ABSTRACT
Speculative movements in asset prices have been a common occurrence in the history of modern, or capitalistic, economies. While the effects of such movements may be restricted to the markets in which they occur, it is also possible for them to affect other sectors of the economy, and to have adverse consequences for employment, income and welfare. This happens when speculation undermines the circulation of money and finance in a way that makes it difficult for producers and consumers to acquire the credit they need to support their activities. With the growing sophistication of financial markets, the tendency towards speculative movements is enhanced by the development of new and more complex financial instruments. 1 This process tends to further disconnect the creation of claims over wealth from the capacity of capital investment in real assets to produce wealth. The difficulty of sustaining this disconnect over time eventually leads to a downward adjustment in asset values, the magnitude of which is no more limited by their real potential to produce wealth than was the original upward adjustment we refer to as a speculative boom.
