[PEN-L:3815] Re: Wall Street & real investment.

[JDevine@xxxxxxxxxxxxxxx]

Here's the quote from Keynes that I so cryptically referred to:

"Speculators may do no harm as bubbles on a steady stream of
enterprise. But the position is serious when enterprise becomes
the bubble on a whirlpool of speculation. When the capital
development of the country becomes a by-product of a casino, the
job is likely to be ill-done." JMK, GT, bk. IV, ch. 12, p. 159.

This suggests to me the view that the stock market can affect
real investment only under special circumstances rather than at
all times. Again, this suggests that a study that ignores the
role of special circumstances will misspecify a test of Keynes'
theory and thus not really test it at all.

Doug suggests that in "normal" times, radical or fundamental
uncertainty is largely irrelevant. I think that's consistent with
Keynes, who suggested that people create institutions as a way of
minimizing the role of uncertainty (so that people can settle
down to balancing risk and return). I guess that's part of the
SSA theory (and maybe the Regulation theory), linking up with a
previous discussion. Of course, we shouldn't assume that all
institutions that people create actually minimize the role of
uncertainty.

in pen-l solidarity,

Jim Devine   jdevine@xxxxxxxxxxxxxxx
Econ. Dept., Loyola Marymount Univ.
7900 Loyola Blvd., Los Angeles, CA 90045-8410 USA
310/338-2948 (daytime, during workweek); FAX: 310/338-1950
"Segui il tuo corso, e lascia dir le genti." (Go your own way
and let people talk.) -- K. Marx, paraphrasing Dante A.