The Discount Rate

The space between what a value in the future probably is at the present, minus what it is at maturity is “the arbitrage argument.” Mathematicians (Wall Street “quants,” for example) describe mathematical constructions as arguments. Two plus two, arguably, is four. The argument is a hypothesis to be tested, which makes the argument more than an abstraction of symbols that have no objective measure or reality.

Space, remember, without objects in it, is undefined. It is uncontained. It has no “objective reality.” Place a square in the space. There is now space contained in the square. Dividing its containment defines the sum of the squares. The more divided the more pluralistic the containment but the sum of the squares is conserved. The sum–what obtains–is infinitely divisible, and the more it is divided, the less space available. With less available space the rent, which is the measure of immediate accountability with no arguable spread, difference, or vacancy between now and the future, goes up.

When capitalism destroys demand to control political risk, for example, what is being destroyed is the capacity to hold the corporate body immediately accountable with dollar votes–the difference between winning and losing–on demand. (The difference is where the arbitrage argument comes in. The more spread there is between winners and losers–makers and takers–the more arguable what causes it becomes. The more fallacious the argument will probably be, like when capitalists consolidate, and destroy demand, they argue the free market is being made more efficient by making it less divisible, which is perfect nonsense.) Capitalists think they are reducing the risk by dividing the capacity to demand higher rents, which is the “right” to occupy, or obtain, a person’s divisible space–your space by occupation–over time, but instead of resisting the probable risk they are supporting it.

As the space is “reduced” the attributes of the square expand without changing what obtains until, you would think, there is no more space, but no, space–in which to change the attribution and addject value that describes the square and gives the sum objective definition–is what obtains. The reduction of space over time–the speed of accountability–is so close, but never touching, it can occur on demand. Objective reality is recurrently addjective, infinitely divisible, on demand so that risk IS NOT divided by the reward. It is an integral, not a derivative value.

Reward does not distribute (divide) without risk. The more reward accumulated the more risk accumulated, but there is a limit. There is a point on the up side at which the reward stops and yields to the intendency (it yields to the riskless rate of return, which is the “r” in the “rational-price argument” “F(t,T) = S(t)\times (1+r)^{(T-t)}”).

The riskless rate of return is the discount rate. It is what logically “rations” value (the reward) in the form of price (the rent that occupies space over time) in the futures.

The discount rate is what measures the capacity to occupy space over time. (If you rent property and treat it like it was your own, which is the Golden Rule, the probability the rent will go up is reduced–discounted, but it’s not the risk that has been reduced, it’s the probability, the di-visible dimension, of the risk, yielding to the reward, immediately occupying space over time.) A financial instrument is measured by the capacity to yield over time without risk. (The lower the probable risk, the lower the discount rate and the more space it is likely to occupy on demand.) The higher the capacity (the more divisible it is) the less probable reward returns as risk. Thus, we get what we all want, “the riskless return” that defines an on-demand existence.

What this means is, if we resist The Greatest Common Divisor–the Golden Rule–like Objectivists (Ryan, Cruz, Rand Paul) say we should, then the reward, integral to the risk, returns at the highest possible price for everybody (commonly divisible) in a catastrophic proportion.

If we discount the moral imperative–which addjects the comparative, empirical, value of an additive, multiplier effect–at higher and higher frequency, then we all end up being what we don’t want to be on demand, and that, safely said, is human intelligence discounted at the highest possible rate!

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About griffithlighton

musician-composer, artist, writer, philosopher and political economist (M.A.)
This entry was posted in Political-Economy and Philosophy and tagged . Bookmark the permalink.

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