Re: [Marxism] Simple math query about the rate and mass of profit

["Barry Brooks" <durable@xxxxxxxxxxxxx>]

>The reason why I am raising this is that because, in the Marxist economics
>tradition, people are always going on about the "rate of profit".
>Personally, I tend to think that the *volume* of profit is just as important
>for the investor.

The final "volume" of profit does tend to go up with a higher rates of return 
in a simple analysis. A more complicated analysis seems unnecessary to most 
investors and anyway they want their money now.  They tend to ignore the final 
"volume." They prefer high rates and will move their investments seeking 
current income long before the total "volume" of the last investment is 
accumulated. It's game of hit and run.

Here's an unfinished piece I've been working on.

*******************

Making the most of available resources

Of all the kinds of markets the most important is the investment market. It 
chooses what we invest in, or don't invest it, and thus the investment market 
controls the kind of world we are building. Leaving such political decisions to 
be made by the market is not a good idea. The market often makes bad choices 
for our future because it operates in the present, seeking short-term profits 
about all else.

The market is a process rather than a plan. It has no functional mechanism to 
plan for the future. People from the future aren't here to bid up prices on 
futures contracts.

Seeking the greatest rate of return, assuming comparable risk, investors only 
choose investments that yield a return greater than the rate one could get from 
just lending the money out. The interest rate sets a floor on the expected rate 
of return for investments.

Many investments with a greater total return over a long period are passed over 
in favor of investments with a lesser total return, but quicker, higher rate 
payoff. That makes many desirable investments to be judged as "bad business." A 
solar house provides a good example. A solar house is "affordable" or not 
depending on the heating and cooling costs being lower that the 
interest-rate-tracking mortgage payments on the solar equipment. This situation 
does not lead to good investment decisions. The fuel bill is Enronized, the 
interest rate in Volkerized, and thus our solar investment decisions hinge on 
external factors that are of doubtful relevance to assessing the final costs 
and benefits of the investment. Whatever the final artificial balance of the 
two rates, this kind of investment decision ignores the outcomes. The outcomes 
would be free secure heating and cooling once the loan is paid, or without the 
solar investment one will face rising fuels costs, and monthly utility bills 
forever.

Another example, a forest with a 5% sustainable yield would be clear-cut and 
the money put in a bank if the bank pays more that 5%. The market's focus on 
the rate of return instead of the final result of investments is behind our 
failure to invest in sustainability and conserve resources. These decisions are 
political and the rate of return should not be the sole factor considered, and 
personal gain should not be any part of the movitation of those involved.

Without a clue about what matters, or how to prosper for long, our system tries 
to maximize production and consumption.

It's not how much we produce that matters; it's how much we have. What we have 
is what we have produced minus what we have consumed. One doesn't "consume" a 
durable item by using it. Mere ownership and use of an item can consume very 
little.

For example, producing 100 cars each year could keep up with replacements 
needed to maintain a large fleet of cars. How large a fleet would a production 
rate of 100 cars per year maintain? It depends on life span of the cars. If 
they lasted 5 years there would be 500 hundred cars on the road. The same 100 
cars per year production rate would create and maintain a fleet of 5000 cars if 
they lasted for 50 years.

If we want full employment then we could build our fleet of 5000 with cars that 
lasted for only one month. Then we would need to produce 60,000 cars per year. 
Think of all the jobs and "profits" that would create! Think of the wasted 
time, wasted resources and unnecessary pollution!

Our consumer economy uses this relationship between life span and consumption 
to increase consumption without increasing what we have. Satiation is a mark of 
economic success, but it is "bad" for the economy. One can't sell another item 
until the old one is consumed.

Zero life span is unavoidable for food, fuel, and other perishables which are 
consumed upon first use; but when we ignore the durability of durables we 
deserve an "F" in economics. The market doesn't just impartially ignore 
durability; it minimizes it whenever possible.

Market or not, when we think that the goal of the economy is to produce and 
consume as much as possible, we will do a very poor job of making the most of 
available resources.

Barry







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