Scolding the speculators Ruthless Criticism

A squabble upholding the market economy:

Scolding the speculators

[Translated from radio broadcast by GegenStandpunkt Marburg, July 31, 2008]

In a recent issue, the German magazine “Der Spiegel” struck a now very popular note: the speculators are to blame for everything! The cover shows an evidently frightened middle class family being squeezed between two colossal legs with shoes – those of the overpowering and threatening speculator. “The Attack on Prosperity” reads the headline; and the subheading: “How Speculators Are Causing the Cost of Living to Skyrocket.”

This is what should be taken to heart about speculation: “A sack of rice now costs almost three times as much as it did in January, wheat, corn and soybeans have already reached record prices this year and gold has been on a wild rollercoaster ride recently. Hardly anyone really needs gold. But oil is the lubricant of our economy. As it keeps getting more expensive, the engine of the economy begins to stall.”

That is bad enough, but it gets even worse: “And wheat and rice, as staple foods, are truly essential to human life. As they become more and more expensive, poor people must go hungry or, in some cases, even starve.”

Why is there this dire situation? “Many people's standard of living is already at risk, and perhaps the prosperity of the nation as a whole could soon also be threatened. The question is whether price rises are inevitable, because demand exceeds supply, or whether other, less obvious forces are at work: speculators who are taking advantage of the growing scarcity of resources to make a lot of money fast.”

This is an interesting juxtaposition: on the one hand, the “inevitable” mechanism that prices rise when supply lags behind demand; on the other hand, the speculators take advantage of the lagging supply, the increasing scarcity of resources, in order to make a lot of money fast. In the first case, it is crystal clear and nothing to grumble about: the “inevitable” laws of the market mandate that prices – even for raw materials and food – must rise. Then people can't afford the prices and must die because the laws of the market demand it. Market laws are all in order and their deaths are – unfortunately, unfortunately – the inevitable collateral damage of the workings of market laws on which our economic system is ultimately based and which we can't say a word against. They might be quite nasty sometimes, but they are also simple and consistent.

The matter seems to be quite different, however, when speculators come into play. First, one hears that they are “less obvious” and second, they want “to make a lot of money fast.” That is indecent, somehow; their desire for money makes driving a car and heating a home more expensive and ultimately has people starving. Eventually, because of them, “prices become further removed from reality” and therefore “another risk” of a bubble grows. This indicates, or assumes, that “good” market laws allow prices to rise more slowly and hold nicely close to “reality” – whatever that is – and do not create the “risk of a bubble.” Should one really believe this? That there are two price increases? A reasonable one, which is due to the laws of the market, and a malicious one, which is due to the speculators?

“Der Spiegel” speaks of an “inevitable” relationship between supply and demand to which price then “compulsively” reacts; if the demand is greater than the supply, the price must rise. The supply reacts on its part to these rising prices and becomes bigger; demand likewise reacts and becomes smaller – then the two meet, supply and demand “balance” each other, and then the prevailing price is called an “equilibrium price.” This gives an impression of harmony: the price mechanism ensures – without the individuals being aware of each other – that existing needs are met; things which initially diverged apart are routinely brought back together – and that is why, among the iron dogmas of economics, this theory is so popular. In purely scientific terms, however, it is first of all nonsense, because it awards two exactly opposite functions to price: it reacts to the relation of supply and demand, and while it reacts to it, it at the same time governs it. Secondly, this theory awards a kind of naturalness to the laws of the market, which acts as if supply and demand were two different quantities which arrange their relationship between each other and secretly steer the actions of the “economic actors.” But there is supply and demand only because there are suppliers and buyers who create them, and they are also the ones who set prices. Their guiding principle is certainly not to ensure a balance between supply and demand; rather, they want to exploit any divergence between the two – a so-called “shortage” is a welcome occasion for the suppliers to press a higher price from the buyers, and if there are too many suppliers, then they are extorted by the buyers, with the price going down.

And nobody says afterwards: how nice that we have balanced supply and demand. In this economic system, buyers and sellers are always in a conflict with each other; each seeks his advantage at the expense of the other – this is also well-known to everybody as “competition.” For these “economic actors,” it is not first a matter of making as many people as possible happy with a very successful supply – so it is not about supplying the hungry of the world with food when they think of increasing their wealth by setting prices. Secondly, it is not about evil or bad characters, rather these people only follow the mandate of our wonderful system, which is a property system: everybody should manage with their property, and the purpose of this economy is not to produce good products, but to increase property in the only form that counts: in money.

In regards to this increase of property measured in money, one constraint is certain. The larger half of humanity can be forgotten in this respect. Increasing money is not their thing – for the simple reason that they don’t have any, or have only enough to live on. This, however, does not mean that they can't make themselves useful for growth. After all, the “economic agents” who populate this half of humanity can sell themselves – they are then called “job seekers.” Their search is then crowned with success when they find a job with the minority called the “employers.” The “job giver” takes up their offer – under one condition: the money he disposes over and spends on their wages must increase. Then the “job takers” have helped money to increase, but it never belongs to them. This can be seen in the fact that they always have to go back to their employer, who gets richer and richer.

The other, smaller half, those who are the only ones who can have goods produced, who can do things with their sales profits, who also deal with their money in the form of credit and capital investments and so can increase their money, have a problem of their own. They are busy in the competition with their peers; a competition they have to, and want to, participate in. And this competition – and not the equilibrium of supply and demand – dictates that the increase of money has to be as fast as possible and – unlike the fairy tale of a modest profit that one can be content with – it can never be large enough, so it is immeasurable.

This brings us back to the speculators. They belong to this group of money increasers; they set their prices according to the same principles and also obey the dictates of speed and excess; and if one wants to say something in general about them, then it is that they tighten the screws of ordinary capitalist calculations. Their business is the comparison of profits and the profit expectations of money investments and their special achievement – one could also say their “economic benefit” – consists in carrying this comparison into the future, thus scoping out future earnings prospects and betting on them – just speculatively.

They do not remove themselves from “reality,” as “Der Spiegel” says, but anticipate capitalist reality. They are precisely suited to an economic system which is oriented towards boundless growth, which is on a constant search for the best possible investment and takes the associated risk precisely because of competition for success calculated in sales – the speculators are agents of the boundless expansion of capital. In this respect, they really embody the very principle of this economic system, and if “Der Siegel” scolds them when it lays the blame on them for the necessary consequences of this system – from hunger to the production of a “bubble” – and corroborates this with, of all things, the accusation that they want to earn “a lot of money fast” – where does anyone not want this? – then one adds in quite a stupid way an indictment to the mystification. But one must leave the ideological proceeds to “Der Siegel”: the capitalist everyday business of “earning a lot of money fast” is off the hook if its nasty effects are traced back to bad apples. Then, once again, “greed” is to blame and not the compulsions of profit making.