To the novice investor, the stock market and the real
economy of the production of goods and services never meet. That is certainly to the mainstream
economist for whom the stock market is a casino. But according to
the great Austrian economist Ludwig Lachmann, the structure of production and the structure of a portfolio of securities
are closely related: “To understand how
the two spheres of action interact is to understand how a market economy
works.”[1]
I guess that’s why mainstream economists don’t understand how a market economy
works.
Here are excerpts from Lachmann’s Capital and Its Structure on how the stock market directs the real
economy through cash flows determined by capital gains and losses:
