Lars Östman towards a general theory of financial control

Financial sources and control  

 

In many cases, output from an activity flow is received by users without a price being paid. 

Consequently, potential users do not make a choice where expected value-in-use is related to 

a value-in-exchange, a price.

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 Commonness is implied in the construction: you will get this 

from us but we do not require anything in return. Funds are supplied through vertical 

allocation. They are made available by somebody who finds something in the horizontal 

process so essential that individual power or willingness to pay should not be decisive. In 

any event, each ongoing horizontal process in itself, without prices and strict vertical 

procedures, has some controlling effects. After all, driving forces of individuals and their 

interaction normally mean something for rational accomplishment. Efficiency is supported 

and impulses are given for modifying activity orientation.  

An activity flow with prices has further control elements. An organisation designs an 

offer, and expected willingness and capacity to pay are decisive for product content. 

Potential users make a choice where expected value-in-use is related to value-in-exchange, a 

price, and to available alternatives. A two-way instrumentality is implied: you get a product 

from us, but only if you give us something we value. Efficiency and impulses for modifying 

activity orientation are promoted more forcefully, especially if processes are repeated period 

by period. In addition, prices may affect dimensions of activities. Accumulated surplus in the 

past set a first limit on what can be carried out.           

Vertical allocation is a strong control device. Units at different levels give and receive 

funds. Funds are transmitted downwards or upwards. They are supplied downwards if 

horizontal processes are regarded as significant or instrumental in some respect and self-

generated means are not on a par with this. Governmental appropriations, investments from 

owners in a company or allocations from group executives to divisions are typical examples. 

Units are drained – upwards – when what was generated at one level is made available at a 

higher level. Degrees of financial interconnections between vertical levels vary. Two levels 

in a hierarchy may be strongly integrated or rather self-sustained. One or several levels in a 

                                                            

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 The distinction between value-in-use and value-in-exchange is notorious and goes back at least to ancient 

times and Aristotle.    

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hierarchy are centres of transmittances, and these levels may vary over time in a particular 

organisation. Forms of vertical transmittance are established through explicit decisions but 

occasionally also through pure evolution. Without special design considerations and due to 

developments in sub-units, increased or decreased financial interdependence may be induced 

gradually between levels in a hierarchy.  

Pure allowances constitute another financial source. They connect strongly to some part 

of an individual horizontal process. Public subsidies are allotted to organisations and people 

and are given irrespective of any formal vertical relation. Benefactors contribute to 

organisations – or individuals – without customary consideration or output from the receiver.