Scot, I think the issue here is not only whether we can write the equations correctly (which often we don’t), but also – and perhaps more so — whether the equations justify our conclusions. You write that:
In a world where the capitalist uses the capitalization equation to set what it will pay for input costs such as wages by discounting its expected profits from future sales, the discount rate used by the capitalist determines (and ensures) the capitalist’s profits.
I think this interpretation is fundamentally wrong. In and of themselves, capitalist expectations of profit, the ex-ante discount rate used to concoct these expectations, and the impact these expectations have on how much they spend on inputs, do not and cannot determine, let alone ensure, actual profits. It seems to me that your claim here is not only unrealistic, but also self-contradictory. Imagine every potential capitalist expecting his/her own profit into existence. This mana-from-heaven magic will make everyone an instant, insatiated capitalist, bring their individual expectations into conflict with each other, and pretty much ascertain that their actual profits will differ from what they expect. In my view, discounted values do not generate power. Instead, it is power that generates discounted values. But we can agree to disagree.
Jonathan,
If you read what I wrote today here and here, you will see I have already back-tracked on my earlier language from yesterday, which you quote above. I have made it clear that equation 6 is an ex ante calculation of forecasted profits, not actual profits, and everything I’ve written previously other than the language you quote supports my claim about the ex ante nature of the calculation, which is clear from the context of its derivation. Hence, my quoted, ill-advised statement regarding “ensuring” actual profits is no longer operative, and you should consider it retracted.
Therefore, please take the time to address what I said here, almost twenty hours after I wrote the language you quote and three hours before you wrote the response quoted above.
If there remains any disagreement, it is not about this: discounted values are determined by discount rates, and discount rates reflect relative power. To me, as I said before, this implies power is confidence in setting the discount rate of a transaction, or, more simply, power is the ability to set the discount rate in the one’s favor. I view either statement as equivalent to confidence in obedience.
What I believe I have shown is that, if I pay you money today in return for your promise of the future payment to me of that same amount of money plus a premium, we can express the relationship between today’s payment and the future premium as discounting. This is true whether today’s payment is provided as a loan, as wages, or as the purchase price of shares, and whether the future premium is in the form of interest, profits, or earnings per share (profits per share less depreciation, amortization and income tax). The future payment of the premium is never guaranteed, but that does not prevent “pricing” what I pay you today by discounting the expected premium you will pay me in the future.