E-Capital: The Link between the Stock Market and the Labor Market in the 1990s

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Abstract
Over the past decade, new technologies based on computer software began to transform the production and distribution of goods and to form the basis of new goods in the U.S. economy. The value of the stock market rose tremendously, with many of the largest increases among firms implementing the new technologies. Figure 1 depicts this increase in relation to the replacement cost of the inventories and plant and equipment of corporations. One of the reasons for the upsurge, according to the view developed in this paper, was an increase in the value of installed physical capital thanks to an unexpected rise in the demand for capital. A more important reason was the accumulation of intangibles, demand for which increased even more rapidly. Internet companies are valued almost exclusively for their intangibles: as of November 7, 2000, Yahoo! had a value of $37 billion but only $158 million of physical capital.

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