Markets are very useful tools. That is why Lenin and Trotsky argued it was necessary for Communists to study them, learn everything they could about them, as a precondition for first being able to use them, then control them, and finally to go beyond them.
This is one of the problems that would be faced by any kind of democratic planning in the immediate future. So long as people continue to see themselves, and to act as individuals rather than as part of a larger collective, their voiced preferences will conflict with their actual preferences as displayed by their spending patterns. In reality, the voiced preferences tend to be expressions of what choices they think society, (essentially everyone else) should make rather than what they as an individual want to make, or else they are expressions of preferences they would have, so long as it did not involve giving up something else to achieve it.
In the same way, the Capital markets tell us what the real thoughts of Capital are, as opposed to the views it expresses. They tell us what the real fears of Capital are.
There are two views about what lies behind the falls in Stock markets over the last few days, which are an acceleration in the falls which have actually been taking place for the last two weeks. One view is that what lies behind it is fear over the debt crisis. That is that there is a huge amount of sovereign debt in Europe, which is why we have seen the crisis over Greece continue, and why it has now spread to Spain and Italy. There is also fear over the huge US debt and deficit. On this view it is the possibility of default that has spooked markets, and caused the sell-off.
The other view, which was presented on CNBC this afternoon by David Bloom, global head of foreign exchange strategy at HSBC, is that it is all about growth.
In reality the two things are not unconnected. If growth in the US and Europe slows, if China and India slow down their rampant advance, then this will be bad for Capital. It will mean lower profits, and slower Capital Accumulation. That would be bad, but not catastrophic for Capital. If, the EU periphery, and more importantly economies such as Spain and Italy fail to grow, or worse, go into recession, then there is no chance whatsoever that they will be able to reduce their deficits let alone cover their debts.
Whatever individual Capitalists or their representatives say about wanting to cut deficits, reduce Government spending, and state intervention, the reality is that Capital fears the consequences of such action. That is why it is selling shares and other assets. It was, in fact, also spelled out by one of those who for the last few years has been calling for a reduction in that state intervention. CNBC's Rick santelli, a former commodity trader turned TV presenter, is credited with having given the impetus for the establishment of the Tea Party, in this rant a couple of years ago.
The other day, Santelli pointed out that over the last few years, the fact that Capital markets knew that if there was a crisis, the State would intervene, meant that they kept going up. The fact, that in holding the country to ransom over raising the debt ceiling, the Tea Partiers and Republicans had been able to insist on $2 trillion of cuts in the US Budget, meant that a sea change had occurred. As another presenter put it, investors were having to come to terms with the fact that “Momma isn't going to be here to help. Momma's gone away for a while.” In fact, the $2 trillion of cuts over ten years is pretty small beer when considering the size of the US economy and of State spending. Much of it will not even see the light of day. But, as with the Liberal-Tory talking down of the UK economy from early in 2010, and their threats of the austerity to be introduced, it is the fear unleashed, the animal spirits set in motion that do the initial damage, by scaring consumers away from spending, and businesses away from investing.
That people like Santelli are happy to see that happen is not surprising. Many of these reporters and presenters on the business channels are former traders.Reclaiming Economics Part 4) What better example of this in action is there than exchanges on the financial markets, where a seller sells shares they think are going to go down, and the buyer of those shares buys them because they think they are going to go up.
This view of Capitalism is one in which it is dominated by free markets, where the main characterisation of economies is one dominated by a myriad of small companies, and where monopolies are an abnormality. For those who hold this view, most fanatically by the Austrian School, the market would solve all problems were it not for the interference of the State.
The Austrian/Libertarian ideas come essentially from the Libertarian views of Rousseau.
So, the Austrians, who have many followers amongst the stock market traders, have no problem with the idea that such a crisis would bring down many of the Monopolies as well as reducing the role of the State. But, of course, Capitalism is NOT what they would like to think it is.
It is ironic that there is, in fact, a symmetry of view between the Austrians and much, if not most, of the Left. The Austrians see something unnatural, non-Capitalist, about the large role of the State in the economy, and much of the Left agrees with them. Much of the Left adopts the position that Capital seeks to minimise the role of the Capitalist State, and that is why it repeatedly attempts to introduce cuts. But, of course that is nonsense. Capital is interested in maximising profits, and, if the way to do that is through State intervention, that is what it will do, and has done repeatedly.
So, however much the stock market traders, the Austrians, or even the politicians such as George Osborne argue to the contrary, indeed however, much some of the Capitalists themselves say they want austerity, the actions of Capital in selling off in fear of what that actually means discloses their real feelings on the matter.
Today, markets revived sharply as US Non-Farm payroll data came out showing a sharp improvement. Private sector jobs rose by 145,000, while Government jobs fell by around 30,000. The DOW rose by more than 100 points, a clear sign again that Capital's main concern was with growth. But, within a few hours, it had reversed again falling almost 200 points, an even bigger points reversal. The reason seems to be a realisation that one month's figures are not very meaningful, if austerity measures bring the economy to its knees. The day's data was backward looking not forward looking.
But, its not the first time we have seen this. When the Greek crisis first broke last year I wrote about the market reaction at the time. What we saw was that when it was announced that an EU intervention was to be launched, and the ECB was to provide liquidity for Greece, global stock markets soared. Within a week, when it was announced that the other side of this was that Greece would have to introduce draconian austerity measures, and that the ECB monetary intervention would be sterilised by withdrawing liquidity from elsewhere in the system, markets crashed even more!
We are seeing a range of conflicts playing out at the moment with the ranks of Capital itself. Large sections of Financial Capital, which have held considerable sway over politicians, particularly Conservative politicians, have come to believe that myth perpetrated by Austrian and neo-Classical economics that surplus, derives from exchange.