Journal Article The General Equilibrium Theory of Money: A Comment Get access F. H. Hahn F. H. Hahn Birmingham Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 19, Issue 3, 1952, Pages 179–185, https://doi.org/10.2307/2296020 Published: 01 January 1952

Although double entry bookkeeping has existed for several centuries with very satisfactory results as a recording medium, it has been given a severe test during the last 60 to 70 years along with its companion known as accounting. The severity of the test has been caused by two main elements, (1) expansion of the field to include not only recording of transactions but also interpretation and reporting; and (2) rapid development of business itself with resulting complexity of transactions and adjustments. These two new phases presented themselves more or less gradually over the period mentioned, as influences began to appear in the form of the business corporation, income taxes, and government regulation. One of the main products of bookkeeping and accounting for the last century at least has been the calculation of profit or loss. During the last sixty years the textbooks on bookkeeping have kept pace with practical application of the subject, usually however, lagging by about ten years to permit new ideas to solidify and to allow for preparation of manuscript, printing, and proof reading.

There are two types of investment questions, which involve the method used in distributing partnership profits. These are: (1) The computation of the profit before allowances, which make two methods of profit distribution of equal effect. When this profit figure is determined, it can easily be seen that one method is preferable if profits exceed the figure, while the other method is preferable if profits are less than that figure; and (2) The computation of the effect of an additional investment in the partnership under given conditions. Such a figure can then be compared with the return possible under alternative investment opportunities. When one of the alternatives involves tax-exempt securities, the return after taxes is the more significant figure. Each of the above situations is illustrated in this article by a correspondingly numbered example. One case analyzes options before a partner who is given the option of an increase in percentage of profit/loss, but a decrease in fixed salary. Another case presents investment options before a partner with variable rate of interest.

In summary, the following points should be emphasized. Considering the way the research department has defined its project, there are limitations that keep one from drawing valid conclusions about accounting practices of American corporations from the study of 525 corporations. First, the use of corporate annual reports as a source of information is not entirely suitable because they are not designed to give information about accounting practices. Furthermore, they tend to emphasize new and unusual accounting practices at the expense of well-established practices that are more or less taken for granted. Second, the sample of corporations selected for study is heavily weighted with large corporations that are generally served by nation-wide accounting firms. It appears (although substantiating information is not presented here) that the large corporations have more readily adopted new and unusual accounting practices than have the smaller corporations. The two foregoing limitations can be overcome only by making the fundamental changes of adopting a new or supplementary source of information and selecting a new sample of corporations. Other deficiencies of the five surveys that have been pointed out, but that can readily be corrected in future editions, include: lack of comparability of information in individual tabulations; unannounced (and unadjusted for) changes in the sample of corporations included in the survey; and clerical and editorial inaccuracies arising from dropping or adding groups (without revision of the prior years' data) in a tabulation given in one survey when it is repeated in a later survey. Let me repeat the point made at the beginning. Some of the comments may seem to be highly critical. However, all comments are made in a friendly, constructive spirit. It seems only fair.

I. Nature of the problem, 224. —II. The rationale of renegotiation, 225. — III. Standards in profit determination, 227.—IV. The equity financing standard, 228. — V. The market appraisal standard, 234. — VI. The comparative earnings standard, 238. — VII. The historical earnings standard, 243. — VIII. A comparison of the results of the four earnings standards, 244. — IX. Recapitulation and Implications, 248.