[OPE-L:2361] Chaos theory, capital stock, and internal financing

glevy@acnet.pratt.edu (glevy@acnet.pratt.edu)
Sat, 25 May 1996 08:07:09 -0700

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Iwao wrote in [OPE-L:2352]:

> 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.

A more explicit discussion of equilibrium analysis and the merits and
limitations of chaos theory and complexity analysis might be a useful
discussion for us at some point. Any takers?

> The problem of assuming that capital exists only as a "flow" is actually
> the problem for capitalists accounting - depreciation.

I think that the issue of constant fixed capital taking the form of a
"stock" has relevance beyond the question of accounting and depreciation.
Since this form of capital is not money capital, it inhibits the
equalization of profit rates since it means that a certain proportion of
capital is "tied up" in existing fixed capital and can't be used for
investment in other branches of production where the anticipated rate of
profit is higher. The existence of constant fixed capital can thus as a
consequence of the accumulation and concentration of capital serve
as both a barrier to entry and a barrier to exit. For us to consider this
process in greater detail, we would have to consider how market structure
in branches of production alters with the process of the concentration of

> 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?

I think you misunderstood what I meant by internal financing.

How do firms obtain the necessary money capital for investment? They can
either borrow money from banks or create an internal fund within the
corporation to allow for this possibility. In practice, many larger firms
finance a substantial part of their investment through internal financing.
Here again, this is a question related to advanced market structure such
as oligopolies.

> I don't think that stock prices will *inevitably* rise during the boom.

Agreed. Yet, *in general* stock prices increase during the boom.

> >Try asperin, tylenol, or excedrin.
> I drank chinese herb tea and worked fine.

Whatever works. However, let me note in passing that consumer perceptions
about the usefulness of different commodities is heavily influenced by
firm marketing and advertising.

In OPE-L Solidarity,