exclusive concentration on the individual’s mind which tends to leave no
room for any conclusions.
The above analysis can also be seen as an alternative to traditional
concepts of supply and demand. Instead of two different functions
relating the same two variables we have only one function. The supply
(offer) and the demand are exogenous quantities. We have assumed
implicitly that the amount of bonds is given and invariable. The new
entrant into the market who brings in a new demand or a new supply must
therefore indirectly find the necessary adjustment in the quantity of the
no-bonds, that is money, which is assumed to adjust automatically in
Kaldorian fashion.
Let us discuss now an assumption which is crucial for the preceding
considerations, namely the independence of the various participants’
expectations. When this assumption does not hold any more even
approximately there will be no steady state. The essence of the situation
is the assymetry which makes of one person the imitator and of the other
the imitated or opinion leader. There will be clusters of expectations
round an opinion leader. These clusters usually will be unstable as
opinion shifts to new leaders. Thise is an uncertainty of the second
kind, the variety of possible clusters of opinibn and the frequency of
shifts between them. If the imitation concentratse and leads to
agglomerations in one or another direction, the market will become
bearish or bullish as the case may be. There may also be a two humped
frequency distribution and the prevailing opinion may switch in the
course of time between these extremes (one thinks of the behaviour of the
dollar). The most extreme loss of independence occurs in a crash. Here
one opinion has come to dominate and the other condition for steady
state, the existence of a belief in certain limits or standards has also
disappeared.
This brief note has made use, without quotation, of elements which are
well known from the writings of creative economists like Keynes or
Schumpeter. My point is that these elements would fit in very well with
the type of stochastic approach which aims at objective and social
concepts instead of a psychological and subjective treatment of
expectation and uncertainty. I think that ultimately an analysis along
these lines will lead to a new understanding not only of speculative
markets but perhaps of the market as such which has been identified all
too long with a cliche.