Valore reale, fair value and the business model: was Besta best after all?

This paper provides a rigorous exploration of the concept of valore reale as developed by Besta. We present his theoretical analysis, supporting exchange values, and the practical approximations he proposed, moving via current replacement cost as a first proxy to historical cost. His justification on the grounds of conservatism is analysed and shown to be invalid. We explore the concept of fair value through its original definition as an exchange value to its current manifestation as an exit price. We show that excessive and irrational non-conservatism applies both to fair value and to historical cost. Our conclusions: historical cost is misleading as regards balance sheet and income statement and fair value is misleading as regards income statement. Zappa (and Schmidt and Hicks) got it right focusing on the entity, not the market as fair value claims. So Besta was good but not best. Implications for the business model are explored.