Episode #488: Wealth’s Way — The Wisdom and Wonders of Shareholder Capitalism
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Thomas Sowell has written that “Profits are perhaps the most misconceived subject in economics.” Join Ed and Ron as we explore R. David McLean’s superb new book, "The Case for Shareholder Capitalism: How the Pursuit of Profit Benefits All." Rooted in mutual benefit and prosperity, shareholder capitalism fosters an environment where individuals thrive. Shareholder capitalism upholds the belief that profit serves as a catalyst for societal progress, driving innovation and growth.
Use these show notes to follow along with the audio:
Segment one
C. S. Lewis: “We don’t need to be taught new ideas so much as to be reminded of old truths.”
1/3 The difference between accounting, finance and economics: Finance is defined as the science or study of the management of funds, the circulation of money, the granting of credit the making of investments, and the provision of banking facilities
2/3 Accounting is the system of recording and summarizing business and financial transactions and analyzing, verifying and reporting the results
3/3 Economics is social science concerned with analysis of the production, distribution and consumption of goods and services.
“If you are taking end of year discounts, you’re basing your pricing on the position of the Earth on its revolution around the sun. There's a word for that. It's called astrology.” —Ed Kless
From today’s show: Cashflow is ultimately driven by profits over the long run. They're the same but the timing and differences can be massive. Just look at Amazon for an example.
Thomas Sowell: “Profits are perhaps the most misconceived subject in economics.
Segment two
On the discussion of shareholder capitalism during today’s show: Shareholders eat last. By definition. Look at the P&L.
From R. David McLean’s superb new book, "The Case for Shareholder Capitalism: How the Pursuit of Profit Benefits All,” he points out many young firms have negative profits, but are still worth millions or even billions of dollars. https://www.cato.org/multimedia/events/case-shareholder-capitalism-how-pursuit-profit-benefits-all
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From McLean’s book, the stakeholder fallacy is defined as the popular misconception that corporations put the interests of a shareholder first and overlooks firm's other stakeholders. The fact is, they all are on an equal footing.
Segment three
In Chapter 8 of David McLean’s book, he talks about the definition of corporations based on a business roundtable. His excerpt is attached.
What is stakeholder capitalism? There are only two possibilities. 1) stakeholder capitalism is the same as shareholder capitalism 2) stakeholder capitalism is an oxymoron https://www.cato.org/multimedia/events/case-shareholder-capitalism-how-pursuit-profit-benefits-all
If you're driving short term benefits at the expense of long term profits than your stock price is going to decrease https://www.cato.org/multimedia/events/case-shareholder-capitalism-how-pursuit-profit-benefits-all
Market cap is proof of a future focus. If we weren't focused on the future, we wouldn't have market capitalization. So the fact that it exists at all is proof that the short term thing is a fallacy.
Segment four
From The Case for Shareholder Capitalism: How the Pursuit of Profit Benefits All, “Stock repurchases do not inflate or have any mechanical effect on stock prices. This is Finance 102.” https://www.cato.org/multimedia/events/case-shareholder-capitalism-how-pursuit-profit-benefits-all
David Deutsch, physicist: “There is no resource management strategy that can prevent disasters. But there are ideas that can cause disasters and one of them is notoriously the idea that the future can be scientifically planned.”
What a great book from today’s show. Check out "The Case for Shareholder Capitalism: How the Pursuit of Profit Benefits All.” https://www.amazon.com/Case-Shareholder-Capitalism-Pursuit-Benefits/dp/1952223881
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