Full text: Capital Gains in Economic Theory and National Accounting

holder on the other hand is predominantly interested in the future 
price of the share, and a fairly near future at that. The long 
term holder will be less prone to flights of imagination and his 
influence will tend to set a limit - up and down - to the price 
the share might have. His influence will tend to be stabilising 
(see Keynes )although this is heavily qualified by the fact that 
he ultimately has no safe knowledge of the future dividend but 
only makes a more or less informed guess. .The short term holder 
is not much interested in the "inner value" of the share but 
rather in the opinions of others about it. As Keynes has so 
brilliantly described his expectations are based on the 
expectations of others and his influence is therefore basically 
destabilising ( General Theory p. ). That his influence is of 
decisive importance on the actual movements of stock prices is 
shown by experience. 
The instability takes the form of cycles. When optimistic 
expectations lead to an increase in asset value this tends to be 
extrapolated and the value continues to increase. If this is not 
justified ex post by a corresponding increase in the "inner value" 
of the share then the ratio of the actual dividend to the value 
will decline until at a certain point it becomes too low for 
investors who refuse to believe in a further increase of the asset 
value. Once the increase in asset values stops and the total 
return on the share is confined to the dividend there has needs to 
be a decline in asset values as a consequence of the low 
return.The market then collapses. Such a self-destructive boom may 
also be engendered by cyclical changes in the rate of interest. A 
decline in the rate of interest will drive up the value of shares 
- note that the short term holders or speculators finance their

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