Louis Brandeis

“ In years of rising prices, the 'base stock' method causes an understatement of income; for it disregards the gains actually realized through liquidation of low price stock on a high price market. In times of falling prices, it causes an overstatement of income; for it ignores the losses which result from the consumption of high price stock. This method may, like many reserves which business men set up on their books for their own purposes, serve to equalize the results of operations during a series of years. ”

“ It is urged, however, that the inventory requirement is not applicable to the company's stock to the extent of 5,554 tons; that the company is not a dealer, manufacturer, or producer, but rather a contractor or builder; that its income results from the performance of its construction contracts; that the material in its standby stock has no relation to these contracts, the contract prices, or the company's profits; that the material from this stock is only borrowed for specific jobs and is promptly replaced in kind ”

“ That the material is replaced in kind and its amount kept within some limits is not exceptional and is of no significance. Most concerns strive ordinarily to carry no more stock than is required for the safe and profitable conduct of the business. They plan neither to run short nor to overstock. They replace supplies as they are cousumed. And the cost or value of the new material is properly reflected in the later inventories and returns. There is nothing peculiar about the 5,554 tons, except that that happened to be the amount of stock on hand on December 31, 1916. ”