First point, I interpreted cumulative retained earnings divided by a price index to mean (cumulative nominal retained earnings) divided by a price index, whereas it is cumulative (nominal retained earnings divided by a price index) or cumulative real retained earnings, they are different things.
Yes R contains past invested earnings, but not just invested in plant, equipment, raw material, knowledge, etc. 20 years ago most retained earnings were invested in stock of other companies through acquisitions and mergers. In terms of R what is being purchased is some other companies R which then gets added to your R. Tobin’s Q involves investment in the plant, equipment, raw material, knowledge, etc, but it failed as a valuation tool because it did not account for investment as mergers and acquisitions in which what is being bought is entirely intangible or in the case of stock buybacks, nothing. And yet nothing can be financially potent–look at cryptocurrencies. I used resources to separate R from the idea that it represented lant, equipment, raw material, knowledge, etc, because otherwise one can just use Tobin’s Q.
You write “capitalization, being the discounted value of risk-adjusted future earning, is theoretically independent of past profit.” But it’s not. Future earnings is not a thing theoretically because it is unknowable and so meaningless. Practically, for an index like the S&P500, it is pretty easy to predict. Plot log earnings over time and you get a pretty straight line so one can forecast future earnings by extrapolation of a fairly constant rate. The discount rate r is an arbitrary parameter that one can adjust to fit the data. This means that actual future earnings (EPS) divided by r can be represented by an adjustable parameter, k, times the present EPS (E) with which we can write eq 4 on p 189 as
P = (EPS / r) * H = k * E * H = E * (k * H) = E * (P/E)
In other words, one can represent the meaning of H using the index P/E, which varies widely over time, showing how hype changes. One of the factors affecting P/E or hype is the length of the amount of time the financial expansion has one on. The longer it does the greater the hype.
By introducing discounted future earnings you confuse the issue. What are the future earnings for cryptocurrencies or NFT? Yet these have prices and are a multitrillion dollar thing. The same thing could he said about internet stocks in the late 1990’s which is the environment in which I wrote Stock Cycles. Sure pets.com was worthless, but you couldn’t short that stock back then anymore than you can short Bitcoin today.
R represents an abstraction of the idea of “real capital.” Capital in the sense of plant, equipment, raw material, knowledge, etc should “work” for individual companies. R explicitly does not. This was shown by the stock prices tech companies with little (or no) earnings were fetching in the 1990’s. This was my take on what R meant in 2000:
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The underlying meaning of R is subtle. Some resources are physical assets such as plant and equipment, natural resources, or land that can be counted and which will show up on a balance sheet. Most of R resides in the brainpower of workers, however. A company in a declining industry will provide an environment that is less conducive to profit generation than a company in a rising industry. As a result the declining firm cannot attract and retain as many high-caliber employees, and they lose R as a result. Companies in rising industries gain increasing numbers of talented employees and gain R. In a way the new employees bring a little R with them when they join a company.
New employees are not blank slates. Generally they can already communicate and process information. Often they already have specialized functions and knowledge bases. That is, they are an asset that produces a return, or they carry a little bit of R with them. Now where did they get this R? They got it as part of the cultural transmission they received from the previous generation. This quality of this transmission is a function of the richness of the cultural milieu in which the new worker was raised. The richer the milieu, the more R. As a result of the accumulation of past retained earnings, companies grow and pay increasing wages to workers, which makes society richer over time. The richer society provides an ever-improving cultural milieu in which the next generation is raised. Hence, successive generations have more R than the previous generations. For example, this rising R per worker is manifested by the tendency for population-average IQ scores to rise over time.
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This is a crude idea, but it contains the germ of the idea of capital as a cultural variant*, which is a non-economic thing, just as is your conception of capital as power.
*Theoretically capitalism is a social scale-up technology like religion or the state. The latter two increased group power (and so resistance to conquest) by increasing population size and/or social cohesion. Capitalism enhanced the amount of state power derived from a given population by boosting (taxable) economic output per person. This enhanced the ability of states/monarchs with this cultural attribute to contend with competitors leading to the spread of the capitalist cultural variant.