Meritxell has made the serious error of mentioning that she didn’t fully grasp someof what Keltham said earlier about stock companies.
Keltham is currently explaining how a Lawful corporation has an internal prediction market, which forecasts the observable results on running various possible projects that company could be trying, which in turn is used to generate an estimate of marginal returns on marginal internal investment; this prevents a corporation from engaging in obvious madness like accepting an internal project with 6% returns while turning down another internal project with expected 10% returns.
The wider market, obviously, would also like to invest all its money where it’ll get the highest returns; but it’s usually not efficient to offer the broader market a specialized sub-ownership of particular corporate subprojects, since the ultimate usefulness of corporate subprojects is usually dependent on many other internal outputs of the company. It doesn’t do any good to have a ‘website’ without something to sell from it. Sure, if everyone was an ideal agent, they’d be able to break things down in such a fine-grained way. But the friction costs and imperfect knowledge are such that it’s not worth breaking companies into even smaller ownable pieces. So the wider stock market can only own shares of whole corporations, which combine the outputs and costs of all that company’s projects.
Thus any corporation continuously buys or sells its own stock, or rather, has standing limit orders into the stock market to buy various quantities if the price goes low or sell various quantities if the price goes high, at prices that company sets depending on its internal belief about the returns from investing or not investing in the marginal subprojects being considered. If the company isn’t considered credible by the wider market, its stock will go lower and the company will automatically buy that stock, which leaves them less money to invest in new projects internally, and means that they only invest in projects with relatively higher returns—doing less total investment, but getting higher returns on the internal investments that they do start. Conversely if the wider market thinks a company’s promises to do a lot with money are credible, the stock price will go up and money will flow into that company until they no longer have internal investment prospects that credibly beat the broader market.
This may sound complicated, and it is probably a relatively more complicated part of the machinery that is necessarily implied by the existence of distinct stock corporations in the first place. But the alternative, if you zoom out and look at the whole planet of dath ilan, is that a corporation in one place would be investing in a project with internally expected returns of 6%, and somebody on the other side of the planet would be turning down a project with market-credible returns of 10%, which means you could reorganize the whole planet and do better in a predictable way. So whatever does happen as a consequence of the existence of stock corporations, it has to be not that.
Some quotes from Planecrash that I might collect into a full post: