[PEN-L:3808] Re: stock market & investment; reply to henwood

[Ted Schmidt Economics & Finance <SCHMIDTP@xxxxxxxxxxxxxxxxxxxxxx>]

Doug writes in response to C. Niggle:

>They show that neither stock prices nor the issuance of new shares offer
>any significant explanation of the variance in investment, both at the firm
>and aggregate levels. Among other things, it seems yet another nail in the
>coffin of q theory, which played an important role in the GT chap. 12, no?

>Doug

Doug, did you try re-reading chapter 12? If the q theory is supposed to "play
such an important role in the GT," why would the master spend half a paragraph
on it?  As He states, "this factor sometimes facilitates investment but sometimes
adds greatly to the instability of the system."  Keynes is concerned about how
the stock market can affect "The State of Long Term Expectations," the title
of ch. 12, which is a fundamental factor underlying the MEC curve and Investment
determination discussed in the previous chapter (11).

I think it is also pretty obvious that the structure of the economy is significa
ntly different than when Keynes wrote.  There was probably a more significant
connection between the stock market, expectations, and Investment in the
1930s than the 1980s. Has large government led to the "socialization of invest-
ment" reducing the instability of the MEC?

Ted Schmidt