The Ritual of Capitalization (2021)

It'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

Not 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...

I 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.

This 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.

This 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.

A 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.

I don’t disagree that property value is a ritualized social fiction, but there are some glaring errors in this.<p>Namely they define value = future earnings &#x2F; discount rate, and then when showing the example with Amazon use past earnings.<p>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.<p>It’s an arbitrary formula too, but they’re not staying consistent with their arbitrary formulas.<p>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.<p>[1] <a href="https:&#x2F;&#x2F;en.m.wikipedia.org&#x2F;wiki&#x2F;Discounted_cash_flow" rel="nofollow">https:&#x2F;&#x2F;en.m.wikipedia.org&#x2F;wiki&#x2F;Discounted_cash_flow</a> [2] <a href="https:&#x2F;&#x2F;en.m.wikipedia.org&#x2F;wiki&#x2F;Capital_asset_pricing_model" rel="nofollow">https:&#x2F;&#x2F;en.m.wikipedia.org&#x2F;wiki&#x2F;Capital_asset_pricing_model</a>

An interesting read. The basic premise of juxtaposing an explicit religion with finance seems to be that the latter is an implicit religion.<p>Like the discount rate itself, this seems am arbitrary rhetorical choice.<p>I agree, at a very high level of abstraction, insofar as both a community of faith and finance are about rendering the future &quot;somewhat predictable&quot;, though, in that sense, the future resembles the weather.

i thought this was going to be a post about *capitalization*—<i>i.e.</i>, it was going to be about uppercase characters. when you think about it, capital letters are entirely useless since they don&#x27;t convey any information in regular text, unless you&#x27;re writing in ALL CAPS.<p>you can get away just fine writing in all lowercase characters, as i&#x27;ve just done.

The 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&#x2F;capitalism is linked to caring not about actual property (things in the world) but income. Here’s the problem;<p>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.<p>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.

Coase’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.

Yes, yes the markets are an ideology and by changing the ideology we can build a better world what could possibly go wrong

&gt; So what happens in practice is that investors capitalize income by keeping one eye on capitalization itself.<p>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&#x27;d never have guessed that stock markets were mainly about speculation.

This person needs to read some Ayn Rand so their understanding of capitalism won’t be so inept as “slap a price on something”.

Capitalism 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.