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Has Fritz Machlup Stood the Test of Time? Revisiting his Monetary Analysis of the Stock Market☆A version of this paper was presented at the third biennial Wirth Institute Workshop on Austrian Economics held in Lake Louise, Alberta, Canada, September 14–15, 2012

In: Entangled Political Economy

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  • George Bragues

Abstract

It has often been alleged that the financial markets, with all their speculative excesses, wastefully absorb resources that could be better employed in the real economy. Fritz Machlup, originally a student of Ludwig von Mises, dealt with that charge in the aftermath of the 1929 crash. His defense of the stock market remains germane to our time. In it, he argues that the stock exchange offers an important alternative mechanism of allocating savings to investment, while generally being a way station through which money travels on its way to the real economy either to finance capital projects or to be spent on consumer goods. To the extent the stock market ever absorbs capital, it is only during stock market booms. Yet these are generated by the uncertain course of central bank monetary expansion. Bull and bear markets cycles are, at bottom, politically driven events.

Suggested Citation

  • George Bragues, 2014. "Has Fritz Machlup Stood the Test of Time? Revisiting his Monetary Analysis of the Stock Market☆A version of this paper was presented at the third biennial Wirth Institute Workshop on Austrian Economic," Advances in Austrian Economics, in: Entangled Political Economy, volume 18, pages 139-160, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aaeczz:s1529-213420140000018007
    DOI: 10.1108/S1529-213420140000018007
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    References listed on IDEAS

    as
    1. Terrence Hendershott & Charles M. Jones & Albert J. Menkveld, 2011. "Does Algorithmic Trading Improve Liquidity?," Journal of Finance, American Finance Association, vol. 66(1), pages 1-33, February.
    2. Delong J. Bradford, 2008. "Stocks for the Long Run," The Economists' Voice, De Gruyter, vol. 5(7), pages 1-2, November.
    3. Harold Barger, 1935. "The Banks and the Stock Market," Journal of Political Economy, University of Chicago Press, vol. 43, pages 763-763.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Stock market; monetary policy; credit; central banks; capital; business cycles; B22; B31; E32; E42; E44; E50; E58; G10; G12; N20;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B31 - Schools of Economic Thought and Methodology - - History of Economic Thought: Individuals - - - Individuals
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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