We spent a few minutes on the day after Thanksgiving discussing the merits and critiques of mark to market accounting, instead of doing our patriotic duty to buy useless junk marked down to profit-free prices. In the course of the conversation, we realised that a huge part of our problem with alternative accounting methods is that we believe immense damage can be done to a firm—or a national economy—when people insist on using make-believe valuations.
It’s not just that they can fudge their books. It’s that they create the impression that there is more wealth in existence than there actually is. Illusionary wealth warps decisions about investment and consumption, directing capital toward money losing projects and away from productive economic sectors. It creates a fun house mirror world of the real economy.
Which reminds us of one of our favourite comedy routines. It’s Victor Borge demonstrating the process of value inflation by engaging in linguistic inflation.
“See, we have hidden numbers in the words like wonderful, before, create, tenderly,” Borge says. “All these numbers can be inflated and meet the economy, you know, by rising to the occcassion. I suggest we add one to each of these numbers to be prepared. For example wonderful would be two-derful. Before would be Be-five. Create, cre-nine. Tenderly should be eleven-derly. A Leiutenant would be a Leiut-eleven-ant. A sentance like, ‘I ate a tenderloin with my fork’ would be ‘I nine an elevenderloin with my five-k.'”
Of course, his delivery is better than ours. Here’s the video: