From: gts (gts@optexinc.com)
Date: Mon Sep 16 2002 - 19:52:57 MDT
Dan,
I read your message below, and at the end one word popped into my head:
"sophism"
I have no interest in playing word games with you. If you do not accept
my answer to your question (that the stockmarket, in the long run,
provides corporate profits to shareholders in the form of dividends or
capital gains or both) then that is fine by me. Believe whatever you
chose to believe. It makes no difference to me.
Were my arguments, among other things, "arguments from authority" as you
suggest?
Yes, well, I suppose that from your perspective they should be seen as
arguments from authority. I did post-graduate work in this area and then
spent ten very long and excruciating years of my adult professional life
examining these questions as a full time occupation. I would be
surprised to learn that you've spent even a semester on these questions
as an undergraduate.
This is not to say that I don't have a great deal of respect for your
knowledge and insight in other areas. For example your messages in the
postmodernism and QM threads are very impressive. I think there is a lot
I can learn from you, but not in this subject.
-gts
> -----Original Message-----
> From: owner-extropians@extropy.org
> [mailto:owner-extropians@extropy.org] On Behalf Of Dan Fabulich
> Sent: Monday, September 16, 2002 7:24 PM
> To: extropians@extropy.org
> Subject: RE: What does the stock market supply?
>
>
> gts wrote:
>
> > Dan Fabulich wrote:
> >
> > >>> For example, you can't eat a hammer, either. But a hammer gives
> > >>> you a capacity that would wouldn't have without it; you can make
> > >>> money with a hammer without selling it. There is a value
> > >>> in *owning* the hammer, even though it's not a utility value.
> >
> >
> > >> I'm sorry but that's not correct. The "capacity" of earning
> > >> money from a hammer cannot be separated from its utility
> as a hammer,
> >
> > >> as you do above.
> >
> > > By "cannot be separated", I should presume you mean "ought not be
> > > separated"
> >
> > I mean that you cannot logically separate the property of a
> hammer that
> > allows its owner to earn a living from the property of a
> hammer known as
> > its "utility." The carpenter buys the hammer for its
> utility. It helps
> > him drive nails. People then pay for the utility of the
> products of his
> > labor.
>
> allow me to connect this with what you say later:
>
> > Regarding your reference to utilitarians above, it should
> be noted that
> > utilitarianism is a philosophy or principle of ethics. The
> definition of
> > utility from that philosophy does not necessarily coincide with that
> > used by economists.
>
> I think you're wrong that "utility" is only used in the sense in which
> cakes and hammers have it. I think that there's another use
> of the word
> "utility" which is *at least* used by utilitarians and, I
> think, also by
> economists, to refer to the sort of thing that a person gets
> from eating a
> cake but not (typically) from using a hammer. [There are obvious
> irrelevant exceptions in the case of the hammer; hammers CAN be fun.]
>
> But I can already hear you cry: "No, no! That's not how the
> economists
> use the word 'utility'." I still maintain that you're wrong
> about that,
> but I understand that it's not how *you* use it. ;) One point which
> should now be obvious is that one CAN use different definitions for
> different words.
>
> So let me wade into this pointless semantic argument try to
> figure out how
> *you* use it, partly because you've been so resistent to
> discuss this in
> the terms I've offered, but also because, I think, you've
> actually got it
> wrong.
>
> If you think you use "utility" in the only way economists use it, then
> you'll think that I'm arguing against the standard economic use of the
> word "utility." But, in fact, I'm arguing that it's really
> *you* against
> the rest of us economists *and* utilitarians on this point.
>
> Before I do so, we can ask: is there any point? Are you *just right*
> about your claims about the language of economics?
>
> > > Let's show why your language is obfuscatory...
> >
> > This is not my language, Dan. It is the language of the science of
> > economics.
>
> That's rather fast of you; it's a rather fast argument from
> "authority,"
> in fact. Aside from the fact that such arguments are bad
> mojo by their
> very nature, *it's your very authority on this point that I'm
> questioning*. :)
>
> "Utility" isn't often flung around in financial circles, and
> we both know
> it; it's a term used almost exclusively by theorists. Would it be so
> crazy to imagine that you were using it incorrectly?
>
> I hope I've at least managed to insert reasonable doubt in
> your mind that
> "utility" isn't used that way, certainly not all of the time.
> If, after
> reading this post, you go crack open one of your old
> textbooks to quote
> something at me, I'll have considered this point well-taken.
>
> By your definition of utility, cakes and hammers have
> utility, but stocks
> don't. Stocks don't, you say, because they aren't ever
> kept-and-used or
> consumed-and-used, but only used-when-sold. [Never have I been more
> acutely aware of how much simpler this argument might be in
> German. It's
> a pity that I don't know the language.] Only things which are
> kept-and-used [e.g. books and hammers] or consumed-and-used
> [e.g. gasoline
> and cakes] have utility by this definition.
>
> I think this is how your use of "utility" works. Do speak up if I'm
> wrong.
>
> In this case, you make an analogy to currency. Currency, you
> argue, is
> neither kept-and-used or consumed-and-used, but only used-when-sold.
> Thus ...
>
> > Stock certificates have no utility. Dividends have no
> utility. Proceeds
> > from the sale of shares have no utility. Cold currency has
> no utility.
> > (These things could of course be converted into assets with
> utility at
> > the discretion of their owners, at which point our
> discussion would then
> > move away from the market for financial assets that interests us.)
>
> So, now we get to ask ourselves: are stocks just like
> currency? If so, as
> we know, nearly-valueless paper can stand in for currency. Indeed,
> *chewed gum certificates could stand in for currency*.
>
> So there are two questions we could ask. The first question
> is: how are
> chewed gum certificates different from currency? And the
> second question
> is, how (if at all) are stocks different from currency?
>
> Why is there an active market for currency but not chewed gum
> certificates? Part of the answer is government fiat. But
> before fiat,
> there were other bartered commodities that were apparently only
> used-when-sold. Gold is the most obvious example, though its
> worth as a
> status symbol and as a key ingredient for jewelry might
> suggest it has a
> non-trivial kept-and-used utility.
>
> Let's set aside the first question for the moment and
> consider only the
> second question: How are stocks different from currency? One
> way in which
> stocks differ from currency is in appreciation of value. Old
> gold is no
> better than new gold, and old fiat currency does not
> accumulate value the
> way that stocks do. (Instead, inflation makes individual
> dollars less and
> less valuable as time goes on.) Why?
>
> The answer is this: stocks appreciate in value because they
> are can not
> only be used-when-sold, but can also be kept-and-used. What are they
> kept-and-used for? Collecting a firm's profits, ordinarily through
> dividends.
>
> Of course, it's very difficult to agree on what a firm's
> profits will be
> and whether the firm should re-invest its profits. Thus, a
> liquid market
> for stocks makes it easier to reach unanimity. Those who
> want to reinvest
> can keep the stock, or buy it if they don't have it; those
> who want the
> amount of cash they expect to get can sell it to someone who does.
>
> But the whole point of this liquid market for stocks is to
> get access to
> that capacity to collect a firm's profits. Even if they are
> hardly ever
> kept-and-used, the fact that they *could* be kept-and-used is what
> explains why stock prices are tied to a firm's financial performance.
>
> If stocks *were* just like currency, then we would expect neither to
> appreciate in value (even if we could speculate on them).
>
> I said that I'd come back to the question of currency and chewed gum.
> Well, here's the answer: nothing that is actually sold is only
> used-when-sold. Even currency. The utility of gold *cannot* be
> overlooked in the context of a barter system: people trade
> gold so that
> they can have gold. In the case of fiat currency, people
> *must* acquire
> the fiat coin to pay taxes, and in turn are required by the
> government to
> accept repayment of debts in the fiat coin. So, in the case
> of fiat, the
> currency must be used to abide by the law and keep yourself
> out of jail.
>
> So, how do we wrap this up in utility? You claim that currency has no
> utility (it is neither kept-and-used nor consumed-and-used),
> and neither
> do stocks. You are wrong about stocks; they can be kept-and-used to
> collect firm profits, and this *explains* why capital appreciation
> happens. You may be right about currency, (depending on whether you
> consider "giving it to the gov't to avoid jail time" a
> consumption use,)
> but if you are, then it's only because the gov't has required it to be
> used in this way. You would not be right if you said that
> about gold, or
> certificates backed by gold.
>
> Tying it all back into the earlier conversation, if I ask "What's the
> utility of stocks, that makes their value appreciate so?" the
> answer isn't
> "firm's profits and capital appreciation", because the capital
> appreciation is the explanandum, not the explanans. The
> answer, now, is
> just "collecting profits." The ability to do this is the use
> of stocks.
>
> > Your mistake here is in equating the simple *ownership* of
> a hammer to
> > the *use* of a hammer. It is only through the *use* (utility) of a
> > hammer that a carpenter earns his living. The passive ownership of a
> > hammer does not give one access to the products of carpentry.
>
> No, no. It's not my mistake; it's exactly my point. You can
> use stocks
> to do something (besides selling them). If you couldn't use them for
> anything, no one would want to buy them; they would not appreciate in
> value, like currency and chewed gum certificates.
>
> > The carpenter might just as well borrow his neighbor's
> hammer to do his
> > work. His income would be the same.
>
> He could also borrow a stock and make money, if he could
> collect dividends
> with it successfully. If the stock were 100% control of the
> firm, then
> the analogy between hammers and stock would be exact: he
> could borrow the
> firm's stock, collect its profits for a year, then return the
> firm to its
> owner.
>
> If he didn't use the stock, if he didn't collect the firm
> profits, he'd
> get nothing, just like the hammer.
>
> > > [I'll charge that even the economists call the latter "capital"
> >
> > To the carpenter, the hammer is "capital equipment," which
> should not be
> > confused with "investment capital." The word "capital"
> means only that
> > the item appears on the "assets" side of the balance sheet.
>
> You think I'm getting confused here, but, instead, I'm
> calling attention
> to What Exactly Is It that they have in common.
>
> > > But I don't care if you disagree with me about what "capital"
> > > means. It's purely semantic; the argument would have no
> substance.
> >
> > Excuse me, but "capital" is the entire substance of the stockmarket.
> > This thread is about the very machinery of "capital"-ism.
> If you don't
> > care about the meaning of the word then I must wonder why
> you've had so
> > much to say here. :-)
>
> Yup. Because the question is "what's the point?" and it
> doesn't matter
> what you call the intermediaries. It deeply doesn't matter
> if I'm right
> about the definition of utility as economists use it; all
> that matters is
> the truth or falsehood of the claims within a single
> language/definition
> scheme.
>
> > You must begin to make an important distinction between capital
> > equipment and investment capital if you hope to speak
> sensibly about the
> > economics of the stock market:
> >
> > 1) Capital equipment (e.g., hammers) have utility value but lack
> > investment value.
> > 2) Conversely, financial assets (e.g., stocks) have
> investment value but
> > lack utility value.
> >
> > Business owners, including carpenters, do not "invest" in
> hammers or in
> > other forms of capital equipment. Capital equipment is
> depreciated each
> > year on the books until it is worn out and amounts to nothing.
> >
> > People with poor understanding of economics sometimes speak of
> > "investing in new machinery," (e.g., "Honey, I think it's
> time we invest
> > in a new dishwasher.", or "Hey boss, I think it's time we
> invest in a
> > new computer network.") However in the science of economics such
> > expenditures are not categorized as investments. Even
> business-owners
> > sometimes make this mistake; fortunately for them their
> accountants know
> > better than to categorize such capital expenditures as
> investments on
> > the balance sheet.
>
> <sarcasm> Ah, how foolish of them for trying to do RO"I" on that new
> computer network. They'll never get a Return On "Investment" on a new
> computer network, because it's not really an investment at
> all! It's a
> good thing nobody uses the word that way, or they might get
> confused by
> these pointless ROI proposals. Off to the wastebin they go!
> </sarcasm>
>
> The only problem here is your refusal to adopt alternate
> definitions, even
> when they'd be useful. "Investment" is obviously the right
> word for what
> happens when you plonk down $X today for a network that will
> save you more
> than $X down the road. It might be wrong to put it in the
> "investments"
> column on an accountant's sheet, but that doesn't mean that
> it's the wrong
> word for what's going on, or that one shouldn't think of
> these kinds of
> expenditures as investments.
>
> These people who do ROI analysis aren't talking nonsense, as you imply
> when you say that I'd need to use your definitions "if you
> hope to speak
> sensibly". They're using the right language for the right job.
>
> So should you!
>
> > > Stocks have this characteristic X of allowing you to acquire
> > > more goods if you own them, that is also had by hammers
> >
> > No. Again, owning a hammer does not give you the ability to
> acquire more
> > goods. To access more goods you must *act* with a hammer to
> perform some
> > work or action.
>
> These claims aren't contradictory. The ability to act with a
> hammer to
> perform work which produces goods IS the ability to acquire
> more goods.
>
> > Contrast the above with stocks, where passive ownership results in
> > dividends or interest or capital gains which can be traded
> directly for
> > real goods and services. No work or action is required. The benefits
> > come entirely through ownership.
>
> If the stock has no dividends, and I borrow it for a while
> and then return
> it, I get nothing for my energy. But that's just because I
> didn't *use*
> the stock to collect profits. On the other hand, if I DID
> use the stock,
> then, like the hammer, I get to reap the rewards.
>
> > As you can see, to compare capital equipment to financial
> assets, as you
> > do, is to compare apples to oranges.
>
> As I hope *you* can see, both apples and oranges are sweet fruit,
> providing certain valuable nutrients; both are insufficient
> for a balanced
> diet.
>
> Similarly, hammers and stocks have an interesting property in common,
> whatever you may wish to call that property, which explains a
> great deal
> about stocks. I wish you could see that more clearly.
>
> -Dan
>
> -unless you love someone-
> -nothing else makes any sense-
> e.e. cummings
>
>
>
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