Hello Ashok,

Thank you for your extended and thoughtful reply.

I think you keep thinking that the only alternative to unfettered free markets is central planning. Or, I am getting the impression that you believe I think that. I do not. What I think is that for goods and services that have the potential for great harm, which is now often obvious given our superior understanding of many things based on science, that we ought to be circumspect about granting them free-market access. As an investor, I would add this understanding to the risk assessment of a business before I invest. An example currently is that oil and natural gas companies should be have their share prices discounted at higher costs of capital because reserve replacement ratios are declining. Markets have not priced this, yet.

Regarding my nuclear weapons example. I am not sure how I see my example as not serving my point. My point is just because a market can form, does not mean that it should form. There is a reason why nuclear weapons and their proliferation are controlled. This is a stellar example of my point. That centrally planned economies with these weapons are more dangerous, does not support your point either. That you pointed out that capitalism needs rule of law is important. How did we come to form these laws, some of which run contrary to free-market capitalism? That my specific remedies for how you deal with the imperfection of markets as discounting mechanisms did not agree with you, does not mean that it is not possible to remedy this problem. See above for my point about discount rates and reserve replacement ratios.

An additional point that I have made is that we CAN foresee negative consequences if some goods and services are allowed to enter the market. In the case of nuclear weapons, societies globally have agreed to the wisdom of this, both free-market and centrally planned. Also, as a citizen of the U.S., a mostly free-market, capitalist society, we are the only nation to actually use nuclear weapons. I can think of other goods and services which we should also be circumspect about, given the possible deleterious effects of them on people, and on the environment.

Regarding the active versus passive, I do not believe you answered this very well. To be an active manager requires that you disagree with the market price, presumably, to borrow your term, because you are "a more intelligent person." If you believe markets are perfect discounting mechanisms, then there is no advantage to buying anything but the market. That is the strong-form of the efficient market hypothesis. It sounds like you reject that thinking, yet you defend free-markets as perfect discounting mechanisms. To me, this is not institutional rivalry, as it goes to the heart of whether you believe markets are perfect or not. I do not think they are perfect; which is what I am going to continue to demonstrate in the next four articles, too. Again, my motivation is to help analysts and investors to do a better job.

Yours, in service,

Jason