Andrew Jackson's warning has been proven to be all too prophetic although it is not corporations as such that have taken control of our dearest interests but rather the people who wield the power of our largest corporations. When the planners set out to gain political control of the world about a century ago, the power that they possessed by virtue of their control of the nation's largest corporations figured prominently in their plans. It is still an important factor in advancing their agenda today and consequently Americans should know something of what corporations are and how they operate. There are a great number of corporations in the U.S. and the planners do not, of course, control all, or even the majority of them. They control only a relative handful of the total number of corporations but those they control are among the largest. Control of these corporations gives them a great deal of power, not only with regard to the economy but also in several other important areas of our society. Control of the rest of the corporations is usually in the hands of old-fashioned Hamiltonians, while some appear to be controlled by people who subscribe to traditional American values.
        Corporations originated as a way to conduct businesses that required so much capital that in most cases they simply could not be created by individuals or partnerships. The corporation sells equity shares to the public and thus raises the money necessary to create the business. The stockholders elect a board of directors to control the policies of the corporation and this board in turn selects an individual to actually manage the day-to-day activities of the corporation. Theoretically the board is responsible to the stockholders for their actions. In actuality the stockholders have virtually no control over the activities of the board. In reality the corporation is almost always controlled by a few insiders. In some cases this control is in the hands of the CEO. In other cases it is in the hands of a few stockholders. In some cases the people who actually control the corporation are members of the board and in some cases they are represented on the board by people who are subservient to them.
        The board members usually determine their own compensation and almost always determine the compensation of the CEO, and the stockholders, as a group, generally have no influence over the board in this or any other respect.
        When corporations first began operating in the United States the profits of the corporation were usually paid to the stockholders in the form of dividends. Equity stocks were often bought and sold almost from the time the first corporations were established. Originally these sales of stocks were customarily made on the sidewalk on Wall Street in New York City. By 1817 the exchange of stocks had reached such a volume that the stock traders formed an organization and rented space in which to conduct their operations. This was the beginning of the New York Stock Exchange.
        As the number of corporations began to increase some people realized how profitable control of these corporations could be and they developed many ways to use control of these corporations to make money for themselves. They became adept at manipulating the government to gain financial advantages for the corporation and this was usually accomplished by outright bribery. Some of this money was transferred from the corporation to the pockets of those who controlled it. They also developed many ways to bilk stockholders. One of the earliest of these methods was the sale of watered stock, which is to say they sold stock far in excess of the value of the corporation's assets.  They also used their control of a corporation to sell to the corporation some type of assets owned by them at outrageously high prices and in other cases sold assets of the corporation to themselves or their associates at ridiculously low prices. By either of these methods they often drove a basically sound corporation into bankruptcy. They would then get themselves appointed receivers of the corporation by the courts and proceed to "reorganize" the company. This reorganization consisted of issuing new stock to the public to replace the capital they had looted.
        All of these practices were common in the 19th century and most are still practiced today but they are usually not carried to the extreme of bankrupting the company.
        At the present time it is virtually impossible to buy an equity stock that is likely to pay a dividend that will be equal to a modest return of the price of the stock, or one that has in the recent past paid such a dividend. Since the end of WWII an ever smaller part of corporate profits have been paid to stockholders. This is probably due in large part to our government's tax policies. All corporate profits are subject to a 50% corporate income tax. This tax is portrayed by liberal politicians as an attempt to make rich corporations pay their share of government expenses.
        In actuality this tax is paid by either the corporation's customers or the corporation's employees. The corporation always seeks to maximize profits, except in certain circumstances which are rather rare. In seeking profits the corporation charges as much for its products or services and pays its employees as little as the competitive environment in which it operates will permit. In the auto industry for example auto makers essentially bargain with the UAW on an industry-wide basis. When the UAW members are able to compel the manufacturers to pay wages substantially higher than those earned by workers doing the same type of work in other industries the increased cost is passed on to consumers. In cases such as this the corporate income tax cannot be retrieved by paying lower wages. In other industries, especially those that employ mostly unskilled workers, corporations may retrieve some of the cost of this tax by paying lower wages. If they do this it will probably cause a higher rate of turnover among its employees than would otherwise be the case but the corporation may find it easier to deal with this problem than to increase its prices. In a nation with a long history of price inflation, even at a low rate, any business will find it easier to raise its prices than would otherwise be the case. Thus it is probable that in the U.S. most of this tax is actually paid by consumers.
        In addition to taxing corporations on all of their income we also tax income received by stockholders in the form of dividends at the same rate as earned income. This means that if a corporation pays all of its after-tax income to stockholders in the form of dividends the federal government will probably collect 65%, or more, of the corporation's total income in taxes. Depending on where he lives the stockholder may also pay a state tax on this income and in this situation the stockholder may receive only 25% of the total part of the corporation's profit to which his stock would entitle him.
        If the corporation pays no dividends but uses all of its profits to expand or modernize its operations or to buy out another business it will postpone some of its tax and, in some cases, completely avoid some of its tax. Using its profit this way will usually cause the price of its stock to rise. If, after the price of the stock rises, the stockholder sells his stock he will realize a profit. His profit from this sale will be subject to a capital gains tax which, in most cases, will be at a lower rate than the rate applied to ordinary income. These tax policies make it much easier for corporations to expand and stockholders, at least in many cases, will still realize a profit. In the past, capital gains were taxed at a lower rate than they are now and when this was the case it was even easier for corporations to pay no dividends. In those days the pattern was established and the later increase in capital gains rates did little to alter the pattern.
        These taxation policies thus made it much easier for those people who control corporations to increase the size of their corporations and thereby increase their own income and power. It appears to me that these policies have accomplished the result that they were intended to accomplish.
        As a result of these changes that have occurred since WWII it is virtually impossible today to invest in a corporation for the purpose of sharing directly in the profits of the corporation. The only way in which an investor can reasonably expect to derive a profit from the ownership of stock is to buy the stock at a specific price and sell it at a higher price. This is termed speculative investment. We are often told that investment is necessary for economic growth. This is true only of a specific type of investment.
        There are basically three separate types of investment and only one of them contributes to economic growth. The first type can be illustrated by the case of an individual who invests money in the purchase of an existing business. From the point of view of this individual he is certainly investing but his investment has no effect on the economy as a whole. The second type of investment is one where an individual buys something that does not earn income but which he expects to sell at a later time for a profit. An example of this would be the purchase of land that is not being used for anything but will potentially become more valuable in the future. In the present situation most purchases of equity stock are in this category and this, of course, is termed speculative investment. The third type of investment is an investment in a new business. A new business will usually exert an expansive pressure on the economy as a whole. This is the type of investment that is necessary if a nation is to avoid economic stagnation.
        In the present situation most of the investment in equity stock is, thus, speculative investment and does not benefit the economy as a whole. In fact the whole of the money market, including transactions in stocks, bonds, commodities, and derivatives, and the part of the economy that involves the production and exchange of real wealth can be viewed as two basically separate economies. The first could be termed the financial economy and the second the real economy. The price of stocks, bonds, etc. exert little influence on the real economy. The real economy will exert some influence on the financial economy, primarily by creating savings that will be invested in the financial economy.
        The price of stocks, bonds, etc. will be determined by the amount of money available for investment in them. This amount will be increased primarily by an increase in savings which must be invested. It is difficult to find investments in the real economy but easy to find investments in the financial economy and therefore much of the newly saved money is invested there. The money supply of the financial economy will be reduced primarily by investors who withdraw their money from it. The investors withdraw their money from the financial economy by selling their holdings and taking their money elsewhere. Money withdrawn from the financial economy in this way will almost always be invested in the real economy, usually by depositing it in a bank. The interest received on this money will usually be slightly greater than the loss of value it will suffer as a result of inflation if the money is invested in a certificate of deposit or somewhat less than what is necessary to offset the effect of inflation if it is placed in a demand savings account. This is why investors are strongly motivated to invest in stocks.  The overall level of prices in the financial economy will be dictated by the money available for investment. The price of a specific stock will be determined by a wide variety of factors. The condition of the company will be a rather minor factor to the speculative investor. This speculative investor is usually not an individual investing his savings. These people do exist but they control only a small part of the money involved in this economy. Many of the sales and purchases in the financial economy are transacted by traders who are in the business of managing other peoples' money. They manage mutual funds, the investment capital of insurance companies, money belonging to banks, and the funds of private pension plans. These people base their transactions on the expected effects of events that are only indirectly related to specific companies. These events include wars, rumors of wars, mergers, rumors of mergers, government actions, expected government actions, the death of a CEO, and a host of other factors. Such events will often cause the price of a company's stock to rise or fall and a trader who learns of them promptly and acts promptly on his knowledge can often realize a significant short term profit.
        Thus a whole new industry has arisen that is solely devoted to making as much information as possible available to traders as quickly as possible. In short one can say that stocks, bonds, and the other instruments that are traded in the financial economy have become commodities in themselves. The net result of all of this is that it has become very difficult for the average American to save money and invest it in the real economy and it is easier for corporations to grow larger and thus place an ever-increasing amount of power in the hands of those who control these corporations.
        There are a few investors who acquire stock with the intention of holding it for a long time. Much of this stock is in the hands of those who created a company, such as the Micro-Soft stock owned by Bill Gates and the Walmart stock owned by the Walton family. Any investor who invests this way will take a real interest in the company's operations but it is still a speculative investment. Most of the millions of purchases made daily in the financial economy are made by investors looking for short term speculative profits.
        One of the ways in which corporations manipulate government today is by obtaining concessions from states or municipalities in exchange for locating a facility in a specific locality or in some cases for not closing a facility in a specific locality. There are hundreds of organizations across the country whose sole reason for existence is to induce businesses to locate in their community or state. They do this primarily by negotiating with the business, almost always a corporation, concessions to be made by a community or a state or both if the business will locate in their community. They then attempt to induce the community to make these concessions. Any corporation planning even a very modest sized facility will have several communities bidding against each other in the matter of concessions.
        When the corporation establishes its facility in the community that won the bidding war the cost of the winning bid will be borne by all of the taxpayers in the community. The benefits to the community will usually accrue to only a small part of the businesses and individuals in the community. If the business attracted is a professional sports team these benefits will be realized by hotels, restaurants, car rental agencies, etc. If it is a manufacturing plant it may be primarily the company's employees who will be the chief beneficiaries. Some of these people may be residents of the community while others may be people who formerly lived elsewhere. The rest of the residents may receive some indirect benefit from the new facility but the big winner will always be the corporation that received the concessions.
        It is extremely unlikely that this practice will ever be halted because only localities and states can put an end to it and all of them feel if they do not continue it they will fall behind the communities that do. Some of the other flaws in the way corporations operate in the U.S. could be corrected. This will not be done either as long as the federal government is controlled by either of the two major parties because both of these parties are essentially controlled by people who prefer to see it continued and, in my opinion, created the situation in the first place. If the people of the U.S. could elect to Congress a majority of individuals who would put the welfare of the nation ahead of personal gain it would be possible to pass legislation that would go far toward correcting the situation.
        This legislation would require all corporations to distribute all of its annual profits to its stockholders in the form of dividends within six months after the end of the year. It would also prohibit any issuance of stock by an existing corporation. New corporations would be allowed only an initial issue of stock. Corporations would not be allowed to merge by means of stock swaps. A corporation wishing to expand would have to borrow the money needed to expand its operations or to buy out other companies. The corporate income tax should be eliminated.  All dividends would be taxed at the same rate as ordinary income. No individual would be permitted to serve simultaneously on the boards of two or more corporations. All of these requirements are consistent with a government that seeks to protect equally the life, liberty, and property of each of its citizens.
        Implementing these suggestions would probably result in a drop in the overall level of equity stock prices. This would not be a really serious objection because this drop will eventually occur in any case. If this drop occurs as a result of these policies the nation as a whole will derive a very real benefit. When it occurs in the natural course of events only a small number of investors will benefit. If these proposals were implemented it would be possible for ordinary Americans to invest their savings in small amounts and participate in the earnings of American corporations. Initially the return they would receive on their investments might be quite small because of the huge amount of surplus capital that exists in the U.S. as well as in other countries today. Within a relatively short time, however, prices of equity stocks in the U.S. would probably establish themselves at prices that would yield to the investor a reasonable return on his investment. This would occur because, in most cases, investors would not expect prices to rise beyond that level and thus would seek speculative investments in other nations rather than accept the very low returns they would get by purchasing U.S. stocks at prices higher than those justified by the dividends they could reasonably expect to receive. This flight of capital to other nations would in no way disturb the real economy in the U.S. or benefit the foreign nations where this capital would be invested. In the next chapter I will explain a proposal for the elimination of fractional reserve banking. This proposal would also eliminate inflation and deflation, drastically limit the effects of business cycles, and reduce the need for welfare payments. The elimination of fractional reserve banking combined with normal economic expansion would eventually reduce this surplus of capital and this would reduce the speculative pressure on equity stocks in other nations as well as in the U.S.
        The situation that exists today, by which I mean the ability of the fractional reserve banking system to create money plus the extent of and the nature of corporate ownership of much of the wealth of the nation, permits the planners and other Hamiltonians to remove huge amounts of money from the real economy while contributing little or nothing to it. These two factors are not an integral part of a capitalist economy, they are the results of two centuries of manipulation of government by a relative handful of greedy and absolutely unscrupulous individuals. We have abundant proof that this situation cannot be corrected by the policies of socialism, which are actually the policies of those same unscrupulous individuals. The only way to correct the situation is to create a government that is invulnerable, or nearly invulnerable, to manipulation. Continue with Chapter 6 A Real New Deal