Thursday, May 23, 2024

The new economy is simply a ratio


The New Economy that came into being in the nineties names, really, a ratio – that is, the rise in the ratio between price and earnings. Just as the world starts, in the Upanishads, with the first man, Pragapati, floating in a golden egg that he has somehow fertilized himself, so too do we find our plutocrats floating in golden eggs made out of financial instruments which exist solely in order that plutocrats can grow the most enormous golden eggs the world has ever seen.

In an early era – in the Progressive era – the p/e ratio had another name: overcapitalization. And instead of celebrating an economic mechanism whereby speculators are allowed and encouraged to treat themselves to stunning windfalls, the Progessives justly saw overcapitalization as waste and fraud.

Lawrence Mitchell, in The Speculation Economy, has, I think correctly, seen the first two decades of the 20th century in America as the period in which the limits of American progressive politics – and by extension, the limits of anti-corporationism in the West – were drawn and hardened. By 1920, the attempt to reform the stock market from the root had failed.

The high point of the reform effort came in 1911. In that year, the House of Representatives passed a bill a bill that was narrowly turned down in the Senate, S. 232. S. 232 would not only have required federal incorporation of all interstate businesses. Here’s Mitchell’s description of it:

“It would have replaced traditional state corporate finance law by preventing companies from issuing “new stock” for more than the cash value of their assets, addressing both traditional antitrust concerns and newer worries about the stability of the stock market by preventing overcapitalization. But it would have done much more.

S. 232 was designed to restore industry to its primary role in American business, subjugating finance to its service. It would have directed the proceeds of securities issues to industrial progress by preventing corporations from issuing stock except “for the purpose of enlarging or extending the business of such corporation or for improvements or betterments”, and only with the permission of the Secretary of Commerce and Labor. Corporations would only be permitted to issue stock to finance revenue-generating industrial activities rather than finance the ambitions of sellers and promoters. … S. 232 would have restored the industrial business model to American corporate capitalism and prevented the spread of the finance combination from continuing it dominance of American industry.” (137)

Martin Sklar, in The Corporate Reconstruction of American Capitalism, summarized the spirit of the drafts prepared during Theodore Roosevelt’s administration that stood in the background of the bill’s eventual configuration in this way: ‘whenever the amount of outstanding stock should exceed the value of assets, the secretary would require the corporation to call in all stock and issue new stock in lieu thereof in an amount not exceeding the value of assets, and each stockholder would be required to surrender the old stock and receive the new issue in an amount proportionate to the old holdings.”

I’ve already manifested my manifesto for a new Soviet version of 21st century capitalism – one that destroys the corporate form and replaces it with hundreds of thousands of small scale enterprises in flexible cooperative structures. It does not overturn capitalism, but it does radically turn capitalism around. The limitation of both the corporation and the state is a kind of capitalism with a human face – which is much more radical than where ‘socialism’ is at the moment. For this kind of harmony of opposites, of cooperation and competition, to really work, the speculative economy would have to be radically subordinated to production. The pleasure palace of the oligarchs, the four hundred trillion dollar derivatives structure that burdens the earth (even as it actually does not exist – truly, an extreme case of economic neuroses), will have to be burnt to the ground. From a historical point of view, instead of a prescriptive one, however: one has to marvel at what the railroad companies wrought.  Most studies of railroads concentrate on their physical structure, and their role in transport. But if you look at financial history in the U.S., you find that railroads basically invented the modern stock market. By overcapitalizing far beyond the needs of stock and expansion, and by being the model that shaped the constitution of interstate businesses, they forged the stock market as an instrument of overcapitalization that it has since become. In the first decade of the twentieth century, state attorney generals, elected by populists, tried to make railroad companies adhere to their contractual obligations under state law. Well, that took state's rights too far, and was overruled by the Federal government. The Scotus, which piously devolved the rights of women over their own bodies to the states, would shriek with horror if the states took up the right to regulate the interstate commerce that comes through it. There is a limit to every reactionary thing, after all! Common sense, among the plutocrats, has agreed to this. And who are we to tell the rich assholes no?

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