[OPE-L:2291] Re: profit rate equalization and fictitious capital

glevy@acnet.pratt.edu (glevy@acnet.pratt.edu)
Mon, 20 May 1996 06:37:23 -0700

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Iwao wrote in [OPE-L:2272]:

> I tend to relate the issue to the problem of fictitious
> capital. First, I think that the exsistence of fictitous
> capital has to be assumed at the principle level.
> That is, we shouldn't exclude examining the relation
> between the function of fictitous capital and the tendency
> of profit equalization.

We shouldn't exclude and ignore the issue of fictitious capital in terms
of profit rate equalization. Equally, we can not assume profit rate
equalization but have to consider the affects of other variables (such as
constant fixed capital) on that process.

> 1. How can we argue the relation between
> price of fictitous capital and mobility of capital?

I think the big problem regarding the mobility of capital arises when we
cease assuming that capital exists only as a "flow". To the extent that
capital mobility requires [non-internal] financing, then it is related to
the question of fictitious capital.

> For example, does new issue of equity expand
> if its price rises due to rising profit rate?


> If its price
> *has risen* enough to lower *the expected rate
> of return*, is there no reason to believe that capitalists
> to lay more money to it?

Yes, *expected* profitability is a key criteria for determining
"investment" in stocks.

> As in my empirical work on japan's stock market,
> however, stock price and new issue of stock correlate
> in the span of construction cycle, at least. Or they
> seem somewhat correlate over individual issues at a business
> boom.

It is to be expected that stock prices in general will expand during the
boom. The construction industry is simply an industry which is viewed as an
indicator of macroeconomic performance. That is, investors look to
certain "key" industries, like construction, when making forecasts of
future performance.

> I guess the rise in stock (or any other fictious capital)
> price should be addressed as *a process* as well as
> we should treat mobility of capital as a process.


> 2. Does the mechanism of fictitious capital market lead to
> a static state where *the profit rate* of any capital in money
> form equalises?

I don't see why. In fact, I don't think that we can assume a static state
or profit equalization.

> If this is not the case, what causes the
> instability? Is the cause only the instability of profit of
> industrial capital ?

"Only"? I wouldn't say that.

> or may we ignore any feed-back effect
> from fictitious capital market to industrial capital?
> I guess some feed-back effect connot be ignored.

We can't ignore any aspect of the actual process, although, we may
temporarily abstract from an aspect of the process.

> Does anyone solve my headache?

Try asperin, tylenol, or excedrin.

In OPE-L Solidarity,