Primary and Secondary Markets
Levy Economics Institute of Bard College Working Paper No. 741
28 Pages Posted: 16 Dec 2012
Date Written: December 14, 2012
The analytical starting point determines the course of a theoretical investigation and, ultimately, the productiveness of an approach. The classics took production and accumulation as their point of departure; the neoclassics, exchange. Exchange implies behavioral assumptions and notions like rationality, optimization, and equilibrium. It is widely recognized that this approach has led into a cul-de-sac. To change a theory means to change its premises; or, in Keynes’s words, to “throw over” the axioms. The present paper swaps the standard behavioral axioms for structural axioms and applies the latter to the analysis of the emergence of secondary markets from the flow part of the economy. Real and nominal residuals at first give rise to the accumulation of the stock of money and the stock of commodities. These stocks constitute the demand-and-supply side of secondary markets. The pricing in these markets is different from the pricing in the primary markets. Realized appreciation in the secondary markets is different from income or profit. To treat primary and secondary markets alike is therefore a category mistake. Vice versa, to take a set of objective propositions as the analytical starting point yields a comprehensive and consistent theory of market exchange and valuation.
Keywords: New Framework of Concepts, Structure-Centric, Axiom Set, Residuals, Real and Monetary Stocks, Money, Credit, Financial Saving, Nonfinancial Saving, Net Worth, Financial Profit, Nonfinancial Profit, Retained Profit, Appreciation, Wealth
JEL Classification: D40, D50
Suggested Citation: Suggested Citation