Economic decisions often are unreasonably based on what the stock markets do. The problem is not the stock markets themselves but on the mythology surrounding them. We must cut through this mythology to make people aware that the stock markets do not play the role we are led to believe they do. Then we must use this knowledge to prohibit their undue influence on the basic economy. Instead, we must base our economic decisions on the mixturist philosophy of proper utilization of people and natural resources and a balanced money supply.
To more fully understand this, let’s take a realistic look at how stock markets function. The rise and fall of the stock market is essential for the stock market to work at all. If prices continually decline, no one would buy stock. If stock prices continually
increase, people would put all their money in the stock market, which would bankrupt the rest of the economy.
The economic effect of the rise and fall of the stock markets is a misconception and is, in fact, just the opposite of what people are told. Most of the hundreds of stocks that are listed on the New York Stock Exchange, NASDAQ and the American Exchange are not new stock issues. Most of them have been on the stock
exchanges for years. When a new stock is issued to raise money to start a new company, it has a very positive effect on the economy by creating new jobs which
produce more goods and services — the real wealth of a nation. What a stock sells for after the initial sale has no positive effect on the economy unless it sells for less. When the price of old stock drops, it takes fewer dollars to pay for the same stock certificate; therefore making more dollars available to purchase other items. If the price of an old stock goes up, it merely takes more dollars out of the economy to purchase
the same stock certificate. This has the same destroying effect on the money supply as inflation.
The up and down cycles of the stock markets are made to work by the people who have seats on the stock exchanges, program buyers, and by institutional managers
of many different kinds of pension, money-market , and a host of other funds. These people can make the stock market go up or down by selling or buying big blocks
of stocks or by using any kind of psychological or capricious ideas around to justify their actions. Whichever direction the wind blows, the stockbrokers receive their commission. Stockbrokers have the best of both worlds; they get a commission when the stock is purchased and also when the stock is sold.
Whether the stock is selling high or low or whether the stockholder is making money or losing money, the commission is still paid.
No one is suggesting that the stock markets should be done away with, but the real role they play in the economy ought to be understood so that their influence on economic stability is lessened. Whether the stock markets are up or down, the thing that should provide for a healthy, growing economy is an adequate money supply…one which can exchange all the goods and services the highly productive American workers produce.
The stock markets are truly legalized gambling for anyone who buys stock hoping
that the price will increase so they can cash in their winnings. This legalized gambling is a good thing in a capitalistic system, making it possible for stockholders to become millionaires if they play it right; but the true value of any stock is found in the dividend that it pays per share in company earnings.