The Economics of the Stock Market

The current consensus economic model, the neoclassical synthesis, is invalid and fails to include finance, leading to the financial crisis of 2008 and the Great Recession. Andrew Smithers proposes a robust model that includes the impact of the stock market on the economy and overcomes these defects. He demonstrates examples of these faults, such as the Miller/Modigliani Theorem and the assumption that short-term and long-term interest rates are co-determined. Smithers proposes that the relative merits of the neoclassical synthesis and this proposed alternative can only be properly considered through public debate.

Format: Hardback
Length: 224 pages
Publication date: 22 March 2022
Publisher: Oxford University Press

The current consensus economic model, known as the neoclassical synthesis, relies on aprioristic assumptions that have been proven invalid when tested against empirical data. This model fails to incorporate finance into its framework, leading to significant consequences. The financial crisis of 2008, the subsequent Great Recession, and the ongoing slow rate of growth can all be attributed to economic policies based on this consensus. In his book, The Economics of the Stock Market, Andrew Smithers presents a model that is robust when tested and addresses these defects. The shortcomings of the current consensus model stem from an unscientific methodology that upholds assumptions despite their incompatibility with data evidence. Smithers provides examples of these faults, including the Miller/Modigliani Theorem, which assumes that leverage has no impact on the value of produced capital assets; the assumption that short-term and long-term interest rates are co-determined; and the belief that corporate management decisions prioritize profit maximization over stock market value determination.

The Economics of the Stock Market proposes a novel model that incorporates and explains the stationarity of real returns on equity. This model is based on the interaction between the differing utility preferences of company managers and the owners of financial capital. While these claims are highly controversial, Smithers suggests that the relative merits of the neoclassical synthesis and this proposed alternative can only be properly evaluated through public debate.

Weight: 480g
Dimension: 175 x 243 x 22 (mm)
ISBN-13: 9780192847096