Stocks are Intrinsically Worthless

In reality, stocks are no more valuable than baseball playing cards. In fact, they are valued in exactly the same way. That reality has a substantial, and undesirable, impact on our future.

Originally published 2005

Consider this: Corporate stocks are no more valuable than baseball trading cards. Think about it. When do you ever see any of the money that a corporation makes? Never, that’s when. When corporations were originally invented, they financed expeditions, and everyone shared in the spoils. Later, they became ongoing enterprises that shared their wealth in the form of dividends.

But now, dividends are all but a thing of the past. These days, “growth in the company’s stock price” is all the rage. But the stock price only goes up when people bid on it. In other words, the more popular the stock is the more it will cost. So a stock’s price measures it’s popularity more than any other single variable. In effect, stocks are exactly like baseball playing cards. The more the company (or player) produces, the more desired the stock (or playing card) and the more people are willing to pay for it. But at no time to the purchasers of the stocks (playing cards) share in the wealth acquired by the corporation (player)!

When the company starts losing money, the stock price goes down. Eventually,  it bottoms out. By the time it goes under, the stock is worth pennies — barely more than the paper its printed on. So what happens to all the money it once acquired? Some of it goes to employees, of course. But the majority of it goes to other corporations! Some goes to pay loans, some in purchases. Finally, any remaining assets are acquired by some other corporation!

In essence, there are two very distinct systems with a weak interface between them. The corporate economic system has a ton of money and activity. The inputs to that system are work and purchases. The outputs are salaries, products, services, advertising (which allows even non-products to be hyped up and sold), and (in 2005) political influence. The human economic system, on the other hand, has work and money as outputs. The inputs are products, services, and money.

Those two systems have very different systems of measurement, which accounts for the fact that our leading economic indicators are going up, employment and personal income is going down. Those indicators are mostly a measure of corporate activity. Economists, who have been trained to study those indicators and view the economy based on what they read, are mystified. How can it be, they wonder?

The problem is that the world view they absorbed as part of their economic training has some built in assumptions about the way the corporate and human systems interact — assumptions that have been thrown into a cocked hat by offshoring of labor, downsizing of workforces, lowering of pay scales, and the push to make people work harder under threat of unemployment.

The unfortunate fact is that a great product is not what a corporation needs to make money. It can make far more by selling it’s stock. The stock costs next to nothing, requires no advertising, and has no need of a sales staff or distribution outlets. No money is tied up in parts, labor, or warehousing. Stocks are the perfect money-maker. Indeed, a salable stock is, in effect, a license to print money.

How does this affect you and me? Well, consider that the money the corporation makes will never be seen by you and me. Executives will see it in perks. Major investors will get their money, and then some, when they sell off their stocks in that great trading arena for playing cards, the stock market.

Corporations will continue making every move they can to beef up their stock price. They’ll continue lowering costs, offshoring jobs, and minimizing pay scales so their stock is popular, and they’ll continually accumulate money by selling that stock. Corporate profits will go up, and that money will stay in the corporate economic system as it transfers from corporation to corporation. The human economic system, meanwhile, may well continue the downward spiral it is currently on.

Of course, it helps when consumers have money. So some money has to go to consumers. But as long as there are enough wealthy customers to buy the products, then it matters nothing to corporations if many more are homeless. And therein lies the danger. The economic indicators measure corporate activity. Stocks give corporations a license to print money. And it America’s political environment, that money gives them the leverage they need to make even more money, at the expense of the human economic system.

As I have written elsewhere, the movements of these two economic systems — the corporate system and the human system — coupled with the impending scarcity of resources like water, oil, and food, produces an inexorable trend towards corporate feudalism. It could happen within the next 50 years, in my opinion. Possibly sooner. It’s scary.

Copyright © 2005-2017, TreeLight PenWorks

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