Commerce is the coordinated effort of government and business in the pursuance of enterprise. We have already covered government in III, so the focus of IV will be on business, with particular focus on the joint stock company.
Of all the examples of the voted money dialectic, the joint stock company, the primary engine of capitalism, is perhaps the most self contained mechanism for the generation of votes and money. Just as capitalism and democracy can be reduced to their unitary values of money and the vote, the joint stock company can be reduced to the unitary value of the share. The creation of the share can be seen as the birthing of a new unit of value in a democratic society, standing astride money and the vote and therefore unifying capital and democracy, public power and private power. Just as money is a form of encapsulated vote, the share is form of encapsulated money, and just as money inherits characteristics of the vote, the share inherits characteristics of both.
As the share is a product of money and the vote, the many axioms describing the relationship between them in III can also in many cases be applied here, to shares and their operation in the stock market. For this reason, Part IV will be more exploratory, with a summary of axioms at the end, although key points will still be bolded for emphasis.
The Origin of the Share
The Roman parte is thought to be the earliest recorded ancestor of the share. Its origin arose though the administration of public contracts for work such as maintenance of buildings and tax collecting, issued by the Roman government, which were managed by societas publicanorum, a society of citizens who would collectively pool and invest their own labour and wealth in the enterprise, with the government either providing liquidity from the treasury or a future promise of payment if funds in the treasury were low. Partes were shares of this collective pool of wealth, and shareholders participes, and there is evidence that these partes changed in value and were traded. The tax collecting function of the societas publicanorum all but guaranteed payments to the participes. Partes therefore worked as deferred payments issued by business and backed by the state and operated as a form of money.
From their inception the concept of shares involved a marriage between state power, through the granting of charters or contracts by the sovereign or legislative body, and the entrepreneurial power of organised labour.
The public/private template established in Rome has echoed through the governance of subsequent civilisations. The use of public taxes to fund the dividends of private shareholders in public enterprises was a founding principle of the Bank of England, the first central bank that could issue currency. The Bank was created as a joint stock company via an Act of Parliament in 1694, spurred by a major naval defeat in The Battle of Beachy Head. Investor money went directly to the government, who then paid dividends on the shares held by investors from future taxes. The government used over half the initial loan created by the bank in productive investment, building up the British Navy and its supporting industries. The money directed towards the Navy filtered through the economy, funding the development and innovation of industries and agriculture to support it and forming the foundation for the rise of the British Empire, which rested upon the Navy’s command of the sea. Likewise, the British East India Company started off as a commercial enterprise with a Royal Charter, and developed into the major arm of the British Empire with its own private army.
The Company as State and the New State of the Internet
Joint stock companies can be thought of as incorporeal, microcosmic states within the political and economic jurisdiction of larger, geographically bounded macrocosmic states, which can be national or supranational. The operation of companies feed back into and alter the nature of nations and supranational organisations, which in turn feed back into into the operation of companies.
Today extremely powerful private companies such as Google, Facebook, Twitter, Amazon and Apple, effectively operate as the governing structure of the Internet, which can be thought of in itself as a supranational state. Through their commercial relationships with governments, such as Amazon’s contract with the CIA for cloud services or Google’s work on a search engine for China, we can see that a new form of political economy is in operation. Although not bound by geography, this new state is nonetheless physically present, embodied in devices used to access it – if we imagine everyone placing their phones face up on the earth it becomes clear that a literal new state, in the geographical, physical and political senses of the word, has been created.
If the slow processes of public votes every four years and legislative votes on bills of law are the heart of democracy, the joint stock company, the issue and daily trade in shares and the issue and movement of money through the economy are its limbs and lifeblood. Public legislative and judicial bodies governing the wider state play catch up to regulate and enact new laws as new needs, processes and technologies are created by companies that change society.
However, in the digital age the pace of change has benefited the balance of power of microcosmic incorporeal states over geographically bounded macrocosmic ones (what Santi Siri of Democracy.Earth has termed land vs. cloud), with the ubiquity of the new digital state leading to the big tech companies mentioned above having more power, money and jurisdiction than national governments. The EU, with its globally impacting GDPR legislation and upcoming copyright legislation may well be an exception to this balance of power, however until there is no geographical location from which to spoof your location using a VPN it will be possible to at least bypass these laws, although the very nature of the internet will be affected nonetheless. That aside, examining the governance structure and dynamic of companies and the stock market is fundamental to understanding how the balance of power has shifted in modern political economy.
Governance through Shares and Voting Rights
In joint stock company governance ownership of a share can provide voting rights to the shareholder, although the structure and rules of voting within companies can radically differ based on the different classes, proportions and assignments of shares that the company issues. As opposed to companies issuing shares that directly equivocate voting power in proportion to the amount and classes of shares held by the shareholder, cooperatives have as a core value the principal that voting power cannot be bought and company decisions are made on the basis of one member, one vote. The vote is equally available and equally bounded for every individual, and not represented or transferable by an accrual of money, although voting rights are still purchased by money.
Shareholders use their voting rights to vote on remuneration for the Chief Executive Officer of the company, or vote to re-elect or remove a company Director from the board. Company Directors decide on the payments of dividends from companies to shareholders, which can be either in the form of money or more shares. Share repurchases, which use company profits to buy back company shares from shareholders, can also be used to reward shareholders by directly exchanging shares for cash. By reducing the number of shares held by the public, price and earnings per share are increased for remaining shareholders.
Following Milton Friedman’s influential heuristic that the sole purpose of business is to generate profit for its shareholders, the governance of joint stock companies result in a baseline dynamic in which CEOs and Directors are under pressure of the vote to make a profit and direct money from those profits to the shareholders via dividends. Profits can also be re-invested into the company itself, a proposal which shareholders can agree to via their votes, however, again following Friedman, this means the default voting proposal of shareholders is to do anything that grants them a dividend, and as long as that is happening shareholders tend to agree to AGM proposals by default. This is comparable to voters voting for political parties that will give them the most benefits from the treasury and is another example of money being used to vote for its own increase.
As shareholders collectively hold the power to sink a company by mass selling shares, dividends are often given at the expense of benefits to company employees and re-investment, as was seen with the collapse of Carillion in the U.K. To draw an equivalent between the governance of a company and the governance of the state, this is the equivalent of directing more benefits to voters than money is taken in in tax.
Employees and shareholders are of course not mutually exclusive roles, with cooperatives in particular often being structured to be collectively owned by its employees and customers. Governments legislate for the provision of tax efficient employee share schemes to encourage this, however it is not commonly taken up (it is estimated that only around two million employees in the UK are engaged in Employee Share Ownership schemes, despite evidence of the improvement in productivity it provides).
Where the roles of employee and shareholder are mutually exclusive, to combat the hedging of economic voting power by shareholders, employees across companies can also form a network of voting power by joining a labour union. In order to vote in a labour union people must pay a membership fee, universally operated on the principle of one member one vote. Collective bargaining by a union is then used to increase the wages or benefits of the members, which grants a dividend of the networked power of the labour vote from the profits of the company into the pockets of the workers. In this way the union effectively transforms the labour power of each individual member into a potential future share of the company.
To enforce this workers can vote for a strike, removing their labour from the company (or providing free services to customers, as done by bus drivers in Japan), which will reduce its ability to capture value and therefore be a factor in reducing the value of its shares. Strikes also have the effect of removing money from the striking workers who invariably have their pay docked, although this is generally covered by strike pay from the labour union. Even so, votes by labour to strike are a form of negative vote that in the long term removes money from both the worker and the company. The worker is willing to take an economic hit in order to punish their unjust remuneration by the company, or the lack of investment being made in the company by the directors and shareholders.
Investment as a Positive Vote
The relationship between all companies and their success or failure in their contribution to the wider state is established through the buying and selling of products, services and shares representing the value of each company. The overall market cap, the sum total value of all joint stock company shares, is a reflection of the ongoing tension between vision and realisation, of how well companies can live up to their word and public image, how trustworthy, truthful and competent they are in the service of the vision they describe, and how valuable their contribution to society is. Theoretically a healthy stock market is a reflection of a healthy economy in which companies who provide a valuable vision live up to that vision and deliver their goods and services as promised.
The main means of persuading people to invest in the shares of a company is to reward them with a return on their investment in the form of a dividend per share. The initial investments in shares of a start up company that does not yet have a revenue stream mean that effectively investment is a positive vote for that company’s vision and the company employees’ ability to deliver on it. Investment is therefore to some extent a self-fulfilling prophecy as it further enables the company to succeed in the short term via financial backing, signalling confidence in the endeavour being undertaken and the team behind it. The long term, and true value of the company, depends on how well the company is run and whether it can get through the first investment rounds and deliver on its vision through actual work and delivery of goods and services – otherwise known as the Lindy heuristic. If the fulfilment of the vision the company promised to investors is not delivered, or delivered poorly, or if what the company provides is not as valuable to the wider state as the company and investors imagined, the promised vision collides with the unfulfilling realisation and the share price collapses.
Short Selling as a Negative Vote
If investing in a share is a positive vote for a company, selling or short selling a share is a negative vote, reflecting a sense that the value of the company is over inflated when compared to other similar investment opportunities, or simply not as valuable as the share price indicates. Too many people selling will flood the market and decrease the value of the share and therefore the company’s value. A large short position against a company can be seen as an investment warning and may drive away other investors. In this way the stock market is a democratic forum in which money operates as a vote that accrues to a valuation and can be used to either support or undermine activity within it.
The speculative value of a share is in negotiation with the reality of the value of the company divided by the total amount of shares in circulation. Through investing and short selling, investors make money through their successful value judgements, investing in companies that they think are producing something of value and not investing, or even shorting, companies that they feel do not produce value, or are losing value – that is at least, in theory.
“What’s important when you’re in that Hedge Fund mode is to not do anything remotely truthful” Jim Cramer
In reality what investors count as valuable is the means by which they can extract value from the mechanisms of the market, which ultimately boils down to wherever profits are being made or lost, however that is done, and will buy war and sell peace and call war peace and peace war if they think it will move the market to support their positions.
The wholesale abandonment of truth in order to receive investment or inflate or deflate the value of shares can be the result of poor judgement and self-deception as well as greed and outright fraud. In order to persuade people to invest and keep their money in any value yielding enterprise, the success of which is dependent upon that money, it is highly tempting to liberally galvanise the prospect of potential value that will be created. It’s not surprising therefore that as well as being an engine of economic growth, the joint stock company is the source of economic bubbles such as the South Sea Bubble and the Mississippi Scheme.
Shareholder Value vs. Stakeholder Value
Investors are not necessarily stakeholders. They do not need to have an interest in or directly be affected by the outcome of the endeavour whose shares they are trading in, only that it makes money in the mechanics of the market, which makes the abandonment of truth for the truth of profit a highly pragmatic approach. For shareholders, money becomes a generalised proxy of all possible values, and the entire stock market system is undermined by a sociopathic interpretation of enlightened self-interest in which loopholes in the procedural and/or mechanical implementation of regulations are routinely abused by investors in order to extract money out of the market. The means through which this is done are legion; pump and dump trading, the spreading of FUD and shorting, front running through high frequency trading, complex financial derivatives, libor rate manipulation, ponzi schemes, and creating artificial short side supply dynamics. On top of this company accounting is largely an exercise in financial alchemy and aggressively exploiting legal loopholes for tax avoidance. Being legal, tax avoidance is only foolish if you don’t do it. It only takes a cursory review of the frequency and scale of stock market, accounting and financial scandals to come away with the unshakeable impression that corruption is the norm.
It is tempting to say that it is largely corruption that leads to the extreme concentration and inequality of wealth that we see today, but even if well regulated and low in corruption, money being used as votes means that even what many people would consider reasonable concentrations of wealth warps demand being expressed through the market and therefore can lead to a failure to meet the needs or express the values of the general population who have less money to direct it. Amartya Sen, in his famous work Poverty and Famines: An Essay on Entitlement and Deprivation, made the valuable insight that famines are caused by a failure of distribution rather than lack of food, which he put down to a lack of democracy. The largest impact of distribution in terms of controlling the market is the distribution of money. In terms of the market, those who have more money have more votes. Institutional investors and Hedge Funds are in effect the representative democracy of the wealthy, with a single policy – make us wealthier.
Extreme inequality of wealth is often justified by asserting that the people with the most money are the people who support and produce the most value, therefore the people who support and produce the most value have most of the say in terms of how the world is shaped and run, creating a kind of meritocratic hierarchy. Again, with regard to the Lindy heuristic this is true to an extent but despite the great work investors and entrepreneurs can do, the barriers to entry into the market due to the hand to mouth existence of the lower paid means that there is an enormous waste of potential good because of inequality of the means of assigning value to the market. There is a circular relationship between the use of exploitative practices in commerce to lower prices and wages, and recipients of low wages only being able to assign value to the products of those exploitative practices.
In contrast, votes are also used to assign value to the market and form an important part of market operations and directing monetary flows, and these are generally made available for everyone to use for free. Product reviews on online shopping sites use range voting (ratings of one to five stars) that determine the overall rating of a product in its category. Higher rated products are more likely to sell than lower rated products of the same type. The rating translates into higher revenue for that product. Online range votes are also applied to merchants, tradesmen or those providing a service, and in some cases customers themselves are given a rating. Supermarkets give tokens to their customers at the checkout to be deposited in a choice of boxes representing charities. The tokens represent votes. At the end of each voting period the tokens are counted and the charity in receipt of the most votes receives a monetary donation from the supermarket. The vote market is an already existing and incredibly powerful force in the shaping of the economy.
The nature of commerce, the marriage between the public state and private enterprise, with its battle-lines between shareholders and stakeholders, is again going through great disruption in the digital era. One of the most notable disruptions is the phenomenon of crowdfunding, a form of market purism in which the return on investment is exclusively the realisation of a proferred vision. In this model, the work itself matters to the backers, who are all stakeholders rather than shareholders, and it is the production of the work that is the real return on investment – people vote with their wallets on what they want to see in the world, not on making money. Dividends are replaced by backer rewards, in which different levels of monetary support garner different levels of reward. This transition from shareholder to stakeholder undermines the entire incentive structure of the stock market and fundamentally alters the nature of commerce.
Commerce Axioms in Summary
The governance of joint stock companies and their value as determined by the stock market as outlined above demonstrate many of the examples of the voted money axioms established in III. The use of money in the stock market for both positive and negative votes shows that votes influence the flow of money through the market. Votes within joint stock company governance cannot create money, due to the restriction by law, which is the interface upon which money and the vote interoperate, but companies provide (or destroy) value through their work which is measured in the value of stocks and shares. These can be issued or bought back and retired to inflate or deflate their value and is dependent on (and reactive to) a flexible supply of money to do so. Votes within joint stock companies can remove money from circulation via share price inflation and holding on to large amounts of cash – Apple sits on an enormous cash reserve of around $280 billion dollars. The granting of voting rights to shareholders to influence the Directorship of a company in their capacity to distribute profits again demonstrates that money contains and is dependent upon the power and function of the vote, that votes transform into power over collective money and that votes conduct money from a collective pool to subsidise individuals or enterprises.
Joint stock companies also break the negative axiom that votes must not be bought by money in cases where the number of shares held translates into the number of votes. And of central importance is the corrupting governance of shareholder voting, in which shareholders and company executive voting decisions are bought by money, with votes on executive remuneration and votes on shareholder dividends forming a self interested alliance, with the outcome regularly being wealth extraction by the voters against the interest and at the expense of the endeavours of the company, its workers, and often the ecological, social and cultural environment that the company creates through its profit making.
The next part of the essay will focus on the relationship between votes and money in the area of Cryptocurrencies.
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