Following Small Capital Movements To Undermine Economic Law - NYU's Office of Alumni Affairs An evening with Ron Chernow
By Al Berrios (contact Al Berrios)
Ron Chernow has written every book about American financial history you need to read. He's covered The Morgans, The Rockerfellers, The Warburgs, and most recently, Alexander Hamilton, our first Secretary of Treasury. I've bought his entire catalogue and am halfway done reading them. I think what fascinates me most is that these guys were the wealthiest of the wealthy, and many did it from scratch. But what also fascinates me is that no matter how much things change, they always remain the same. I believe that human nature is fundamentally the same, regardless of culture, upbringing, economic, political, educational, or religious beliefs. As the human genome project uncovered, 99.9% of the human race is the same, genetically. So, that 0.1% is probably not strong enough to prevent us from acting alike under similar circumstances. Thus, stock market crashes, political upheavals, and economic discrepancies will always continue to happen. Yes, even something as fundamental as economic law can be influenced by human behavior.
But how can this be proved? Economic laws are based on what's in the best interest of the participants. To prove the laws, large capital movements are observed flowing in the optimal direction. It's a safe assumption that a sophisticated financial group or individual, with sufficient information, has moved this capital.
However, how does small capital move? Specifically, capital in such small quantities as to get lost in the volume of the larger capital movers, and moved by unsophisticated persons? In order to look at small capital movement during the time economic laws were first being thought up by Adam Smith, we'd have to look at something like consumer bank transactions. Unfortunately, since banking systems weren't as sophisticated, and there are countless privacy laws restricting release of such information today, that information is difficult to find. Even today, studies have shown that many unsophisticated bankers prefer to save their income in their homes than at a bank collecting interest. That behavior alone should be an indicator of how irrational consumers are when it comes to economic law. But there are other examples: rather than diversifying their savings in various financial products, these unsophisticated bankers primarily prefer real estate (although mortgage data is available, it doesn't account for reasons why people bought a home, assuming favorable interest rates above all other reasons); rather than save for the long-term in 401k's and insurance, many simply prefer not to surrender that short-term income. al berrios & co. believes that this is due to lack of information, but most importantly, it's because consumers aren't always governed by economic law.
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