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The Ritual of Capitalization (2021)
- drumhead 3y agoA thing is only worth what someone is willing to pay for it. Valuation by formula is a pseudo science because every thing you do is ultimately subjective.
- LudwigNagasena 3y agoSubjective things can’t be described by a formula?
- vixen99 3y agoWho knows what takes place in a person's mind? They may not be clear themselves. So, no, unlikely, unless or until the 'it' is objectified.
- LudwigNagasena 3y agoIt’s an educated guess, not the word of God. You don’t have to know it precisely to produce useful results. The entirety of physics is wrong, so what, it still allows us to build rockets, skyscrapers and computers.
- drumhead 3y agoAnd there's a wide variation between even two people on what that guess should be.
- notahacker 3y agoFortunately, we have things called markets to allow the people that think something is overvalued to sell it to people who think it's undervalued...
- ttoinou 3y agoMarkets ? Rituals ! Religion !
- smitty1e 3y agoThe unit of analysis is firms, not individuals. My interest, at the halfway point through The Famous Article, is whether the relative sizes of the firms (in employees) fit in there somewhere. Money is used as a sort of analytic "low common denominator" in all of this work, but that seems a narrow window for viewing life in general.
- quickthrower2 3y agoThe formula allows you to compare. It is the same psuedo science as comparing SSD drive prices using storage capacity as a factor.
- moffkalast 3y agoWhat someone is willing to pay for something is very arbitrary and will be influenced by such pseudo science valuation formulas if they set the price first. Price anchoring as a form of a self fulfilling prophecy. Diamonds are worth a fraction of what Debeers wants for them, but people still pay it because those are the only prices they've ever seen. On the other hand, printers are worth far more than they sell for, yet nobody would consider paying the actual price for them.
- notahacker 3y agoNot convinced that an article which mentions religion more times than it mentions risk and doesn't mention growth expectations at all tells us very much...
- littlestymaar 3y agoYou're missing the point of the essay actually. It's like complaining that an essay written by an atheist about church doesn't talk about sin and salvation.
- notahacker 3y agoNo, I'm entirely getting the intended point of the essay, I just think that missing the 101 stuff makes the point that the author doesn't understand the subject matter he's attempting to do a hatchet job on.
- FrustratedMonky 3y agoThink it is because he is saying the 101 stuff is bunk, so why try to use the bunk to disprove the bunk. Like if a physicist is trying to convince a true religious believer there isn't a god, doing it by quoting the bible is often not very effective.
- notahacker 3y agoThe way to convince people the 101 stuff is bunk is to refer to the 101 stuff correctly, and explain why it doesn't work (or alternatively, come up with a better model), not to try to explain how some of it, fail to acknowledge other parts and imply there are gaps in it. Quoting the Bible is one of the more common methods of arguing against it or beliefs [purportedly] based on it, and certainly a better way of arguing against the coherence of the Christian model of salvation than writing an article about "the ritual of salvation" that makes a lot of disparaging comparisons to sun gods and talks a lot about Abraham but seems unaware that the Christian model of salvation actually revolves around Jesus
- denton-scratch 3y ago> So what happens in practice is that investors capitalize income by keeping one eye on capitalization itself. Is it right that this long essay is saying (roughly) that share prices are not really related to future earning expectations, but to future share price expectations? Well, blow me down with a feather. I'd never have guessed that stock markets were mainly about speculation.
- quickthrower2 3y agoThe value of everything is speculation
- FrustratedMonky 3y agoWait till you find out that the dollar is also made up.
- quickthrower2 3y agoUsed to be backed by gold. How many cows per kilo of gold? Made up too.
- fwlr 3y agoCoase’s Theorem (not technically a theorem) provides the basis for putting numbers on things, it’s not arbitrary. The specific numbers criticized (1.3%, 7%) decided on by economists are indeed arbitrary, though.
- overrun11 3y ago> The specific numbers criticized (1.3%, 7%) decided on by economists are indeed arbitrary But these numbers aren't chosen by economists or any other individual. If prices aren't arbitrary then neither are discount rates.
- simple-thoughts 3y agoCapitalism is closer to numerology or Kabbalah than ritual. The failure of the author to distinguish between different types of spiritual practices makes the entire article fall flat, which is sad because an investigation into the relationship between numerology and capitalism is quite interesting. Especially since you quickly discover that the number Zero holds special significance in accounting since all books must balance to it - assets and liabilities are equal.
- imtringued 3y agoI am not sure I need numerology for accounting identities. You would be better off just reading one of Wolfgang Stützel's books. E.g. "Volkswirtschaftliche Saldenmechanik" https://books.google.de/books/about/Volkswirtschaftliche_Saldenmechanik.html?id=BPjtMdrb4aoC&source=kp_book_description&redir_esc=y https://books.google.de/books/about/Volkswirtschaftliche_Sal...
- smitty1e 3y agoAn interesting read. The basic premise of juxtaposing an explicit religion with finance seems to be that the latter is an implicit religion. Like the discount rate itself, this seems am arbitrary rhetorical choice. I agree, at a very high level of abstraction, insofar as both a community of faith and finance are about rendering the future "somewhat predictable", though, in that sense, the future resembles the weather.
- ttoinou 3y agoIt's sad that someone like the author would spend so much time avoiding understanding basic economics like subjective value, marginal value, voluntary exchanges etc. There are plenty of economics who never use any maths and help in understanding finance without resorting to this kind of silly critic
- imtringued 3y agoI don't know how you can prove the existence of voluntary exchange in the real world. Also neoclassical economics tends to get marginal cost structures completely wrong. When you ask them, companies report constant or falling marginal cost. The text book authors that do the study then proceed to teach their students that marginal cost must rise. I am not sure I should trust people like that. If they are willing to straight up lie about this, what are they going to lie about next? The thing about economics is that you can keep studying and studying and get none the wiser. All the low hanging fruit are still there to pick but nobody is interested in that research because it is the equivalent of going from geocentrism to heliocentrism. The "obvious" conclusions you can derive from a continuous neoclassical model make no sense the moment you add multiple goods because at that point you now need to run NP hard optimization algorithms to get an equivalent answer. Yes, the proverbial corn economy works if all you care about is corn. From my perspective neoclassical economics is just a disguised form of centrally planned communism so that capitalists can claim the supposed benefits of communism for themselves, while they do something different behind the scenes. Communism should be rejected because it is not possible to implement it and so should neoclassical economics. This leaves us with a lot of research opportunities that nobody is willing to take.
- FrustratedMonky 3y agoYou had me for 2 paragraphs. But claiming that a branch of economics is trying to implement communism but somehow hide in plain sight, is a real stretch. Like a giant leap over the grand canyon stretch. Is there anything to this argument? I really would like to know. I read a recent theory that late stage capitalism does naturally morph into socialism, as a way for the rich to quell dissent in the poor. But not sure that is what you are going for here.
- FrustratedMonky 3y agoI wish there were more books or studies on how Economics is really a form of Psychology. It seems like the economic theories that delve into why humans do what they do seem more 'real', or uncovering something about human nature that can be applied.
- NoboruWataya 3y agoIsn't that just behavioural economics?
- FrustratedMonky 3y agoYes, you are correct. Just doesn't seem to get much respect, or its findings integrated into wider Economic Theory. Or maybe it just takes time.
- suoduandao2 3y agogiven how hard it is to replicate studies in Psychology, maybe the 'rational economic actor' theory, while obviously wrong, still makes better predictions that any theory that more accurately models the humans involved? After all, one of the main things that makes real humans different from rational actors is our unpredictability.
- m0llusk 3y agoThis is confusing. At one point risk is an essential component of ritualized calculations, but then the same formulas enable ignoring climate change? Also seems wrong at the core as what we know of economics shows symbols and counting used to track commodities and the regular production and trade of commodities then leading to lending and futures and so on which indicates that however abstract and ritualized everything emerges from and continues to be based on humans meeting their essential and perceived needs.
- bannedbybros 3y ago[dead]
- deleted 3y ago[deleted]
- janmarsal 3y agoYes, yes the markets are an ideology and by changing the ideology we can build a better world what could possibly go wrong
- burroisolator 3y agoThis is a great introduction to how valuation of public stocks works. In short, market capitalization is positively correlated with gross margin rates and negatively correlated with earnings volatility and the discount rate, which is a leading indicator for FFR.
- dmvdoug 3y agoThe article mentions that property existed in feudal Europe, so isn’t per se linked to capitalism. But the thesis is that capitalization is per se linked to capitalism. Then capitalization/capitalism is linked to caring not about actual property (things in the world) but income. Here’s the problem; That is exactly the way things worked in feudal Europe. Nobles were interested in acquiring, for example, rights to a demesne lands not because they were interested in how much food they could produce or whatever, but because it was an income stream. At first, that meant in-kind income. Towards the later Middle Ages, it was monetized into cash income. I don’t have a larger point, except to say that the person is so focused on their critique of capitalism that their explanation of what is essential to capitalism is wrong.
- patrickscoleman 3y agoI don’t disagree that property value is a ritualized social fiction, but there are some glaring errors in this. Namely they define value = future earnings / discount rate, and then when showing the example with Amazon use past earnings. Clarification: typically[1] future earnings = sum of all future cash flows, which is different than profits. Businesses (or a music catalog) keep making money and don’t just pay out once. It’s an arbitrary formula too, but they’re not staying consistent with their arbitrary formulas. And there is some effort to find a mathematical basis for the discount rate, e.g. CAPM [2]. Actual asset prices often are inconsistent with this and other models of the discount rate. Lots of hand wringing ensues and nobel prizes in economics are dolled out. [1] https://en.m.wikipedia.org/wiki/Discounted_cash_flow https://en.m.wikipedia.org/wiki/Discounted_cash_flow [2] https://en.m.wikipedia.org/wiki/Capital_asset_pricing_model https://en.m.wikipedia.org/wiki/Capital_asset_pricing_model
- richardanaya 3y agoThis person needs to read some Ayn Rand so their understanding of capitalism won’t be so inept as “slap a price on something”.
- HDMI_Cable 3y agoi thought this was going to be a post about *capitalization*—i.e., it was going to be about uppercase characters. when you think about it, capital letters are entirely useless since they don't convey any information in regular text, unless you're writing in ALL CAPS. you can get away just fine writing in all lowercase characters, as i've just done.