I find your lack of faith..... disturbing.

Sorry, I don't know why that quote just popped into my head.

In all seriousness though...you're right with most of the tangental points that you just made. But looking for answers beyond that is kinda like looking for the meaning of life beyond 42 or Monty Python.

I will take exception to

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The basic notion is that, in a capitalistic world, if you do something for me, I do something for you. If you plow my fields, I'll let you keep some of the food....

What you describe there isn't necessarily capitalistic. It just as easily be socialist, "From each according to ability, to each according to need." Andy can plow fields and needs shoes. Bob can build houses and needs his fields plowed, and Chuck needs a house and can make shoes.

What you descibed there was simply the barter system, nothing more, nothing less.

The underpinning of capitalism is a free market, ie the ability of the market to determine the value of an item through supply and demand. And for that to occur you need some uniform unit of measure to describe that value, because it gets mightily inconvenient to keep tabs of how many pairs of shoes your house is worth. Hence the abstraction of value starting around 1100BC with the introduction of currency.

The stock market is that abstraction taken to the Nth degree. You question the value of holding a piece of paper issued by a company, but as pointed out previously, that is little different to holding a piece of paper issued by the Government. Just look at 1930s Germany. People were collecting their wages in wheelbarrows. Before long they were dumping their wages to barter the wheelbarrow. Does that make currency inherently valueless to you too?

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Of course, that's way off my initial point, which is, if it is all based on an infinite loop with the only possible outcome being collapse, where does the value come from?

Because its not all an infinite loop with collapse being the only outcome. Stable companies in stable business sectors pay dividends. Look at utility companies. Look at food companies. Eventually companies considered new and innovative today are going to stabilise and hit market saturation. When that happens they'll stop investing in themselves and start on the dividend treadmill. (Consider Ford and GE. Both were new and innovative in the early 20th Century. Today they pay dividends.)

As an aside, if you think about it another way, what would it say about the economy and technological progress if 100% of companies paid dividends? How big could companies get if they didn't invest in themselves? How much innovation and progress could a world of small companies achieve?

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Actually, even that's not my initial point. It's really more along the lines of, if the company never gives any proceeds to the stockholder, why is the stock value associated with the value of the company?

The stock value multiplied by the number of shares outstanding _is_ the value of the company as set by the free market. By definition. This is capitalism at its finest. We've somehow managed to measure the value of all the assets and infrastructure, patents and copyrights, expected revenue growth, expected profit, expected dividends, expected stock price gains, and every other tangible and intangible that comprises a corporation and abstracted it into one number which we can argue about.

If I think that the number is too high, then I can sell stock that I have, short stock that I don't have, or attempt to buy at a price lower than what I think it is worth, (I'll ignore derivatives here). If I think that the number is too low, then I can hold the stock that I have, or buy more, or try to sell at a price that is higher than what I think it is worth. In any case, my actions (or lack of) when added to everyone elses actions (or lack of), create the supply and demand that sets the number, and hence defines the value of the company.

Dividends are certainly an important part of the equation, but only part. Taxes come into it too. If I have a stock paying a dividend, I have to pay income taxes on that dividend. Each and every time. If I have a stock that is reinvesting and growing then I only pay long term capital gains when I eventually sell that stock. I'm in a fairly high income tax bracket now because both my wife and I work in tech which pays well. Deferring dividends in favor of long term capital gain would be advantageous at this time. In X years time one or both of us may be retired, or we may pursue a career change that results in us falling into a lower tax bracket. At that time, dividend-yielding stocks will be more valuable to us than they are now. At that time it would make sense to sell those growth stocks and invest in income stocks. Income stocks are also advantageous at that point because they are associated with stable companies in stable business sectors. The last thing you'd want to happen is to be dependant on volatile growth stocks for your income during a downward market correction.

Of course, the goverment may change income and capital gains tax rules and rates now or at any point in the future, so that's a gamble too.