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Books > History > History of specific subjects > Economic history
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The Economics of the Stock Market (Hardcover)
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The Economics of the Stock Market (Hardcover)
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The current consensus economic model, the neoclassical synthesis,
depends on aprioristic assumptions that are shown to be invalid
when tested against the data and fails to include finance. Economic
policy based on this consensus has led to the financial crisis of
2008, the 'Great Recession' that followed, and the slow subsequent
rate of growth. In The Economics of the Stock Market, Andrew
Smithers proposes a model that is robust when tested, and by
including the impact of the stock market on the economy, overcomes
both these defects. The faults of the current consensus model are
shown to result typically from an unscientific methodology in which
assumptions are held to be valid despite their incompatibility with
data evidence. Smithers demonstrates examples of these faults: the
Miller/Modigliani Theorem (the assumption that leverage does not
affect the value of produced capital assets); the assumption that
short-term and long-term interest rates, and the cost of equity
capital, are co-determined; and the assumption that the decisions
of corporate managements aim to maximise the present value of
corporate assets ('profit maximisation') rather than the value
determined by the stock market. The Economics of the Stock Market
proposes a model that includes and explains the stationarity of
real returns on equity, based on the interaction of the differing
utility preferences of the managers of companies and the owners of
financial capital. These claims are highly controversial, and
Smithers proposes that the relative merits of the neoclassical
synthesis and this proposed alternative can only be properly
considered through public debate.
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