If you have been accounting for the past thirty years (1914—
1944 ), your statements have had twenty-nine different meanings,
since only in the years 1928 and 1929 did the word "dollar"
have the same meaning. In the years ahead, the meaning is going
to be more variable than in the past, because of the drastic inflation
that is imminent. Can there be scientific accountancy with a dollar
that is unaccountable? Can the accountant continue in his profession,
either oblivious of or indifferent to the changing meaning of
his language-tool, the dollar?
That the subject is not being ignored by the leaders in the profession
may be illustrated by the following excerpts from the recent book,
Financial Accounting, by George 0. May:
Again, the monetary unit is generally assumed to be substantially
constant in value, but at times this assumption of stability
has to be abandoned, with the result that accounting conventions
have to be modified. ...The sole relevance of accounts of the
past is throwing light on the prospects for the future. These
considerations have additional force where the implicit assumption
that the monetary unit remains stable is widely at variance
with reality—as for instance, in the case of property
acquired before a decline in the purchasing power of the monetary
unit such as occurred between 1913 and 1920. ...It has frequently
been said that the changes revealed by successive balance sheets
are more significant than the individual balance sheets themselves.
...An appreciation of property in terms of a stable monetary
unit has a different significance from one that reflects only
a decline in the value of the unit. Perhaps the most difficult
of all problems in this field is presented where a decline in
value as the result of use or obsolescence is either accelerated
or offset by a change in money value due to fluctuations in
the price level. The disentanglement of the elements in such
cases is essential to sound accounting treatment.
But, is "disentanglement" possible? Another authority,
Henry W. Sweeney, in his book, Stabilized Accounting,
published in 1936, seems to think it is. Mr. Sweeney criticized
the profession for dealing in "form rather than substance,"
and that he felt and thought deeply on the subject may be seen
from the mere quotation of chapter headings, such as, "Where
Ordinary Accounting Always Goes Wrong," "Ordinary Accounting
Procedure is Mathematically Unsound," "Ordinary Accounting
Procedure is Incomplete." He advocated adjusting the statement
to the current power of the dollar on the basis of a price index.
The fly in the ointment is the fact that there is and can be no
accurate price index, and furthermore, to use Mr. May's words,
"the sole relevance of accounts of the past is throwing light
on the prospects for the future." Price indexes do not undertake
to forecast, and in these days they are not even permitted to
approximate current conditions, since no merchandiser will stick
his neck out by reporting his "black market" prices.
Incidentally, it should be noted how often a black market is the
merchandiser's only device for keeping "in the black."
There is no source of accurate information for appraising the
current weight of the dollar, nor is there any crystal ball into
which the businessman may peer to read the future. We can all
feel the boat rocking, and we know whether she is moving toward
the crest or the trough, but we don't know whether the storm will
abate or grow worse. Nor do we know, when the sea is placid, whether
storm or calm is ahead.
Is the accounting profession therefore stymied? Can it shrug
its shoulders and assert that it is no more to blame for changes
in the power of the monetary unit than the weatherman is for the
weather, and get away with it? I believe not. Though the businessman
does not expect his accountant to control the dollar, he may,
rightly or wrongly, blame him for rendering misleading statements.
To the businessman, figures are either black or red. He is not
prepared for the shocking discovery that there are also gray figures
and pink ones. To him a figure on the right is a rightist and
one on the left is a leftist, and if the lefts have a majority,
he relies upon his accountant to put a red shirt on the majority.
He does not realize that, under the influence of changes in the
power of the dollar, figures may actually cross the aisle and
vote on the other side.
When in the near future the American businessman discovers that
his pride in a cash position was a delusion and a snare; that
his cash reserves which he meant to freeze have melted and evaporated
under the heat of inflation; that they might have been preserved,
had they been cast into materials; that his bonds and money claims
on others have shrunken and that he might have profited had he
known enough to get into debt; that his tax refund dollars are
far less in power than the ones he paid in; that he must pay capital
gains taxes on what are actually losses; in short, that the whole
accounting picture was a delusion, who do you think will be the
whipping boy?
The accounting profession is fated to be the master of money
and the community's leader in monetary reform. It did not plan
to be, but conditions will make it so. There is no profession
now occupying that sphere, and because the accountant is constantly
trafficking in monetary accountancy, destiny lays its finger on
him. He is continuously on the battlefront, continuously a victim
of the evils of monetary instability, continuously the medium
of business torture. In self defense he must choose to be a money
master and stabilizer to avoid the impossible task of keeping
step with a jitterbug dollar.
The accountant can neither practice an ostrich head-in-the-sand
policy, nor become a mathematical acrobat. On the other hand,
he cannot pursue the study of his profession into its fundamental
meanings without, sooner or later, discovering that the art of
accounting must be based upon the science of money. This science
has not yet been formulated pragmatically. Until that foundation
science is laid, accountancy must remain mystic.
Higher accountancy teaches us that there is a master ledger over
all other ledgers wherein are consolidated all exchange transactions.
This is not a physical ledger, nor has it any place. It is the
composite of men's minds. This ledger records the emission of
monetary units and the creation of value units. If, in order to
strike a balance, it becomes necessary to add a figure on either
the value side or the monetary unit side of the ledger, then the
monetary unit is destroyed and a new one is created. It is for
us to realize this, and to comprehend that this process is the
consequence of a natural law that cannot be altered by man-made
laws. If we do not realize this, or if, realizing it, we persist
in calling by the same name the series of different units that
are automatically created, we are basically false accountants
and cannot perfect the art of accountancy.
What can we do about this omniscient, omnipotent and omnipresent
master ledger? We cannot influence the accounting a jot or a tittle,
but we can influence the facts which the master ledger records.
We can devise a monetary system such that the issuance of monetary
units not matched by value units will be minimized to the point
where accountancy can become precision accountancy—using
that term in the usual sense with allowance for permissible tolerance.
It is not an impossible challenge to create a nonpolitical monetary
unit of constant power, and while the purpose of this discussion
is to stress the benefits of an escape from accounting confusion,
it is easy to imagine that other benefits will follow.
Not only are accountants logical candidates to master the rationale
of money and promulgate a sound monetary system based upon it,
but it will be straightforward for them to do so because it is
purely a study in accountancy. They will also find it morally
easy, since they have not heretofore taken a position on monetary
theory and hence need not reverse themselves, as the economists
would be obliged to do. The bankers are not free to explore this
new approach, because they are part of the political monetary
system and must play the game. With a few notable exceptions,
lawyers' minds are so steeped in statutory laws that they are
not hospitable to truths based upon natural laws. Nor are they
professionally conscious of the problem of monetary instability.
There is a void that aches for new leadership. If the accountants
will step into it, they will not only relieve the problem that
intimately touches their own work, but they will win a new and
elevated place in business and public esteem.
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