On the present crisis in the markets

Tuesday 30 September 2008 16:04

We have heard much in recent weeks and months about the rogues of capitalism: the irresponsible bankers, the chancers, the gamblers, the short-sellers and so on. These are the exceptions, we are told, the nasty people who ‘take advantage’ of the market. They are not content to play their part in the quiet accumulation of vast wealth. They are greedy enough to risk bringing everything down.

I heard one banker defending short-selling recently. It’s not illegal, he said, so there’s nothing wrong with it. He is, of course, perfectly correct. Law as we know it is a branch of capitalism. If capitalism does it, it must be legal. Hence the black economy which is the dark matter of capitalism, the illegal form of what happens on the stock exchange. But the statement is actually a defence of the morality of short-selling. If it’s legal it is good.

But Marx saw these periodic economic crises as the purest expression of capitalism at work, the point at which the mechanism protruded into the public consciousness. Now we know about derivative trading and short-selling and sub-prime mortgages. We know that bankers are stupid and risk-addicted and terrified of the analysts and forever chasing deals, and so on. We know that Adam Smith’s ‘invisible hand of the market’ only applies to the poor; the rich get socialism – or rather corporate stateism (alias fascism). Now we know that governments will not allow banks to go broke but they will allow bicycle shops to close down. None of this is actually news. Short-selling is a simple mechanism that a child could work out. It’s not really that risky in the ordinary course of events. Derivates are just extensions of what the bookies do all the time. This is the system. We should not be surprised to see it. We certainly can’t complain about it – unless we are prepared to contemplate an alternative. Making this or that practice illegal will simply move the pressure somewhere else. Calls for ‘greater oversight’ of the market are simply obfuscation. We should remind ourselves that the word is an excuse (I’m sorry, it was an oversight on my part) which happens to be congenial to both government and banker.

Of course people like Warren Buffett and George Soros (usually called The Philanthropist George Soros) will make billions now. The fact that they will make billions proves that this crisis is not an exception. It actually represents the smooth of working of capitalism. Things like this happen every day. A bank loses money and is bought. A trader makes a mistake and his clients lose money. Someone else makes a lot of money in the same deal. The only difference now is that a lot of people are making a lot of money at the same time and a lot of other people are losing money at the same time. It’s called Capitalism.

My father was a poor man and for a while he made a living buying cattle at fairs in the morning and selling them in the evening. He bought at a fair price in the morning and late in the evening there were people who for one reason or another had not been in time and still had to buy cattle. He sold to them at a profit. He was taking advantage of their idleness, lateness, ignorance. The trade was known as tangling and he was a tangler. It was an unpopular occupation. People naturally resented it as the activity of a middleman, an unnecessary interference in the market. On the other hand, the latecomers needed cattle. The risks were high. He owned no land and therefore had no grass to graze them on. If nobody turned up in the evening he was in serious trouble.

If, on the other hand, he had been buying beef instead of cattle, buying by the million tons instead of multiples of four legs, he might have been a commodity trader. The principle is the same. He was an intelligent man and he knew the chance he was taking. In addition he had lived through the crisis of the thirties and knew something about poverty. It all worked out for him and he was able to get out of the trade and go into honest farming. But if it hadn’t he and his family would have gone hungry. Nobody bails out a commodity trader who buys three handy cattle in the morning and sells them that same evening. That’s capitalism too.