Do modern economies exist only because the populous are willing to believe what they are told?

Question

And if stock-markets around the world were exposed as a case of 'the emporers new clothes', would the whole of western civilisation collapse?

So...for the sake of argument....a website is set-up by a gratuate called 'doodle'.....it provides a search engine to people, and now only a very few years later it is worth billions.
Is it really worth these billions? Or is it's POTENTIAL that excites the market....If it is it's POTENTIAL, then it realy is 'the emporers new clothes'....isn't this the whole basis of the FUTURES market?

Answer 1

In refering to 'modern economys' I am assuming you mean 'service economies'... This is the great experiment of the day. Service economies have no history as far as economics goes.....Economys of the past have needed production of goods to remain balanced and continous...The new economy(service based)theory is finate in its potential by it's nature. These Service economys are cannabalistic in nature as they produce no goods, but feed off of previous benefits of past production....They have no clothes...as we will witness soon.

Answer 2

It's inevitable this will occur, though I don't know that civilization will collapse, or just that society(ies) will change radically. The free market economy, such as it is, is built on the concept of growth. In order for it to exist, people have to be able to invest money and then get more back later. In order to make this happen, companies have to grow, by expanding their markets. Many major corporations are already worldwide operations, and some industries are so highly consolidated that there are only a few left (like in automotive and aerospace). These companies can only grow now into the so-called "emerging markets" of "developing nations". After that, the only growth possible exists in the basic population growth of the planet, or introducing new products and services that weren't there before. But since people have only so much to spend (if anything), then you're still capped by population growth. Companies will not be able to grow sufficiently to pay the returns investors want, and there you go, free market economy crashes. Or at least that's my own personal musing on the topic.

Or were you instead commenting about the concept of "currency" and how fictitious it is?

Answer 3

The modern economies are driven by the same things that had driven western civilization for centuries. Greed is why many people came here
greed is what motivated the to succeed. And greed is what keep are economy
going.Do you what that super sized? Everything must be bigger, faster, smarter
than what we had last year. Business don't brain wash us into this beliefs. They only capitalize on them. When we were very young we craved more milk,
than all the candy, all the drugs and all power we could get. the key is the parents they need to start teaching us at a very young age not to be glutenous
with what we have. I am no blaming this generation the process has been going on for centuries, but it has to stop sometime. If every body wasn't looking for the get rich quick scheme the stock market scams wouldn't be so successful.

Answer 4

No. I disagree. Technology has produced vast amounts of new wealth, and capital markets reflect that. There are always manias and bubbles, but that doesn't invalidate the basic observation that capital markets have functioned incredibly effectively.

Look at the economic performance of countries without functioning capital markets versus those with them.

Hard to see that stock markets are "the Emperor's New Clothes"-- there are oil drillers selling at 10X earnings; a pretty reasonable price. Moreover, you can see company managements taking companies private at market multiples (Kinder Morgan, and most recently, Healthcare Corporation of America)-- these management buyouts wouldn't work if the market price did not reflect fundamentals.

Your "additional details" deserves some examination. Your "doodle" example is close enough to Google that I'll make a case for it. Google is an advertising platform-- and an extremely profitable one. It is, indeed, worth billions-- but its not "just an idea"; its a company which is making lots of money, and has blown away sales and profits estimates since going public. Moreover it operates in a market which appears to have enormous potential for growth (Internet advertising accounts for less than %5 of total advertising budgets, but has key advantages to advertisers . . . an ad placed on Google reaches a much better audience than an ad placed on television). Google may be priced too richly . . . it is hard to value fast growing companies, because the key variable ("when will their growth slow") is hard to predict. But their profits are huge, and quite real . . . if you started your "doodle" site, with no pageviews and no profits, the market would not accord you the same billions that it does to Yahoo.

Answer 5

No. You are confusing modern economies with theocracies.

Modern economies exist only because some people are willing to experiment (as in James Watt experimenting with commercial use of steam engines) and the authorities do not interfere in this experimentation on religious or national security grounds.

As to "exposing the emperor's new clothes", I thought the U.S. stock market already got exposed back in 2001...

Answer 6

Modern economics does exits. Knowledge is power.

Answer 7

I believe that it would, now you have pointed that out.