ABSTRACT
While it makes sense for certain methodological purposes to assume that equilibrium prices reflect the present value of future cash flows correctly, it is a mistake to think that actual market prices do so. However, in the course of the 20th century, the neoclassical equilibrium concepts of finance have more and more been interpreted as characteristics of real-life markets. This has mainly happened through the economic income concept. Economists argue that the income of an enterprise should be considered as the difference between the present values of the net assets of this enterprise at two consecutive dates. This cannot be done without assuming that prices reflect present values. Fair value accounting and shareholder value maximisation are outgrowths of the economic income concept. They are inconsistent with the function of economic calculation in capitalism. They imply circular reasoning. In order to measure economic income, we first have to calculate changes in the present value, then derive an income figure, and finally capitalise that income to calculate the present value. The problem with implementing value-orientation and economic income in real life is that they jeopardise the working of the very market process and the capitalist institutions that they tacitly presuppose.
