ERE

The assumption here is that arbitragers will equalize the rate of interest throughout the time structure (e.g., across short-term and long-term bonds), and that no new knowledge will be created meanwhile.revisit

“The neoclassicists are partly right in only one respect—that the rate of interest in the producers’ loan market is dependent on the rates of return on investment. They hardly realize the extent of this dependence. From the point of view of fundamental analysis, there need not be any producers’ loan market at all.” (pp. 424-425)

“In the ERE, the share market is strictly dependent on the price spreads. If the price spreads are 5 percent, the rate of interest return yielded on the share market (the ratio of earnings per share to the market price of the share) will tend to equal the rate of interest as determined elsewhere on the time market.” (p. 431)

“In essence, the creditor on the prospective loan market is no different from the man who has invested in stock. The difference between investing in stock and lending money to firms is mainly a technical one.” (pp. 436-437)

The stock market equates the rate of interest on all investments, obliterating the differences in time structure so thoroughly that it becomes difficult for many writers to grasp the very concept of period of production.” (p. 449)

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