coromandal


markets are a totem

Here’s a description, from Galbraith’s book A Short History of Financial Euphoria, of the aftermath of market crashes, like those of 1987 and 2008. He describes the refusal to talk about the real reason behind crashes, the substitution of other not real reasons, and the propping up of the Market as an unimpeachable institution.

Well, markets aren’t magic, but beyond that and perhaps more importantly, money people are not well equipped for civil leadership. If there is a priesthood increasing superstition and influence around our economic lives – which should be rational and held subject to more important things, like human wellbeing and flourishing – then shouldn’t we do something about it? Discredit the priesthood and maybe the orthodoxy will wither and die.

From the book:

There will be talk of regulation and reform. What will not be discussed is the speculation itself or the aberrant optimism that lay behind it. Nothing is more remarkable than this: in the aftermath of speculation, the reality will be all but ignored.

There are two reasons for this. In the first place, many people and institutions have been involved, and whereas it is acceptable to attribute error, gullibility and excess to a single individual or even to a particular corporation, it is not deemed fitting to attribute them to whole community, and certainly not to the whole financial community. Widespread naivete, even stupidity, is manifest; mention of this, however, runs drastically counter to the earlier noted presumption that intelligence is intimately associated with money. The financial community must be assumed to be intellectually above such extravagance of error.

The second reason that the speculative mood and mania are exempted from blame is theological. In accepted free-enterprise attitudes and doctrine, the market is a neutral and accurate reflection of external influences; it is not supposed to be subject to an inherent and internal dynamic of error. This is the classical faith. So there is a need to find some cause for the crash, however far fetched, that is external to the market itself. Or some abuse of the market that has inhibited its normal performance.

Again, this is no matter of idle theory; there are very practical consequences, and these, as we shall see, are especially evident an important in our own time. That the months and years before the 1987 stock market crash were characterized by intense speculation no one would seriously deny. But in the aftermath of that crash, little on no importance was attributed to this speculation. Instead, the deficit in the federal budget became the decisive factor. The escape from reality continued with studies by the New York Stock Exchange, the Securities and Exchange Commission, and a special presidential commission, all of which passed over or minimized the speculation as a conditioning cause. Markets in our culture are a totem; to them can be ascribed no inherent aberrant tendency or fault.

John Kenneth Galbraith, A Short History of Financial Euphoria, p23

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