Those who peddle narratives that have little relevance to reality about the benefits of supposed saving in UK stock exchange-based shares and securities are back in action. As the FT notes today:
Asset managers have been urged to drop “boilerplate” risk warnings in favour of more balanced explanations of the pros and cons of investing, as the UK government seeks to encourage Britons to be more ambitious with their savings.
Repeatedly telling consumers their “capital is at risk” and they could lose money in financial markets has driven UK households to invest the lowest share of their wealth in equities of any G7 country, according to a new report commissioned by chancellor Rachel Reeves.
The risk warnings review, published on Thursday, told fund managers to provide customers with “simple, accessible explanations of how investments can rise and fall, presented alongside relevant benefits and explicit time horizons”.
Let's be clear: there is either a fundamental error of economic judgement, or a deliberate attempt to economically mislead at the heart of the thinking that has given rise to this report, whose aim is to promote increased saving by UK people in the London stock exchange.
The implication of the desire to promote this sort of savings is that stock markets are essential for funding investment and creating jobs, and that if only people saved more in the stock market, we would have a stronger, more prosperous economy.
Politicians repeat this claim.
Commentators assume it.
Financial advisers seek to sell it.
And economics textbooks embed it as if it were a self-evident truth.
It is not.
To understand why, we need to be clear about what stock markets actually do. And when we do that, the conclusion is unavoidable: the contribution of stock markets to new investment and job creation is marginal at best, and often close to zero.
This does need explanation.
What the stock market really is
When discussing stock markets, two very different markets are routinely conflated.
First, there is the primary market. This is where companies issue new shares. It includes:
- initial public offerings,
- rights issues, and
- share placings.
When these happen, companies do receive cash as a consequence. That cash can, at least in principle, then be used for investment.
Second, there is the secondary market. This is what most people mean, most of the time, when they talk about “the stock market”, and this is the market that is almost invariably being referred to when mention is made of savers supposedly investing funds in such markets. Here, existing shares are bought and sold between investors.
This distinction between the primary and secondary markets matters because:
-
In the primary market, companies get money.
-
In the secondary market, they do not. No one should pretend otherwise; this is a fact.
Every time a share is traded in the secondary market on the London Stock Exchange, the money that changes hands is between investors. The company whose name is on the share certificate that has been bought or sold does not receive a penny from the transaction.
So the key question that needs to be answered becomes obvious if we are to determine whether stock markets really add to the stock of real investment in productive assets and job creation in the UK. It is, how much of UK stock market activity is actually in the primary issuance market?
The scale of the difference
The straightforward answer to this question is that very little UK stock market activity takes place in the primary issue market.
The total value of the UK stock market is measured in trillions of pounds. The current total value (and this figure, obviously, changes all the time) is around £3.5 trillion.
The volume of trading each year also runs into trillions, as shares are bought and sold, often many times over. The precise figure for the level of trade is a little hard to determine, given that some trades take place through options and other such arrangements, but it is entirely reasonable to think that the volume of trades may be well in excess of £5 trillion annually.
By contrast, new share issuance in a typical year amounts to tens of billions, and many of these relate to takeover deals and not to the raising of funds for investment in new assets.
This data implies that, give or take margins for error:
-
Well over 95 per cent of stock market activity is second-hand trading.
-
Often more than 98 per cent is.
In other words, the vast majority of what happens on the stock market has nothing to do with raising new funds for companies.
What little new money is raised
Even within that small proportion of activity that does involve new share issuance, the story is not what the textbooks suggest. That is because not all new equity is used for new investment. A significant proportion is used for:
-
Mergers and acquisitions
-
Balance sheet restructuring
-
Paying down debt
-
Financial engineering of various sorts
Only a part of the new issuance is used for what might reasonably be called productive investment, such as building productive capacity, developing products, or employing people. As a result, even within that tiny share of activity that might fund companies directly, only a fraction results in new jobs or new productive activity.
The conclusion is stark. The proportion of stock market activity that:
-
provides new funds to companies, and
-
results in real investment and employment
is very small indeed.
A reasonable estimate is that between zero and two per cent of stock market transactions have any direct link to new investment, and in many years, it is closer to negligible than significant.
To quantify this, in 2020 and 2021, maybe £80 billion of funds were raised for this reason. More typically, between 2022 and 2025, it is likely that the average sum raised each year was between £15 and £30 billion per annum.
To contextualise this, it is likely that the cost of subsidies provided to pension funds per annum in the UK exceeds £80 billion, as I have explained in my Taxing Wealth Report.
What the stock market actually does
If, in that case, stock markets do not meaningfully fund new investment, what is their real function? It is fair to say that they do three things.
First, they provide liquidity. Investors can buy and sell shares quickly and easily.
Second, they facilitate what economists like to call 'price discovery'. Markets supposedly establish a constantly changing estimate of what companies are worth, but this claim has to be treated with caution, as what markets actually do is value very small holdings in the shares of a company that may not be indicative of its value as a whole, meaning that this claim can be misleading, a fact that is exacerbated by the reality that many such values are greatly influenced by irrational sentiment and general market trends.
Third, they allow wealth to be traded. Ownership claims on companies are exchanged between investors, often at high speed and large scale, but it should be stressed that this activity does not necessarily add any value to the economy as a whole.
All of these functions are real, but none of them results in the companies whose shares are traded receiving any new funds.
Why the myth persists
Despite this, the idea that stock markets fund investment remains deeply embedded in public, political, and economic discourse and is beloved in the City of London. There are three reasons for this.
First, economics teaching focuses on the primary market and largely ignores the secondary market. As is also the case with economics teaching on money and banking, what is taught here is deeply misleading and closer to an economic fantasy than to reality.
Second, policymakers like the narrative. It provides a convenient justification for prioritising financial markets, even though they actually add very little value to the UK economy and only create a lot of economic noise that, however, feeds into the hype on which politicians thrive.
Third, the existence of initial public offerings creates the illusion that raising new capital is the norm, when in reality it is the exception.
The result is a persistent misunderstanding of how modern capitalism actually works. It is not about wealth generation. It is, instead, about wealth accumulation, and the two are usually unrelated.
The implication
The implication is clear, and it matters. Stock markets are not, in any meaningful sense, engines of investment. They are overwhelmingly markets in existing financial assets. They are mechanisms for trading wealth, and not creating it.
If we are serious about increasing investment, creating jobs, and transforming the economy, we do need to look elsewhere:
-
to government spending
-
to bank lending, and
-
to retained corporate earnings
Those are the mechanisms that actually finance real economic activity.
The stock market, for all its noise and scale, plays only a marginal role.
It is time that:
- our politicians realise that this is the case,
- our news media stopped broadcasting stock exchange information every hour on the hour,
- economics started talking about the reality of the world we live in,
- investment advisors understood what they are really talking about when engaging with clients, and
- the City of London was put in its place, and is properly described as the engine for creating inequality that it really is.
Then, and only then, might we create the focus we really need on the investment required to regenerate our economy on a sustainable basis. Nothing about our existing structures is likely to deliver that outcome, and the stock market, by its own choice, is intentionally peripheral to this task. That is what we need to understand about it, and too few do.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
IPOs often involve an element of new share issuance to raise funds – but as you say, that is rarely for new investment in productive assets. Much is often used to repay lenders or shareholder debt, or kept as a war-chest for future acquisitions. There is also an opportunity for pre-IPO investors to sell shares into the market, so another way to return funds to existing investors. Once a company is listed, it can raise new money by issuing more shares, but typically that is done as a cheap way to buy other companies. And it also gives a liquid but non-cash way to remunerate staff and executives – shares or share options granted now and sold later. As long as the price rises, the gravy train can rumble on. When share prices fall, there is often a scramble to “reincentivise” management by “repricing” share options that have fallen out of the money.
Thanks
Thoroughly agreed.
The ‘sick market’ does not ‘make money’. All it does is move money around – taking a nice big cut of it in fees as it does so – from the many to the few at the top of the market.
Basically the stock markets are a ‘posh’ way of gambling.
Yes
Cyndy – I am not so sure that the stock market is a form of gambling for ‘posh people’.
Here is the AI definition of gambling:
‘Gambling is the practice of risking money or something of value on an event with an uncertain outcome, hoping to win something in return. Common forms include betting on sports, playing casino games, and participating in lotteries.’
Unpicking this now, ‘posh people’ don’t really ‘gamble’ in the market at all. Posh people:-
…..Do inside trading making sure they have more information than the other dupes in the markets to come out on top.
…..Often create markets, benefiting from the growth in prices and ‘excessive exuberance’ at its outset and get out when the going is good.
……Bet against markets they know that have fundamental weaknesses or potential to fail (may even sell you stuff they know is shit).
……And ultimately Cyndy, Posh People end up being bailed out when the shit hits the fan by the same Government that under funds your public services.
‘Gambling?’ Posh People? Hmmmmm………………………………….
I have to disagree PSR
Most people do not have the access you assume.
There is some corruption, but Cyndy’s claim stacks still. That is most of the market.
You have a suddenly emergent troll (16 followers) on Bluesky called “limitedslipdiff” who is extolling the financial market as you’ve “missed the point entirely” and has also targeted taxation of wealth, using ‘straw man’ tactics.
Australian commentator Alan Kohler described trading in stocks as a form of gambling. But one that is not regulated or taxed in the same way as betting on the horses or pokey (Strine for ‘poker’ ) machines.
Thank you for this, Richard – all true! I have always believed that “The purpose of investment is the purchase of an income” and one commensurate with the risk being taken. If the real and risk-free return on cash or bonds is something of the order of 2% to 2.5% (which it was in the 19th century and the first half of the 20th century), investors ought to expect significantly more for the risk that they accept with equity investment.
Unfortunately, over the last 30+ years, investors have increasingly been persuaded that investment is not about the purchase of an income, but the search for capital gains. Since dividends have to be paid out of real cash (even if occasionally borrowed) while profits (with the right accountant) can sometimes be conjured out of thin air, many a CEO and board of directors has encouraged this belief. Yet history shows that capital gains come from the compounding of income.
Today, the yield from the FTSE All-Share Index is 3.20%. It is still possible to have interest in excess of 4% on cash deposits which as long as <£120,000 is capital secure, excepting the implications of inflation. This is pertinent for those with DC pensions nearing or already in retirement. A ‘proper comparison’ would be to compare the rates available to those who are prepared to “sacrifice” pension fund capital to buy a pension annuity, but that is another subject.
Certainly, secondary trading does not raise new capital…. but without it there could be no IPOs (which can raise capital) or, indeed, Private Equity and Venture Capital that does raise new capital. Also, whether shares are traded on the LSE or not, the owners of equity get richer on the profits extracted from customers of those companies which increases in equality (Piketty etc.).
The route to restraining/reducing in equality must be taxation (and government control/ownership of natural monopolies).
The route to greater investment in the stuff we need (infrastructure, health, education rather than trinkets) is direct government involvement.
Clive thank you for the reasoned comment
“Certainly, secondary trading does not raise new capital…. but without it there could be no IPOs (which can raise capital) or, indeed, Private Equity and Venture Capital that does raise new capital.”
You alone seem accepted as the person who is able to add nuance/correct Richard’s two repeating blindspots – markets and bank capital (no deposits do not have loss absorbing capital and are not part of capital) – which strengthens the otherwise important messages delivered here. Thank you for this important clarification that is so easily missed.
Juliette
Let’s ignore the fact that you are very obviously a troll.
Then let’s note that Clive and I agree on most things, which is why he was my guest speaker at a recent event.
And let’s ignore the fact that I acknowledge the points Clive makes.
And the fact that you ignore the fact that a grossly state-subsidised second-hand share market adds no value to the economy at all.
And that markets do therefore fail; they cannot even turn massive subsidies into value.
And then let’s note what is left, and that is your claim on bank deposits, where you are glaringly obviously wrong. Deposits are credits on a bank balance sheet, as is capital, and are as capable of being lost as capital as a result. If it were otherwise, why would the state need to guarantee deposits? If you cannot work that out, you really should not be commenting here. Go and learn some basics first.
Richard
Hi Richard; for several years now, you and I have corresponded regarding the HMRC-approved Enterprise Investment Scheme (EIS).
Latterly you have explained that your blog can’t be seen to be promoting EIS… in any way, shape or form.
Since, last century, my start-up business benefitted greatly from this genuine investment strategy, may I personally be allowed to post this AI summary of EIS.
“The Enterprise Investment Scheme (EIS) is a UK government initiative designed to encourage investment in high-risk, early-stage companies by offering significant tax reliefs. Investors can receive 30% income tax relief, tax-free growth, loss relief, and inheritance tax exemption on shares held for at least three years.”
p.s. No need to email me if you choose not to publish this comment… I understand your concerns and appreciate how busy you have become. Success!
p.p.s. Thanks again to Jacqueline for her dietary advice. I inadvertently think of her most mealtimes… except last Easter Sunday when chocaholism took hold.
But why is tax relief needed? Thje recipients are invariably wealthy with spare cash. Why should they get this subsidy?
“But why is tax relief needed?”
To encourage investment in start-up businesses. Which is a good thing. It creates jobs. It creates successful businesses that pay tax.
A start-up is unlikely to be able to raise the funds it needs by way of loans – it has no track record.
But these investments are inherently risky. Most will fail. The government is saying “if you’re prepared to risk losing 100% of your investment instead of leaving it idly siting in a bank account doing nothing, we’re prepared to forgo some tax. We think this is a sound ‘investment’ on our part – giving up some tax now in the hope that the business you invest in becomes successful, creates jobs and benefits the economy”.
I must say I’m surprised you didn’t realise this and hope my explanation helps in your understanding.
Helen Stringer,
I find your explanation of the need for tax relief wholly unconvincing. As Richard said, investors are mostly wealthy, usually very wealthy, and don’t need tax relief. Very few businesses or projects are started because of tax relief. After all, would someone invest in a business that wasn’t a good idea simply because of tax relief? Of course not. And if these start-ups are a good investment anyway they don’t require tax relief. Frankly, it seems to me, that the call for tax relief is simply a convenient narrative for already wealthy people to try to obtain even more state welfare.
I agree with you.
In the 1990s I used EIS in a business. It attracted money grabbing investors who had no clue what we were really doing. The relationships were poor.It distorted rational decision making thereafter. Never again, I decided.
So, if you don’t want to hold equities & bonds in your DC pension, what are the two main alternatives? United Trust Bank (est.1955) will offer 3.50% gross interest from an “Business Easy Access” account, so a £100,000 pension fund will obtain £3,500 in a year.
I ran some real time pension annuity quotes and these assumed that the annuity was being purchased by a single 68-year old, living in the BS27 3AA postcode (postcodes are a major determinant of annuity rates) without any health problems and a purchase price of £100,000, a pension payable monthly in advance, guaranteed for 5-years and life thereafter and an adviser charge of 1% (Source: AMS).
A “real annuity” adjusted annually in line with the RPI would pay £6,190 p.a.
An annuity increasing by 3% compound annually would pay £6,692 p.a.
An annuity increasing by 5%, £3,825
A fixed, nominal, annuity would pay £8,586.
Some advisers and retirees consider the difference between the initial payment of a nominal annuity and the real annuity of £2,396 to be the cost of inflation protection. That is incorrect. The two annuity payments are in different “denominations” or units of measure.
I note that fixed, nominal annuities are a speculative bet on future inflation rates, a bet that it is imprudent for retirees and, indeed, one which many would make unwittingly.
Thanks for that.
Very valuable
“Basically, the stock markets are a ‘posh’ way of gambling” – on the value of 2nd hand stuff.
Strange how the government never ask us to go to charity shops for our clothes, although they certainly incentivise us to do so, by making us poorer.
And they should encouarage recycling.
The number of tv adverts to encourage investing, at what must be the worst possible time, is telling – trying to prop up the Ponzi scheme?
Yes
Far from removing warnings about financial risk, this Government perhaps needs to widen their scope. Higher education in this country looks for many increasingly like a gamble that’s not worth taking. Now, apparently, 20,000 students are being told to repay their student loans, which they seem to have applied for in good faith. See today’s reports, including on the BBC’s website. And maybe I’m missing something but capping student loans at 6% when the inflation target is 2% doesn’t look overwhelmingly generous either. A country that prioritises gambling on second-hand shares over investing in higher education is in serious trouble.
Given that shareholders are the notional owners of a company perhaps we need to look at ownership.
A number of German companies eg Bosch are owned by charitable foundations as is Hershey the US Chocolate maker.
Many of these charitable foundations are themselves ways of concentrating power in the hands of a few.
I have often wondered if a small extra stamp duty on secondary share purchases should be given the company, provided it had registered an approved productivity or research scheme. It would reward companies for being innovative, and the benefits would accrue to the purchaser who paid the extra duty (so it shouldn’t depress prices). It would also penalise speculation in companies that were not innovative. We know the UK economy lacks investment and this seems like a relatively painless way to increase it.
I realize that large firms would just game it and that’s almost a so what, but for younger, smaller companies that take it seriously, those that are cash constrained I wonder if it could genuinely help, despite the smaller trading volumes. And if it kicks some middling companies into creating innovative investment schemes which they actually stick to, that’s an upside too.
Perhaps the toughest part would be designing a definition that’s easy and cheap to police. R&D schemes have been known to get bogged down.
You cannot make something useful out of a mess. Don’t try is my suggestion.
Thanks for an excellent explanatory post.
I think it worth noting that the value of second hand stocks depends on demand. If lots of people want to buy the price goes up, if lots want to sell the price goes down. Previously, over many decades, the number of people wanting to buy has increased with population size. For example the UK population has increased by about 40% since 1960. So prices have tended to rise. Now the fertility rate has decreased to about 1.5 in the UK, Europe, and elsewhere. So the number of people wanting to sell will increase (as people enter retirement) and the number of buyers will decrease (with fewer people). So it seems inevitable, over the coming decades, that the price of “investments”, i.e. second hand shares will decrease. It’s not that capital invested may decrease, it’s that it is likely to decrease. In this sense the stock market is like a Ponzi scheme. Why is no one saying this?
I do.
And you are right to do so. In the last few years we have advised dozens of “retirees” to move in excess of £70m out of the equity & bond fund markets as they have bought annuities or entered drawdown. The snowball is rolling down the hill and gathering pace.
Thank you Richard for saying so.
Having read the post and all the comments, I am left with the uncomfortable feeling that the Chancellor and PM may not actually Know and Understand all that is in this particular blog post today.
I pray I’m wrong.
I think that they do not.
I have thought for a long time that there should be a transaction tax on share selling which would reduce as the share was held for longer. The problem now is that share trading has become computerised and soon will be AI controlled. It has no function but to extract money from the real economy.
I have long been of the opinion that I should only ‘invest’ in a business that I did know something about. So, 25 years ago I bought some land, bordering my farm, that I had to borrow heavily for and in the face of much opposition from friends and family. The purchase involved a great increase in my workload…. But, yes, the value of that investment has now increased quite considerably, and I have enjoyed myself in the meantime!
There was a proposal to replacing corporation tax with a 0.2% tax rate on publicly traded stock.
This idea can be recycled by creating a progressive four tax rates for taxing the shares of small, medium, large and monopoly multinational corporations.
On top of this seven rates of progressive tax rates on the stocks and shares of the following individuals:
below millionaires
millionaires
decimillionaires
centimillionaires
billionaires
decibillionaires
centibillionaires
The combined idea can reduce inequality caused by the stock market itself.
Corporations underpay workers and domestic investment and overspend on dividends, share buybacks, shares etc
The UK government should criminalise this business model and cap executive pay to force all corporations to sell of shares and stocks to compensate all underpayed workers
There have been many ridiculous tax proposals.
Not really related to the above but I keep seeing personalities such as Martin Lewis apparently promoting get rich quick investment schemes. Are these all cons made using A.I ?
I have no idea
Martin Lewis would never promote such a thing. Finance guidance he gives relating to household expenses but investment advice he would never do.
https://www.moneysavingexpert.com/shopping/fake-martin-lewis-ads/
Lots of reports on this online.
Equality is not necessarily good
It depends on what type of equality you are talking about. If it’s equality of outcome, where people are at the same standard of living, you enter the Collective Farm fallacy in which, if you end up at the same level, the incentive is to put in as little effort as possible. It could be equality of wealth, but this is a disincentive to save and invest lest some have it confiscated to equalize it. You might as well be profligate. So, it means there’ll be no investment that brings future wealth. You can probably produce equality of wealth if you make everybody equally poor, but that’s not a worthwhile goal.
If it’s equality of income, it’s a disincentive to work harder or to gain qualifications. If your income will be the same, why bother? You might as well be a freeloader.
Many people favour equality of opportunity. It’s difficult to achieve this in practice because of differing life circumstances. An example might be a child brought up by educated parents and encouraged to read. Parents might spend money on foreign experiences rather than clothes, cars and jewelry. Life’s experiences, especially in childhood, militate against equality. But everyone should have the opportunity to better their lot, even if not you can’t achieve equality of it. Opportunity is important, but equality isn’t.
Then there is the one must-have, which is equality before the law. This one matters most. Law must apply equally, regardless of status or wealth. Justice should see the crime, not the criminal. In unfree societies, the ruling elite are above the law. It is not the case in free, democratic ones.
Please start with this, and also follow the links in the equality of provisions. Then start rethinking, i suggest. https://www.taxresearch.org.uk/Blog/2026/03/25/equality-of-provision-and-reciprocity/
I accept that your argument is coherent at the macro level, but it doesn’t translate into a workable strategy for individual savers in defined contribution pensions.
Take someone in their 30s in the UK. If they accept your view, grounded in MMT, that stock markets are largely secondary and not central to real investment, what should they actually do with their pension?
Should they reduce equity exposure, hold more cash or gilts, and accept materially lower expected long-term returns on the assumption that future state provision will make up the difference?
So the pension saver shifts their bet on stock markets to a large implicit bet on politics: that future governments will adopt and sustain a much more expansive, MMT-consistent approach to fiscal policy and retirement provision over multiple decades.
But that introduces a critical constraint. For this strategy to work, MMT would need not only to be correct in theory, but politically durable across left- and right-leaning governments over several electoral cycles. In UK terms, that implies a level of cross-party consensus on fiscal policy that has historically been unstable.
That is a significant risk to base a retirement strategy on.
By contrast, diversified equity exposure requires no agreement about macroeconomic theory or future policy direction. It reflects ownership of productive assets in a global economy that continues to generate returns over time.
There is also a deeper inconsistency in the critique. DC pension investing depends on liquid secondary markets for pricing, valuation, and rebalancing over decades. Even if these markets do not directly fund new investment, they are the mechanism that makes long-term equity ownership operational.
So it seems to me that dismissing secondary markets as economically marginal while relying on them for pension investment is not coherent.
MMT explains how money works. It does not determine whether stock markets fund investment. That is a separate issue, and linking the two is a mistake.
What MMT does show is that removing money from circulation can reduce the capacity for growth. A broader economic perspective, and MMT is not the whole of economics as you imply, suggests that if growth is required, and pension investors depend upon it for returns, then savings must be put to productive use.
My argument is that stock markets largely fail to do that. Much activity in the. is speculative rather than directed toward new investment.
At the same time, demographic change is reducing the balance between savers and workers, which will limit opportunities for speculative returns. Meanwhile, the need for real investment, most especially for a sustainable transition, is increasing.
The policy implication is clear. Governments should encourage a shift away from secondary market speculation and towards direct investment vehicles, including those organised locally, that fund real economic activity. I have been suggesting this for decades.
If recent experience shows anything, it is that dependence on fragile systems is risky. Greater resilience requires shorter supply chains and more domestic investment. Pension saving should reflect that reality if it is to remain credible. But please do not presume that an explanation of money, which is all at MMT is, can answer all economic questions. Your comment implies to narrow a range of economic thinking on your part. The use of any tool inappropriately, an MMT is not even at all, it is mainly an explanation that enables other policy decisions to be made, is dangerous. MMT cannot be enabled, because it is. What it can be is understood and policy implication of the type that I’ve just explained follows from that.
So some people get together in a room and, without producing any goods or services themselves, swap paper claims round and round until their “value” is multiplied; then find ways to convert these paper claims into claims on the goods and services produced by others, often with the collusion of govt ..until eventually these paper claims are “valued” at more than the broad money supply in the real economy.
Biggest scam ever.
Thank you for your considered reply. I want to clarify a potential misunderstanding that appears to have overshadowed the point I was trying to make: I am not suggesting that MMT is the be-all and end-all of economic policy, nor that it dictates pension strategy. My point was simply that if one were to follow your suggestion that savers invest directly in businesses rather than use secondary markets, there are practical challenges.
Even accepting your critique of secondary markets, which I perhaps erroneously took to mean their elimination, the idea that individual pension savers should invest directly in productive activity is difficult to implement. Secondary markets provide essential infrastructure for long-term investors: liquidity, independent pricing, and risk assessment. These functions support diversification and rebalancing over decades, which are difficult or impossible with small-scale or local direct investments. Without this infrastructure, savers face illiquidity, unverifiable risk, and limited diversification.
There is also a supply constraint: companies may not issue enough new shares after their initial IPOs to accommodate large-scale direct investment by savers. To create predictable investment opportunities at scale, some form of government-backed support—potentially similar to MMT-style sovereign spending—would likely be required, which introduces political risk over decades.
Ultimately, the goal of pension saving is surely to fund retirement, not to finance businesses directly. In practice, secondary markets remain indispensable: not because they fund companies, but because they provide the operational framework necessary for long-term, diversified investment.
If there were no secondary market, how would a pension saver liquidate investments in their portfolio at a time of their choosing? Isn’t this the classic asset-liability matching problem central to pension management?
Tim
I have addressed all these issues and more on page 281 and following of the Taxing Wealth Report. https://taxingwealth.uk/
There is a wholly viable alternative.
You are not imagining it. I have.
Richard