The Morals of the Marketplace: A Cautionary Essay for Our Time
Abstract
This brief essay explores the economic and social legitimacy of modern financial markets, with particular attention to the relationship between risk and responsibility. Using the markets for corporate common stock and mortgaged-backed securities as illustrations, and modern portfolio theory as its theoretical base, it raises questions about the links between capital markets and the real economy, and their effects upon each other. It concludes that capital markets largely have become disconnected from the real economy and have created a context in which finance finances finance rather than production.
This theoretical essay introduces a larger empirical project in progress in which I am attempting to understand in detail and nuance the relationships between capital markets and the formation of productive capital.