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Pulling Keynes' teeth

by Migeru Sun Sep 10th, 2006 at 10:23:00 AM EST

Overheard at the margins of Metatone's latest round table...

Sven Triloquist: I have never believed that stock markets represent real values, any more than the art gallery system represents real values in paintings.
Migeru: Time to dust off Keynes and quote his sock-off-blowing description of the stock market...
Sven: I keenly await any of your Keynesian analyses - they make me interested in economics as philosophy again
M: You mean Keynesian copy-pastings?
S: Perhaps extractions would be a better word than analyses - but the very act of isolating saliences is itself analysing. But of course the main thing is that I don't have to read the book ;-)
M: "Keynesian extractions". Like pulling teeth?
S: Prexactly
Here is the money quote:
When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.
Enjoy.

My previous Keynesian diaries:


John Maynard Keynes: "The State of Long-Term Expectation", in The General Theory of Employment, Interest and Money (1936)

III The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London, amounts to little and sometimes to nothing; or even five years hence. In fact, those who seriously attempt to make any such estimate are often so much in the minority that their behaviour does not govern the market.

In former times, when enterprises where mainly owned by those who undertook them or by their friends and associates, investment depended on a sufficient supply of individuals of sanguine temperament and constructive impulses who embarked on business as a way of life, not really relying on a precise calculation of prospective profit. The affair was partly a lottery, though with the ultimate result largely governed by whether the abilities and character of the managers were above or below the average. Some would fail and some would succeed. But even after the event no one would know whether the average results in terms of the sums invested had exceeded, equalled or fallen short of the prevailing rate of interest; though, if we exclude the exploitation of natural resources and monopolies, it is probable that the actual average results of investments, even during periods of progress and prosperity, have disappointed the hopes which prompted them. Business men played a mixed game of skill and chance, the average result of which to the players are not known to those who take a hand. If human nature felt no temptation to take such a chance, no satisfaction (profit apart)  in constructing a factory, a railway, a mine or a farm, there might not be much investment merely as a result of cold calculation.

Decisions to invest in private business of the old-fashioned type were, however, decisions largely irrevocable, not only for the community as a whole, but also for the individual. With the separation between ownership and management which prevails to-day and with the development of organised investment markets, a new factor of great importance has entered in, which sometimes facilitates investment but sometimes adds greatly to the instability of the system. In the absence of security markets, there is no object in frequently attempting to revalue an investment to which we are committed. But the Stock exchange revalues many investments every day and the revaluations give a frequent opportunity to the individual (though not to the community as a whole) to revise his commitments. It is as though a farmer, having tapped his barometer after breakfast, could decide to remove his capital from the farming business between 10 and 11 in the morning and reconsider whether he should return to it later in the week. But the daily revaluations of the Stock Exchange, though they are primarily made to facilitate transfers of old investments between one individual and another, inevitably exert a decisive influence on the rate of current investment. For there is no sense in building up a new enterprise at a cost greater than that at which a similar enterprise can be purchased; whilst there is an inducement to spend on a new project what may seem an extravagant sum, if it can be floated on the Stock Exchange at an immediate profit.[1] Thus certain classes of investments are governed by the average expectation of those who deal on the Stock Exchange as revealed in the price of shares, rather than by the genuine expectations of the professional entrepreneur.[2] How then are these highly significant daily, even hourly, revaluations of existing instruments carried out in practice?

IV In practice we have tacitly agreed, as a rule, to fall back on what is, in truth, a convention. The essence of this convention—though it does not, of course, work out quite so simply—lies in assuming that the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change. This does not mean that we really believe that the existing state of affairs will continue indefinitely. We know from extensive esperience that this i smost unlikely. The actual results of investment overr a long term of years very seldom agree with  the initial expectation. Nor can we rationalise our behaviour by arguing that to a man in a state of ignorance errors in either direction are equally probable,  so that there remains a mean actuarial expectation based on equi-probabilities. For it can easily be shown that the assumption of arithmeticallyy equal probabilities based on a state of ignorance leads to absurdities. We are assuming, in effect, that the existing market valuation, however arrived at, is uniquely correct in relation to our existing knowledge of the facts which will influence the yield of the investment, and that it will only change in proportion to changes in that knowledge; though, philosophically speaking, it cannot be uniquely correct, since our existing knowledge does not prrovide a sufficient basis for a calculated mathematical expectation. In point of fact, all sorts of considerations enter into the market valuation which are in no way relevant to the prospective yield.

Nevertheless the above conventional method of calculation will be compatible with a considerable measure of continuity and stability in our affairs, so long as we can rely on the maintenance of the convention.

For if there exist organised investments markets and if we can rely on tthe maintenance of the convention, an investor can legitimately engourage himself with the idea that the only risk he runs is that of a genuine change in the news over the near future, as to the likelihood of which he can attempt to form his own judgement, and which is unlikely to be very large. For, assuming that the cnvention holds good, it is only those changes which can affect the value of his investmen, and he need not lose his sleep merely because he has not any notion what his investment will be worth ten years hence. Thus investment becomes reasonably 'safe' for the individual investor over short periods, and hence over a succession of short periods however many, if he can fairly rely on there being no breakdown of the convention and on his therefore having an oportunity to revise his judgement and change his investment, before there has een time for much to happen. Investments which are 'fixed' for the community are thus made 'liquid' for the individual.

It has been, I am sure, on the basis of some such procedure as this that our leading investment markets have been developed. But it is not surprisingthat a convention, in  an absolute view of things so arbitrary, should have its weak points. It is its precariousness which creates no small part of our contemporary problem of securing sufficient investment.

V Some of the factors which accentuate this precariousness may be briefly mentioned.

(1) As a result of the gradual increase in the prportion of the equity in the community's aggregate capital investment which is owned by persons who do not manage and have no special knowledge of the circumstances, either actual or prospective, of the business in question, the element of real knowledge  in the valuation of investments by those who own them or contemplate purchasing them has seriously declined.

(2) Day-to-day fluctuations in the profits of existing investments, which are obviously of an ephemeral and non-significant character, tend to have an altogether excessive, and even an absurd, influence on the market. It is said, for example, that the shares of American companies which manufacture ice tend to sell at a higher price in summer when their profits are seasonally high than in winter when no one wants ice. The recurrence of a bank-holiday may raise the market valuation of the British railway system by several million pounds.

(3) A conventional valuation whic his established as the outcome of the mass psychology of a large number of ignorant individuals is liable to change violently as the result of a sudden fluctuation of opinion due to factors which do not really make much difference to the prospective yield; since there will be no strong roots of conviction to hold it steady. In abnormal times in particular, when the hypothesis of an indefinite continuance of the exsisting state of affairs is less plausible than usual even though there are no express grounds to anticipate a definite change, the market will be subject to waves of optimistic and pessimistic sentiment, which are unreasoning and yet in a sense legitimate where no solid basis exists for a reasonable calculation.

(4) But there is one feature in particular which deserves our attention. It might have been supposed that competition between expert professionals, possessing judgement and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individuall left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it 'for keeps', but with what the market will value it at, under the influence of mass psychology, three months or a year hence. Moreover, this behaviour is not the outcome of a wrong-headed propensity. It is an inevitable reslt of an investment market organised along the lines described. For it is not sensible to pay 25 for an investment of which you believe the prospective yield  to justify a value of 30, if you also believe that the market will value it at 20 three months hence.

Thus the professional investor is forced to concern himself with the anticipation of impending changes, in the news or in the atmosphere, of the kind  by which experience shows that the mass psychology of the market is most influenced. This is the inevitable result of investment markets organised with a view to so-called 'liquidity'. Of the maxims of orthodox finance none, surely, is more anti-social than the fetish of liquidity, the doctrine that it is a positive virtue on the part of an investment institutions to concentrate their resources upon the holding of 'liquid' securities. It forgets that there is no such thing as liquidity of investment for the community as a whole. The social object of skilled investment should be to defeat the dark forces of time and ignorance whichh envelop the future. The actual, private object of the most skilled investment of to-day is 'to beat the gun'. as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow.

This battle of wits to anticipate the basis of conventional valuation a fewmonths hence, rather than the prospective yield of an investment over a long term of years, does not even require gulls amongst the public to feed the maws of the professional;—it can be played by professionals among themselves. Nor isit necessary that anyone should keep his simple faith in the conventional basis of valuation having any genuine long-term validity. For it is, so to speak, a game of Snap, of Old Maid, of Musical Chairs—a pastime in which he is victor who says Snap neither too soon nor too late, who passed the Old Maid to his neighbour before the game is over, who secures a chair for himself when the music stops. These games can be played with zest and enjoyment, though all players know that it is the Old Maid which is circulating, or that when the music stops some of the players will find themselves unseated.

Or, to change the metaphor slightly, professional investment may be likened to those newspaper competitions in which the competitors have to pick out the six prettiest faces from a hundred photographs, the prize being awarded to the competitor whose choice most nearly corresponds to the average preferences of the competitors as a whole; so that each competitor has to pick, not those faces which he himself finds prettiest, but those which he thinks likeliest to catch the fancy of the other competitors, all of whom are looking at the problem from the same point of view. It is not a case of choosing those which, to the best of one's judgement, are really the prettiest, not even those which average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what the average opinion expects the average opinion to be. And there are some, I believe, who practive the fourth, fifth and higher degrees.

If the reader interjects that there must surely be large profits to be gained from the other players in the long run by a skilled individual who, unperturbed by the prevailing pastime, continues to purchase investments on the best genuine long-term expectations he can frame, he must be answered, first of all, that there are, indeed, such serious-minded individuals and that it makes a vast difference to an investment market whether or not they predominate in their influence over the game-players. But we must also add that there are several factors which jeopardise the predominance of such ndividuals in modern investment markets. Investmet based on genuine long-term expectation is so difficult to-day as to be scarcely practicable. He who attempts it must surely lead much more laborious days and run greater risks than he who tries to guess better than the crowd how the crowd will behave; andd, given equal intelligence, he may make more disastrous mistakes. There is no clear evidence from experience that the invvestment policy which is socially advantageous coincides with that which is the most profitable. It needs more intelligence to defeat the forces of time and our ignorance of the future than to beat the gun. Moreover, life is not long enough;—human nature desires quick results, there iis a peculiar zest in making money quickly, and remoter gains are discounted by the average man at a very high rate. The game of professional investment is intolerably boring and oveerexacting to anyone who is entirely exempt from the gambling instinct; whilst he who has it must pay to this propensity the appropriate toll. Furthermore, an investor who proposes to ignore near-term market fluctuations needs greater resources for safety and must not operate on so large a scale, if at all, with borrowed money—a further reason for the higher return from the pastime to a given stock of intelligence and resources. Finally it is the long-term investor, he who most promotes the public interest, who will in practice come in for most criticism, wherever investment funds are managed by committees or boards or banks.[3] For it is in the essence of his behaviourthat he should be eccentric, unconventional and rash in the eyes of average opinion. If he is successfful, that will only confirm the general belief in his rashness; and if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.

(5) So far we have had chiefly in mind the state of confidence of the speculator or speculative investor himself and may have seemed to be tacitly assuming that, if he himself is satisfied with the prospects, he has unlimited command over money at the market rate of interest. This is, of course, not the case. Thus we must also take account of the other facet of the state of confidence, namely, the confidence of the lending institutions towards those who seek to borrow from them, sometimes described as the state of credit. A collapse in the price of equities, which has had disastrous reactions on the marginal efficiency of capital, may have been due to the weakening either of speculative confidence or of the state of credit. But whereas the weakening of either is enough to cause a collapse, recovery requires the revival of both. For whilst the wweakening of credit is sufficient to bring about a collapse, its strengthening, though a necessary condition of recovery, is not a sufficient condition.

VI These considerations should not lie beyond the purview of the economiist. But they must be relegated to their right perspective. If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life, it is by no means always the case that speculation predominates over enterprise. As the organisation of investment markets improves, the risk of the predominance of speculation does, however, increase. In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market. It is rare, one is told, for an american to invest, as many Englishmen still do, 'for income'; and he will not readily purchase an investtment except in the hope of capital appreciation. This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to the prospective yield, as to a favourable change in the conventonal basis of valuation, i.e. that he is, in the above sense, a speculator. Speculators may do no harm as bubbles on a steady strem of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wal Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed  as one of the outstanding triumphs of laissez-faire capitalism—which is not surprising, if I am right in thinking that the best brains of Wall Street have been in faact directed towards a ddifferent object.

These tendencies are a scarcely avoidable outcome of our having successfully organised 'liquid' investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of stock exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmonton Street is, compared with Wall Street to the average American, inaccessible and very expensive. The jobber's 'turn', the high brokerage charges and the  heavy transfer tax payable to the Exchaquer, which attend dealings on the London Stock Exchange, sufficiently diminish the liquidity of the market (although the practice of fortnightly accounts operates the other way) to rule out a large proportion of the transactions characteristic of Wall Street.[4]   The introduction  of a substantial overnment transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.

The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except y reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only. But a little consideration of this expedient brings us up against a dilemma, and shows us how the liquidity of investment markets ovten facilitates, though it sometimes impedes, the course of new investment. For the fact that each individual investor flatters himself that his commitment is 'liquid' (though this cannot be true of all investors collectively) callms his nerves  and makes him much more willing to run a risk. If individual purchases of investments were rendered illiquid, this might seriously impede new investment, so long as alternative ways in which to hold his savings are availale to the individual. This is the dilemma. So long as it is open to the individual to employ his wealth in hoarding or lending money, the alternative of purchasing actual capital assets cannot be rendered sufficiently attractive (especially to the man who does not manage the capital assets and know very little about them), except by organising markets wherein these assets can be easily realised for money.

The only radical cure for the crises of confidence which afflict the economic life of the modern world would be to allow the individual no coice between consuming his imcome and ordering the production of the specific capital-asst which, even though it be on precarious evidence, impress him as the most promising ivestment available to him. It might be that, at times when he has more than usually assailed by doubts concerning the future, he sould turn in his perplexity towards more consumption and less investment. But that would avoid the disastrous, cumulative and far-reaching repercussions of its being open to him, when thus assailed by doubts, to spend his income neither on one nor on the other.

Those who have emphasised the social dangers of the hoarding of money have, of course, had something similar to the above in mind. But they have overlooked the possibility that the phenomenon can occur without any change, or at least any commensurate change, in the hoarding of money.

 

  1. In my Treatise on money (vol. ii. p. 195) I pointed out that when a company's shares are quoted very high so that it can raise more capital by issuing more shares on favourable terms, this has the same effect as if it could borrow at a low rate of interest. I should now describe this by saying that a high quotation for existing equities involves an increse in the marginal efficiency of the corresponding type of capital and therefore has the same effect (since investment depends on a comparison between the marginal efficiency of capital and the rate of interest) as a fall in the rate of interest.
  2. This does not apply, of course, to classes of enterprise which are not readily marketable or to which no negotiable instrument clearly corresponds. The categories falling within this exception were formerly extensive. But measured as a proportion of the total value of new investments they are rapidly declining in importance.
  3. The practice, usually considered prudent, by which an investment trust or an insurance office frequently calculates not only the income from its investment portfolio bt also its capital valuation in the market, may also tend to direct too much attention to short-term fluctuations in the latter.
  4. It is said that, when Wall Street is active, at least a half of the purchases or sales of investments are entered upon with an intention on the part of the speculator to reverse them on the same day. This is often true of the comomdities exchanges also.

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Sorry for such a long quotation, it is just too good to cut it short at any intermediate point.

I'll probably come back later and intersperse some comments.

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 10:34:02 AM EST
So basically what we need is a slight adjustment in global regulations in order to make all shares tied to a minimum time of ownership - let's say 2 years ;-)

Shares would not be traded nor used as collateral during that time. The 2 year period would start from the purchase of the shares - to ensure an even volume on the market ;-)

Dividends would continue to be paid.

In one stroke we escape the quartal mentality, heavy liquidity, and bring some seriousness into investment.

It's a bit like owning a racehorse really. Or 'put your money where your mouth is and come back in 24 months'

You can't be me, I'm taken

by Sven Triloqvist on Sun Sep 10th, 2006 at 03:34:55 PM EST
Was Keynes referring to me?

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 10th, 2006 at 03:36:57 PM EST
[ Parent ]
The Tobin tax wouldn't be bad, either.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 03:41:34 PM EST
[ Parent ]
Well I didn't want to mention that for fear J would call me a crackpot again....

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 10th, 2006 at 03:46:32 PM EST
[ Parent ]
The introduction  of a substantial overnment transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.
Tobin and Keynes agree.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 03:48:23 PM EST
[ Parent ]
Poor Tobin is a little discredited these days, but I still find merit in the idea that all financial transactions should be taxed at a fixed rate (which I have seen quoted as around 6%).

This would apply to all transactions, including right down to getting cash from an ATM.

This has to be set against having no other personal or corporate taxes on income. So it would be 6% flat.

The real benefit would be that a small footprint lifetsyle could lead you to feel great dignity.

You can't be me, I'm taken

by Sven Triloqvist on Sun Sep 10th, 2006 at 03:55:17 PM EST
[ Parent ]
6% !!!

I though the Tobin Tax was a minute amount, designed to slow down huge, frequent international finance transactions but to leave alone the individual investors.

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 04:08:36 PM EST
[ Parent ]
You need the liquidity, otherwise people will just put their money in CDs (hoarding).

In Spain until at least a few years ago, there was no capital gains tax on shares which were kept for a sufficient number of years (maybe 10? 18?) I don't know whether that's still the case.

Nothing is 'mere'. — Richard P. Feynman

by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 03:46:49 PM EST
[ Parent ]
Now there's a decent compromise ;-)

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 10th, 2006 at 03:57:05 PM EST
[ Parent ]
Now I think we can get the music business behind this proposal...

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 10th, 2006 at 03:58:35 PM EST
[ Parent ]
Why is all comment text in italics?  Or I am I the only one to experience it <turns round suddenly in a paranoid kind of way>

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 10th, 2006 at 04:00:41 PM EST
[ Parent ]
Or I am I the only one to experience it

Yes

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Sun Sep 10th, 2006 at 04:09:36 PM EST
[ Parent ]
Now it is back to normal with no intervention on my part - strange...

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 10th, 2006 at 05:51:52 PM EST
[ Parent ]
Don't know, me duck. Why, is this comment in italics too?
by afew (afew(a in a circle)eurotrib_dot_com) on Sun Sep 10th, 2006 at 04:13:27 PM EST
[ Parent ]
Now that's a bit sly o' yer, me duck

You can't be me, I'm taken
by Sven Triloqvist on Sun Sep 10th, 2006 at 05:52:48 PM EST
[ Parent ]
If you want to play with share definition, here are a few things that I would suggest:

  • right now when an individual buy shares indirectly (mutuals funds, retirement invested in stock, ...) two rights are transfered: the right to choose what stock to buy (let's say rightly so) and the right to vote at shareholder meetings. I would cancel this second right: your money manager does the stock picking, but you get to vote.

  • currently to get a dividend from a share, you just buy it at the right date five minute before closing and sell it the next day, you get the same dividend as someone who held the stock for a full quarter/year or more. I would link the dividend paid to a given to the time the holder hold on to the share.
by Laurent GUERBY on Sun Sep 10th, 2006 at 04:34:30 PM EST
[ Parent ]
Especially the first is extremely important. I'll put my thoughts on that together later.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 04:38:00 PM EST
[ Parent ]
Thanks! Ping me if I don't react :)
by Laurent GUERBY on Mon Sep 11th, 2006 at 06:35:54 AM EST
[ Parent ]
As for dividends the effect you are describing it is usually factored in to the price. So the day after the dividend is declared the price drops by an equivalent amount. If the dividend is only a few cents per share the effect may not be noticeable on a volatile stock.

Most bonds are traded so that interest is figured daily and the buyer has to pay the seller the proportionate amount of accrued interest which they get back along with the interest from the rest of the period at the next payment date.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sun Sep 10th, 2006 at 04:56:00 PM EST
[ Parent ]
The point was to encourage long term ownership. BTW I did an article in french on the  dividend ex date arbitrage
by Laurent GUERBY on Mon Sep 11th, 2006 at 02:53:15 AM EST
[ Parent ]
tangentially related, but why shouldn't capital gains be treated just like any other income, with inflation indexing to make sure you don't penalize long term investors.
by MarekNYC on Sun Sep 10th, 2006 at 04:50:56 PM EST
Wouldn't taxing capital gains like wage income be an improvement already?

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 04:54:50 PM EST
[ Parent ]
that's what I meant to say
by MarekNYC on Sun Sep 10th, 2006 at 04:59:00 PM EST
[ Parent ]
Deliberately limiting volatility by adding time and/or volume constraints to trading isn't a new idea. (Even I've thought of it, and I'm not an economist.)

Keynes is right of course - what we have now isn't investment, it's gambling.

But there are two problems. One is obvious, and political - the people who benefit from the current system won't be happy about having it changed. And the change would have to be international, which might be a little tricky to organise.

The other problem is that once you start trading ever more abstract instruments, the idea of 'shares' becomes less relevant. So you'd have to limit, or at least manage, or possibly eliminate derivatives and other more obscure kinds of financial dealings - at least for certain kinds of trading.

The basic question that Keynes doesn't answer - perhaps he does elsewhere - is who is economics for?

The answer today would be 'corporations' - which is why it's taken as axiomatic that 'reform is good.' There's lip service paid to nonsense ideas like trickle-down. And most people seem to have realised by now that it's just self-serving nonsense.

The answer thirty or forty years ago would have had a much more populist and socially responsible slant.

If you can't agree on what you're trying to achieve politically and economically, there's little point arguing about theories, means and ends.

And economics is in a laughable state today because no one officially and explicitly tackles the question of who economics is supposed to be for.

Instead, most statements come with an implied populist or (more often) corporatist bias.

Those biases are currently in conflict, by definition. It's impossible for economics that benefits one group to make rational sense in terms the other group can understand.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Sun Sep 10th, 2006 at 05:37:21 PM EST
In your populist v. corporatist dichotomy, Keynes reads definitely populist. He's always talking about the "social purpose" of things.

Nothing is 'mere'. — Richard P. Feynman
by Migeru (migeru at eurotrib dot com) on Sun Sep 10th, 2006 at 05:40:51 PM EST
[ Parent ]


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