Casino capitalism

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Casino capitalism describes a state of the global, largely capitalist economic system, which is shaped by crisis-prone, globally networked financial markets. In casino capitalism, the financial markets have decoupled from the real economy in that the financing of value creation has taken a back seat to highly speculative financial market transactions. It was coined by the British political scientist Susan Strange with her book Casino capitalism , published in 1986, and adopted as a term by international political economy .

Susan Strange borrowed the term from the analysis of stock market speculation by John Maynard Keynes from 1936. Keynes had also made use of the casino analogy . The casino analogy or term is used today by economists such as Paul Krugman and Rudolf Hickel with explicit reference to Keynes.

Hans-Werner Sinn made the term the title of his book, published in 2009, in which he presented the undesirable developments in the banking system from a regulatory perspective.

"Casino Capitalism" is also used as a political catchphrase . According to the pons language portal, the word is used as a derogatory term for “high-risk business practices with the effect of a global financial crisis”.

Casino Capitalism following JM Keynes

In the opinion of Keynesian economists, financial markets tend to decouple from the real economy in that the function of financing added value takes a back seat to speculative transactions. This regularly leads to financial crises, some of which have devastating effects on the real economy. In order to illustrate the situation of a financial market decoupled from the real economy, Keynes compared it to a casino. According to Strange's observation, the state of the decoupling of the financial markets through deregulations , in particular the opening of exchange rates in 1973, has developed from the exception to the rule. Strange referred to this “deformation” of the market economy, following Keynes, as casino capitalism.

JM Keynes's Casino Comparison

In order to illustrate the situation of a financial market decoupled from the real economy, Keynes compared it to a casino. According to his analysis, investors on the stock market are less likely to focus on long-term earnings prospects, as these are difficult to assess. Investors would rather orientate themselves on the assumed investment behavior of other market participants and the resulting short-term price fluctuations, as they would have more confidence in their ability to judge the behavior of other market participants. Most speculators were therefore essentially concerned with getting ahead of the movement of the masses a short distance, whereby long-term considerations naturally play no role.

Accordingly, many investment decisions are made, i. H. the allocation of financial resources according to winning strategies that are appropriate for a game of chance . The financial markets would have a tendency to decouple from the real economy. The actual task of the financial market, namely to finance real economic investments and thus to sensibly control the accumulation process of the national economy, is only fulfilled to a limited extent.

Due to the " animal spirits " of the market participants, speculative developments through herd behavior could further build up. This is why financial markets tended to systematically overshoot or undershoot. This leads to financial crises , which often have a negative impact on the real economy.

Keynes formulated the comparison to the casino in this way, among other things:

“Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. "

“Speculators may be harmless as soap bubbles on a steady stream of entrepreneurial activity. But the situation is grave when entrepreneurship becomes the bubble on a bubble bath of speculation. If a country's capital development becomes a by-product of a casino's activity, the job has likely been wrongly done. "

- John Maynard Keynes : General Theory of Employment, Interest and Money, Atlantic Publishers & Distributers (P) Ltd, New Delhi 2008, p. 242.

reception

The extent to which herd behavior can actually affect and destabilize financial markets is the subject of discussion and is difficult to prove empirically.

Susan Strange

Susan Strange , in her 1986 book Casino Capitalism , described how, according to her analysis, the financial markets had decoupled from the real economy and arbitrarily and unpredictably determined the fate of companies, their employees and entire economies and states. This is particularly evident in the frequent financial and economic crises . In the follow-up book Mad Money she continued this analysis and sharpened her theses even further.

“Now, as then [when Casino Capitalism was released ], my concern is not of a technical nature - in terms of the efficiency of the system - but of the social and political aspects of the ordinary people who have never been asked if they have their jobs , wanted to put their savings, their income at risk in this casino-like form of capitalism. "

"My concern, now as it was then, is not technical - with the efficiency of the system - but social and political, with the consequences for ordinary people who have never been asked if they wanted to gamble their jobs, their savings, their income in this casino form of capitalism. "

- Susan Strange: Mad Money , Manchester University Press 1998, ISBN 0-7190-5237-8 , p. 3.

She sees the reasons for the increasingly frequent decoupling of the financial markets from the real economy, on the one hand, in the increased uncertainty in the calculation of long-term earnings prospects since the 1970s, which makes short-term speculations even more attractive. She also emphasizes that globalization has made it easier for the financial markets to evade national regulations, but deliberate government inaction and even deregulation have often exacerbated the situation.

According to Strange's observation, the state of the decoupling of the financial markets due to deregulation , in particular the opening of exchange rates in 1973, has developed from the exception to the rule. She referred to this “deformation” of the market economy as “casino capitalism” based on Keynes.

Strange, like James Tobin, assumes that financial markets are ineffective for inherent reasons. So she advocates not only stronger regulation, but also an active reduction in transaction volumes "cooling down the casino", for example through the introduction of a Tobin tax .

reception

According to Welf Werner , the book Casino Capitalism gave a significant impetus to the discussion of the development of the financial services markets in the second half of the 20th century.

Hermann Adam criticizes that Strange did not develop a systematic theory that could precisely identify the causes and effects. They derive their analysis from observations that are generally valid from their point of view, without checking them with broader empirical data.

According to Carl Christian von Weizsäcker , the word casino capitalism did not come from people who had carefully examined the transactions of the international financial market. The financial markets tended to be very volatile due to the delegation-induced short-term orientation of asset managers. However, the majority of them did not serve speculation, but their opposite, risk hedging, as seasoned “speculators”, due to their good level of information, made their useful service of assuming risk and reducing market volatility available to other market participants. Unlike Susan Strange, economic liberals like von Weizsäcker see financial crises as a “truth mechanism of society” that makes a “significant contribution to the destruction of cloud-cuckoo homes” and subjects the quality of national economic policy to a tough but independent test.

Paul Krugman

In his critical analysis of the influence of the financial market on the real economy, Paul Krugman refers to the analogism of John Maynard Keynes. In the scientific discussion since the mid-1970s, he sees a tendency to underestimate the dangers of “irrational investors”, “dangerous bubbles ” and “breakneck speculation”. They have since, for example, prefer the efficient-market hypothesis of Eugene Fama employed who postulated that already all available information had been priced exactly in the courses on financial markets. In the 1980s, the majority of financial experts assumed that financial market prices were always right and that company managers should therefore focus all their efforts on maximizing share prices for their own benefit and for the benefit of the economy as a whole.

"In other words, the industry felt it advisable to leave the nation's capital development to what Keynes called a 'casino'."

Rudolf Hickel

The German economist Rudolf Hickel describes casino capitalism as a new stage in capitalist development, at the center of which is the growing rule of highly speculative financial markets, in other words “casino capitalism”, which Keynes warned against. Investors operating around the world defined “completely exaggerated” return expectations for value-adding companies through the use of their funds. Driven by a lust for speculation, a threatening, self-reinforcing crisis potential is constantly growing in the financial markets. Instead of self-healing, a "self-destructive crash dynamic" dominates.

According to Hickel, the ordoliberal demand that the state should set the regulatory framework for the markets has been completely suppressed in the area of ​​financial markets in recent years. The way out of casino capitalism leads through the taming of the financial markets through effective state regulation, through which in particular a sufficient liability of the financial institutions is to be established, as well as the reduction of claims for excessive returns on capital.

Hans-Werner Sinn

Hans-Werner Sinn described casino capitalism in his book . How the financial crisis came about and what to do now The causes of the financial crisis from 2007 onwards as a sequence of policy failure and market failure. The author sums it up in his foreword:

“The financial crisis is not a crisis of capitalism, but a crisis of the Anglo-Saxon financial system, which mutated into casino capitalism and, unfortunately, has found more and more imitators in Europe. It is the result of the inability of the international community to create a uniform regulatory system for banks and other financial institutions that channels the self-interest of the actors in such a way that it can develop in a beneficial and productive manner, as one would expect from a market economy. "

For Sinn, casino capitalism is a “deformation” of the market economy through a “knight of fortune” on the part of the banks, who did their business with little equity and therefore bore little risk themselves ( moral risk ). The banks would take profits with them, but if losses were incurred, they would partly charge them to their creditors due to a lack of equity. The state will also be burdened with the losses if it is available for rescue operations . The business model could have emerged because the legislature failed to prescribe clear equity rules.

Sinn criticizes the insufficient equity ratios with which the banks' speculative transactions are based. The banks would have the incentive to enter into extremely risky deals or bets because they reaped high profits themselves, but could pass losses on to investors or taxpayers because of the limitation of liability . One reason for this is the inadequate regulation of the banking system. There is a "laxity competition", whereby banking regulation and supervision under the pressure of location competition are less and less fulfilling their functions.

Sinn therefore advocates strong, internationally coordinated regulation of the banking system. In future, banks should be required to have a core capital ratio of at least eight percent for risk positions. This increases the banks' own participation in speculative risks. The rules for credit insurance , hedge funds and special purpose vehicles , which have so far remained off the bank's balance sheet, should also be tightened. He also advocates a ban on short sales and multilevel securitization of CDOs and a return to the lowest value principle .

Because some banks are not allowed to go bankrupt out of consideration for the overall system ( system relevance , English catchphrase too big to fail ), Sinn considers the forced injection of state equity, i.e. at least partial nationalization , to be the more appropriate way out if critical limits are reached . Such an eventuality rather prevents investors from venturing into high-risk business. That would not be the case with the less restrictive government guarantees, since they basically only boiled down to a socialization of the risks.

Political catchphrase

Casino capitalism is also used as a political catchphrase . According to the sociologist Urs Stäheli , the term is now used primarily in a judgmental manner to denote the dangerousness of speculation . In doing so, they lose sight of the fact that the game is a necessary part of the stock market economy. Playfulness is not a pathology of finance, but a condition of its functioning.

The economic historians Herbert Matis and Karl Bachinger see the expression as an example of a conceptual arbitrariness with less precise meaning.

In the political discussion about financial market reform

For Muhammad Yunus , 2006 Nobel Peace Prize laureate, capitalism has degenerated into a casino in which speculation is catastrophic. The cause of the financial crisis is inadequate regulation. Instead of short-term and excessive profit prospects, sustainability is required.

At the International Conference on Financing for Development in Monterrey , Mexico in 2002 , Fidel Castro compared the world economy to a casino, where for every dollar in world trade a hundred ended up in speculative operations that had no relation to the real economy.

The term "casino capitalism" has meanwhile gained importance in the US discussion about the regulation of the financial markets. Robert Reich , for example, called for the "casino" functions of investment banking to be separated from the activities of commercial banks.

Even Joseph E. Stiglitz welcomes the Volcker rule as a plan of which separate the "Casino" functions of banks of a commercial bank. He calls for a tax reform, whereby the speculative profits from "gambling" at the "Wall Street Casinos" would be taxed no less than other profits.

Likewise, the economist Heiner Flassbeck considers the proposed Volcker rule a suitable way to counteract casino capitalism. Flassbeck emphasized that a sharp distinction had to be made between entrepreneurs who invest and gamblers in financial markets.

For Gerald P. O'Driscoll Jr., Senior Fellow of the Cato Institute , monetary policy should not distort economic decisions by economic agents. A policy designed to hedge an investor's losses while keeping all profits to himself creates incentives to make the most risky bets. Such a system associated with moral risk could rightly be called casino capitalism . The policy of the Fed promoted such casino capitalism in the real estate market.

The then Federal President Horst Köhler declared that “Anglo-American casino capitalism” had failed, which he understood as “doing business without rules, a sense of proportion and inner values”. He also criticized European institutes such as the German Landesbanken, which ran with the herd.

Michael Sommer called for the financial markets to have such strict rules that “every form of casino capitalism” would be prevented. This includes, in particular, a global ban on short sales and the obligation to back financial transactions with sufficient equity.

"Close the casino" was Attac Germany's statement on the financial crisis in September 2008.

FDP federal chairman Guido Westerwelle predicted that the social market economy would prove to be a superior model “on the one hand against the irregular casino capitalism, on the other hand against the planned and bureaucratic state economy”. The “social market economy is not part of the problem, but its solution. It is the right answer to the failure of casino capitalism. ”This is what the Young Entrepreneurs' 2008/2009 annual report says.

The casino analogy under review

Paul Anthony Samuelson and William D. Nordhaus point out that speculation is not the same as gambling. For gamblers, gambling is a negative sum game, while “ideal speculation”, that is to say, diverting goods from times of abundance to times of want, increases economic prosperity .

According to Christian Müller, “casino capitalism” is hardly a metaphor for an economic order that has gotten out of hand. The causes of the financial crisis would probably be discussed for a long time, but it makes no sense to want to make a "casino capitalism" liable, because compared to financial markets, the casino is "a refuge of statistical law".

See also

literature

Web links

Individual evidence

  1. ↑ Christoph Butterwegge : Will the world financial crisis pose a threat to prosperity and democracy? In: background. 1/2009, pp. 17-21. https://www.christophbutterwegge.de/texte/Wird%20die%20Weltfinanzkrise%20zu%20einer%20Gefahr%20fuer%20Wohlstand%20und%20Demokratie.pdf (PDF), literally “It's about that 'casino capitalism' (Susan Strange), which the British economist John Maynard Keynes warned against. Instead of industrial value creation, this system is based on highly speculative financial investments using increasingly complex products (derivatives / certificates) ... "
  2. ^ Wichard Woyke: Concise dictionary of international politics. 11th edition. Bonn 2008, ISBN 978-3-89331-489-8 , p. 170, literally “The international financial markets can no longer be controlled under the given technical and organizational conditions and are therefore increasingly vulnerable to crises. If world trade grows faster than world production, the volume of financial transfers will grow many times faster than world trade. It follows that the financial markets are increasingly decoupling from the real economic development ... This development towards a 'casino capitalism' can be seen as a fundamental characteristic of the globalization of the financial markets. On the stock exchanges in San Francisco, New York, London, Frankfurt, Bahrain , Singapore, Hong Kong and Tokyo move sums every day and around the clock that are more than twice as high as the currency reserves of all central banks in the world. The main share is held by short-term investments of the purely speculative type, so-called derivatives. "
  3. ↑ For example in: RJ Barry Jones (Ed.): Routledge Encyclopedia of International Political Economy. Routledge, 2001, ISBN 978-0-415-14532-9 , pp. 121, 139, 266 routledge.com and in: Hans-Jürgen Bieling : International political economy: An introduction. VS Verlag für Sozialwissenschaften 2007, ISBN 978-3-531-14135-0 , p. 149.
  4. ^ Carlota Perez: Technological Revolutions and Financial Capital. Edward Elgar Publishing, 2002, ISBN 1-84376-331-1 , p. 99, literally: “The term 'Casino Capitalism' was the title given by Susan Strange (1986), following Keynes, to her book about financial behavior…”
  5. ^ Hendrik Hansen: Politics and economic competition in globalization. VS Verlag, 2008, ISBN 978-3-531-15722-1 , p. 147.
  6. ↑ Robert W. Dimand, Mohammed HI Dore: Keynes's Casino Capitalism, Bagehot's International Currency, and the Tobin Tax: Historical Notes on Preventing Fires currency . In: Journal of Post Keynesian Economics , Vol. 22, No. 4 (Summer, 2000), pp. 515-528, JSTOR 4538698.
  7. ↑ Tadeusz Kovalik: Systemic Variety under the Conditions of Globalization and Integration. Cape. 9 In: Grzegorz W. Kołodko: Emerging market economies. Ashgate Publishing, new edition. 2003, ISBN 0-7546-3706-9 . books.google.de
  8. ↑ Marco Dardi, Mauro Gallegati: Alfred Marshall on Speculation. In: History of Political Economy. Fall 1992; 24: 571-594. {“... led Keynes to refer to the workings of modern capitalism as casino capitalism. This manuscript, therefore, enables us to gain ... tendency of risk markets to turn into gambling casinos. Marshall's view of the stock exchange may appear… ”}
  9. ^ D. Sathe: Asian Currency Crisis and the Indian Economy . In: Economic and Political Weekly . 1998, JSTOR 4406719. {“… it is many months since the currency crisis hit the south-east Asian economies and what the world saw at that time can best be described in Keynes's words as 'casino capitalism'.”}
  10. ^ Frank Keuper, Dieter Puchta: Germany 20 years after the fall of the wall. 1st edition, Gabler / GWV Fachverlage, 2010, p. 196.
  11. ↑ Casino Capitalism. pons.eu The language portal, accessed on June 9, 2010
  12. ^ Hendrik Hansen: Politics and economic competition in globalization. Pp. 145-147
  13. ^ Carlota Perez, Technological Revolutions and Financial Capital, Edward Elgar Publishing Limited, 2002, ISBN 1-84376-331-1 , p. 99
  14. ↑ “(...) as one important exception to this critique, Susan Stange offered a more Keynesian-derived view, particularly in her discussion of 'casino capitalism'. Her treatment of capital markets as driven less by the efficient analysis of material fundamentals than by self-fulfilling expectations of rising or falling values ​​accords well with Keynes' stress on the social bases of speculative manias. " Wesley Widmaier: The Keynesian Bases of a Constructivist Theory of the International Political Economy. In: Millennium - Journal of International Studies, Vol. 32, No. 1, 2003, pp. 87-107, doi: 10.1177 / 03058298030320010401 . P. 90, note 7. / Wesley Widmaier: The Keynesian Bases of a Constructivist Theory of the International Political Economy.
  15. ^ Hendrik Hansen: Politics and economic competition in globalization. Pp. 145, 146.
  16. ^ JM Keynes: General theory of employment, interest and money. Berlin 1936, pp. 144f.
  17. ↑ Excursus 6: Destabilizing Speculation and the Specific Instability of Flexible Exchange Rates. In: Hansjörg Herr, Klaus Voy: Currency competition and deregulation of the world economy. Developments and alternatives of the monetary policy of the Federal Republic and the European Communities (EMS). Metropolis, Marburg 1989. ISBN 3-926570-14-8 . P. 74 ff. / JM Keynes: General theory of employment, interest and money. Berlin 1936, pp. 130f.
  18. ^ Hendrik Hansen: Politics and economic competition in globalization. P. 145.
  19. ↑ “This crisis shows that Keynes was right” - A conversation with Nobel Prize winner George Akerlof about the need for regulation, national debt, personal responsibility and bank wages. In: Neue Zürcher Zeitung , accessed on May 19, 2010
  20. ↑ Keynes, Die Allg. Theory ..., Berlin 1974, p. 134; quoted according to Arne Heise: The future of capitalist economies between collapse pessimism and casino mentality . In: Arne Heise, Werner Meißner, Hartmut Tofaute, (Eds.): Marx and Keynes and the crisis of the nineties . WSI Herbstforum 1993. Metropolis Verlag, Marburg 1994, ISBN 3-89518-005-X , pp. 103-138.
  21. ↑ Hansen p. 146
  22. ^ Hans-Jürgen Bieling: International political economy: An introduction. VS Verlag für Sozialwissenschaften 2007. ISBN 978-3-531-14135-0 , p. 149.
  23. ^ Christiane Lemke: International Relations: Basic Concepts, Theories and Problem Areas. Edition 2, Oldenbourg Wissenschaftsverlag 2007, ISBN 978-3-486-58599-5 , p. 54.
  24. ^ RJ Barry Jones: Routledge Encyclopedia of International Political Economy. Routledge, 2001, p. 139.
  25. ^ Hendrik Hansen: Politics and economic competition in globalization. Pp. 145-147.
  26. ^ Carlota Perez: Technological Revolutions and Financial Capital. Edward Elgar Publishing, 2002, ISBN 1-84376-331-1 , p. 99.
  27. ^ Hendrik Hansen: Politics and economic competition in globalization. P. 147.
  28. ↑ Yearbook of Economic History 2002/1, economic policy after the end of the Bretton Woods era. Akademie Verlag, Berlin 2002, ISBN 3-05-003698-2 , p. 20.
  29. ^ Hermann Adam: Building blocks of politics. VS Verlag, 2007, ISBN 3-531-15486-9 , p. 343.
  30. ^ Carl Christian von Weizsäcker: Logic of Globalization. Verlag Vandenhoeck & Ruprecht, 1999, ISBN 3-525-34010-9 . P. 113f.
  31. ↑ Johannes Heinrichs: Jump out of the vicious circle. Volume 1 of social ethical economic theory . Steno Verlag, 2005, ISBN 954-449-200-3 , p. 342
  32. ^ Walter Niehoff, Gerhard Reitz: Going Global: Strategies, Methods and Techniques of Foreign Business . Springer Verlag, 2001, p. 16
  33. ^ Hendrik Hansen: Politics and economic competition in globalization . P. 89
  34. ↑ a b Reinhard Blomert: Back to Keynes . in Die Zeit , No. 10 of March 1, 2007, p. 27
  35. ↑ Rudolf Hickel: Keynes and casino capitalism. In: Sheets for German and international politics. 05/2008, pp. 105-107.
  36. ^ Rudolf Hickel: Plea for a regulated capitalism. In: The Parliament. Retrieved May 19, 2010.
  37. ↑ Hans-Werner Sinn: Casino Capitalism. How the financial crisis came about and what needs to be done now. Ullstein, completely updated 1st edition June 2010. ISBN 978-3-548-37303-4 . P. 14.
  38. ↑ Bernd W. Müller-Hedrich: Channeling greed. (Review).
  39. ↑ sueddeutsche.de ( Memento from May 17, 2010 in the Internet Archive )
  40. ↑ Hans-Werner Sinn: Casino Capitalism. How the financial crisis came about and what needs to be done now. completely updated 1st edition, Ullstein, 2010, ISBN 978-3-548-37303-4 , p. 14.
  41. ↑ "It has to be over" . In: Die Welt , September 15, 2011; Interview with Hans-Werner Sinn
  42. ↑ The calculated irrationality: Urs Stäheli in an interview with Wirtschaftswoche
  43. ^ Karl Bachinger , Herbert Matis : Socio-economic development: conceptions and analyzes from Adam Smith to Amartya K. Sen. Volume 3074, UTB 2008, ISBN 978-3-8252-3074-6 , p. 75.
  44. ↑ Muhammad Yunus : Capitalism has degenerated into a casino.
  45. ^ "The world economy is today a huge casino. Recent analyzes indicate that for every dollar that goes into trade, over one hundred end up in speculative operations completely disconnected from the real economy. " Castro at Monterrey. counterpunch, 24.-30. March 2002.
  46. ^ "The basic function of commercial banking in our economic system - linking savers to borrowers - should never have been confused with the casino-like function of investment banking. Securitization, whereby loans are turned into securities traded around the world, has made lenders unaccountable for the risks they take on. The Glass-Steagall Act should be resurrected. Pension and 401 (k) plans, meanwhile, should never have been allowed to subject their beneficiaries to the risks that Wall Street gamblers routinely run. Put simply, the Street has been given too many opportunities to play too many games with other peoples' money. "(Lynn Parramore: https://rooseveltinstitute.org/robert-reich-continuing-disaster-wall-street-one-year -later /
  47. ^ Will Hutton: Freefall: Free Markets and the Sinking of the Global Economy by Joseph Stiglitz. In: The Guardian , February 14, 2010.
  48. ↑ Joseph E. Stiglitz: Scarcity in an Age of Plenty. June 6, 2008.
  49. ↑ Heiner Flassbeck: Doctor Merkel's collected silence . (PDF; 46 kB) In: Economy and Market. February 2010.
  50. ^ Heiner Flassbeck: Investors or gamblers. (PDF; 26 kB) WuM, May 2010.
  51. ^ Subprime Monetary Policy. The Freeman: Ideas on Liberty, November 2007.
  52. ↑ Köhler reckons with casino capitalism. welt online, May 1, 2009.
  53. ↑ DGB boss Sommer: "Merkel must stop casino capitalism". wiwo.de, March 28, 2009.
  54. ↑ We don't pay for your crisis! (PDF; 80 kB) Update of the Attac declaration of October 12, 2008, adopted at the autumn advice on November 8, 2009.
  55. ^ Westerwelle pleads for a strong state. welt online, September 27, 2008.
  56. ↑ Annual report 2008/2009 . (PDF) BJU
  57. ^ Paul Anthony Samuelson, William D. Nordhaus: Economics: the international standard work of macro and microeconomics. Edition 3. MI Wirtschaftsbuch 2007, ISBN 978-3-636-03112-9 , pp. 302, 305
  58. ↑ Christian Müller: The stock exchange is not a casino. NZZ online, August 20, 2009.