On 10/3/2011 3:19 PM, Jim Devine wrote: > Me: >>> In standard accounting, a government's net worth = estimated >>> market value of assets (to the government) minus estimated >>> market value of debts. > > John V: >> ... standard accounting is based on the assumption that worth is >> realizable. Accounting wouldn't make sense if it didn't. This kind >> of worth isn't a fait accompli but depends on defining future >> activities, that themselves will become determined at a later >> time. The economy is a dynamic process that eludes any kind of >> static determination of its components. > > _Of course_ net worth is not a "fait accompli." (Name someone who > thinks otherwise. > The Wall Street banksters perhaps? After skimming "wealth" off the top of _debt_, they suddenly found they needed trillions to be bailed out.
> I'm not one.) > The banksters, also "emphasizing net worth", didn't see it coming. And a crash of the financial sector wipes out all corporate accounts too. Given that one cannot _theorize_ an impending crash from an estimate of an equilibrium condition, how useful is it for a Marxian economist to stress a theory that's valid in "normal" times only? Or does your understanding of "net worth", as an accounting estimate, somehow gives you a different handle on what's truthfully going on? > Actual accounting is based on a lot of imputations and assumptions. > Worth is _assumed_ to be realizable before it is actually realized. > Thus, I used the word "estimated" above. Somehow that word was > totally ignored. > But we're not talking a few dollars difference, all on the positive side, as any estimate is bound to be off. Instead, billions on the plus side change to negative billions overnight. How do you "estimate" that? Accountants can estimate on the basis of the well-known "going concern" assumption. But your running with their estimate implies a taking for granted that the economy as a whole is a going concern. Since anyone's assets are someone else's liabilities, with the two canceling out; net worth, being the difference between one's economic assets and one's liabilities, doesn't work for the economy as a whole. It seems to me you are stuck in the micro fallacy that the whole can be explained by taking the sum of its parts. Or? > While the economy is dynamic, that doesn't mean that accountants > can't capture "snap shots" (descriptions of the "static determinants > of its components"). That's what they're paid to do. > Indeed. Accountants, backed up by their "going concern" assumption, do so all the time; and with good reason for their _own_ purpose. The problem is that you take that "snap shot" and use it as underpinning for your economic theory. It's like a mechanical engineer using a photograph of a bicycle rider to start theorizing the forces involved in keeping the bike upright. Just like (s)he can't possibly deduce from the picture that the bicycle is always in a falling motion, so can't you deduce from the accountants snapshot that "net worth" won't be wiped out overnight and turned into a deficit. It requires an integrated understanding of the notion of _debt_ to do that. > An analogy: in the middle a basketball game, the "static determinant" > would be the current score. That's relevant even though the score > will change in the near future. It helps with projection of the > future score. > Just like the steady uptick of the financial markets before Sept. '08, projected the crash itself? And in case you're objecting that financial assets now seem to have replaced the real assets of the original thread; note that the economy, in all possible states (anywhere from equilibrium to crash), always constitutes a set of _accounts_, with the accounts being represented in financial terms. The real-economic production capacity doesn't change one iota under any of those circumstances. >> You not only assume what still needs to be proven, but use that as >> a basis for extended reasoning; i.e. your "net worth" is >> axiomatic. > > That's right: like many accounting concepts, net worth is a > definition (and not the result of some model or theory) > [??] Accounting follows all the principles of a (deductive) theory. It starts out with a set of assumptions and constructs a logical edifice from that. Show that internal contradictions result, either as is or with the help of a shorter list of assumptions, and their edifice collapses. > and the actual net worth is calculated based on that definition. It's > not a theory or a model. > The definition is based on a set of assumptions within the confines of a theory. "Actual"?? Are you trying to have it both ways? An unrealized reality? > The score in the middle of the game does not describe the process of > play, the strategy of the coaches, the skill of the players, etc. > It's not analogous to economic components. Within the rules of the game, the above components are determinate at every step of the way; but within the rules of the economic game, the components are indeterminate until resolved thanks to extraneously existing use-values. Utility is exogenous to the economy. >> It's beyond logic and both impossible to "understand" and persuade >> anyone who doesn't already hold the same belief. > > Perhaps that's true among the dogmatists. > The dogma of assumptions being unprovable? >> Furthermore, by stating that "net worth should be emphasized >> instead of debt", how do you avoid the trap of thereby assuming >> that the economy is statically in equilibrium and Say's Law rules? > > That's totally illogical. Accounting has nothing to do with economic > theory > Yet, you use one of its definitions as an _axiomatic_ underpinning of your own version of economic theory. A bit incongruent don't you think? > (such as that behind Says' "Law") > There is no theory "behind" Say's Law. The latter implies that the economy is a going concern axiomatically. > even though it can help in the creation of a theory. > "help"? You mean as in: without accounting, economic theory couldn't exist? > It's like blaming the Fahrenheit system of measurement of > temperature for the theory of phlogiston. > Another bad analogy. Unless you equate economics with nonsensical alchemy; given that: accounting = measurement. Freudian slip? > Or thinking that someone who pays attention to the current score > (Lakers 90, Clippers 80) will always assume that the Lakers will > automatically win. (of course, any rational person would predict that > the Clippers will lose, based on past experience.) > Again, the outcome of your basketball game is determined internally. The outcome of the economic game happens to be determined by external forces; as if the above spectators' perceived interest were determinant of the game's outcome. Economic agents are in the game for the purpose of enhancing their living standards; and the latter takes place outside of the economy. They are playing the game with blinders on, and their perception within may not match the reality outside the game. > In sum, accounting is not the same thing as economics, even though > they influence each other. > Finally a sentence that's uncontroversial. Unfortunately, this agreement doesn't get us anywhere. > I gotta go. > That's really too bad! I was looking forward to your reaction on my emphatic assertion that in terms of exchange-value (i.e., active economic accounts) "net worth" doesn't exists. Any chance that response is still forthcoming sometime? PS: Personal wealth in the form of bought and paid-for real estate, cars, artworks, etc., and natural resources owned by the commons (or better said: borrowed from our descendants) don't have a value in exchange until these (re)enter the system of economic accounts; at which time they become a to be resolved societal _debt_, subject to uncertain limits, if a dynamic equilibrium is to be maintained. Those frequencies that were topical in the foregoing thread would fall into that same category. I could elaborate, but this post is long enough already and I'm pretty sure I've done so in the past. John V _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
