Whoes Capital; What Gains?: Why the U.S. Economy Needs to Change Incentives

Lawrence E. Mitchell, Case Western University School of Law


In this new paper, Mitchell argues that common stock has almost never been a source of permanent capital in American industry. And, he writes, the sources of capital gains has also dramatically shifted from the 1950s, when Merton Miller and Franco Modigliani, developed their famous dividend irrelevance theory, from corporate profits in the form of retained earnings to future profits in the form of velocity-induced trading gains. While both of these propositions may seem counterintuitive, the latter will seem plainly wrong, at least to devotees of efficient market theory. But the empirical correctness of the former proposition underlies the contemporary theoretical weakness of the latter.