Superphysics
Capitalism: Outside Ownership
December 16, 2021 7 minutes • 1313 words
Table of contents
Capitalism is a mutation of the mercantile system mentioned in the previous subchapter.
In order to create the mercantile companies to rake in precious metals from foreign trade, stock certificates were invented.
These could then be traded. This allowed outside people (the non founders) to own the work of the people in the company.
This is why we define Capitalism as an economic system that uses outside ownership to amass private profits.
In Book 5 of The Wealth of Nations, corporations or firms were known as joint stock companies which were big business organizations that ran on the same basic ideas:
| Joint stock company (Book 5, Chap. 1) | Corporation or firm |
|---|---|
| Trade on a joint stock, on a large capital | Trade on a common or preferred stock representing a large capital |
| Each member shares in the common profit or loss in proportion to his share | Stockholder’s liability is limited to his stock investment |
| Members can transfer shares, introduce new members without the company’s consent | People can buy and transfer shares of publicly listed companies |
| The value of a share is always its market price and is different from the stated value | Stock price can be different from the IPO price or par value |
| The joint stock company is always managed by a court of directors | The corporation is managed by executives under a CEO |
| The court of directors is under a court of proprietors who do not understand the company’s business | The CEO is managed by a board of directors from various backgrounds |
It is through the ownership of stock by people outside or unrelated to the company’s operations that they get rich through the accumulation of profits via:
- retained earnings
- rising stock prices.
By simply making the right bet, a stock trader or investor can multiply his small money into big money without doing much work, just like a gambler.
This is one of the main expedients that fuels inequality, as it allows people to feed off the work of others legally.
When left unchecked, it allows people to increase their nominal value way above their real value. This manifests as bubbles which pop when the nominal value crashes back to its real, natural value.
State Capitalism, Inclusive Capitalism
State capitalism is the state trying to solve the problem of inequality by giving the government the control of private equity so that its profits can be better distributed to society.
However, such a system requires its government administrators to have a high degree of skill and morals to juggle private and public interest at the same time.
Adam Smith says that the government can be in business as long as its people are responsible. This is proven by the success of China’s state-owned corporations:
A well-run state capitalism* leads to less opportunities for private capitalism. This is why liberals say that governments have no business to be in business. They cherry-pick quotes from the Wealth of Nations to advocate deregulation and laissez faire, contrary to the original spirit of the book.
From here we can add other definitions:
- Inclusive capitalism is an economic system that uses outside ownership to let everyone amass private profits, likely through penny stocks or group purchase
- Stakeholder capitalism is an economic system that uses outside ownership to let its stakeholders have a share in the profits of the company or system
Capitalist Versus Businessman
Our definition distinguishes capitalism from mercantilism and can distinguish the capitalist from the non-capitalist:
| Capitalist | Not Capitalist |
|---|---|
| A long-term investor who uses his money to buy and hold stocks in a company that sells products profitably | A baker who employs his own assistants and bakes his own bread for profit |
| A company, owned by ‘silent’ partners, that is unable to make any profits or just breaks even for a long time | A corporation that makes profits but gives it all back to society |
| A holding company or shell company that produces nothing | A day trader who uses his own money to buy stocks or commodities in the morning and sell it in the afternoon for profit is a merchant or speculator, not a capitalist |
| A government that creates a government-corporation by inviting private equity | A government that creates a government-company by issuing bonds |
By defining capitalism, we can better filter out the economic policies that enslave people and we can adopt those that set them free.
Capitalism: Born Between 1800-1830
Capitalism’s birth in England and/or France can be narrowed down to after Smith’s death in 1790 to before 1830 when its idea was already written about, as explained by Marx:
There were capitalist corporations, such as the South Sea Company, before the 1800s. But they were not so prevalent in industry which were still dominated by guilds in the 18th century.
The steam engine changed things because they allowed non-specialist workers to produce what the specialized guilds were manufacturing by hand.
Capitalism failed to take root in Germany and most other places, but took root in Britain because of:
- the high degree of freedom that the British enjoyed
- the strong support by their government.
The Netherlands and the Hanseatic league had weaker government support. This prevented their mercantilism from evolving into capitalism, allowing the British to take over the world.
In fact, Thomas Mun wrote that the Dutch owed their commercial wealth to the British who empowered them to counteract the strength of Spain:
From Britain, the seed ideas of modern capitalism went to France, as seen in JB Say, a French businessman and proto-capitalist, who wrote A Treatise on Political Economy (1803).
However, the single idea that sparked the growth of those seed ideas was James Mill who, in Elements of Political Economy (1821), defined a capitalist as someone who owns the produce of the work of others, without actually working himself :
Note that in this sense,capitalist can only apply if the workers are ACTUALLY SLAVES:
