An institutional approach to the role of cost accounting in regulated markets: the case of the royal soap factory of Seville (1515-1692)

Regulated markets and state-owned monopolies characterized the economies of many Southern European and Latin American territories around the end of the Middle Ages and the Renaissance. Strikingly, however, investigation into the functioning of cost accounting in such contexts has been widely neglected in accounting research. In this paper, we examine the role of early cost systems in regulated markets by focusing on the case of the soap production and distribution monopoly in the City of Seville (Spain). In 1423, the King of Castille granted the soap monopoly to the Duke of Alcalá as a reward for his war achievements, but the decision on the price of soap rested in the hands of the local government. Disputes between the Duke of Alcalá and the local government (the parties) about the fair price of a pound of soap were resolved through tests that replicated the soap production process and determined its cost through complex calculations. Drawing on the insights of institutional sociology, we found that the test and its accompanying cost calculations constituted an institution that legitimized the parties both in the public opinion and before the King. Further, our data revealed that the parties engaged in active agency before the King of Spain to shape in their favor the constitutive elements of the institution, such as the use of purpose-purchased or stored materials in the soap test; incorporation into the total cost the rents that would have been earned if the factory buildings were leased; and the salaries of some employees (i.e., slaves, factory administrator and priest).