Confronted to the abuses that we witness daily in the world of finance, I began last week a series of columns on the ravages of financial capitalism. In the first, I demonstrated the harms of speculation, especially the relationship between it and the economic and financial crisis raging on the planet since summer 2007. In this column, I’ll talk about the birth and evolution of capitalism and oft he stock market, and compare two forms of investment in a high tech company.
Mumford situates «the birth of capitalism and the transition from a barter economy - facilitated by a local and variable currency – to a monetary system with an international credit structure (Mumford, 1950) », in the fourteenth century in Northern Italy. Regarding the stock market, he tells us that «two centuries later, existed in Antwerp, an international stock exchange intended for speculation on vessel armament in foreign ports and on currency. » Others trace the birth of this financial institution at an even earlier time. Some, for instance, report the existence of «courratiers» (ancient form of the French word courtiers), brokers, in Paris in the twelfth century, «concerned with managing and regulating the debts of agricultural communities on behalf of the banks» in France, then for the exchange of state debts by Lombard bankers in the thirteenth century. A first stock exchange is said to have existed in Bruges in the fourteenth century. According to many, According to many, the term «bourse» (stock exchange) origins from the name of the Van Der Beurze (De La Bourse in Walloon) family, the house in which Bruges commodity traders met. However interesting, all these socio-historical references are however little importance in light of speculation, inherent to the stock market.
On this subject, Mumford wrote «international stock exchange intended for speculation »; his use of «stock exchange» and «speculation» within a short sentence and of the adverb «intended» to link both terms and point out the purpose of this financial institution, demonstrates the indissolubility he sees between «stock exchange» and «speculation». Mumford goes on to say that with the advent of financial capitalism, «all business took an abstract form. They did not deal in goods, but in imaginary futures and hypothetical gains (Mumford, 1950). » He continues with the mining industry, stressing that the expansion of operations and use of machinery using the latest technologies of the time, required an injection of capital that the workers could not provide: «This led to the admission of associates who brought capital instead of work: they were silent partners [...] This capitalist development was further stimulated as early as the fifteenth century by the rampant speculation on shares. Landowners and merchants practiced this new game (Mumford, 1950). »
This said, to base human and technological development on a capitalist form of economic organization does not inevitably entail speculation. This practice is not inherent to capitalism, but to human greed; of all times, it has been the doing of a few. It has now reached dizzying heights; creating no real wealth, it only allows a handful of individuals to get revoltingly rich to the point of destroying the system that allowed them to accumulate their wealth. It could be otherwise.
Consider two $100,000 investments made in high technology, the first in a small startup company involved in software development for data security, and the second in a mutual fund speculating on the prices of metals, a critical resource in computer manufacturing. For purposes of this comparison, assume that two investments are worth $ 500,000 after 5 years and that both investors liquidate their respective investment, cashing in a profit of $400,000. Both these investments were equally profitable and will receive the same fiscal treatment, i.e. a tax on only 50% of the capital gain. However, which of these two investments has been most beneficial to society? Which has created real value?
In the first instance, programmers, salespeople and other employees were hired, thus creating collective wealth; furthermore, these people have paid taxes on their incomes to various government and their consumption has fuelled other economic sectors. The value of the small business has increased from $100,000 to 500,000, a value based on tangible assets, although some proportion may be intangible, such as the software developed. Said software has allowed other companies to protect their data and hence operate more efficiently and securely. We should also not forget the fact that the investor will probably not liquidate his investment after 5 years, especially if he owns the business. Even if he did so, the company would not liquidate its assets; under the direction of a new owner, it would continue to prosper, to hire staff and create collective wealth.
In the second case, we can see only a small positive impact on society; as in the first case, merely the imposition of a tax on 50% of the $400,000 capital gain. Quite the contrary, the impacts on society are rather negative. For instance, the rising price of metals affects the development of several companies, raising the prices of several products they need. If the value of investment increased from $100,000 to $500,000, this gain represents no real increase in value, only an increase in the perceived value of metals, the result of speculation on their price. Is the imposition of an identical fiscal treatment to these two investments fair if one considers the benefits to society? Let’s keep this question open for now ... but we will get back to it.
In my next column, I will discuss the financing needs of companies involved in technology.
Sunday, February 7, 2010
Saturday, January 30, 2010
The ravages of financial capitalism
Consumption, technology and finance are intimately related; exceeded by the abuses that I witness daily in the world of finance, I begin today a series of columns on the ravages of financial capitalism.
Technological development, the driving force of consumption, is linked to available funding, especially since the 19th century’s industrial revolution; however, it was not always so. In «Consommation et nouvelles technologies — Au monde de l’hyper», a book I published in November 2009, I write: «Capitalism and technological development can exist without the other: "Capitalism has existed in other civilizations whose technical development was relatively low. Technique made steady progress from the tenth to the fifteenth century without needing the nudge of capitalism (Mumford, 1950)." But the nature of current technological development and the speed with which it takes place requires a concentration of capital available only to States and large investors (Ellul, 1990). » A source of funding is needed for technological progress; it can be public or private.
This said, State communism has shown its limits; capitalism has thus proved to be the least evil form of economic organization, despite the fact that it gave birth to the consumer society, then to hyperconsumption, and is undermined by speculation. This is why Robert Rochefort said: «The consumer society is the least evil form of society tested so far (Rochefort, 1995). »
Consequently, as I wrote in «Consommation et luxe – La voie de l’excès et de l’illusion» in 2007: «It is not my intention to criticize capitalism or the stock market as a whole. This mode of financing is necessary for the operation and growth of businesses. » I was then content to denounce the greed of a few large investors that feeds a speculation phenomenon. Two years have passed, and, if I still strongly believe in the merits of one form of capitalism, responsible, my opinion of the stock market has further deteriorated since then, because, more than ever, speculation is raging on Wall Street, Bay Street and all stock exchanges.
Speculation is a phenomenon which is inherent to stock market trading, because it is rooted in human desires for power, money being a form of power. Extremely harmful to our societies, it is responsible for the subprime mortgages crisis, which arose in summer 2007, then degenerated into an economic and financial crisis a year later; speculation is also responsible for most preceding crisis and for the bad reputation that many have made to capitalism: «Later, and more destructive to the reputation of capitalism in the United States, was the visibly insane Florida real estate speculation, the rising corporate and industrial voice and, most important, the stock market explosion of the late 1920s. Then came the world resonating crash of 1929 and, for ten long years, The Great Depression. (Galbraith, 2004). »
Closer to us, take for example high-frequency trading, a practice that is now spreading on Wall Street: « Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense. These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk. Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer (Stock Traders Find Speed Pays, in Milliseconds). »
Thus, it is likely that much of the gains on the stock market in 2009 may be attributed to speculation and market manipulation. Such practices create no tangible value, only a hypothetical value based on an imaginary future, hence the creation of speculative bubbles, technological, real estate or other; those inevitably burst sooner or later, causing the usual parade of economic and social problems. Said practices will ultimately destroy our economies and our societies if we do not put an end to them.
Speculation and market manipulation, which have flared up after the stock market crisis of fall 2008, will inevitably lead to an even worse crisis, from which Western economies may not recover, if States do not exercise tighter control over these practices.
In my next column, I’ll talk about the birth and evolution of capitalism and oft he stock market, and compare two forms of investment in a high tech company.
Technological development, the driving force of consumption, is linked to available funding, especially since the 19th century’s industrial revolution; however, it was not always so. In «Consommation et nouvelles technologies — Au monde de l’hyper», a book I published in November 2009, I write: «Capitalism and technological development can exist without the other: "Capitalism has existed in other civilizations whose technical development was relatively low. Technique made steady progress from the tenth to the fifteenth century without needing the nudge of capitalism (Mumford, 1950)." But the nature of current technological development and the speed with which it takes place requires a concentration of capital available only to States and large investors (Ellul, 1990). » A source of funding is needed for technological progress; it can be public or private.
This said, State communism has shown its limits; capitalism has thus proved to be the least evil form of economic organization, despite the fact that it gave birth to the consumer society, then to hyperconsumption, and is undermined by speculation. This is why Robert Rochefort said: «The consumer society is the least evil form of society tested so far (Rochefort, 1995). »
Consequently, as I wrote in «Consommation et luxe – La voie de l’excès et de l’illusion» in 2007: «It is not my intention to criticize capitalism or the stock market as a whole. This mode of financing is necessary for the operation and growth of businesses. » I was then content to denounce the greed of a few large investors that feeds a speculation phenomenon. Two years have passed, and, if I still strongly believe in the merits of one form of capitalism, responsible, my opinion of the stock market has further deteriorated since then, because, more than ever, speculation is raging on Wall Street, Bay Street and all stock exchanges.
Speculation is a phenomenon which is inherent to stock market trading, because it is rooted in human desires for power, money being a form of power. Extremely harmful to our societies, it is responsible for the subprime mortgages crisis, which arose in summer 2007, then degenerated into an economic and financial crisis a year later; speculation is also responsible for most preceding crisis and for the bad reputation that many have made to capitalism: «Later, and more destructive to the reputation of capitalism in the United States, was the visibly insane Florida real estate speculation, the rising corporate and industrial voice and, most important, the stock market explosion of the late 1920s. Then came the world resonating crash of 1929 and, for ten long years, The Great Depression. (Galbraith, 2004). »
Closer to us, take for example high-frequency trading, a practice that is now spreading on Wall Street: « Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense. These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk. Nearly everyone on Wall Street is wondering how hedge funds and large banks like Goldman Sachs are making so much money so soon after the financial system nearly collapsed. High-frequency trading is one answer (Stock Traders Find Speed Pays, in Milliseconds). »
Thus, it is likely that much of the gains on the stock market in 2009 may be attributed to speculation and market manipulation. Such practices create no tangible value, only a hypothetical value based on an imaginary future, hence the creation of speculative bubbles, technological, real estate or other; those inevitably burst sooner or later, causing the usual parade of economic and social problems. Said practices will ultimately destroy our economies and our societies if we do not put an end to them.
Speculation and market manipulation, which have flared up after the stock market crisis of fall 2008, will inevitably lead to an even worse crisis, from which Western economies may not recover, if States do not exercise tighter control over these practices.
In my next column, I’ll talk about the birth and evolution of capitalism and oft he stock market, and compare two forms of investment in a high tech company.
Sunday, January 17, 2010
Response site to Haiti crisis
Here's a site developed by Google to find a person or supply information about a missing person.
Sunday, January 10, 2010
Poken, the latest way to network
Have you been pokened recently? Yes, not poked, pokened! It is far less painful and far more amusing. Pokening will shortly have to be added to our vocabulary. One may describe the practice as the mating of two palm-held digital devices the size of a USB key «to share your contact details and online social networks in the real world. ». Think of it as a Web 2.0 era business card and of a new way of shaking hands. Although there are more «serious» looking models, the poken you’ll want as an ice-breaker in a party is the pokenSPARK TM, a smiling figurine not unlike the famed smileys, offered in a variety of designs and colours.
Even if you don’t own a poken yet, you may still sign up and create an account in the pokenverse to explore some of the features of this latest social network.
You can order one from an authorized online reseller. More about this latest techno-gadget in coming columns, after I receive the ones I’ve ordered and had a chance to use it.
My initial reaction: a brilliant idea that will soon catch on.
Even if you don’t own a poken yet, you may still sign up and create an account in the pokenverse to explore some of the features of this latest social network.
You can order one from an authorized online reseller. More about this latest techno-gadget in coming columns, after I receive the ones I’ve ordered and had a chance to use it.
My initial reaction: a brilliant idea that will soon catch on.
Saturday, December 12, 2009
Consumption and health: Morgan Farms
I publish this column as a favour to John Bastian, a long-time friend who devoted much of his life to organic agriculture and livestock breading. He wishes to address you the message below.
«Dear friends and customers,
For over 20 years now, my dream retirement project has been to grow organic healthy food for as many people as possible. And it has been quite a journey, a wonderful journey—and as all journeys are, they come to an end of some sort. This project grew a little larger than I planned. Almost all of you tell us that you appreciate Morgan Farms as a place where you can get a good variety of organic meats and baked goods from our freshly ground whole flour. And we sincerely thank you for your support and feedback these past years.
However, with me turning 70 next year, and my wife Janice getting busy again with her Chiropractic practice, we are approaching a different path in our lives. With the world’s economy as it is, and the absolute need for local, organic foods, we find this painfully sad that unless we find a solution, we may have to close down almost all of the farm operations. Our participation at the yearly organic markets and our availability here at the store would come to an end.
We are writing to you, our valued friends and customers, to inform you of our situation and the possible consequences of what may happen next year. These past years we have looked at different solutions to keep the farm operation up and running, but so far have not come up with anything viable. We therefore want to get the word out and ask people like you who have been close to the farm, if you know anyone who may have the dream of becoming involved and continuing this type of venture. The farm has grown to where several individuals could make a good living from the farming, food processing and distribution activities. Among all the buildings we have, there are three houses that would be available for rent to people settling on the farm. The farm has a big infrastructure.
South of the border we heard of consumers grouping themselves together to operate their own farm to ensure a good quality food supply. There is an interest already at Morgan Farms to open a Co-op for which there would have to be many consumers who want to become members, with either an active or passive contribution.
If you are interested in any kind of participation, want to share ideas or have questions, please e-mail us at john@fermemorgan.com or call us at 819-687-9021. We plan to set up information sessions here on the farm and would welcome your presence and participation.
We have come to a point where having tried many different options, we feel we don’t have many solutions left at our disposal to keep the farm open for another year. Therefore, any interest or creative ideas are welcome. We want very much for our dream of the farm to live on, to continue providing healthy and sustainable food alternatives, and we hope that new fresh solutions come our way for Morgan Farms to continue its journey!
In appreciation, »
Janice and John
«Dear friends and customers,
For over 20 years now, my dream retirement project has been to grow organic healthy food for as many people as possible. And it has been quite a journey, a wonderful journey—and as all journeys are, they come to an end of some sort. This project grew a little larger than I planned. Almost all of you tell us that you appreciate Morgan Farms as a place where you can get a good variety of organic meats and baked goods from our freshly ground whole flour. And we sincerely thank you for your support and feedback these past years.
However, with me turning 70 next year, and my wife Janice getting busy again with her Chiropractic practice, we are approaching a different path in our lives. With the world’s economy as it is, and the absolute need for local, organic foods, we find this painfully sad that unless we find a solution, we may have to close down almost all of the farm operations. Our participation at the yearly organic markets and our availability here at the store would come to an end.
We are writing to you, our valued friends and customers, to inform you of our situation and the possible consequences of what may happen next year. These past years we have looked at different solutions to keep the farm operation up and running, but so far have not come up with anything viable. We therefore want to get the word out and ask people like you who have been close to the farm, if you know anyone who may have the dream of becoming involved and continuing this type of venture. The farm has grown to where several individuals could make a good living from the farming, food processing and distribution activities. Among all the buildings we have, there are three houses that would be available for rent to people settling on the farm. The farm has a big infrastructure.
South of the border we heard of consumers grouping themselves together to operate their own farm to ensure a good quality food supply. There is an interest already at Morgan Farms to open a Co-op for which there would have to be many consumers who want to become members, with either an active or passive contribution.
If you are interested in any kind of participation, want to share ideas or have questions, please e-mail us at john@fermemorgan.com or call us at 819-687-9021. We plan to set up information sessions here on the farm and would welcome your presence and participation.
We have come to a point where having tried many different options, we feel we don’t have many solutions left at our disposal to keep the farm open for another year. Therefore, any interest or creative ideas are welcome. We want very much for our dream of the farm to live on, to continue providing healthy and sustainable food alternatives, and we hope that new fresh solutions come our way for Morgan Farms to continue its journey!
In appreciation, »
Janice and John
Sunday, November 1, 2009
Consumption, a form of compensation
The following are extracts of « Consommation et image de soi, Dis-moi ce que tu achètes… » (Consumption and compensation, Tell me what you buy...), a book I published in 2005 (pages 108 to 110); it's in French only... for now. In it, I demonstrate that consumption is a form of compensation for some people.
Continuing the reflection on the relationship between product image and self-image, I would like to demonstrate the compensatory role consumption may play for people whose self-image is negative, established by their low self-esteem. I propose to call «compensatory self-incongruity» the relationship between a product’s positive image and negative self-image of a person who nevertheless buys the product, despite the incongruity between both images.
My demonstration involves six types of products (goods or services): perfumes, luxury products (cruises, renowned hotels, designer clothing, etc.), art objects, eating out in a restaurant, cosmetics and clothing. To establish this compensatory self-incongruity, it is mandatory to demonstrate that the image of said products is positive, something confirmed by three facts.
Firstly, those who mention said products deem those to be representative of them; to classify as representative products whose image is negative would violate the self-image enhancing principle. Secondly, the foremost symbolisms associated with these products are all positive. Thirdly, consumption of these products generates positive emotions, such as the feeling of well-being mentioned by all interviewees. Moreover, the persons in question have a negative self-image, as evidenced by their low self-esteem.
Therefore, according to Sirgy, the relationship between the (positive) image of those products and the (negative) self-image of said persons is an example of positive self-incongruity. Consequently, the latter should not purchase the former because the incongruity between images initiates a conflict. However, such in not the case since, on the contrary, these people actually buy these products. I see a form of compensation in this phenomenon; through their consumption, these people want to express something positive about their image, project a more positive image of themselves. This is thus an example of compensatory self-incongruity.
This assertion is supported by the existence of significant differences between those whose self-esteem is weak or very weak and those whose self-esteem is strong or very strong. Thus, an analysis of the level of consumption reveals that 60% of people whose self-esteem is very weak consider that they consume more than most people; this proportion is only 24% for those whose self-esteem is very strong. Significant differences also exist in terms of representativeness of products. Thus, 80% of people whose self-esteem is very weak mention perfumes as products representative of themselves, against 38.5% of those whose self-esteem is very strong; this difference is maintained for luxury products (66.7% against 38.3%), for art objects (60% against 7.7%), for eating out in a restaurant (40% against 21.3 %) and for cosmetics (71.4% against 28.6%).
These results demonstrate unequivocally that consumption as a whole, especially of the products mentioned, is much more important for people whose self-esteem is low; in their case, consumption seems to me to be a form of compensation.
Continuing the reflection on the relationship between product image and self-image, I would like to demonstrate the compensatory role consumption may play for people whose self-image is negative, established by their low self-esteem. I propose to call «compensatory self-incongruity» the relationship between a product’s positive image and negative self-image of a person who nevertheless buys the product, despite the incongruity between both images.
My demonstration involves six types of products (goods or services): perfumes, luxury products (cruises, renowned hotels, designer clothing, etc.), art objects, eating out in a restaurant, cosmetics and clothing. To establish this compensatory self-incongruity, it is mandatory to demonstrate that the image of said products is positive, something confirmed by three facts.
Firstly, those who mention said products deem those to be representative of them; to classify as representative products whose image is negative would violate the self-image enhancing principle. Secondly, the foremost symbolisms associated with these products are all positive. Thirdly, consumption of these products generates positive emotions, such as the feeling of well-being mentioned by all interviewees. Moreover, the persons in question have a negative self-image, as evidenced by their low self-esteem.
Therefore, according to Sirgy, the relationship between the (positive) image of those products and the (negative) self-image of said persons is an example of positive self-incongruity. Consequently, the latter should not purchase the former because the incongruity between images initiates a conflict. However, such in not the case since, on the contrary, these people actually buy these products. I see a form of compensation in this phenomenon; through their consumption, these people want to express something positive about their image, project a more positive image of themselves. This is thus an example of compensatory self-incongruity.
This assertion is supported by the existence of significant differences between those whose self-esteem is weak or very weak and those whose self-esteem is strong or very strong. Thus, an analysis of the level of consumption reveals that 60% of people whose self-esteem is very weak consider that they consume more than most people; this proportion is only 24% for those whose self-esteem is very strong. Significant differences also exist in terms of representativeness of products. Thus, 80% of people whose self-esteem is very weak mention perfumes as products representative of themselves, against 38.5% of those whose self-esteem is very strong; this difference is maintained for luxury products (66.7% against 38.3%), for art objects (60% against 7.7%), for eating out in a restaurant (40% against 21.3 %) and for cosmetics (71.4% against 28.6%).
These results demonstrate unequivocally that consumption as a whole, especially of the products mentioned, is much more important for people whose self-esteem is low; in their case, consumption seems to me to be a form of compensation.
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