Capital Expenditure Quotes

In no case does the energy required for synthesis appear to be provided by an influx of fresh capital, but by expenditure.

When you nationalize the expenditures but privatize the revenue, everything is profit.

The American Society of Civil Engineers said in 2007 that the U.S. had fallen so far behind in maintaining its public infrastructure -- roads, bridges, schools, dams -- that it would take more than a trillion and half dollars over five years to bring it back up to standard. Instead, these types of expenditures are being cut back. At the same time, public infrastructure around the world is facing unprecedented stress, with hurricanes, cyclones, floods and forest fires all increasing in frequency and intensity. It's easy to imagine a future in which growing numbers of cities have their frail and long-neglected infrastructures knocked out by disasters and then are left to rot, their core services never repaired or rehabilitated. The well-off, meanwhile, will withdraw into gated communities, their needs met by privatized providers.

Abuse of the military metaphor may be inevitable in a capitalist society, a society that increasingly restricts the scope and credibility of appeals to ethical principle, in which it is thought foolish not to subject one's actions to the calculus of self-interest and profitability. War-making is one of the few activities that people are not supposed to view 'realistically'; that is, with an eye to expense and practical outcome. In all-out war, expenditure is all-out, unprudent--war being defined as as an emergency in which no sacrifice is excessive.

He says that courage is a capital sum reduced by expenditure.

We have the money. We’ve just made choices about how to spend it. Over the years, lawmakers on both sides of the aisle have restricted housing aid to the poor but expanded it to the affluent in the form of tax benefits for homeowners. 57 Today, housing-related tax expenditures far outpace those for housing assistance. In 2008, the year Arleen was evicted from Thirteenth Street, federal expenditures for direct housing assistance totaled less than $40.2 billion, but homeowner tax benefits exceeded $171 billion. That number, $171 billion, was equivalent to the 2008 budgets for the Department of Education, the Department of Veterans Affairs, the Department of Homeland Security, the Department of Justice, and the Department of Agriculture combined. 58 Each year, we spend three times what a universal housing voucher program is estimated to cost (in total ) on homeowner benefits, like the mortgage-interest deduction and the capital-gains exclusion. Most federal housing subsidies benefit families with six-figure incomes. 59 If we are going to spend the bulk of our public dollars on the affluent—at least when it comes to housing—we should own up to that decision and stop repeating the politicians’ canard about one of the richest countries on the planet being unable to afford doing more. If poverty persists in America, it is not for lack of resources.

It’s all part of the life-cycle of an economy. First it’s lawless capitalism until that starts to impede growth. Next comes regulation, law enforcement, and taxes. After that: public benefits and entitlements. Then, finally, over-expenditure and collapse.

Taxation is not only a way of requiring all citizens to contribute to the financing of public expenditures and projects and to distribute the tax burden as fairly as possible; it is also useful for establishing classifications and promoting knowledge as well as democratic transparency.

Protectionism, such as what U.S. president Donald Trump was attempting, amounts in effect under these circumstances (that is, in the absence of any significant expansion of state expenditure financed either by a fiscal deficit or by taxes on capitalists) to an export of unemployment to other countries. It can work only if the other countries do not retaliate. If they do, then it gives rise to a competitive “beggar-thy-neighbor” policy that only worsens the crisis by creating further uncertainties and reducing investments further.

In fiscal policy as in monetary policy, all political considerations aside, we simply do not know enough to be able to use deliberate changes in taxation or expenditures as a sensitive stabilizing mechanism.

It's all part of the life-cycle of an economy. First it's lawless capitalism until that starts to impede growth. Next comes regulation, law enforcement, and taxes. After that: public benefits and entitlements. Then finally, over expenditure and collapse.

Second, it is also quite clear that, all things considered, this very high level of public debt served the interests of the lenders and their descendants quite well, at least when compared with what would have happened if the British monarchy had financed its expenditures by making them pay taxes. From the standpoint of people with the means to lend to the government, it is obviously far more advantageous to lend to the state and receive interest on the loan for decades than to pay taxes without compensation. Furthermore, the fact that the government’s deficits increased the overall demand for private wealth inevitably increased the return on that wealth, thereby serving the interests of those whose prosperity depended on the return on their investment in government bonds.

For the first year Nazi economic policies, which were largely determined by Dr. Schacht—for Hitler was bored with economics, of which he had an almost total ignorance—were devoted largely to putting the unemployed back to work by means of greatly expanded public works and the stimulation of private enterprise. Government credit was furnished by the creation of special unemployment bills, and tax relief was generously given to firms which raised their capital expenditures and increased employment. But the real basis of Germany’s recovery was rearmament, to which the Nazi regime directed the energies of business and labor—as well as of the generals—from 1934 on. The whole German economy came to be known in Nazi parlance as Wehrwirtschaft, or war economy, and it was deliberately designed to function not only in time of war but during the peace that led to war.

This was the argument put forward during the War when the expenditure on the army and navy had to be met; and this was the argument put forward in Germany and Austria after the War when a part of the population had to be provided with cheap food, the losses on the operation of the railways and other public undertakings met, and reparations payments made. The assistance of inflation is invoked whenever a government is unwilling to increase taxation or unable to raise a loan; that is the truth of the matter.

For fiscal policy, the appropriate counterpart to the monetary rule would be to plan expenditure programs entirely in terms of what the community wants to do through government rather than privately, and without any regard to problems of year-to-year economic stability; to plan tax rates so as to provide sufficient revenues to cover planned expenditures on the average of one year with another, again without regard to year-to-year changes in economic stability; and to avoid erratic changes in either governmental expenditures or taxes.

It is ironic that Keynesianism originated as a weapon to combat depression, but became universally accepted and "successful" only during (and because of!) the postwar expansion. At the first sign of renewed world recession, Keynesian theory has proved itself to be a snare and a delusion that has gone into immediate bankruptcy. The resulting "post-Keynesian synthesis" is also the theoretical reason for the reactionary exhumation of the simplistic, neoclassical, and monetarist economic theory of the 1920s. This revival of old theory is highlighted by the award of Nobel prizes in economics to Friedrich von Hayek, whose theoretical work was done before the Great Depression, and Milton Friedman, whose lone voice echoed in the wilderness until the new world economic crisis put his unpopular and antipopulist theories on the agenda of business board rooms and government cabinet rooms in one capitalist country after another. The real reason for the recent interest in fifty-year-old theories is that capital now wants them to legitimize its attack on the welfare state and "unproductive" expenditures on social services, which capital claims to need for "productive" investment in industry, including armaments.

Challenging the earlier economists of his day, Marx was keen to show how the products of capitalism did not just magically appear, nor did they have inherent value. Instead, Marx wanted to show that the value derived from commodities was part of a specific kind of social relationship—one in which the labor power of workers added value to commodities. In this way, the notions of commodities and labor lie at the center of understanding how Marx viewed capitalist relationships as inherently exploitative, as the dominance of one class (the bourgeoisie, or the owners of the means of production) over another class (the proletariat, the working class, or those who have nothing to sell but their labor). Proletarians were lending labor power to the production process, transforming goods into saleable commodities, and receiving only part of the value generated in this process. To Marx, this was wholesale thievery; the expenditure of human effort to produce commodities was the actual expenditure of human life, of the limited time that any of us have on this planet, and it came at the expense of us realizing our actual nature as productive, creative beings that generated meaning through our labor. Marx believed deeply in the notion that humans were creative and that we could be positively world-transformative.Through our labor, we not only make the world, but we also express the best part of ourselves as a species. The hijacking of all of this for the productive ends of the bourgeoisie—for mere profit—was, to Marx, a horrible crime being perpetuated on the weaker by the stronger.

Political life was defined by money. Having it, taking it and giving it were the principal concerns of the powerful. It was not just a matter of lavish expenditure on public shows or comfortable living in the innumerable houses that one man might possess; set amounts of capital were required for a man to become an equestrian – a knight – or a senator.

Do you give your servants reasons for your expenditure, or your economy in the use of your own money? We, the owners of capital, have a right to choose what we will do with it.' 'A human right,' said Margaret, very low. 'I beg your pardon, I did not hear what you said.' 'I would rather not repeat it,' said she; 'it related to a feeling which I do not think you would share.' 'Won't you try me?' pleaded he; his thoughts suddenly bent upon learning what she had said. She was displeased with his pertinacity, but did not choose to affix too much importance to her words. 'I said you had a human right. I meant that there seemed no reason but religious ones, why you should not do what you like with your own.

group executives still have an important role to play in the development of strategy. For example, they set values, boundaries, direction, and guidelines for strategy development and decision making, and then challenge the plans and ambitions of business unit managers. This process is done in broad strokes, and quickly. There are few detailed submissions and presentations. The only exception is if new capital expenditures or other major resource requirements are needed to support strategic options.

And with policymakers still locked in the vise grip of austerity logic, these rising emergency expenditures are being offset with cuts to everyday public spending, which will make societies even more vulnerable during the next disaster—a classic vicious cycle.

Cutting budgets or slashing prices to customers are actually the easiest things that oil companies and services firms can do. For producers, cutting spending doesn't affect the bottom line immediately, as reductions in capital expenditures (capex) won’t result in production declines—and therefore profits—for months in the future. You can even claim continuing high production results despite major drops in capital expenditures, a counter-intuitive result but still at least immediately genuine. Almost all of the independent oil companies have done precisely this through their reporting up to the 4th quarter of 2014, reporting slashed spending yet increasing production forecasts. In fact, at least for the first 6 months after cutting capex, oil company executives can look like stars, chopping off the top line with little immediate effect on the bottom. Further, the projections on capital expenditures are a bit of an accountant’s dodge in that they can be adjusted several times over the year to adapt to changing market conditions. An oil company can talk about an extreme cut in spends at the start of the year, but should oil prices allow, it can still ramp spending back up later. Looking responsible using the accountant’s pen is a pretty easy way to initially react to a low price environment, and just about everyone is doing it.

The one problem with a strong free cash flow yield security selection emphasis is that it handicaps compelling growth companies unnecessarily. A company with low free cash flow may be very compelling if the reason for the low free cash flow is a large capital expenditure budget that is being spent well on high-return projects. A company with high free cash flow is good, but a company with high cash flow from operations being spent on new high return on equity projects is better.

Capital expenditures are an essential tool for managers to make a good business grow bigger and better. But malleable accounting rules permit managers to inflate reported profits by transforming normal operating expenses into capital assets. As the Global Crossing case shows, the intelligent investor should be sure to understand what, and why, a company capitalizes.

In November 2013, Credit Suisse published research confirming this, saying that “US net business investment has rebounded – but, at around 1.5% of GDP, still only stands at the trough levels seen during the past two recessions”.[46] It showed that since the early 1980s, the peaks reached by net business investment as a share of GDP have been declining in each economic recovery. As John Smith writes in Imperialism In The Twenty First Century: “A notable effect of the investment strike is that the age of the capital stock in the US has been on a long-term rising trend since 1980 and started climbing rapidly after the turn of the millennium, reaching record levels several years before the crisis.”[47] Smith points out that in the UK the biggest counterpart to the government’s fiscal deficit (the difference between total revenue and total expenditure) of 8.8% of GDP in 2011 was “a corporate surplus of 5.5% of GDP, unspent cash that sucked huge demand out of the UK economy”.[48] The problem is even worse in Japan, where huge corporate surpluses and low rates of investment have been the norm since the economy entered deflation in the early 1990s. According to Martin Wolf in the FT, “the sum of depreciation and retained earnings of corporate Japan was a staggering 29.5% of GDP in 2011, against just [sic] 16% in the US, which is itself struggling with a corporate financial surplus”.[49]

In related ways, 24/7 is inseparable from environmental catastrophe in its declaration of permanent expenditure, of endless wastefulness for its sustenance, in its terminal disruption of the cycles and seasons on which ecological integrity depends.

In 2016 it announced the development of a new chip for “deep learning inference” called the tensor processing unit (TPU). The TPU would dramatically expand Google’s machine intelligence capabilities, consume only a fraction of the power required by existing processors, and reduce both capital expenditure and the operational budget, all while learning more and faster.28

Financial strength and capital structure. The most basic possible definition of a good business is this: It generates more cash than it consumes. Good managers keep finding ways of putting that cash to productive use. In the long run, companies that meet this definition are virtually certain to grow in value, no matter what the stock market does. Start by reading the statement of cash flows in the company’s annual report. See whether cash from operations has grown steadily throughout the past 10 years. Then you can go further. Warren Buffett has popularized the concept of owner earnings, or net income plus amortization and depreciation, minus normal capital expenditures. As portfolio manager Christopher Davis of Davis Selected Advisors puts it, “If you owned 100% of this business, how much cash would you have in your pocket at the end of the year?” Because it adjusts for accounting entries like amortization and depreciation that do not affect the company’s cash balances, owner earnings can be a better measure than reported net income. To fine-tune the definition of owner earnings, you should also subtract from reported net income: any costs of granting stock options, which divert earnings away from existing shareholders into the hands of new inside owners any “unusual,” “nonrecurring,” or “extraordinary” charges any “income” from the company’s pension fund. If owner earnings per share have grown at a steady average of at least 6% or 7% over the past 10 years, the company is a stable generator of cash, and its prospects for growth are good.

the creation of expectations about future growth is a crucial role for government, and not just during downturns. It is why mission-oriented innovation policy—bringing Keynes and Schumpeter together—has such an important role to play in driving stronger economic performance. Indeed, Keynes argued that the ‘socialisation of investment’—which, as Mazzucato suggests, could include the public sector acting as investor and equity-holder—would provide more stability to the investment function and hence to growth.53 It is because public expenditure is critical to the co-production of the conditions for growth, as Kelton highlights, that the austerity policies which have reduced it in the period since the financial crash have proved so futile, increasing rather than diminishing the ratio of debt to GDP. And as Wray and Nersisyan emphasise, the endogenous nature of money created by ‘keystrokes’ in the banking system gives governments far greater scope to use fiscal policy in support of economic growth than the orthodox approach allows.

The variables which were apt for management by central authorities were interest rates and taxation, which he proposed that governments should adjust in order to stimulate investment and to seek full employment. However, he said little of emergency public works, and nothing about fiscal methods of demand management. He did not recommend increasing the government’s current expenditure by running a budget deficit to meet a deficiency of demand. He gave no encouragement to profligate finance ministers. He urged that additional government expenditure should be on capital account and financed from a separate capital budget while so far as possible the regular budget should be kept in balance. He suggested that full employment might be maintained by redistribution of income. If wealth was more equitably dispersed in the population, effective demand would be stimulated and would thus help capital growth. As the scarcity of capital diminished, investors would be rewarded less. He never believed that state planning would eliminate economic instability. He saw national economies as inherently wobbling: they were susceptible to rational management, but with irrational elements.73

When he came to study the country’s inequitable tax system, though, Necker was faced with complicated and intractable problems which he was quite incapable of resolving. The various taxes and duties levied in France – the gabelle, the traites, the aides as well as the capitation and the vingtièmes–were all, as he discovered, subject to variations, exemptions, inequalities in distribution and abuses in collection that made the evils of the system one of the principal causes of social unrest. Yet the increasing expenses of government and public works and the costs of the country’s wars – in particular France’s participation in the War of American Independence which involved expenditure of about 2,000 million livres–rendered the collection of further and more burdensome taxes inevitable unless the state were to slide ever deeper into bankruptcy.

it decided last year to become a ‘broad energy’ firm, investing up to 15–20 percent of annual capital expenditure in ‘new energy solutions’ by 2030, mostly in offshore wind.

It’s all part of the life-cycle of an economy.  First it’s lawless capitalism until that starts to impede growth.  Next comes regulation, law enforcement, and taxes.  After that: public benefits and entitlements.  Then, finally, over-expenditure and collapse.” -Andy Weir,

Unlike the house you live in, practically every expense attached to your rental property counts as a deductible business expense for tax purposes. Expenses to deduct include: • Mortgage interest • Property taxes • Insurance • Homeowners association dues • Advertising (to fill a vacancy) • Utilities • Repairs and maintenance • Pest control • Landscaping • Trash pickup • Depreciation What doesn’t count as an expense? Any major repairs or renovations you perform count as capital expenditures that get added to the cost basis of the property, effectively reducing your taxable income when you eventually sell.

The view has been gaining widespread acceptance that corporate officials and labor leaders have a “social responsibility” that goes beyond serving the interest of their stockholders or their members. This view shows a fundamental misconception of the character and nature of a free economy. In such an economy, there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud….It is the responsibility of the rest of us to establish a framework of law such that an individual in pursuing his own interest is, to quote Adam Smith again, “led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.” Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine. If businessmen do have a social responsibility other than making maximum profits for stockholders, how are they to know what it is? Can self-selected private individuals decide what the social interest is? Can they decide how great a burden they are justified in placing on themselves or their stockholders to serve that social interest? Is it tolerable that these public functions of taxation, expenditure, and control be exercised by the people who happen at the moment to be in charge of particular enterprises, chosen for those posts by strictly private groups? If businessmen are civil servants rather than the employees of their stockholders then in a democracy they will, sooner or later, be chosen by the public techniques of election and appointment.

We have the money. We've just made choices about how to spend it. Over the years, lawmakers on both sides of the aisle have restricted housing aid to the poor but expanded it to the affluent in the form of tax benefits for homeowners. Today, housing-related tax expenditures far outpace those for housing assistance. In 2008, the year Arleen was evicted from Thirteenth Street, federal expenditures for direct housing assistance totaled less than $40.2 billion, but homeowner tax benefits exceeded $171 billion. That number, $171 billion, was equivalent to the 2008 budgets for the Department of Education, the Department of Veterans Affairs, the Department of Homeland Security, the Department of Justice, and the Department of Agriculture combined. Each year, we spend three times what a universal housing voucher program is estimated to cost (in total) on homeowner benefits, like the mortgage-interest deduction and the capital-gains exclusion. Most federal housing subsidies benefit families with six-figure incomes. If we are going to spend the bulk of our public dollars on the affluent - at least when it comes to housing - we should own up to that decision and stop repeating the politicians' canard about one of the richest countries on the planet being unable to afford doing more. If poverty persists in America, it is not for lack of resources.

What the advertiser needs to know is not what is right about the product but what is wrong about the buyer. And so, the balance of business expenditures shifts from product research to market research. The television commercial has oriented business away from making products of value and toward making consumers feel valuable, which means that the business of business has now become pseudo-therapy. The consumer is a patient assured by psycho-dramas.

In 1960, a full 35 percent of Americans age sixty-five and over were living under the poverty line. Now it’s under 10 percent. Researchers at the National Bureau of Economic Research credit the entirety of this decrease to a doubling of Social Security expenditure per capita over the time in question.10 The elderly have gone from the poorest American age demographic to the richest, in no small part due to sizable increases in state support.

operating earnings plus depreciation and amortization less normalized capital expenditures—was adequate to cover both interest and modest reductions in debt.

Most seriously, and this is what concerned Young, the loss of the smartest children from the less educated group deprives them of talent that is useful to the group itself. Young writes that “the bargaining over the distribution of national expenditure is a battle of wits, and that defeat was bound to go to those who lost their clever children to the enemy.” He notes that the real reason the elites have been so relatively successful is that “the humble no longer have anyone—except themselves—to speak for them.

The longer one owns the shares, however, the more important the firm’s underlying economics will be to performance results. Long-term investors therefore seek answers with shelf life. What is relevant today may need to be relevant in ten years’ time if the investor is to continue owning the shares. Information with a long shelf life is far more valuable than advance knowledge of next quarter’s earnings. We seek insights consistent with our holding period. These principally relate to capital allocation, which can be gleaned from examining the company’s advertising, marketing, research and development spending, capital expenditures, debt levels, share repurchase/ issuance, mergers and acquisitions and so forth.

References to EBITDA make us shudder — does management think the tooth fairy pays for capital expenditures?

Capital Expenditures A capital expenditure is the purchase of an item that’s considered a long-term investment, such as computer systems and equipment. Most companies follow the rule that any purchase over a certain dollar amount counts as a capital expenditure, while anything less is an operating expense. Operating expenses show up on the income statement, and thus reduce profit. Capital expenditures show up on the balance sheet; only the depreciation of a piece of capital equipment appears on the income statement. More on this in chapters 5 and 11

As theaters were the first point of revenue collection for the entire industry, this side of the business often had insights on how to keep the halls full every weekend and therefore needed some control of the product, the films themselves. Unlike a producer, who usually hired people one movie at a time and could scale down expenditures, a theater owner had substantial leases or mortgage payments on his real estate and faced ongoing pressure. Further, theater owners suddenly had to spend large amounts of capital to upgrade their facilities for a new technology.

Without a sense of purpose,” he explained, “no company, either public or private, can achieve its full potential. It will ultimately lose the license to operate from key stakeholders. It will succumb to short-term pressures to distribute earnings, and, in the process, sacrifice investments in employee development, innovation, and capital expenditures that are necessary for long-term growth.

Today’s crisis of freedom stems from the fact that the operative technology of power does not negate or repress freedom so much as exploit it. Free choice {Wahl) is eliminated to make way for a free selection (Auswahl) from among the items on offer. Smart power with a liberal, friendly appearance - power that stimulates and seduces - is more compelling than power that imposes, threatens and decrees. Its signal and seal is the Like button. Now, people subjugate themselves to domination by consuming and communicating - and they click Like all the while. Neoliberalism is the capitalism of ‘Like.’ It is fundamentally different from nineteenth-century capitalism, which operated by means of disciplinary constraints and prohibitions. Smart power reads and appraises our conscious and unconscious thoughts. It places its stock in voluntary self organization and self-optimization. As such, it has no need to overcome resistance. Mastery of this sort requires no great expenditure of energy or violence. It simply happens. The capitalism of Like should come with a warning label: Protect me from what I want.

Depreciation is the method accountants use to allocate the cost of equipment and other assets to the total cost of products and services as shown on the income statement. It is based on the same idea as accruals: we want to match as closely as possible the costs of our products and services with what was sold. Most capital investments other than land are depreciated. Accountants attempt to spread the cost of the expenditure over the useful life of the item. There’s more about depreciation in parts 2 and 3.

We’ll get to all the details later; for the moment, all you need to know is that an operating expense reduces the bottom line immediately, and a capital expenditure spreads the hit out over several accounting periods. You can see the temptation here: Wait. You mean if we take all those office supply purchases and call them “capital expenditures,” we can increase our profit accordingly?

We analyzed the ten tech companies worth over a billion dollars that went public in 2014 and 2015, and the average company spent a jaw-dropping $0.72 on sales and marketing for every $1.00 of sales during the three-year hypergrowth period before going public. As a matter of fact, one of the companies, Box, spent $1.59 for every $1.00 in sales! You’re probably wondering, how does a company like Box justify spending more money on sales and marketing than they generate in sales? The answer is “customer lifetime value.” Once Box mathematically proved that they could acquire a customer for less than the lifetime value (LTV) of that customer, they raised a war chest of investment capital and didn’t care if they spent more on sales and marketing than they generated in annual sales, because they knew that they would generate a big return in the long run. You probably don’t have access to a massive war chest of investment capital, but that doesn’t mean you are unable to invest more resources on growth. Instead of benchmarking your growth investment against customer lifetime value, benchmark against your bottom-line profits. Here is a list of financial scenarios and corresponding actions: If you desire growth and have a profitable business, operate at a break-even point and reinvest the profit, or a portion of the profit, back into growth. If you are running a break-even or unprofitable business, spend some time going through your expenditures looking for redundancies or unnecessary expenses. If you cannot find any opportunities to save money, prepare yourself to take a temporary pay cut (you can time this around your tax refund or right after your busy period if your business has seasonality). If you are unable to take a temporary pay cut, prepare yourself to work some extra hours (start by batching activities so you can spend a day per week working from home, and use the time you save when not having a work commute to invest in growth). If you are unable to take a temporary pay cut AND unable to work any extra hours, then read the paragraph below.

The analysis of the /General Theory /shows that inflation is a real, not a monetary, phenomenon. It operates in two stages (once more giving a crudely simple account of an intricate process). An increase in effective demand meeting an inelastic supply of goods raises prices. When food is supplied by a peasant agriculture a rise of the prices of foodstuffs is a direct increase of money income to the sellers and increases their expenditure. The higher cost of living sets up a pressure to raise wage rates. So money incomes rise all round, prices are bid up all the higher and a vicious spiral sets in. The first stage — a rise of effective demand — can very easily be prevented by not having any development. But if there is to be development there must be a stage when investment increases relatively to consumption. There must be an increase in effective demand and a tendency towards inflation. The problem is how to keep it within bounds. Some schemes of investment that seem to be clearly indispensable to improvements in the long run, such as electrical installations, take a long time to yield any fruit and meanwhile the workers engaged on these have to be supplied. The secret of non-inflationary development is to allocate the right amount of quick-yielding, capital-saving investment to the consumption-good sector (especially agriculture) to generate a sufficient surplus to support the necessary large schemes. It is in this kind of analysis, rather than in the mystifications of “deficit finance,” that the clue to inflation is to be found. [pp. 110-11]

capital expenditures required in Clean Technology are so incredibly high,” says Pritzker, “that I didn’t feel that I could do anything to make an impact, so I became interested in digital media, and established General Assembly in January 2010, along with Jake Schwartz, Brad Hargreaves and Matthew Brimer.” In less than two years GA had to double its space. In June 2012, they opened a second office in a nearby building. Since then, GA’s courses been attended by 15,000 students, the school has 70 full-time employees in New York, and it has begun to export its formula abroad—first to London and Berlin—with the ambitious goal of creating a global network of campuses “for technology, business and design.” In each location, Pritzker and his associates seek cooperation from the municipal administration, “because the projects need to be understood and supported also by the local authorities in a public-private partnership.” In fact, the New York launch was awarded a $200,000 grant from Mayor Bloomberg. “The humanistic education that we get in our universities teaches people to think critically and creatively, but it does not provide the skills to thrive in the work force in the 21st century,” continues Pritzker. “It’s also true that the college experience is valuable. The majority of your learning does not happen in the classroom. It happens in your dorm room or at dinner with friends. Even geniuses such as Mark Zuckerberg or Bill Gates, who both left Harvard to start their companies, came up with their ideas and met their co-founders in college.” Just as a college campus, GA has classrooms, whiteboard walls, a library, open spaces for casual meetings and discussions, bicycle parking, and lockers for personal belongings. But the emphasis is on “learning by doing” and gaining knowledge from those who are already working. Lectures can run the gamut from a single evening to a 16-week course, on subjects covering every conceivable matter relevant to technology startups— from how to create a web site to how to draw a logo, from seeking funding to hiring employees. But adjacent to the lecture halls, there is an area that hosts about 30 active startups in their infancy. “This is the core of our community,” says Pritzker, showing the open space that houses the startups. “Statistically, not all of these companies are going to do well. I do believe, though, that all these people will. The cost of building technology is dropping so low that people can actually afford to take the risk to learn by doing something that, in our minds, is a much more effective way to learn than anything else. It’s entrepreneurs who are in the field, learning by doing, putting journey before destination.” “Studying and working side by side is important, because from the interaction among people and the exchange of ideas, even informal, you learn, and other ideas are born,” Pritzker emphasizes: “The Internet has not rendered in-person meetings obsolete and useless. We chose these offices just to be easily accessible by all—close to Union Square where almost every subway line stops—in particular those coming from Brooklyn, where many of our students live.

Low confidence has caused credit markets to freeze up. Lenders do not trust that they will be paid back. Under the circumstances those who want to spend find it difficult to obtain the credit they need; those who supply the goods find it difficult to obtain the working capital they need. As a result the usual fiscal multipliers, from increased government expenditures or from decreased taxes, will be smaller—probably much smaller.

MY RECOMMENDATION Below is my advice about regarding selling SpaceX stock or options. No complicated analysis is required, as the rules of thumb are pretty simple. If you believe that SpaceX will execute better than the average public company, then our stock price will continue to appreciate at a rate greater than that of the stock market, which would be the next highest return place to invest money over the long term. Therefore, you should sell only the amount that you need to improve your standard of living in the short to medium term. I do actually recommend selling some amount of stock, even if you are certain it will appreciate, as life is short and a bit more cash can increase fun and reduce stress at home (so long as you don’t ratchet up your ongoing personal expenditures proportionately). To maximize your post tax return, you are probably best off exercising your options to convert them to stock (if you can afford to do this) and then holding the stock for a year before selling it at our roughly biannual liquidity events. This allows you to pay the capital gains tax rate, instead of the income tax rate.

Here lies one of the biggest differences between traditional and subscription businesses. In a traditional business, the cost of sales reflects how much I spent to get that dollar of revenue. But in a subscription business, sales and marketing expenses are matched to future revenue. Why? Because the sales and marketing I spent this quarter adds to the ARR, but the revenue I will see from that ARR growth will come in future quarters. In traditional accounting lingo, your sales and marketing now acts more like a “capital expenditure,” or capex. Essentially, these are costs you spend to grow the business, either from existing customers or from acquiring new customers.

On December 1, 1930, as the Great Depression was raging, the cornflake magnate W. K. Kellogg decided to introduce a six-hour workday at his factory in Battle Creek, Michigan. It was an unmitigated success: Kellogg was able to hire an additional 300 employees and slashed the accident rate by 41%. Moreover, his employees became noticeably more productive. “This isn’t just a theory with us,” Kellogg proudly told a local newspaper. “The unit cost of production is so lowered that we can afford to pay as much for six hours as we formerly paid for eight.”30 For Kellogg, like Ford, a shorter workweek was simply a matter of good business.31 But for the residents of Battle Creek, it was much more than that. For the first time ever, a local paper reported, they had “real leisure.”32 Parents had time to spare for their children. They had more time to read, garden, and play sports. Suddenly, churches and community centers were bursting at the seams with citizens who now had time to spend on civic life.33 Nearly half a century later, British Prime Minister Edward Heath also discovered the benefits of cornflake capitalism, albeit inadvertently. It was late 1973 and he was at his wits’ end. Inflation was reaching record highs and government expenditures were skyrocketing, and labor unions were dead set against compromise of any kind. As if that weren’t enough, the miners decided to go on strike. With energy consequently in short supply, the Brits turned down their thermostats and donned their heaviest sweaters. December came, and even the Christmas tree in Trafalgar Square remained unlit. Heath decided on a radical course of action. On January 1, 1974, he imposed a three-day workweek. Employers were not permitted to use more than three days’ electricity until energy reserves had recovered. Steel magnates predicted that industrial production would plunge 50%. Government ministers feared a catastrophe. When the five-day workweek was reinstated in March 1974, officials set about calculating the total extent of production losses. They had trouble believing their eyes: The grand total was 6%.34

IT buyers prefer opex to capex. Historically software companies have preferred capital expenditures (capex) for technology investments, as this afforded them the ability to take advantage of amortization and depreciation of the capital investments over a period of time. But as technology shifts to the cloud, there’s a complementary shift happening in favor of opex over capex. Operating expenses bear the advantage of a pay-as-you-go model for services used with comparatively little to no up-front investment. Not only is this a greater value prop, as a business is getting exactly what it pays for, but it’s also a strategy for freeing up cash to drive growth, and a way for large enterprises to be nimble rather than locked into expensive IT infrastructure that lacks flexibility and often serves as nothing more than a bottleneck for transformation.

In a passage of the third volume of Capital7, Marx very aptly describes the material side of social life, and especially its economic side, that of production and consumption, as an extension of human metabolism, i.e. of man’s exchange of matter with nature. He clearly states that our freedom must always be limited by the necessities of this metabolism. All that can be achieved in the direction of making us more free, he says, is ‘to conduct this metabolism rationally, … with a minimum expenditure of energy and under conditions most dignified and adequate to human nature. Yet it will still remain the kingdom of necessity. Only outside and beyond it can that development of human faculties begin which constitutes an end in itself—the true kingdom of freedom. But this can flourish only on the ground occupied by the kingdom of necessity, which remains its basis …’ Immediately before this, Marx says: ‘The kingdom of freedom actually begins only where drudgery, enforced by hardship and by external purposes, ends; it thus lies, quite naturally, beyond the sphere of proper material production.’ And he ends the whole passage by drawing a practical conclusion which clearly shows that it was his sole aim to open the way into that non-materialist kingdom of freedom for all men alike: ‘The shortening of the labour day is the fundamental pre-requisite.’ In my opinion this passage leaves no doubt regarding what I have called the dualism of Marx’s practical view of life. With Hegel he thinks that freedom is the aim of historical development. With Hegel he identifies the realm of freedom with that of man’s mental life. But he recognizes that we are not purely spiritual beings; that we are not fully free, nor capable of ever achieving full freedom, unable as we shall always be to emancipate ourselves entirely from the necessities of our metabolism, and thus from productive toil. All we can achieve is to improve upon the exhausting and undignified conditions of labour, to make them more worthy of man, to equalize them, and to reduce drudgery to such an extent that all of us can be free for some part of our lives. This, I believe, is the central idea of Marx’s ‘view of life’; central also in so far as it seems to me to be the most influential of his doctrines.

As a reminder, free cash flow is a company's cash flow from operations (CFO) minus capital expenditures.