The article presents a study that highlights the separation within the group of functions of management from those of ownership and the concentration of the former in a few hands. It has resulted in fact in a large share of profits being retained in the business. The owners have little opportunity to dispose these profits as they would if the profit were all distributed in dividends. 29.4 per cent of their net income is retained within the larger corporation during the period 1922 to 1927. This retention may be intended to avoid shortages of liquid resources in periods of restricted business or to permit the continued payment of dividends in the absence of adequate current profits. But it also facilitates expansion without the necessity of issuing new securities. Those managers who find size attractive can satisfy their desire without having to submit their plans to the test of the capital market. The study asserts that if the corporation is to grow, investment opportunities must be deliberately created and continuously available.

In sum, under Lifo, inventories no longer perform the function of taking up the slack between production and sales. Rather, inventory management policies are determined in the main by the artificial relationships developed above. The end result is a situation that accents, rather than mitigates, the undesired effects of business fluctuations by creating inflationary pressures that would other- wise be absent. The expansion and contraction stages of the inventory cycle are exaggerated, and inventory investment becomes an even more volatile component of private gross capital formation than has been in the past In the case of copper at least, the greater stability of reported earnings under Lifo does not appear to have resulted in the hoped for effect of reducing investment during the boom. Most industries that use Lifo do not have an institutional pricing structure and complete substitutability of product such as that found in copper. However, in these other industries, Formula (1) can be employed to determine the "grey" or "black" market price that a Lifo company can afford to pay for each unit of a commodity in order to improve its marginal cash position. For example, a steel company can use Formula (1), adjusted for smelt charges and technological factors, to arrive at the limit price that it can afford to pay for scrap. Or, if smelter capacity is not available and the Lifo base stock is seriously depleted, Formula (1) can be used as a guide in determining the price to be paid for scrap metal to be used to build up a processed metal inventory if permitted by the Bureau of Internal Revenue. Both Table 1 and Formula (1) are based on the simplifying assumption that the Lifo base stock is homogeneous in composition with respect to the cost of each unit of inventory.

The article presents an analysis of the implications social concept of the firm upon accounting theory and suggests a supplementary method of income reporting. In common with other economic organizations, the enterprise purchases input factors and produces goods and services which in turn are sold in the market. As has been developed previously, if the enterprise is considered to be an institution, its operations should be assessed in terms of its contribution to the flow of output of the community. If the income generated in the enterprise is to be analyzed on the basis of social considerations, then the traditional type of income statement is insufficient. The purpose of the value added concept of enterprise income is the measurement of the flow and its division among the participants in the organization.