ON DIRECTORSHIP is by PETER TUNJIC.

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 a leading voice in the re-discovery of what corporations are and why they exist.

Commercial Capitalism

New "mercantile" or "commercial" capitalism is closer to the original system of capitalism and is based on the accumulation, conversion and exchange of energy (value) stored  in various capitals - natural capital, social capital, human capital, intellectual capital, manufactured capital and financial capital.

The key feature of new commercial capitalism is the role of the modern corporation as the central accumulator, converter and exchanger of capitals.   Their role is to exist and by existing obliquely grow the useful energy available to society.   The genius of the modern corporation is not limited liability but the ability to accumulate and convert capitals independently of any individual.

New commercial capitalism conceives of the modern corporation as an autonomous energy conversion systems subject to two principles:

  •     corporations are virtual open systems; and
  •     opens systems are subject to energy laws.

Viewed in this way, corporations exist through a process of efficient capitalization ( not unlike metabolism) - converting and exchanging  useful energy (value) stored in various capitals and accumulating the same for later use.   Corporations exist because they are able to convert capitals far more efficiently than individuals and, as Coase argued, with less transaction costs.

By converting and exchanging lower order/less useful capitals for higher order/more useful capitals with their surroundings - shareholders, customers, employees, suppliers and other groups -  corporations are able to accumulate energy or value to maintain a long term existence independent of all other groups and entities.    New commercial capitalism explains why corporation exist - because they are more efficient at converting capitals than individuals and more importantly, how corporations exist.   Something shareholder and stakeholder theories of the firm can not do.  

Capitalization is governed by simple arithmetic:

EROI or energy return on energy invested

This is the same ratio drives the performance of all energy conversion systems.  From steam engines to corporations.  The difference is simply the form in which the energy is stored.   But the principle is the same.

Broadly speaking, capitalism is commercial if the net energy, accumulated in all forms of capital, increases as a result of any process or transaction.  That is, the energy invested in the process - the capitals exchanged with surroundings or expended on transaction costs - are less that the capitals returned by that process.  

The key to understanding new commercial capitalism is that the universal measure of equivalence between all capitals is not money - it is energy or value.   New commercial capitalism conceives of money as a medium of exchange - not a symbol of all value.   Money is simply one store of value and less useful than other stores of value.   For example, money tends to exhaust its energy by use where as the energy stored in social and intellectual capital may increase through use.   

Capitalism is not commercial if the organizing principle is the accumulation of financial capital.  If converting capital into money results in an EROI of less than 1, the corporation has been effectively "decapitalized".  This is because the corporation may have more financial capital, but in aggregate less total energy available to it to sustain its own existence.  In other words, what the corporation exchanged for money, had more accumulated value in it than the accumulated value in the money received. 

Based on the principles of capitalization,  economic systems that focus on money as a symbol of value such as financial capitalism and democratic or shareholder capitalism have little in common with capitalism.   Indeed, it could be argued that these systems are better described as versions of "de-capitalism".  This is because prioritizing financial capital over other forms, can lead to an overall decline in capital in all its forms.   This is a highly inefficient conversion of capital.  More importantly,  these forms of capitalism only realize a fraction of the potential of the corporation as an energy conversion system. 

It should also be considered that inequality is as much (if not more) a function of the decline in total capitals (and the useful energy, that but for de-capitalism, would have been available to society stored therein) as it is a function of the concentration of financial capital in the hands of so few.   

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