The Accounting Historians Journal Vol. 16, No. 2 December 1989
PATTI A. MILLS, EDITOR Indiana State University
REVIEWS OF BOOKS AND OTHER PUBLICATIONS
Diran Bodenhorn, Economic Accounting (New York: Garland Publishing, Inc., 1988, 325 pp., $40.00)
by Catharine M. Lemieux Indiana State University
The FASB series, "Financial Accounting Concepts," states that the objective of accounting should be to provide informa-tion for business decisions rather than to describe economic events. In contrast Bodenhorn states, "that the primary concern of the accountant should be to measure the variables which economists have identified as the most important in describing the performance of an economy, and the entities in the economy" [p. 11. In this book Bodenhorn develops a model of a simple economy based on economic theory and constructs an accounting model appropriate for this economy.
The economy in this model consists of a firm and a person who is both a laborer and a consumer. The individual, labeled Crusoe, maximizes a known welfare function subject to a wealth constraint and the firm maximizes profit subject to a known production function. Three groups, firm, household, and society, comprise the economy. Although this is a simplified view of the real world, Bodenhorn states that, "if an accounting principle gives a poor description of a simple Crusoe model, I find it very difficult to believe that it will provide a reasonable description of a more complicated model" [p. 4].
The author draws four conclusions from this economic model: (1) the sum of the value of individual assets of the firm is equivalent to measuring the value of the firm, (2) the appro-priate price index to use for deflating values is a general price index, (3) the current value of real capital corrected for changes in the price index is the appropriate measure of capital mainte-nance, and (4) the only way to measure income is to measure wealth.