Ok, so this was already asked by another person but I wasn't very satisfied with the answer. Anyways, does the decision to invest in a stock via the secondary market lead to an increase in saving? i.e., does saving via the secondary stock market, ceteris paribus, lead to a lengthening of the production structure?
As far as I can tell, saving via the secondary market does not necessitate an increase in saving or a lengthened structure because the person whom you purchase your stock from may use the present goods you have given them for consumption purposes.
Wondering if others have feedback or input related to this, e.g., the role of the stock market, etc.
I thought the role of the stock market was to share profits in the form of dividends and provide capital for upstart businesses that you believe will be successful.
Those companies that spend their capital infusions on consumption will probably fail or at the very least be valued less.
Forsmant: I thought the role of the stock market was to share profits in the form of dividends and provide capital for upstart businesses that you believe will be successful. Those companies that spend their capital infusions on consumption will probably fail or at the very least be valued less.
Yeah but I'm talking about the secondary market and it's role.
An ipo necessarily results in a lengthening of the prod. structure.
The sole role of the secondary market is to allow investors to easily quit or enter business.
Suppose a company issued stocks on the primary market. If there was no secondary market, investors wouldn't be able to quit their investment in that company unless the company actually returned their money back. But companies generally can't or won't do that, because that would reduce their capital (which is probably invested, kept as reserve etc.). This would keep many potential investors away because it would make investment a final, hard decision to make.
So, on a secondary market, those willing to invest buy from those which want to quit (the sellers).
Eduard - Gabriel Munteanu: The sole role of the secondary market is to allow investors to easily quit or enter business. Suppose a company issued stocks on the primary market. If there was no secondary market, investors wouldn't be able to quit their investment in that company unless the company actually returned their money back. But companies generally can't or won't do that, because that would reduce their capital (which is probably invested, kept as reserve etc.). This would keep many potential investors away because it would make investment a final, hard decision to make. So, on a secondary market, those willing to invest buy from those which want to quit (the sellers).
I wouldn't say it's the sole role. The bidding up and down of stock prices allows for potentially new investors to know whether their savings will be well spent. It's an allocation mechanism.
If a buy a stock of a company, it raises the price of that stock. The company can then sell some of its stocks for more than it would otherwise, and use that money to raise capital.
So yes, stock markets are key to lengthening the productive structure.
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krazy kaju: If a buy a stock of a company, it raises the price of that stock. The company can then sell some of its stocks for more than it would otherwise, and use that money to raise capital. So yes, stock markets are key to lengthening the productive structure.
But the 'company' is the stockholders. Are you assuming that the manager or ceo of the company has stock, sells it, and then puts it back into the company? Or that the board of directors, elected or made up of stockholders, decides to issue new stock at a price higher than the previous par value?
All I'm trying to clear up is that buying a stock in the secondary market doesn't necessitate a lengthening of the structure, it requires additional measures.
edward_1313: Eduard - Gabriel Munteanu: The sole role of the secondary market is to allow investors to easily quit or enter business. Suppose a company issued stocks on the primary market. If there was no secondary market, investors wouldn't be able to quit their investment in that company unless the company actually returned their money back. But companies generally can't or won't do that, because that would reduce their capital (which is probably invested, kept as reserve etc.). This would keep many potential investors away because it would make investment a final, hard decision to make. So, on a secondary market, those willing to invest buy from those which want to quit (the sellers). I wouldn't say it's the sole role. The bidding up and down of stock prices allows for potentially new investors to know whether their savings will be well spent. It's an allocation mechanism.
I was referring to the reason why the secondary market was set up in the first place. Of course being a market allows for price discovery, but this is the case with all markets.
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