[OPE-L:2352] Re: profit rate equalization and fictitious capital

Iwao Kitamura (ikita@st.rim.or.jp)
Fri, 24 May 1996 08:17:46 -0700

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Jerry and Allin, thank you for your comments to my [2272].
I'm sorry for this late reply.

Jerry [2291]:
>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.

I believe we should not include a static equalized (uniform) profit rate
even into our basic theory at the most abstract level. Such view
would describe capitalism as a dead body.

Jerry [2291]:
>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.

The problem of assuming that capital exists only as a "flow" is actually
the problem for capitalists accounting - depreciation. But I tend to
think that the *true* profit rate cannot be exactly counted untill the all
capital turn over, and we might have fixed capital in different turnover
times simultaneously for only one process of production.
I don't understand why internal financing doesn't accomodate capital
mobility. Actual cash flow can be laid to other profitable sectors as
internal financing, can't it? Or your term "internal" means "the same
product production" here?

Iwao [2272]:
>> For example, does new issue of equity expand
>> if its price rises due to rising profit rate?

Jerry [2291]:

Allin [2293]:
>With X's stock price increased (cet. par.), Tobin's
>'q' (ratio of market value to replacement cost of assets) will
>have risen above the average, and the maximization of the
>present value of the firm calls for the issue of new stock (and
>the acquisition of new real capital assets).

Tobin's q ratio is a concept at a point of time - market
(price) value of stocks vs. monetary expression of laid
capital at a point of time. My point is that the former
is a reflection of the expected *process* - the future exploitation.
This has no (price) value if there's no exploitable living labor
in future. Unlike this, the latter has its value if its operation

Iwao [2272]:
>> 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?

Jerry [2291]
>Yes, *expected* profitability is a key criteria for determining
>"investment" in stocks.

If we take this as stationary, the lowered expected rate of
return would limit the availability of new issue. Because
the expected rate of return on stocks has to be lower
the expected rate of return on real assets, if Tobin's
q is above 1. So the expand of availability of new issue
of stocks requires the condition where q rises or stabilizes
above 1.

Jerry [2291]
>It is to be expected that stock prices in general will expand during the

I don't think that stock prices will *inevitably* rise during the boom.
Rather stock prices depend on the condition of distribution of
surplus value, or financial environment - interest rate because
stocks behave as interest bearing capital.

Allin [2293]:
>If the resulting
>expansion of output on X's part tends to depress the price of X's
>product and reduce X's marginal profitability, then we're moving
>towards profit-rate equalization (although a lot can happen along
>the way).

Generally agreed if Allin means tendency when you state "moving towards
profit-rate equalization". My question is which profit rates tend to equalize.
Allin's stand point that he have shown suggests that those are marginal
profit rates of all industries. Is my understanding right?
But in this process, the actual return on stocks would show negative due to
price fall if paid-out dividends are not enough although its expected rate
of return calculated at each point of time possibly rises.

>Try asperin, tylenol, or excedrin.

I drank chinese herb tea and worked fine.

In OPE-L Solidarity,


Iwao Kitamura
mailto: ikita@st.rim.or.jp