THE SPIRIT OF CAPITALISM AND STOCK-MARKET PRICES

In existing theory wealth is no more valuable than its implied consump tion rewards, In reality investors acquire wealth not just for its imp lied consumption, but for the resulting social status. Max M. Weber re fers to this desire for wealth as the spirit of capitalism. We examine , both analytically and empirically, implications of Weber's hypothesi s for consumption, savings, and stock prices, When investors care abou t relative social status, propensity to consume and risk-taking behavi or will depend on social standards, and stock prices will be volatile. The spirit of capitalism seems to be a driving force behind stock-mar ket volatility and economic growth.