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Accounting and Organisation Change

Anthony G. Hopwood

London School of Economics and Political Science, UK

We live in a world in which there is an acute consciousness of both change itself and the necessity for it. This is no less true for business and commercial affairs than for other aspects of social and economic life. We have an awareness of shifting technologies and their organisational and social implications. A growing internationalisation of business and economic life is making us more conscious of global interdependencies and their implications for competition, for corporate decision making, for organisational structuring and management, and for the shifting location of power and authority. New knowledges are themselves suggestive of new spheres for business and economic activity, and new modes of organising them. And shifting political values and ideologies have questioned prevailing conceptions of the spheres of the public and the private, the domains of the economic and the social, and the boundaries between governmental and business life.

Such developments are mirrored in the financial sphere. Renewed attention is being given to the financing of new technologies, to the mobilisation of organisations around more financially oriented strategic postures and to the propagation of the language of efficiency and profit in spheres of life where these have been less significant to date. And of course the financial sector has been one where change has been occurring in its own right. New financial instruments have been invented and gained prominence in practical affairs. We are witnessing a growing internationalisation of the financial markets, with all that implies for the management of both business organisations and national states. The financial markets are also now significantly larger than and increasingly more independent of the markets for real goods and services which they initially sought to enable. Indeed we are living in a world where the ratio between the financial and the real sectors has increased dramatically over the last decade.

Of course we need to be cautious about emphasising the uniqueness and magnitude of such changes. I am sure that all ages have so prioritised the new, thus identifying the discontinuities rather than the continuities which shape organisational, social and economic life. And sometimes they possibly have had more reason to be concerned than we. I always think about what might have been the consciousness of change, indeed the anxiety towards it, in mid-lrth century England. A citizen of that time living in London would have experienced the transition from a monarchy to a republic, and back again. A king claiming absolute rights had been decapitated. A religious revolution was in progress. And, after the return of the monarchy, a plague first exterminated vast sections of the

This article is taken from the John V. Ratcliffe Memorial Lecture, given at the University of New South Wales, 6 September 1988.

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population and then a fire destroyed much of London as it was known. Perhaps that was change indeed! And perhaps compared with the magnitude of such disturbances we need to be conscious of the fact that change is appealed to both because of its presence and because of its perceived desirability, for some at least. People as frequently highlight change because of their desire for it as for the fact of it.

Recognising the very ambiguity of the concept of change is not unhelpful when reflecting on how accounting is caught up in such wider processes of transformation. For, on the one hand, both practitioners and researchers are now aware that many of the shifting patterns of organisational and economic life are impinging on accounting practices, the uses of which are made of them and the knowledges in which they are embedded. Increasingly recognising that accounting is not an autonomous phenomenon, other social, political and economic factors are now seen as being able to provide bases for accounting change, often playing a significant role in influencing the course of its transformation. On the other hand, however, attention is also being given to the need for accounting to change. Accounting, to some at least, is too rigid a discipline, protected and buffered from the pressures of the world by professional conservatism and an inadequate knowledge basis. In the name of particular new knowledges of accounting, calls are made for the practice of the craft to change, often in order to provide a new alignment between accounting and the economic, organisational and social contexts in which it is perceived to be imperfectly embedded. It is as if the very same phenomenon is subject both to the reality of change and to a rhetoric of arguing for it.

Being conscious of such a duality of involvement with change, I nevertheless want to consider in a little more detail some of the ways in which accounting is caught up in wider processes of organisational change. In so doing, I want to set aside some of the conventional ways in which accounting and change are related. I am not going to consider the ways in which accounting can provide relevant information for decision making in change situations. Nor do I want to analyse how accounting is implicated in processes oriented towards the reestablishment of control in those situations where the paths of organisational transformation have been disturbed and disrupted. Rather I would like to emphasise some quite general roles which accounting can play in processes of organisational change, initially giving particular emphasis to three such roles.

The first of these is the role which accounting plays in creating a quite particular visibility in the organisation, making things visible that otherwise would not be. Such a role is clearly not a new one. Jeremy Bentham, the early 19th century British utilitarian philosopher, recognised the role which bookkeeping, rather than accounting per se, can play in facilitating organisational control. In a discussion of proposals for reforming the Poor Law, Bentham noted that there were two sciences underlying control, the science of architecture and the science of bookkeeping. Architecture facilitates control by the strategic design of physical space. As was so beautifully illustrated by Bentham's proposals for the perfect prison (Bentham, 1791; see Foucault, 1977), the Panopticon, the location of walls, windows and doors can create or constrain patterns of visibility. By the

careful positioning of barriers, actions and events can be opened up to a wider observation and thereby control. Equally domains of privacy can be created, where the eyes of the outside world cannot penetrate. Bookkeeping, according to Bentham, enables an indirect means of visibility to be created where the eye could not otherwise see. Records can be kept of what is happening on

the other side of the wall, or indeed on the other side of the world. A possibility for an ever-present observability thereby can be created. And, what is of particular significance in an accounting context, records can even be kept of ------phenomena that can never be seen. No one has yet perceived a cost, or a profit

for that matter. They are abstract and conceptual phenomena, creations of the

human intellect, forged and shaped by economic, social and institutional forces.

Not directly visible, they nevertheless can be enshrined in the books of record,

thereby providing a basis for their observation, monitoring and control.

Enabling such a conceptual visibility to be created, accounting can playa powerful role in organisational and social affairs. It can influence perceptions, change language and infuse dialogue, thereby permeating the ways in which priorities, concerns and worries, and new possibilities for action are expressed.

Focusing on accounting's involvement in shifting patterns of visibility provides a powerful way of appreciating how the craft can become implicated in processes of organisational change. It is possible to probe into what a particular organisation seeks to make visible by its accounting and other information systems. Moreover, by making some things visible and other things not, an organisation can strive to exclude particular visibilities from the official organisational agenda. What, we can ask, is treated in this way, and why? And which groups have the power to influence the patterns of visibility prevailing in the organisation? What bodies of knowledge and sets of organisational practices are involved in making some things visible and other things not? How contested are dominant patterns of visibility? And from where have new visibilities emerged?

The second role of accounting which I wish to consider is its functioning as a calculative practice. Accounting is implicated in the objectification of phenomena, of making appear real and seemingly precise those things that would otherwise reside in the realm of the abstract. Profit is an example, as is cost. Economists can call profit' 'p", they can differentiate it and incorporate it into models of firm and market behaviour. They can even change the world in the name of it. But they do not have to be concerned with the operationalisation of the concept, with making profit into a fact rather than only an idea. Similarly for cost. For better or for worse, it has been the accountant who has been concerned with making the abstract concept into a concrete instrument of governance in organisations and society at large. The essential subjectivity of the concept of cost has been reduced by the accountant into a fact, something which strives to be a calculative embodiment of the abstract phenomenon, but which often is not.

As with visibility, the power of calculation is potentially great. When something comes into the calculative sphere, it very often enables new organisational interdependences to be created, both with other calculative phenomena and, through the establishment of more precise means-end relationships, with

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objectives and rationales that are articulated for organisational action. Relays of more explicit interrelationships can be established. A precision is added to attempts to infuse organisational affairs with particular concerns and agendas. Couplings between accounting and other aspects of organisational life can more readily be forged. And a priority can start to be given to the seemingly factual and precise, thereby shifting forms of organisational debate and the rationales that must accompany organisational action.

The final role for accounting which I seek to emphasise is the active part it plays in creating a domain of economic action. The abstractions and objectifications in the accounting area are created in the name of the economic. They enable economic knowledges and understandings to be operationalised and thereby more readily to permeate and shape organisational agendas, concerns and choices. Through its investment in a calculative form, accounting is implicated in enhancing the visibility and salience of economic and financial phenomena. It provides a powerful means for confronting the social and the political with the economic. It facilitates the extent to which economic tradeoffs can be made. And it thereby enables a precision and a seeming objectivity to be given to economic affairs that otherwise would not exist.

Whilst it would be possible to elaborate further on such roles of accounting, I hope that I have provided a sufficient insight at this stage that will enable me to build on them later. Taken together, they provide a basis for looking at the role of accounting in organisational and social functioning in rather different terms from more conventional appeals to its decision and control functions. The latter ways of perceiving and understanding accounting take for granted the centrality of its role in organisational and social affairs. Rather than trying to probe the factors implicated in the emerging significance of the craft, they unproblematically attribute quite particular functionalities to it, often then trying to provide these with a greater cohesion and organisational and technical rationality. Rather than building on such traditions of accounting enquiry, I am seeking to explore at least some of the ways in which the functions of accounting might have emerged and changed, something which I see as being of some importance if we are to understand the pressures for change which are now impinging on the craft.

Of course thoroughly to analyse accounting in such terms is a task beyond the confines of the present occasion. So I have decided to focus much of my remaining discussion on three themes illustrative of the involvement of accounting in organisational change processes. The first of these relates to some of the current ways in which accounting is being involved in bringing market pressures to bear on internal organisational affairs. Thereafter I discuss a number of the effects of technological change on the accounting craft. And finally some brief consideration is given to the relationship between accounting calculations and economic discourse.

Reweaving the Inside in the Name of the Outside

Accounting has the power to shift patterns of organisational visibility so that the concerns of the external world can permeate and influence internal organis-

ational affairs. Used with care and forethought, accounting thereby can play a role in strategically changing managerial awareness away from the problems of just internal interdependences towards a view of the external positioning of the organisation or a particular segment of the organisation. The language, pressures and requirements of the marketplace can be infused into the

organisation as a result of a strategic realignment of organisational structures, internal patterns of organisational segmentation and flows of information, including

accounting information. --------

Such uses of accounting information are an increasingly prevalent feature of modem organisations. Enterprises are being broken down into more units than is necessary for the purposes of internal co-ordination. They are being broken down into units where the language of the market, of competitive pressures and forces and, importantly, of profit can be introduced by calculative, informational and, not least, accounting means into the internal bureaucracy of the organisation, mediating internal decision processes and the exercising of choice. New patterns of managerial accountability are thereby being forged and new performance measurements articulated. Externally driven flows of information are entering internal organisational reports through accounting means. More managers are being subjected to the need to relate to market forces. Profit is being used as a means for broadening management responsibilities in such a way that they assume a more widely conceived business form, rather than one cast in more narrowly defined functional terms.

Information increasingly is being moved across organisations rather than only up and down the bureaucratic hierarchy. Lateral linkages are being established across organisational units. Manufacturing activities are being more directly coupled with marketing spheres of influence. Retailing activities are being related to wholesaling and the eventual manufacturing process. Product oriented flows of information are superseding earlier segmented functional reports. Prices thereby can be more readily related to costs. Costs, in turn, can be related to product designs and changing patterns of component sourcing. And quality standards can be tied in with changes in consumer demand. Through the use of market rather than cost-based internal transfer prices, more competitive pressures can be brought to bear on internal decision making and the assessment of managerial performance. And the use of modes of reporting based on overall product life-cycle performance enables more general business analyses to permeate organisational debates, introducing both a longer temporal perspective and concerns with performance that, in showing the implications of competition and competitive product innovation, are also more market based.

Through such configurations of organisational and accounting changes, enterprises are in the process of being made more market oriented. More than a mere processing of new accounting information is occurring, however. The concerns of the market are more actively permeating the internal functioning of the organisation. Patterns of visibility are shifting. Information, including accounting information, is moderating managerial vocabularies, proactively shaping and changing their conceptions of what is important and what is not. The new information has at least the potential to change managerial awarenesses.

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Different organisational linkages can be created and different bases thereby established for organisational action. And that is why many organisations are looking afresh at the power of accounting information.

Both to appreciate and to activate such changes, more than a merely technical view of accounting is required. To understand what is going on, accounting needs to be appreciated in its organisational context. It needs to be seen not merely as something that reflects organisational circumstances but also as a phenomenon that can playa role in changing them. Used strategically, accounting can help to make organisations what they were not.

Technological Perturbations and Organisational Ripples

Turning to my second illustration of accounting change, I wish briefly to consider the area of technology. Here too I want to argue that an appreciative organisationally grounded stance is necessary for understanding what is happening in enterprises today.

The role of new technologies in the office, seen in their widest sense, is of fundamental importance to understanding accounting processes in organisations. Indeed it lies behind not only modern management structures but also the buildings in which they function. Indeed the very skylines of our cities now testify to the powerful presence of clerical, managerial and financial functions in the business sphere. The co-ordinating managerial function is increasingly vast, one that is increasingly isolated from where actual productive and service activities take place, and one where the application and use of modern office technologies have been centrally implicated in the rise of that "management at a distance" (Latour, 1987).

The area of office technology is perhaps one where we need to be cautious about overemphasising the role of new computer-based technologies. They are important. They have resulted and still are resulting in an amazing intensification of organisational changes. But I still think that there is a need to be conscious of how they have speeded up rather than established afresh a number of existing organisational trends. The development of earlier office technologies - the filing cabinet, means for sorting, sifting, codifying and classifying information, the typewriter and the copying machine - had already resulted in the creation of the office as a sphere for managerial work where the physical realities of the organisation could be abstracted into a world of files, reports and flows of information. And these changes had already resulted in massive changes in patterns of organisational influence, power and authority.

Seen in such terms, the technologies of the office provide a basis for a powerful form of organisational cartography - a means for representing on paper (or a screen) in a coherent and abstract manner a vast array of physical circumstances and facts. Like the cartography of old (Latour, 1987), today's realm of organisational files and reports is based on a massive number of technological and organisational innovations, few of which were initially related but all of which now come together to provide a means for encapsulating the processes of the organisation in an abstract form and thereby enabling the complex activities

of the organisation to be represented on pieces of paper and computer screens. And also, like the maps of old, the rise of the organisational cartographic function enables a domain of abstract decision making to be divorced from the realities of physical, concrete circumstances. It has made it possible to abstract the physical production process on to paper and thereby to schedule, to plan, and

to co-ordinate in the office, with orders and instructions being given back to the physical manufacturing operations. The realm of information is now acted upon as if it was the realm of facts. The files and reports are trusted, or usually -------so. And, so trusted, they enable the world to be changed at a distance from

where action takes place.

Accounting is, of course, centrally implicated in such processes, as i:; the financial sector in general. Accounting enables an assembling of complex physical processes and their abstraction into the domain of paper through the activities of planning, budgeting, costing and scheduling. More than that, however, it then provides a basis for radically changing and disrupting the physical processes in the name of criteria and concerns which are not directly implicated in the physical processes themselves, such as the economic and the financial. In such ways the power of accounting can be revealed. The abstract characterisations which it provides can provide an influential means for inducing change into organisational affairs.

Accounting, however, is not itself unresponsive to changes in the physical world which it seeks to represent. Recently, for example, attention has been placed on the implications of new manufacturing technologies for the design of accounting systems (Iohnson and Kaplan, 1987). Particularly in the United States, it is now becoming almost commonplace to say that the new technologies have undermined the relevance of the accountings of old. We must, according to such views, cast the old aside and search for accountings that are more compatible with the new technological environment in which we now live.

Such arguments are interesting, but, I wish to argue, there is a danger of being too enthusiastic and too simplistic in approach, not least if we look at the organisational processes that are implicated in such technological and accounting changes. All that we know from studies of the impact of technological change in other areas of organisation and social life (e.g. Sorge and Warner, 1986) suggests that there is no simple technological determinism at work. The impact of new technologies is not singular. If such findings hold in the area of accounting, and I see no reason why they should not, there are unlikely to be any unambiguous new accountings in the name of which we can rewrite accounting textbooks. Rather the impact of new technologies on accounting is likely to be mediated and influenced by the organisational and cultural terrains into which the technologies are introduced.

An illuminating illustration of such processes at work has been provided by a comparative study of the impact of new manufacturing technologies in Germany and the United Kingdom. Sorge and Warner (1986) found that the introduction of similar changes in manufacturing technologies in the two countries had different, indeed sometimes even opposite, effects. The technological change did not have a direct effect. Its consequences stemmed from the interaction

Accounting and Organisation Change


between the new organisational potential which it introduced and the very different nature of the organisational and social fabric of the two countries.

Such findings emphasise that it is not possible to understand the implications of technological changes without considering the organisational and cultural contexts in which the changes occur. Organisational consequences are not a direct result of technological changes per se. Rather those changes are mediated

14 and influenced by the circumstances prevailing in the contexts in which they ________ are introduced. It is as if a new technology represents a perturbation that is capable of creating ripples that diffuse themselves through the organisation but ripples that have consequences that reflect both the perturbation itself and the nature of the organisational terrain into which it is introduced.

Seen in such terms, we are likely, I suggest, to see a range of consequences for accounting stemming from current developments in manufacturing technology, rather than any singular effect. Therefore both to appreciate and to influence such consequences we need not only a new technical accounting understanding but also a more subtle and advanced insight into the organisational dynamics which mediate and shape accounting changes in particular contexts.

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Economic Discourse and Accounting Calculations

For my third illustration I want briefly to consider another generator of accounting change. For not only can market forces, forms of organisational segmentation and new technologies influence accounting, but so also can the world of ideas and bodies of knowledge. Accounting can be and is being changed in the name of discursive developments. I particularly want to emphasise the role of economic discourse in this process.

One of the dominant features of the world in which we live is the power of economic thought - a phenomenon which I think future generations will recognise and study but one which is very much taken for granted today. Economic thought is in many senses a strange and restless phenomenon. Although claiming to provide insight into the way the world is, economics is also characterised by a dissatisfaction with the ways of the world. Even though it claims to provide a positive rather than normative knowledge of the world, economics seemingly always wants to make the world more economic than it is. Market forces are not merely present but need to be extended. Economic incentives are not merely a feature of the world but need to be reinforced. The rationality of costing needs to be enhanced in the name of an economic understanding of it. The world needs to be told what profit is even though it apparently is orchestrated in the name of it.

As the latter examples illustrate, such thinking has permeated accounting thought, not least academic accounting thought. And it is this restless, ambiguous feature of economic thought in which I am interested: the relationships between accounting and economists' claims to know not only how the world works but also how to make the world better.

Seen in such terms, economic discourse is not merely a reflective phenomenon, providing insight into the way in which the world is, but is also a constitutive phenomenon, currently playing a major role in making the world

more economic than it otherwise might be, forging a reality that is more in line with our economic understandings of it.

Such a role of economic discourse is providing a powerful basis for accounting change, particularly but not exclusively in the public sector. The language of efficiency, value for money, cost effectiveness and the market has entered into political debate. Organisations are being changed in the name of such an economic vocabulary and, as this happens, new calls are being made for the extension of modes of economic calculation to objectify and operationalise the abstract concepts in the name of which change is occurring. Accounting and related bodies of techniques are important means for such operationalisation, playing thereby an often significant role in the construction rather than mere revelation of new domains of economic activity.

For much of the language of economics is rich in ambiguity when used as a basis for political action rather than a more constrained form of intellectual activity, as accountants already know only too well from their experiences with the operationalisation of economic concepts such as profit and cost.

Such ambiguity does not in and of itself constrain the practical use of economic conceptions, however. The world can be changed in the name of profit without a precise operational understanding of the concept. Indeed, the public sector in many countries is being changed in the name of efficiency without there being any precise and generally agreed definition of that concept. It might even be that the very ambiguity of the concept provides one basis for its appeal, particularly in political circles. If we knew precisely what the concept was, it most likely would be far less capable of mobilising political support.

At some stage in the practical use of such concepts, however, the specifics of operationalisation must be addressed, often by accountants. At such times it is useful to remember that the ambiguity, generality and abstractness of the concepts themselves imply that there is no one-to-one relationship between the concepts and the specific forms of operational calculus to which they give rise. One is not a mere reflection of the other. Discretion and choice exist. The technical thereby is partly independent of the abstract and the conceptual. It therefore is capable of generating its own consequences and effects, consequences that might have a complex relationship with the rationales in the name of which the new accountings were introduced.

To the extent that such forces are at work, we must always ask questions of the precise effects of changes, not least in the areas of efficiency, value-formoney and cost effectiveness, rather than presuming a mere realisation of a prior intent.

For efficiency need not be a phenomenon associated with any singular impact, Although appeals to efficiency might seem inherently sensible, the ambiguity of the concept is such that we must always look at what happens in its name, not least when the idea is appealed to in political discourse. We must consider the actual effects that occur rather than merely focusing on the seeming desirability of the intent that lies behind them. Equally in the area of economics more generally conceived, we must, I would argue, be prepared to recognise how a realm of the economic is possibly created rather than merely revealed

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and the role which accounting and other sources of economic and financial information can play in that process.

Just such processes can be seen at work in health care organisations in many countries in the world. In the United Kingdom, for instance, until recently there were few accountings for health. Hospitals and health management organisations had invested lightly in the accounting craft, in part because health care had not been perceived as primarily an economic phenomenon. Other visibilities had been given a priority in guiding the management function. That is now in the process of changing, however. Not least with the development of a more finely articulated knowledge of health economics (Ashmore, et al., 1989) and with the political mobilisation of that knowledge, it has become possible to conceive of health care as residing in the domain of the economic. As that has occurred, given the restless and proactive nature of so much of economic thought, proposals have been made to intervene in health care organisations in the name of the economic knowledge of them. More and more economic questions have been asked of health, and investments are now starting to be made in the elaboration and intensification of economiccalculating systems in the area, including accounting systems. And as this happens, there is at least the possibility that health care organisations might start to be made into organisations of more of an economic form than they otherwise would have been.


Albeit briefly, I nevertheless hope to have illustrated the role which appreciations of the organisational nature of accounting can play in understanding important aspects of the modem organisational world and the ways in which those relate to accounting. They can illuminate the dynamic and changing nature of accounting practices. Accounting can be seen as being actively drawn upon in the construction of new organisational forms and boundaries. Focusing on the forces that can impinge on accounting and the ways in which they can permeate accounting thought and practice, such organisational understandings have a potential to inform our views of both how accounting became what it was not and how it might become what it currently is not. For in a complex and interdependent world, accounting change is rarely easy to introduce. Although accounting can provide one of the conduits through which economic discourse enters into the world of practice, it almost invariably functions in unanticipated ways. Partial though our new organisational understandings may be, they nevertheless can provide a way of starting to come to a more adequate understanding of the ways in which accounting is embedded in processes of organisational change. Although they cannot give a new predictability and precision to the accounting craft, I nevertheless think that our understandings are now sufficient to provide a richer and more informed basis for guiding accounting in action.


Ashmore, M., Mulkay, M.J. and Pinch, T.J. (1989), Health and Efficiency: A Sociology of Health Economics, The Open University Press, Milton Keynes.

Bentham, J. (1791), Panopticon; or The Inspection-House, Containing the Idea of a New Principle of Construction Applicable to Any Sort of Establishment, in which Persons of any Description are to be Kept Under Inspection, and in Particular to Penitentiary-Houses, Prisons, Poor-Houses, Lazarettos, Houses of Industry, Manufactories, Hospitals, Workhouses, Mad-Houses and Schools: with a Plan of Management Adapted to the Principle: 'N a Series of Letters, Written in the Year 1787, from Crecheff in White Russia to a Friend in England, London. Reprinted in Browning, J. (Ed.), The Works of Jeremy Bentham, Part III (1838), William Tate, Edinburgh.

Foucault, M. (1977), Discipline and Punish: The Birth of the Prison, Allen Lane, London. Johnson, H.T. and Kaplan, R.S. (1987), Relevance Lost: The Rise and Fall of Management Accounting, Harvard Business School Press, Boston, Mass.

Latour, B. (1987), Science in Action: How to Follow Scientists and Engineers through Society, Harvard University Press.

Sorge, A. and Warner, M. (1986), Comparative Factory Organisation: An Anglo-German Comparison of Manufacturing, Management and Manpower, Gower, Aldershot.

Journal of Accounting and Public Policy



Editorial In Memoriam: Steven B. Johnson I!. 63

Lawrence A. Gordon and Steven E. Loeb

The Demand for Cost Allocations: The Case of Incentive

Contracts Versus Fixed-Price Contracts 165

Susan I. Cohen and Martin P. Loeb

Public Disclosure of Bank Loan Accounting Information 181

Robert O. Edmister and Chao Chen

Political Interests and Governmental Accounting Disclosure 199

Gary Giroux

Accounting Issues of Underground Injection of Waste 219

William A. Hillison, William F. Jordan. and Kenneth Pogach

A CaU for Papers Management Control Systems and Public

Budgeting 235

Lawrence A. Gordon

Biographies 237

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