But there is no reason why it is better or somehow more moral for a business to invest more and more in expanding its own operations vs. making that capital available for other kinds of investments.
There is a reason why it can be more moral. If managers are just running the share price up to inflate the value of their options, that costs the owners (shareholders) money. (The managers might keep exercising options, then spending the owners' money to buy back shares. Long term you end up with the same number of shares outstanding. Where did all the money for those buybacks go? To people who exercised stock options.)
A genuine robber baron capitalist who intended to hang onto her own shares long term would generally just shitcan managers who behaved that way. But 401k investors don't have the option.
I'm ignoring workers here. I'm only talking about morality between owners and managers.
> Companies can also reinvest profits in the business
The point of the stock market is to efficiently let investors re-deploy capital from mature companies (earned through capital gains and dividends) to growing companies. If all the lemonade stands that need to be built have been built, your research dollars will be less effective than others’, then constraining capital to the incumbents, by dissuading dividends or buybacks, results in (a) bad investments and (b) rent seeking by the agents overseeing this restricted capital.
You have to identify a demand for lemonade before you can reasonably invest in more lemonade stand. In a lot of industries the demand just hasn't been there, and in that case it doesn't make sense to increase capacity no matter how much money you're making.
Sure, reinvestment could be a bad idea. But it's really not correct to say that retaining profits as cash or paying them out are the only possible options for a business. That's what I was responding to.
Agreed, the "cash hoard" option should also include assets, and we should also talk about debt and depreciation in that case. I don't think it conflicts with my original assertion wrt. wages.
Companies can also reinvest profits in the business. The textbook example is building more lemonade stands.