Michael P asked
> If investment is so profitable, why wouldn't rational shareholders
> support investment? Could it be the expectation that speculation will
> have higher payoffs?
Doug answered:
>Again, what's "speculation"? The shareholders want the cash now, in
>size. Investment carries a lot of uncertainty.
>
>I don't know what the profit rate on new investment is (not that
>anyone does). If you buy Shaikh's argument that the stock market is
>driven by the profitability of new investment, then it's been rather
>high for, oh, 25 years. But I don't buy that argument, in part
>because no one can observe the profit rate on new investment.
So why would it be unreasonable to assume that the anticipated total profits--minus depreciation, competitively imposed accumulation costs, interest and taxes--are not sufficient to motivate new investments?
>As you might have guessed, I have several problems with this argument.
Yes important problems. Very important ones about the export of capital in particular.
>
>* "Speculation" is thrown around but never examined very carefully. A
>pension fund buying the S&P 500, a hedge fund moving out of Czech
>bonds and into German stocks, a dentist trading oil futures, and
>Steve Schwarzman buying up entire companies all apparently fall under
>this rubric. But they're all different - economically distinct
>activities carried on by different groups of people. Is an oil
>company that hedges with oil futures speculating? Or is it just the
>dentist?
But below you say surplus cash is being shipped out, not invested.
Michael's question makes sense. Investment is not altruistic. It should increase the amount of surplus cash which can be shipped out to stockholders on an annual basis; it should help to create an ever larger perpetual capitalist consumption fund. So why are the shareholders penalizing investment?
Also what then comes of the massive stock of idle liquid capital? Is not at least some of it used to outguess others in the currency, bond and equity markets, in the real estate markets?
>
>* The pressure not to invest but to ship surplus cash out to
>stockholders isn't the spontaneous desire of corporate managers -
>it's been shaped by the increased shareholder assertiveness of the
>last 25 years. If a firm invests too much for Wall Street's liking,
>its stock price will sag, and attract takeover targets. In other
>words, industry does not "dominate the banks."
>
>* Kuhn via Grossman attacks Lenin's metaphoric use of "overripeness"
>without adding any detail of his own. (Maybe Grossman offered it; I
>blush to admit I haven't read Grossman.) Why, if profitability is so
>high at the average, aggregate level, are we to assume that marginal
>returns on new investment are prohibitively low?
Grossman argues that the rate of profit may be relatively higher in the imperialist country than the colony to which capital is exported. But his point is that accumulation (the capitalization of surplus value as additional constant and variable capital) comes to swallow so much of the surplus value that it does not pay investors, qua luxury consumers and fat cats, to continue to capitalize surplus value. Surplus value which would have been earmarked for accumulation now mounts as a stock of idle money capital. That capital may be exported; the rate of profit on these new investments may be lower but the percentage of new surplus value which has to be retained or capitalized remains low enough for the investors to take in surplus cash as a luxury consumption fund. Those investments make sense; the ones with a higher rate of profit do not.
If the capital is 'internally exported', it may be used to outguess rivals in the 24 hour casino.
I am open to this 1. not making logical sense and 2. having nothing to do with today's dynamics of capital movement.
>
>* Few economies are capital exporters in any simple sense; for almost
>all, the traffic goes both ways - they both import and export capital.
Yes the US imports all kinds of capital for 'investments' whose returns would seem to be pitiable or at least unattractive to US investors organized in hedge funds.
>
>* Why is the U.S. a net capital importer on such a huge scale? Isn't
>ours the ripest capitalist economy of all? Why are we importing
>capital from China, the new kid on the block?
Good question.
>
>* The U.S. may be attempting to monopolize oil supplies, but China is
>busily securing its own resources in Africa as we speak. And why is
>China, apparently in the early stages of capitalist development,
>already exporting capital?
>
>* What, if any, are the theoretical distinctions between capital
>import/export via government bonds, private securities, and direct
>investment?
Well yes I think this is the key question, to make sense of the direction of capital flows.
>
>* How can anyone type a phrase like "capitalism's inherent breakdown
>tendency" without embarrassment?
yes perhaps the theory is a Sorelian myth to build confidence that the system will be sufficiently objectively weakened for the success of the general strike. Myth and politics--a great question of enduring importance.
But how about the phrase inherent tendency towards catastrophe and barbarism? Does not seem so mythical now.
And should Simon Stevins have been embarrassed by his reference to a virtual force though the chain does not move? There are other forces working on the chain. It remains in static equilibrium as a result, but the fact of static equilibrium does not mean that there is not virtual force perpendicular to the chain at work.
I probably mangled the analogy.
Rakesh