From: Dan Fabulich (dfabulich@warpmail.net)
Date: Fri Sep 13 2002 - 16:50:19 MDT
gts wrote:
> Dan,
>
> > I know very well that stocks have no utility value
>
> Okay, good, but you seem still to be seeking a utility value from stock
> ownership that you now agree does not exist.
>
> > For example, you can't eat a hammer, either. But a hammer gives
> > you a capacity that would wouldn't have without it; you can make
> > money with a hammer without selling it. There is a value in *owning*
> > the hammer, even though it's not a utility value.
>
> I'm sorry but that's not correct. The "capacity" of earning money from a
> hammer cannot be separated from its utility as a hammer, as you do
> above.
By "cannot be separated", I should presume you mean "ought not be
separated", because it's trivial to draw a distinction between buying
goods that give a person happiness (utility, as the utilitarians call it)
and buying goods that, by owning them, give a person access to other goods
(like a hammer gives me access to the products of carpentry).
Now, maybe you're saying that I OUGHT to treat these as the same kind of
thing, because there's no relevant difference between them. I would
disagree with this claim, but you could make it. But I think you must
admit that they *can* be separated, and not just in principle.
Cakes are different from hammers, call the distinction what you will.
[I'll charge that even the economists call the latter "capital", and that
the hammer has the characteristic I've described in common with stocks.
Factories and other infrastructure also share this characteristic with
hammers. But I don't care if you disagree with me about what "capital"
means. It's purely semantic; the argument would have no substance.]
Stocks have this characteristic X of allowing you to acquire more goods if
you own them, that is also had by hammers, machines and infrastructure.
*It is because of this characteristic that stocks are valuable.*
If it didn't have this characteristic, then stocks wouldn't be bought and
sold in the first place. *The buying and selling cannot stand in for this
characteristic.* The market merely makes this characteristic liquid.
I know that it doesn't make people happy to own stocks (well, most people,
anyway), any more than it makes most people happy to own hammers. But
since stocks obviously aren't like cakes, then if they weren't like
hammers, if they didn't at least have that characteristic X, they would be
worthless. There would be no point in having a liquid market for stocks,
because the buyer would get nothing but a useless certificate from the
sale.
---------------
By discriminating between cakes and hammers, you can explain to
non-experts the difference between the stock market and a pyramid scheme
or mass delusion.
Look around you! A *lot* of people can't tell the difference, and it's
because not only do you use an obfuscatory language to describe it, *you
refuse to translate that language into any other language*.
Let's show why your language is obfuscatory. Suppose there *were* a
market for chewed gum certificates, given out by banks. Suppose that the
only reason there was such a market is because people falsely believed
that these certificates would have value to *somebody else* (but no one
knew who). That would be a mass delusion of experts; certificates could
be bought and sold on a whim and on a fad, because nothing was being
supplied but expected demand. Suppose as well that it was a fad to buy
gum certificates if the bank that made them had a lot of assets, but you'd
never actually get any of those assets. People could make millions,
depending on this fad, to make bets on banks assets.
Someone in this market (say, a gum broker) could make exactly the same
arguments in favor of the gum market that you've made for the stock
market. "What's the value of ownership of gum certificates?" I might ask.
> The problem comes from your limited definition of "value." You limit
> your definition to what is known in economics as "utility value." It is
> true that there is no *utility* value in owning [gum certificates] (one
> cannot for example drive or eat a [gum] certificate) but the
> [certificate] is nevertheless valuable to the owner for investment
> purposes.
But why would gum certificates be valuable for investment purposes? Who
would buy something so obviously useless? "Capital appreciation," the gum
broker might tell me.
But what is he saying? He's saying that I'd want to buy gum because the
*price would rise*. But the price would only rise because *other people
wanted to buy gum*. But they, in turn, would only buy gum because *they*
thought the price would rise, because, they must imagine, even more people
would want to buy gum.
At the end of the day, it would connect back to nothing. But my deluded
broker might say this:
> Everything you say about the vagaries of the gum market is true. People
> have different perceptions about the future, and different perceptions
> of the perceptions that others have about the future, etc. And these
> differing perceptions drive prices. But as you also imply at the end of
> your message, in the passage quoted above, there must be something real
> underlying the subjective house of cards.
> As I've been saying, the objective reality behind all the subjective
> perceptions is *real [bank assets]*.
> Real people own real [banks that have real assets]. Those real people
> can then spend their real profits on real goods and services, or they
> can re-invest their real [assets] into more real [banks] to make more
> real [assets].
> The rest is all smoke and mirrors.
Of course, what my gum broker would be ignoring is that the price of gum
certificates really has nothing to do with the bank's assets; it's only
just a fad that anyone buys gum when the bank has more assets; nobody can
actually touch the bank's assets just because they have more of that
bank's gum certificates. But the broker could, and would, make exactly
the same argument you've made for stocks.
The explanation, what's missing from the broker's argument, is how you
could get any money from *owning* the gum certificate. There IS an answer
in the case of stocks: people who own stock in a firm have the capacity to
demand that the firm give them some or all of the firm's earnings/assets
(even if they never do so, instead choosing to sell stock when they want
cash). In the case of gum certificates, there would be no answer.
Your arguments don't show the distinction between the gum certificates and
the stock certificates. The way to fix on that distinction is by focusing
on the value of ownership, which is not a confused or confusing notion,
but rather the most fundamental way to explain markets.
We buy things to make us happy, or because the things will give us better
access to other things to make us happy. Cakes do the former; stocks and
hammers do the latter. Gum certificates do neither. That's the
difference, and the answer to my question.
-Dan
-unless you love someone-
-nothing else makes any sense-
e.e. cummings
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