Markets are more and more anonymous. While computers trade with each other many times a second, most transactions still occur because a human being makes a decision to trade. But there are many such people, and they need not disclose who they are.
Uncomfortable with this depersonalisation, we use phrases such as “the market thinks” or “we could ask the market”. Benjamin Graham, the father of value investing, came up with “Mr Market”, a moody individual whose occasional irrational optimism and unreasoning pessimism create trading opportunities. But there is no Mr Market: only people can think.
The anonymity of markets delights the political right, which welcomes it as a check on state authority, just as it infuriates the political left, which deplores the freedom of the market from democratic control. Monetary policy – a market-based policy favoured by the right – restricts spending by price through the discipline of higher interest rates. Fiscal policy, favoured by the left, requires political choices about levels of taxation and public spending. Similarly, in a healthcare market, provision is rationed by price, impersonally; whereas socialised medicine (like private insurance) rations by bureaucratic decision, whether through waiting lists for treatment, or the cost-benefit analyses of the UK’s National Institute for Clinical Excellence.
Of course, politicians and chief executives of all political colours become angry when anonymous markets do not take their assertions at face value. The anonymous market cannot be dictated to or defeated in debate. Leaders cannot shout down, fire or arrest the non-existent Mr Market. In the 20th century, politicians denounced “the gnomes of Zurich” and the “teenage scribblers”. Today, the ire of the usually powerful who find themselves powerless is directed at short-sellers and hedge fund managers.
An anonymous market not only disputes policies and business strategies, but may undermine the politicians and companies behind them. What gives unaccountable agents the right to do that, statesmen and business leaders ask.
Speculators command authority from the money they put behind the views they express. Talk is cheap, but short selling is not. The most ardent advocates of capitalism claim that the market, not the ballot box, is the real democratic forum. “Microsoft should have argued we have a monopoly because customers want us to,” claimed The Wall Street Journal, excoriating Brussels’ anti-trust action against Microsoft. If the market transfers the monopoly to Google or Apple, that is what the public now wants.
There is something in this, but the argument can be taken too far. All extremists seem to believe that their brand of authoritarianism represents true democracy. Few people would suggest that the bonuses bankers paid themselves at the beginning of this year reflected public approbation of their activities.
The democracy of one dollar one vote is not attractive. But one can reject that and still believe in the merit of a system in which people with strong views put their money where their mouth is. The weakness of electoral democracy is precisely that talk is cheap – politicians lie to their voters, newspapers pander to popular prejudices, public opinions are superficial.
Speculators have sometimes successfully imposed their views on events – as when Britain was forced out of the exchange rate mechanism in 1992, when short-sellers hastened the collapse of Enron in 2001, or during the collapse of the share prices of banks and other financial institutions in 2008. In each of these cases, subsequent developments showed the judgment of the speculators to be right, and the Panglossian assurances of politicians and business people to be wrong. DM2.95 was not a sustainable rate for sterling. Both Enron’s business and the balance sheets of leading banks were cans of worms. Anonymity is often the most effective means of telling truth to power: and sometimes the only one.