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Corporations, Accounting, Securities Laws, and the Extinction of Capitalism
Wm. Dennis Huber
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Corporations, Accounting, Securities Laws, and the Extinction of Capitalism
Wm. Dennis Huber
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About This Book
Ever since Marx, the future of capitalism has been fiercely debated. Marx and his followers predicted capitalism will end by violent overthrow, while others prophesied its demise will be the result of collapsing under its own weight. Still others argue that capitalism will not only continue to exist but continue to expand globally. This book takes a distinctively different approach by presenting solid evidence that capitalism has already ended. The author argues that corporate statutory law, securities laws, and generally accepted accounting principles have combined to cause the extinction of capitalists. Without capitalists as owners of capital, there can be no capitalism. The book examines the factors that converged to contribute to and hasten the extinction of capitalists, and thus of capitalism as an economic system, in an ironic case of the law of unintended consequences. The very things that were intended to promote, protect, and sustain capitalism are the things that caused its death. It exposes the fallacy that capitalism as an economic system not only continues to exist but is expanding globally. Capitalism is extinct and the social system constructed on capitalism as an economic system cannot be sustained. This book will appeal to economists, accountants, historians, political scientists, lawyers and sociologists, as well as students of those disciplines.
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Part ICapital, Capitalists, and Capitalism
DOI: 10.4324/9781003240969-1
Chapters 1, 2, and 3 examine the various concepts, theories, and definitions of capital, capitalists, and capitalism in order to establish the foundation for understanding why capitalists and capitalism were rendered extinct by corporate law, accounting, and securities laws. Relevant aspects of corporations and corporate law are dealt with in Chapters 4 and 5, accounting in Chapter 6, and securities laws in Chapter 7. This part encompasses an examination of capital, capitalists, and capitalism separately and collectively in order to properly place them in the contexts of corporate law, accounting, and securities laws.
That capitalism exists is an assumption that has never been questioned. But capitalism has never been proven to exist in the present. No one has ever attempted to demonstrate by legal, sociological, or economic argument that capitalism exists. While the development, origin, evolution, and expansion of capitalism has been studied multiple dozens, if not hundreds, of times historically, sociologically, and economically, an examination of the relationships between and among capital, capitalists, and capitalism has been ignored. Incredulously, whether the necessary conditions for the existence of capitalists and capitalism continue to exist has never been challenged, or even questioned. Curiously, no one has examined capital, capitalists, and capitalism separately and collectively in the context of property law and corporate law.
Capital and capitalist have only one meaning applicable to capitalism. As a result of capital and capitalist having only one meaning, capitalism itself has only one meaning, contrary to those who assert otherwise. Capitalism is not about the efficient allocation of scarce resources of production, innovations, or free-markets. Capitalism is about the ownership of the means of production.
Note that there is a natural overlap between and among capital, capitalists, and capitalists. They are intertwined, inseparable, but distinct. Thus, the reader may detect some repetition between and within the three chapters of this section. However, the repetition is necessary in order to situate capital, capitalists, and capitalists in different contexts and from perspective, and to understand how they are inextricably related.
Contrary to Berle (1954) who said, “The capital is there; and so is capitalism. The waning factor is the capitalist. He has somehow vanished …” (p. 39), since there is capital, but no capitalist, there is no capitalism either. And while capitalists did vanish, they vanished long before 1954.
But both those who condemn capitalism and those who endeavor to reform it are blinded to the fact that capitalism has been extinct for decades. Both are guilty of trying to regress and impose onto the present an economic system that does not and cannot exist. While something that is broken can be fixed, something that does not exist is not broken and therefore cannot be fixed.
1Capital
DOI: 10.4324/9781003240969-2
Introduction
I begin with an examination of “capital” since understanding the concept of “capital” is necessary in order to understand the meaning of “capitalist” and “capitalism,” and thus to understand why both capitalists and capitalism are extinct.
“Capital” is the root and the source of both the terms and the meanings of “capitalist” and “capitalism.” “Capital” is a concept, or notion (Chiapello, 2007). “Capital” is also “a unique web of social and legal relationships” (Žmolek, 2013). It is thus important to understand “capital” and the relation of “capital” to “capitalist” and “capitalism.”1 While it may appear obvious, it is not as obvious as it may appear because “capital” has multiple meanings.
Levy (2014) cites Justice Edwards’ opinion in United Steel Workers of America v. United States Steel Corporation: “with a different definition of profit,” the “outcome of an accounting analysis could be made to be nonprofitability” (p. 175).2 The same reasoning applies to capital. With a definition of capital other than the resource of production created by humans to be used in production, a different outcome would result. For example, referring to slaves as a “type of capital” is a prime example of a different definition of capital resulting in a different definition of capitalism. But if you transform labor (slaves) into a form of capital, then you can just as easily transform capital (slaves) back into labor. You can also just as easily define capital (machines) as a form of labor.3
In 1906, Fisher wrote “Capital has been so variously defined, that it may be doubtful whether it have any generally received meaning. In consequence, almost every year there appears some new attempt to settle the disputed conception, but, unfortunately, no authoritative result has as yet followed these attempts.” Von Mises (2009) adds, “The views of scholars on the definition of capital are more divergent than their views on any other point in economics.” Žmolek (2013) comments that “capital” is a term that is used “fast and loose.”
Milios (2018) states that the word “capital” appeared during the reign of Emperor Leo III in the late eighth century and in Muslim writings in the early ninth century. Sée (1928), on the other hand, indicates that “use of the word capital originated fairly late and the word was first employed to designate a sum designed to be invested to bring in an interest” (p. 2, emphasis in original). However, a sum designed to be invested to earn interest has no relationship to means of production or the production of commodities. A sum invested to earn interest is fictitious capital as explained below. Regardless, the meaning of “capital” has been contorted by confusing either the value of capital with capital itself thereby erroneously equating the value of capital as the means of production with capital itself, or by confusing capital as a means of production with both financial and fictitious capital.
In this chapter, I briefly review various definitions and concepts of “capital,” meaning the different ways in which the term “capital” is used, misused, confused, and abused. It is perhaps strange to think of a word being misused or abused, but that is exactly what frequently occurs in economics, sociology, history, legal, and accounting research. Researchers in accounting, sociology, history, and economics, including Nobel Prize winners in economics, talk past each other, frequently using the term “capital” carelessly to mean one thing, when they actually mean something else, and Marx is no exception. This in turn leads to confusion in what is meant not only by “capital,” but consequently by “capitalist” and “capitalism.”
In this chapter, indeed in the entire book, unless otherwise stated “capital” without a preceding adjective or following noun refers to capital as the resource of production, i.e., productive capital or industrial capital (e.g., tools, machines, equipment, computer programs), which, along with land and labor, is one of the three scarce resources of production.
I first present an overview of the concept of capital as characterized by Karl Marx, Max Weber, and Irving Fisher. While it must be noted that there are many others who set forth concepts of capital, Marx, Weber, and Fisher are among the three most important.
Next, I discuss various types and definitions of capital as found in the literature including financial capital, productive capital, mercantile capital, and commercial capital. Third, I review the relationship between capital and labor, and fourth, the relationship between capital, accounting, and profit. Fifth, I summarize the relationship between capital and the capital account.
Capital—Concepts
I begin with a discussion of the concept of capital in order to establish a basic understanding of the relationship of capital to other resources of production, to capitalists, and to capitalism.
Capital is a universal concept present in all societies where there is trade (Žmolek, 2013). However, trade is not required in order for capital to exist. While capital existed for thousands of years, the concept of capital did not. The concept of capital only became possible with the invention of double-entry bookkeeping and the capital account.
While Sée (1928) indicates that capital was first used to designate “a sum designed to be invested to bring in an interest” (p. 2). Yet, a sum designed to be invested to bring in an interest has no actual relationship to capitalism. Marx, in fact, referred to a sum designed to be invested to bring in an interest as “fictitious capital.”
Without question, capital is a resource of production, along with land and labor. Each resource of production is governed by the laws applicable to that resource according to particular legal regimes. Labor, regardless of how classified, is governed by labor laws, although different laws apply to different types of labor. Similarly, different laws apply to different types of capital and different laws apply to different types of land. Labor laws do not apply to capital or land, just as laws of capital and land do not apply to labor. The laws that apply to land, labor, and capital are beyond the scope of this book except some laws that apply to capital are discussed in later chapters.
There are those who insert other types of resources into resources of production, in particular entrepreneurship (or managerial skills), and even money. But entrepreneurship (or managerial skills) is human and therefore labor, regardless of whether they coordinate production, supervise other labor, engage in actual production, or any other activity concerning production. Nor does it matter whether there are divisions of labor within labor (e.g., Durkheim, 1997), or whether labor is free and paid or forced and not paid (slaves).
To see that labor is an all-inclusive, singular concept encompassing human effort in the production of commodities, one need only consider the production function Q = f(L, K) where Q is the Quantity of output, and inputs are the quantities (costs) of L (labor) and the quantities (costs) of K (capital).4 Money is not a resource of production. The production function shows, usually graphically, how one resource of production, K, can be substituted for another resource of production, L (or vice versa), holding land constant. Production functions do not incorporate quantities (costs) of entrepreneurship (or managerial skills), nor the cost of money (interest).
Granted there are both theoretical and empirical proble...