Keynes, the Brilliant Generalizer of Half-Truths, Is Confused about Short-Term Speculation on the Stock Market

Once again Keynes, the brilliant generalizer of half-truths, has succumbed to the temptation of expressing a paradox at the cost of stating untrue facts and of giving dangerous advice.

Keynes’ reasoning confuses two different things: short-term investment or speculation in investments planned for the long run, and short-term investment or speculation in investments planned for the short run. It is simply not true that an investor, or even a speculator, is not interested in the long-term prospects of, say, a new plant to be installed. On the contrary, any calculation of earnings submitted to investors is based on very long-term estimates indeed. The fact that the more distant future cannot be assessed so clearly never leads to its being neglected. It only results in the attempt to reduce risks by providing for rapid amortization. However much anyone may invest for capital appreciation, he still invests with a view to the long-term earnings. Capital appreciation can ultimately be realized only by sale to an investor who, in his turn, buys the security for the sake of its long-term return.

—L. Albert Hahn, Common Sense Economics (New York: Abelard-Schumann, 1956), 208.

Keynes Thinks Investment Has Become a By-Product of a Gambling Casino So He Wants to Prevent Short-Term Speculation

In a widely known passage of his General Theory, Keynes has drawn from the undoubted dependence of stock market prices upon subjective factors, moods and errors the conclusion that the flow of savings into investments is no longer dictated by long-run expectations of yield, but rather by short-run expectations of stock market gains, particularly in the United States. Thus, he thinks, investment has become the by-product of a gambling casino! Foolish investments were made or reasonable ones omitted depending on whether speculators were pushing up or depressing prices. Keynes recommends as a remedy that the bonds between investor and investment be made as indissoluble as those of marriage, which can be separated only by death or for very important reasons. In other words, Keynes opposes negotiability of investments in securities so as to prevent short-term speculation.

—L. Albert Hahn, Common Sense Economics (New York: Abelard-Schumann, 1956), 207-208.