Thursday, 10 September 2009

Back to the beginning

From the preface to The Modern Corporation and Private Property:
"[S]tockmarkets are no longer places of 'investment' as the word was used by classical economists. Save to a marginal degree, they no longer allocate capital. They are mechanisms for liquidity. The purchaser of stock, save in rare instances, does not buy new issue. The price he pays does not add to capital or assets of the corporation whose shares he buys. Stockmarkets do not exist for, and in general are not used for (in fact are not allowed to be used for), distribution of newly issued shares... The exchanges are institutions in which shares, arising from investment made long ago, are shifted from sellers who cash to buyers who wish stock. Purchases and sales on the New York and other stock markets do not seriously affect the business operations of the companies whose shares are the subject of trading.

"We have yet to digest the social-economic situation resulting from this fact. Immense dollar values of stocks are bought and sold every day, month and year. These dollars - indeed hundreds of billions of dollars - do not, apparently, enter the stream of direct commercial or productive use. That is, they do not become 'capital' devoted to productive use...

"...The purchaser of stock does not contribute savings to an enterprise, thus enabling it to increase its plant or operations. He does not take the 'risk' of a new or increased economic operation; he merely estimates the chances of the corporation's shares increasing in value. The contribution his purchase makes to anyone other than himself is the maintenance of liquidity for other shareholders who may want to convert their holdings into cash..."

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