ON THE CURRENT STATE OF THE PSEUDOSCIENCE OF ACCOUNTING AND FINANCE (important)(

ON THE CURRENT STATE OF THE PSEUDOSCIENCE OF ACCOUNTING AND FINANCE

(important)(i don’t address this often enough)

—“Curt, why do you say that accounting is fragile?”—

Great Question.

Our accounting systems have largely remained a technology of the era of their invention: the Age of Sail and Gold Standard with the production cycles of agrarian and international shipping.

We still treat fiat money(shares in the state as a money substitute) as if it’s money proper (commodity money).

If you want to make it simple:

1) risk is not accounted for in accounting, reporting, or taxation, and is the inverse of reality.

2) All accounting systems ‘launder’ money by pooling it, rather than tracing it.

3) The financial system is archaic and predatory.

4) Multiple audiences require different ‘distortions’ of management (true cash) accounting, yet we have no technical means (now) of producing those reports from a single act of data entry, because money is not traceable but pooled.

5) Because of this accounting is far behind, terribly complex, and understates fragility (risk) dramatically.

6) it is incredibly profitable for the state and the financial sector to preserve this universal deception that obscures the truth at the expense of the entrepreneurial, management, professional, craftsmanly, and laboring classes.

GOVERNMENT DISTORTION

Interference by Calendar (monthly) rather than Lunar (weekly) measurements.

Interference and Distortion by Taxation and Double Taxation

Interference and Distortion by taxes on dividends vs appreciation and loss.

Interference by Amortization and Depreciation to maximize taxation.

Lack of taxation by liquidity (personal, small cap, large cap) creates scale and fragility

THE PROBLEM

1) Business is volatile, management actions take time to produce results, and so risk is not accounted for in either accounting nor in taxation.

2) Few capital intensive businesses, more knowledge and talent and customer-relationshp businesses, none of which the company can ‘own’ but the upper 10% of which constitutes its entire competitive difference, and persistence.

3) R&D off book by small companies, profit by large companies that scale but buy smaller companies that do R&D.

4) Few inter-decade (inter-generatinoal) companies, and larger networks of increasingly fragile self-organizing companies with less predicable outcomes.

5) “Pensions” and liabilities (incalculable intergenerational transfers).

6) Preferential treatment given to landlords and others during liquidation and those that have access to legal teams, on a first come first serve basis rather than by orderly payments. in other words, in financial duress the courts should have no recourse to cause preference in payments, and lender should “beware”.

7) Vast, unimaginable, thefts on scales unheard of in history by manipulation of courts and financialization of agreements. (lender privilege rather than lender beware).

8) Distribution of liquidity through the financial system to the benefit of the financial system yet running into the zero bound problem rather than distribution of liquidity directly to consumers to the benefit of the consumer and business sectors.

9) The asymmetric power of lobbyists in funding political campaigns such that those attempts at reform since the 1980’s when the problems were first accepted, were

10) Fallacy (and harm) of Common-Shareholder-as-owner which allows large financial interests to takeover companies, extend the risk, take profits and allow failure. (Same for george soros. Violates principle of productive voluntary fully informed and warrantied exchanges).

What this all means is that the political, financial classes constantly extract money from the SMB space, the entrepreneur, the manager, the craftsman and the laborer by the gradual but constant transfer of risk downward, and the redistribution of gains upward, thereby institutionalizing the socialization of losses and privatization of gains.

ACCOUNTING DISTORTION

Management reporting (operating success), vs bank reporting(credit worthiness) vs tax reporting (taxation) vs investor reporting(balance sheet) vs stock market reporting (nonsense).

The method of recording financial transactions and the work necessary to produce various reports for various audiences, means that accounting does what serves its interests, and the truth of the business is obscured from everyone and the viability of the going concern vastly overstated. There is too little algorithmic processing in accounting. it’s still manual or ‘macros’ (policies).

Going Concern/Asset (credit) Value/ Tax Value / Liquidation Value. AFAIK the only ‘value’ proper is liquidation value, and that’s empirically the case. (In addition, conflating market CAP with market VALUE should be illegal. I would argue that PE ratio is the only )

Selective Accounting (not measuring market potential vs debt). It is entirely possible to measure market capture and report it month to month and this is the best indicator of management performance, and management performance is nonsense without it.

Conflating Operating from Non Operating Performance. Businesses should report on profit and loss from operations and produce separate profit and loss from capital operations, tax, credit, and shareholder reports from the same data.

Eliminating intergenerational transfers. ie: there can be no post liquidation debts constructed – period, and no debts beyond the operating horizon of the business.

Pooling (laundering) money – (obscuring) rather than tracing (transparency) There is no reason all financial transactions are not tagged and directed and traceable down to the penny (just as they are with Blockchain(bitcoin) transactions.

IMPORTANT: My solution to this problem of pooling is to use blockchain ledgers on legally mandated financial categories so that each financial transaction inside an accounting system transfers ledger values, producing perfect transparency. This produces a perfect audit trail not open to ‘fudging’ which is so common.

GOVERNMENT

The government for example measures velocity but not capital. That’s what GDP does. Marylin Waring (a horrible feminist) at at least addresses the issue in the production of offspring. Mother’s production of children is a capital good. Yet we don’t account for it.

Average age is a capital good.

IQ is a capital good yet we don’t account for it.

Personalities are a capital good but we don’t account for them.

Trust is a capital good – perhaps the most important.

Truth telling is a capital good – perhaps the most important.

Rule of Law is a capital good – perhaps the most important.

Monuments, parks, architecture (aesthetics) are a capital good.

Work to Leisure ratio is a capital good.

Savings are a capital good.

Homogeneity of race and culture is a capital good.

BLAME IT ON ACCOUNTING AS A PSEUDOSCIENCE

We can easily say that the evils of the 20th century are produced by a combination of mathematical pseudoscience (keynesian economics) and monetary accounting (pseudoscience) because they both cherry pick consumption rather than changes in the state of capital

Money is no longer money. Accounting no longer accounts. We are flying blind, and fragile, and burning down 1000 years of accumulated cultural capital.

How do we separate science from pseudoscience?

FULL INTERTEMPORAL ACCOUNTING OF OPPORTUNITY, COST, RISK, AND CONSEQUENCE.

Is our accounting a science for the purpose of truth? Or is it a pseudoscience for the purpose of deceit?

We know the answer.

And we have known for twenty years how to fix the problem.

Curt Doolittle

The Propertarian Institute

Kiev, Ukraine