Here’s some motions toward an answer. I’ll consider an informally specified market model, as opposed to a real market. Whether my reasoning applies in real life depends on how much real life resembles the model.
In particular, consider as model an efficient market. Assume the price of any stock X is precisely its expected utility according to all evidence available to the market. Then the only way for the price to go up is if new evidence arrives. This evidence could be the observation that the company associated with the stock continues to exist and produce income, that it continues to produce income, or that the income it produces is is going up.
Those bits of evidence remind me of the risk perspective. Sure, investors may believe that a company, if it continues to exist, will one day be worth more money than they could ever invest today. But if they think there’s a 5% chance each year that the company stops existing, then this can severely limit the expected utility of owning the stock right now. (You might ask, “What if I assign a nonzero probability to the class of futures where the company exists forever and the utility of holding its stock grows without bound?” which makes the expected utility infinite, and makes me suspect that defining utility over infinite spans of time is tricky.)
I feel like the time-discounting hypothesis makes a lot of sense and is probably part of the truth. To make sense of it within my toy model, I’d have to look at what time-discounting actually means in terms of utility. A reasonable assumption within this idealized model seems to be that the “utility” of anything you possess is equal to the maximum expected utility of anything you could do with it / exchange it for, including exchanges over time. (This is like assuming perfect knowledge of everything your could do with your possessions. Utility can never go up under this assumption, similar to how no legal move can improve a chess position in the eyes of a perfect player.) This means the utility of owning a stock is somewhere between the utility of its buy price and its sell price, as expected. And the utility of 1 dollar right now is no less than the expected utility of a dollar in 2030, given that you could just hold on to it. Then time-discounting is just the fact that the utility of 1 dollar right now is no less than the expected utility of buying one dollar’s worth of stock X and waiting a couple years. Let’s assume the stocks grow exponentially in price. That is to say, though neither the stocks nor the money increases in utility, stocks can be exchanged for more and more money over time. It seems converting money into stocks avoids futures where we lose utility. So how much should we pay for one stock? This is just determined by the ratio of the utility of the stock to the utility of a dollar. So the question becomes, why does money have any utility at all, if it is expected to fall in utility compared to stocks? And this must be because it can be exchanged for something of intrinsic utility, such as the enjoyment derived from eating a pizza. But why would someone sell you a pizza, knowing your money will decrease in utility? Because the pizza will decrease in utility even faster unless someone eats it, and the seller has too many pizzas to eat, or wants to buy other food for themself. (Plus, the money is backed by banks / governments / other systems.)
So if the average price of stocks tends to increase year by year, why are they not worth infinite money to begin with? Here’s another perspective. How is the average price calculated? Presumably we’re only averaging over stocks from active companies, ones that have not ceased to exist due to bankruptcy or the like. However, when evaluating the expected utility of a stock, we are averaging over all possibilities, including the possibilities where the company goes bankrupt. There is a nonzero chance that the company of a stock will cease to exist (unpredictably). So if you Kelly bet, you should not invest all your money into such a stock. As a consequence, successively lower prices are required to get you to buy each additional stock of the company.
Reflection: I imagine these concepts match with ideas from economic theory in quite a few places. I have a mathematical background myself, probably making the phrasing of this answer unusual. I’m not so sure about this whole informal, under-specified model I just made. It seems like the kind of thing that easily leads to pseudoscience, while at the same time playing around with inexact rules seems useful in early stages of getting less confused, as a sort of intuition pump. (Making the rules super strict immediately could get you stuck.)
Here’s some motions toward an answer. I’ll consider an informally specified market model, as opposed to a real market. Whether my reasoning applies in real life depends on how much real life resembles the model.
In particular, consider as model an efficient market. Assume the price of any stock X is precisely its expected utility according to all evidence available to the market. Then the only way for the price to go up is if new evidence arrives. This evidence could be the observation that the company associated with the stock continues to exist and produce income, that it continues to produce income, or that the income it produces is is going up.
Those bits of evidence remind me of the risk perspective. Sure, investors may believe that a company, if it continues to exist, will one day be worth more money than they could ever invest today. But if they think there’s a 5% chance each year that the company stops existing, then this can severely limit the expected utility of owning the stock right now. (You might ask, “What if I assign a nonzero probability to the class of futures where the company exists forever and the utility of holding its stock grows without bound?” which makes the expected utility infinite, and makes me suspect that defining utility over infinite spans of time is tricky.)
I feel like the time-discounting hypothesis makes a lot of sense and is probably part of the truth. To make sense of it within my toy model, I’d have to look at what time-discounting actually means in terms of utility. A reasonable assumption within this idealized model seems to be that the “utility” of anything you possess is equal to the maximum expected utility of anything you could do with it / exchange it for, including exchanges over time. (This is like assuming perfect knowledge of everything your could do with your possessions. Utility can never go up under this assumption, similar to how no legal move can improve a chess position in the eyes of a perfect player.) This means the utility of owning a stock is somewhere between the utility of its buy price and its sell price, as expected. And the utility of 1 dollar right now is no less than the expected utility of a dollar in 2030, given that you could just hold on to it. Then time-discounting is just the fact that the utility of 1 dollar right now is no less than the expected utility of buying one dollar’s worth of stock X and waiting a couple years. Let’s assume the stocks grow exponentially in price. That is to say, though neither the stocks nor the money increases in utility, stocks can be exchanged for more and more money over time. It seems converting money into stocks avoids futures where we lose utility. So how much should we pay for one stock? This is just determined by the ratio of the utility of the stock to the utility of a dollar. So the question becomes, why does money have any utility at all, if it is expected to fall in utility compared to stocks? And this must be because it can be exchanged for something of intrinsic utility, such as the enjoyment derived from eating a pizza. But why would someone sell you a pizza, knowing your money will decrease in utility? Because the pizza will decrease in utility even faster unless someone eats it, and the seller has too many pizzas to eat, or wants to buy other food for themself. (Plus, the money is backed by banks / governments / other systems.)
So if the average price of stocks tends to increase year by year, why are they not worth infinite money to begin with? Here’s another perspective. How is the average price calculated? Presumably we’re only averaging over stocks from active companies, ones that have not ceased to exist due to bankruptcy or the like. However, when evaluating the expected utility of a stock, we are averaging over all possibilities, including the possibilities where the company goes bankrupt. There is a nonzero chance that the company of a stock will cease to exist (unpredictably). So if you Kelly bet, you should not invest all your money into such a stock. As a consequence, successively lower prices are required to get you to buy each additional stock of the company.
Reflection: I imagine these concepts match with ideas from economic theory in quite a few places. I have a mathematical background myself, probably making the phrasing of this answer unusual. I’m not so sure about this whole informal, under-specified model I just made. It seems like the kind of thing that easily leads to pseudoscience, while at the same time playing around with inexact rules seems useful in early stages of getting less confused, as a sort of intuition pump. (Making the rules super strict immediately could get you stuck.)