"Every Man A Speculator": Closing Thoughts

(See Parts I and II on this topic.) Finished Steve Fraser’s big book, one of them at any rate. I find cultural history a difficult thing to evaluate. Everything is a generalization, subject to argument. Even if you have replicated the author’s monumental catalog of sources, it can be hard to have confidence in endless assertions that do not hinge on simple facts or quantitative data. There is no ambiguity about who won the battle of Gettysburg, but characterizations of the zeitgeist are harder to support.

The bogeyman of the book is how operations in the realm of finance, especially trading in financial instruments (stocks, bonds, options, foreign exchange, etc.) can distort or periodically wreck the economy at large. It has come to be called “financialization.”

I have problems with some of the folk wisdom on the left regarding financialization. Maybe I’ve absorbed too much Econ 101.

There is no dispute that the inflation and collapse of financial bubbles can be enormously disruptive to economies and destroy masses of individual lives. John Maynard Keynes pointed out that economies founded on speculative bubbles are due for unhappiness. Hyman Minsky has my favorite account on the omnipresence of financial disruption. Periodic crises and recessions retard economic growth in the long run. No disagreement there.

Nor is there any doubt in my mind that the financial industry is rife with corruption and fraud, and that it worsens the distribution of income and wealth. My interest in this post is, in keeping with Part II of this series linked above, with the dysfunctionality angle.

In traditional populist mythology, Finance was thought to be something alien and predatory, relative to productive industry and agriculture. I was susceptible to this notion myself, until I learned that many manufacturing concerns engage in their own financial shenanigans. There is also the fundamental insight in Marx, that under capitalism, firms are in the business of turning money into more money, ye olde M-C-M (from money to commodities back to money). The special bug about “Finance” is a liberal trip, a shallow basis for criticism of Capitalism.

There is no question that the financial sector consumes resources, especially highly-educated workers and sophisticated technology, that might be more productive in other industries. More commonly, it is thought that Finance “takes money out of the economy” and goes away with it. I don’t think Money works like that.

It is true that a portion of profits is diverted to the high-living of the One Percent, but in the grand scheme of the economy, that is small potatoes. Money received by a rich person, by fair means or foul, generally goes back into some sort of investment vehicle.

A while ago, I got into an argument with a few comrades in this vein about stock buybacks. Does the timing of these buybacks unfairly enrich insiders? Probably. But a shareholder who makes bank by selling into a buyback will put her money somewhere else. Anyone who is rich has already bought all the toys he wants.

I’ve mentioned that the commanding heights of industry can block the implementation of potentially highly-productive innovations, but this is not particularly a financialization thing. It’s a private ownership-of-capital thing. An auto company could, for instance, block the expansion of public transit.

In the case of wasted resources, there is the flagrant example of crypto mining, which consumes huge amounts of electricity and as a kicker, contributes to climate change and creates sociopathic boy-billionaires like Sam Bankman-Fried. The chips required for crypto and computers in general require the extraction of rare earths, which might come to be much too rare.

Otherwise, speculation could inflate asset values and limit investment in economic expansion. Though to me if a productive investment can be envisaged, somebody will envisage it and the money for it will be found. There is a story to be told in how interest rates and the money supply can help or hurt economic growth. Again, not a financialization thing.

A few takeaways are particularly resonant for me, a speculator (low-level) in my own right. My vice is options. I’ve been up and I’ve been down. Lately it has gone well, but familiarity with history provides a warning.

The current craze over Artificial Intelligence stocks, and tech more generally (Facebook, Google, Microsoft, Nvidia, etc.), is merely the latest big thing. In the 90s it was mortgage-backed securities and dot-coms. In the 80s it was biotech. Remember how Interferon was going to cure cancer? In the 70s and 60s it was conglomerates. In the 90s it was the Internet. (Yahoo used to be a big deal; now it’s a garbage dump.) In the early 1800s it was the Erie Canal.

Everybody jumps in on the “greater fool” principle, knowing a crash is in the cards but it’s just a matter of jumping off the wagon before it goes over the cliff and takes the others with it.

Fraser’s account ends in the early 2000s. His big historical takeaway for me is that early 20th Century criticism and distrust, if not hatred, of “Wall Street” has basically fizzled. Like any historian writing about the recent past, he had the disadvantage of not know what was coming next. In this case, it was the “Occupy” movement. But he was not wrong in his implications for the Democratic Party under the leadership of the Clintons and Barack Obama.

There has been no little comment to the effect that the big bailouts of Finance in the Obama years boosted the Tea Party and later the Trump movement, but I never bought that. I doubt the average Trump voter has a clue how the financial crisis of 2008 was treated. Fraser likens Democratic leaders in the 90s to Republicans, true enough then, but he could not anticipate how the Republican Party has evolved since Bush into the strange and perverse thing it is now.

Occupy fizzled eventually, with some help from the Democratic Party establishment, but now we have Bernie, AOC, The Squad, and Democratic Socialists of America. I would also be interested in how Fraser would treat the rise of crypto and the evolution of online speculation.

Maybe Fraser’s conclusion is a little dated. If I have one global criticism of “Every Man A Speculator,” it’s downplaying how the public fascination with Finance, its love/hate affair, veils the more basic nature of our economic system.