- This topic has 28 replies, 7 voices, and was last updated June 25, 2021 at 7:32 pm by .
-
Topic
-
Hi! I have a question about corporation and the so-called “corporate governance” and how it can be seen through the lens of CasP.
I have been reading <Capital as Power> for some time and I find the book very informative and interesting! I agree with a lot of the authors’ conceptualization of capitalism and their critique of other schools of economics (neoclassical and Marxist).
I agree that capital is power. Yet I think it’s also worthwhile to think about and recognize the exact mechanisms through which the power manifests itself in society. Specifically (perhaps because I am a law student) I think (certainly not *all*, but) most power takes the form of legal rights that has actual enforceability against others. This point was illustrated by Katharina Pistor in her book <The Code of Capital> – what capital as a legal right has: 1) priority (ranking competing claims) 2) durability (extending priority claims in time) 3) universality (extending in space) 4) convertibility (of said rights into state money on demand). (https://press.princeton.edu/books/hardcover/9780691178974/the-code-of-capital). Perhaps it would be worthwhile to try to connect CasP with this “law’s coding of capital” view – but this would be for next time!
So, I think the mechanism and operation of the manifestation of power and its structure in society is interesting and important. And I think, in that regard, the corporate system is important. As the CasP book noted, it’s where differential accumulation happens. It’s also where , indeed, like it or not, most of our social and economic activities, including employment, production of consumption goods happen.
What the corporate law academia (and some industrial organization economics – at least my understanding is) identifies as the key issue of corporation is a bundle of questions regarding the so-called “corporate governance“: 1) what is a corporation – and does it have a “purpose”? 2) should it serve the society in general? 3) to achieve 2), how the ownership/control should change?
These questions are important, since the identification and classification of the “fiduciary duties” of officers or directors at a company tend to depend on how the court and the academia have interpreted them, and depending on circumstances, decisions of these power-holders can be actionable: they may constitute a breach of their duties and then shareholders can claim liability – or in worst cases they might be charged with malfeasance. I think the interpretation of these matters does have real-world effects (by shaping and constraining decision-making.
(I have to clarify that, in some common law jurisdictions, including the United States, the Court has developed a jurisprudence called the “business judgment rule”, which basically let officers and directors, for the most time, get away with whatever decision they’ve made.)
There have been mainly two interpretations of corporate governance (which I’ll discuss later), but I think both stem from the so-called “separation thesis” put out by corporate law scholar Adolf Berle and economist Gardiner Means in their book <Modern Corporation and Private Property> published in 1932. Written amidst the Great Depression, the book suggests that a revolutionary trend in the history of property rights and thus capitalism happened with the emergence of corporate structure. With the vastly dispersed shareholders among population, those who legalistically “own” claims on corporations now do not actually have a control over the intricate decision-making process and strategic choices of the management, and those handful of “managers” (officers) make decisions, without “owning” anything. Thus, with this “separation” of from the traditional (neoclassical) notion of private property (ownership, with wise use, generates profit) falls apart, so does what we have understood as capitalism.
The first interpretation, mostly developed in response to Berle/Means by some neoclassical economists and “law and economics” scholars, is called “agency theory.” It postulates that the managers of corporation are “agents” of shareholders and represent their best interests. Under this theory, optimal business decisions are made in the sole interest of the absentee ownership. Markets (with the law of supply and demand and certainly with the ECMH) make optimal decisions. Then, the interest of executives are integrated into that of shareholders. Thus, the separation of ownership and control “disappears.” Now, what matters most for a public company then is to maximize profits and shareholder value, above all other goals, as Friedman expressed(“shareholder value primacy”). While this view has been the dominant one, due to the ongoing neoliberal period and all the social harms caused by it, this theory has been so vehemently criticized that it’s becoming increasingly hard for anyone to just outright regurgitate it.
The second interpretation is what Berle/Means originally expressed in their book. While there are many variations of it, I think it can be loosely called as “stakeholder theory.” Berle and Means say that these mega-corporations are indeed quasi-public entities since most of their shares are held by individuals, so they do have a public purpose. Due to the separation, executives only serve their self-interests and by doing so they might harm the society. Therefore what is needed is the ways through which the interests of “stakeholders” – workers, local residents, government, NGOs, etc – can intervene into and control corporate entities, via legal regulations and state interventions. This view has been succeeded by others. JK Galbraith talked about “techonostructure” of corporate system and how “counterveiling forces” of government and trade unions rein in. Most famously, the late Lynn Stout at Cornell Law School called the shareholder primacy theory a “myth”: she wrote, as Berle and Means wrote, how little actual power shareholders have conveyed by law over decision-making (“shareholders don’t actually own”), how the shareholder primacy view has led to adverse phenomena like low investment and mass stock buybacks, and how traditionally corporate entities had served public purpose and why they now should do too. (https://insights.som.yale.edu/insights/does-focusing-on-shareholder-value-hurt-shareholder-value)
I think something is off here. It seems that both theories are working on a normative front. They seem to be not explaining how control and power are exerted within and via corporations but how they should be done. Of course a big part of legal study is investigating this normative aspect – to make the world a better place – but again, for myself both are unsatisfactory.
Most importantly, at the end of the day, whether agency theory is right or stakeholder theory is right matters in the context of the differential accumulation of capital facilitated by corporate system?
There are also some empirical problems of Berle/Means thesis. The somewhat misleading identification of “separation” had already been pointed out by Zeitlin(1974), who called it a “pseudofact.” But most importantly, what Berle and Means “failed to consider” in their book is the rise of pension funds and mutual funds that have a meaningful share of votes that can affect decision-making. Furthermore, in the recent decade after the GFC, the accelerating concentration of ownership of assets by big institutional investors, notably “Big Three” ones including BlackRock, State Street, and Vanguard, happened, and now its both theoretically and practically possible for these institutional investors and other activist groups to intervene into the decision-making process.
In fact, in this interesting paper Stephen F. Diamond at Santa Clara School of Law points out that the separation hypothesis and both agency and stakeholder theory are either wrong or irrelevant in the context of the accumulation of capital. In his words, while the power is now shared by large institutional investors, the board of directors, and senior shareholding managers, regardless, ” hold the complete bundle of rights needed to carry out the purpose of the corporation: sustaining the valorization and capital accumulation process. And it
is their shared commitment to that process, reinforced by their financial claims and legal rights, that holds them together as a socio -economic milieu or class.”https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3742395
(Yet the author bases his argument on the purely Marxist concept of capital – the bifurcation between “industrial” capital and “finance” capital – which I think CasP finds quite problematic.)
So, my questions are:
1) From the viewpoint of CasP, does the issue of corporate governance – whether a company should serve only shareholders or serve stakeholders too – matter, in the context of the accumulation of capital and concentration of power?
2) There have been talks on “Corporate Social Responsibility (CSR)” and now recenlty “ESG” due to more public interests in climate change. From the viewpoint of CasP, *should* corporations (or *can* they )serve the society in general? And how would CSR/ESG look like in reality?
3) How does CasP see Galbraith’s call for countervailing force or stakeholder governance to contain corporate power? Does it have at least some merit?
Thank you!
-
Replies
-
-
Thanks Brian.
There are no ‘correct’ answers to you questions, of course, but here are some thoughts.
Our claim in ‘capital as power’ is not that capital is ‘affected’ by power, but that it is literally a symbolic representation of power — and nothing but power. In our view, this power is meaningful only because it presses against and tries to reduce and eliminate opposition and resistance. Without this opposition and resistance — from within capital as well as from outside of it — power has no meaning.
1) From the viewpoint of CasP, does the issue of corporate governance – whether a company should serve only shareholders or serve stakeholders too – matter, in the context of the accumulation of capital and concentration of power?
I’m not sure CasP has anything to say about this ‘should’. Personally, I prefer to eliminate hierarchical private corporations in favour of various forms of flat democratic cooperation. In practice, the control and purpose of corporations are constantly contested. So far, though private owners and differential accumulation via strategic sabotage seem to be winning, big time. This trajectory can change in the future, but I don’t see it on the horizon.
2) There have been talks on “Corporate Social Responsibility (CSR)” and now recently “ESG” due to more public interests in climate change. From the viewpoint of CasP, *should* corporations (or *can* they )serve the society in general? And how would CSR/ESG look like in reality?
Currently, large corporations are hierarchically structured, intertwined with other hierarchical networks, including governments, and tend, almost exclusively, to seek differential accumulation through various forms of strategic sabotage. In principle, corporations can be — and have been — regulated, restricted and reformed in various ways. But in my view, these regulations, restrictions and reforms are limited: judging by the continuous rise of differential accumulation by dominant capital, these ‘countervailing forces’ are no match to the power of large owners (see the U.S. chart below from http://bnarchives.yorku.ca/671/). According to Blair Fix’s work, hierarchy tends to grow with energy capture, so as long as growth continues, so will the size of large corporations and other hierarchies. Again, this ongoing victory of capital can change — perhaps through a massive crisis — but we are not there yet.
3) How does CasP see Galbraith’s call for countervailing force or stakeholder governance to contain corporate power? Does it have at least some merit?
In my opinion, countervailing powers might ‘work’ when both sides seek power — for example, when corporations fight other corporations. In these cases, mutual threat creates a semblance of stability, however tentative.
But trying to have ‘stakeholders’ restrain differential accumulation is a different matter. In my view, the main problem is that the two sides have fundamentally different goals. Corporations and owners seek power, know how to use it and have no scruples exerting it. Stakeholders, by contrast, seek wellbeing, have limited expertise in using power, and are usually restrained by self-imposed, well-meaning inhibitions. In this sense, ‘stakeholders’ tend to fight with their hands tied behind their back.
-
Brian, here is a 2014 dialogue we had with a fund manager on the subject of the ‘The Enlightened Capitalist‘.
You might find it relevant to your questions.
-
-
-
AAAS (which publishes Science mag) is asking members to ‘sign a pledge’ to ‘Trust in Science’ .
Its purpose is basically to promote more govt spending for sceince.
One reason they give is science and scientific experts improve the lives of all humans.
There was some pushback from what could basically be called both ‘right wing and left wing’ AAAS members.
‘Differential accumulation’ applies in science as everywhere else.
Not ‘all boats rise together’ at the same rate.
In ‘law’, ‘law and economics’ (which is typically viewed as a right wing school associated with GMU) (some have a different name) has a ‘left’ dual called CLT/CRT (critical legal /race theory). The right wing group focuses on ‘efficiency’, the other on ‘justice’.
Science actually theoretically focuses on efficiency–also called optimality or ‘path of least action’. (A few papers try to rewrite US constitution in terms of in math language of optimization.). But science knows that ‘justice’ is not ‘just us’, and ‘just us’ is inefficient.
AAAS forum sort of shut down their free and open debate about ‘truth’ and ‘justice’.
I agree with J Nitzan that there is no or little hope for any resolution to these debates between corporate (including ‘nonprofits’ like AAAS) and stakeholders or members’ interests.
-
So, my questions are:
1) From the viewpoint of CasP, does the issue of corporate governance – whether a company should serve only shareholders or serve stakeholders too – matter, in the context of the accumulation of capital and concentration of power?
2) There have been talks on “Corporate Social Responsibility (CSR)” and now recenlty “ESG” due to more public interests in climate change. From the viewpoint of CasP, *should* corporations (or *can* they )serve the society in general? And how would CSR/ESG look like in reality?
3) How does CasP see Galbraith’s call for countervailing force or stakeholder governance to contain corporate power? Does it have at least some merit? Thank you!
Brian,
Katharina Pistor’s The Code of Capital is a good resource that provides valuable insights into how the law is used to manifest capital’s power, and, as a lawyer who read her book at the same time as my first reading of Capital as Power, I think her book can be used to extend significantly the breadth and depth of CasP theory.
Unfortunately, at this point CasP is primarily a framework for understanding capital as power in broad brush strokes. It’s dialectical approach relies on a aggregate data, which is good for identifying the existence of power (through trends that seemingly defy conventional wisdom) and opposition to that power (through apparent tensions that demonstrate a lack of confidence in obedience), but which offers very little when it comes to actually understanding the underlying “mega-machinery” of capitalism.
There are always exceptions, of course, and I think you might find this article from Jongchul Kim of particular interest because it is consistent with Pistor’s work. I also highly recommend the works of Tim Di Muzio, and in particular his books Debt as Power and The Tragedy of Human Development.
Turning to your questions, I’d argue that CasP is a theory in search of a purpose, or at least a practical application, and people like you and me are free to propose a purpose or application. As a result, “CasP as CasP” has no answers to your questions. CasP is not an ideology, it is an observation that shows its work. Please consider Bichler’s and Nitzan’s response to Debailleul, a CasP paper Prof. Nitzan graciously directed me to in response to some of my own questions. Also see an updated version of the article that triggered Debailleul’s queries.
-
Unfortunately, at this point CasP is primarily a framework for understanding capital as power in broad brush strokes. It’s dialectical approach relies on a aggregate data, which is good for identifying the existence of power (through trends that seemingly defy conventional wisdom) and opposition to that power (through apparent tensions that demonstrate a lack of confidence in obedience), but which offers very little when it comes to actually understanding the underlying “mega-machinery” of capitalism
Yap. CasP has plenty of room to expand. In the meantime, here is a small sample of “fine brush” insights into the “underlying mega-machinery of capitalism”:
-
Yap. CasP has plenty of room to expand. In the meantime, here is a small sample of “fine brush” insights into the “underlying mega-machinery of capitalism”: Joseph Baines http://bnarchives.yorku.ca/view/creators/Baines=3AJoseph=3A=3A.html DT Cochrane: http://bnarchives.yorku.ca/view/creators/Cochrane=3ADT=3A=3A.date.html Tim Di Muzio: http://bnarchives.yorku.ca/view/creators/Di_Muzio=3ATim=3A=3A.date.html Blair Fix: http://bnarchives.yorku.ca/view/creators/Fix=3ABlair=3A=3A.date.html Sandy Hager: http://bnarchives.yorku.ca/view/creators/Hager=3ASandy_Brian=3A=3A.date.html Ulf Martin: http://bnarchives.yorku.ca/view/creators/Martin=3AUlf=3A=3A.date.html James McMahon: http://bnarchives.yorku.ca/view/creators/McMahon=3AJames=3A=3A.date.html Joon Park: http://bnarchives.yorku.ca/view/creators/Park=3AHyeng-Joon=3A=3A.date.html Jesús Suaste Cherizola http://bnarchives.yorku.ca/view/creators/Suaste_Cherizola=3AJes=FAs=3A=3A.date.html
I know you love Ulf Martin’s paper, but what is “Autocatalytic Sprawl” and how does it relate to “Pseudorational Mastery”? Stringing obscurae phrases together is not a path to enlightenment for anybody. To get your point across, you should be able to use terms to convey ideas that are meaningful to most people, regardless of education. That is why the neoliberal movement was so successful in reviving capitalism after its many obvious failures, even over Marxism, which itself is relatively easy to understand.
And yes, people like Cochrane, Di Muzio, Fix and Hager have tried to breathe value and meaning into CasP, but despite their best efforts it remains obscure. With the notable exception of Tim Di Muzio’s The Tragedy of Human Development, most CasP efforts seem focused on finding new ways to show capital’s power in this industry or that industry, using this new metric or that new metric. Why should we care if capital is power? How would our lives be different if capital was not power? Why should we care about power at all? (To me, the answer is none of us should be subject to the arbitrary coercive power of another without our consent, which is implied in the case of states but not for private actors.)
Eventually, someone will have to declare CasP’s purpose, and if that goal is not to constrain the power of capital, I don’t see the point.
-
And yes, people like Cochrane, Di Muzio, Fix and Hager have tried to breathe value and meaning into CasP, but despite their best efforts it remains obscure. With the notable exception of Tim Di Muzio’s The Tragedy of Human Development, most CasP efforts seem focused on finding new ways to show capital’s power in this industry or that industry, using this new metric or that new metric. Why should we care if capital is power? How would our lives be different if capital was not power? Why should we care about power at all? (To me, the answer is none of us should be subject to the arbitrary coercive power of another without our consent, which is implied in the case of states but not for private actors.) Eventually, someone will have to declare CasP’s purpose, and if that goal is not to constrain the power of capital, I don’t see the point.
There are lots of important discussion points here. Perhaps some of the discussion can build on Jonathan’s curiosity about the future of CasP, found here: https://capitalaspower.com/casp-forum/topic/the-future-of-casp-and-beyond/
I do want to comment about the noticeable pattern of industry/sector level research. Focus on the particular, rather than the universal, partly stems from how much academic theory speaks about power. Combine political economy with political theory, Continental philosophy, anthropology and history, and you have endless opportunities to find articles, books and presentations that critique a power process in capitalism.
CasP does not make this literature irrelevant, but I would say that it challenges empirical research to come to terms with a problem that is still growing: when you say “power”, what does it actually mean for capital accumulation? How would one know if it is 20%, 50% or 100% of capital value?
This problem is methodological and I think that it makes industry/sector research a better starting point to build CasP (not to say that we can’t do more with what we build). For example, when I worked on my dissertation I had an acute fear that I could not put my finger on how Hollywood accumulated through power–hence the metrics, proxies, triangulation. Because if I could not measure how Hollywood accumulated through power, how would I know if my reference to power was more metaphorical than literal?
I came to political economy via political theory and my journey has taught me there is a recurring pitfall to theorizing: abstract ideas that are camouflaged as concrete, empirical claims. Herbert Marcuse came to this realization about the philosophy of his first mentor, Martin Heidegger:
To me and my friends, Heidegger’s work appeared as a new beginning: we experienced his book … as, at long last, a concrete philosophy: here there was talk of existence, of our existence, of fear and care and boredom, and so forth …. Only gradually did we begin to observe that the concreteness of Heidegger’s philosophy was to a large extent deceptive–that we were once again confronted with a variant of transcendental philosophy (on a higher plane), in which existential categories had lost their sharpness, been neutralized, and in the end were dissipated amid greater abstractions. That remained the case later on when the “question of Being” was replaced by the “question of technology”: merely another instance in which apparent concreteness was subsumed by abstraction–bad abstraction, in which the concrete was not genuinely superseded but instead merely squandered.
You have to fight against this pitfall all the time. Case in point: here is Moishe Postone, a Marxist theorist who inverts the labour theory of value to the “value theory of labour”, purportedly addressing his interviewer’s concern that speaking about the dual-form of the commodity easily slips into a kind of “metaphorics”:
Marx grounds the form of production in capitalism as well as its trajectory of growth with reference to his analysis of the dynamic nature of capital. I tried to work out the general character of the dynamic as a treadmill dialectic. It’s this treadmill dialectic that generates the historical possibility for the abolition of proletariat labor. It renders such labor anachronistic while, at the same time, reaffirming its necessity. This historical dialectic entails processes of ongoing transformation, as well as the ongoing reproduction of the underlying conditions of the whole. As capital develops, however, the necessity imposed by the forms that underlie this dialectic increasingly remains a necessity for capital alone; it becomes less and less a necessity for human life. In other words, capital and human life become historically separated.
Much like the abstractness of metaphysics, here we have truth claims stacked on top of truth claims about a historical process that should have concrete, observable details.
-
-
This has turned into a very interesting thread. To return to Brian’s original comments, I think that the law and capital as power are in need of further research. The way I think of it is that Nitzan and Bichler have laid out what they see as the broad goals/methods of capitalism. The legal regime is the primary place where these goals are contested and enacted via property rights.
I, for one, could never be a lawyer because I find the minutia of the law to be incredibly dull. Still, it is a rich area to study. In particularly, I’d be interested in work that compares how different legal regimes relate to capitalization and differential accumulation.
About the seperation hypothesis, D.T. Cochrane and I had been scheming about a possible test where we’d look at the behavior of firms where the CEO owned a significant share of the company, vs firms where the CEO is a bit player. Unfortunately, we needed the Bloomberg terminal, which is only accessible at York University. But COVID shut down the libraries, putting the whole project on hold. Perhaps we will resurrect it while I’m doing my posdoc.
… people like Cochrane, Di Muzio, Fix and Hager have tried to breathe value and meaning into CasP, but despite their best efforts it remains obscure.
I think we have to be realistic here. We’re talking about a theory who’s founding text is decade old. A decade after Marx published his opus, he was still obscure. Only a handful of people went to his funeral … or so it is said.
Another issue is that Marxism was designed from the start with a goal — to overthrow capitalism. The theory was designed to justify that objective. CasP starts from a very different place — from an attempt to understand the workings of capitalism as best we can using the tools of science. It’s no wonder that it’s caught on slowly. Science is hard and slow, and it doesn’t give easy answers … at least not usually.
-
This problem is methodological and I think that it makes industry/sector research a better starting point to build CasP (not to say that we can’t do more with what we build). For example, when I worked on my dissertation I had an acute fear that I could not put my finger on how Hollywood accumulated through power–hence the metrics, proxies, triangulation. Because if I could not measure how Hollywood accumulated through power, how would I know if my reference to power was more metaphorical than literal?When earnings growth is the imperative, as it is for every publicly traded company, you will always find what you found with respect to Hollywood, regardless of industry or sector. “Dominant capital” (which to me is everywhere and always Finance) has been remarkably effective in making earnings growth the imperative for listed companies. As a former CEO of mine liked to say “If you aren’t growing, you’re dying.”The real question is why is earnings growth the imperative, i.e., what makes growth so important to dominant capital? The answer is in the modern bank-money system, which requires every increasing debt and spending to avoid collapse (and to accumulate capital). This is why I am partial to Tim Di Muzio’s work.
-
1. James’ work on Hollywood showed that the leading firms didn’t manage to increase their differential earnings. Instead, they reduced their differential risk.
2. Regarding the causal chain between earnings and capitalization (of both interest as debt and profit as equity), I think you might be putting the cart before the horse. Conceptually, capitalization is based on expected future earnings, so that, all else remaining the same,
greater earnings expectations –> larger capitalization
The thing is that, in practice, capitalization occurs before the future interest and profit are earned, leading to the (false?) conclusion that
larger capitalization –> greater earnings
In retrospect, firms that see their capitalization increase are driven to accommodate that increase by higher earnings, lest they crash, but the original impetus for that higher capitalization was greater earning expectations.
-
-
This has turned into a very interesting thread. To return to Brian’s original comments, I think that the law and capital as power are in need of further research. The way I think of it is that Nitzan and Bichler have laid out what they see as the broad goals/methods of capitalism. The legal regime is the primary place where these goals are contested and enacted via property rights.
I, for one, could never be a lawyer because I find the minutia of the law to be incredibly dull. Still, it is a rich area to study. In particularly, I’d be interested in work that compares how different legal regimes relate to capitalization and differential accumulation.
I have been practicing law for most of the last 30 years (with some breaks here and there to focus on the business side of things). I enjoyed law school because I focused on what connected things together (the so-called “seamless web” of the law) and not the small details. Generally, I found law school to be a great place to learn history.
Capital is power because of the law: but for the law creating a separate domain for Finance to rule according to accounting principles, capital as we know it would not exist. Capitalism is its own game within the broader game of society, but the game within the game rules everything.
-
1. James’ work on Hollywood showed that the leading firms didn’t manage to increase their differential earnings. Instead, they reduced their differential risk. 2. Regarding the causal chain between earnings and capitalization (of both interest as debt and profit as equity), I think you might be putting the cart before the horse. Conceptually, capitalization is based on expected future earnings, so that, all else remaining the same, greater earnings expectations –> larger capitalization The thing is that, in practice, capitalization occurs before the future interest and profit are earned, leading to the (false?) conclusion that larger capitalization –> greater earnings In retrospect, firms that see their capitalization increase are driven to accommodate that increase by higher earnings, lest they crash, but the original impetus for that higher capitalization was greater earning expectations.
1. Shouldn’t reducing differential risk equate to reducing the discount rate, effectively increasing (growing) the net present value of discounted future earnings even if the nominal future earnings remain the same? At some point, reducing risk won’t be any more effective than reducing cost as a long term strategy for growing earnings.
2. Companies try to use the quarterly earnings call ritual and follow-up calls with investors and analysts to avoid earnings projections they don’t think they can meet. Nothing hits your stock price like over-promising and under-delivering.
-
1. Yes, reduced risk perceptions increases capitalization, but you mentioned findings that were not in James’ work.
2. Yes, of course. Companies do all sort of things, including trying to project next quarter’s earnings. But capitalization tends to look into the deep future, which is unknowable and unverifiable here and now. And I think that, in general, it is these long-term earning expectations that drive capitalization.
-
-
1. Yes, reduced risk perceptions increases capitalization, but you mentioned findings that were not in James’ work. 2. Yes, of course. Companies do all sort of things, including trying to project next quarter’s earnings. But capitalization tends to look into the deep future, which is unknowable and unverifiable here and now. And I think that, in general, it is these long-term earning expectations that drive capitalization.
1. The second sentence was my own conclusion. James did find that reduction of differential risk led to an increase in differential capitalization “despite falling differential earnings from 1980 to 1994.”
2. If you look at a typical analyst report, their models usually take current earnings (and maybe a year prior) and assume a common annual growth rate over the next 3-5 years. Companies successfully influence that baseline growth assumption all the time, and that’s pretty much all they can do. But it is usually enough unless you have an unusually bearish or bullish analyst, in which case you better hope you have several so consensus is reasonable.
-
You focus on analysts, but how well do analysts predict earnings (figure 1, CasP, p. 213)?
And I think that stock prices normally do not correlate with current earnings; or to put it more precisely, that their correlation with current earnings (rather than future earnings) is closely related to the level of capitalized power — the greater the power, the higher the correlation (figure 2, The CasP Stock Market Model, p. 141).
And even when stock prices do correlate with current earnings — as they have in the past couple of decades, when capitalized power has soared — it seems to me that causality still runs from earnings to prices, not the other way around. But, then, I might be wrong.
-
-
You focus on analysts, but how well do analysts predict earnings (figure 1, CasP, p. 213)?
Actually, I don’t focus on analysts. I am merely sharing how your capitalization ritual works in real life.
I’ve done investor relations (IR) at three different publicly traded companies, all as an executive officer. What I have shared on this forum is how things worked at every single one of them. I don’t endorse the analysts, who are often 26 year old kids straight out of business school, but they are what they are and they do what they do, as do the companies who have to manage them to ensure there is not too much, or too little, “hype.”
Believe it or not, the future is actually unknowable. The job of public companies and Wall Street analysts is to create the illusion that the future is not only knowable, it is known. Why? Is this illusion a “nice to have” or a “must have” for dominant capital?
Your theory creates an opportunity to ask a lot of questions that otherwise would not be asked, which is why I find it interesting and worthwhile. I’m just trying to provide some practical experience to inform the theory (and to ask better questions).
-
Hi Scot,
I appreciate the context. When I worked as an editor at BCA Research in the early 1990s, I learned that ‘long term analysis’ meant projecting the next 18 months. I also learnt that seasoned strategists are skeptical of quantitative models and prefer telling stories. The models, they told me, are necessarily backward-looking, and since the world constantly changes, their forward-looking predictions always fail. Of course, analysts don’t have a choice. Since their rulers crave certainty, they, as fortune tellers, are forced to pretend — even though they almost always err, often big time.
My argument in this thread, though, was not about the clergy of financial analysis, but about the conceptual causal chain between the growth of current capitalization and future earnings, a relationship that we both consider crucial.
-
-
Since i just sample casp writings, the ‘casp stock market model’ i find clear though i hadnt heard of PI or HMM before , and the dynmaics of PI is basically a prediction of the theory.
physics people would write differential equations for these and also derive them from an optimization principal. physicists don’t care if the theory is true typically–they just do the equation that summarizes it..i wonder how this theory differs from Machover’s ‘law of decreasing labor content’ or whether its the same.
while as i understand it if i do, maybe CASP’S most distinctive feature may be its ‘post ante ‘ definition of captialization. that is sort of new. however i think both are needed, following modern physics. formally as i understand it, in that field causality goes in all directions.
-
Ishi,
1. PI (Power Index) and HMI (Hussman’s Mismatch Index) were coined by us, so there was no reason for you to hear about them before reading our paper.
2. PI is predicted by the theory, as well a predictor (for example, of the ‘Fear Index’). But our work is limited to the United States. For international research, see Baines and Hager and McMahon.
3. Physicists are welcome to fit differential equations to these relationship and/or derive them from “optimization principles”, whatever they may be. I’m not sure how any of this would relate to our work, but they are welcome to do their thingy if they want to, and we can then judge whether this thingy is useful.
4. In their Laws of Chaos (1983: 97), Farjoun and Machover introduce the ‘law of increasing productivity of labour, or decreasing labour-content’ as follows:
This law amounts, roughly speaking, to the seemingly commonplace observation that as a capitalist economy develops, and as techniques of production develop with it, it takes less labour-time to produce the same product.
As far as I can see, this ‘law’ has nothing to do with our ‘CasP model of the stock market’.
5. Ex ante, ex post and causality are complicated concepts.
-
-
Thanks J Nitzan. This was a clear response.
comments:
1. i think coupling a ‘fear index’ with a ‘PI ‘is a good idea–
my interpretation is this combines (mass) psychology with ‘measurable’ or ‘material’ things (eg labor time, products produced…).
but alot of these measurable things are only weakly connected to ‘value’ or ‘utility’ as commonly understood (and as casp seems to emphasize.)also the ‘fear index’ is typically hierarchically produced. not everyone in a company makes investment decisions.
2. on optimality principles— i’m not a physicist but i studied theoretical biology. its a sort of ‘game’ in these fields (and now all through psychology, sociology, economics …even pure math and cs)—to try to find ‘euler-lagrange equation’ (or Lagrangian) which is the ‘optimum principle’ for just about any system. the equation of m0tion is implicit.
you can fit any data set with the E-L form (its just nonlinear regresssion –curve fitting–in my view).most people who do this agree that these are ad hoc. it may or may not have to do with causality. you can optimize anything –who cares? so long as its ‘aesthetic’—-the dirac criterion for good science.
-
-
many econo-physicists hired by capitalists (‘quants’) simply couldn’t find academic jobs and didnt want to do fast food or uber. so they modeled some other time series. they also learned money is more valuable than physics and love—which can be bought with money.
some academic econophysicists are sort of straight up leftists/even marxists in some sense –but get paid for physics.
some actually use it to do things like ‘optimize an electrical grid’ for electricity generation and distribution over time and space, when the grid has inputs from coal , nuclear, water power, solar and wind.
this way all the hooligians have their preferred choice to get www and tv.
‘optimality principals ‘ are a game played by academics.
i was thinking of optimizing the english language. 26 letters i think is an optimum based on basic biology, and number theory.one could get it down to 2 or 3 letters but then you live in a digital universe.
-
The ultimate tale about eco-physics is Robert Harris’ book The Fear Index. Here is our own reflection on it.
-
-
JN– very good and interesting review.
i was unfamiliar with the book by Harris.
the theme, often called ‘superintelligence’ (maybe a variant of the frankenstein/pandora’s box/old movies about automated factories that take over control of their human employees ) in modern form may originate in 1960’s with i. j. good (famous statistician).i’d mention the films eraserhead (john waters), ‘metropolis’ (fritz lang) , and aguirre the wrath of god (herzog) as other semi-fictional accounts of capitalist development — and also maybe Matewan (film about a labor rebellion in coal country—w va.).
i might use different or alternative terminology or dialect a few places.
where you use ‘capital as power’ , i tend to call that evolution. but you are basically dealing with modern finance capital and hence use terms from that field—
i view economics, politics, and modern ‘democratic capitalist ‘ societies as ‘subsets’ or ‘social ecosystems’ within the evolutionary process.
eg the standard theory is you start with the ‘big bang’—–a radiation gas—- and then the gas cools or evolves into particles, atoms, chemicals, genes, organisms, and collections of them (‘ecosystems’) and their productions (memes, language, money, capital, property, books, art, machines-technology , religion, states …)
eg Big Bang-> USA +Trumpall the basic evolutionary laws of biology can be written as optimization principals (either maximum entropy or principal of least action).
The most classic one ‘fisher’s fundamental theorem of natural selection’ (FFT)something like d<w>/dt ~ var (w) (where w is ‘fitness’ (eg profitability)
(i view that as an almost intuitive equation once you know the symbols).fisher viewed as analogous to 2nd law of thermodynamics (entropy increases—as hot coffee cools) .
others viewed it as analogous to newton’s laws (potential energy decreases —a rock at top of hill falls down to lowest point).
nowadays in my view these 2 views are the same —they just use different boundary conditions and definitions.
i’m fairly sure many others agree—though you won’t hear this in undergrad physics classes.FFT or variants is used by someone in insititutional economics to deal with ‘survival of firms’.
———————–
(the fisher lectures at London Math Soc were renamed not long ago due to Fisher’s racist comments—- i didnt really know this history except i knew that fisher did get paid to ‘prove’ that cigarette smoking was not related to lung cancer.)
————————FFT is known to be wrong and likely was known to be when it was written down.
Its only true for the simplest case.
fitness= w = constant –could be interpreted as ‘price=constant’ everywhere and at all times.eg ‘an aged wine’ had same price the day it was made.
old coins (i once had a nickel from 1800s and i got one at a coin show but did’nt pay for it ) always have same value —- 5 cent 1850 coin is worth 5 cents today. ‘its common sense’.
I might similarily say ‘marginal utility theory’ might sort of work for a barter economy based on hunting, gathering, simple ag and tech.
Current versions of FFT while also derived from optimization principals have ‘many optima’ and also these change or evolve.
‘soon as you get to the highest mountain top you see a higher one,
and it maybe the small mountain you had to climb over to get where you are’.
.
———————-The ‘newtonian particle’ view of humans interacting actually was foreign to me except historically
(maybe goes back to democritus; first papers i read in econ journals were on ‘herding effects’ and role in financial crises,
racial segregation and class stratification, etc.
these are ‘modified newtonian particle ‘ theories. now some people model ‘human atoms’ as quantum mechanical—
alot of it is ‘new agey mysticism’ but some is quite rigorous and doesn’t make ‘bold claims’.the ‘cartesian’ view that one can seperate mind from matter, syntax from semantics (chomsky’s cartesian linguistics),
or even ideology from science , or ‘theory’ from ‘applications’ , i think went out around 1900 but it seems they rebury this view every 30-50-70-100-120 years. (As soon as its buried , someone exhumates the theory.I saw papers recently by a professor who is part of Chomsky’s empire who exhumated ‘cartesian linguistics’.
He uses some sort of ‘mathematical theorem’ to basically promote the ‘beanbag cartesian linguistics program’
(the ‘theorem’ —‘on structural dependence’ — has been promoted by chomsky for decades, but he never defined it. )
The basic idea is children dont learn language by ‘learning’ it—-they just it get it from their beanbag or ‘meme bag’.
they differ in language because they have different memebags.———————
(In biology the genetic equivalent is called ‘beanbag genetics’ (term atributed to Fisher) —
eg organisms including humans are just a random draw of genes from a ‘genebag’.there’s even a prominent ecological theory (came out of Yale) analagous to beanbag genetics—it could be called beanbag ecology.
to test it one could go to a zoo, open all the cages, wait a few hours, and then come back and put all animals back in and close all the cages. then you get new ecosystems.human migration over eons has sort of done this experiment.
Nowadays it seems people can sort of buy and price genes —get better genebags. Make new genes2.
govt to some extent can control borders and limit what is in genebags.
-
i’d mention the films eraserhead (john waters), ‘metropolis’ (fritz lang) , and aguirre the wrath of god (herzog) as other semi-fictional accounts of capitalist development — and also maybe Matewan (film about a labor rebellion in coal country—w va.).
ishi, can’t help myself:
Eraserhead is directed by David Lynch. Funny fact, it was actually funded by the American Film Institute. Eraserhead is lovely, but if anyone finds it slow and weird, Lynch does not care:
Matewan, directed by John Sayles. Great pick. Another would be a film that people know infamously: Michael Cimino’s Heaven’s Gate, a film about a cattle conglomerate crushing cattle rustling in a poverty stricken county.
-
A couple of quick hits, late to the party, in a really great thread:
Brian–
On stakeholder theory & Corporate Social Responsibility: The social control matrix that these concepts would necessitate to have any real effect on corporate governance is so expansive and so adverse to the current system of absentee ownership that the terms are rendered meaningless as a basis for reform. You’d need to go far beyond simply voting for politicians who create and uphold regulatory laws: you’d have to develop a corporate structure that combines a worker-directed cooperative enterprise, a consumer cooperative, and direct input from those constituting the greater public affected by the operation and logistics of said corporation—and, further, allow that entity to make decisions for all the interlocking corporations that must exist up- and down-stream of the corporation in question. At that point, you’ve basically incorporated a commune (and good for you!) so why not lean into it?
On Galbraith’s call for government’s countervailing force: Your parenthetical about “business judgement rule” effectively puts the lie to that, demonstrating that the courts specifically (and government more broadly) operate from shared worldviews and according to the same operational frameworks as corporations. More on this could be gleaned from Robert Jackall. The jurisprudence you mentioned is an integral mechanism in the modern capitalist engine. Talking about the possibility of creating a countervailing force as a potential reform rather than an improbable revolution misrepresents the realities of the present and the lessons of the past. The state and its laws is what enables corporations (especially massive, dominant, differentially accumulating corporations) to exist; it was never designed to be what reins them in, only what keeps them running, growing, and reifying with the fewest bumps. More on that could be gleaned from David Graeber.
Scot–
On the Autocatalytic Sprawl of Pseudorational Mastery: It could also be called something like “The Continually, Unendingly Self-Reproducing Expansion of Society’s Tendency Toward Meritocratic Expert-ification into All Aspects of Life as a Means of Legitimizing its Paradigm of Rule Despite All Evidence to the Contrary” if that wasn’t so long and horrible, but it still wouldn’t directly hit on the fact that the paper is largely about innovations in symbolic representation and Ulf trying to define enormous German words/concepts. I’m of the mind that big ideas sometimes require big words so expressing them doesn’t get overly cumbersome.
On why capital being power matters: Life still could look like building physical pyramids for our rulers instead of just pyramids of control. It also means, because capital can’t be anything other than power, that any society with capital will inevitably be a society where people are empowered based on their accumulation of capital. Without capital, power and its expressions will obviously still exist but would need to be mediated through other forms. What those forms might be, however, is tough to say until they’re wrenched into being. Sounds like yet another revolution in waiting. Otherwise, asking what life might look like if capital weren’t power seems hollow, since it is and can’t not be.
Ishi/JMC–
On films about capitalist development: Have you ever seen Norman Jewison’s 1975 film Rollerball? If not, you should!
-
Scot– On the Autocatalytic Sprawl of Pseudorational Mastery: It could also be called something like “The Continually, Unendingly Self-Reproducing Expansion of Society’s Tendency Toward Meritocratic Expert-ification into All Aspects of Life as a Means of Legitimizing its Paradigm of Rule Despite All Evidence to the Contrary” if that wasn’t so long and horrible, but it still wouldn’t directly hit on the fact that the paper is largely about innovations in symbolic representation and Ulf trying to define enormous German words/concepts. I’m of the mind that big ideas sometimes require big words so expressing them doesn’t get overly cumbersome. On why capital being power matters: Life still could look like building physical pyramids for our rulers instead of just pyramids of control. It also means, because capital can’t be anything other than power, that any society with capital will inevitably be a society where people are empowered based on their accumulation of capital. Without capital, power and its expressions will obviously still exist but would need to be mediated through other forms. What those forms might be, however, is tough to say until they’re wrenched into being. Sounds like yet another revolution in waiting. Otherwise, asking what life might look like if capital weren’t power seems hollow, since it is and can’t not be. Ishi/JMC– On films about capitalist development: Have you ever seen Norman Jewison’s 1975 film Rollerball? If not, you should!
Jeremy,
Thank you for your comments. I look forward to further discussions.
I believe that CasP as a whole is actually a “big idea” that should, could and would have a much larger following, if it were expressed in simpler, more accessible terms. Instead, the language around CasP has become increasingly more complex since JN’s PhD thesis, carrying CasP farther away from the masses and general consumption. The increasing complexity of the language is neither necessary nor inevitable, and it is something that I am working on addressing myself (I am writing an essay to submit to the RECASP Journal, and my interactions on this forum are a big help in shaping what I ultimately submit).
My questions regarding why/how capital being power matters were rhetorical and aimed at making the conversation more concrete and less abstract. The individualism of liberalism promises a society free from the existence and exercise of arbitrary power over individuals without their consent. Capitalism claims to be necessary to achieving freedom from arbitrary power, but is, in fact, the vehicle for creating and asserting such power. The power of capital can be (and has been) restrained, and I think it is quite possible to end it over the span of a few generations, provided we address the deceit and ignorance that perpetuates capitalism itself. CasP is the theory that is best positioned to address that deceit and ignorance in the current political environment, which is due to what George Monbiot has declared to be a civil war among dominant capital (which he referred to merely as “capitalists”).
Everybody should watch the original Rollerball.
-
- You must be logged in to reply to this topic.