Confused about surplus value

[Blanquist]

Marx says that stocks and bonds are merely titles to surplus value and have no effect on production.

But if there was a wide-spread rumor about a companies profitability there could be a run on the stock and bonds, and the company could end up bankrupt because of it?

What am I missing?

[Anarcho-Brocialist]

That would be called manipulating the stock market; sending the conspirator to a federal prison. This happens a lot, actually. An example would be : Competitors would cook up a lie, like a merger or expansion into a new market. People find out it's false before the stock becomes too inflated. Normally the company would inform the investors the accusation was a hoax because the entity wouldn't be able to pay off its dividends to the stock holders.

[Workers-Control-Over-Prod]

What happens a lot since the last hundred years of Capitalism (Imperialism) though, is that companies fake being bad off, spread a rumor that they will have a bad quarter etc. but then use that "bad" situation to monopolise.

[RNL]

Marx says that stocks and bonds are merely titles to surplus value and have no effect on production.

But if there was a wide-spread rumor about a companies profitability there could be a run on the stock and bonds, and the company could end up bankrupt because of it?

What am I missing?
Is your question about the relationship between financial capital and production (of value)?

There is certainly a reciprocal relationship (where does Marx say otherwise?). Stocks and bonds, etc, are titles to revenue streams that ultimately originate in the exploitation of labour in the production process.

The markets for these financial assets are an extension of the credit system, which is the system by which money capital is allocated to various branches of production, and individual firms, in accordance with fluctuations in the rate of profit.

[The credit system] permits the reallocation of money capital to and from activities, firms, sectors, regions and countries. It promotes the dovetailing of diverse activities, a burgeoning division of labour and a reduction in turnover times. It facilitates the equalization of the rate of profit and arbitrates between the forces making for centralization and decentralization of capital. It helps coordinate the relations between flows of fixed and circulating capital. The interest rate discounts present uses against future requirements while forms of fictitious capital link current money capital flows with the anticipation of future fruits of labour. - David Harvey

[Psy]

Marx says that stocks and bonds are merely titles to surplus value and have no effect on production.

But if there was a wide-spread rumor about a companies profitability there could be a run on the stock and bonds, and the company could end up bankrupt because of it?

What am I missing?

Okay lets say you have $1,000 dollars you give it to a industrial capitalist they use that $1,000 to invest in new means of production and you get a claim to their profits. Now that $1,000 itself is unproductive, it is just numbers in a bank account and by itself doesn't effect the production cycle. Now speculation crashing a company still doesn't effect production itself, the machines don't care and as long as the workers are paid they don't care about the stock price, hell I worked for companies that went bankrupt and the only difference is we forced to pay our wages in cash when they went bankrupt and to pay us upfront rather then end of the week.

[RNL]

Financial speculation crashing a company does affect production - it stops it entirely. Whether workers get paid is irrelevant - paid or unpaid, the expended labour-power has produced the same amount of value.

[Dave B]

I suspect the issue is related to Karl’s thesis on capitalisation of surplus value and fictitious capital.

The basic idea is that if the average rate of profit is say 5% per annum; then if a company is making say £5 million in profit then the capitalist class would tend to ‘price’ the company at £100 million.

And tend to ignore the actual value of its assets.

A real and actual example was for instance a computer software company I was familiar with through others that was doing well and making £2million a year.

It had virtually no assets apart from its 60 or so staff that worked in a rented building with lets say for instance £200,00 worth of IT equipment.

The two owners and ex hippies who got in early in the late 70’s wanted to sell up and got £40 million for it.

The fact that the new owners ran it into the ground is just one of the hazards for capitalist engaged in buying fictitious capital or in other words title deeds to extraordinary ‘surplus value’ or an income stream.

Generally speaking if a company that has shares on the stock exchange etc, is making better than average profits. Then people buy the shares until the price of the shares rise to a level where the P/E ratio (price-to-earnings ratio) or more accurately the share price to unearned income ratio attains an acceptable value.


http://en.wikipedia.org/wiki/PE_ratio

Either way you are buying a title deed to ‘surplus value’.

That is not to say they are completely oblivious to whether or not a company has real hard value in it as concrete assets.

Sometimes the share price will be exaggerated due to anticipated big profits or dividends later on that may be real or imaginary.

So you had the South Sea bubble, the 19th century railway share bubble and the more modern IT bubbles etc.

The ‘capitalists’ may not be actually be using their own capital to snap up shares and thus drive up their prices.

Thus you might borrow money at 2% per annum to buy shares that are expected to provide an income of 5%.

You take the 5% dividends if you are lucky and pay the ‘bank’ the 2% and cream of the 3% for yourself; they call it ‘leverage’ I think.

The net overall effect is that low interest rates on money capital tend to drive up share prices.

Potentially inflating share prices to a ‘fictitious’ one, ie way above the value of the fixed assets etc.

Some potential incomes streams are even more divorced from real value ie personal debt.

Thus for instance if somebody had $100 million worth of American student debt with at least a claim of 5% interest.

Well what would you pay for that? It has to be worth something.

The going rate might be $10 million so they say ‘10 cents on the dollar’ or whatever.

In the southern European crisis the governments will write out say $1000 million of say ‘I will pay you back in one year IOU’s’ or bonds and offer them up for sale in an auction to see what people will pay for them.

If they sell for $900 million then ‘the yield’ I think, is 10%, basically the rate of interest.

They may need to sell and auction the $1000 million of IOU’s to pay of a previous set from the year before that is due.

The CEO’s etc will often be paid in share purchase options to give them an incentive. They are given an option to purchase shares in the company they work for at the old or last year prices.

Thus if profits go up, share prices go up, and they can buy the shares at the old lower prices and immediately sell them at the newer higher price.

There is thus a temptation to engage in a bit of creative accounting by exaggerating the profit of the company and cashing in and getting out before the fraud becomes apparent.

Thus Enron.

[Anderson]

What is the importance of share markets to the capitalists? Does this system stabilize capitalism?:confused:

[Psy]

What is the importance of share markets to the capitalists? Does this system stabilize capitalism?:confused:
No, what it does is move surplus value from future cycles into the present cycle to pay for expansion of the productive forces. For example lets say you are a railway, you want to build a new line that would increase your rate of profit, investors will give the railway credit to build the new line for part of the future profits. This way the expansion gets built faster as more capital is made available for the expansion and railway doesn't have to hoard capital to pay for the expansion.

The problem comes if future profits don't materialize.

[Revolution starts with U]

No, what it does is move surplus value from future cycles into the present cycle to pay for expansion of the productive forces. For example lets say you are a railway, you want to build a new line that would increase your rate of profit, investors will give the railway credit to build the new line for part of the future profits. This way the expansion gets built faster as more capital is made available for the expansion and railway doesn't have to hoard capital to pay for the expansion.

The problem comes if future profits don't materialize.

And since capitalists across the board must suppress wages, the likelihood of those profits not materializing, at some point, is very high.