Monday, October 13, 2008

Readings: Giffen

"If there are natural limits to the quantities of commodities or securities which can be produced, and limits also to the changes in the amount and effectiveness of money, and the frequency or infrequency of exchanges, then there will also be natural limits to the rises or falls in prices which are possible. An indefinite general rise or an indefinite general fall will be an impossibility...

"As the natural limits on either side are approached, a movement of price which may have seemed uncontrollable will be checked. Any great change in the price of a particular kind of commodity or species of security implies a disturbance of relations among securities and commodities in general; and this circumstance, according to the known qualities of human nature, will itself contribute to make it unlikely that the change will be of a permanent kind, unless there is some substantial change in the motives for the purchase or sale of the article. There must always be continual changes in the estimation in which particular articles are being held by mankind, but the presumption is against violent changes being enduring."

Robert Giffen, Stock Exchange Securities: An Essay on the General Causes of Fluctuations (1877)

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