Being a Capitalist or Socialist

There has been much talk of late with the many bailouts if we are becoming a socialist country. Some wonder if capitalism has ended. In pondering the reason we have arrived at this very discussion I wondered if it is not a question of capitalism vs. socialism but how the market is "played."

In his latest book, Enough. True Measures of Money, Business, and Life, John Bogle writes that business over the last 75 years has focused "on the gradual accumulation of intrinsic value, derived from the ability of our public owned corporations to produce the goods and services." This he called investing.

Speculating, as defined by Bogle, is the opposite of investing. He defines it as "short-term trading, not long-term holding of financial instruments-pieces of paper, not businesses-largely focused on the belief that their prices as distinct from their intrinsic valued, will rise."

Bogle points out that John Maynard Keynes thought of investment as an "enterprise," as forecasting the prospective yield of an asset over its entire life." He defined speculation as "the activity of forecasting the market."

Here is Keynes' warning on speculating:

"When enterprise becomes a mere bubble on a whirlpool of speculation (and) the capital development of a country becomes a by-product of the activities of a casino, the job of capitalism is likely to be ill-don."

It looks like we have been speculating about business and not investing in business and there are more people besides money managers engaged in this activity, albeit legal. There is no intrinsic value in shuffling paper for the whole and there is no long-term sustainability either.

Perhaps capitalism in itself is not the culprit but how the overall system was changed from investing to mere speculating by a larger number of people. This reminds me of a book I read about seven years ago, Reminiscences of a Stock Operator, about the life of "The Boy Plunger," Jesse Livermore (1877-1940).

The book was given to me by a very successful friend who calls himself a "stock operator." He sees himself as such since he has created all of his own stock charts over the past 25 years and does not consider himself a mere trader or speculator. He is a stock operator. I have always failed to see the difference when the activity remains the same and produces the same results. A name by any other name is still a name.

While I thought the Livermore story was very interesting, I also wondered of the intrinsic societal value of such shorting. And to be quite honest I was also pretty grossed out by the name given Mr. Livermore. It had an incredible ruthless ring, as did many of his activities on the market appeared. There was an unsettling nature to his successes. His bankruptcies and eventual suicide were disturbing as well.

Perhaps speculation of this kind is a game that is too risky for the whole of society, for it takes the will out of companies that are regrouping or struggling to stay afloat. Its ultimate effect is the loss of jobs. Maybe shorting worked for years when the the system was not duly challenged. But when there are a great number of people now betting on the failure of companies by selling short, maybe this can be quite detrimental to business and society.