From: gts (gts@optexinc.com)
Date: Mon Sep 16 2002 - 16:11:19 MDT
Dan,
re: gum certificates...
For the sake of brevity I did not attempt in my last messages to you to
address your somewhat silly comparison between gum certificates and
stocks.
Like baseball cards or tulips, such things as gum certificates are
classified as "collectibles." The economics of the market for
collectibles (if there can be such an economics) is different from that
of the market for financial assets.
Unlike investments in collectibles, investments in corporations
represent a real interest in the real assets and real profits of real
companies. Unlike collectible items like gum certificates, corporations
really do make profits in this world, measured in dollars and cents and
spendable at your local grocery store.
Despite the fact that intelligence/knowledge/experience can buy no
excess return above the market return, the stockmarket is nevertheless a
good investment in as much as the economy continues to grow over time.
The best investment strategy is "buy and hold," though you are unlikely
to get this advice from a broker who relies on commissions. (Take it
from someone who once relied on commissions before his defection.)
-gts
> -----Original Message-----
> From: owner-extropians@extropy.org
> [mailto:owner-extropians@extropy.org] On Behalf Of Dan Fabulich
> Sent: Friday, September 13, 2002 5:50 PM
> To: extropians@extropy.org
> Subject: RE: What does the stock market supply?
>
>
> 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
>
>
>
>
>
This archive was generated by hypermail 2.1.5 : Sat Nov 02 2002 - 09:17:05 MST