontological realism

“Truth” reduces to that which names

a truth

Coherence Coherence with a body of propositions

held to be true

Absolute idealism

Cannot distinguish what is true from

what one is warranted in believing

to be true

Pragmatic Practical value: that which is useful

to believe

Pragmatism

Idiosyncratic to individual holder of

belief; long-term versus short-term

usefulness

PHOTO (BLACK & WHITE): FIGURE 1 EMBLEM OF THE ASSOCIATED ADVERTISING CLUBS OF AMERICA

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MacNeal,

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