The Problem of Capital Intensity

Steindl, Josef

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Document type:: Works

Collection:: Josef Steindl Collection

Title:: The Problem of Capital Intensity

Author:: Steindl, Josef

Scope:: Typoskript, 10 Seiten mit handschriftlichen Anmerkungen und Anstreichungen

Year of publication:: 1988

Source material date:: [vermutlich um 1988]

Language:: German English

JEL Classification:: D24 [Production, Cost, Capital, Capital, Total Factor, and Multifactor Productivity, Capacity] D43 [Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection] L11 [Production, Pricing, and Market Structure, Size Distribution of Firms] E23 [Macroeconomics: Production]

Shelfmark:: S/M.58.1

DOI:: https://doi.org/10.48671/nls.js.AC14446161

THE DISPERSION OF EXPECTATIONS IN A SPECULATIVE MARKET. It may be assumed with some plausibility that the participants in a speculative market - for example a market for bonds or for foreign exchange - have different expectations with regard to the future price, or the direction in which prices are going to change. Contrary to some opinions this diversity of expectations is a condition for the attainment and maintenance of equilibrium in these markets. ; it must be fulfilled in order to assure that an additional offer coming from outside will find buyers or that an additional demand coming from outside will will find sellers. A further condition is that there must be a generally accepted idea of a normal price level to which prices ultimately tend to return. This normal price will be a range of prices rather than one single price. Though the estimate of this range of prices may not be uniform either,it is much more uniform than the earlier mentioned price expectations: It must have some basis in objective facts. Thus in the case of a manufactured good there may be some general information about the range of costs. In the case of an exchange rate there is - or at least there used to be - an idea about purchasing power parity or relative cost, although in our times this has obviously become more and more an obscure and irrelevant quantity. In the case of the long term rate of interest there used to be a historical experience that it rarely goes outside a certain range,but again this "basis in fact" has become more and more shaky in view of the violent fluctuations of modern capital markets.The undermining of concepts of normalcy in certain markets has been accompanied by great instability, so that it does not contradict but rather tends to confirm the rule that generally accepted ideas of a standard of normalcy are necessary in order to maintain more or less stable markets. The different expectations of participants in a market could be ordered in the form of a frequency distribution (see figure 1 ).It will be the distribution of expectations in a market according to expected price. In the case of a market in long term bonds let us assume in the first instance that each of the participants has the same amount of financial resources which he can either invest in bonds or hold as cash ( or treasury bills ). We can draw a cumulative distribution function showing the number of people who expect a price equal to or lower than p, say B(p).These people will hold money if the ruling price is p, while all the others, (1 - B(p)), will hold bonds. If now a buyer from outside the market (let us say from abroad) enters the market with the intention of buying a certain amount B of bonds then he will have to offer a higher than the ruling price. The new price p’ will be just high enough to turn a sufficient number of bulls into bears so as to satisfy the additional demand of the outside buyer.The underlying assumption is that the people who expected prices between p and p’ are now, when the price has become p*,still sticking to their belief that prices will not maintain themselves at the new level but go back to the old level again. In other words the underlying beliefs are conservative. This, it appears is a condition for stability. If instead of the implied negative feedback of price movements on expectations ( which acts like a controller ) there is a positive feedback then the price movement whether up or down would never come to a halt.

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