Coping with the Discount Rate

What is capitalization about? As a technical way of valuing something from a financial angle, capitalization is about envisaging the expected return that an act of investment on that thing shall produce. The social configuration in which this form of valuation takes place requires, most typically, the proverbial choreography in which an entrepreneur and a banker stimulate each other, the first setting up the business as the vehicle for return on investment and the second justifying the social rules that determine the present value of the business (that is, of the investment). The rules according to which money is allocated within society are today characterized almost entirely by the prevalence of such techniques of financial valuation. All kinds of things—from scientific ventures to development projects, from industrial activities to forms of life, from creative ideas to protection against disasters—are valued today in light of what specialists of financial valuation call the cost of capital, that is, by discounting expected incomes, estimating how worthwhile it is to finance these things in relation to uncertainties surrounding the yield, which is calculated by means of a so-called rate of interest. And all these kinds of things indeed are affected; they get oriented by the very fact of being valued in that manner. In numerous cases these things get formed entirely for the purpose of capitalization.

Social research seeks to understand and explain how things are valued, and how several forms of valuation affect the way things are made and made sense of. This is particularly true for anthropology and sociology, two areas of social research in which particular attention has been devoted, for example, to commercial valuation—things being valued as they get bought and sold, hence valued as commodities. It is striking, not to say frustrating, to observe however how this immense continent of valuation which is capitalization has been neglected in anthropological and sociological research. As the development of markets has been often presented as a crucial characteristic of the spread of capitalism, the focus on commodification or marketization has been repeatedly taken, partially wrongly, as the crux of an analysis of capitalistic valuation. The result is that capitalization proper—and the quite singular forms of reality it conveys—has been overlooked as a social fact.

What would be the key ingredients for a social inquiry into capitalization? This is an open, collective question.[1] Preferred empirical materials for that inquiry can vary greatly. Capitalization, considered as a social operation, can be seen at work in venture capital or private equity firms, in the accounting departments of industrial companies, in business schools, in scientific innovation projects, and in many other sites. But one crucial requirement is in order, which is precisely that capitalization be considered as a social operation. And the difficulty for doing so is that this means, to a large extent, understanding capital not as a thing in itself—something that one has or has not—but rather as a form of action, a form of grip, a form of power, an act of configuration, an operation, a situation.

Harun Farocki’s 2004 documentary film Nicht ohne Risiko (Nothing Ventured) provides very interesting directions for an ethnographic approach to capitalization. The camera follows the negotiation between the technologist and the venture capitalist, showing the transformation of what the technology under consideration is worth as a result of that interaction. While the entrepreneur emphasizes, for example, the market value of the technology stored in the firm’s warehouses and the success of marketing prospects, the investor redirects attention to the milestones, the risk of future patent disputes and the typical discount rate served in the sector. Imaginaries of value are unfolded and subject to justification; the sometimes counterintuitive tenets of capitalization are put forward and assumed. It is in part through an anthropological and sociological examination of such sorts of scenes that capitalization and its consequences can be understood as a cultural shift in the practices of valuation, and also as a powerful drive in the configuration of today’s world.

[1] A research team based in Paris is putting together a set of fieldwork insights for a book project on precisely that question. The initiative is part of PERFORMABUSINESS (“Performativity in Business Education, Management Consulting and Entrepreneurial Finance”), a research project funded through an ERC Starting Grant and based at the Center for the Sociology of Innovation, Mines ParisTech (the team is composed by Fabian Muniesa, Liliana Doganova, Horacio Ortiz, Florence Paterson and Alvaro Pina-Stranger).