Thursday, February 11, 2010

Things I am thinking about

As is my custom, I am not going to follow up immediately on the promise made in the previous post. I need to brood for a bit longer on the ethical upshot of what I said. Instead, I want to give some air to just a few of the questions that have been bugging me.

Some philosophers only think about one thing. I am not one of those (and, to be honest, I am pretty sceptical as to whether such parsimonious thinkers exist). I carry a whole bunch of questions that puzzle me, and I worry away at them and shuffle them around as they fall in and out of contention in response to the exigencies and surprises of daily life. Amongst other things, I have recently been thinking about some specific questions of value and also, more generally, about risk. Two questions about value, in particular, have vexed me: (1) Can assets be objectively valued for business/investment purposes? and (2) Do assumptions that attribute certain kinds of positive value to nature have to depend on dubious metaphysics? Of course, some philosophers, closer to the (probably) imaginery ones alluded to at the start of this paragraph, would deal with these questions by ascending to a more abstract one: a question that embraces the whole theme of 'value' (eg. "What is value?"). But, as I said, I am not like that.

The assets puzzle started off because, for reasons I do not want to go into now, I had been prompted to think about how a business can best be valued. Market capitalisation is the usual starting point for listed companies and the price that might be fetched in a sale caters for the private ones. But, to go along with those answers, we have to swallow a lot of finance theory that is riddled with unrealistic assumptions.

For a time I was stuck in what I took to be the paradoxical conclusion that businesses should never be bought or sold. Let's say the value of company C is equivalent to the sum of future cash flows adjusted to present value (leave fixed assets out, assuming they only have value as cash generation enablers and also ignore 'good will). Suppose the value, as calculated, is high enough for it to be reasonable for someone to buy C (the cash yield situation looks good)? Then why sell? (i.e. why sell something valuable enough to buy?) So, to cut to the chase: either a company is always going to be too valuable to sell or not valuable enough to buy. Of course, all sorts of other factors come into play - but some just add to the paradox (e.g. hidden value - well the seller can exploit that so "why sell?" is still an issue under such conditions). Other considerations do involve circumstances in which a sale makes sense: the owner wants to retire, has lost interest in the business, the buyer has strategic opportunities not open to the seller, and so on. But, as soon as we bring in 'circumstances', as soon as reality enters the picture (as, of course, it should), we are way beyond the realms of finance theory (which deals in idealised fantasies). I am thrashing around in such thoughts because I am sceptical about the financial calculations used to assess the value of assets in the widest sense (including options, etc.) - calculations that appear to assume a quasi-platonic notion of 'real value' has a useful role here. Confusion about this notion infects modern finance thinking and has been one of the causes of the current crisis.

I am also thinking through some questions about nature and value partly in response to dogmatic environmentalism - you know, the kind of environmentalism that encourages hate speech against humans as a species, as if the world would be a better place, a paradise even, without us. So I am asking, for instance, what conception of value is at work here and, more generally, what is at the bottom of our love of nature and our tendency to wax sentimental about it? There is so much fog generated by the politicalisation of debates over such questions, that to address them will require a separate posting some other time. Meanwhile, I continue to ponder what it is about nature, if anything. that justifies us attributing great value to it if we do not also attribute some divineor otherwise benificent purpose to its workings. Why, for instance, are we not, instead, appalled by nature's abundant and apparently all-embracing cruelty? My children have been watching the fabulous Planet Earth series on DVD and find the cruelty hard to take: a fungus that takes out the central nervous system of ants and ends up growing out of their heads while they are still alive, lions taking down baby elephants, and so on. Why are we inclined to care so much about something that evidently doesn't care a fig about us (or anything else)? Or, more importantly, should we be so inclined?

And 'Risk'? Next time. Perhaps.

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