The new, new, idea.
As a result, I have considered an issue that very few accountants seem aware of, which is the existence of an underlying capital maintenance concept in all accounting of any sort, and what it might mean if this were changed.
OK.
The question that came to me at that point was, what would happen if we did something analogous with regard to accounting? Suppose we kept all the rules of double entry and the basic structure of accounting in the form of an income statement, a cash flow statement and a balance sheet in place, but instead of focusing upon maintaining financial capital, as is the prevailing norm within financial accounting, as laid down by the International Financial Reporting Standard Foundation in most of the world and the Financial Accounting Standards Board in the USA, we replaced the return to financial capital, which we call profit, and substituted a return to labour in its place?
OK.
In fact, the only potential technical accounting difficulty might be in deciding what the required rate of return to equity capital might be, but given there is ample evidence of average returns in stock markets on what these returns might be (and they are quite low), and that the amount of equity capital in many smaller businesses is normally insignificant in proportion to the scale of their activity, this is very far from insurmountable. After that, everything could fall into place quickly.
So we’re to base our accounting *not* on that idea of capital maintenance. We’re going to do that by defining the return to capital which maintains capital then insisting that that is the fixed return to capital – the amount which maintains capital.
There does seem a certain inconsitency here.
There’s also a joy. So, imagine that the business is making a loss. But we’ve also insisted that the return to capital is fixed. That means wages must fall in a loss making business.
Really, what he’s suggesting is that everything gets financed by bonds, not equity. But the effect will be as I say. It’s wages that will have to be cut to maintain that fixed payment to capital. Which is fun, no?
@TW
He seems to have re-invented the workers’ cooperative, where workers hire capital rather than the other way around? This was a niche topic for economists who looked at Yugoslavia in the 1960s….
Problems not only of labour bearing the economic risks (as you point out), but also of coordination, direction and decision-making in general.
Return on capital is compensation for the risk of allowing someone else to use your capital. No return means people won’t be putting private capital at risk so all capital would have to be state sponsored. The last time we tried this was during Covid and resulted in a five fold increase in fraudulent loans.
Is the tit really suggesting that all firms, irrespective of the markets they serve, have got to make the same return on capital?
WTF does returns have to do with accounting? Accounting is not normative
It is Potemkin accounting. It looks like accounting, but it serves no actual purpose other than to make Professor Spud The Spaz think he looks clever.
The names Bonds. Spud Bonds. Until you want to get paid back.
I am very pleased to say I haven’t the vaguest idea what he’s talking about.
Unfortunately, BiS, neither does he.
I think he’s still trying to rationalize Marx’s Labor Theory of Value. He’s explaining his dogma to people not in his cult.
“substituted a return to labour in its place”
That’s already a line item in the accounts, it’s called “wages”.
And a post-profit return to labour is already a line item in the accounts, it’s called “profit sharing to worker shareholders”, or as I informally call it in my accounts “drawings”.
Sometime ago someone pointed out that a firm losing money would claim “it’s ok, we’re looking long-term.” After a couple of years of “looking long-term” the firm would be bankrupt. So under his system, “it’s ok we’re taking care of labour.” Then after a few years, labour’s out of work.
You don’t think in Lord Spudcup’s world a business would be allowed to cease employing people just because of a little thing like going bankrupt?
Just curious, because not an economist….
But isn’t Solanaceous MMT Accounting not already well into the realm of Heissenberg?
Because as far as I Grok MMT… You can either know the amount of scrip your printed, or the amount of Tax you need to levy to get it “back out of the System”.
But never both at the same time, because there’s a *severe* lag between any issue of Scrip, it percolating through the Economy, and *then* figuring out where to Tax it back from…
To me that seems the inherent weakness of the system, but….
This has been tried before by Tony Benn who encouraged the “Meriden Co-operative” to make obsolete motorcycles and later wrote off £8.4m of government loans. (Meriden went bankrupt after defaulting on non-government loans). Independent watchers almost unanimously agree that Meriden not only sank itself but also Norton Villiers Triumph and that NVT would have remained viable without Meriden
Yup, very few accountants have heard of ROI or ROCE, honestly, guv.
What a clueless tit.
“the amount of equity capital in many smaller businesses is normally insignificant in proportion to the scale of their activity”
Probably true in many cases. But I, like many people who (in my case part) own the businesses we work in, we work 50, 60 often more hours a week with no guarantee at all that we’ll get paid. We set the business up, we find customers, if we’re good enough we can expand and create jobs. So, Murphy, you can fuck right off if you don’t accept that if the business is a success I don’t deserve the lion’s share of the reward.
“substituted a return to labour in its place?”
Is that what you did when you ran your own accountancy firm you hypocritical cunt? You can’t even mention that without crowing that you were the ‘senior partner’.*
*out of three
The ‘return to labor’ is the wage and salary bill. The only thing to decide is how large that should be – there’s no new economics here. This isn’t a new idea.
There are even long-standing corporate forms that maximize a return to labor – employee owned co-ops and partnerships, for example.
There are legitimate, real-world, reasons why those are not the dominant form of corporation.
You get maximum return on labour when you have very few workers and lots of automation. Is that what he wants?