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Ronald J. Baker is known as something of a rogue and thought leader in the professions - particularly in accounting and law. His life mission is to "bury the timesheet and the billable hour," which are the pricing models used by those professions almost since inception. Mind Over Matter, the third book in his Intellectual Capital series, is an exploration of the concepts of economics applied to practical business applications. It is part of what Ron calls his Intellectual Capital series.

Mind Over Matter is a clear explanation of the benefits of a free market economy and some of the weaknesses of status quo measurement systems.

For example, many economics courses in universities still discuss the "labor theory of value" proposed by Karl Marx. Ron believes that is the foundation of the billable hour. This approach to value doesn't really make sense. In order to measure value, you have to look to where it really lies - in the mind of the customer. The customer doesn't care about what it takes to perform a service or make a product. The customer cares about what the service or product does for him or her.

Consider information products. The value is based on the value of the information to a customer. A 50¢ CD could hold information worth thousands of dollars. An electronic version of a video, sound recording or book costs nothing to replicate and distribute, and can be extremely valuable when it teaches a skill that can produce hundreds of thousands, possibly millions of dollars.

Ron challenges the accounting profession with this idea: debits don't equal credits! A business should produce outputs far in excess of inputs. Intellectual capital is conceived in our minds, creating replicable value far in excess of the inputs. Intellectual capital is only captured on a balance sheet when there is a business acquisition, where it is called "goodwill," which is undefined value. These are items like trademarks, customer lists, patents, and trade secrets. Traditional balance sheets don't include this value, which can far exceed a company's tangible assets. In conventional accounting, costs of developing intellectual property are expensed as research and development or marketing costs. Expensing these costs is good for income tax reporting, but not so good as investor information. Even if the costs were capitalized, the value of intellectual property may far exceed the costs. The accounting equation is broken.

Ron also discusses the vital role of risk in a dynamic economy. It's popular to denigrate the rewards that go to founders of and investors in successful businesses. The reward is for the risk they take to generate jobs and valuable products and services that we all benefit from. "In a free market system, it is the leap, not the look, that generates the indispensable understanding and the necessary knowledge to generate wealth." Wealth comes from risk!

Companies aren't "built to last." A dynamic economy is a process of creative destruction so that automobiles displaced buggy whips and light bulbs displaced candles for all of our benefit.

I'm sending copies of Mind Over Matter to my representatives in Congress. I highly recommend that you get a copy and study it.

Buy it online at Amazon.com: Mind Over Matter: Why Intellectual Capital is the Chief Source of Wealth.

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