Doug, please explain to me how and why shareholders hold back investments. Even an Alfred Chandler warns that managers have been forced to spurn the long term and underinvest in research and development. But is it true? Take Mark Roe's objection: Even furiously trading shareholders include buyers as well as sellers. Buyers are interested in what price they will get for their stock market when they sell it. So, today's buyers is interested in what tomorrow's buyer will pay, who is interested in what the next day's buyer will pay, and so on. Since each buyer is dependent on the price to be garnered in some distant long run, each buyer is interested in the long-run price, even if he or she will not be long-term owner. There must be something more complex to support the short-term argument than furious trading alone." (Strong Managers, Weak Owners: The Political Roots of American Corporate Finance, p. 240; haven't read the book yet).
What induces shareholders to motivate managers to disgorge cash rather than investing it is the declining marginal efficiency of capital, i.e., the falling profitability on new investment (I was surprised that there is no discussion of this pivotal Keynesian concept and it relation to Marx's theory of the falling rate of profit--see for example Mattick's writings).Even Jensen recognizes the declining marginal efficiency of capital in his hyper fetishistic way, as you quote him on p. 269 of your book. The limits to capital accumulation can still be traced to the mode of production, not the division of surplus value in the realm of circulation.
Best, Rakesh ps this is not to say that there are not inherent disadvantages to stock market, as opposed to bank, finance; for example, we have your lucid discussion of information asymmetries, p.170 ff, but I would argue there are as many disadvantages to bank finance. On this later. But for now I am not convinced that you have proven that short-termism is the fault of the stock market per se.