How to tame the stock market
Professor Leopold Kohr
Professor Kohr, economist and winner of the Right Livelihood Award, also known as 'the Alternative Nobel Prize', is the author of several classics. The best known is his witty, elegant and prophetic 'The Breakdown of Nations' - written in 1951 (and published by Routledge and Kegan Paul in 1957, and in paperback in 1986; also published by Dutton Paperbacks, New York, 1978, and Methuen, New York, 1988, $4.95). His most recent book is 'The Inner City' (published by Y Lolfa, Wales, 1989), which was highly commended by the judges in the Social Inventions Awards.
Knowing something of economics is, as Professor John Kenneth Galbraith once said, not always a good thing. Often it is no more than echoing 'the word of the year,' as Stephen Potter would put it, without anyone knowing the sound of which he or she is the echo. Or as my old friend Professor Anatol Murad once told me when returning from a colloquium sponsored by the Board managing the US Federal Reserve System: 'Their strength is the unanimity of their error.' They are right as the African rainmakers are right who conjure rain so long that in the end it is bound to come, not because of their command over the elements but because of statistical law - the only law that, according to the Nobel prize-winning physicist Erwin Shrodinger, exists in the universe. It governs the earthquakes of California, the occurrence of wars, of traffic accidents, of child abuse, of the seven to twelve year periodicity of business cycles as well as of the sunspot activities with which they were linked by such observant visionaries as Joseph of Egypt and Jevons (1835-1882) of Manchester. And it governs the frequency of stockmarket crashes.
What can be done?
Only four things can be done about such crashes if one wants to avoid their consequences. The first is: to do what Anatol Murad (whom I quote as often as Boswell quotes Samuel Johnson) does with lottery tickets: at the cost of $1.00 per week, his winnings amount to an assured $52.00 per year - by not playing. Similarly, if you want to play safe on the stockmarket, don't buy any shares. That does not mean you cannot lose your money - but you cannot on the stockmarket.
The second is: to do with a stockmarket crash the same thing that Hitler - who, as Galbraith pointed out, fortunately understood nothing of economics - did with inflation: forbid it. This can be achieved by abolishing the free enterprise system in favour of a socialist security system as in the Soviet Union, where stockmarkets do not crash because they do not exist and hence offer no room for the appropriate statistical law to enact itself. Nor, however, does it offer room for the tremendous profit-stimulated productivity during the inter-crash period which leaves infinitely more behind in material assets than any crash can ever destroy. Nor, on the other hand, does it prevent the cyclical destruction in non-economic areas, which offer no obstacle to the relentless operation of statistical laws in cases such as drought and sunspot-conditioned famine, passion-induced AIDS, technology-caused pollution, or jealousy-stimulated warfare - all of which, unlike stockmarket crashes, destroy assets for good.
The third possibility lies not in the abolition of the free enterprise system, but in its limitation through Keynsian government controls and an enlargement of the public sector of the economy in the area of public utilities and natural monopolies, that is: enterprises which by their very nature require a scale that does not lend itself to competitive fragmentisation. However, in a world so globally integrated as ours, more and more enterprises assume a scale so enormous that, whether they started out under private or under public ownership, they will end as an Orwellian Big Brother and Sisterhood that will crash not economically but physically, for sheer lack of balance, just as a boat will sink if all passengers rush from its right side to the left or when they take flight from the left side to the right.
The scale of the problem
The fourth possibility - the only one that could work in this age of giantism - lies in approaching the whole problem not economically or ideologically but dimensionally. What is wrong with a modern crash is not the crash but the size of a modern crash, just as what is wrong with today's unemployment is not unemployment but its enormity; and with war, not war but the scale of modern war. And the scale of an evil has nothing to do with religion, ideology, economic system, or inept leadership, but with the size of society which it afflicts. What we confront is therefore no longer old-fashioned business cycles inherent in every free-enterprise system but size cycles affecting every overgrown community, and becoming the more severe the larger such a community grows, producing, as Flora Lewis wrote of the 1987 crash (Herald Tribune, October 24-25), 'a chain reaction that swept through every financial centre around the world in less than 24 hours.'
'What is wrong with the current crash is not the crash but the size of the crash, just as what is wrong with today's unemployment is not unemployment but the enormity of its numbers; and with war, not war but the scale of modern war'
Territorial reform
This being the case, the answer to the scale-induced problem of financial devastation is not economic, political, or ideological but territorial reform. Not bind the world still tighter together in united action, but, as I have advocated for 45 years, reduce the scale of human societies and associations to dimensions where they cannot only be controlled if and when controls are needed; but where the problems, along with the associations, are so reduced in scale, that most of the time they can once again be resolved by multi-centred regional, local, cooperative and individual action. Hence the solution lies in the direction towards regional devolution, not global hand holding which offers the world aid but infects it with AIDS.
'The answer to the problem of financial devastation is not economic, political, or ideological but territorial reform. Not bind the world still tighter together in united action, but, as I have advocated for 45 years, reduce the scale of human societies and associations'
Galbraith, delightfully as always, speaks of the 'financial memory from one period of sophisticated stupidity to another' as amounting to about ten to fifteen years - a span of time not much different from what Jevons' sunspot theory suggests for business cycles. I would rather speak of the period between sophistication - when everyone is right in his stock market actions and predictions because everything is still fresh and new and small and beautiful - and stupidity - when everyone becomes panicky and wrong because everything has grown old and too big, and is subject no longer to human grasp but to the insensitive working of statistical inevitability. This can be checked only by reducing the size and numbers of nations, populations and markets to magnitudes in which human intervention rather than statistical law is the factor determining historic events.
Until this happens, crashes can be predicted but not prevented, even if the governments would be in the hands of the prophets who say they have foreseen them all along. If they want to do something about preventing them, they must first of all recognise the phenomenon of the as yet uncharted course of size cycles, and advocate not unified action but devolution, not common but regional markets within whose reduced dimensions fluctuations cannot reach crash proportions in the first place. What one needs in stormy weather is harbours, not the open seas whose uncheckable giant swells are statistically bound to lead periodically to disaster. But this, with the exception of Welsh, Cornish and Scottish nationalists and some Liberals, no one wants - certainly not Mrs Thatcher or Neil Kinnock.
Professor Leopold Kohr, 170 Reservoir Road, Gloucester, GL4 9SB (tel 0452 23815).
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