Capitalism Today and Corporation(Transfiguration and Pathology of Contemporary Corporate Capital,The 54^<th> Annual Conference, Plenary Session)

Abstract

For many years the corporation has been held to be the legal entity for raising a large amount of funds from the public. In the late 19^<th> and early 20^<th> centuries many corporations were organized to build large scale production equipment in heavy industries. Rudolf Hilferding wrote in his "Das Finanzkapital" on the role of corporation and German banks in the development of the German economy. German banks extended large amounts of long-term credit to firms in the steel, mining, chemical and railroad industries. And afterwards banks advised debtor firms to change their company organizations into corporations. Banks purchased all equities issued by the new corporations and at the same time corporations repaid borrowings to banks. Thus banks recovered their capital and held all stock issued by corporations. Several years later banks sold the stocks to public investors, many of whom were the customers of banks. Quite naturally banks gained big profits and this profit was named "Gruender's Gewinn" (founder's gain). Corporation stocks are bought and sold, circulate from hand to hand among the public investors in either stock-exchanges or other secondary markets, thus investors avoid any risks (credit-risk and others), and in the market stocks move similarly to that of corporation equity. Hilferding named the capital moving in stock market "fictitious capital". Since the late 19^<th> century more than one hundred years have passed and the industrial structure has dramatically changed. In the late 19^<th> century the core of the industrial structure was heavy industry. The flagship industry of the 20^<th> century is either the motor-car industry or the electrical appliances industry. Neither requires large heavy production equipment, and therefore doesn't need large amounts of long-term capital funds. At the same time the cluster of a great many accommodative firms in the parts and material industry has grown surrounding the big motor-car companies and the electrical appliances companies. Thus, it is a specific feature of these two 20^<th> century industries that they employ more man-power and less long-term capital funds than the 19^<th> century industries. Now, in the early 21^<st> century, the new quickly-emerging industry is the "internet service industry". Month after month many new companies are born. Their businesses are not the manufacturing industrial business. The only production-equipment is the personal computer. Their workshop in many cases just occupies small room or one floor of an office building. Therefore, this new 21^<st> century industry does not require large amounts of long-term capital. They need only manpower. The industries in the 19th, 20th, and 21^<st> centuries belongs to the demand side of capital. On the other hand, the supply side capital has been being increasingly concentrated. The supply side of capital, for instance, incorporates the life-insurance companies, pension funds, investment trusts, universities, endowments and others. Today, the total financial assets of these institutional investors is enormous, while the capital needs of industry is much smaller. As a result the institutional investors cannot find good investments in the market, and consequently invest funds in so-called hedge funds, in which fund managers invest speculatively. Sometimes fund managers are green-mailers. In the stock-exchange today many M&As take place and recently in many cases, purchasers want to buy stocks of the target company with the stocks of the purchaser's company. In this case the stock of the purchaser is the quasi-money and, as a matter of course, all company presidents of the listed companies are focused on raising the price of their company stocks. It is natural, therefore, that window-dressing settlements and manipulation of

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