Chapter 6 Chapter 4 Reviews the History of Corporate Governance

I will take readers back to Europe in 1720 and tell a historical story. In 1720, Britain, France and other countries formulated a "Bubble Act" in response to the three European financial crises that occurred at that time.The so-called three financial crises refer to three consecutive stock market crashes.You can look it up online, including France's "Mississippi Bubble" and Britain's "South Sea Bubble" [see Irving (1998)]. Let's look back, what happened before 1720?The one or two hundred years from the 16th century to the 18th century was the so-called "mercantilism" era.For example, European governments at that time established the world's first state-owned enterprise, the East India Company, in order to plunder a large amount of gold and silver (this company brought endless nightmares to us Chinese).The East India Company is a state-owned enterprise, a company led by gunboats and aimed at making profits.At that time, in order to plunder the colonies, the governments of European countries fought non-stop, and the people were exhausted.As a last resort, war bonds were issued, the first bond in the world.But the problem came out, the war bond had to be repaid when it came due.What if I can't afford it?That's the only way to hit "white bars".These "white bills" that cannot be repaid are piled up into a pile of stock, which is "Stock" in English and is also translated into "stock".At that time, a few smart people said that if you want to repay the "IOUs", you have to set up a "market" to deceive people.The market is called "market", so a "stock market" - "baitiao market" (we translate it as "stock market") was established.

The government sold "IOUs" to the first batch of fools.The first batch of fools sold to the second batch of fools for the same reason, and then sold to the third batch of fools.In the end, the price of "white strips" was extremely high.However, such a small and immature market relies only on unpredictable cash flows in the future.As a result, three financial crises finally occurred, which are the "Mississippi bubble" and "South Sea bubble" I just mentioned. Only at this time did the governments of European countries understand the nature of collusion between officials and businessmen in the stock market, insider trading, manipulation of stock prices, and borrowing money to speculate in stocks.All the illegal things we see in the Chinese stock market today happened at that time, but many people do not understand this history.After the three financial crises in Europe, the European government introduced a "Bubble Act" in 1720.The British government banned the establishment of joint stock companies for 100 years, while the French government banned the use of the term "bank" for 150 years.

Collusion between officials and businessmen was very common in Europe at that time, and this kind of corruption was regarded as an inevitable process of economic development.Moreover, these interest groups spread some specious remarks everywhere, including the government seeking profit, interest groups contributing to the healthy development of the economy, and so on.Therefore, "some heinous phenomena appeared, for example, interest groups bribed and colluded with members of Congress to pass profit-making bills, and took the opportunity to get rich. Adam Smith was very worried that this kind of corruption would lead to the sinking of the British Empire, so he wrote "The Wealth of Nations" "Theory", hoping to change the corrupt status quo of the collusion between officials and businessmen in the British Empire. However, the situation at that time was very serious. If he wanted to change the status quo, he would decouple members of parliament from interest groups. However, they have been colluding for so many years, how can they be decoupled? In order to put an end to this collusion, Adam Smith not only had to show that political interference hurts the economy, but he had to demonstrate in general that the economy operates without government intervention at all. Adam Smith didn't want lengthy theoretical arguments to get in the way The reader's reading, then, employs a persuasive metaphor that recurs frequently in all writings on economics: that is, Adam Smith's argument that markets can be regulated by an "invisible hand," thereby opposing Political intervention in the redistribution of economic interests. Adam Smith's "The Wealth of Nations" changed people's ideas. He proposed the concept of "invisible hand", and believed that the government should withdraw from the stage of economic operation and let the economy develop freely. The country is best served, a view that puts those who manipulate Parliament to shame.

At that time, another factor was the arrival of the Industrial Revolution, such as the steam engine and mechanical textiles.Industrial technology enabled the rise of industrial towns in the north of England, thereby threatening the political space of landowners.One of the key events was the introduction of the Corn Laws, which restricted British food imports from an emerging country, the United States.Higher food prices allowed the landlords to charge more rent to the peasants, but it also increased the cost of living, so the bourgeoisie had to pay higher wages to their workers, reducing their profits.In order to repeal the Corn Laws, the bourgeoisie had to continually weaken the political power of the landowners in Parliament.They achieved this through political reform.Political reforms expanded the political power of the new industrial cities and restricted the power of the House of Lords, ultimately laying the foundation for bourgeois-led legislation.

However, the subsequent European situation continued to deteriorate and formed the darkest age of capitalism.Workers work long hours for very little wages.In order to make ends meet, workers have to send their children to work in places where the production environment is not safe enough, thus depriving them of the opportunity to receive education.Marx and Engels described these sufferings in their 1845 book The Condition of the Working Class in England. 1799~1800: The Combination Acts passed by the United Kingdom made capitalists only need to provide workers with the minimum wage for subsistence. This act punished all attempts to organize trade unions to protect their own interests.For example, in 1833 some agricultural workers who wanted to unionize ended up being exiled to Australia along with common criminals.These victims are still commemorated today as martyrs.This manipulation of politics by capitalists is the basis for Marx's thesis that "the capitalist state is only the executive committee of the bourgeoisie" in the Communist Manifesto.Another notorious example occurred in the Taff Vale Case in 1901, the final judgment ruled that the workers' strike was unlawful, so the economic loss caused by the strike of the railway workers was 23,000 pounds. On top of that, employers can deduct from workers' wages for losses incurred as a result of the strike.

In 1867, the great economist Marx wrote a magnum opus, Capital, 90 years after The Wealth of Nations was published.The weight of the role this book plays in the history of the world today is beyond our imagination.European society at that time was full of riots, and the society was seriously turbulent.The reason is that the excessive development of social wealth due to capitalism has resulted in the unfair phenomenon of the big bullying the small and the strong bullying the weak.In the case of serious inequality in the distribution of social wealth, primitive capitalism has been challenged.Using a historical perspective, Marx disclosed in detail a frightening theory, that is, the theory of labor surplus value.When he wrote this book, he relied on the views of the previous economist Ricardo.Ricardo believed that the wealth created by this economic system was created by the labor force.We study economics today still uphold this point of view.The most primitive productivity is labor, labor creates capital, and capital has follow-up activities because of labor (this theory was obtained in a paper published by Nobel Laureate Samulson in the Quarterly Journal of Economics in 1966 confirmed].Marx believed that if the wealth of this society is created by labor, then why are capitalists so rich?It is obvious that the capitalists exploit the laborers' surplus value.He stated a concept in considerable space, that is, from the perspective of big history, the Industrial Revolution ended the feudal dynasty, and after the Industrial Revolution is the pursuit of fair communism.At that time, the so-called "communism" aimed to pursue fairness.Marx did not pay attention to efficiency, but believed that efficiency was driven by external factors, such as the invention of the steam engine improved efficiency.However, the pursuit of fairness in "Das Kapital" has influenced the changes in the legal systems of European and American countries in the following decades.The situation depicted in this book deeply touches everyone's heart, because European capitalism came to around 1867, almost reaching the end, and the whole society can no longer tolerate injustice.At that time, a concept of pursuing absolute self made Paris, London and other places into dirty and smelly cities.Everyone dumps their shit and garbage on the street, because I just want to be good for myself, and I don't care about other people's life or death.Isn't this what we often hear today-"Things that belong to us can only be done well?" However, if everyone only cares about their own good and throws unnecessary garbage on the street, the result will be that The whole city of Paris, London, Vienna and other cities stinks.At that time, both the economic structure and the social environment were on the verge of collapse.Therefore, the conclusion of "Das Kapital" is that capitalism must perish.I can tell you that the original capitalism in Marx's mind has indeed perished.