[OPE-L:2372] Re: Chaos theory, capital stock, and internal financing

Iwao Kitamura (ikita@st.rim.or.jp)
Mon, 27 May 1996 07:22:18 -0700

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Thank you, Jerry, for your quick reply.

Jerry [2361]:
>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?

I'm also strongly interested in this point.

Jerry [2361]:
>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

OK. But the problem you suggested above is actually the problem of
depreciation. The factor 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 ofprofit is higher" is not physical
characters of the existing fixed constant capital but the way capitalists
devalue it as a economically dominating class.

Jerry [2361]:
>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.

Yes, from '60s to mid-'80s(?) in US, from early '70s to today in Japan,
internal financing was (has been) the most part of the finance of next
investment of large firms.
As I understood your [2291], you seemed to relate only non-internal
financing to the problem of capital mobility. Of course, there will be
no new issue of stocks if all required fund is financed internally.
But firms choose where to invest in order to maximize their profit. For example,
suppose a large semiconductor manufacturer. If it produces 4M DRAM
and 16M DRAM and the latter (better maschine?) brings more profit rate,
it will put its cash flow into investment in 16M DRAM production lines.
And also allocate more employee into the section. Then, more variable capital
there. Isn't this an example of capital mobility?
The question of oligopolies (and monopolies) in relation to capital mobility
has to be also examined as you wrote.

Jerry [2361]:
>Agreed. Yet, *in general* stock prices increase during the boom.

In my understanding, *in general* stock prices begin to increase in
the latest period of the depression to the half way of the boom due to
the time lag between the profit rate and the (long-term) interest rate.
If this is true, the long-term interest rate is not dependent only on
profit rate expectation but also expectation on inflation, etc.

in OPE-L solidarity,


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