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Don’t know about Boychuk’s book, but in the oil&gas business it is (sometimes) possible to find costs per project (per field in the upstream industry). They’re published in corporate reports as projects’ cashflows, and/or cost per unit of oil/gas extracted. So it can be done also from the costs side, bottom-up, if aggregated geographically.
Interbank transfers, whether accomplished via physical check or electronic transfer, do not require an exchange of currency, just the exchange of liabilities (deposits).
Thanks Scot. Are you sure about that? I don’t see how it can make sense from an accounting point of view (deposits can’t just be striked-out by one bank and added to the balance sheet of the second bank). I believe the rest of your exposition (which I think is flawed) is connected to the above point, so maybe it would be helpful to sort it out first.
An added complication might arise because the same products, ‘produced’ by the same ‘industries’, can be recorded differently depending on the sector to whom they are sold (e.g. coffee machines sold to corporations will be labeled as capital goods, but when sold to households they’ll be labeled as consumers goods).
If I’m not mistaken, this classification (and aggregation) is dependent on corporations’ reports of capital formation, and not on attributing the corporation’s output to a specific industry.
So even if corporations were ‘pure’ (with regards to industry), it would still be problematic to reconcile industrial imputations and domestic product accounts of recorded capital formation.
Having said that, taking those classifications at face value, and looking at it from the ‘expenditure’ side: is it possible, in principle, to impute shares of income (profits/wages/etc.) to ‘gross investment’/’capital formation’ – based on aggregated data from corporations individual reports? Without recourse to industrial classification.
money is by definition on the liabilities side of the bank’s balance sheet
There are two kinds of ‘money’ in operation here. One is ‘credit money’ which sits on the liabilities side. The second is ‘currency money’ (which originates from a central bank loan or from the bank owners equity) and it sits on the assets side (reserves). Let’s just agree to call it currency for now.
As I understand it, the argument (by Keen, et al.) is as follows – The books need to be kept balanced at any time and after each monetary occurrence by a double-entry procedure:1: New loan [+ Asset (loan)]–>new deposit [+ Liabilities]
2: Deposit leaves the bank [- Liabilities]–> currency leaves the bank [- Assets (reserves)]
3: interest paid on the loan: currency flows to the bank [+ Assets (reserves)] –>profit registered for owners [+ Liabilities (equity)]
4: principal returns [- Assets (loan “write-off”)]–>currency returns to the bank [+ Assets (reserves)]This is a simple example involving all of the recorded credit money leaving the bank (so all of the currency corresponding to the loan/deposit figures needs to be employed). But a similar procedure can be described for the extreme counter example (all recorded credit money stays in the bank, so no need for currency transfers).
In my opinion, this is the only explanation that makes sense. Registering the returned principal as a net asset would violate accounting rules since it would register twice on the asset side (as currency and as “write-off loan money”), resulting in the need for recording a third monetary occurrence (crediting equity out of the blue) with no corresponding double-entry registration. Or else the books will not stay balanced.
By Tia & Max
Increased consumption and the inception of ‘new needs’ does not equate with wellbeing. And it does not imply that business is productive. But Corentin raises an issue which we know to bother some of us who try to think in the above terms.
In actuality, industry is not a separate, autonomous and deliberate institution. It has no democratic organizational structure of its own, but one that is intertwined with business management. Industry’s autonomy might well be a potentiality (with strong grasp in reality, since without this potentiality being manifested at least partially, social production could not exist), but under capitalism its ‘terrain’, so to speak, is already everywhere dismorphed and dislodged. Its cooperative DNA is already ‘infected’ by business control, which does not exert itself from the outside but channels industry from the inside.
Industry is not only intertwined with business at present, the two also emerged together. industry as the rationalization of cooperative processes of creation and production appeared alongside the fundamental institutions of capital, and so we do not even have a concrete historical example of industry operating without the effects of business upon it.
Assuming this is a valid description, a question arises concerning appropriate proxies for sabotage. If the proxy is unemployment, does it follow that when employment rises industry is necessarily less sabotaged? Even if the added employment is directed at the production and consumption of junk? Surely, full employment does not mean in this case a fully autonomous and wellbeing-oriented industry.
We can think of unemployment as a wide measure of sabotage, but only if we consider it as one dimension of the latter: as sabotaging the given industrial terrain, which is already shaped by needs, production Techniques and goals co-determined by business power. And if this is the case, we might have a complication because we are talking about different levels of analysis. The ‘upper’ level of sabotage might indicate a falling share of capital income as unemployment diminishes, but this does not necessarily mean industry operates in a more autonomous, democratic and deliberate mode. It can mean something else entirely: workers manage to wrestle a higher share of income while producing and consuming more junk, destroying the environment and poisoning the entire population (expressions of ‘deeper’ societal sabotage).
This line of reasoning alludes to the possibility that different metrics of sabotage, referring to different levels of analysis, might move in opposite directions. More importantly, it is not clear why a single viewpoint, that of capital and the distribution of income, should be able to give us a clear-cut ‘bottom-line’ when estimating the ‘degree’ of industry’s autonomy (which is not the same as estimating power relations between different social groups).
P.S.
Castoriadis offers an alternative way with which to understand the dynamic nature of innovation under capitalism, which might be of relevance. He writes: “…what we see is neither technology creating capitalism, nor capitalism creating out of nothing an entire technology to meet its wishes; what we see is the emergence of a capitalist world, of which this technology is an ‘everywhere dense subset'” (Technique, Crossroads in the Labyrinth, 1986: 252). This “technology” is characterized by an abundance and diversity of innovation: “for every ‘need’, for every productive process, it develops not one object or technique, but a vast range of objects and techniques”. Thus, the selection between these creative potentials of production, the promotion of some techniques and the simultaneous repression of others, lies at the heart of the dynamics of power and resistance under capitalism.This means that one dimension in which the analysis of business-industry relations should be carried out is at the level of industrial transitions – how these play out, who do they benefit, and what wider changes do they harbor.
K/E would give us the price to earnings ratio. I think Blair used the inverse formula: r = E/K
Adjusted to include compounded growth:
E/K = (r-g)/(1+g) = 0.068
g = 0.04
r = 0.068+1.068g = 0.1107 = 11.07%Shouldn’t we expect capitalists to already include growing perpetuity of earnings when pricing these kind of assets? If so, Blair’s ‘effective’ discount rate actually corresponds to [r-g]. And if the projected growth rate of earnings is 4%, than the ‘actual’ discount rate [r] is around 12% (instead of 8%). Or am I confusing something?
Thanks for this, Yoni. A few follow up questions:
1. Is the pharma PE ratio actually rising in absolute terms? I’m not sure if it’s directly evident from the graph.
2. Is the PE ratio rising diferentially (compared to the global PE)?
3. If it is, why assume it has to do with differential expected profits and not with differential risk reduction?
Well, something seems to be moving on that front. but is the focus on IP to narrow? This piece can be read as to suggest production is sabotaged (at least on the near to medium term) at wider (and maybe deeper?) levels – limitations on techno-scientific design and modularity of vaccines production, as well as the control of essential raw materials supply. Though stock prices have plummeted following the Biden administration declaration, they haven’t collapsed. Surely, investors know it’s all talk for now and the risk to IP might not materialize, but maybe expectations also take into account IP is only the first line of defense for profit, in the current circumstances.
A technical issue – is it possible to move a comment from a sub-thread to the main-thread? I didn’t know about the first option and mistakenly posted the above reply in a sub-thread (deleting and re-posting is not possible either for me).
Administrators, feel free to delete the current comment after reviewing it.
I agree, Yoni. This “business anthropology” doesn’t carry any positive value judgement. At times, the “micro” level seems to offer some concrete points useful for de-legitimization of the existing order in general, and sometimes it’s easier to locate those points outside of the general trend.
But since the 1980s, when top managers became large owners, the debate has cooled off
It’s a longshot, but maybe in declining industries (like oil&gas) it’s a resurgent conflict.
Insofar as the two complement each other, the question of whether owners receive their earnings directly or have the corporation retain them is irrelevant to them.
In that case, owners sentiment might be that allowing cash to accumulate in firms’ hands actually interferes with total returns (capital appreciation will be lower since investment decisions would favor own-industry/sector activity, not taking into account all investment alternatives, neglecting proper risk assessments, etc.). I sometimes think to recognize this sentiment in investors’ talk of giving preference to “high-yield dividends companies”.
This goes beyond relative distribution between owners and management. Managers might actually perform “their best” for owners, but they can still be limited to business decisions in a specific industry/sector and need to be “disciplined” with regard to the best benchmark available for re-investment of profits.
The systematic shift between the monies flowing to owners and the monies remaining with corporations suggests to me that owners view the distinction as relevant. The standard productivist conception would identify retained earnings as useful for investment in productive assets. A business/industry based analysis would draw other conclusions. I haven’t thought explicitly about the owner-corporation distinction from a CasP perspective. But I do think identifying how monies flow through the corporation is a good empirical starting point
Can we find here a start to a power analysis between owners and executives? Let say our corporation is considered Introvert. The owners, on the other hand, look for economy-wide investment portfolios (so dividends are required) . And on top of that, executives are making money using intenal-industry benchmarks for bonuses which the (much more universal) owners think is misguided.
Does it make sense to look on [dividends/retained earnings] as a proxy for the power of the two groups?What I failed to understand is why this reclassification should alter the magnitudes of GDP and national income in the first place. As far as I can tell, prior to this reclassification, the ‘in house’ production of software, R&D and artistic originals was already recorded as part of GDP and gross national income.
Right. If I understand correctly, not only ‘in house’ production but also ‘purchased IPPs’ are reclassified. And reclassification by itself doesn’t change GDP/income directly. But when you convert a part of ‘gross output’ from ‘intermediate expenditures’ to ‘investment’, it affects other components of gross output – part of which is not ‘expensed’/deducted anymore at the same amount (at the firm level that implies EBITDA will be higher because expenses are now recorded lower). So that now:
[Gross output] – [adjusted intermediate expenditures]= a recorded increase in GDP.On the income side the recorded increase is imputed automatically to GOS (gross operating surplus), as nothing changes for the actual income related directly to the relevant IPPs (it is split between wages, profits, etc. in the same way as before the reclassification). This happens because the additional income is treated as a residual, in a sense.
If I got it right, this article helps explaining it (look for tables 3 and 4 at the end).
Regarding ‘ambiguous income’, I think the BLS applies a somewhat subtler approach than Koh et al (here’s a published journal version of the article). But I don’t think it changes something dramatically. I find it pretty astonishing if indeed the latter are right, and this decade long debate between economists on the issue of declining labor share is based on an accounting “artifact”.
For us, this indicates perhaps that we would do better using ‘cash-flow’ based distributional national accounts, to get rid of the “productivist” bias. Is something like that available? Anyway, using net national/domestic income (instead of ‘gross’) seems preferable for now, since it excludes variations in the depreciation component, which are related to (some of) the above imputations and the problems they raise.
