An inquiry into the origins of fair value

Abstract

The article aims first to elucidate the role of the Enlightenment in the creation of the notion of fair value. The courts were already defending free market prices by 1750, before the main economic thinkers, Turgot, Cantillon, and Smith formulated their views as to why public welfare was best served by freely made private bargains. It is shown that the attachment of the word “fair” to market value is attributable to Smith’s own understanding of what constitutes distributive justice. A second puzzle addressed in the article is the delay, lasting longer than a century, between the commercial and judicial acceptance of fair value and the later acceptance of it by the standard setters of the accounting profession as the primary way to value business assets and liabilities.