Bill Mitchell, “What is Wall Street For?,” October 5, 2011.The point is that useful types of speculative activity are helpful in real wealth creation because they can reduce uncertainty for certain businesses (a point which nicely complements the theme of my post here). A great deal of other speculative activities that draw money away from purchasing of producible commodities to buying and selling of financial assets and instruments on secondary markets are just casino-style gambling that redistributes money between gamblers, often the super rich and rich. The creation of debt-financed asset bubbles that collapse and cause debt deflationary depressions, downturns or stagnation is a disease plaguing modern capitalism. Japan fell victim to the latter in the 1990s, and now the US and Europe have as well. The 2010s may well be the West’s lost decade, unless radical action is taken.
I am also reminded of what Mark Hayes has recently said about the financial sector:
“First of all, Post Keynesians follow Kalecki, Galbraith and Eichner in recognising the well-established empirical evidence about the financing of investment. This is that the vast majority of physical capital formation or accumulation is financed from the internal cash flow of large corporations supplemented to some extent by bank credit lines. The social purpose of the stock market is not to finance new physical investment but to permit transfers of existing assets, including corporate control. Its speculative tendencies are not in fact offset by the benefits for enterprise which Keynes allowed. Industry could function quite well without the equity market, given alternative institutions focused on enterprise rather than speculation. ....
Post Keynesians would, in the words of Winston Churchill, see finance less proud and industry more content. Keynes thought casino banking should be kept expensive and inaccessible. A significant transactions tax going well beyond the current stamp duty should be imposed – a tax on speculation.” Mark Hayes, “The Post Keynesian (Policy) Difference,” 2010.
