Capitalistic Renaissance 2: Weaknesses
Our understanding of the formula and components of capitalism was not precise. Without a keen understanding, we did not know how to harness and marry the social power of the “free market” with the vehicle of capitalism, i.e. the public company.
We did not know how to make capitalism universally accessible where all consumers are directly included in the value creation process. This absence of universal inclusion in the capitalistic process is exactly where we went wrong in the past. Our reliance on credit by a hybrid of capitalism to drive consumer demand took us off course, bringing us face to face with the biggest economic problem of our time: the exponential increase in debt.
Imprecise information put us at a disadvantage. For instance, we do not have an accurate way to measure a country’s overall economic output, i.e. Gross Domestic Product (GDP). Professional economists have been debating how the GDP should be measured. But they have missed the bigger question of how the market value of public companies can address the debt issue if this combined market value is bigger than GDP.
Until now, we did not have a single economic study that highlights the market value of public companies as an economic structural solution to debt. The combined market value of the 18,600 public companies in the U.S. is $19.95 trillion (CIA Fact Book) – about $6 trillion more than the U.S. gross domestic product for 2009.
Only 23 of the 266 entities or countries tracked by the CIA Fact Book can emulate the free market of the U.S. where the combined capitalization (or market value) of public companies is greater than the sum of the national GDP and the combined value of private businesses. The sustainability of this market value is put into question because of the debt problem and our imprecise understanding of true capitalism.
Even in a weaker market environment, $19.95 trillion in market value created by U.S. public companies is huge. When pure capitalism is understood for the first time, the doubling or tripling of this market value is the logical consequence. The all-inclusive nature of pure capitalism provides the consumers with continuous purchasing power, thus generating more value.
We have paid a heavy price – a multi-trillion dollar debt – for glossing over the unique ability of public companies to create multiple values. The significance of this value creation is lost in the maze of inadequate methods used to determine GDP or increase consumer spending without debt. This oversight is nothing short of intellectual ineptitude on the part of professional economists.
The focus on job creation is necessary. The U.S. economy’s 29.6 million private businesses and 18,600 public companies both create jobs. It does not really matter which type of business creates more jobs. What matters is that job creation barely alleviates the debt problem whose solution is automatic when we know how the public company’s equity value is created and used correctly.
The biggest weakness in current economic thought is that the jobs created do not and cannot produce enough wages to pay and balance the exponential increase in debt. Talking about job creation cannot produce real prosperity for the average person unless the public company is included in the mix.Go to Section 3: Fundamentals