"Venture capital" is the shares of stock with limited liability, and gives to its owners control of the corporation by election of "the management," and such risky returns of income as have the name of dividends, the now dominant meaning of "profit."
"Investment capital" is the corporate bonds, which are legal contracts between bondholders and stockholders, the bondholders expecting a more secure income in terms of money, known as "interest," enforced by the courts.
Formerly, no clear distinction existed between profit and interest, but now profit is the reward obtained by "management" for the stockholders, seldom reaching, on the average, more than a margin of 6 per cent of the total corporate income, and falling to zero, or loss instead of profit. Evidently, the shares of stock, or venture capital, are owned, not because they yield interest, but because they yield control of the corporation, and, indeed, control of the whole capitalist system, including control of the interest paid to bondholders and the wages paid to laborers.
This means that such former terms in economic science as "active" and "passive," "dynamic" and "static," are now separated in the capitalist system. The active or dynamic participants are the stockholders and management; the passive or static participants are the bondholders who are the investors. The significance of the foregoing distinctions, newly developed under capitalism, is in contrast with the totalitarian governments, which have taken over the "cartellization" activities of regulating output, of fixing prices and wages, and of controlling credit and foreign exchange. In doing so they have eliminated the capitalistic self-governing corporations, labor unions, and political parties, so that what remains of "capitalism" is found in a nation like the United States, which is struggling against complete totalitarianism in order to preserve its corporations, labor unions, and political parties, in spite of their own excesses, through the method of administrative commissions.
The term "financial capitalism" is used to indicate a third stage of the capitalist system. It followed "merchant capitalism" and "industrial capitalism." The above three terms indicate, not clearcut historical divisions between one and the other, but indicate the relative predominance of the merchant, the industrialist, or the banker in the evolution of capitalism. These three stages all exist at the same time in different American industries, but their historical development grows out of the capitalistic evolution of western civilization.
First was the stage of discovery of new lands and new markets pioneered by the "merchant adventurers," but with simple and crude tools and hand processes. Second was the stage of scientific invention and technology when the steam engine, electricity, gasoline, and machinery of all kinds were being utilized to produce, on the large scale of so-called "mass production," the huge quantities of products to be shipped to the previously expanded markets. Third was the stage that followed the "closing of the frontier" against further expansion, the period of world-wide market scarcity, when mass production had to be curtailed in order to maintain both prices and the values of the investments needed to finance the amazing scientific inventions for overproduction beyond demand in this new age of mechanical power. This latter financial stage is as yet incomplete in the case of American farmers, who still remain in the merchant-capitalist stage.
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