Trader's Behaviour - An Alternative Explanation Get access T. I. Matuszewski T. I. Matuszewski Vancouver Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 25, Issue 2, February 1958, Pages 126–130, https://doi.org/10.2307/2296211 Published: 01 February 1958

IT is apparent that the expansion of the United States economy in recent years is in large part traceable to debt-financed expenditures on GNP. Individuals with current incomes in excess of their purchasing needs lend out the excess to other individuals whose current incomes are below their purchasing needs. The latter are making purchases at the expense of future incomes since these debts must eventually be paid. If these deficit purchases are suddenly to cease, the economy will be left with an enormous amount of excess producing capacity. It is the object of this paper to study certain implications of the process of debt repayment for the volume of saving. Repayments are defined as transfers to sinking funds and other similar reserves maintained for bonded debt retirement by enterprises and governments, and periodic payments to retire short-term loans and mortgages held by all units. (See Table i.) An important characteristic of repayments is that in large part they are compulsory payments which must be made by the borrower, like insurance premiums. Also there is a significant lag between the time the debt is contracted and the final repayment made on it. In the case of certain consumer loans the time span is brief, but for bonds and mortgages it may exceed twenty or thirty years. Another characteristic is that repayment flows enter into gross savings in the saving and investment account, in the same way as any other individual saving flow. In the business account, repayments are included in the item, undistributed profits; in the household account, they are routed through personal saving; in the government account, through surplus in the United States accounts and savings in the UN accounts; in the external account, through foreign investment. However, the flow of repavments in the national accounts is complex. Only repayments made directly or indirectly out of income flows (more precisely, charges against GNP) are included in the national accounts. Repayments which originate during the year in question in financial and existing asset transactions are excluded. Nor are the repayments included in the national accounts fully represented or measured in the saving totals. Savings in the household, government, and external accounts are netted magnitudes, i.e., positive saving less dissaving or disinvestments. (See earlier Consumer Finance Surveys of the Michigan-Federal Reserve Board and also the National Resources Planning Committee Study Family Expenditure Survey 1935/1I936 for the concept of positive and negative saving.) Despite this, changes in the flow of repayments are fully reflected in the netted savings flows either through changes in positive saving or through changes in dissaving.' This fact is sufficient for the hypotheses presented in this paper, despite the difficulties involved in trying to visualize the flow of repayments through netted savings. Statistics on repayments are difficult to obtain. Crude approximations intended to convey a notion of their order of magnitude are shown in Table I. Repayments on long-term debt (to be designated long-term repayments) amount to about one-fourth of gross savings in the I955 national accounts. Shortand long-term repayments are almost as large as gross savings.2 These figures suggest that the rise of consumer borrowing (a small part of personal consumption expenditures in economies less developed than the United States) in the United States economy today has made repayments a magnitude of consequence, deserving closer examination.3

In view of the increased attention being paid by the public accounting profession to managerial service engagements one can argue that really the public accountant of tomorrow must be both what he has been in the past plus having a training and viewpoint similar to that of an industrial or managerial accountant. This argument seems to have some validity. If it does, it would follow that the character of the Committee on Professional Education examination ought to continue to change and the pace of change should perhaps be accelerated. The emphasis of some questions could be shifted; the examination could be lengthened to include added subjects; or these subjects could be added and the time allotted to traditional subjects could be reduced. Of course the examination would still place heavy emphasis on traditional subjects such as auditing, commercial law, governmental accounting, taxes, and various financial, cost, and fiduciary accounting material. However, it might also emphasize statistical analysis, economics and economic indicators, managerial policy, controllership, budgetary and cost analysis and the like. It is recognized there could be some legal impediments to such changes, but these are not insurmountable.

Accounting analyses and generally accepted accounting practices have been influenced to a considerable extent by the law. The article presents a report of the survey of the legal literature to determine the extent to which those in the field of law have accepted the concept of the corporation as a legal entity, which has an independent existence quite separate and distinct from its officers and stockholders and the extent to which other concepts have been advocated. Because the significance of a legal concept ultimately depends upon its application in arriving at judicial decisions, the survey induced the examination of cases where the court's concept of the corporation was a material factor in arriving at its decision. The results of the survey suggest that considerable caution is warranted in the evaluation of the acceptability of accounting procedures that hinge upon a particular legal interpretation. Specifically, the results of the survey suggest that the acceptability of accounting analyses cannot with confidence be based entirely upon a particular legal concept of the corporation.

Systems design should be founded on at least five more or less fundamental considerations, each of them in turn supported by subsidiary factors which have been stated here in the form of maxims or principles. A concise statement of the five basic considerations follows. The designer of an accounting system should constantly bear in mind that his system should: 1. Satisfy the information needs of those associated with the particular entity. 2. Provide the information when needed and at relatively low cost. 3. Incorporate features of check and control insuring fidelity of recording and protection of assets. 4. Be uniformly and consistently implemented. 5. Be capable of accommodating changes with a minimum of redesign.

Management Accounting is not an entirely new development in the broad field of accounting but rather one of added emphasis on the recording and reporting of operating data to meet the needs of a new group, the hired managers of large corporations. Management accounting functions largely through operating reports based upon standard costs and budgets compared with actual expenditures, through internal auditing, and through special studies and reports pertaining to the probable effect of proposed plans and programs. Undoubtedly, management accounting with its many opportunities for rendering additional and more valuable services to management has opened new and challenging frontiers to the accountant. To the practitioner it means adjusting himself to new methods of collecting and recording operating data, new demands for additional services, and new concepts of reporting. To the teacher it means added emphasis upon the uses of accounting data as well as staunch adherence to the teaching of basic theory and principles.

Reviews the book "Accounting--A Social Force in the Community," by Mary E. Murphy.

The primary reason for analyzing quantitative data is to secure clues as to future performance. The analyst's task is one of comparison of changing overall economic conditions and of specific company financial data through the years. Analysts look for trends and changes in major items. Thus financial reports should be oriented toward facilitating comparisons. The article "Disclosure: 1957," published in the previous issue of The Accounting Review emphasized that financial analysts are the major consumers of the published data issued by management with the aid of accountants. The drafters of published reports must remember that the analyst is faced with the task of comparison of results between years and between similar firms. The desires sufficient information so that he may carry out his task of comparison without the need of making arbitrary assumptions concerning a firm's accounting procedures and policies. Moreover, from the viewpoint of the security analyst the income statement dwarfs the balance sheet in importance. Future earning power is the major consideration. Past earnings performance is dissected in order to delineate trends.