Online Library of Liberty: Capital, Interest, and Rent

study of receipts and disbursements in various departments of the business provisionally treated as minor separate entities, such as transportation operation, manufacturing, merchandising, etc. The several “balances,” “results” or “earnings” (if that term be preferred, despite its original root meaning which was limited to incomes from human labor) would then be ready to be summated algebraically with revenues, taxes, capital changes, etc., to arrive at a figure for current “profits” of the enterprise as a whole. Current profits added to previous profits and capital values would yield the figure for the accumulated net worth, or proprietorship, of the collective enterprisers. Then, and not till then, would appear the term income as the amount accruing or distributed to the several investors, the return to each on his capital in the enterprise.

We cannot enter here into the difficult question of costs and overhead costs, or into that of adjusting capital values to the purchasing power of the dollar unit in periods of rapid changes in the general price level, although these, too, are problems of capital theory.

The accountant has the hard task of analyzing and recording true market valuations, expressed in terms of prices and the monetary standard. He cannot escape the difficulties by tying capital value to original cost. That “cost” is at best simply evidence of what the directors of the enterprise thought the things were worth when bought at some time in the past—either as a whole plant or as successive items. Original cost did not infallibly reflect either good sense or good morals in the past; still less does it accurately tell what things are worth now. The other horn of the dilemma is to reevaluate the assets, with all of the chances of human error, exaggerated hopes, or intentional misstatement that such a process affords. The same chances were present, however, in original cost, as sad experience often shows. Moreover, where could there be a greater range for error in individual judgment, or for intentionally conservative misstatement, or for downright deception, than in present estimates of depreciation, depletion, and obsolescence? We cannot get far in sound accountancy unless we postulate that the accountant, like Quintilian's ideal orator, is “an honest man.” And this, we are assured, is the noblest work of God.

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