Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Why don't you describe it first regarding your own experience, since you seem to think it's relevant to the discussion here?
by santiago on Tue Mar 30th, 2010 at 09:59:52 AM EST
[ Parent ]
ahh, that is the reply I expected from one whose theory of "certainty" seems to derive from "decompositions" of aggregated, historical price (revenue) reporting within a particular industry (here). This declaration is one of several grandiose claims, revealing your analytic bias (industrial? AG) and confusion perhaps about the general utility of contract(s) to minimize losses attributable to unforeseen events ("risks," unknown "input costs" like NON-PAYMENT) and forecast revenue generation and ultimately the profitability of an enterprise.

The problem is that a lot of variables make up total costs of production, so it's often easier to fix, contractually or otherwise, a sales price than it is to fix input costs, making it impossible to truly do cost plus markup pricing.

I wanted to assure myself that you had some other experience observing cash flows and operating practices (MOE - working capital, nominal capital structure, real capital req.s, output volume, etc) within other industries. Because the values attributed to these ubiquitous terms --price components-- vary widely by industry and by firm (revenue) model within an industry.

entrepreneurs are effectively working instead in the opposite direction -- minimizing costs to an acceptable level below a sales prices, not cost plus markup.

This statement is incoherent -- the cart before the horse. This is NCE-speak to say nothing descriptive: "I observe reported revenue ("sales price"). Therefore, all firms select an "acceptable level" (cost) of production less than or equal to "sales price" rather than cost plus markup." Have you any idea, what is the mathematic difference between "sales price" and cost of production? Please, do not answer "value-added."


Now, a demonstration of entrepreneur's known costs of production.

A non-farm industry. Professional Services >
Management Consulting >Marketing Communications >Pre-production
Market. B2B sectors: advertising, retail finance, retail consumer products, publishing-books, periodicals, catalogs-, broadcast tv y radio, primary research
Business the 5 years prior. 1991-2001
Operating expenses (a percentage of total revenue)
-- variable. 20% (utilities, consumables,  professional fees, credit*, equipment)
-- fixed costs. 80% (leases, utilities, professional fees, salary, insurance, statutory license(s))
Revenue model. 90% billable hours, 10% IP sale. 0% resale.
"Exit strategy," denoting expected rate of return on personal equity invested in the enterprise.
cash out - 0%, $0.00


So. If you have no entrepreneurial experience to share, I must assume, we have nothing further to discuss on this subject of entrepreneurial "certainty."

(*) credit, or borrowing, includes interest bearing lines drawn and non-interest bearing lines extended to customers

Diversity is the key to economic and political evolution.

by Cat on Tue Mar 30th, 2010 at 01:43:41 PM EST
[ Parent ]
but I DO have significant personal, entrepreneurial experience, both within and outside of agriculture (finance, consulting, education), and frankly, from what you've said regarding your business experience, and the importance you place in this discussion on terms like "variable," "fixed," "revenue model," and "exit strategy" -- you're using them as "How to Write a Business Plan" buzzwords, devoid of meaning in a discussion of how to find prices -- I doubt if you're in my league. (Have you ever had to meet a payroll, for example?)

I just wanted to know the context of your question (and your state of mind) before answering it, and now I see that my suspicions were correct -- you think I'm an egghead economist with no experience in the business world of which I opine. (LMAO, especially because it's such a rightist, anti-intellectual narrative you're employing.)

But let's keep this to your experience level here, because it's probably sufficient. When you were consulting/whatever, what determined how much you  charged your clients, and how far off were your rates from your peers?  And if you really did just charge at costs plus markup, why didn't you charge more, and thereby increase your profit margin?  

by santiago on Tue Mar 30th, 2010 at 03:51:55 PM EST
[ Parent ]
I don't think that this is a particularly productive direction, so let me posit the following.

Any return on capital to the owners (eg shareholders of a corporation) of a 'For Profit' business is - by definition - inflationary.


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Mar 30th, 2010 at 04:21:21 PM EST
[ Parent ]
I'm traveling right now, so I can't respond right away, but I'll think about it.  Some questions in the meantime:

Why is return to capital necessary inflationary and not return to labor or other factor, if, as I think you've argued elsewhere, production is function of several factors, not just labor?

And, can you think of conditions where return to capital might not be inflationary and why?  This will help me understand your reasoning on this.

by santiago on Wed Mar 31st, 2010 at 12:08:49 PM EST
[ Parent ]
It is the 'unearned' return on purely financial capital eg Equity in a joint stock corporation, that I postulate is - by definition - inflationary. One could say the same about rent payable to a landlord which is a demand which inflates the price of production from land.

ie any unearned income derived from property rights is inflationary.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Mar 31st, 2010 at 12:49:49 PM EST
[ Parent ]
What is the definition of inflation you use? Simply rising prices or something different/more specific?
by generic on Wed Mar 31st, 2010 at 02:30:18 PM EST
[ Parent ]
Rising prices.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Wed Mar 31st, 2010 at 08:24:49 PM EST
[ Parent ]
So really what you mean by profit is what others would call "rent." Is rent inherently inflationary, meaning does rent, by its nature as rent, make prices rise?

I think you might mean that unless the exchange value of something -- it's price -- is tied to something concrete -- food value, or energy value, or human effort expended then it must cause prices to rise.  That is, if someone can find ways to gain access to real resources through superior manipulation of social relationships instead of by doing productive work that increases the amount or quality of real things available to people then it must be inflationary because it increases the claims upon resources without increasing the total amount of resources available.  Is am reading you right?

by santiago on Mon Apr 5th, 2010 at 11:09:43 PM EST
[ Parent ]


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