Genuine Capitalism - And Shareholders, Public Limited Companies, Stock Markets, And "Distributive Justice"

When a "public limited company" is established, comprising a Board of Directors, to whose "prospectus" the public "subscribes" by buying shares, and the Capital collected is then invested in an enterprise whose profits are shared after open accounting at an Annual General Meeting - the entire exercise aims at "distributive justice."

That is, various people have invested varying amounts towards this "speculative venture," and the profits, if any (for losses can always accrue) must be justly "shared" between them - the "shareholders" - according to the size of their investments. This is an entirely "moral gain" they have made. It is not the "sharing of plunder" as between bandits and robbers. It is verily Shubh Laabh.

If we look at History, and we should, because only then do we know how all this began, we find that the Honourable East India Company asked for subscriptions to its First Voyage - and then, when that was successful, its Second Voyage, and so on. Records were scrupulously kept - indeed, all these records still exist. This is how distributive justice was done "honourably."

Today things are very, very different in stock markets - and some of the perversity that has emerged was discussed yesterday. In brief: Companies prefer debt over equity since borrowing is cheap and easy for them; and share markets are "manipulated" by cronies of central banks. Today, I will discuss all these matters in detail.

But before proceeding, let us note that the modern welfarist-inflationist-Keynesian world is one with a very different "ethic": and that is "redistributive justice," which is also called "social justice." It is nothing but THEFT. These expressions justify all the "legal plunder" that is going on.

Capitalism is about Private Property, Private Money, and Private Ownership of Capital. In the column linked to above, I have written, "it is obvious that a socialized, centralized and state-owned and -directed fiat money and banking system is nothing but communism in thin disguise."

Capitalism is Individualism.

To begin: Capital, Income, Value, Time, Arithmetic - these are all "mental categories" embedded within the "logical structure of the human mind." It is because of these categories that our minds follow "laws of thought" - and so we "accumulate capital" and build civilisation quite "naturally." That is how "cowboys" and sheep farmers built America, Australia and New Zealand, by counting their herds, and making sure these were growing. Nomadic herdsmen of yore did much the same - because they too possessed the mental category of Capital - and that is how ancient civilisations came about. Just go through the Old Testament to know how animals were wealth in those times. And Carl Menger's Principles of Economics contains a chapter on the "Origin of Money" that begins with how animals were "capital-on-the-move" for ancient nomads; and how animal hides were "money" to them. The word "buck" refers to the hide of one particular animal that was widely used as money in early America.

(For a full discussion of these concepts, click here.)

Since Time is also a "mental category" - which is why percussion is the oldest music - we have the market phenomenon of Interest. We prefer present goods to future goods - and are guided in our savings as well as borrowings by the market phenomenon of Interest.

Today, with easy money and even "zero interest rates" - supposedly to "stimulate" the economy - companies prefer debt over equity. Many firms are "leveraged." And SAVERS are losing! This is the IMMORALITY of inflationism. The result is widespread "capital consumption" - which is the highway to "de-civilisation."

Thus, when the stock market "index" is referred to as a "sign of economic health" - DON'T BELIEVE IT. If savings are being eroded, if production is in decline - then the economy must decline. And civilisation must, too.

Sound money means DEFLATION: if gold were money, its value would rise - and all prices expressed in gold coin would steadily fall. They do so quite "naturally," anyway, because of bigger production scales and technology as well. But that is what deflationary conditions are about.

I have discussed sound money and free banking under the laws of the "natural order" already - so, today, all I wish to focus on is the fact that when credit cannot be created out of thin air, as today; and when a 100 percent reserve will have to be kept against note issue by every private banker; well, it should be obvious that borrowing capital will cost much more than it does today - which is ZERO. Thus, companies will have to perforce rely on equity. Only then will there emerge an "equity culture." And an "enterprise culture" as well. That is, instead of all the cronyism and corruption of today. FASCISM - if you ask me.

Thus, under deflationary conditions, whereas "term deposits" with banks will earn reasonably good interest, in the case of "demand deposits," for which full backing in specie will have to be retained, the depositor may even have to pay for the bank's services.

Only then will there will emerge a widespread equity culture - as against today, when term deposits as well as life insurance and other long-term savings LOSE VALUE; and much of the public capital is malinvested in government bonds!

Government bonds are "permanent irredeemable debt." The interest on them is "guaranteed" alright - but since the State does not earn anything by investing this money, and only consumes it in welfare/warfare, the entire interest burden falls on taxpayers. The bondholder is not taking speculative risks in the market - without which no "economy" can grow. All that is happening is widespread capital consumption - which will lead to massive economic failure. 

Soon. 

Do read this column by Niranjan Rajadhyaksha of Mint quoting from the latest report of the Bank of International Settlements, in which they say "monetary stimulus" is the train-wreck we are looking at - and the comment below the article, attributed to one "Natural Order," is mine. I have said: "Shut down the BIS!" And let the Swiss revert to a Gold Franc. 

With sound money and free banking - under the ordinary commercial laws of property and contract - the resulting deflation will yield for any society that opts for such a rational, as well as moral, economic and legal system, the following great benefits:  

EQUITY CULTURE

ENTERPRISE CULTURE

CAPITAL ACCUMULATION

CIVILISATION

A widespread equity culture means nothing other than that the "means of production" will be owned by The People - who are all the "ordinary shareholders."

These big enterprises will engage in "mass production for mass consumption" - and, once again, the biggest beneficiaries will be the same ordinary people, in their capacity as "consumers."

Leave aside the fact that we humans are natural-born capitalists, with our very brains wired for wealth-creation: Whatever be the propaganda of the leftists, Pure Capitalism - as outlined above - is the BEST economic system for the "working classes."

If there are no "serfs" in the West today, this is only because of modern Capitalism - and its completely moral "Distributive Justice."

Recommended read: My post "Say's Law versus the Marxists," part of a long series on this vital law of markets, mistaught universally today, thanks to the Keynesians.

Will stock markets in genuine capitalism require "State-appointed regulators"?

NO.

As with the Honourable East India Company's First Voyage in 1605 or thereabouts, all that is required is the "private law" of Contract. This is the "Share Certificate" with the shareholder's name upon it, signed by an authorised representative of the public limited company, which is a "corporate entity," or a Legal Individual, in the eyes of the law. The terms and conditions on this share certificate are "private law" between the two parties to this contract. Only in case there is a dispute - and this dispute is not privately settled, which is extremely rare - does the matter need to be taken to a court of law. But State-appointed stock market regulators armed with democratic legislation are NOT required.

With all the malpractices currently underway in regulated stock markets all over the world, "insider trading" is nothing but NONSENSE designed to divert attention from the real crooks: the "banksters."

All shareholders are "speculators" - and all rely on "fragments of knowledge," which include privately shared or even secret information. This is why the financial press sells. And this is also the reason why genuine capitalism means protection of privacy - and not its blatant violation, as today, by State-employed gangsters. This, while they hide behind an "Official Secrets Act"!

Let us now turn to the popular, and much coveted educational "degree" in Business Management: MBA.

Millions - or maybe even hundreds of millions - of MBAs worldwide are IGNORANT of all that I have written above - only because they have never studied Economics: in particular, Ludwig von Mises' Human Action: A Treatise on Economics, which runs to over 1000 pages, and does not contain even one word on stock markets. After all, this is a treatise on PRINCIPLES - and on "market phenomena" such as Interest, the spontaneous emergence of money and suchlike. There is nothing really special about the stock market - it is just another market, and the same principles apply.

But Mises, in this book, does say the following on MBAs, in the longest chapter of the book, titled "The Market":

It is often asserted that the poor man’s failure in the competition of the market is caused by his lack of education. Equality of opportunity, it is said, could be provided only by making education at every level accessible to all. There prevails today the tendency to reduce all differences among various peoples to their education and to deny the existence of inborn inequalities in intellect, will power, and character. It is not generally realized that education can never be more than indoctrination with theories and ideas already developed. Education, whatever benefits it may confer, is transmission of traditional doctrines and valuations; it is by necessity conservative. It produces imitation and routine, not improvement and progress. Innovators and creative geniuses cannot be reared in schools. They are precisely the men who defy what the school has taught them.

In order to succeed in business a man does not need a degree from a school of business administration. These schools train the subalterns for routine jobs. They certainly do not train entrepreneurs. An entrepreneur cannot be trained. A man becomes an entrepreneur in seizing an opportunity and filling the gap. No special education is required for such a display of keen judgment, foresight, and energy. The most successful businessmen were often uneducated when measured by the scholastic standards of the teaching profession. But they were equal to their social function of adjusting production to the most urgent demand. Because of these merits the consumers chose them for business leadership.

The State-owned Indian Institutes of Management (IIMs) were established during our socialist heydays - and, even today, there are very competitive entrance examinations to these, as with the other "elite" educational institutions of this socialist State: the Indian Institutes of Technology.

The IITs only taught "science" - and never produced any "technology," ever, because that requires, capital, capitalism, and markets.

Interestingly, IIMs always preferred IIT grads as students: and, I do believe they did so because their intention was to fill corporates with managers infected with a "social engineering" virus. Such minds who do not see the beauty and morality of true Capitalism would naturally believe that their role in life lies in "rigging the system" for their companies. They would inevitably turn into FASCISTS.

The forgotten man who developed the first "School of Scientific Management" was Frederick Winslow Taylor - and his principal focus was on things like "time and motion studies," by which he and his students could be usefully employed on shop-floors to "raise productivity." The "science" lay in reducing both the time as well as the number of physical motions required to complete any operation by a worker. The objective: raising human productivity.

In India, from when these IIMs were established, right till today, we as a nation have very low productivity - and we waste Time on a colossal scale.

So, do study Human Action - on your own. Self-study.

Homeschool your children.

Stay far away from anything connected with the Ministry of Human Resource Destruction.