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Primary and Secondary Markets

  • Egmont Kakarot-Handtke

The analytical starting point determines the course of a theoretical investigation and, ultimately, the productiveness of an approach. The classics took production and accumulation as their point of departure; the neoclassics, exchange. Exchange implies behavioral assumptions and notions like rationality, optimization, and equilibrium. It is widely recognized that this approach has led into a cul-de-sac. To change a theory means to change its premises; or, in Keynes's words, to "throw over" the axioms. The present paper swaps the standard behavioral axioms for structural axioms and applies the latter to the analysis of the emergence of secondary markets from the flow part of the economy. Real and nominal residuals at first give rise to the accumulation of the stock of money and the stock of commodities. These stocks constitute the demand-and-supply side of secondary markets. The pricing in these markets is different from the pricing in the primary markets. Realized appreciation in the secondary markets is different from income or profit. To treat primary and secondary markets alike is therefore a category mistake. Vice versa, to take a set of objective propositions as the analytical starting point yields a comprehensive and consistent theory of market exchange and valuation.

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Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_741.

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Date of creation: Dec 2012
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Handle: RePEc:lev:wrkpap:wp_741
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  1. Frank Ackerman, 2001. "Still dead after all these years: interpreting the failure of general equilibrium theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 9(2), pages 119-139.
  2. Tobin, James, 1980. "Are New Classical Models Plausible Enough to Guide Policy?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(4), pages 788-99, November.
  3. Kakarot-Handtke, Egmont, 2011. "Keynes’s missing axioms," MPRA Paper 32742, University Library of Munich, Germany, revised 11 Aug 2011.
  4. K. Vela Velupillai, 2004. "The unreasonable ineffectiveness of mathematics in economics," Department of Economics Working Papers 0406, Department of Economics, University of Trento, Italia.
  5. Kakarot-Handtke, Egmont, 2011. "The pure logic of value, profit, interest," MPRA Paper 30853, University Library of Munich, Germany.
  6. Kakarot-Handtke, Egmont, 2011. "Properties of an economy without human beings," MPRA Paper 31497, University Library of Munich, Germany.
  7. Kakarot-Handtke, Egmont, 2011. "Squaring the investment cycle," MPRA Paper 32895, University Library of Munich, Germany.
  8. Keuzenkamp, H.A. & McAleer, M., 1994. "Simplicity, scientific inference and econometric modelling," Discussion Paper 1994-56, Tilburg University, Center for Economic Research.
  9. Stephen F. Le Roy, 2004. "Rational Exuberance," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 783-804, September.
  10. Kakarot-Handtke, Egmont, 2011. "Reconstructing the Quantity Theory (I)," MPRA Paper 32421, University Library of Munich, Germany.
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