What's under the bonnet of global capitalism. How financial markets actually works; trends and developments; how practice in financial markets relates to economic theory; how financial market structures shape issues of identity and responsibility for different economic agents from individuals to corporates to states.

Here I am using Phil's wiki as a notepad to work through these ideas and develop my own understanding. Therefore, for the moment anyway, don't take anything here as a final confirmed view but simply more or less rough notes.

Some of the motivation for working on this comes from YouHaveToEarnALiving.


As a very rough start, I think this makes sense:

What is finance for? Firms produce goods. In order to produce goods they use inputs or 'factors of production' (see: WhatIsCapital). Firms buy factors of production on various markets. They generally use Finance - or 'FinancialCapital' to pay for these inputs.

Financial Capital can be embodied in Financial Instruments (embodiment already?): it can then be traded in Financial Markets. There are a host of different kinds of financial instruments. For example: bonds, shares, derivatives, money. In general, financial instruments are contracts which can act as (more or less liquid) means of exchange.

(Do securities = financial instruments with the exception of money? Are gold - and other commodities - financial instruments?)


To understand financial markets you have to understand the people and institutions behind them, their roles, motivations. Not always straightforward.

Basic types of financial markets and related sub-markets:


DebtMarkets - MoneyMarkets BondMarkets AssetBackedSecurities




Equity and debt markets are the most basic types. In equity markets, firms sell ownership - in effect, promises of shares in future profits; but equity also carries with it decision-making influence. In debt markets, issuers make promises to pay back given amounts.

Derivatives markets are often derivative of the other ones, but in terms of structures it may make sense to treat separately. Are commodity markets actually financial markets in the sense I have set out so far?

Also need to distinguish between PrimaryAndSecondaryMarkets.

It seems to me that all theory of financial markets starts by assuming an Interest Rate. In all models for valuing securities there is an interest rate already there - eg. the rate of return on a theoretically 'riskless' asset. The security in question is then valued by comparison with the riskless return. In financial markets then there are a plethora of interest rates - but theoretically with functioning markets they should all be reducible to just one, with variations for a number of key factors - risk, liquidity, duration (?) ...

So where does that one remaining interest rate come from? What is it? OnInterest is a page for investigating theories of interest - what it is, what determines it, and whether it is intrinsically evil.