Monopoly Patent Profits Collected Through the Stock Markets

For centuries, as modern economies developed, the hidden hands of the alert and powerful were busy structuring property rights to gain, or retain, title to wealth-producing sectors of the economy. Patent laws were being structured to monopolize technology and stock markets were being structured to both harvest those profits and further monopolize industries.

That stock markets are crucial to raising investment capital is a myth. Most stock traders have no contact with new issues of stock and those who do are primarily taking an already established private company public.

Most corporate investment needs are financed from profits, liberal depreciation schedules, and borrowing. A stock is taken public primarily to put those values in play to join in the game of making money betting on whether stocks will go up or down which is really gambling not producing.

Expanding markets means increased profits capitalized into the value of a company’s stock and, with the potential for profits thoroughly analyzed by the market, those capitalized values are claimed before those profits are banked.

Behind the abstraction known as ‘the markets’ lurks a set of institutions designed to maximize the wealth and power of the most privileged group of people in the world, the creditor-rentier class of the first world and their junior partners in the third.”1]

Capitalizing Actual and Fictitious Values

Inventions are a “more or less costless store of knowledge [that] is captured by monopoly capital and protected in order to make it secret and a ‘rare and scarce commodity,’ for sale at monopoly price[s]. So far as inventions are concerned a price is put on them not because they are scarce but in order to make them scarce to those who want to use them.[2]

The patent structure capitalizes value far above tangible values and, through those excess profits and without expenditure of their labor, intercepts wealth produced by others.

Where inventions once went unchanged for decades or even centuries, many, if not most, patents are now obsolete before their 20 year life expires. By the time a key patent has run out, newer patents are able to boost efficiency yet more.

As many of the earlier technologies are still essential to production, the owners of the latest patents control both the latest technologies and the expired patents of support technologies. Honda’s exclusive ownership of patents on the stratified charge engine, even though the basic principles for this crucial technology were invented 100 years ago, makes all this quite evident.

Corporations are in such powerful bargaining positions that only occasionally will a new invention pose a threat to them. As corporate control of other critical patents limits the inventor’s options, these patents are bought for a fraction of their true value, or they are patented around and the inventor receives nothing. Controlling patents is integral to controlling markets:

Any move by the neo-colonial state to revoke the patent law as a defensive measure would have very limited results since the market belongs to the monopolies. This becomes quite clear when it is realized that the other markets to which such products would be exported would still have such legislation protecting the same patents, and the transnational corporation would be in a position to require compliance. The mere ownership without the actual know-how which is guarded by the monopoly at headquarters would be useless. This is the whole point about monopoly. The world imperialist monopoly market would not exist if such a system of market control were not in operation.[3]

We view the inventions of 400 to 1100 years ago as primitive, yet in their time these simple inventions could produce, with less labor, both more and better products. Someone powerful enough to control these new techniques could trade one day’s work for two, three, five, ten or as many days’ production of other people’s labor as the efficiency of his invention and political power allowed.

For example, if the invention of the windmill could have been monopolized, its owners could siphon to themselves the production of large amounts of others’ labor. This potential created a dispute between the nobles, priests, and emperor “as to which one the wind belonged.”[4] A 17th century French patent granted such a right to selected owners of windmills.”[5]

However hard they tried, claiming ownership of the wind was quite difficult. But it was not so with other technologies. The water mill, first used in Europe during the 10th century, permitted one worker to replace as many as 10 others. A stone planer eliminated seven workers out of eight. One worker with an Owens bottle machine could do the work of 18 hand blowers.[6]

Modern technology has created even greater efficiency gains. Many credit the steam engine with the greatest single increase in productive efficiency. Stuart Chase cites a study by C.M. Ripley of work costing $230 done by hand labor that would cost only $5 using electric power.[7] Modern electric furnaces and continuous casting have brought the direct labor expended in the steel industry down to only 1.8 hours per ton of steel produced.[8]

The owner of that first water mill was able to trade his single day’s work, grinding grain, for seven days’ labor of a woodworker or blacksmith. In effect he was paid for seven days while working one. The owner of a patented stone planer would likely gain five days’ value for only one of his own. Owning a patented Owens bottle machine would probably have claimed 12 days’ pay for each day’s labor.

If the manufacturer in Ripley’s study had been able to patent that efficiency, he could have charged 20 to 30-times the labor value in his product. However, just like claiming ownership of the wind, it would be difficult to claim exclusive title to electricity and accounts for the drop in costs in Ripley’s study.

Whether a market is in land or corporate stock what is being bought and sold under current property rights are primarily values produced by nature, or an aspect of nature, properly belonging to all in relatively equal shares. That value has been confiscated by the cunning and powerful through exclusive titles to the various aspects of nature’s wealth and those unearned values then capitalized in the markets by a factor of 10 to 30 times.

A Nation’s Wealth is Measured by, and Siphoned to Titleholders Through, Capitalized Values

Shares in corporations are sold with the price based on how profitable they are expected to be, their capitalized value. This idea proved to be a real bonanza. Where conservative business people typically estimated the capitalized value of the company at 10 times the yearly profit, the stock markets, anticipating future increases in profits, capitalized these values far higher, frequently 20 to 30 times annual profits and occasionally even more.

It is not uncommon for the price of stock going public, called IPOs (initial price offerings), to jump 500% the first week. This capital accumulation bonanza initially claims a share of a nation’s loans and, when those values are sustained, becomes a value that must be purchased by an expanded money supply.

All in one stroke, an individual or group can lay claim to the efficiency of a technology through capitalizing its value and selling shares to investors. This siphoning of the production of others’ labor, through the mechanism of capitalizing values, concentrated wealth produced by the many into the hands of a few, was christened accumulated capital, and gave capitalism its name.

Through carefully structured laws laying claim to the wealth produced by nature and through technology, which is a part of nature utilized to increase the efficiencies of labor, the hidden hand of the wealthy and powerful kept claiming an ever-larger share of the wealth produced.

Labor, just as naturally, tried to retain or reclaim what they produced. The rights gained in the American Revolution and enshrined in its Constitution, and the natural justice of those rights, eventually increased the power and income of labor.

This and the expansion of unnecessary labor in the service industries as summarized Monopolization within Social Structures led to more people retaining a greater share of society’s wealth.[9] With these savings more broadly distributed, there evolved the present diversified markets to sell shares in industry and concentrate money capital.

Fully 60% of the wealth measured by capitalized values is claimed by the various monopolies we are exposing. If these excessive rights of property were replaced by the rights of society to collect resource rents, the social right for any person to use any technology through paying inventors well, placing patents in the public domain to become a modern technology commons, if all had full and equal rights to socially-created money and savings (finance capital), if productive jobs were shared, and if productive labor were fully paid, all society would be wealthier and capitalized wealth (a nation’s industrial and finance capital) would now be roughly a ten times multiple of use values as opposed to a 10 to 30 times multiple of the much higher monopoly values.

By eliminating monopolization, sharing the resultant fully-productive jobs, and paying labor fully for what it produces, measured values (the price of consumer products) would equal the rental value of resources, the labor, and the earnings of capital (stored labor) producing that wealth.

The Financial Structure to Harvest the Profits of Monopolized Patents

As that is where the profits from exclusive titles to patents are collected, the battle for corporate ownership is centered in the stock market. Millions of hours are spent by speculators, they call themselves investors, trying to figure out which company is going to increase its capitalized value.

The game is calculating profits that will translate into capitalized value. It is viewed as a simple method of keeping score. But claiming wealth properly belonging to others as technology continually replaces labor is the underlying theme.

Values, properly shared by all through lower prices, are claimed by the shareowners of industrial technology. Unearned values claimed by monopolists are capitalized, sold or borrowed against, the Federal Reserve creates more base money which will circulate to buy and sell those unearned values, and a multiple of that annual wealth appropriation becomes finance capital.

Through restructuring exclusive titles to patents to conditional titles, which eliminates intangible values, and creating a modern technology commons in the process, those monopolized values and huge blocs of finance capital are, in the form of much lower consumer prices, transposed into relatively equally-shared use values.

Lester Thurow explains that the impoverishment of many while wealth is accumulated by a lucky few is due to “the process of capitalizing disequilibrium”—distortions of trade, either internal or external, and thus distortions of values—and that “patient savings and reinvestment has little or nothing to do with generating large fortunes:[10]

[A]t any moment in time, the highly skewed distribution of wealth is the product of two approximately equal factors—instant fortunes and inherited wealth. Inherited fortunes, however, were themselves created in a process of instant wealth in an earlier generation. These instant fortunes occur because new long-term disequilibriums (sic) in the real capital market are capitalized in the financial markets…. Those who are lucky and end up owning the stocks that are capitalized at high multiples win large fortunes in the random walk. Once fortunes are created, they are husbanded, augmented, and passed on, not because of “homo economicus” [economic man] desires to store up future consumption but because of desires for power within the family, economy, or society.[11]

Of course, the small fortunes accumulated by the upper middle class are from these same disequilibria in the value of land and capital. Except by violence or trickery, those exclusive titles to the resources and technologies of nature denying others their fair share, how else can wealth beyond what one produces be accumulated?

The income demanded by those appropriated values derived from non-tangible values is a private tax upon the rest of society and quite accurately labeled air. “By reducing air to vendability, scarcity could be capitalized. Business would be richer, and every man, woman and child in the country would be poorer.”[12]

A study of the market over a full boom and bust cycle will find these fictitious values developing in most stocks. The reasons given may be many but the underlying cause is clear: the steady rise in the nation’s efficiency is captured by, and mirrored in, stock and land values created through appropriating wealth which should have been, and under a modern commons would have been, use values relatively equally distributed to all.

Every speculator dreams of becoming wealthy by owning some of these stocks or land. The powerful and cunning, with better than even odds, buy and sell in rhythm with the inflation and deflation of stock and land prices to lay claim to much of this new wealth.

Those who win the gamble on who will own the world’s land and industrial and distributive technology are freed from the necessity of laboring for their living. This is not a contradiction. Their speculative efforts are certainly labor, however, when unnecessary, that labor is fictitious and such earnings are first appropriations of wealth properly distributed to all, those unearned values are then capitalized, typically in the gambling casinos called stock markets, where some win and some lose as those unearned values are capitalized ever higher.

Capitalizing values is necessary to decide the sale price of a business. However, not only should everyone involved receive proper compensation for his or her labor, innovations, and risk; society should receive its share.

Society not only provided tens of thousands of necessary preceding innovations; it also provided the schools, skills, tools, labor, markets, and infrastructure. Nature provided the resources, including the inventions waiting to be discovered. Thus conditional titles to patents are key to full and equal rights for all.

There is a necessity for a stock market. However, that the stock market’s primary purpose is financing the nation’s business is pure fiction; trades in the stock market have little to do with capital investment:

Buying a stock from a broker does not add one red cent to the corporate treasury and provides no investment capital except if the stock is newly issued. But new issues by major corporations are fairly rare because issuing new stock dilutes ­equity and depresses stock prices. As a result, the bulk of shares now traded on the stock markets were issued twenty or fifty years ago. Since then the shares have passed through many hands, and their prices have fluctuated over a wide range. Yet all these transactions have been strictly between the buyers and sellers of stocks, aided and abetted by stockbrokers trying to eke out a modest living…. [S]peculators are not really interested in the company whose stock they temporarily own. They want to take their profits and get out. They are not investing in the proper sense of the word; they are simply gambling. Ownership of corporations has become largely a game of chance in which the individual players try to guess what the other players will do.[13]

We now turn to how technology is so efficient that Communication Highways can Educate the World for 15% the Cost of Brick and Mortar Schools

Those crucial 170 words describing an honest, efficient, capitalist economy. Does anyone have the ear of President Barack Obama’s Economic Recovery Team?

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[1] Doug Henwood, Wall Street (New York: Verso, 1997), p. 7.

[2] Dan Nadudere, The Political Economy of Imperialism (London: Zed Books, 1977), p. 251, quoting in part from E. Penrose, The International Patent System, 1951, p. 29.

[3] Ibid, pp. 186, 255.

[4] Karl Marx, Capital (New York: International Publishers, 1967), volume 1, p. 375, footnote 2.

[5] Nadudere, Political Economy of Imperialism, p. 38, quoting Leo Huberman, Man’s Worldly Goods, pp. 128-29.

[6] Lewis Mumford, Technics and Civilization (New York: Harcourt Brace Jovanovich, 1963), pp. 227-28, 438. Read also Nadudere, Political Economy of Imperialism, pp. 51-55.

[7] Chase, Economy of Abundance, p. 166.

[8] Lester Thurow, Head to Head: The Coming Economic Battle Among Japan, Europe, and America (New York: William Morrow, 1992), p. 187.

[9] A large share of the massive wealth distributed had been appropriated from the periphery of empire by imposed inequalities in trade and outright theft. That world trade story is told in the simultaneously published Economic Democracy: A Grand Strategy for World Peace and Prosperity, 2nd edition, by this author.

[10] Thurow, Generating Inequality, p. 149.

[11] Ibid, p. 154, (emphasis added).

[12] Chase, Economy of Abundance, p. 165.

[13] Rolf H. Wild, Management by Compulsion (Boston: Houghton Mifflin, 1978), pp. 92, 94-95.

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