Ted wrote: > It depends on what's meant by "correctly", doesn't it? > > If "financial markets always price assets correctly" means that > "prices on traded assets, e.g., stocks, bonds, or property, already > reflect all known information", what's the problem?
I don't think so. One thing is (informational) *efficiency* and another thing is *correctness*. That asset prices incorporate all available information means that the prices (or, rather, the processing mechanism that churns out those prices) is efficient. Whether an efficient (or efficiently generated) price turns out to be correct or not is something that can only be established ex post. This, of course, leads to the key question splitting Keynesians from Classicals: Do correct asset prices exist independently of the pricing mechanism itself (financial markets)? Keynes (GT, 12) argues compelling that they don't. I say it doesn't matter. I'm not moved by Keynes appeal to convention (the ergodic assumption). It's a deux ex machina. Where do conventions come from? Do they adjust over time? If they do, how? Just to spell out a bit more of what is on my mind: the Bayesian interpretation of uncertainty is broad enough to incorporate Keynesian conventions as elements in a probability space and -- thus -- define fairly operational statistical procedures to update the Keynesian conventions. By appealing to convention, Keynes admits that the self-referential character of social uncertainty (what Soros calls "reflexivity") doesn't sink people into nihilism and paralysis. At least not all people all the time. For the most part, most people still lead their lives and make their choices. In this sense, I'd say, the subjective interpretation of probability is explicitly Hegelian and Marxian. Next I will say something that, essentially, I've been telling my friends since the spring of 1985: (c) 1985 Julio Huato At least some of the confusion in the Classical-Keynesian debate comes from the fact that economists on both sides don't make the sustained effort that the Greek sophists (and Marx) tried to make to sort out the layering of "nature" (production of use values, concrete labor, etc.) and "convention" (production of values, abstract labor, etc.) in social life. [The reference to the Greek sophists I owe to Gerald Cohen's book on Marx's theory of history.] Of course, in social life, "nature" is always cloaked under social "convention." We humanize nature. The converse is also true: Behind every social "convention" there's always some force or fact of "nature," however the latter may appear disfigured in the former and however the latter may be used to justify the former politically. E.g. gender oppression vs. genetic sex differences, racial oppression vs. ethnic differences, surplus value vs. surplus labor, etc. If the economists didn't have their stereotypical ideological blinders, they'd notice that the self-corrective feature that the Classicals attribute to markets (and that Keynesians ardently question or deem too costly socially to simply behold, since correction = crisis) is ultimately a particular manifestation of the very mechanism that snaps back into alignment a legal/political superstructure with the underlying economic structure, or an economic structure with the state of the productive force of labor, or social life with the evolution of nature, etc. Society's self-corrective mechanism seems to have worked in a sufficient number of historical cases to lead us where we are at now. Yes, with terribly long delays and at huge human costs. It's the mechanism of crises, social struggles, and social revolutions. A mechanism that lies at the very center of that social activity we call production, driven by that purposeful human process we call labor. The history of the last two centuries, the history of modern capitalism and of its socialist challenge, is the history of the acceleration of this self-corrective mechanism. It's now much faster and effective, which also means that it's much more destructive and dangerous. That's why I'm optimistic. That the speed of the social self-corrective mechanism tends to increase over time simply means that people tend to become more human, less able or willing to accept the status quo, less able and willing to take shit. Partly, this mechanism will continue to play out through markets, because the historical life cycle of markets is far from having ended yet, in spite of the current crisis. But the most important lesson in all this is that we should do our part to make that mechanism work even better, so that we bring about the necessary realignments sooner rather than later. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
