Abstract The article focuses on accounting changes brought about by the Revenue Act of 1954. Though the general rule for accounting methods under the Internal Revenue Code of 1954, as set forth in section 446, is substantially the same as the general rule under the Internal Revenue Code of 1939, there are a number of specific types of accounting problems which are singled out for special treatment in the new Code. For the most part, these special provisions represent an effort on the part of the lawmakers to bring tax accounting into closer accord with generally accepted accounting principles. Under the various revenue acts prior to 1939 and under the Internal Revenue Code of 1939, there were many differences between the accounting for certain transactions for tax purposes and for commercial purposes. Some of the major differences could be explained on the grounds of public policy, as in the case of the peculiar treatment of capital gains and losses and in the allowance of percentage depletion, to name only two. Others could be said to result from the necessity of determining taxable net income rather than business net income, as in the case of the allowances for expenses of a purely personal nature and the credits for personal exemptions.

THE role of liquid assets as well as other assets has received considerable attention in the war and postwar years, as economists and other interested observers have watched with obvious fascination the ever-mounting totals of currency, bank deposits, and particularly, government securities.2 These vast hoards of money and near money must have had, it was argued, an appreciable effect on consumers' decisions to spend and save, as well as on producers' decisions to invest. Some even felt that these assets were bound to result in a runaway inflation after the war and the wartime controls were over. Others minimized their influence. Still others looked upon liquid assets as an automatic stabilizer from a cyclical as well as a secular standpoint. Excluding the question of the effect of liquid assets on post World War II economic activity, liquid assets have also been used by various economic theorists for a wide range of hypotheses concerning consumer behavior, raising the asset effect almost to the level of a deus ex machina. Some have argued that liquid assets are a stabilizing secular influence,3 implicit in the classical position.4 Others have argued that liquid assets are the major factor accounting for the constancy of the ratio of saving to national product.5 Contrasted with the reliance of liquid assets as a secular force is the dominant role they assume for others in the cyclical process.' Finally, liquid assets have even been proposed as the major influence determining the shape of the cyclical consumption function.7 The position of the author is as follows: whatever the effect of liquid assets in a priori reasoning as we have just seen this is manifold it must be grounded in empirical observations.8 A. P. Lerner has expressed this in another and perhaps more interesting way by saying that liquidity is a commodity and should be looked upon as any other good or service in analyzing decisions to spend or save. Before turning to the evidence, such as it is, let us recall briefly the mechanics of the impact of liquid assets on consumption and investment.