Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.

We have an interesting situation now where stock market value seems to exist even though economic activity doesn't, much.

This makes no sense - supposedly.

I think in fact it makes perfect sense - but only if you understand what's really being traded, what the motivation for trade is, and why what happens to people who don't trade on the markets doesn't actually matter a damn.

I am re-reading Veblen's Theory of Business Enterprise. In it he claims that the capitalised value of the tangible assets of firms are covered by ordinary debt and maybe preferred (non-voting) stock, whereas common (voting) shares cover the capitalization of intangible assets, that is goodwill. That this mimics the separation of ownership (debt) from management (equity) and that the goodwill of "captains of industry" can be capitalised many times over because having lend their reputation to a venture, a "captain of industry" (such as, say, Warren Buffet) doesn't have his goodwill exhausted but even increased.

Having read the book for a second time I think it is very relevant to out current predicament (it also contains an explanation of the business cycle as speculative bubbles, of recession as a psychological phenomenon of the business class, etc).

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Thu Oct 8th, 2009 at 12:45:06 PM EST
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