08 December 2011

The Profit Motivator

This post looks at certain consequences of freedom. There is what is regarded as a landmark judgement in the common law, made a long time ago in England. In this, Lord Camden said this:

"[those acting on some kind of warrant are]...bound to show by way of justification, that some positive law has empowered or excused him. The justification is submitted to the judges, who are to look into the books; and if such a justification can be maintained by the text of the statute law, or by the principles of common law. If no excuse can be found or produced, the silence of the books is an authority against the defendant, and the plaintiff must have judgment" (Entick v Carrington).

Impressive wording aside, it was revolutionary. The US constitution took this much further and delineated areas where no law can be made. Is this part of the dynamo of US business. Well, one can certainly see such a license for liberty as such a generator. It is as well a license for the individual, to act as an individual.

Put together it seemed to have unleashed this enormous, powerful regenerative creative culture, motivated by the fact that the individual can create value with ideas. But the missing element in this description as noted is the fact that there has since the 20s, been a system which will short cut that value adding, if one sees it in terms of monetary value added. It brings creative output and cash rewards together.

We can even view VC funded companies as part of this, that is the motivation is getting that company into the share market and seeing what that amplification force will do with it.

But can this work in a ranging market. I suggest it can. It just needs that market to be traded. In fact it needs that market to be seen like a VC company. That is you assume a loss. One can see trading as fishing for the good trade. But one can as well see trading as a value adding act in and of itself.

This is assuming that VC functioning itself helps create a larger economy, or the basis for one, and perhaps the basis for a new rise in aggregations of companies. That is a stimulus, but a really healthy, precise one.

Well, the problem is that as an individual act, one wants the cash reward from this and judges it as such, though the reality may be different. That is one is exposed to the fact that the economy moves on credit and credit trading is deeply problematic, or at least very obvious, in what it shows of the downside of trading, the randomness in the markets.

However let us assume that a good understanding of the forex market brings a sense of the structure of the market. That is, it is helpful for the equity market, where that ranging market can be curtailed by times of asset expansion, by way of share price increases.

That is one lessens the difference between trading and investing and makes oneself one's own VC, in terms of the relation above.

And Lord Camden ? Well, it is all about freedom, but a kind of structured freedom, which is what participating in a free market and a minimalist, well justified book of good laws can be seen as.