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Why Finance Matters for Economics: The Story of Financing the Railroad

In: Financial Markets and Economic Performance

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  • John E. Silvia

Abstract

A dynamism in the economy surrounds the role of expectations and actual outcomes that prompts change. Price changes in one sector generate further price movements in other sectors. Recognizing change, however, is often difficult. Decision-making benchmarks/cognitive biases impact actual economic/finance decisions. A four-sector framework illustrates the linkage between the real economy and financial markets. The framework examines the markets for goods, credit, equity, and foreign exchange and highlights the interrelationships between individual economic units. For each of these markets, leading indicators are essential to recognize change. Markets are in a state of constant disequilibrium and are examined in the context of cycles, trends, and structural breaks as illustrated in several real-world economic series that move both the economy and financial markets. The story of the Transcontinental Railroad is particularly important.

Suggested Citation

  • John E. Silvia, 2021. "Why Finance Matters for Economics: The Story of Financing the Railroad," Springer Books, in: Financial Markets and Economic Performance, chapter 0, pages 1-47, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-76295-7_1
    DOI: 10.1007/978-3-030-76295-7_1
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