Question

(a) Outline Fisher’s thinking on the concept of income.

(b) Outline Hicks’s thinking on this topic.

(c) Relate and compare the two.

Answer 1

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A)

FISHER CALLED INTEREST “AN INDEX OF A COMMUNITY’S PREFERENCE FOR A DOLLAR OF PRESENT [INCOME] OVER A DOLLAR OF FUTURE INCOME.” HE LABELED HIS THEORY OF INTEREST THE “IMPATIENCE AND OPPORTUNITY” THEORY.

IN THE VANGA EXAMPLE, 71% OF THE INCOME FROM THIS FISHERY IS EARNED BY FISHERS AT THE LANDING SITE. PARTICULARLY IF THIS INCOME COMES AS SUDDEN INPUT OF CASH, IT MAY BE HARD TO USE INCOME WISELY, TO PLAN FOR THE FUTURE AND TO SAVE. MOST DEVELOPMENT EFFORTS HAVE TRIED TO HELP FISHERS CATCH MORE FISH OR GET HIGHER PRICES.

"THE NATIONAL DIVIDEND OR INCOME CONSISTS SOLELY OF SERVICES AS RECEIVED BY ULTIMATE CONSUMERS,WHETHER FROM THEIR MATERIAL OR FROM THEIR HUMAN ENVIRONMENTS.THUS,A PIANO OR AN OVERCOATMADE FOR ME THIS YEAR IS NOT A PART OF THIS YEAR'S INCOME,BUT AN ADDITION TO CAPITAL.ONLY THE SERVICES RENDERED TO ME DURING THIS YEAR BY THESE THINGS ARE INCOME."

B)

J. R. HICKS VIEWED ACCOUNTING FROM A STATISTICIAN’S PERSPECTIVE AND HE EMPHASIZED THE NEED FOR OBJECTIVE ACCOUNTING DATA. HICKS ALSO WAS CONCERNED WITH THE PRINCIPLES OF ACCOUNT CLASSIFICATION WHICH HE ONCE CALLED “THE CANONS OF ORDERLINESS.”1 THE NEED FOR OBJECTIVITY AND ORDER, TOGETHER WITH A VERY STRICT INTERPRETATION OF HOW ACCOUNTS SHOULD BE FRAMED TO MONITOR MANAGEMENT, LED THIS 1972 NOBEL PRIZE ECONOMIST TO DEFEND THE PRACTICE OF VALUING ASSETS AT HISTORICAL COST AND TO ARGUE, AS A COROLLARY, THAT ACCOUNTANTS SHOULD NOT MAKE PRICE-LEVEL ADJUSTMENTS.

C)

FISHER'S

1. THERE ARE A NUMBER OF CONSUMERS OF A COMMODITY AND THEY LIVE AT DIFFERENT PLACES IN A COUNTRY.THUS IT IS DIFFICULT TO CALCULATE THE MONEY VALUE OF THE ANNUAL CONSUMPTION.FURTHER,THE NUMBER OF COMMODITIES IS VERY LARGE AND EACH POSSESSES A NUMBER OF VARIETIES.IN SUCH A SITUATION,IT IS EASIER TO FIND OUT THE VALUE OF PRODUCTION THAN THE VALUE OF ANNUAL CONSUMPTION.

2. DURABLE COMMODITIES HAVE THEIR DIFFERENT PERIODS OF LIFE FOR DIFFERENT CONSUMERS.IT IS DIFFICULT TO ALLOT A DEFINITE 'LIFE' TO EACH AND EVERY COMMODITIES PRODUCED IN A COUNTRY.

3. A DURABLE CONSUMER GOOD MAY PASS THROUGH THE HANDS OF A NUMBER OF PERSONS.

HICKS’ MAIN THOUGHTS ON ACCOUNTING PRACTICE

THE PURPOSE OF THIS PAPER IS TO REVIEW HICKS’ MAIN THOUGHTS ON ACCOUNTING PRACTICE. THEY CONCERN THE NEED FOR OBJECTIVITY, THE PRINCIPLES OF ACCOUNT CLASSIFICATION AND THE TRADITIONAL QUESTIONS OF DEPRECIATION AND ASSET VALUATION. THESE IDEAS, WHICH ARE SCATTERED IN BOOKS AND ARTICLES WRITTEN OVER A PERIOD OF 35 YEARS, MAKE IT EVIDENT THAT HICKS’ ACTUAL INFLUENCE ON ACCOUNTING WAS THE OPPOSITE OF WHAT HE INTENDED.