Frenzy of The Casino

(From "Technological Revolutions & Financial Capital, Ch.10 (2002))


From “Technological Revolutions and Financial Capital” by Carlota Perez (2002), Ch. 10, “Frenzy: Self-Sufficient Financial Capital Governing the Casino”:

“A. Decoupling and Widening Social Gaps

Frenzy is the tumultous period when financial capital takes off on its own. It is at the same time — and partly for the same reason — a time of extremely unbalanced prosperity and polarization on all fronts. The bifurcation between the new and the old which begins with the irruption of the technological revolution now becomes more and more of a chasm dviding the successful firms, industries and countries from the lagging ones; the mismatch between the changing economy and the intertial social practices and institutions becomes increasingly tense. The decoupling of financial capital from production capital aggravates both phenomena. New and old producing firms must, from then on, bend their decisions to provide the high short-term gains required by the stock market. The general behavior of the economy is increasingly geared to favoring the multiplication of financial capital, which moves further and further away from its role as supporter of real wealth creation. Its outstanding successes become ironic harbingers of the chaos to come.”

“…this is also the time when two contradictory phenomena are taking place…there are parts of the economy in an increasing number of countries that are experiencing rapid growth and displaying their enormous potential for transformation and wealth creation, through applying their enormous potential , still with the support of financial capital. Though confronting regulatory and institutional obstacles and voids, the new industries and their largest firms…are already replacing the previous engines of growth…This is the prosperous side of the fence, the reason for singing the “new economy” as the arrival of uninterrupted growth. All those benefiting from this flourishing of opportunities believe the world is going through a marvelous time.

“On the other hand, the industries, countries, regions and firms that have not taken — or cannot take — the modernization path, are clearly deteriorating and entering a vicious spiral of low growth and lack of funds. That is the other side of the fence,where the grass is no longer growing and where the majority live. for them, these are terrible times; the world is falling apart and does not make any sense any more.

“Frenzy is thus a time when the rich get richer and the poor get poorer. Financial capital enters this polarized stage as a an accelerator of the centrifugal forces….”

“…towards the end of Frenzy, the financiers (and the investors who trust their money to them) seem to be convinced they have discovered the most profitable vein. They then indulge in the intense repetition of the same successful recipe, be it canals from any river to any river…or more and more dot.coms and telecommunications…. This leads to an increase in momentum until the process turns into delirium, into irrational exhuberance. It is to those years of late-Frenzy that the expression mania or bubble is properly applied in the present model.”

This book is never far from reach and it’s been a while since I’ve tucked into it and savored the expansive and profound perspectives about the endless interplay between technolog and society, which we can reflect on via financial history. I think I learned about it because of an online mention by New York VC Fred Wilson — I don’t recall exactly but it is a fascinating work tying together multiple strains of history, technology and money. This blog’s primary mission is to offer an abundant amount of applicable content for investment speculators who rely upon trading with longer time frames with a focus on price and risk management, but my personal perspective about “what is going on around me” is informed by a constant exposure to history, technology and sociological/economic reading. This book is worth a look.

https://www.amazon.com/Technological-Revolutions-Financial-Capital-Dynamics/dp/1843763311/ref=sr_1_1?ie=UTF8&qid=1486755215&sr=8-1&keywords=carlota+perez


Originally published at www.rooster360.com on February 10, 2017.