Axioms for Historical Cost Valuation: A Reply

Abstract

Wells' criticism of my axiomatic system' may be summarized in the following seven points. 1. Future assets and negative assets. The notions of future assets and negative assets are contradictory and confusing. They are a mixture of measurements and expectations, but the axiomatic system lump them all together under the single axiom of control. 2. Measurement as principals. Accounting measures are a representation of the measurement of a particular property of the assets. Therefore, the principals of accounting are measurements and not the assets, as treated in the axiomatic system. 3. Additivity. In historical cost accounting, additivity does not exist because the time value of money, the price level changes, etc. are not taken into account. Yet in the axiomatic system the additivity is assumed. 4. Exchanges. Exchanges in the production process where materials are exchanged for (or converted into) finished goods are totally different from exchanges through market. Nevertheless no distinctions are made between the two in the axiomatic system. The source of profit is a price differential, which requires market transactions, and not a utility differential as described in the book. 5. Axioms and valuation rules. Valuation rules do not logically follow from the axioms. For example, there is no provision in the axioms that an exchange between nonbasic resources should not create profit. 6. Allocation. The basis of allocation is not provided in the axiom