Blair Fix @blair_fix@mastodon.online Profile picture
May 12, 2021 25 tweets 15 min read Read on X
Today I'm tweeting about @BichlerNitzan's buy-to-build indicator.

If you're not familiar, this is an indicator that quantifies the portion of 'investment' spent buying other corporations.

#buytobuild
#capitalaspower
Notice the scare quotes around 'investment'. To many people, 'investment' means to 'build new capacity'. Hence, governments are always chasing 'investment' dollars.

But here's the thing: 'investment' is purely about transferring property rights.
The word 'invest', @BichlerNitzan observe, has feudal origins. In feudal societies, 'investiture' was the "symbolic ceremony of transferring property rights from the lord to the vassal".

blairfix.github.io/capital_as_pow…
OK, so 'investment' is everywhere and always a transfer of property rights. Still, there are many kinds of property rights, so 'investment' can have many different forms.

I can 'invest' in land, houses, machines, factories, etc.
Here is the twist: if I own a corporation, I can also get that corporation to invest in *other corporations*.

In corporate speak, the act of buying up other corporations is call 'mergers and acquisitions'.
But why would I want to buy other corporations? In a word, *power*. The drive to merge is about acquiring the power to set prices.

Cory @doctorow has a nice way of putting it:

pluralistic.net/2021/02/21/pal…
This price-setting power is written in the data. Big firms tend to have a higher 'markup' (profit as a portion of sales) than smaller firms. Here's the trend in US firms.

capitalaspower.com/forum_archived…
It's not a new trend, by the way. The link between firm size and markup goes back at least to the 1950s.

capitalaspower.com/forum_archived…
Back to mergers and acquisitions. An important question to ask is --- to what extend are corporations buying other corporations rather than investing in 'stuff'? And what is the trend?

These are the questions behind @BichlerNitzan's 'buy-to-build' indicator.
The first published stab at constructing a 'buy-to-build' indicator was in a 2001 paper by Jonathan Nitzan
called 'Regimes of Differential Accumulation.'

Here's the US results. Notice two things:
1. the trend is upward
2. there are big oscillations

bnarchives.yorku.ca/3/
In 2009, @BichlerNitzan updated the 'buy-to-build' indicator, with much the same results.

blairfix.github.io/capital_as_pow…
In 2013, @joefrancis505 added new estimates for the buy-to-build indicator in the US (left) and Britain (right).

As you can see, the estimates require splicing together many different sets of data.

capitalaspower.com/2013/03/the-bu…
Much of the underlying data above is proprietary. Noting this fact, @joefrancis505 later constructed buy-to-build indicators using open source data. US trends are on the left, UK trends on the right.

joefrancis.info/buy-to-build-i…
You can download @joefrancis505's most recent data here, updated to 2020: joefrancis.info/data/Francis_b…

Like me, Joe Francis is an independent researcher and blogger.

His blog: joefrancis.info
Support him on Patreon: patreon.com/jafrancis
Back to the buy-to-build indicator. @joefrancis505 uncovered a calculation error in @BichlerNitzan's original estimates. His new estimates differed slightly from the original. @BichlerNitzan noted this in an accompanying commentary:

capitalaspower.com/2013/02/franci…
In their commentary, @BichlerNitzan also noted that the US and Britain have very similar buy-to-build trends.

The long-term growth rates are similar, as are the short-term fluctuations. In other words, capitalism is a global system.

capitalaspower.com/2013/02/franci…
A side note here about this commentary. As @joefrancis505 himself showed, debate and commentary is becoming increasingly rare in economics. Here's its rise and fall in the big 5 economics journals.

joefrancis.info/economics-deba…
Now lets back up 20 years. In Jonathan Nitzan's first paper on the buy-to-build indicator, he looked at it's short term fluctuation. Turns out that it correlates negatively with a 'stagflation' index --- a measure of inflation and unemployment.

bnarchives.yorku.ca/3/
In other words, when corporations merge more, unemployment and inflation tend to decrease. And when corporations fail to merge, they turn to inflation to make money.

@BichlerNitzan updated the data in 2009, finding much the same thing:

blairfix.github.io/capital_as_pow…
When @joefrancis505 did new estimates, he found the same thing. The buy-to-build indicator moves inversely with stagflation. Here's the US and Britain.

capitalaspower.com/2013/03/the-bu…
.@BichlerNitzan use these results to classify different regimes of capitalism. Firms' goal is always to increase their capitalization relative to other firms. But there are different ways to do it. Here's @BichlerNitzan's classification:
'Greenfield' investment is building new factories. When people think of 'investment', that's their default. But the other major option for getting bigger is to buy other firms: 'Mergers and acquisitions'.

The trend has been towards more mergers, less greenfield.
Alternatively, instead of getting larger, firms can try to boost their profitability per employee. Economists will tell you that firms do this by 'cost-cutting'. The dirty secret, though, is that firms have a secret weapon for increasing profits: *inflation*.
That brings us today. @BichlerNitzan and @joefrancis505 have shown that:

1. the buy-to-build indicator tends to increase over the long term
2. short-term movements in the buy-to-build indicator correlate negatively with stagflation.
What we need now is for researchers to see if this research replicates in other countries.

If you complete such research, please consider submitting it to the Review of Capital as Power.

capitalaspower.com/recasp/

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More from @blair_fix

Oct 24
Thanks, @doctorow, for the excellent summary of my research!

Let me offer a counterpoint to the argument below. 🧵

In most societies, there’s a class of non-home-owners who would *like* to become home-owners. But this fact doesn’t necessarily mean that there’s a physical shortage of dwellings.
For example, for nearly 20 years, I rented a nice house in Toronto. I very much would have liked to own that house. But the price was way out of reach. So does my unfulfilled desire to own a home indicate a physical shortage of dwellings?
Read 13 tweets
Nov 14, 2023
@fictitious_cap @starpositions @NJHagens @StephanieKelton @TyKeynes @ProfSteveKeen @CareyWKing Debt is just a type of asset, similar to corporate equity but with slightly different rules.

When you buy equity, you purchase a stake in a firm's property rights. So in that sense, it's a claim on present-day property.
@fictitious_cap @starpositions @NJHagens @StephanieKelton @TyKeynes @ProfSteveKeen @CareyWKing Now, this equity buys you a stake in the firm's income stream. So your property rights come with an *expected* future income. But nothing is guaranteed.

Debt works similarly way. The difference is that corporate bonds come with a promised *rate* of return.
@fictitious_cap @starpositions @NJHagens @StephanieKelton @TyKeynes @ProfSteveKeen @CareyWKing But again, nothing is guaranteed. If the corporation goes bankrupt, your may never get your money. What you hold in your hands is a property right that allows you to claim a portion of present-day income.
Read 8 tweets
Feb 17, 2022
It's time for a thread about research. [thread]

When I was younger, I thought that research had two stages

1. Researching;
2. Writing up your results.

Now I know that this is rarely how it works. 1/
The reality, at least for me, is that writing and researching happen at the same time. The reason is simple: when I start to write about my research, I inevitably realize that I need to do more research. That's what we call a positive feedback cycle. 2/
When I was younger, I used to get frustrated with this cycle. I'd think 'damn it, I don't want to redo the analysis. It took so much work the first time.'

Over the years, though, I've come to embrace the cycle. 3/
Read 11 tweets
Jul 23, 2021
It's a lovely Friday afternoon here in Toronto. It makes me feel like Tweeting about research I enjoy. So here's a thread about capital-as-power research.

1/n
The field got started with the work of Jonathan Nitzan and Shimshon Bicher (@BichlerNitzan) who published the book 'Capital as Power' in 2009. It's a seminal investigation of the power underpinnings of capitalism. Here's the free ebook version:
blairfix.github.io/capital_as_pow…

2/n
Since then, a small but dedicated group of researchers have expanded on these ideas. James McMahon (@notes_on_cinema) has done fascinating work looking at the capitalization of power in Hollywood. He blogs at notesoncinema.com

3/n
Read 9 tweets
Mar 25, 2021
Ugh. This deserves a rant:

"Without NFTs, there’s no obvious way to attribute value to digital artwork."

thestar.com/business/2021/…
The 'value' in art is what it contributes to society. Same goes for science. Because that's essentially a public good, there's no way to measure the 'value'. Let's just settle for this: both art and science are good.
Don't confuse 'value' (that social thing) with 'price' --- which is purely about property rights. NFTs are about a clever way to put property rights around internet art that is otherwise free.
Read 5 tweets
Feb 11, 2021
Leftists! Are you curious about the stock market, but also skeptical of how it's portrayed by both mainstream economics and Marxist theory?

Here's a thread for you. [Thread]
In mainstream economics, stock markets indicate 'productive' capital.

But Marxists say that stock markets are 'fictitious' capital.

In their book 'Capital as Power, Jonathan Nitzan and Shimshon Bichler argue that both approaches are wrong.

bnarchives.yorku.ca/259/
Capital, they say, is about *power*. Stocks are the symbolic representation of capitalists power. In their paper 'A CasP model of the stock market', Bichler and Nitzan further develop their theory of the stock market.

bnarchives.yorku.ca/494/
Read 6 tweets

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