[PEN-L:3797] Re: stock market & investment; reply to henwood

[Christopher Niggle <niggle@xxxxxxxxxxxxxx>]

On Tue, 16 Apr 1996, Doug Henwood wrote:

> The other day, I asked loyal Keynesians to comment on Morck, Shleifer, and
> Vishny's 1990 paper showing the stock market to have little effect on
> investment - a very damaging empirical refutation of JMK's line on the
> malign influence of sentiment on the real world.
>
> That was my second try in the last year or so, and I've received not a
> single response. Either I'm preumptuous in expecting one, or Keynesians
> have no good defense of the Master's thesis - surely one of the more
> important points in the General Theory. I guess I'll have to write in my
> almost-finished Wall Street book that JMK was all wet, and his modern
> followers are too.
>
> Doug
>
> --
>
> Doug Henwood

Doug:  I've not seen the paper you refer to - I'd like to, may I have the
citation? - but off the top of my head, I'd argue that stock market
instability in economies such as the US, in which very few firms finance
investment through the sale of equity shares, might not be very
important.  But in other countries, or in the US in other periods (such
as the 1920s), IF equity shares were important sources of external
finance than instability would be an important factor.  So that it is an
important factor to keep in mind for purposes of interpreting historical
events (the great depression) and for understanding some economies.
How's that sound?  Qualified support for the financial instability
hypothesis.  And also Keynes stressed the importance of long rates of
interest (and bond prices) for investment....not the stock market.

Chris Niggle
Redlands