management is theoretically distinct from ownership. The directors of the corporation are not "owners"; they are not agents of the stockholders and are not obliged to follow their instructions.
[...]
The effect of this change upon the property system of the United States has been dramatic. Individually owned wealth has enormously increased. It is today reckoned at more that 1800 billion dollars. Of more importance is the distribution of that figure. Relatively little of it is productive property - land or things employed by its owners in production or commerce - through figures are hazy at the edges. The largest item of individually owned wealth, exclusive of productive assets, is described as "owner-occupied homes" (approximately 520 billion dollars). These, of course, are primarily for consumption, through a fraction of them are probably farmsteads. The next largest item - consumer durables - accounts for 280 billion dollars more; these are chiefly automobiles and home equipment[...]
productive assets breaks down (as of 1963) as follows: 525 billion dollars of shares of corporate stock, 210 billion dollars in fixed income financial assets, and 360 billion dollars in liquid assets, chiefly cash in banks.
[...]
I estimated that in a single decade (1922-1932) more than one-third of the entire national wealth had shifted from individual hands into managerial - that is, corporate - hands, and we suggested that at that rate forty years would see the wealth of the entire country split, most of it being operated by corporate management, through its "ownership" would be represented by individual "holdings" of stocks, bonds, and other liquid claims. These figures mean that, far and away, the largest item of personally owned "property" representing productive assets and enterprise is in the form of stock of corporations [... or] consist of claims against intermediate financial institutions.
[...]
Based on the figures to date, that development has gone far toward accomplishment. In crude summation, most "owners" own stock, insurance savings and pension claims and the like, and do not manage; most managers (corporate administrators) do not own.
[...]
My thesis is that "property" is now divided into two categories: (a) consumption property on the one hand and (b) productive property on the other - property devoted to production, manufacture, services or commerce, and designed to offer, for a price, goods or services to the public from which a holder expects to derive a return.
In respect of productive property, the proprietas [the relation of the individual owner or owners to propriety - real/land, personal/mobile, or claims against other individuals] has now been made subject to an over-all, political determination as to the kind of civilization the American state in its democratic process has decided it wants. This is an on-going process, not yet complete.
As a corollary, productive property has been divided into two layers: (1) that fraction which, through not managed by active owners, is administered to yield a return by way of interest, dividends or distribution of profit, and (2) that layer dominated and controlled by the representatives or delegates of passive owners, whose decisions are now subject to the political process just noted.
[...]
A shift in attitude towards corporate property arises in part from the changed origin of finance capital. The property of corporations is dedicated to production, not to personal consumption; but, even more significant, that property is no longer the result of individual effort or choice. This change has come silently.
Corporations were originally groups of investors pooling their individual contributions or risk capital to organize and carry on an enterprise. [...] They had sacrificed, risked and, to some extent, worked at development of the product. Presumably they had done something useful for the community, since it was prepared to pay for the product.
A mature corporation does not call for investor-supplied capital. [...] It [mostly] accumulates for capital purposes [part of the profit]. [...] The corporation becomes the legal "owner" of the capital thus collected and has complete decision-making power over it; the corporation runs on its own economic steam. On the other hand, its stockholders, by now grandsons or great-grandsons of the original "investors" or (far more often) transferees of their transferees at thousands of removes, have and expect to have through their stock the "beneficial ownership" of the assets and profits thus accumulated and realized, after taxes, by the corporate enterprise. Management thus becomes, in an odd sort of way, the uncontrolled administrator of a kind of trust having the privilege of perpetual accumulation. The stockholder is the passive beneficiary, not only of the original "trust", but of the compounded annual accretions to it.
Increased size and domination of the american corporation has automatically split the package of rights and privileges comprising the old concept of property. Specifically, it splits the personality of the individual beneficial owner away from the enterprise manager. [...] As the number of stockholders increases, the capacity of each to express opinions is extremely limited. No one is bound to take notice of them, through they may have quasi-political importance, similar to that of constituents who write letters to their congressman. [...] These shares have nevertheless become so desirable that they are now the dominant form of personal wealth-holding because, through the device of stock exchanges, they have acquired "liquidity" - that is, the capability of being sold for ready cash within days or hours. The stockholder, through no longer the sole residuary legatee of all profits [taxes], is the residual legatee of about half of them, and that is a vast stake.
[...]
Yet this is only the "top level" of passive property-holding. A very large number of shares are not held by individuals, but by intermediate fiduciary institutions which in turn distribute the benefits of shareholding to participant individuals. [...] The significance of the intermediary institutions is twofold. First, they vastly increase the number of citizens who, to some degree, rely on the stockholding form of wealth. Second, they remove the individual still further from connection with or impact on the management and administration of the productive corporations themselves.
[...]a new economic fact: that stock markets 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 a new issue. The price he pays does not add to capital or assets of the corporations whose share he buys. [...]
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. [...] one effect of the corporate system has been to set up a parallel, circulating "property-wealth" system, in which the wealth flows from passive wealth-holder to passive wealth-holder, without significantly furthering the functions of capital formation, capital application, capital use, or risk bearing. Yet these functions were the heart of the 19th century "capitalist" system. [...] Now, clearly, this cannot be justified by the old economic maxims, despite passionate and sentimental arguments of neoclassical economists who would have us believe that the old system has not changed.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 chance 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 wish to convert their holdings into cash. Clearly he cannot and does not intend to contribute managerial or entrepreneurial effort or service.
This raises a problem of social ethics that is bound to push its way into the legal scene in the next generation. Why have stockholders? What contribution do they make, entitling them to heirship of half the profits of the industrial system, receivable partly in the form of dividends, and partly in the form of increased market values resulting from undistributed corporate gains? Stockholders toil not, neither do they spin, to earn that reward. They are beneficiaries by position only. Justification for their inheritance must be sought ooutside classic economic reasoning.
In can be founded only upon social grounds.
