Keynes on Financial Markets QotD

Keynes is a fascinating writer. Some of his essays are absolutely witty. The General Theory (GT), on the other hand, is a legendarily inscrutable book, subject to almost as much exegetical debate as the work of Marx. But even in GT, Keynes has some brilliant moments. In a discussion of the stock market,* Keynes lambasts investors for caring about liquidity more than about making good investments:

The social object of skilled investment should be to defeat the dark forces of time and ignorance which envelop our future. The actual, private object of the most skilled investment to-day is ‘to beat the gun’, as the Americans so well express it, to outwit the crowd, and to pass the bad, or depreciating, half-crown to the other fellow. (GT, 155)

All of this has happened before, and all of it will happen again…

* A discussion which follows, oddly, a statement of what would later be called the weak efficient markets hypothesis (I think):

We are assuming, in effect, that the existing market valuation, however arrived at, is uniquely correct in relation to our existing knowledge of the facts that will influence the yield of the investment, and that it will only change in proportion to changes in this knowledge… if we can rely on the maintenance of the convention, an investor can legitimately encourage himself with the idea that the only risk he runes is that of a genuine change in the news over the near future…(GT, 152-153)

I’m not yet certain, but it would be fascinating if Keynes’ General Theory was somehow premised on the efficient markets hypothesis that has come to be associated (albeit more in its strong than weak form) with very conservative/anti-government/pro-market economists. Keynes later goes on to talk about speculation at length, and speculative investment overwhelming long-term investment, so I think he was more explaining the potentially reasonable, but practically problematic, convention of looking to market values to assess the value of investments rather than justifying its truth in practice.

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