The Price Level Problem and Some Intellectual Grooves

Abstract

This paper was initially provoked by Professor Mathews' comments on Accounting Research Study No. 6 in the Spring, 1965, number of this Journal.' Once begun it seemed an opportunity for considering several matters in a wider context; the price level problem seems to have led up many blind alleys, or perhaps in tackling it we have been unable to cast off the modes of thinking which were appropriate only for less complex questions. Almost all the writing on the subject in the decade 1946 to 1955 was against a background of rising prices of capital goods, a pent-up demand for such goods both for expansion and replacement, and high rates of taxation on business incomes. Many of the arguments for a new accounting paradigm could readily be challenged on two grounds at least; they could be said to be special pleading in the interest of business firms, their managers and their stockholders; or they could be said to be of ephemeral interest, interest which would wane when prices became stable. Both such arguments were used in rebutting proposals for change, and indeed the spate of articles dwindled as prices tended to become more stable. I joined issue with conventional processes in a series of articles between 1949 and 1955. But it seemed that if the price level problem were only a temporary one and if proponents of change could be labelled as special pleaders, there was little of substance in the matter. To be of any lasting consequence as an intellectual question, the so-called price level problem had to be seen as an integral part of accounting and not a mere appendage. I therefore switched attention from considering the question in isolation and embarked on a search for a general set of ideas which would give an accounting system