An Examination of Critical Theories of Finance from Adam Smith to the Present Day
The macroeconomic consequences of finance are a neglected part of financial economics. This may be in part because the professional duty of central bank economists condemns them to measuring the efficacy of monetary policy, and that of economists employed in banks and financial institutions condemns them, at worst, to advertising their employers’ wares and, at best, to projecting asset prices, calculating optimal portfolios, and anticipating the policy of the central bank. Such neglect comes in spite of the domination of the markets by large collective investing institutions (pension funds, insurance companies and investment funds) that has emerged in the second half of the twentieth century. Although such institutions are more amenable to study than individual investors, their activities in many cases have shown that their bureaucratic rationality in the face of their ignorance is little advanced on that which Keynes criticised 75 years ago: The ignorance of even the best-informed investor about the more remote future is much greater than his knowledge, and he cannot but be influenced to a degree which would seem wildly disproportionate to anyone who really knew the future, and be forced to seek a clue mainly here to trends further ahead. But if this is true of the best-informed, the vast majority of those who are concerned with the buying and selling of securities know almost nothing whatever about what they are doing. They do not possess even the rudiments of what is required for a valid judgement, and are the prey of hopes and...