Aug

14

Every short position in the market is a postponement of demand for the underlying into the future. If this is true, which seems clear since it cannot be negated, then every long position too should be a postponement of supply into the future.However, the majority of the positions in the market are long (if not leveraged then owned stock) and despite such postponement of supply into the future, prices of equity have multiplied at the fastest pace for over a 100 years. How does this add up? If such a perspective of interpreting longs and shorts was correct then the behavior of equity prices should not have been any different than of commodities etc. in the long run. What is missing?

Over and above the multiplication in value coming by due to re-investment in growth there appears to be another deeper explanation possible. The later one participates in owning the means of production and means of growth and value the more one has to pay for them. Like the insurance policy for a term of 20 years when bought at the age of 35 will cost substantially more than if done at the age of 25 and the same way in which an investor stands to capture more compound if she starts investing earlier in life. At a social level the Capitalist engine of markets seems to be dispensing equitable economic justice.

Those who are undertaking the risks of owning the means of production and the means of creation of growth and value are compensated increasingly by the latter participants. From each according to his capacity, to each according to his needs, as espoused by Lenin is actually thus being played out with genuine alacrity and fairness by the markets. The Socialist focus was on getting income in these ways, while markets have taken care of allocating the means of producing income and sharing of risks too in an equitable way.

So, despite a short position being a source of demand for a financial instrument into the future and despite a long position being the source of supply similarly, the under-ownership of risk as getting more and more evenly distributed is more than compensating for the inverted supply curve in the investment markets.

Could, deep in the unforeseeable future, there be such an even distribution of ownership of means of production per one’s capacity and per one’s needs that the under-ownership premium would then vanish? Is the drift in equity prices over the last 100 years a causation of the human enterprise or is it due to a skewed distribution of the ownership of the human enterprise?


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