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afterward the item could be picked out readily. As capital expenditures are generally handled at the present time, a manager who has an interest in the profits, or who for some other reason desires to make a temporary good showing, may, by adopting this improper method of capitalizing expense items, and covering up his tracks by looseness or lack of system, show greatly inflated results, cover up shrinkages in the net earnings, losses by bad management, and defalcations, and make it practically impossible for an accountant, unless he combine a very good practical knowledge of values and makes a physical inspection of the fixed assets, to determine whether the charges are for bona fide betterments or not.

Considerable differences of opinion exist among accountants concerning this question. We find in one work on accounting a statement that when in doubt as to whether an expenditure is a capital expenditure or chargeable against revenue, the amount should be charged against capital, the reason given being that if it is "afterwards" determined that the expenditures were for repairs, it is easy to get them out of capital into revenue, while it is extremely difficult without much explanation and on proper authority to take items out of revenue and place them into capital. The adoption of such a policy by accountants will add to the already great laxity in this direction and tend towards the lowering of professional standards. The matter should be passed upon by proper authority and definitely settled at the time.

A third method resulting in the appreciation of accounts is the failure to consider on the accounts the proper depreciation taking place in the asset. For instance, many companies, when they notice that the rate of depreciation has been too high, and that book values are below actual values, adjust the account by allowing one or more years to go by without making any charge whatever for depreciation. This method, while not strictly improper, does not seem to be as desirable or just as a journal entry replacing the account to its proper amount, for the following reasons: The net earnings of the current year will be inflated by just the amount of a proper charge for depreciation and comparisons of net earnings will be misleading; no record of the reason for adjusting the account in this manner is placed on the books and the failure to depreciate the accounts appears to be an intentional omission for an incorrect purpose; and the practice

establishes a bad precedent which may be used subsequently to conceal losses.

The attitude of the accountant in general towards this question has been, as it should be, one of extreme care. Accountants are not quick to recommend an increase in book values, preferring to err rather on the side of conservatism, and they are very careful to investigate any unusual entries which occur on the books, as well as capital expenditures, not only during the period covered by an examination, but also in prior years, to guard against past errors of principle which may affect the condition or earnings of the company.

In conclusion, we may say that when general or trade conditions bring about a real permanent increase in values, or when errors have been made in calculating depreciation, if after a careful investigation the circumstances surrounding the particular case in hand are found proper and not suggestive of wrong or dishonest motives, an adjustment of book values to conform to the real conservative values by a journal entry, supported by the authority of a disinterested expert, is legitimate. The propriety of crediting the amount of the appreciation to surplus account must be determined by the circumstances peculiar to each indi vidual case. The accountant should go to the bottom of the adjustment, determine the cause thereof, and if possible ascertain the motives which may have influenced the interested parties, as well as learn whether the rights of other parties have been violated. A conservative treatment of all appreciated values, and one which would raise no question, would be to place the credit to a special account called surplus capital, working capital, special reserve, etc., so that the amount will not be distributed in dividends, but be available for contingencies or for a readjustment.


This School of Commerce, Accounts and Finance of New York University is a recognition of the genius or spirit of our age, and shows that business, trade and commerce must not be separated from higher education. The old idea that the successful business man does not need a liberal education, or that the educated man is too nice for business, has been discarded. To-day the world calls for men whose minds have been opened to all the various activities in which mankind is engaged; men who have been trained, not merely to do one thing well, but to understand and appreciate the relation of their work to the work of other men; men who have a proper sense of proportion; men who recognize their duties to their fellow-men and to the communities in which they live; men who will strive mightily for success, but will scorn to do a cowardly, unfair, or dishonest act. In other words, the world demands men who not only work, but who have ideals; that is, men who, above and beyond the confusion, the strife, the failures or successes in the world's workshop, always see and move toward something higher and better than themselves.

It has been too often the custom to scoff at the idealist, and indeed the idealist, or "reformer," as he is sometimes called, has given cause for adverse criticism; and this for the reason that too many idealists have failed to be practical in every-day life. An ideal that makes a man a mere dreamer is not worth having, but an ideal that puts into a man's life inspiration for harder work, higher ambitions, is a kind of ideal which every man should set before him at the outset of his life.

Men are led to see and understand things and activities outside their own sphere or own work by education-by knowledge, acquired through books or from teachers, of what the world about them has done and is doing. Education is the foundation of civilized society. It is well called "the cornerstone of our Republic." Education, which was in the beginning confined to a favored class, is now open to all, and the man who neglects the

* An address delivered by Hon. James Rudolph Garfield, United States Commissioner of Corporations, before the New York University School of Commerce, Accounts and Finance at the opening exercises, Thursday, September 27, 1906.

educational opportunities of his age puts himself out of the running in life's race. The need of education is not confined to the so-called "learned professions"; it is equally important in trade, in commerce, in business, in manual labor. The man who, day after day, works his hands, runs a machine, keeps books, sells over a counter, works in the bank, or manages a great business corporation becomes a mere drudge, a mere slave to work alone, unless he has by education had his mind opened wide to the thoughts and work of other men.

Indeed, there is special need for education, for ideals, in commerce and trade, for the reason that too often the goal of the man who devotes his life to trade is the acquisition of wealth. Money has been made the measure of business success. In one sense it is right to measure business success by money; in another sense it is wholly wrong. If the success is the mere acquisition, regardless of methods, of money for the sake of the moneypiling it up, millions upon millions-then it becomes a power for evil, an engine of oppression, and a curse to its possessor. But if it be honestly gained and be recognized as but a means of doing good in the world; if its owner understands that he is but a trustee of great wealth for the benefit of his community or his country, and uses that wealth wisely, then it is an honorable and worthy goal to set before him.

We must not forget the misery that the greed for gold has brought upon men and nations. The stupendous growth of our own country during the last twenty-five years, the enormous increase of great fortunes in the hands of a few, started the fever of speculation among our people. Men have been crazy to grow rich over night. They have tried, like the seekers of the Philosopher's Stone of old, to make something from nothing. The result of all this has been the development of what may be termed a commercial conscience "-a conscience that has chosen a different standard for business than for any other work of life; a conscience that has thrown aside all ideals other than the single one of money; a conscience that has sneered at old-fashioned common honesty in trade; a conscience that has called trickery ability; a conscience teaching that all things, that all men, have their price and can be brought. So great has been the growth of business and the spirit of commerce that we refer to this as the commercial age" of the world's history; and commerce, the extension of


trade, is the all-potent factor in determining policies of nations. The cry has been: "Give us business men in politics, business men in control of municipal, state and national affairs," and this because, measured by the money standard, the great leaders of business have been successful. But more recently men have fortunately begun to distrust this "commercial conscience." The mass of the people are beginning to inquire: "Is it leading in the right direction? Should commerce be the chief aim of man's individual or collective life? Are business methods the best methods? In short, have business men the right ideals?"

Here again education is the guide, and the educated man is the power that will change and improve the commercial spirit. The education which you men are to gain here will teach you how to understand and use the instruments of commerce, such as capital and labor, money, credits and accounts; and all this will be good, but it will teach you much more. It will open your minds to your relations to mankind; it will teach you the duties and obligations that will rest upon your shoulders the moment you step without these walls; it will teach you that every right which you demand for yourself rests upon a duty which you owe to society at large; it will teach you that obedience to law is the first and prime essential of civilized society. And, above all, it will teach you that there is but one kind of honesty which must govern both your private and business or public lives.

Let me call your attention to some of the special problems the business man of the present and future must face.

Business, like society, is no longer simple. It is no longer conducted by the individual, but by the corporation. The corporation has great powers which the individual cannot exercise. It also has great obligations which are not imposed upon the individual. It is a creature of the state, and hence subject to the regulation and control of the state. It is the part of the educated man to-day, of the successful business man, to understand what must be the true relation of the corporation to the state, to the stockholders, to the persons with whom it deals.

It is under the corporate form that most of the industrial evil of to-day has been done. The individual responsibility has been shifted to the responsibility of the corporation, which knows no individual. This loss of personal responsibility is, in great measure, responsible for the growth of what I have referred to

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