Chapter 6: Financial Markets
One can invest in and/or speculate on markets. Investments are generally assumed to generate concrete wealth, while speculations are only concerned with the internal movements of the economy, which are exploited for short-term earnings. Everyone must speculate, because everyone always has to deal with uncertain forecasts and what others do. All transactions that occur in financial markets have a speculative side (section 1). Finance is becoming increasingly important in the economy as a whole. This importance is worrisome because finance is often seen as a kingdom of gambling and unreasonableness that cannot be controlled or even understood (section 2). More and more sophisticated financial techniques have been developed. These techniques do not make markets more efficient, but, on the contrary, produce new forms of irrationality. It seems that the most rational behaviour runs counter to the current idea of rationality and orients itself to what others think and do, thereby exploiting trends for one’s own benefit. The movements of markets always produce new uncertainty and new risks, to which one reacts by trying to protect oneself. Markets distribute risks, but this makes them even more dangerous given that no one feels responsible for them and one often loses sight of them. Hedging is observed and exploited by others, thereby producing new risks for both the single operator and for the market as a whole (section 3). In the dynamics of financial markets, computers are essential. They accelerate processes to create a condition of virtual contemporaneity where effects are produced simultaneously...
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