The American capital market is an amazing economic institution. The masses of investors in the market exchange all kinds of rumor, gossip, data, and analysis and transform this raw information into judgment and knowledge, all reflected through price changes. Now, investors are out to make as much money as possible. But in the process they allocate money to promising ideas bubbling up from university labs and innovative companies and flee from failed management strategies and dying industries.

Accounting standards are critical to an efficient capital market. Investors rely on a consistent set of financial and business measures to scrutinize thousands of publicly traded companies. That's why former Treasury secretary Lawrence Summers called the development of accounting principles as among the most important innovations in the history of the capital markets.

And that's why investors are savaging any company with opaque statement in the wake of the Enron collapse. The crisis of investor confidence extends far beyond Enron, Tyco, Quest, Worldcom, and other companies suspected of overly aggressive accounting maneuvers. Last year, write-offs averaged an incredible 40% of reported earnings.

Even casual listeners of the business news are aware that changes are coming in accounting practices. But reform should go beyond stemming abuses and bringing greater clarity to financial reporting.

Current accounting standards are not well suited to helping investors make savvy financial decisions—and allocate money--in the new economy. Corporate value increasingly rests on exploiting and generating information, ideas, and innovation while existing accounting measures reflect a world where physical plant, equipment, and other hard assets matter most.

The accounting profession is struggling to come up with better new economy measures. In the meantime, companies could deliver more information to investors on a real time basis over the Internet. Management runs their business off a constant flow of raw data. Why not release more of that information over the Internet and let savvy investors devise their own measures of value?

The history of accounting is a bitter struggle between management’s desire for secrecy and investor craving for more openness. But the long-term trend is toward disclosure. The reason: good information lowers the cost of raising money, and nurtures a more innovative economy.