Now on another note. Its not the case that corporations are given legal rights and equality with actual human beings. They are given SUPERIOR treatment under the law. Since they have limited liability. Whereas a real person is subject to bankruptcy laws the artificial person has superior legal standing. This is a violation of the principle of equality before the law.
I argue for a myriad of reasons that limited liability ought to mean 100% equity finance. Which I believe would help equalize persons both real and artificial, before the law. It would help do a number of other things as well. Not all of which are included in this link.
We see that this would improve share pricing and therefore capital allocation. We see also that it would harmonise more the interests between management, shareholders and the wider society.
Wherein companies were 100% equity financed, monetary policy was based on reason and if there was no company tax on retained earnings, then a lot of the artificial volatility would be taken out of the share market. Also the goals of the management would be more unambiguously to create shareholder value. Which would then be identical to wealth creation more generally.
People might think that the above is a prosaic reality even now. This is not the case. The combination of gearing, monetary un-predicatability and company tax makes rational top decision-making impossible and not in keeping with the goal of increasing both societal wealth and shareholder value at the same time. Hence the current setup does not appear to be consistent with how capitalism is supposed to work.
There has been a lot of talk about efficient market theory lately. But the combination of company tax, gearing, and unpredictable future monetary policy…… this evil troika would make it impossible to value a company EVEN IF YOU WERE GIVEN ALL FUTURE REAL CASH FLOWS BY THE GYPSY WITH AN OFFICE IN TOWN.
Theorists who deal with efficient market theory don’t seem to have noticed this. We don’t have an efficient market. Why would we? We are not free enterprise and it appears that capitalism properly considered is how I would envisage it, if efficient share pricing is anything to go by.
One of the costs then, of not separating limited liability from debt financing …… one of the costs to society is less effective (or “efficient”) capital allocation. And another cost is a great deal of the winnings of many thousands of skilled and intuitive market players. Since as everyone knows the closer a market is to being “efficient” the less money there is for such people to take off the table.
Its at least possible that the above theoretical observation to do with efficient market theory may be original to me.