ABSTRACT
Analytically the use of a concept of "maintaining capital intact" would be no less misleading. One of the purposes for which people want a definition of net income is to know what are the long run costs on which an adequate profit must be made in order that investment in that particular industry should be profitable. The author finds it difficult to conceive that a procedure could have any practical value or theoretical significance. Since if his allowance for obsolescence were treated as income, this would in effect amount to a capital turnover tax and force him to reduce his investment. Such a system would discriminate heavily against all industries with rapid technological progress and slow down technological advance. Since much of present economic theory is based on the contrary assumption, so well expressed by Pigou when he wrote of the concept of capital as an entity capable of maintaining its quantity while altering its form and by its nature.
