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> When push comes to shove these things determine the allocation of resources in society. John Bogle, founder of Vanguard and renowned investor, seems to disag

> When push comes to shove these things determine the allocation of resources in society. John Bogle, founder of Vanguard and renowned investor, seems to disagree with you: "The stock market has nothing—n-o-t-h-i-n-g—to do with the allocation of capital. All it means is that if you’re buying General Motors stock, say, someone else is selling it to you. Capital isn’t allocated—the ownership just changes. I may be an investor, you may be a speculator. But no capital goes anywhere. This is basically a closed system. You have new IPOs and whatnot, but they’re very small compared to this vast thing we call a market, which is now around $24 trillion. The allocation of capital? That’s just nonsense." I think you are mixing up the concept of a market economy with a specific kind of market, the "stock" market.

rz2k 10y ago
That sounds like an exaggeration in order to make an unrelated point. Why would people sell equity in their company except for cash, and why would you pay cash for ownership in a company except for the stream of income it represents and the secondary market for that ownership? How come people decided it is illegal to trade ivory from an elephant killed a couple hundred years ago? Was it made illegal to possess child pornography that was already created only because it is morally toxic, or does said consumption also induce demand for additional victims? Even though debt markets have a lot more to do with day to day financing of corporations, equity markets have a great influence on terms. Furthermore, the unavoidable importance of secondary markets for debt and their derivatives can be understood by considering the importance of secondary markets with respect to prices of homes, automobiles, or any other large consumer purchases.
- olalonde 10y ago
  I didn't mean to imply that stock markets were not important, just that "allocating resources" in the sense that parent meant, e.g. "How many people does a company making spoons gets to hire or should we put more of them on webforum moderation ?", being its primary purpose seems like a stretch (except for the occasional new IPO / stockholders' meeting). If anything, venture capital and as you mentioned, debt markets are closer to this idea of allocating resources. My main point really was that the examples parent gave seemed much closer to examples of market economics in general and would hold true, with or without stock markets.
  - rz2k 10y ago
    I can see the limitations in equating stock price directly with GM retooling a factory for a new model year, but it is a far more accurate depiction of what is going on, even if a little abstract, than to say that they have nothing to do with each other and even spelling it out letter by letter. Saying that it is basically a closed system is even more bizarre.
passwordreset 10y ago
John Bogle is either clearly incorrect, or the quotation may be taken out of context and may be unrelated (I don't know); however, the price that the seller sells at is usually not the price that he originally bought at. This difference, specifically the change in dollar value for the same object being sold, is how capital enters and leaves that system. Note that this is specifically about money-capital, and not capital based on other resources -- so if Bogle was talking about some other kind of value, he could easily be correct; although from that quotation alone, it really looks like he's talking about stock-trading money, and even values the market at $24T, so... I'm guessing he just didn't think it all the way through.

rz2k 10y ago

That sounds like an exaggeration in order to make an unrelated point. Why would people sell equity in their company except for cash, and why would you pay cash for ownership in a company except for the stream of income it represents and the secondary market for that ownership? How come people decided it is illegal to trade ivory from an elephant killed a couple hundred years ago? Was it made illegal to possess child pornography that was already created only because it is morally toxic, or does said consumption also induce demand for additional victims? Even though debt markets have a lot more to do with day to day financing of corporations, equity markets have a great influence on terms. Furthermore, the unavoidable importance of secondary markets for debt and their derivatives can be understood by considering the importance of secondary markets with respect to prices of homes, automobiles, or any other large consumer purchases.

olalonde 10y ago
I didn't mean to imply that stock markets were not important, just that "allocating resources" in the sense that parent meant, e.g. "How many people does a company making spoons gets to hire or should we put more of them on webforum moderation ?", being its primary purpose seems like a stretch (except for the occasional new IPO / stockholders' meeting). If anything, venture capital and as you mentioned, debt markets are closer to this idea of allocating resources. My main point really was that the examples parent gave seemed much closer to examples of market economics in general and would hold true, with or without stock markets.
- rz2k 10y ago
  I can see the limitations in equating stock price directly with GM retooling a factory for a new model year, but it is a far more accurate depiction of what is going on, even if a little abstract, than to say that they have nothing to do with each other and even spelling it out letter by letter. Saying that it is basically a closed system is even more bizarre.

passwordreset 10y ago

John Bogle is either clearly incorrect, or the quotation may be taken out of context and may be unrelated (I don't know); however, the price that the seller sells at is usually not the price that he originally bought at. This difference, specifically the change in dollar value for the same object being sold, is how capital enters and leaves that system. Note that this is specifically about money-capital, and not capital based on other resources -- so if Bogle was talking about some other kind of value, he could easily be correct; although from that quotation alone, it really looks like he's talking about stock-trading money, and even values the market at $24T, so... I'm guessing he just didn't think it all the way through.