Michael Perelman wrote:
Keynes lost a bundle before he stopped speculating and began to invest
for the long term.
This isn't true if by "speculating" you mean, as he did, ""the
activity of forecasting the psychology of the market". (VII p. 158)
What he stopped was attempting to do this through "credit cycling."
He abandoned this in favor of what he called an "intrinsic value"
approach. (XII pp. 100-1, 106-9) This wasn't a "long run" approach in
the sense of an abandonment of "speculation," however. The "long run"
is "uncertain" in his radical sense and so can't be rationally
forecast. What isn't uncertain in this sense is the "psychology of
the market." A person able to be rational can, in "speculating" about
it, "run risks of which he is aware."
Thus, in the same context that this change is reported, he claims that
"it is safer to be a speculator than an investor in the sense of the
definition which I once gave the Committee that a speculator is one
who runs risks of which he is aware and an investor is one who runs
risks of which he is unaware." (XII p. 109)
That "speculation" here means "the activity of forecasting the
psychology of the market" is confirmed by his claim, in in a 10 April
1940 letter to F.C. Scott, that
"very few American investors buy any stock for the sake of something
which is going to happen more than six months hence, even though its
probability is exceedingly high; and it is out of taking advantage of
this psychological peculiarity of theirs that most money is
made." (XII, p. 78)
Marx, apparently, was also a successful "speculator" in this sense.
Like Keynes, he assumes that the motives dominant in capitalism are
irrational "passions."
Ted
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