Speculation, Human Action and Financial Markets

Speculation, Human Action and Financial Markets

By Duncan Whitmore

Within the past two weeks, retail investors congregating on the social media site Reddit bid up the stock of ailing company GameStop at the expense of large Wall Street hedge funds, all of whom had significant financial stakes reliant upon the price of the stock falling rather than rising. Several of these hedge funds were thrown into serious financial difficulty as a result of the price rocketing from around $20 a share to a high of nearly $400 in the space of only a few weeks. At the time of writing, the day traders have apparently turned their attention to the manipulated silver market, which is also starting to see significant gains. Fed up with a rigged casino market in which all of the spoils go to large Wall Street banks and financial firms, the amateurs appeared to have beaten the latter at their own game – at least, that is, in terms of having forced them to reveal the corrupt nature of the system if not in monetary profit.

This latest round in the battle of the populists vs the elitists is part of the ongoing collapse and rejection of inflationary state corporatism (the Western form of socialism that was birthed by World War One) and political globalism. Every blow that is dealt to this odious, oligarchic system – such as by Brexit and Trump – is one to be welcomed. However, whereas outright socialism (such as that practised in the former Soviet Union) entails direct state ownership over the means of production, the corporatist system operates through capitalistic facades such as nominally private businesses, free trade and exchange, stock markets, and so on. As a result, the socialised elements of our economic system have, for too long, been able to get away with offloading the blame for the problems they cause onto “capitalism” or “too much freedom” instead of the root cause which is state privilege and state interference with genuine private property rights. Indeed, that was exactly what happened after the housing market crash in 2008, with the whole fiasco being blamed on “greedy”, private bankers instead of the state induced, inflationary financial system. The long run result of our failure to identify the state as the true source of the problems has been that state failure has been rewarded with state growth.

Unfortunately, therefore, it is not enough for libertarians to simply cheer on the demise of the current, rotten system. In addition, we have to ensure that the proper enemy is identified and outed as state force and fraud, not the capitalistic institutions through which they operate. We must keep an eye not only on the current crop of elites, but also the circling vultures of popular, hard left politicians such as Bernie Sanders, Elizabeth Warren and Alexandria Ocasio-Cortez, who will be poised to blame everything indiscriminately on “capitalism” before advocating for total economic socialism as the answer.1 It would be a complete disaster if we were to allow one form of tyranny to be succeeded by another. Indeed, even the so-called “Great Reset” – which, far from being any kind of “revolution” or “renewal”, is actually a repackaging and rebranding of the present system in a far more potent form – is being sold as a reset of capitalism, the latter of which has supposedly failed us. Continue reading

“Austrian” Business Cycle Theory – an “Easy” Explanation

“Austrian” Business Cycle Theory – an “Easy” Explanation

 By Duncan Whitmore

Compared to the simple and straightforward siren songs of “underconsumptionist” and “underspending” theories of boom and bust, “Austrian” business cycle theory (ABCT) can seem unduly complex. The former types of theory, associated with “mainstream” schools of economics, at least have the advantage of the veneer of plausibility, in spite of their falsehood. A glut of business confidence and spending will, it seems, naturally lead to an economic boom, a boom that can only come crashing down if these aspects were to disappear. For what could be worse for economic progress if people just don’t have the nerve do anything? Add in all of the usual traits of “greed” and “selfishness” with which people take pride in ascribing to bankers and businessmen (again, with demonstrable plausibility) and you have a pretty convincing cover story for why we routinely suffer from the business cycle. ABCT, on the other hand, with its long chains of deductive logic, can seem more impenetrable and confusing. Is there a way in which Austro-libertarians can overcome this problem? Continue reading

Economic Myths #2 – Consumption Boosts Growth

The belief that economic progress is boosted by consumption is based upon the kind of misunderstanding that could be made only by intellectuals – the product of theorising that is completely detached from the common sense that everyone else possesses.

The misunderstanding is based on a conflation of the desire to consume on the one hand with the act of consumption on the other – or, in other words, it confuses motive with cause.

All economic progress is motivated by the desire to achieve consumption – in other words, to satisfy as many of our ends as possible. Without any desire to consume or to satisfy any ends there would never be any economic activity whatsoever. Thus, the bigger our desire for consumption then the greater will be our efforts to speed up economic progress.

However, economic progress is not caused, or brought into being, by the act of consumption. Rather, the act of consumption is the result of economic progress (i.e. of increased production). Actually consuming is what we to do in order to reward ourselves once we have produced something – it is not what we do in order to start production in the first place. Indeed, as is so often the case with realities that are hidden by myths, this truth is intuitive – you cannot consume a good unless it has first been brought into existence by production. Continue reading

The Circular Flow of Nonsense

The Circular Flow of Nonsense

Keir Martland

To all with an A-level in Economics, the Keynesian circular flow of income will be familiar. It is a representation of the macroeconomy, including the household, the firm, the global economy, the banks, and the government.

Injections are often represented on this diagram by a green arrow and they include consumption, investment, government spending, and exports while leakages are often represented by a red arrow and they include savings, taxes, and imports. While consumption is sometimes not included in the list of injections, injections are defined as expenditures on aggregate production, that is, money flowing into firms. On the other hand, leakages are defined as non-expenditures on aggregate production.

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