FacebookTwitterGoogle+RedditEmail

John Maynard’s Martingale

As usual in times of economic crises, Keynesian solutions are bandied about, and their supposed influence on Roosevelt’s New Deal is magnified. This fuels the old debate as to whether investment or consumption is best suited for public aid in climbing out of recession. It seems that Keynes has lost once again. The flood-gates of funds have opened for corporations instead of workers. So that the effective result of the alternative will remain a mystery. But, as inflation is the only solution to massive debt, why not get it over with right from the start? Why let things drag on endlessly while redundancies soar?

However, if Keynes became rich, famous and honoured (a peerage), it was less the consequence of his General Theory than of his stock exchange martingale. Having read Marx, and grasped the idea of an average return on capital investments, he realised that it applied to shares and bonds, and made a fortune through a strange twist of history. Marx had explained that capital moves around. And that, in the case of farm land, more productive acres are worth more than less productive ones, and the return on investment tends to balance out. Keynes looked at the varying prices of shares and bonds, and realised that… In fact no one knows how he went about it. But when the price of shares rises, the price of bonds tends to fall, an vice versa. This is due to their two forms of remuneration, dividends and interest. Dividends vary according to profits, and the interest paid is fixed.

$100 shares pay $5 in dividends (5%), and $100 bonds at 5% pay $5. If the dividends double to $10, the price of the shares also has to double ($200) to re-establish a 5% return, while the bonds have to lose half their price ($50) to bring a return of 10%. What would actually happen in such a simple case is that share prices would rise a bit ($133), and bond prices would fall a bit ($67), and the return on both would average out at 7.5%. Alternatively, if the dividends were to drop to $3, share prices would fall to $75, and bond prices would rise to $125, for an average return of 4%.

Of course, the real market was infinitely more complex than that, even when Keynes was piling up his stash. But the trends existed and still do to-day. So, what happens when profits are in free-fall? The price of bonds goes up. But the scale of government borrowing and the way it is financed may turn out to be inflationary. And inflation affects bonds the same as bank notes. So shares may be preferable after all. The world’s stock markets are hesitant and nervous. Prices rise and fall, suddenly and unexplainably. And many, dreaming perhaps of a return to metalism, still believe that gold can save them from the looming debacle. Which just goes to show how little influence Keynesian ideas have had on the general consciousness.

KENNETH COUESBOUC can be reached at: kencouesbouc@yahoo.fr

 

More articles by:

Weekend Edition
December 14, 2018
Friday - Sunday
Andrew Levine
A Tale of Two Cities
Peter Linebaugh
The Significance of The Common Wind
Bruce E. Levine
The Ketamine Chorus: NYT Trumpets New Anti-Suicide Drug
Jeffrey St. Clair
Roaming Charges: Fathers and Sons, Bushes and Bin Ladens
Kathy Deacon
Coffee, Social Stratification and the Retail Sector in a Small Maritime Village
Nick Pemberton
Praise For America’s Second Leading Intellectual
Robert Hunziker
The Yellow Vest Insurgency – What’s Next?
Patrick Cockburn
The Yemeni Dead: Six Times Higher Than Previously Reported
Nick Alexandrov
George H. W. Bush: Another Eulogy
Brian Cloughley
Principles and Morality Versus Cash and Profit? No Contest
Michael F. Duggan
Climate Change and the Limits of Reason
Victor Grossman
Sighs of Relief in Germany
Ron Jacobs
A Propagandist of Privatization
Robert Fantina
What Does Beto Have Against the Palestinians?
Richard Falk – Daniel Falcone
Sartre, Said, Chomsky and the Meaning of the Public Intellectual
Andrew Glikson
Crimes Against the Earth
Robert Fisk
The Parasitic Relationship Between Power and the American Media
Stephen Cooper
When Will Journalism Grapple With the Ethics of Interviewing Mentally Ill Arrestees?
Jill Richardson
A War on Science, Morals and Law
Ron Jacobs
A Propagandist of Privatization
Evaggelos Vallianatos
It’s Not Easy Being Greek
Nomi Prins 
The Inequality Gap on a Planet Growing More Extreme
John W. Whitehead
Know Your Rights or You Will Lose Them
David Swanson
The Abolition of War Requires New Thoughts, Words, and Actions
J.P. Linstroth
Primates Are Us
Bill Willers
The War Against Cash
Jonah Raskin
Doris Lessing: What’s There to Celebrate?
Ralph Nader
Are the New Congressional Progressives Real? Use These Yardsticks to Find Out
Binoy Kampmark
William Blum: Anti-Imperial Advocate
Medea Benjamin – Alice Slater
Green New Deal Advocates Should Address Militarism
John Feffer
Review: Season 2 of Trump Presidency
Rich Whitney
General Motors’ Factories Should Not Be Closed. They Should Be Turned Over to the Workers
Christopher Brauchli
Deported for Christmas
Kerri Kennedy
This Holiday Season, I’m Standing With Migrants
Mel Gurtov
Weaponizing Humanitarian Aid
Thomas Knapp
Lame Duck Shutdown Theater Time: Pride Goeth Before a Wall?
George Wuerthner
The Thrill Bike Threat to the Elkhorn Mountains
Nyla Ali Khan
A Woman’s Selfhood and Her Ability to Act in the Public Domain: Resilience of Nadia Murad
Kollibri terre Sonnenblume
On the Killing of an Ash Tree
Graham Peebles
Britain’s Homeless Crisis
Louis Proyect
America: a Breeding Ground for Maladjustment
Steve Carlson
A Hell of a Time
Dan Corjescu
America and The Last Ship
Jeffrey St. Clair
Booked Up: the 25 Best Books of 2018
David Yearsley
Bikini by Rita, Voice by Anita
FacebookTwitterGoogle+RedditEmail