Sec. 3] CAPITAL ACCOUNTS 71 we should expect the shares to sell at juw=190. The actual selling price, however, is $240. kere are discrep- ancies which call for explanation. If a business man were called upon to explain them, he would say that book values and market values are entirely distinct, the latter depending on estimated ‘‘earning power.” The stock is worth its “capitalized earning power,” and its value fluctuates from day to day in response to a thousand causes. This is quite true, but it does not constitute a dis- tinction between book values and market values, for book values also represent estimated earning power. The book valuations of the company’s lands, buildings, machinery, etc., were originally determined by their earning power; their cost value was, at the time of purchase, a market estimate of earning power as truly as the market price of stock. This principle holds true of liabilities as well as of assets. The liabilities are simply capitalized charges, interest, rentals, and other expenses. The meaning of the discrepancy is, therefore, not that one valuation depends on earning power and the other not, but that there are two estimates, one that of the book- keeper, which is seldom revised and usually conservative, and the other that of the market, which is revised daily. Thus the stockholders of the Second National Bank are credited by their bookkeeper with owning $1,295,952.59, whereas in reality the total value of their property is more nearly $2,100,000. The bookkeeper has systematically undervalued the assets of the bank, and even omitted some valuable assets altogether, such as good will. The object of a conservative business man in keeping his books is not to give mathematical accuracy, but to make so conserva- tive a valuation as to be well within the market, even in times of financial stress. He is more interested in safety than in precision, and in maintaining his solvency even in the face of heavy shrinkage of market values than in meet- ing the requirements of ideal statistics.