Doug French, in an article for the Mises.org website — a site named for conservative Austrian economist Ludwig von Mises, whose politics tend to fall on what’s conventionally regarded as the Right — makes some points about the current trend toward mergers and acquisitions that sound an awful lot like what the Marxists at Monthly Review have been saying for a long time. They’re both right.
In “Merger Monday and the Destruction of Wealth” (Feb. 15), French argues that the uptick in mergers and acquisitions is occurring because corporations are loaded down with cash burning holes in their balance sheets, with no productive outlet to invest it in.
That’s pretty much what the Monthly Review folks have been saying since the 1970s. Corporate capitalism, as we know it, tends to generate a surplus. It generates more investment funds than it knows what to do with. A significant part of existing industrial capacity goes idle for want of sufficient demand, which means that for the most part investing in expanded production is not an option. So naturally all that excess investment capital goes into the FIRE (Finance, Insurance, and Real Estate) economy. And a major part of that investment goes into lending corporations the money to buy up their competition.
The tendency to generate a surplus for which there are insufficient investment outlets is, in the main, a result of the state capitalist economic model. Government enforcement of artificial scarcity and artificial property rights generates rents, shifting income from workers and consumers to the owners of such artificial property rights. That means a shift of income from the classes with a higher propensity to consume to classes with a higher propensity to invest, and a resulting chronic tendency toward underconsumption and overaccumulation.
In addition, the tendency toward oligopoly cartels with administered pricing leads toward excess industrial capacity and the inability of the corporate economy to dispose of its full output at cartel prices. Joseph Stromberg, writing from an Austrian perspective, pointed out the parallels between left-wing theories of overproduction and imperialism and the Austrian theory of regulatory cartelization (“The Role of State Monopoly Capitalism in the American Empire”, Journal of Libertarian Studies, Vol. 15 No. 3).
In addition, French argues, firms are more prone to borrow for mergers and acquisitions because the money’s cheap. By that he means interest rates are low, but the money’s also cheap in other ways.
For one thing, the tax structure artificially increases the profitability of mergers and acquisitions compared to other investments. When interest on corporate debt is exempted from the corporate income tax and share transactions involved in mergers and acquisitions are exempted from capital gains, that’s a differential benefit to one kind of investment. And targeted tax breaks for debt mean for mergers and acquisitions specifically, since that’s the main thing debt is incurred for. Retained earnings are more than sufficient for whatever investment in actual new productive capacity takes place.
The money’s also cheap in that the folks in the C-suite — like the manager “playing entrepreneur” in Mises’ critique of the Oskar Lange model of “market socialism” — have no skin in the game. The money they risk is not the fruit of their own past abstention. The incentive structure, as under Lange’s market socialism, is such that when they win they get a huge bonus and when they lose … they just don’t get a bonus that year. All the money lost is other people’s money. There’s every incentive to gamble big.
So what we’ve got is an economy dominated by large, state-affiliated organizations, insulated to a large extent from market incentives, and run by a class of unaccountable, privileged bureaucratic apparatchiks.
Say, where have we heard that before? Seems we have another parallel: The parallel between a nominally “socialist” and a nominally “market” system of power, both of them run by pretty much the same kind of people. In one system, the privileged bureaucrats live high on the hog in the name of “building full communism for the working class.” In the other, they do it in the name of “creating shareholder value.” As Orwell might have put it, it’s hard to tell the men from the pigs.
Translations for this article:
- Spanish, El Capitalismo Desenfrenado y el Estado.
Citations to this article:
- Kevin Carson, Cowboy Capitalism, Urban Tulsa Weekly, 03/02/11
You're lucky that Mises isn't around to see you call him a "conservative." He'd probably try and beat your ass for it.
My recent post Center for a Stateless Society- Romans 13- Ordained by Sin- Ordered by Love
3rd paragraph, 1st line: “1070s” should be “1970s”
That was a rather important juncture in the Middle Ages, with the battles of Hastings, Bouvines and Manzikert coming in rapid succession just before and producing enduring effects afterwards.
Excellent, Kevin!
My recent post TGIF- Theres Got to Be a Better Way
The Monthly Review has been going strong for nearly 1000 years?
When corporate management isn't accountable and has no real equity to lose, expect the worst. Who has to be smart or ethical when you've got a Platinum Parachute?
My recent post Working From Home Opportunities- Niche Web Sites
Coming from a conservative/libertarian perspective I find myself wrestling with the anti-capitalism part of free-market anti-capitalism. I want people to be secure in the right to their property and to build businesses that produce the goods of a prosperous society, while at the same time I can see the merit in the argument against the state's role in creating property rights in excess of what might arise in a freer society.
Anybody care to recommend something to read on property rights in a stateless society? Something to ease me into that stream of thought.
"Retained earnings are more than sufficient for whatever investment in actual new productive capacity takes place." Can you explain what you mean by this a little more. From an accounting perspective, retained earnings is not a bank account that just contains liquid cash that can be used at any time.
Well, Mr. Carson himself has a tremendous amount to say on the matter, as do all of the contributors here. Roderick Long has written some on this matter as well. I think a good place to start investigating things of this nature might be the Molinari Institute's page (sort of the parent body for C4SS I gather).
http://praxeology.net/molinari.htm
Thanks for the tips.
I just don't want to end up living in a tipi with a dirt floor because the concrete plant has been Sovietized by some anarcho-communards
From an accounting perspective, retained earnings is not a bank account that just contains liquid cash that can be used at any time.
No, but in that context neither is the actual balance sheet line entry called "cash and cash equivalents". Retained earnings is a concept, a generalization, like equity. There isn't any single thing you can put your finger on and say "this is retained earnings". But retained earnings does represent the capital available for investment. I believe it is in that context that the paragraph was written.
Wise words. You mention the fact that MP’s are completely beholden to the party hierarchies. This points to another key improvement that our constitution desperately needs – direct representation. There could be a combination of direct and proportional representation as in Germany, but even a system of pure direct representation would be vastly superior to what we have now. Our parliament desperately needs members who are free to state their views and vote fearlessly based on their own assessments, and on direct accountability to their constituencies.
Constitutional reform along these lines is infinitely more important than tinkering with media regulations.
What is the essential difference between anarcho-capitalists and Carson’s mutualism? It seems not much, once you distinguish between the free market and a state controlled “market” and possessory rights of property versus allodial title.
The "free market" is a secular "heaven" of secular salvationism, requiring as much faith as any messianic religion. "Now libertarian economics is assurance of things hoped for, proof of things not seen." ~ II Libertarians 1:11
"Corporate capitalism" or "state controlled markets" are the only markets to have ever existed in any Agricultural Civilization.
The City-State of agricultural civilization cannot be separated into a "voluntary city." City and State are one. The "voluntary city" within agricultural civilization is an illusion neither seen, nor ever to be seen.
Why? As Thomas Manning in his book Against the Grain says on page 73, "Agriculture creates Government."
To White Indian: I am getting a copy of Against the Grain from the local library. Sounds fascinating. The author's name is Richard, not Thomas Manning.
Google "Gold Rush property rights" for examples. Here are a few links: http://www.stanford.edu/~write/papers/Order%20Without%20... http://www.mcgill.ca/files/economics/squatters042605.pdf
papers.ssrn.com/sol3/papers.cfm?abstract_id=420960
Some of the papers also give reference to other examples of property rights in a stateless society.
'Why? As Thomas Manning in his book Against the Grain says on page 73, "Agriculture creates Government." '
How exactly does the artificial cultivation of plants, animals and other life forms create a coercive monopoly on violence?
It is not guaranteed, but it is certainly easier.
Most forms of cultivation are seasonal and not altogether reliable. That means that seeds and what have you need to be stored somewhere. Centralising that storage may be seen as preferable so that it may be more easily defended and so on. If one controls those stores, one can control the farmers' means of sustenance. It is therefore far easier to amass the capacity for large-scale violence, and thus form a state.
Correct, his name is Richard Manning. I have the book sitting right here. I must be getting old or something. LOL
If you want to cheat, go to Amazon, and use the "Look Inside" search feature, searching for "agriculture creates government." His train of thought starts on p. 72, addressing the libertarian bromide that people starving today is merely a distribution problem caused by politics.
You've got it, Bob.
Agricultural civilization is the system of (1) growing all our food, (2) putting it under lock and key, (3) making people work to get the stored food or starve.
Capitalists are those who own the fields and storage urns. Government is the guy with the spear to guard the grain and the welfare of the capitalist.
Capitalism seeks to balance things in favor of the capitalist. Socialism seeks to balance resources in favor of the rest of society.
Communism and libertarianism are even more radical. Communists seek to eliminate the Capitalists as competitors. Libertarians seek to eliminate the government as competitors. Neither realize that capital and government are inseparable; capital needs government for protection, government needs capital to stay alive.
The City-State is one. Politics is the game of who controls the lock and key to the resources necessary to live.
I am curious what Kevin's position would be on hostile takeovers. I remember Michael Milken was vilified in the media and even jailed for things that were made illegal after he did them. the feds even coerced a confession out of him by threatening to jail his brother over some tax issue. But his strategy, as I understand it, was to move in on companies with bloated and unaccountable management structures and downsize the company to a manageable size. I have always though that the state jailing him and outlawing what he did was a case of protecting exactly the kind of old boys club that Kevin is talking about here. The outlawing of Milken's strategies could also be another reason that we see the kinds of things discussed here.
I think you meant "Socialism seeks to balance resources in the favor of different capitalists then capitalism".
Ever seen a program called "socialist" where tons of money just didn't end up in the hands of different power brokers then otherwise. Socialism is not, in itself any different then capitalism, they just want to spend the money on different industries then the current markets.
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organization, such as an LLC or an LLP.