STOCKFLATION: CHEAPENING A
Stocks can be a very useful tool by which to stimulate the growth of a system of production. Stocks originated as a product of human ingenuity. Through stocks many people can pool their excess disposable income--capital--so as to catalyze increased or expanded production. Stocks are a time-saving device. Production expands sooner that would otherwise remain uncapitalized because no one person had sufficient capital to spur the production.
In principle, stocks show ownership based on how much one contributed to the total capitalization, if one is a capitalist and not merely an acquisitor. Stocks show the amount of "production profits" which the stockholder had a right to claim as his share if he was the original capitalist who put the money up for freshly issued stocks. Stocks are a symbol of production ownership, they are not the production itself. Thus if one acquires stale stocks rather than fresh stocks, one is not capitalizing production; one is not investing for production profits. Rather, one is acquiring a stale symbol of production with one's money.
An acquisitor is not a capitalist. The former speculates in old products or old production for inflationary returns rather than lubricating expanded production with one's excess disposable income.
Stocks lose their productivity potential when they are not used to capitalize new production. There are many ways in which stocks can be destructive of production. All these ways--described below--fall within the category of stockflation:
the cheapening of stocks as a capitalistic tool of production.
All these ways involve stocks being used for nonproductive income, that is, inflationary returns rather than production profits.
By inflationary returns, it is meant income derived from something increasing in product value (buying power) without any added production time, energy, or matter. When someone buys a stale stock, they are not capitalizing any new production; they have not expanded production or improved productivity which are the basis of production profits. Rather, one is diverting human resources away from new production by speculating in the changing value of an old product, old production, or old symbol of production (a stock). Stocks so used do not save time but waste human time.
Inflationary returns occur in many ways. However, they have one thing in common: they are derived from a reduction rather than an expansion of production. Stockflation and inflationary returns defeat the purpose of stocks, namely, an expansion of production. Whereas each dollar of production profit has a new product behind it, inflationary returns represent fewer products within the system of production.
One should attempt to consistently avoid using the expression "inflationary profits". The avoidance is based on how the two words are contradictory in nature. Profits literally means "to move forward". When a system of production has production profits, it is going forward. The new products or levels of production complement and sustain profits.
Inflationary income, on the other hand, represents a system of production recessing or returning to a lower level of production. Inflation within a system of production indicates that fewer products are being produced, that a return to a lower standard of living is occurring. Because production is returning to a lower level, the more appropriate expression for inflationary income is inflationary returns, not profits.
Decadent Stock Marketing
The production, issuing, and manipulation of stocks (scribbled-on paper products) within a system of production is counterproductive when it retards or reduces the level of production as a whole. Quite obviously, if all the stocks traded are stale stocks involving people merely acquiring symbols of production capitalized long ago, then no new production is being capitalized ... at the minimum. On the other hand, think of the booming economy that would accompany a stock market in which only fresh stocks were permitted so as to capitalize new production.
Between these two extremes of stock manipulations is the declining situation in America with the progression of the '80s. As argued below, less than ten percent of the stock transactions in America involve capitalization of new production for production profits. The vast majority of American stock transactors naively, blissfully, or deceitfully pursue inflationary return by merely acquiring stale symbols of old production. And as argued in the next paragraph, such pursuit directly and indirectly wastes a lot of human time through stocks: stockflation. Keep in mind, that purchasing a stock of GM, U.S. Steel, or a utility that was issued decades ago does not put a single cent into production of cheaper transportation, less expensive metals, or low-cost energy. Quite to the contrary, non-productive stock transactions merely stimulates income for those who are in the business of manipulating scribbled-on paper products: the small minority of stockholders that have the edge of inside information and broker interest rates.
Stockflation reducees production potential in numerous ways. If ten percent of the population spent its busytime handling and manipulating stocks when it is possible for only one percent--efficiently organized--to do it, then the particular stock activity of a country would be counterproductive. When a nation becomes obsessed with paper income, e.g., stocks 1929 and lotteries today, people's time and ingenuity is diverted from wealth creation and problem resolution.
When a system suffers unnecessary bureaucracy in the private sphere due to excessive, redundant and counterproductive stock manipulations, this system of production suffers from misdirection of human resources. An example occurs when an economy is mismanaged to the point that only short-term lending is possible. Bankers' income and banking employment booms as short-term lending becomes the norm because of and contributing to the economic instability of the non-soppy enterprises. With the replacement of long-term lending with short-term lending, increasing amounts of the total busytime must be spent arranging financing to the detriment of the time devoted to production of goods and other services. With the replacement of production capitalization by production acquisition, increasing amounts of busytime is wasted. Rather than capitalising new levels of productivity, people merely switch stale symbols of old production in hopes of acquiring acquire short-term inflationary returns on their speculations.
Few people end up with more money from speculating on price changes of stale stocks. Of the speculators for inflationary returns, only a fewer few actually end up with more buying power. Primarily only the professionals have the ties to generate sufficient returns to cancel the inflationary losses which their stockflatic activity generates.
There is another way of measuring how stocks can be counterproductive. This measurement is one of time, namely, how long the average stock is held before being traded. Clearly, a system of production is in better shape if the average stock is not traded for a decade than if the average stock is traded every month or so. As later statistics show, the rising number of stocks transacted on the average day of trading does not indicate that additional cash is going in to new production by fresh stocks; rather, the stale stocks are being traded more frequently, stimulating the soppy businesses so as to counterproductively divert human resources from non-soppy activity.
So far two temporal measurements have been delineated as indicating whether stocks are being productively or destructively used. One measurement is the percentage of the total busytime in a system of production devoted to handling and manipulating the scribbled-on paper products (sopps) called stocks. The other temporal measurement is the length of time a stock is held before it becomes stale--or staler--by being acquired by a new owner from the original and only capitalist ever associated with the particular stock. Everyone after the originating capitalist is an acquisitor of production holding stale stocks.
It should stand to reason that these two measurements are correlated. If the number of stocks traded each day is increasing at a faster rate than the growth in the stock aggregate, then
Few do not suffer from stockflation.
Only for a while do some people benefit from a rising abundance of production acquisitors at the expense of production capitalists. Stockflation retards or reduces production except for those in the busyness of handling and manipulating stocks: the brokers. The name of these people appropriately describe how they are breaking the productive backbone of America and humanity. The original meaning of "broker"--wine dealers who "broach" barrels--is ritually symbolized in the three-martini lunch in which the brokers contemplate on getting Americans over the latest financial barrel. The string of barrels is unending, e.g., gold, money markets, small savers, all savers, IRAs. A recent one quoted next, details the nature and this honesty of brokers and financier.
Again, it is very analogous to how a shift to short-term lending benefits only the lenders, the bankers who charge for their financial service. Like the bankers, the brokers have no desire to see a stable economy in which stocks are held a long time. If everyone invested for long-term production profits instead of inflationary returns, the brokers would have no stocks to trade. Brokers, bankers, and financiers--and certain financial journals--would not gain from economic stability. Thus, they should be viewed as people who derive income from cheapening economic stability. And as later quotations show, stableflation is a very real concept in which certain soppy enterprises in America cheer economic turmoil and bemoan signs of stability. These individuals and institutions are not on the fringes of the financial community, but are pillars, e.g., bond markets, brokers, bankers.
Dollar Productivity in Place of Product Productivity
During the progression of the 1980s, the stock activity will become increasingly counterproductive. People are not looking for long-term profits but short-term returns from a gyrating stock market. The commissions are immense. Brokerage firms have never had such record profits. One example is Bache, Halsey and Stuart. Despite their role in the Hunt Brother Silver Bubble in the spring of 1980, Bache managed to have an net income which "surged 245% for the first quarter [that] ended Oct. 31".
What is common to all these record levels of income reported by brokerage houses and financial centers? More production of goods and services other than stock production? No. Quite the opposite. These record levels of commissions, tied to rising levels of stock activity, have nothing to do with
capitalizing new production.
Rather, as shown below, these record levels indicate a return to a lower level of production. People are naively, blissfully, or deceitfully pursuing competition for
acquiring old production stocks
They are not dividing production profits from expanding production. Rather, they are self-defeatingly expanding inflationary returns based on shortages from dividing production. Knowingly or unknowingly, people are speculating on which firm will remain solvent the longest. Madly or fearfully, acquisitors sell one block of stock in order to "acquire" another block of stock. No new production is capitalized.
Do you think that any of the wealth transacted in the stale stock deals on Wall Street goes to the corporations which the stocks symbolize? Maybe some of the capital goes to corporate insiders. However--emphatically so--one should not confuse massive income on stock transactions by a corporate's executives, directors, or major stockholders as income benefitting the corporation. Quite to the contrary. When any of the above corporate insiders can make more money from gyrations of the corporate stock than from corporation profitability, corporate America will capitalistically suffer in the pure sense of capitalism, i.e., increasing capital per capita. With necrotic income for corporate policy makers, both new production and increasing amounts of old production are ignored. People are deriving income from manipulating the symbols of production--dollars and stocks--rather than capitalizing and expanding production.
As presently structured, the stock brokerage firms are aptly fulfilling the literal meaning of their name: they are "breaking" up the American Economic System Of Production. They are generating higher gains in dollar productivity but not in any other goods or services. Because they divorce the symbols of production from production, they confuse, argue, and glorify dollar gains despite production drops per capita. Brokers decapitalize and break America by misdirecting increasing amounts of the total available busytime away from actual production into manipulating symbols of production. Telecommunications in the hands of brokers have decreased the average time that a stock is held. Brokers promote inflationary returns at the expense of production profits. The necronomists, the politicians, and John Q. Public confuse capitalists with acquisitors and allow the musical-chairs of production acquisition to "crowd-out" human resources from capitalizing new and needed production.
Acquiring Old Production Retards or Reduces Production
Many of the above accusations and prompting causal relationships will be spelled out. The foremost counterproductivity (stockflation) of the stock activity, in the early 1980s, is how increasingly stock transactions fail to capitalize new production. Rather, stock activity reflects speculation on the fortunes or misfortune of old production by handling or manipulating the soppy symbols of production for the old production: stocks.
New versus Old Issues Traded in 1980
Among the several ways of showing that stockflation is occurring in greater quantity and quality is to make a comparison of the recent stock activity. In 1979, 3.6 billion shares of stock were transacted on the New York Stock Exchange. In 1980, the number was 6.6 billion shares. Had the economic system of production nearly-doubled during this period of hyper-stockflation in which the activity of the symbols of production nearly doubled? No. A similar question can be posed concerning the 25% rise in stock trading during the first month of 1981 above the previous January. What would real production have done if stockflation within the symbols of production had not transpired? To what degree is stockflation "crowding-out" capital from expanding production or increasing industrial productivity?
Quite conveniently, a short article "New Issues, New Risks". provides most of the bare essentials to determine the percentage of total capital that is being used for new production. "As for new issues, they are far short of the 3.3 billion raised by companies that went public in 1972," (ibid). Somewhat akin to new issues as an indication of stock transactions providing money for corporations rather than stock speculators is equity financing. Equity financing describes how corporations sell stocks that were previously authorized but never sold to the public. From this article, a figure of $18 billion is roughly the amount of money that corporations received through equity financing for 1980. Thus one could--but shouldn't--say that approximately $21 billion was transacted last year through stocks to capitalize new production. From another article--cited later--a figure of $50 billion is given for the amount of money involved in mergers and acquisitions. Using these two sets of figures ($21 billion and $50 billion), the theoretical maximum of actual capitalistic activity--and giving stockflation all the benefits of any doubts--is only 29% of the stock transactions on Wall Street were capitalistic ($21 of $71 = 29%). In other words, only a third of the stock transactions capitalizes new production, possibly. If one takes into account the recent "stress" nature of equity financing--described next--one realizes that the figure for actual capitalistic activity is much lower. A better guess is five percent or less for reasons given below.
E. F. Hustle
When a company is incorporated, only part of the total number of stocks are issued to collect capital to start the new production. Some of the stocks are retained for future expansion ... in principle. This principle is called "equity financing". However, based on how it is hustled upon the naive or blissful by the deceitful through mass media, it is better described as the "E. F. Hustle", are you listening?
American companies are using the bull market to raise billions of dollars to pay off debt, improve facilities and generally get set for a better decade than the soggy '70s.
The "soggy '70s" are becoming the soppy '80s.
A more accurate understanding of how many corporations are using equity financing to acquire cash for operation expenses rather than expanding production comes from the following quotation.
Conversion of the mutual S & Ls to stock companies is creating a lot of new publicly held institutions, infusing them with badly needed cash and enriching some underwriters.
(The necrotic sopphists strike again.)
The Savings & Loans are symptomatic of a lot of companies. They are using equity financing in a manner similar to "stress loans". Rather than getting loans or using equity financing to EXPAND production, both are being used increasingly to merely maintain or shore-up operations, operations many of which will never ever again be productively profitable.
The difference between stress loans and stress equity financing is whether the middleman is a banker or a broker. With the E. F. Hustle, corporations get money from the naive, blissful public through brokers. With stress loans, the money comes from banks pooling the money of the public as a necrotic middleman ratcheting out a share for his services just as the broker does. Both middlemen are breaking America, you can bank on it.
The following quotations provide an examples of not only the similarity between stress loans and the E. F. Hustle, but an actual interface between the two. The first reference details how corporate management abuses the pension funds of employees through equity financing which
[is] a handy way for management to raise cash. In these cases the trust, in behalf of the workers, buys large amounts of the company's stock. It borrows the purchase money from the lenders, and the company guarantees the loans.
Everyone wins except for unrepresented, disenfranchised employee who gets stuck with an inevitably worthless pension plan. A general comment succinctly states the inevitable course when equity financing stuffs stocks in pensions socks, that is, "corporations peddle more and more shares, and eventually, when the public least expects, the bull market may self-destruct." More succinctly, the E. F. Hustle and pensions sucks.
How much is the "guarantee" of a management worth when the most "handy way" of raising cash is through equity financing and pension funds? How safe are the contents of the pension containing stock of a corporation in which the management has to use necronomic manipulation of symbols in order to remain in business? Sort of like the National Debt and the politicians, not so good. In both case, the top policy makers borrow in the name of the basic producer against the future of productive backbone. (Do not think that the writers are against employee-owned enterprises; rather, resentment is justified toward executives that necrotize retirement funds by stuffing pensions with inevitably worthless stocks. Necronomics occurs because the employees are not democratically represented, organized, or educated for viable control of their funds. The lack of democracy--problem solving sine qua non--underlies the corruption and incompetence in both public and private decision-making.)
Thus, when one looks at the ratio of new issues to old issues traded over-the-counters, one must realize that the previous figure of 29% as capitalistic stock activity is an extremely high figure for representing the capitalization of new production. How high? These stocks were sold during the period when the country was going in to a recession of production. This boom in new issues was not capitalizing new production, but merely propping up the old. Stockflation provided a lot of commissions for stock handlers and manipulators--no wonder the business schools are booming.
As said before, the bankers and the brokers have a greater financial stake in unstable economic conditions than in stable production: stableflation, the cheapening of economic stability for personal income. Something is basically wrong with the organizing of the system of production when the people in charge of the currency and the stocks have little or no stake in stable production. The wrongness can only come from the corruption or incompetence of the top policy makers within the system of production: the modern politicians, the bankers, the brokers, and the financiers, necronomists one and all.
Mergers and Takeovers
So far, the discussion of stockflation through production acquisition rather than production capitalization has centered on the frighten and/or foolish small fries, myopic chickens flocking to the stock market before the E. F. Hustle. The general counterproductivity of such unorganized production acquisition occurs also in the organized form of production acquisition: mergers and takeovers, where
merger activity in the U.S. during this year's first half ran at a $50 billion annual rate. Investment bankers figure that is enough to generate fees of at least $750 million for the specialists who facilitate the deals--many times the level 10 years ago.
Think of all the money and human resources that were spent on acquisitions in 1980, and think what the resources could have done for productivity if it had been used to capitalize, not crowd-out new production. Think of all the professional time, extending all the way back to before undergraduate school, that was directed toward acquiring the skills to acquire production rather than capitalize new production. These skills could have been honed to produce a good five-cent cigar. Or, the U.S. might have had cheap hydrofusion by now.
The previous quotation on $50 billion in acquisition activity should be compared to an earlier figure of $3.3 billion for new issues of stocks. These figures offer two conclusions. The production acquisition business is five times larger in dollar volume than the production capitalization businesses, and it goes on daily at the expense of anti-inflation production. By these figures, about 7% of the money may have gone to capitalizing new production.
The Great American Sell-off: Silver to Steel
Speaking of energy, one can cite another example of how one should distinguish between spending money to acquire production versus investing money to capitalize new production. Can we ever expect cheap energy when the following practice is allowed?
Sohio agreed to acquire certain U.S. Steel coal reserves in Pennsylvania and West Virginia for $750 million. The reserves are estimated at up to 900 million tons, or 27% of U.S. Steels coal holdings.
One might argue that U.S. Steel might have bit-the-dust without this infusion of cash. Like so many individuals and industries, U.S. Steel has to sell off assets in order to operate and survive ... for a time. Production businesses would never be cash-starved if the system of production was not mispolicied so that production acquisition replaced production capitalization: stockflation.
Are these acquisitions or mergers of production more a thing of the past or the future? Well,2
Watch out for another wave of business mergers before long. Stocks are underpriced, ready for raiders to pluck. Interest rates are heading down, making cheaper money available to finance takeovers.
What is the attitude of the politicians, economists, and bureaucrats in government? At the minimum, let it be. At the worse, it is ignorant and/or corrupt assistance.
This attitude will balloon under the Reagan administration.
Reagan's attitude is one of deregulating impediments to acquiring production. He does not distinguish between acquiring production and capitalizing production. He does not realize that if people compete for acquiring old, existing production then all production will be retarded and reduced. And, shortage inflation will increase. America needs deregulation of those bureaucracies that encumber Americans with additional problems. America does not need further deregulation of business restrictions that economically enslave more people to a problem-filled existence.
Acquisition Resentment and Spinoffs
One can understand the counterproductive effects of mere production acquisition by looking at two factors. One is how acquiring firms sell-off or spin-off parts of production. Why do they do this? They want to streamline their operation for maximum dollar generation, not production profits. An indication of the counterproductiveness is the resentment and resistance toward acquisition by the firms that are targets of takeovers.
"More Companies Use 'the Lockup' to Ward Off Unfriendly Takeovers."
This next quotation shows how acquisition is sometimes met with much resentment and costly resistance. In reading the following quotations, keep in mind the question of how many more goods and services would have been anti-inflationarily produced in the marketplace if we had only production capitalization, not acquisition, within our system of production.
What does this all mean? Retained earnings cannot be used for production expansion. Instead, earnings must be used for retaining production control due to the "acquisitive" nature of the stock market: stockflation.
Recall from a previous quotation how "$750 million dollars for specialists who facilitate the deals--many times the level of 10 years ago" was spent to lubricate the acquisition, not the capitalization, of production. As always, the central question to a system of production is
what production, what product, what producers?
The obvious answer, however, will escape those who can make great incomes from production acquisition in place of production capitalization. Who are they? Bankers, Brokers, and Barristers. What happens when the amount of human resources
devoted to manipulating symbols of production (currency, loans, stocks, laws)
is proportionally growing faster than the system of production? It stands to reason that only a matter of time remains before production is retarded, reduced, recessed and depressed. America and civilization is past that point in time. Increasingly, the 1980s is the era of manipulating the symbols of production instead of capitalizing and engineering production itself.
When Big Is Not Better: Public or Private Nationalization
In complaining about public nationalization, people forget about the private analog. The private examples of nationalization is the massive, centristic, and monopolistic acquisition of production. Why is acquisition not recognized as private nationalization? The private analog is able to hide under labels which it does not deserve. Among these labels is capitalism. One can hopefully see that production acquirers do not deserve the name of capitalist. More correctly than capitalism is decapitalism; few acquisitions do not result in reduction of per capita production in both the acquired industries and in the nation as whole. Decapitalism, as opposed to capitalism, decapitates production rather than increases production per capita.
Negating the obvious counterproductiveness of spinoffs from mergers and acquisitions, there is another reason that production acquisition fails to be increase production per capita. The reason is: private over-centralization of decision-making fails as does its public analog. When any organization does not properly apportion the power and responsibility to solve problems, problems will not be solved. This is true whether it is public government or private industry.
Recall the previous quotation on Sohio acquiring coal reserves from U.S. Steel. In terms of the system of production expanding, is there any difference between what Sohio was allowed to do and what Zambia was lambasted for doing?
So with the hefty bank account Zambia inherited at independence, Mr. Kaunda set about nationalizing most of the industry already operating rather than building new industry to create jobs."
The lambasting of Zambia occurred on the same page of the Wall Street Journal in which Sohio was recorded as buying U.S. Steel coal reserves. Public or private nationalization has the same effect; fewer time-wasting problems are solved or prevented. Over-centralization of decision-making negates problem-awareness and problem-solution, i.e., benevolent or malevolent despotism.
A form of stockflation (the cheapening of stocks as a capitalistic tool) exerts a counter-productive effect upon the economy because it is an example of indirect capitalism. Indirect capitalism is where the control of capital, especially the symbols of capital, is not direct. Rather, for various reasons, people choose to allow others to (mis-) manage their capital. One of the various reasons is how both the capital owners and the capital managers divorce the symbols of production from the substance of production. Thus, the private owners mistake the reports of increased dollar value from the professional managers as indicating a better life for them. However, if the managers are handling the capital solely for increases in symbols, a better life in substance will be unlikely.
The evils of indirect capitalism occurs when the brokerage firms and trust fail to alert the stockholders when certain corporate activities require direct participation. "The matter isn't just academic. A number of companies recently have been unable to gather enough shareholder votes to pass key proposals at their annual meetings, causing considerable expense, aggravation and embarrassment." While some bankers lament the negative consequences on "corporate democracy", the more important issue is how many corporations have been unable to pursue options to increase production, e.g., stock or bond sales. Thus because of indirect capitalism, the substance of production suffers.
Why don't brokers, with their vast telecommunications, contact the stockholders? As one corporate president explained the brokers' slowness in contacting stockholders (after his firm failed to have a quorum in four meetings) "brokers don't make any profit on the service" of contacting the owners of the symbols of capital. Thus, as is argued repeatedly, when the symbols of production (capital) are divorced from the substance, the latter will be negatively affected.
The solution to this instance of stockflation is not to give control of the stocks to the brokers. As one attorney said in the cited article, "Since brokers always vote for management, I just can imagine the kind of outrageous stock-option plans that would sail through under this proposal." If brokers were given control, management would pay less and less attention to increased production as their opportunities to make money from the fluctuating value of the symbols multiplied.
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