BPEA | 2000 No. 2

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

Robert E. Hall
Robert Hall Headshot
Robert E. Hall Robert and Carole McNeil Joint Hoover Senior Fellow and Professor of Economics - Stanford University

2000, No. 2

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.