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How Should Responsible Investors Behave? Keynes’s Distinction Between Entrepreneurship and Speculation Revisited

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Abstract

This paper deals with Keynes’s distinction between entrepreneurship and speculation, regarding business people in general and especially investors’ behaviour. Based on Keynes’s thoughts about financial markets, it analyses how different motivations influence the decision-making process of investors and its consequences for stock markets and the real economy and clarifies that Keynes’s considerations are still useful for understanding contemporary developments and risks in the financial system. Furthermore, it points out that Keynes’s theories and policy recommendations should be understood in the context of his moral considerations, especially relating to individual responsibility of investors. Finally, Keynes’s moral thoughts can be taken as a foundation for a contemporary approach to investors’ responsibility.

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Fig. 1

Source Own representation, based on Keynes (1936), pp. 153–158

Fig. 2

Source Federal Reserve Bank of St. Louis [https://fred.stlouisfed.org/series/DDDM01USA156NWDB (last accessed: 29.07.2019)]

Fig. 3

Source World Bank [https://data.worldbank.org/indicator/CM.MKT.TRNR?view=chart (last accessed: 29.07.2019)]

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Notes

  1. From an idealistic philosopher’s point of view, this argumentation resembles Hegel’s idea of “trick of reason” (“List der Vernunft”), describing the phenomenon that progress in history is often promoted unintendedly by people following unreflected passions or selfish motives (Hegel 2016 [1837], pp. 70–80).

  2. Neo-Keynesian Economics formed the mainstream of macroeconomics from the 1950s to the 1970s. It was developed based on Keynes’s writings, by modelizing his core ideas and harmonizing them with neoclassical theory. A main result was the IS-LM model (“neoclassical synthesis”), developed by Hicks (Coddington 1979). From a Neo-Keynesian perspective, output is determined by supply-side factors in the long run, but economic growth can be distorted by disequilibria in the short run, making state intervention necessary. New Keynesian economics was developed in the 1980s and 1990s with the purpose of countering criticism of Keynesian thoughts by monetarist and new classical economists (Gordon 1990). It aims to present microeconomic foundations for Keynesian theory, referring to market inefficiencies. Post-Keynesian economics is based on the assumption that Keynes’s theory was seriously misconstrued by Neo-Keynesian and New Keynesian economics, due to their inherent idea of long-term market equilibria. From a Post-Keynesian point of view, free market economies do not tend towards full employment automatically. Thus, Post-Keynesian economists emphasize the state’s function to provide sufficient demand and full employment and point up to the role of income distribution for economic growth and financial stability (Kurz and Salvadori 2010).

  3. https://www.unpri.org/ (last accessed: 29.07.2019).

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    Christian Hecker

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Hecker, C. How Should Responsible Investors Behave? Keynes’s Distinction Between Entrepreneurship and Speculation Revisited. J Bus Ethics 171, 459–473 (2021). https://doi.org/10.1007/s10551-020-04427-2

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