Accounting Real Interest

Abstract

There isn't really anything new regarding interest rates or interest costs, but so many people seem to get confused or worse confounded. Money has two dimensions not just one; not just quantity but also time. Almost any financial/economical activity deals with amounts of money at different points in time. Consequently, such activities are preposterous if the time dimension of money is not correctly processed. Besides the sizes of the amounts, the dates they become payable are especially of paramount importance. In practice as well as in theory, amounts of money often are not calculated as they should be. Even in big international organisations, blue chips at the Stock Exchange, with impressive staffing, things are going badly, as is testified by their own annual accounts. At many schools and universities world-wide, the teaching of financial calculus can, and should be improved. The mean of amounts of money at different dates or whatever 'calculation' which does not give justice to the 'present value' of money, is artificial. Balance sheets stating long term liabilities at face value are fiscally and otherwise acknowledged as 'de jure', but 'de facto' economically speaking, those balance sheets are beyond reality.

Keywords: real rate of interest, the foundation of financial calculus, no good accounting without real interest

JEL Classification: M40, M41, M46