A SYSTEMS VIEW OF THE

ENVIRONMENT OF
ENVIRONMENTAL ACCOUNTING
G. A. Swanson
ABSTRACT
From time to time, it proves useful to theorists of advancing disciplines to
consider how ideas developing in related disciplines might provide insights
into their own progression. Environmental accounting and the systems
sciences are parallel developments of the past half-century. The purpose of
this article is to introduce certain ideas that are maturing in the systems
sciences for consideration by environmental accountants and managers.
Particular emphasis is placed on the works of Nicholas Georgescu-Roegen
and James Grier Miller. Collectively, these ideas present evidence that economies emerge in environmental processes and continue only as long as they
are fed by those processes. Accounting is concerned with economic process
disclosure. A conclusion might be drawn, consequently, that environmental
processes should be conspicuously disclosed in public accounting statements.

INTRODUCTION
From time to time, it proves useful to theorists of advancing disciplines to
consider how ideas developing in other streams of study might contribute to
Environmental Accounting: Commitment or Propaganda
Advances in Environmental Accounting & Management, Volume 3, 169193
Copyright r 2006 by Elsevier Ltd.
All rights of reproduction in any form reserved
ISSN: 1479-3598/doi:10.1016/S1479-3598(06)03006-8

169

170

G. A. SWANSON

their own progression. The purpose of this article is to introduce certain

ideas that have matured in the systems sciences from which inference might
be drawn in the continuing evolution of environmental accounting. The
article purposefully does not attempt to suggest practice. Those connections,
if they exist, and I believe they do, are better made by the environmental
accounting discipline itself.
Economies emerge in environmental processes. They feed continuously
on matterenergy from the environment and would cease to exist without it.
The circuitous equilibrium models of the economists and the balancing
models of the accountants largely ignore, and certainly obscure, the noncircuitous and imbalanced matterenergy processes occurring in economies
and in organizations. Economies are sustained by ingesting complex matter
energy from the environment and breaking it down to form goodsservices.
Without those sustaining processes, questions of the moral and equitable
distribution of wealth would be but moot.

ENVIRONMENTAL PROCESS DISCLOSURE IN

GENERAL PURPOSE FINANCIAL STATEMENTS
During the last half of the 20th century, governments and corporations gave
increasing attention to environmental accounting. Today, some environmental considerations are being integrated into the strategic and operational
management of many large corporations (Epstein, 1996; Rubenstein, 1990).
Those management systems increasingly include environmental accounting
and auditing. Many different approaches are being used (see Bennett
& James, 1998; Kestigian, 1991; Kreuze & Newell, 1994). While progress is
being made, most organizations still do not account adequately for
environmental concerns.
The wide attention given to the environment evoked many legal regulations which are now beginning to require mandatory reporting procedures
to control specic ecological impacts. Many of the required reports are
non-nancial in nature. Nevertheless, nancial reports have also emerged,
sometimes required by regulation. Financial reporting of environmental
costs for management purposes (commonly termed internal accounting) is
maturing in some, but only some, large corporations (Gray & Babbington,
2001; DeSimone & Popoff, 1997; U.S. Environmental Protection Agency,
1995, 1996a, 1996b; Gray, Babbington, & Walters, 1993). The broad area of
environmental accounting and reporting, nevertheless, is developing rapidly

A Systems View of the Environment of Environmental Accounting

171

and is considered by some writers to be an established area of practice and

thought.
Public disclosure of environmental information through nancial reporting also is making some progress. When it exists, however, it is mostly
voluntary, fragmentary, and ad hoc. Some rather comprehensive reports
have been devised (Gray & Babbington, 2001, pp. 257268). BSO/Origin
of the Netherlands, for example, has produced an auxiliary report summarizing environmentally sensitive processes and attempting to link that data
with nancial statements. Rubenstein (1994) and others have suggested
that comprehensive abstractions of entire eco-systems be valued by various
estimation procedures and risk analysis. Financial reporting of environmental information in the body of a companys annual financial statements,
(as opposed to footnote disclosure) however, is not enjoying the same
progress. The superfund litigation in the U.S. has forced contingent liability
disclosure of some environmental costs. Babbington and Gray (2001)
suggest a method for assessing the extended environmental impact of
organizational processes (the externalities). They calculate a comprehensive
sustainability cost statistic that may be charged against the revenue of an
organization. But, by and large, the progress of on-statement disclosure
is slow. By the late 1990s, less than 20 percent of the worlds largest companies included environmental costs in their nancial statements or notes
thereto (Gray & Babbington, 2001, p. 231).
A lesson from history might be relevant to the current development of
environmental accounting. The many different cost approaches and procedures that were being developed by engineers and others in the late 1800s
and early 1900s coalesced into meaningful control systems when they were
brought under the discipline of public nancial statement reporting to provide inventory valuations. Perhaps, synergies are now being discovered
among many different environmental accounting approaches and procedures
that are bringing them under the discipline of the disclosure requirements
of accounting principles generally accepted throughout the industrialized
world. The maturing of such a process, likely, will require adaptations
in both the general principles and the environmental accounting procedures.

EXTERNALITIES
Accounting principles generally accepted in the developed and developing
nations have evolved out of law and a 15th century commercial double-entry
bookkeeping system. The perspective of credit, ownership, and corporate

172

G. A. SWANSON

law is that of being inside an entity. Inputoutput in accounting is not the

Leontif-dened output from one entity and input to another of the unidirectional ow of an economic object. It is, instead, the inow of one
economic object in exchange for the outow of another. It measures internal
effects. A prominent question facing environmental accountants is How can
the full effects of organizational exchanges (both internal and external) be
determined and introduced into a measurement system that currently records
only the internal effects? In other words, How can the reexive impact of
the recorded exchanges be assessed? Certain ideas developed in systems
science may provide a context for evaluating, and perhaps contribute to
answering, that question.
The economic context becomes important as environmentalists attempt to
reach beyond the processes of organizations to assess the extended impact of
those processes. The Babbington and Gray (2001) method attempts to assess
indirectly such impact. Their comprehensive sustainability cost statistic
attempts to include all additional costs the entity would have incurred had it
used available sustainability-friendly processes. The logic of such a statistic
is a blending of the knowledge and practice of state-of-art sustainability and
economics with the concept of standard costing. The standard, however, is
generally set externally. The context is broader than that of a particular
economic entity. A systems conceptual framework may illuminate many
relationships and interactions among the various types of entities involved.
Ecological accounting measures are widely accepted for their scientic
character. The perspective of such measurement is economic entity independent. The persuasive power of such measures, nevertheless, is signicantly increased by placing them in a well-understood economic context.
Odum (1996) summarizes more than four decades of scientic and systemic
investigation of ecosystems and the environment. He introduces a sciencebased evaluation system to represent both environmental and economic
values with a common energy-related measure termed emergy (spelled with
an m). Incorporating kinetics, energetics and economics, he calculates the
amount of energy nature uses to produce any recognized energy source
(virtually any good or service). His statement that follows illustrates well the
persuasive power of placing environmental assessments in the context of
well-understood accounting measures of economic processes:
Dollars are not a measure of the value of foreign trade. Its the embedded energies y
Countries are gypping themselves as much as 100 to 1, sometimes, when they make a
dollar exchange y Example, phosphates sales from Florida y The embedded energy
the work that nature had to do to generate the phosphorus, and that it will have to do
when it is gone (in those storages) is 29 times more than the dollars we received for it in

A Systems View of the Environment of Environmental Accounting

173

the energy equivalent. So if you keep it and put it in your own soils, you stimulate your
own economy 29 times more than if you sell it to somebody else and buy their dollars
and get fuel for it (Odum, ca. 1990).

Whether one begins with internal measures and reaches to assess externalities or attempts to internalize external, independent measures, the process
involves a broad understanding of life and nature. Solutions almost always
demand a higher level of abstraction than the level at which the problems
exist. General systems theory may provide that higher level of abstraction
for some of the problems faced by environmental accountants.

A CONCRETE SYSTEMS PERSPECTIVE OF

ACCOUNTING FOR ECONOMIC PROCESSES
A concrete systems perspective strongly supports the proposition that
an organizations environmental sustainability (or lack thereof) should be
disclosed in public nancial statements. Three broad types of systems are
usefully distinguished by Miller (1978). They are concrete, conceptual, and
abstracted systems. A concrete, real, veridical system is a non-random
accumulation of matter-energy in a region of physical space-time, which
is organized into interacting interrelated subsystems and components
(p. 17). Matter is anything that has mass and occupies physical space. The
relationship of mass and energy is known. Energy is the ability to do
work. The term matterenergy is a general term used when mass or energy
is not individually referenced. Units of a conceptual system are terms,
such as words, y numbers, or other symbols, including those in computer simulations and programs (p. 16). The units of abstracted systems
are relationships abstracted or selected by an observer in light of his
interests, theoretical viewpoint, or philosophical bias. Some relationships
may be empirically determinable y but others are not, being only his
concepts (p. 19).
Corporations and other organizations are identied as living systems, a
special case of the general case of concrete systems. The business and
not-for-prot entities which accountants usually model are concrete phenomena. Their boundaries are discoverable. The entities exist whether or
not they are observed. Accountants, however, do observe them and record
important exchanges occurring across their boundaries.
Although accountants observe and record the concrete processes of
organizations, they use conceptual and abstracted systems to do that. So

174

G. A. SWANSON

accounting information does not simply represent concrete phenomena. The

record of that phenomena, however, is contained therein (Swanson, 2004).
In modern economies, corporations and organizations emerge in
exchange processes. Millers (1978) living systems theory (LST) uses the
term subsystem to include both process and structure because one cannot
exist without the other. Matterenergy is perceived as goodsservices in
economies. As participants exchange goodservices in physical spacetime,
some related and interacting exchanges accumulate as entities. According to
LST, such entities emerge at progressively higher levels of life groups,
organizations, communities, societies, and supranational systems. Although
entities at each of those levels interact with the natural environment, their
behavior is most inuenced by their immediate suprasystem and their own
subsystems.
The boundaries of abstracted systems are contrasted to the discoverable
boundaries of concrete systems in that observers set the boundaries of
abstracted systems. Within those hypothetical boundaries, observers may
include any set of elements desired. They may freely mix statistical analysis
of empirical elements with that of hypothetical ones.
Economic decision models are abstracted systems and they generally mix
empirical and hypothetical elements. That happens because the future
cannot be empirically discovered. These models combine empirically discoverable relationships existing in current and past economic processes with
relationships that observers introduce and believe will shape the future as
they desire. At the organizational level of living systems, hierarchically integrated management information systems have developed sophisticated
linguistic mathematical models and computer simulations (including expert
systems and articial intelligence), many of which process accounting information. Those systems reach well beyond the measures of concrete
processes recorded in the basic accounting systems. Kaplan and Nortons
(1996) balanced scorecard identies assessable externalities that are rapidly
being included in those systems. Even the information widely perceived as
accounting disclosure is highly abstracted.
The accounting observation and recording processes (which began to
emerge, according to Schmandt-Besserat (1992), over 10,000 years ago)
connect the concrete economic processes of organizations with the
abstracted system of generally accepted accounting principles (GAAP) disclosure. That connection makes accountability possible. Nevertheless,
the common perception of accounting is almost entirely associated with
the abstracted models of GAAP and management accounting. There is little
public (or academic) recognition of the concrete accounting processes deeply

A Systems View of the Environment of Environmental Accounting

175

embedded in modern economies. These processes have introduced (as an

integral part of modern economic exchanges) a certain scarce information
which Swanson (1993) terms money-information. As a consequence, modern
economies consist of scarce goodsservices and scarce money-information
markers.
Accountants measure both types of economic elements. They, however,
do not report those measurements. Instead, they adjust the measured quantities to reect certain special theories. When they nally report the adjusted
quantities, they indiscriminately mingle those that represent goodsservices
with those that represent money-information.
Goodsservices are the stuff of direct environmental concern. They are
the scarce matterenergy (concrete) elements that economies distribute.
Money-information facilitates that process, but the money-information
elements of economies would not exist without the matterenergy (environmental) elements. The opposite is not true. All of the questions of environmental economics and accounting ultimately concern goodsservices ows.

ECONOMIC AND ENVIRONMENTAL PROCESSES

All economic processes emerge from the environmental processes expressed
in the laws of thermodynamics. The rst law states that the total energy of
the universe is conserved, and the second law (the entropy law) states that
the energy within the universe is tending toward even distribution. The
environment with which we are generally concerned has been variously
identied as the ordered, arranged, complex, designed, improbable aspect
of physical existence as opposed to all other aspects. The rst law places
that dened environment in a universe in which the total energy never
increases or decreases. The second law identies the irreversible direction
of change from complex, or highly ordered, or concentrated energy forms
to less ordered and concentrated forms from lower entropy to higher
entropy. Since the highly concentrated forms are continuously dissipating
into less concentrated forms, any change, work, action must come from that
unidirectional ow of energy. Conversely, no change is possible from less
to more concentration for the universe as a whole. This means that any local
action taken in the universe must use the dissipation of the concentrated
energy of the whole to accomplish the action and that the concentrated
energy used is not replenishable it is scarce. The fundamental environmental problem, thus, is scarcity, and that problem gives rise to economy.
Beyond that, such problems as allocation and morality arise.

176

G. A. SWANSON

Georgescu-Roegen (1971) long ago observed that entropy is the economic

law of nature. Utility is implicit in that law. The energy which the law concerns is useful for particular purposes (work, growth, etc.). That utility is a
necessary but insufcient explanation of economic value. The energy once
used for a particular purpose cannot be unused. Its availability has
diminished. Utility and scarcity converge to form economic value. Economic
structures emerge in that convergence.
This view of the environment, while consistent with the prevailing more
biological view, is more comprehensive. The non-living environment in
which living systems thrive or strive to exist is certainly a non-trivial factor
in the design of sustainable life. While the interactions among organisms is
of immediate concern, the interactions among those organisms and their
physical (concrete) environment is increasingly important. A compelling
hypothesis of LST is that, when a living system is stressed by inputs or
outputs of matterenergy or information excesses or lacks, the resulting
internal strains are relieved by adjustment processes. These processes rst
involve elements in close proximity to the initial strains and only muster
more and more remote elements as needed. It is understandable that the
environmental movement is rst concerned with the interrelationships of
humans and other biological forms. The discovery of an ozone layer
deterioration, a long-term climate change, a changing composition of
Earths atmosphere, and other mega impacts of life on the physical environment, however, may suggest that some shift toward a more comprehensive view may provide additional insights into environmental problems.
Humans, other biological forms, and the physical environment may be
viewed in an evolving relationship of dependence. Primitive human individuals, families, and small clans exist in almost total dependency on other
existing biological forms. They hunt, scavenge, and burn other life. As
agriculture develops, certain other life forms become dependent on humans
and humans become more dependent on the physical environment (rain, soil
contents, etc.) and less dependent on other biological life. As higher-level
human systems emerge (e.g., organizations and societies), economies emerge
as the immediate environment of human organisms. The biological environment, thus, is once removed from individual human organisms. As economic processes have emerged at the suprasocietal level, more and more of
existing biological life has become dependent upon them. That emergence
places economy at a direct interface with the physical environment. That
situation suggests that higher-level human systems have a moral responsibility (to the extent they are knowledgeable and able) to manage the
sustainability of life on Earth through their economic systems.

A Systems View of the Environment of Environmental Accounting

177

ENTROPY AND ECONOMIC PROCESSES THE

ENVIRONMENTAL CONCERN
Entropy is a quantication of the patterning of energy in the universe. It
identies the progression of energy from uneven concentrations toward
a more even concentration throughout the universe. Clausius (1855) stated
concisely the rst and second laws of thermodynamics: (1) The energy of
the universe remains constant; (2) The entropy of the universe at all times
moves toward a maximum. While there is no change in the total amount
of energy in the universe, the concentrated energy forms are continuously
dissipating to less concentrated forms. Thus, the universes progression
toward an overall more even distribution of energy, its entropy, is always
increasing.
Georgescu-Roegen, in his classic work The Entropy Law and the Economic
Process, states, Our whole economic life feeds on low entropy (1971,
p. 277). This assertion clearly extends to economy Schrodingers view on
how living systems extend their complex matterenergy structures indenitely. Schrodinger asserts that living systems maintain a quasi-steady state
by importing low entropy (highly patterned energy) from the environment
and transforming it into higher entropy (more evenly distributed energy
with reference to the universe) (Schrodinger, 1945). Living processes always
accelerate the overall unidirectional ow of energy in the universe toward its
more probable state.
Viewing the entropy process directly from an energy perspective, living
systems process inputs of highly concentrated forms of matterenergy
breaking them down for growth, repair, products, and wastes, thereby
maintaining their living structures over indenite periods. That is how they
live. Living systems do not negate the second law. Entropic processes
continue to occur in them. They just overcome the dissipation within by
replacing the concentrated energy needed by inputting it from the environment. Even the structures of certain non-living systems can be extended
indenitely by the continuous ow of energy from their environments
(Prigogine, 1947, 1955, 1962). While such matterenergy importation
accelerates the breakdown of the environment generally, it is absolutely
necessary in order for life to continue.
That process would simply continue without much notice until the environment could no longer support life were it not for economy. Economic
processes, by their purpose-based utility, select certain energy concentrations (matterenergy forms) and rank them by usefulness and scarcity. That
ranking introduces economic value into the processes by which living

178

G. A. SWANSON

systems accelerate entropy. The resulting hierarchy of economic values

changes and evolves according to the usefulness and availability to particular living systems of particular matterenergy forms. Economic processes
thereby allocate scarce environmental resources among living systems.
Economic processes, at their core, are entropic environmental processes.
This assertion seems counterintuitive when we observe bits and pieces of
various materials entering an organization and a new truck emerging. It
seems that we have increased the concentration of matterenergy by building a highly organized, complex piece of machinery. But we are observing
the revenue side of the process, the local action. That is why we are willing
to pay more for the truck than for a pile of all its parts. Accountants see
the expense side of the process and realize that the complex product is really
an ingenious breakdown of raw materials and expenditure of various forms
of energy including labor, the universal action. (That is not to imply that
most accountants recognize actions at the level of the entropic processes
occurring.) Thaxton, Bradley, and Olsen (1984) distinguish among types of
energy and thus the corresponding entropy. The randomness in the distribution of matter (as opposed to other forms of energy) they term configurational entropy and provide an example of the increasing thermal entropy
that produces the decreasing configurational entropy of ice crystals. They
show that the aggregate disordering of the surroundings by the removal of
energy from water to produce ice is greater than the ordering of water into
crystals. Simply stated, production of local complexity, in fact, accelerates
entropy production in general. Economic processes, at their core, are
entropic environmental processes. They accelerate the degradation of useful
energy in the universe.
How the economics discipline came to ignore the obvious and treat
economies as closed systems is a question worthy of Schumpeters (1954)
skills in the evolution of economic thought. However it happened, it happened. Georgescu-Roegen strongly objects to modeling the material (matterenergy) side of economic processes as closed systems and the resulting
perception that economic processes are wholly circular (1971, p. 281).
He observes, The general trend follows the pattern of both the static
and the dynamic input-output systems of Leotief in ignoring all natural
factors. This is all the more curious since these systems are intended as
instruments of material planning of production rather than abstract foundations for an analysis of value (p. 232). The conceptualization of
the economy as a circular ow ignores the reality of the unidirectional ows
of energy in the universe, the platform upon which all economic activity
rests. Economy exists by the continuous ow of low entropy from the

A Systems View of the Environment of Environmental Accounting

179

environment and could not continue without it. A disclosure system that
ignores, or perhaps better stated, obscures that natural process in its public
nancial statements does not provide information adequate for quality
environmental decisions.

DISCLOSURE OF ACCOUNTING MEASURES OF

ENVIRONMENTAL PROCESSES
Environmental scarce resources are improbable formations of matter
energy. By the law of entropy, scarce resources are always irreversibly
changing for the whole universe in the direction of more probable formations. When scarce resources are used by living systems to sustain themselves, grow, and satisfy wants or for other purposes, the overall progression
from improbable to probable formations is accelerated. Limited resources
are used more quickly. To the extent that humans can inuence those
processes, the fundamental environmental questions concern the rates of
accelerated entropy and the intermediary improbable formations (goods,
services, wastes) caused in the acceleration processes.
This insight frames the concept of sustainable development. Entropy imposes the temporal unidirectionality of decreasing useful energy. That which
is now has never been and will never again be. Any economic development
accelerates entropy as does all life processes. So sustainable development,
dened as that which meets the needs of the present without compromising
the ability of future generations (U.N. Commission on Environment and
Development, 1987), is, at its limit, impossible. Everything that has happened and happens today compromises the residual of currently accessible
raw energy available to future generations.
To make sense in this frame of reference, any realizable sustainability is
coupled with emergence. Sustainability cannot be static. Evolutionary advances to access currently inaccessible energy sources are necessary to sustain life on the slippery slope of entropy. That evolution may include
biological, psychological, technological, and socio-economic emergents. Invention, innovation, and technological advances are prominent agents of
emergence in psychological and socio-economic processes and their
importance in biological emergence is increasing. Increasing the ratio of
emergence processes to other life processes may contribute signicantly to
the enabling of future generations. Environmental accounting advances are
not insignicant agents of socio-economic emergence.

180

G. A. SWANSON

The fundamental environmental questions have no simple answers, nor

do they generally have global answers. Humans and all of their higher-level
systems survive only as individual humans survive. In the last few centuries,
societies have emerged which distribute societal decision-making among
individuals through economic exchange processes (Swanson, 1998, 2000).
Today, there is increasing hope that those processes coupled with ideals of
democratic governance will be able to harness the human spirit and intellect to answer those many-faceted questions. To do so, individuals and
higher-level systems such as groups, organizations, communities, and societies require that the economic exchange processes provide disclosure of
information needed to answer those questions. The design of economic information disclosure systems ranks very high on the scale of critical tasks
facing environmentalists.
Economy emerges in environmental entropy, exchange systems emerge in
economy, and double-entry bookkeeping with its commensurate disclosure
emerges in exchange systems. That view may not be common among environmentalists and, thus, merits some additional discussion here.
Accountants measure and interpret. They measure economic processes. In
every case, they record the specic exchange values determined by participants of an exchange. Accountability arises in that accounting. Economic
decision models are abstractions that provide shields against the complexity
of actual economic processes while providing important information for
management and governance. Accounting is the interface of economic
decision models and economic processes.
Button and Dourish (1996) dene accounts in a manner few accountants
would reject as computational representations which systems continuously
offer of their own behavior and ability (p. 7). Most accountants, however,
may overlook the subtle ethnomethodological implication of the denition.
Accounting is not the action of independent accountants recording information about an organization. Accounting is offered out of the organizations action and interaction out of its processes or practices.
By contrast, economic decision modeling, as systems design [,] trafcs in
abstractions, rather than meaning, interpretation, or behaviors (Button &
Dourish, 1996, p. 7). Moreover, the computational representations offered
in accounting provide an opaque barrier against the complexity of the concrete system being modeled. Consequently, a decision model may overemphasize abstracted relationships introduced by observers to the neglect of
empirical relationships revealed by the continuous accounting offered up by
the economic processes themselves. Since economic processes feed on

A Systems View of the Environment of Environmental Accounting

181

environmental processes, the design of economic disclosure systems is a

critical task facing environmentalists.

MATTERENERGY SCARCITY AND INFORMATION

SCARCITY IN ECONOMIC PROCESSES
The continuous ow of low entropy from the environment is the environmentalists domain of concern. Consequently, the economic scarcity that
directly concerns environmentalists is that of matterenergy. That scarcity
exists physically and that existence does not depend on ideas, concepts, or
hypotheticals. When a population outstrips its food source, nature solves
the environmental problem by starving the population. Sustainable development is an effort to pre-empt nature with a solution more acceptable to
the human population. When the form of matterenergy required for a
particular economic development is exhausted, that development ceases.
Environmental accounting and management is an effort to pre-empt natures solution and sustain economic development. But it is more. It also is
an effort to pre-empt the exchange economys allocation of certain scarce
resources. The economy affects its allocation through exchange of moneyinformation for goodsservices.
This point is important because modern economic scarcity, as mentioned
in a previous section, is composed of matterenergy (environmental) scarcity
and informational scarcity. Matterenergy scarcity is, in the nal analysis,
imposed by nature and information scarcity is imposed by human invention,
including law and accounting. Not the least of inventions of information
scarcity is money-information. And it is that information through which
modern economies exercise control over goodsservices processes.
A more precise examination of money-information scarcity is instructed
by the system concepts of information and negentropy. Information in a
concrete system is dened as the patterned arrangement of the matter and
energy in the system. As discussed above, entropy is the progress of a system
from patterned arrangement to disarrangement. The statistic entropy is the
amount of progress a system has made from improbable to probable states.
Wiener (1948, p. 7) and Shannon (1948) show that the statistical measure of
the negative of entropy is the same as that for information. Schrodinger
(1945, p. 72) termed the negative of entropy negentropy. In a more general
sense, information is an antonym of uncertainty, while in concrete systems it
is an antonym of entropy. Recognizing this connection, Beauregard (1961)

182

G. A. SWANSON

suggests a subjective doubling between the two terms (negentropy- information). The direct transition (negentropy - information) is the acquisition of knowledge, while the reciprocal transition (negentropy
information) indicates power of organization. Swanson (1994) distinguishes
between monetary information and money information on the basis of the
distinctions made by Beauregard. Monetary information is acquisition of
knowledge, and, as far as we know, that is unlimited. Alternatively, scarcity
is imposed on money-information and that scarcity gives it power of organization. Money-information causes economic activity by actually being
exchanged as generic economic value for goodsservices and other types of
money-information. For a full discussion of the introduction of moneyinformation into modern economies, see Macro Accounting and Modern
Money Supplies (Swanson, 1993).
Money-information is measured by accountants along with their measurements of goodsservices. Nevertheless, the monetary information about
the economic processes of organizations currently disclosed in nancial
statements does not explicitly distinguish between the causative scarce information (money-information) imposed by humans and the naturally
scarce goodsservices. Current reporting does not separate information
about the matterenergy (environmental) ows from that about the moneyinformation ows. By mingling the two, information needed for environmental decisions is obscured. Both matterenergy and money-information
processes can be disclosed clearly in general purpose nancial statements.
That assertion does not diminish the importance of monetary and other
information used to assess economic processes. Decisions at each higher level
of living systems progressively require more information processing (Miller,
1978, p. 76; Kalaidjieva & Swanson, 2004). Modern economies simply
could not function without very high volumes of information processing.
Accounting (viewed narrowly as is common) is a monetary information
conceptual system. Environmental accounting is (if that same narrow view
persists) a monetary information conceptual system that is attempting to
measure and disclosure the external consequence of mainly organizational
processes. Swanson and Miller (1989) assert that money, itself, is an accounting emergent. Perhaps environmental accountants should broaden the
view of environmental accounting to include the design of concrete moneyinformation systems design. That would move them one step closer to preempting the exchange economy allocation of certain scarce resources. That
is not such a radical idea when one considers that accounting and auditing
are inextricably intertwined, and the current emphasis is on internal control
systems. Could external (environmental) control systems be invented?

A Systems View of the Environment of Environmental Accounting

183

PUBLIC DISCLOSURE IN MODERN EXCHANGEBASED SOCIETIES

Markets are prehistoric emergents of human civilization. Market (or
exchange-based) societies are much more recent emergents. Societies in
which exchange processes are used to organize the preponderance of social
activity have evolved over only the last three or four centuries. During this
period, economic processes have rapidly become more and more complex.
With each iteration of economic complexity, the information systems that
facilitate exchanges of goods and services among individuals and other
components of societies have grown increasingly complex.
In such societies, important societal decisions are distributed downwardly
to individuals and other societal components who participate in particular
economic exchanges (Swanson, 1998). As economic processes grow more
complex, public disclosure about those processes evolves. In the absence of
that evolution, such societies would place their own survival in jeopardy.
The uninformed simply cannot participate rationally in the societal decision
process.
Modern societies, in some sense, have enveloped the natural environment.
As markets enveloped production, markets could no longer be considered as
exogenous perturbances on production. Production became endogenous to
markets. As societies have expanded exchange processes to control the
production and distribution of goods and services including the allocation
of scarce natural resources, many environmental processes have become
endogenous to societies. As public disclosure of commercial and industrial
processes is necessary for rational market responses in the equitable distribution of goods and services, public disclosure of environmental processes is
necessary for rational and equitable market responses in the sustainability of
the environment.

THE IMPORTANCE OF MONEY-MEASUREMENT IN

MODERN ECONOMIES
Modern economic processes are elaborations of individual exchanges. The
exchange is the fundamental dynamic of those processes. In it, two selfinterested individuals or other societal components agree to give and receive
goods, services, and/or money-information markers one for the other. The
economic value of that which is given is equated to the value of that which is

184

G. A. SWANSON

received by the act of exchange. That emergent value is an attribute of all

economic goods, services, and money-information markers. Consequently,
all economic processes may be measured on the single attribute specific
exchange value (Swanson, 1993). Using modern money-information ows,
it is possible to measure that attribute in terms of a single accounting unit.
The typical exchange consists of not a trade of goodsservices for goods
services, but rather of an exchange of goodsservices for money-information
markers such as currency, promissory notes, and stock certicates. Those
markers are quantied by a ratio scale. So, the measurement occurs in the
exchange processes themselves.
The information owing within the exchange processes, and thereby facilitating goodsservices trades, is distinctly different from information about
those processes resulting from observation. The information within those
processes causes the exchange of goodsservices. Recall from a previous
section that monetary information is information about economic processes
and money-information is the causative information in those processes. An
interesting quality of that causative information is its concrete existence.
While it controls by being exchanged (leaving one entity and arriving in
another), it may be horded. Conceptual information relieves uncertainty
and vanishes. Concrete information endures (Swanson, 2000). If money information exists, wealthknowledge likely exists. The patterns of residuals
of money-information may be as important as the actions caused.
As a general rule, accountants observe and measure economic processes
at the exchange level and record that information in journals and ledgers.
They record measurements of the attribute specific exchange value of the
economic objects exchanged. The measures are denominated in the currency
of the society in which the exchange occurs. Accountants observe exchanges
from the perspective of being inside the boundary of the accounting entity.
From that perspective, two important measurements must be recorded, the
input and the output, which are coupled in exchange. Because the economic
value of each is determined by the other in the exchange, the input value
is always equal to the output value. Accountants term inputs debits and
outputs credits. The debitcredit notation generated by accountants is
monetary information observed in a scientic manner about the moneyinformation causing exchanges and thereby valuing the goodsservices and
other money-information markers in the economy. Economic processes including both matterenergy and money-information are being measured.
The specic exchange value is the controlling value in economic processes.
When an entity gives in exchange money-information of a certain amount,
that amount is no longer available for other uses. As Odums example

A Systems View of the Environment of Environmental Accounting

185

illustrates, that local exchange-determined value may be very ill informed

with regard to environmental worth. It seems that a challenge of environmental accounting is to inform the local participants of signicant environmental values. By doing so, it attempts to move the specic exchange
values toward equality with the environmental values. It also seems that, if
the scope of environmental accounting is extended to the concrete moneyinformation processes, ingenious means of affecting more direct change in
specic exchange values may be invented. Some central ideas of LST
provide a conceptual framework in which such extension of scope might be
considered.

SOME RELEVANT IDEAS OF LIVING

SYSTEMS THEORY
Living systems theory (LST), at a high level of abstraction, informs both
local and global solutions to catastrophic problems that concern concrete
systems. It does so from the perspective of a subset of those systems termed
living systems. Prominent among the identifying characteristics of living
systems is the condition that they maintain a steady state of negentropy
even though entropic changes occur in them as they do everywhere else
(Miller, 1978, p. 18). They do that by integrating their subsystems together
to form actively self-regulating, developing, unitary systems with purposes
and goals (p. 18). LST identies twenty critical subsystems (Table 1).
Living systems have many other subsystems and components, but a living
system cannot endure in Earths environment if the processes of any one of
the critical subsystems are missing.
LST identies characteristics common to different types of life extending
from cells to supranational systems. In doing so, it identies differences
among those many systems and discovers certain patterns of emergence. The
types of life form a hierarchy of increasing complexity with eight identiable
levels. The organizations (private and public corporations and governmental entities), communities, societies, and supranational systems (e.g., the
United Nations) with which environmental accounting is concerned comprise the four higher levels. Environmental scientists are concerned with all
eight levels. Because those professions are (by the nature of the problems
they study) interdisciplinary and cross-disciplinary, it is likely that they may
draw certain insights from the comprehensive (while not exhaustive) LST.
Living systems are open systems. Such systems extend their existence
in physical time by taking in matterenergy and information of a lower

186

Table 1. The Twenty Critical Subsystems of a Living System.

Subsystems that process both matterenergy and information
1.
Reproducer
The subsystem that carries out the instructions in the genetic information or charter of a system and
mobilizes matter and energy to produce one or more similar systems
2.
Boundary
The subsystem at the perimeter of a system that holds together the components that make up the system,
protects them from environmental stresses, and excludes or permits entry to various sorts of matter
energy and information

G. A. SWANSON

Subsystems that process matterenergy

3.
Ingestor
The subsystem that brings matterenergy across the system boundary from the environment
4.
Distributor
The subsystem that carries inputs from outside the system or outputs from its subsystems around the
system to each component
5.
Converter
The subsystem that changes certain inputs to the system into forms more useful for the special processes of
that particular system
6.
Producer
The subsystem that forms stable associations that endure for signicant periods among matterenergy
inputs to the system or outputs from its converter, the materials synthesized being for growth, damage
repair, or replacement of components of the system, or for providing energy for moving or constituting
the systems outputs of products or information markers to its suprasystem
7.
Matterenergy
The subsystem that places matter or energy at some location in the system, retains it over time, and
storage
retrieves it
8.
Extruder
The subsystem that transmits matterenergy out of the system in the form of products or wastes
9.
Motor
The subsystem that moves the system or parts of it in relation to part or all of its environment or moves
components of its environment in relation to each other
10.
Supporter
The subsystem that maintains the proper spatial relationships among components of the system, so that
they can interact without weighing each other down or crowding each other

A Systems View of the Environment of Environmental Accounting

Subsystems that process information

11.
Input transducer
The sensory subsystem that brings markers bearing information into the system, changing them to other
matterenergy forms suitable for transmission within it
12.
Internal
The sensory subsystem that receives from subsystems or components within the system markers bearing
transducer
information about signicant alterations in those subsystems or components, changing them to other
matterenergy forms of a sort that can be transmitted within it
13.
Channel and net
The subsystem composed of a single route in physical space or multiple interconnected routes over which
markers bearing information are transmitted to all parts of the system
14.
Timer
The clock, set by information from the input transducer about states of the environment that uses
information about processes in the system to measure the passage of time and transmits to the decider
signals that facilitate coordination of the systems processes in time
15.
Decoder
The subsystem that alters the code of information input to it through the input transducer or internal
transducer into a private code that can be used internally by the system
16.
Associator
The subsystem that carries out the rst stage of the learning process, forming enduring association among
items of information in the system
17.
Memory
The subsystem that carries out the second stage of the learning process, storing information in the system
for different periods of time, and then retrieving it
18.
Decider
The executive subsystem that receives information inputs from all other subsystems and transmits to them
outputs for guidance
19.
Encoder
The subsystem that alters the code of information input to it from other information-processing
subsystems from a private code used internally by the system into a public code that can be
interpreted by other systems in its environment
20.
Output
The subsystem that puts out markers bearing information from the system, changing markers within the
transducer
system into other matterenergy forms that can be transmitted over channels in the systems
environment
Adapted from Swanson and Miller (1989, pp. 5667). Used by permission of the authors.

187

188

G. A. SWANSON

entropic content than that which they give out. In that process, they exhibit
continually altering uxes of matterenergy and information. The values of
many of their variables are held in a dynamic balance or equilibrium. Such
conditions are termed flux equilibria, homeostasis, or steady states. The relationships among the variables in steady state are continually changing.
There is, however, a range of stability for each variable within which adjustments of deviations are insignicant. When the values of variables deviate
beyond their ranges of stability, a systems processes respond collectively.
Those responses are termed adjustment processes. Steady states are controlled
by negative feedbacks. A negative feedback cancels or mitigates deviations.
Why do variables deviate beyond their ranges of stability? Miller answers
that question in the context of the denitions of stress and strain. He states,
An input or output of either matter-energy or information which, by lack
or excess of something characteristic, forces the variables beyond the range
of stability, constitutes stress and produces strain (or strains) within the
system (Miller, 1978, p. 34). So stress is of environmental origin, and strain
is an internal reaction to stress. This renement of terms would have little
usefulness were it not essential to the denition of purpose in living systems.
Millers denition of purpose, in turn, operationalizes the idea of the unitary
responses of living systems.
The transition of strain - purpose is mediated by the concept of system
values. Miller states, The totality of the strains within a system resulting
from its template programs and from variations in the inputs from its environment can be referred to as its values y The relative urgency of reducing each of these specic strains represents its hierarchy of values
(p. 34). Purpose in a living system is then dened as y a preferential
hierarchy of values that gives rise to decision rules which determine its
preference for one internal steady-state value rather than another (p. 39).
Note that the system values that give rise to purpose are not simply variable
values. They are ordinal values of the urgency associated with each variable
value. System values are rst restricted to values of variables beyond their
ranges of stability (strains) and further restricted to values of the relative
urgency of reducing each strain in the context of all strains.
So purpose, according to LST, emerges within a living system. It is not a
matter of the perspective of an observer. Purpose is made apparent in the
ux of the relative urgencies of reducing specic strains within the system.
Purpose is an expression of integrating together the subsystems of a living
system to form a self-regulating, developing, unitary system.
While purpose is an internal phenomenon, goals are external. An organization pursues multiple and often changing goals based on its purpose or

A Systems View of the Environment of Environmental Accounting

189

simultaneous multiple purposes. Living systems exist at multiple levels. Organizations are living systems in their own integrity, but they are also components of community and society levels of systems. As such, the external
goals that they pursue are often strongly inuenced by the internal purposes
of those higher-level systems. In fact, their goals are integrated together with
those of other organizations to form the purposes of communities and societies. Environmental accounting concerns systems at those multiple levels.
It consequently seeks to inuence toward environmental sustainability, both
the purposes and goals of organizations, communities, and societies as they
are intertwining together.

Steady State, Purpose, and Pathology

Steady state is certainly an important characteristic of living systems. In
many ways, it may be considered fundamental. A living system functions
in steady state. A continual ux of variables occurs. Negative feedback
adjustment processes maintain the steady state.
The character, however, of a particular living system is found in its purpose, its hierarchy of values. Those values are urgencies of returning unsteady variables to steady state. And it is in that band of activity, just
beyond the range of stability, that history growth and decay occurs in a
normal (healthy or adaptive) manner. History, as well as purpose, involves
adjustment processes.
Living systems could not be identied amidst the constant ux of their
many variables were it not for steady state. They could not grow or decay
were it not for the instability (the unsteady state) of the many internal and
environmental variables. Both states contribute to the indenite duration of
living systems in physical spacetime.
The contribution of variables with deviations beyond the range of stability notwithstanding, such variables increase uncertainty concerning survival. Pathology is dened in that band of uncertainty. A pathological
variable is one that remains beyond its range of stability for a signicant
period. A variable that requires signicantly increased costs to maintain
it in steady state is also pathological. So pathology is an identiable condition that may occur in any adjustment process. The study of systems
pathology, consequently, may be informed by the identication of all
20 critical subsystems and all eight levels of living systems (cell, organ,
organism, group, organization, community, society, and supranational
system).

190

G. A. SWANSON

Adjustment Processes
The alleviation of pathological processes and structures in living systems is
accomplished through adjustment processes. Adjustment processes do not
concern only pathology. They are continually occurring to maintain living
systems in functional steady state. Function is dened in LST as reversible
actions succeeding each other from moment to moment (Miller, 1978,
p. 23). Adjustment processes are involved in the ongoing functional adjustments occurring in processes. Adjustments also occur in the history of a
living system. History is less readily reversed actions that alter both the
function and the structure of living systems. History occurs when the value
of a variable moves beyond its range of stability and the adjustment processes move the system to a new steady state rather than returning the variable to its former range of stability. Pathology occurs when, for a signicant
period, the outlying value of the variable is not returned to its former range
of stability and the system does not move to a new steady state. Pathology
also occurs when the adjustment processes return the outlying value to its
former steady state but at signicantly increased costs.
Seven general types of adjustment processes used to maintain steady
states are identied by LST. They are input processes of (1) matterenergy,
and (2) information, internal processes of (3) matterenergy, and (4) information, output process of (5) matterenergy and (6) information, and (7)
feedbacks. How those processes occur in living systems is informed by the 20
critical subsystems and the unique combinations of those subsystems into
components by different living systems.

The Connectivity among Steady State, Variable Values, Adjustment

Processes, and Pathology
Living systems are complex open systems that sustain themselves by inputting matterenergy of lower entropy than that which they output. The energy differential is used for repair, growth, and products. Those throughputs
occur in 20 critical subsystems typically distributed among a variety of
identiable components that differ among systems at each of eight levels of
life and across those levels. In living systems, structure emerges in process,
and one cannot exist without the other. At the inception of a particular living system, the reproducer subsystem of another system provides
the structure in which the processes of the incipient system are mediated. As
the system grows, its own structures emerge from the interaction of its

A Systems View of the Environment of Environmental Accounting

191

template (genetic code or charter) and environmental stresses occurring in

its inputs, throughputs, and outputs.
The process of structure emergence introduces a systemic homeostasis or
dynamic steady state of important variables (both variables of process and of
structure). The values of those variables are in continuing ux and adjustment processes generally maintain them in certain ranges of stability. When
environmental stresses cause the values of variables to move beyond their
ranges of stability, strains are introduced. The adaptation of the system to its
strains through its adjustment processes determines whether it continues in a
particular steady state (a functional process) or it moves to a new steady
state (a historical process). Pathology is introduced when the value of a
variable remains beyond its range of stability for a signicant period or the
costs of maintaining it within its range are signicantly increased.

ENVIRONMENTAL ACCOUNTING AND LST

Environmental accounting and LST are concerned with the same domain of
knowledge. They are concerned with processes that may be studied using
empirical scientic methodology. LST synthesizes actual scientic research
ndings of many individual scientic disciplines, with emphasis on the life
sciences into a general conceptual framework that is useful for cross-disciplinal studies. Environmental accounting attempts to measure the processes of that same domain and report those measures in a manner that will
inuence individual humans, groups, organizations, communities, societies,
and supranational systems toward environmental sustainability. Very possibly, the detailed patterns of internal, environmental, and cross-level interactions and relationships identied by LST may aid the development of
environmental accounting measures and information processes.

CONCLUSION
From time to time, it proves useful for theorists of advancing disciplines to
consider how ideas developing in other streams of study might contribute to
their own progression. This article introduces a range of ideas that are
maturing in the systems sciences that may provide certain insights to environmental accounting. The ideas prominently concern a concrete systems
perspective and draw extensively from the scientic works of James Grier
Miller and Nicholas Georgescu-Roegen. Collectively, the ideas present

192

G. A. SWANSON

evidence that economies emerge in environmental processes and continue

only as long as they are fed by those processes. A conclusion might be
drawn, consequently, that environmental processes should be conspicuously
disclosed in public accounting statements.

REFERENCES
Babbington, J., & Gray, R. (2001). An account of sustainability: Failure, success, and reconceptionalization. Critical Perspectives on Accounting, 12(5), 557587.
Bennett, M., & James, P. (1998). The green bottom line: Environmental accounting for management current practice and future trends. Shefeld, England: Greenleaf Publishing.
Button, G., & Dourish, P. (1996). Technomethodology: Paradoxes and possibilities. Proceedings of CHI 96, 1926. New York: ACM. Retrieved from http://www.acm.org/sigchi/
chi96/proceedings/papers/Button/jpd_txt.htm.
Clausius, R. (1855). Ann. Phys., 125, 358.
de Beauregard, O. C. (1961). Sur lEquivalence Entre Information et Entropie. Translated by
Miller (1978, p. 42).
DeSimone, L., & Popoff, F. (1997). Eco-efficiency: The business path to sustainable development.
Cambridge, MA: MIT Press.
Epstein, M. (1996). Measuring corporate environmental performance: Best practices for costing
and managing an effective environmental strategy. Chicago: Irwin.
Georgescu-Roegen, N. (1971). The entropy law and the economic processes. Cambridge, MA:
Harvard University Press.
Gray, R., Babbington, J., & Walters, D. (1993). Accounting for the environment. New York:
Markus Wiener Publishing, Inc.
Gray, R., & Babbington, J. (2001). Accounting for the environment (2nd ed.). London: Sage
Publications.
Kalaidjieva, M., & Swanson, G. (2004). Intelligence and living systems: A decision-making
perspective. Systems Research and Behavioral Science, 21(2), 147172.
Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action.
Cambridge, MA: Harvard Business School Press.
Kestigian, M. (1991). The greening of accountancy. Australian Accountant, 35(September),
2028.
Kreuze, J., & Newell, G. (1994). ABC and life-cycle costing for environmental expenditures.
Management Accounting, 46(February), 3842.
Miller, J. G. (1978). Living systems. New York: McGraw-Hill.
Odum, H. T. (ca. 1990). Conversation with Howard T. Odum (video interview with James Grier
Miller). Louisville, KY: University of Louisville.
Odum, H. T. (1996). Environmental accounting emergy and environmental decision making.
New York: Wiley.
Prigogine, I. (1947). Etude Thermodynamique des Phenomenes Irreversibles. Desoer: Liege.
Prigogine, I. (1955). Thermodynamics of irreversible processes. Springeld, IL: Thomas.
Prigogine, I. (1962). Non-equilibrium statistical mechanics. New York: Interscience.
Rubenstein, D. (1990). Theres no accounting for the Exxon Valdez. The CPA Journal, 57(July),
4045.

A Systems View of the Environment of Environmental Accounting

193

Rubenstein, D. (1994). Environmental accounting for the sustainable corporation. Westport,

CT: Quorum Books.
Schmandt-Besserat, D. (1992). Before writing: From Counting to Cuneform. Austin, TX: University of Texas Press.
Schrodinger, E. (1945). What is life? New York: MacMillan.
Schumpeter, J. (1954). History of economic analysis. New York: Oxford University Press.
Shannon, C.E. (1948). A mathematical theory of communication. Bell Systems Technical
Journal, 27, 379423, 623656.
Swanson, G., & Miller, J. (1989). Measurement and interpretation in accounting: A living systems
theory approach. New York: Quorum.
Swanson, G. A. (1993). Macro accounting and modern money supplies. London: Quorum Books.
Swanson, G. A. (1994). Accounting before reading, writing, and arithmetic. Accounting
Enquiries, 3(2), 171186.
Swanson, G. A. (1998). Governmental justice and the dispersion of societal decider subsystems
through exchange economics. Systems Research and Behavioral Science, 15, 413430.
Swanson, G. A. (2000). Money-information and wealth-knowledge. Systems 2000, 5(12),
5260.
Swanson, G. A. (2004). Economic process accounting full disclosure. Systems Research and
Behavioral Science, 21, 663680.
Thaxton, C., Bradley, W., & Olsen, R. (1984). The mystery of lifes origin. Dallas, TX: Lewis
and Stanley.
U. N. World Commission on Environment and Development. (1987). Our common future (The
Brundtland Report). Oxford: Oxford University Press.
U. S. Environmental Protection Agency (EPA). (1995). An introduction to environmental
cccounting as a business management tool: Key concepts and terms. Washington, DC:
EPA (EPA 742-R-95-001).
U. S. Environmental Protection Agency (EPA). (1996a). Incorporating environmental costs and
considerations into decision-making: Review of available tools and software. Washington,
DC: EPA (EPA 742-R-95-006).
U. S. Environmental Protection Agency (EPA). (1996b). Valuing potential environmental
liabilities for managerial decision-making: A review of available techniques. Washington,
DC: EPA (EPA 742-R-95-006).
Wiener, N. (1948). Cybernetics. MA: Technology Press 76.