Posts Tagged ‘finance’


Posted: 19 November 2015 in Uncategorized
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Stock, according to Jason Zweig’s new book, The Devil’s Financial Dictionary, is defined as

The right to own a fraction of a business, regarded by most investors as the right to play a video game.

The word “stock” is rooted in the Old Teutonic stukko, a stick, trunk, or log—an ancient metaphor largely forgotten as television and the Internet have reduced the idea of a stock to a TICKER SYMBOL and a stream of prices flickering on a screen. A tree trunk is a solid foundation for many branches bearing green foliage and grows higher unless it is trimmed back, in which case it sprouts new growth. The history of the word stock thus expresses what most investors want from a stock itself—but seldom get, because they treat it like a weed rather than like a tree.

As early as AD 862, it appeared in Old English as stocca or stocce. One of its earliest meanings, by analogy to a tree trunk that generates many smaller branches, was as the source of a line of descent. That sense is still used, as in “She comes from good stock.” In another early nuance, stocke meant a stem in which a graft, or transplanted twig, is inserted.

Early on, stokke referred to the wooden chopping blocks on which butchers and fishmongers hacked up their merchandise. In 1282, a “stokkes market” was built in the heart of the City of London; it survived until Dickens’s day. A city chronicle recorded, “This yere [1450] the stokkes was dividid bitweene fishmongers and bochers [butchers].” Because London’s securities market later sprang up in the same district, it is conceivable that the term stock market originated in this haggling, open outcry, and bloody chopping of goods into little pieces for resale.

A stoke or stocke of money appeared in English by the fifteenth century to describe a sum set aside to fund future expenses. Soon, the image of a deeply rooted core or trunk led stock to mean the total wealth of an individual or nation.

In 1729, for instance, Jonathan Swift’s “A Modest Proposal” satirically claimed that if the Irish raised babies for food, “the Nation’s Stock will be thereby encreased Fifty Thousand Pounds per annum.”

Stock was first used to describe the funds available for a company’s operations in the early seventeenth century. “Many…put in different summes, which all together made up six hundred thousand pound, the first stock upon which this Company has built its prodigious Encrease,” a historian of the East India Company wrote in 1669. Individual shares of that total were called stock as well, as were what today we call bonds.

Instead of playing with stocks as if they were blips in an electronic game, investors would be far better off planting them like trees.


High-frequency trading, according to Jason Zweig’s new book, The Devil’s Financial Dictionary, is defined as

A technique often used to cheat other traders by a few fractions of a penny in a few millionths of a second, much faster than deceptive trading used to be. The practice of snooping on stock quotes and using private information to trade ahead of others is as old as Wall Street itself. High-frequency trading became controversial only after it was based on advanced computer technology rather than cheating by hand.

In 1790, high-frequency traders cashed in on Alexander Hamilton’s proposal to restructure the federal debt by hiring fast ships to outrace the spread of the news on land. That enabled the traders to snap up U.S. bonds at bargain prices from holders who were still in the dark.

Around 1835, reporter Daniel H. Craig began boarding steamships in Halifax, Nova Scotia. He swiftly digested the financial news in the European newspapers on board, then recorded it in tiny bulletins on tissue paper that he strapped to the feet of trained carrier pigeons. As each ship approached Boston, Craig released the birds, which homed in on his office, where clerks transcribed the news and distributed it to high-frequency traders who paid up to $500 for each hour they were able to get it ahead of the general public.

For decades, trading intermediaries called “specialists” or “market makers” shaved at least 12.5 cents off every trade for themselves. The take of today’s high-frequency traders appears to average 1 cent or less. Their equipment is much faster than it was in the 1790s, but the techniques some high-frequency traders use are just electronic updates of the same old dirty tricks.

CRASH, v. and n.

Posted: 17 November 2015 in Uncategorized
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Crash, according to Jason Zweig’s new book, The Devil’s Financial Dictionary, is defined as

To collapse or drop in price by a frightening amount; a broad and sudden decline that sweeps through a financial market. An onomatopoeic, or imitative, word that mimics the sound of something shattering, crash dates back in English to about 1400. (Craze, which takes its meaning from the supposedly distinctive fissures in a lunatic’s skull, likely shares the same root.)

Surprisingly, crash wasn’t a familiar financial term as late as 1817, when the poet Samuel Taylor Coleridge described the typical credit collapse, in his Biographia Literaria, as “a rapid series of explosions (in mercantile language, a crash), and a consequent precipitation of the general system.”

When William Armstrong published Stocks and Stock-Jobbing in Wall-Street in 1848, he used the word repeatedly. However, at least in the United States, it then usually meant a sudden fall in a single stock, not in the entire market. A general drop in the stock market in Armstrong’s day was an “explosion,” a “break,” a “crisis,” or a “convulsion.”


Posted: 16 November 2015 in Uncategorized
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Bubble, according to Jason Zweig’s new book, The Devil’s Financial Dictionary, is defined as

A mania; a rise in asset prices that seems irresistible at the time and irrational in retrospect; a bull market blown full of hot air until it reaches the bursting point.

The term is commonly believed to have originated around 1719–1720, when shares in the Mississippi Co. in France, the South Sea Co. in Britain, and the Dutch East India Company in the Netherlands rose approximately tenfold in a matter of months and then collapsed.

But the word is older. To bubble, meaning to cheat or trick, was a common term in England decades before the Mississippi Co. mania. “Let them be bubbl’d by them that know no better,” wrote Daniel Defoe, in his pamphlet “The Free-Holders Plea against Stock-Jobbing Elections of Parliament Men” (1701).

As a noun, “bubble” was also a synonym for someone who had been robbed or defrauded. As the rake Dorimant advises in George Etherege’s Restoration comedy, The Man of Mode (1676): “Lose it all like a frank gamester on the square, ’twill then be time enough to turn rook [swindler] and cheat it up again on a good substantial bubble.”

The Dutch were also familiar with the word “bubble” (which they presumably borrowed from the English). It was closely related to windhandel, or “dealing in wind,” the Dutch expression for trading in stocks that weren’t in the speculator’s possession, as SHORT-sellers may still do today. (Windhandel also referred to trading in derivatives such as options and futures.)


I understand: the only relevance of Karl Marx for the likes of the Wall Street Journal is to poke fun at Marxists who bristle at the idea of paying a fee to visit his gravesite.

“The Friends” of the cemetery are also anticipating an uptick in interest in Marx and in complaints from Marxists. This graveyard, in a leafy, genteel part of north London, typically sees around 200 visitors a day. Most ask to see Marx.

As it turns out, it’s that “uptick” in interest that is, in fact, more interesting.

Clearly, if all were going well for capitalism, there wouldn’t be any interest in Marx. But it isn’t, by a long shot—certainly not when global capitalism appears to be entering a new recession [ht: ja] and a variety of liberal supporters, from Robert Reich to Hillary Clinton, find it necessary to endeavor to “save capitalism from itself.”

Chris Dillow certainly thinks Marx is relevant today, for a variety of reasons: financialization, secular stagnation, the negative effects of inequality on productivity, and the situation of workers. In fact, Dillow argues, there’s a side of Marx that is particularly relevant for us today:

If you start from Engels’ Condition of the Working Class in England and start reading Capital not from the beginning but from chapter 10, another Marx emerges – one whose thinking was rooted in empirical facts about the working lives of the worst off and in an urge to improve these. It is this Marx which is still relevant today.

Certainly, the interest shown by Marx (and, of course, Engels) in the real situation under capitalism of the working-class—aided by Leonard Horner’s “undying service to the English working-class”—puts most contemporary economists to shame.*

But there’s another side of Marx that is at least as relevant today: the critique of political economy. The fact is, Marx didn’t invent an entirely new method to analyze capitalism. He started where mainstream economists (in his day, the classical political economists, such as Adam Smith and David Ricardo) left off and then, based on their own assumptions, developed his critique of their theories. Marx started with an “immense accumulation of commodities” (what today we call GDP) and “just deserts” (that is, the idea that everyone gets what they deserve and the distribution of income under capitalism is “fair”) and then showed how the growth of the wealth of nations was based on “the vampire thirst for the living blood of labour” on the part of capitalists. Therefore, what is an incontrovertible “good” for mainstream economists (more stuff, more commodities) can be seen as a “bad” (since it means more ripping-off of surplus-value by capitalists from the workers who create it). And that class exploitation can, in turn, be directly tied to financialization, secular stagnation, the negative effects of inequality, the situation of workers under capitalism, and much more.

Both mainstream economic theory and capitalism have, of course, changed since middle of the nineteenth century. That’s why the theoretical claims and empirical observations contained in Capital can’t simply be transferred to our own time. What is relevant, it seems to me, is the example of the “ruthless criticism” of political economy—the critique of both mainstream economic thought and of capitalism itself.

That two-fold critique, as exemplified in Marx’s writings, is precisely what is relevant today.

*Of course, their own Adam Smith puts them to shame, as in this passage on the negative effects of the division of labor on workers from Book 5 of the Wealth of Nations:

In the progress of the division of labour, the employment of the far greater part of those who live by labour, that is, of the great body of the people, comes to be confined to a few very simple operations, frequently to one or two. But the understandings of the greater part of men are necessarily formed by their ordinary employments. The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. Of the great and extensive interests of his country he is altogether incapable of judging, and unless very particular pains have been taken to render him otherwise, he is equally incapable of defending his country in war. The uniformity of his stationary life naturally corrupts the courage of his mind, and makes him regard with abhorrence the irregular, uncertain, and adventurous life of a soldier. It corrupts even the activity of his body, and renders him incapable of exerting his strength with vigour and perseverance in any other employment than that to which he has been bred. His dexterity at his own particular trade seems, in this manner, to be acquired at the expence of his intellectual, social, and martial virtues. But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it.


As James Surowiecki explains in his review of Joseph Stiglitz’s most recent books, “the fundamental truth about American economic growth today is that while the work is done by many, the real rewards largely go to the few.”

Economic inequality is clearly back on the agenda in the United States, in political discourse as well as in the discipline of economics.

Historically, inequality was not something that academic economists, at least in the dominant neoclassical tradition, worried much about. Economics was about production and allocation, and the efficient use of scarce resources. It was about increasing the size of the pie, not figuring out how it should be divided. Indeed, for many economists, discussions of equity were seen as perilous, because there was assumed to be a necessary “tradeoff” between efficiency and equity: tinkering with the way the market divided the pie would end up making the pie smaller. As the University of Chicago economist Robert Lucas put it, in an oft-cited quote: “Of the tendencies that are harmful to sound economics, the most seductive, and…the most poisonous, is to focus on questions of distribution.”

Today, the landscape of economic debate has changed. Inequality was at the heart of the most popular economics book in recent memory, the economist Thomas Piketty’s Capital. The work of Piketty and his colleague Emmanuel Saez has been instrumental in documenting the rise of income inequality, not just in the US but around the world. Major economic institutions, like the IMF and the OECD, have published studies arguing that inequality, far from enhancing economic growth, actually damages it. And it’s now easy to find discussions of the subject in academic journals.

First, after decades of simply ignoring the problem, mainstream economists tried to make sense of growing inequality in terms of “earnings inequality,” that is payments to different amounts of human capital (measured, for example, in terms of years of education). But that couldn’t account for huge differences within the top 10 percent, most of whom have college degrees. A second, more recent attempt has focused on the “rent-seeking” behavior of individuals (like CEOs) and sectors (such as pharmaceuticals and finance). The idea is that a small group of individuals and industries at the top are able to capture excess payments—”rents”—because they’re able to keep competitive forces from driving returns down. From Stiglitz’s perspective, the issue is

the economy suffers when “more efforts go into ‘rent seeking’—getting a larger slice of the country’s economic pie—than into enlarging the size of the pie.”

As I’ve explained before, the idea of rent-seeking behavior puts the final nail in the coffin of neoclassical marginal productivity theory, that is, the idea that “everybody gets what they deserve, according to their marginal contributions to production.”

But rent-seeking theory fails to account for where the extra value that takes the form of rents comes from, that is, it doesn’t offer an explanation of how a surplus is created, which can then be captured—in competitive situations (so-called normal profits) as well as in noncompetitive situations (which give rise to rents).

The fact is those at the top, in the immediate postwar period (when income inequality was much less than it is today), were left with both the incentive and the means to remake the circumstances to capture the surplus that was being created. And, of course, they eventually did so, beginning in the 1970s—allowing them both to make sure more surplus was pumped out of the workers (by paying wages that remained stagnant) and to capture more of that surplus (by funneling it into areas like finance and pharmaceuticals and by paying CEOs higher and higher salaries).

That, in my view, is the “fundamental truth about American economic growth.”


Branko Milanovic has put forward an idea he thinks “will gradually become more popular”:

The idea is simple: the presence of the ideology of socialism (abolition of private property) and its embodiment in the Soviet Union and other Communist states made capitalists careful: they knew that if they tried to push workers too hard, the workers might retaliate and capitalists might end up by losing all.

The idea reminds me of an argument Etienne Balibar made many years ago (unfortunately, I can no long remember or find the original source but here’s a link [pdf] to one version of it)—that the “European project” was more progressive during the Cold War in the sense that the welfare state was constructed, by forces from above and below, as a response to the Soviet model of socialism, in order to prevent the working classes from adopting a communist ideology. (Since then, as Balibar has recently argued, the European project has fundamentally changed, as it has been assimilated by globalized finance capitalism and, under German hegemony, a strategy of industrial competitiveness based on low wages.)

Milanovice discusses some recent empirical work on three channels through which socialism “disciplined” income inequality under capitalism: (a) ideology/politics (e.g., the electoral importance of Communist and some socialist parties), (b) trade unions (some of which were affiliated with Communist or Labor parties), and (c) the “policing” device of the Soviet military power. He then offers his own analysis:

Communism, was a global movement. It does not require much reading of the literature from the 1920s to realize how scared capitalists and those who defended the free market were of socialism. After all, that’s why capitalist countries militarily intervened in the Russian Civil War, and then imposed the trade embargo and the cordon sanitaire on the USSR.  Not a sort of policies you would do if you were not ideologically afraid (because militarily the Soviet Union was then very weak). The threat intensified again after the World War II when the Communist influence through all three channels was at its peak. And then it steadily declined so much that by mid-1970s, it was definitely small. The Communist parties reached their maximum influence in the early 1970s but Eurocomunism had already expunged from its program any ideas of nationalization of property. It was rapidly transforming itself into social democracy. The trade unions declined. And both the demonstration effect and the fear of the Soviet Union receded. So capitalism could go back to what it would be doing anyway, that is to the levels of inequality it achieved at the end of the 19th century. “El periodo especial” of capitalism was over.

He admits the implication of such a story may be rather unpleasant:

left to itself, without any countervailing powers, capitalism will keep on generating high inequality and so the US may soon look like South Africa.

This is not to suggest we need another Cold War for the United States not to move even closer to looking like South Africa. But it does mean there will be a significant move from above toward more democracy and less inequality only if there’s a real threat to move outside of capitalism from below.