CAPITAL MOBILITY, QUASI-RENTS, AND THE COMPETITIVE SELF-ORGANIZATION OF DISTRIBUTIONS OF PROFITABILITY

Abstract

This paper considers patterns of organization in distributions of the rate of return on capital (RoC) realized by individual enterprises. It shows that large-sample cross sections of RoC across several European economies are persistently well described by the same functional form: Sharply peaked distributions with stretched-exponential tails. To account for this observation, the paper develops a systemic model of the competitive regulation of profitability by the pursuit of arbitrage profits latent in any heterogeneity across values of RoC. Under the model, the observed distributional forms embody two simple, emergent results of capital-market competition: The competitive maximization of aggregate arbitrage profits; and the endogenous formation of the cost of capital from individual measures of RoC, in the presence of dynamic entrepreneurial and monopolistic quasi-rents. The paper’s discussion defines a series of new, observable macroscopic measures of competitive performance in decentralized market economies. It also points to the aptness of understanding prices as parts of structures of generalized Marx–Sraffa “prices of production,” predicated on the characteristics of capital-market statistical equilibria; to a general theoretical approach to the regulation of certain economic quantities by arbitrage; and to the role the costs of informational gains play in shaping observable outcomes in the operation of certain types of goal-seeking, self-organizing systems.