It is one thing to question the sensibility of assuming that businesspersons seek to maximize profit, but there can be no doubt that business profit is a widely used index of performance. The government, investors, and people in business all pay attention to profit as measured by accountants. And so do economists. Accounting profit rates play important roles in assessing the national economic condition, in forecasts of business investment and tax revenues, and, as discussed in the prior commentary, in assessing whether stock prices overshoot earnings performance. In attempting to test the market concentration doctrine, economists consistently examine the relationship between market concentration and accounting profit rates or some derivative of these rates. These are only a small fraction of the uses to which accounting profit data are put. Reliability, or the lack thereof, of these data has important and extensive consequences.

Doubts about our ability to measure profit rates accurately are long standing. Adam Smith's theory of the decentralized economy put the theoretical role of profit at the center of the allocation mechanism, but he was skeptical about our ability to measure profit accurately.