Content area
Full text
Introduction
The economic system of competitive capitalism has been remarkably successful in terms of grafting itself onto existing social norms and values, and thereafter serving to shape or even define the social norms upon which the social fabric is constructed (Braudel, 1977). In the classic Marxist analysis of capitalism, the essence of this economic regime is the capacity of the capital per se to pervade basically all social relations to reproduce itself at an increasingly higher pace. Outside of the Marxist theory, capitalism is essentially understood as a market-based economic system, wherein transactions costs are reduced on the basis of legal devices such as contracts, and through mutual agreements derived from perceived win–win situations. In both analyses, the question of liquidity is of central importance for the circulation of capital. Liquidity is a key term in the economist’s vocabulary, and still, Amihud (2002 p. 33) proposes, it is an “elusive concept” inasmuch as it “is not observed directly but rather has a number of aspects that cannot be captured in a single measure”. At the bottom line, Fox and Haeberle (2017 p. 889) write, liquidity determines the “costs of transacting”. This also implies that the concept of liquidity differs somewhat between different functional markets. Broadly defined, market liquidity refers to “the cost of exchanging assets for cash” (Adrian et al., 2017: 44). That is, if an asset is sold on the market and the costs to acquire cash money in return for the asset is low, preferably negligible, the liquidity of the market for the specific asset is high. In contrast, if the transaction costs are high, because of the asset has, for instance, few potential buyers, is complicated to price, or demand brokerage services and fees to be sold, the market for the specific asset is illiquid. “A liquid market is a frictionless market and reflects the ease with which products can be purchased or sold”, Pitluck (2011: 27) summarizes.
In finance markets, market liquidity can be measured in terms of how well a market can absorb a “liquidity trade” without any large changes in prices (Allen and Gale, 1994: 934). That is, if, for instance, a major institutional investor (say, a mutual fund) decides to sell off an asset (say, stock in...