Capitalism as Anti-Market

December 16, 2010 at 10:39 pm | Posted in Capitalism, Free Trade, Political Economy, World Politics | 2 Comments
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Nothing shatters the myth of free market capitalism than reports that an anonymous group of bankers from the largest Wall Street giants meet privately on the third Wednesday of every month to overseas trading in derivatives. Though the big banks claim that this secretive committee–“even their identities have been strictly confidential” says a New York Times report–exists to safeguard the integrity of the markets, they also have fought bitterly to prevent other banks from entering the market and obstructed all attempts to make full information on prices and fees freely available.

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In the most profitable sector of the economy–where derivatives traders are routinely paid tens and hundreds of millions of dollars as compensation and bonuses–markets do not function the way the politicians, economists, commentators, and bureaucrats tell us they do: the forces of supply and demand do not operate without distortions; there is no free flow of information or transparency and customers are price-takers rather than price-makers.

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This, of course, has always been true of capitalism. Fernand Braudel had argued that contrary to prevailing myths, capitalism is anti-market. The market economy, the world of transparent visible realities on which ‘economic science’ was founded, he contended was ‘the not unacceptable face of ‘micro-capitalism,’ barely distinguishable fro ordinary work,” it was very different from the rarefied heights from where exceptional profits–as cornered by the derivatives traders and financiers–are reaped.

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It is precisely because derivatives are ‘exotic’ instruments and not understood by the public, that the virtual identity between free markets and capitalism incessantly proclaimed by policymakers, economists, and journalists live on in the public domain. In many transactions at the corner grocery store or a farmers’ market, there is an appearance of free markets–of small producers and shop keepers selling goods to the public, “barely distinguishable from ordinary work.” But even here, the principles of the market do not operate. No seller in a farmer’s market can know the costs of production of their competitors and nor could consumers go to every seller even in a nearby area to compare prices–in most cases, sellers quote prices they think they can get away with and consumers pay what they think they can afford.

Derivatives trade, of course, is very different. They are designed to shift risks. Typically, if the price of a gallon of oil is $2.50, large consumers may choose to lock in future supplies at $2,80 a gallon so that if prices soar to $3.00 or $3.50 a gallon, they will be insulated from the rise. Their suppliers have no idea how much lower they could charge their customers because the banks dont disclose the process by which prices are set. This is where the collusion takes place–and where the big profits are reaped.

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If this is not enough, we also learn that as the financial crisis set in 2008, the US Federal Reserve opened its vaults a staggering 174 times within a 13-month period to the Citigroup, that Barclays, the British Bank owed the Fed some $48 billion at one time and on and on the list goes of the US Central Bank massively shoring up domestic and foreign banks and even to corporations such as Harley Davidson and McDonalds without public scrutiny. Needless to say, no such facility was ever considered for smaller operators. So much for free markets without the distorting influence of the state!

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2 Comments »

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  1. One could also refer to Lenin on Imperialism, the age of monopoly capitalism which supplants competitive capitalism.

    • Yes, but the point of Lenin’s imperialism was also about inter-capitalist competition leading to war…and this is changed now with TNCs which have no nationality and one can’t really envisage war between the main capitalist powers in an age of nuclear terror.


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