Question

In: Economics

Explain/expand on what Keynes means by the terms speculation and enterprise (read the articleI) (copied and...

Explain/expand on what Keynes means by the terms speculation and enterprise (read the articleI) (copied and pasted below) Its a discussion board post,

These considerations should not lie beyond the purview of the economist. But they must be relegated to their right perspective. If I may be allowed to appropriate the term speculation for the activity of forecasting the psychology of the market, and the term enterprise for the activity of forecasting the prospective yield of assets over their whole life,(please dont just copy and paste this part) it is by no means always the case that speculation predominates over enterprise. As the organisation of investment markets improves, the risk of the predominance of speculation does, however, increase. In one of the greatest investment markets in the world, namely, New York, the influence of speculation (in the above sense) is enormous. Even outside the field of finance, Americans are apt to be unduly interested in discovering what average opinion believes average opinion to be; and this national weakness finds its nemesis in the stock market. It is rare, one is told, for an American to invest, as many Englishmen still do, “for income”; and he will not readily purchase an investment except in the hope of capital appreciation. This is only another way of saying that, when he purchases an investment, the American is attaching his hopes, not so much to its prospective yield, as to a favourable change in the conventional basis of valuation, i.e. that he is, in the above sense, a speculator. Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. The measure of success attained by Wall Street, regarded as an institution of which the proper social purpose is to direct new investment into the most profitable channels in terms of future yield, cannot be claimed as one of the outstanding triumphs of laissez-faire capitalism — which is not surprising, if I am right in thinking that the best brains of Wall Street have been in fact directed towards a different object.

These tendencies are a scarcely avoidable outcome of our having successfully organised “liquid” investment markets. It is usually agreed that casinos should, in the public interest, be inaccessible and expensive. And perhaps the same is true of Stock Exchanges. That the sins of the London Stock Exchange are less than those of Wall Street may be due, not so much to differences in national character, as to the fact that to the average Englishman Throgmorton Street is, compared with Wall Street to the average American, inaccessible and very expensive. The jobber’s “turn”, the high brokerage charges and the heavy transfer tax payable to the Exchequer, which attend dealings on the London Stock Exchange, sufficiently diminish the liquidity of the market (although the practice of fortnightly accounts operates the other way) to rule out a large proportion of the transactions characteristic of Wall Street.[5] The introduction of a substantial Government transfer tax on all transactions might prove the most serviceable reform available, with a view to mitigating the predominance of speculation over enterprise in the United States.

The spectacle of modern investment markets has sometimes moved me towards the conclusion that to make the purchase of an investment permanent and indissoluble, like marriage, except by reason of death or other grave cause, might be a useful remedy for our contemporary evils. For this would force the investor to direct his mind to the long-term prospects and to those only. But a little consideration of this expedient brings us up against a dilemma, and shows us how the liquidity of investment markets often facilitates, though it sometimes impedes, the course of new investment. For the fact that each individual investor flatters himself that his commitment is “liquid” (though this cannot be true for all investors collectively) calms his nerves and makes him much more willing to run a risk. If individual purchases of investments were rendered illiquid, this might seriously impede new investment, so long as alternative ways in which to hold his savings are available to the individual. This is the dilemma. So long as it is open to the individual to employ his wealth in hoarding or lending money, the alternative of purchasing actual capital assets cannot be rendered sufficiently attractive (especially to the man who does not manage the capital assets and knows very little about them), except by organising markets wherein these assets can be easily realised for money.

The only radical cure for the crises of confidence which afflict the economic life of the modern world would be to allow the individual no choice between consuming his income and ordering the production of the specific capital-asset which, even though it be on precarious evidence, impresses him as the most promising investment available to him. It might be that, at times when he was more than usually assailed by doubts concerning the future, he would turn in his perplexity towards more consumption and less new investment. But that would avoid the disastrous, cumulative and far-reaching repercussions of its being open to him, when thus assailed by doubts, to spend his income neither on the one nor on the other.

Those who have emphasised the social dangers of the hoarding of money have, of course, had something similar to the above in mind. But they have overlooked the possibility that the phenomenon can occur without any change, or at least any commensurate change, in the hoarding of money.

Solutions

Expert Solution

Speculation in terms of Keynes is basically having a future sight and trying to understand about how the market will perform. As clear from the meaning, a person would speculate the economic activities for the purpose of earning higher returns in the future. If a person is able to speculate well, then he will have higher and great yields in the future.

Enterprise in the words of Keynes is making idea and predictions about how much a particular asset in its entire life will yield an investor. This will help an investor to judge whether to make that particular investment or not. If the predicted yields are better than the cost of the asset, then the asset should be bought otherwise not.

Both these terms hold great importance in the market and help investors to know whether the conditions are favourable for investment or not. If the predictions in both cases are made right by the investors, they can end up having great returns.


Related Solutions

Explain what it means to have autocorrelated error terms.
Explain what it means to have autocorrelated error terms.
Explain in terms of tangent lines what it means for a function (x) to be differentiable...
Explain in terms of tangent lines what it means for a function (x) to be differentiable at a point x=c
5. The bacterium Salmonella typhimurium is a facultative aerobe. a. Explain what this means in terms...
5. The bacterium Salmonella typhimurium is a facultative aerobe. a. Explain what this means in terms of its growth requirements. b. If you could mutate just one gene in the genome to convert it to a strict anaerobe, which protein would you eliminate? There is more than one correct answer, so please explain why.
For three of the four terms listed below, explain what the term means and how it...
For three of the four terms listed below, explain what the term means and how it matters in European economic history. The points indicate that you should give five minutes to each of these questions. In most cases, a two-three sentence answer is fine. (5 points each) (1) Comparative advantage (2) Siemens-Martin process (3) Eminent domain (4) Solow residual
For the seven terms listed below, explain what the term means and how it matters in...
For the seven terms listed below, explain what the term means and how it matters in European economic history. In most cases, a three-sentence explanation answer is fine. Increasing returns to scale Economies of scope Financial leverage Backward linkages Redundant tariff Conacre Clogs to clogs in three generations
Economies are not stagnant; they expand and they contract. Please explain each of the terms with...
Economies are not stagnant; they expand and they contract. Please explain each of the terms with example.
Ubiquity: Explain what ubiquity means in terms of electronic commerce, commenting on the difficulty or ease...
Ubiquity: Explain what ubiquity means in terms of electronic commerce, commenting on the difficulty or ease with which different types of customers (nationality, age, education level, occupation, English proficiency, with kids or grandkids or with tech-savvy friends, and many other factors that YOU the MIS students will think of) ……will adopt to e-commerce as part of their natural behaviours (also including mobile commerce) and…. For buying what types of products or services will they adopt e-commerce more ubiquitously ? Banking...
Please read the Mintzberg (1978) article and briefly explain what he means by strategy. Does his...
Please read the Mintzberg (1978) article and briefly explain what he means by strategy. Does his meaning or understanding of the word match how it used commonly in business and military affairs - among other areas?
Descibe in a couple paragraphs what it means to be "Beneficial Owner" is, in terms of...
Descibe in a couple paragraphs what it means to be "Beneficial Owner" is, in terms of SEC Rule 13d-3 and 16a-1. Why is it important to identify "Beneficial Owners," what is the meaning of it in terms of investing in companies that have "Beneficial Owners?"
Explain Boyle's Law in terms of the kinetic molecular theory. Decreasing the volume means that there...
Explain Boyle's Law in terms of the kinetic molecular theory. Decreasing the volume means that there are less gas molecules in the container, which increases pressure. Decreasing the volume means that at any one instant less molecules will collide with the walls of the container, which increases pressure. Decreasing the volume means that at any one instant more molecules will collide with the walls of the container, which increases pressure. Decreasing the volume means that there are more gas molecules...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT