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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Freedom Fighter who wrote (70935)	11/23/1999 1:43:00 PM
From: Don Lloyd	Read Replies (3) \| Respond to of 132070

Wayne - (I agree with you completely. But I believe that's only the case when you are referring to an increase in the return on existing capital. That's not what I am talking about. I'm mostly referring to the increase in profits and productivity that comes from the reinvestment of current profits. (this includes additional funds) Example: I can replace a worn out $1000 machine with a brand new $2000 machine that makes my workers more productive. If all competitors continue to earn the exact ROC, profits will be higher for all and (all else being equal) they should be sustainable...) When I think about productivity, I am referring to unit productivity, (for example widgets per labor hour), since prices and revenues will result from the final product market conditions. To modify your example - When AMAT produces a new piece of equipment that produces twice as many ICs per wafer and sells it to all comers, all the DRAM manufacturers must buy it to survive and prices are driven lower by competition. While nominal unit profits may increase OR decrease, the destruction of the economic value of the older equipment and the requirement of new investment in the new equipment is as likely as not to drive the DRAM manufacturers to a cash flow negative position. AMAT will continue to make new equipment and stress its customers up to the point where it kills them off. If only MU, OTOH, produces its own proprietary equipment to increase unit productivity, there is no necessity to lower prices below a level that maximizes profit for MU, and it will reap the benefits on the bottom line. (...In general the Fed increases the money supply to offset the general decline in aggregate prices that result from productivity gains. This contributes to higher income streams and overall profits. One need only look at a graph of corporate profits/GDP/productivity to see the relationship...) This is certainly true, but if it were possible to really measure inflation, those higher income streams and overall profits would be seen to be largely an illusion to the extent that they are not the result of company-specific, and ultimately temporary, competitive advantages. Regards, Don