fortunes are made and disappear, sometimes within a few hours because of stock prices. Would they be a viable way to raise capital in a free market?
Owning a piece of paper entitles you to what exactly? The opportunity to sell that piece of paper to someone else for a higher price? That sounds like a free market transaction. Yet, my gut tells me this wouldn’t exist in a free market. Is that correct?
limitgov: “Would they (stocks) be a viable way to raise capital in a free market?”
If by “capital” you mean a business selling paper (stock certificates) in exchange for cash, then yes, the stock market is a great way to raise capital. But it sounds like your referring to something entirely different, ie, buying stocks as a personal investment.
limitgov: "Owning a piece of paper entitles you to what exactly? "
An ownership interest in the business, a claim to profits, ie, the “dividend”. Decades ago, you would buy a stock because of the dividend it paid. Dividends, I’ve read in various places, used to pay about 6% on average until about 1980. But dividends have been out of favor since then when DC and Wall Street sold the public on the “401k”. Dividends became passe, growth became the name of the game. The Fed fueled the boom / bust cycle, and there you go; lose your investment, lose the equity in your home, lose your job, apply for government benefits, become a ward of the state, riot when things to awry.
limitgov: “Yet, my gut tells me this wouldn’t exist in a free market. Is that correct?”
Selling pieces of paper to someone else at higher, or lower, prices would exist in an unhampered market. What would not exist is the SEC, which causes all kinds of problems for investors. Transparency would be far better without government intervention.
You’re conflating two seperate things: 1) buying an investment in a company 2) speculating on the price of investments.
Both arose on the free of interference, so how could not exist?
Is day trading more common place during a boom then a bust? No doubt.
Of course stocks would exist and of course they’d be a viable way to raise capital. Stocks are a creation of the free market. Why wouldn’t they exist?
i don tknow how stocks work exactly.
would they essentially be micro-loans to large business for additional investments providing a hoped for return wiht interest to the investors???
could thosuands of these micro loans take place???
“Selling pieces of paper to someone else at higher, or lower, prices would exist in an unhampered market.”
probably selling pieces of paper and the items that the paper says one has claim to. a value-portion of the company.
"Transparency would be far better without government intervention. "
Thank you for the reply…can you elaborate on that please…
thank you
“Of course stocks would exist and of course they’d be a viable way to raise capital. Stocks are a creation of the free market. Why wouldn’t they exist?”
well, in a free market…would limited liability work the same way…if not would people still buy stocks?
They’re not micro-loans. They’re like micro-ownership. You own a tiny “share” of a company. So you may own like 1/(10^6)% of a company. Your share gains more or less value depending on how that company does.
For an Austrian, free-market look at the stock market, I highly recommend the remarkable elucidations in Fritz Machlup’s The Stock Market, Credit, and Capital Formation.
I wish you would elaborate on why you don’t think stocks would be a viable way to raise money in a free market. My intuition tells me exactly the opposite.
The stock market is a way to raise money, not capital. Money is not capital. Most people think that the stock market is just a casino trading platform. In fact, issuing stocks began as an alternative to borrowing and from this the market in those stocks was born.
“well, in a free market…would limited liability work the same way…if not would people still buy stocks?”
It’s like asking if airbags would work the same way if government hadn’t mandated it. Airbags would exist if consumers demanded them. The same goes for stocks and “limited liability”. Investors will get whatever they demand.
“I wish you would elaborate on why you don’t think stocks would be a viable way to raise money in a free market. My intuition tells me exactly the opposite.”
so if stocks existed in a free market…do you think it would operate pretty similar?
do you think there would still be huge booms/busts in a truly free market stock market?