Markets should become reasonable

Markets are not abstract entities. Behind the 'invisible hand', there are entrepreneurs as well as speculators who seek to invest to get a higher return. Long term investors promote the public interest whilst speculators will seek short term gains. We should therefore distinguish between markets which correspond to real economic activities, such as commodity markets, and 'fictional' markets, as derivatives, which are organised like a casino. Making money quickly gambling on fluctuations of the market is intolerable and immoral because it rewards greed, not economic risks.

Keynes wrote in his 'General Theory' *(p159): 'When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done'. ¨[...] It is usually agreed that casinos should, in the public interest, be inaccessible and expensive.

Today, the debt market has become a battlefield. It has turned into pure speculation: financial investors buy and sell sovereign debt bonds for their clients; they gamble on default risks of States on debts that they don't own. There are some good reasons to limit the operation of markets to the reality of goods and services. Ms Merkel has decided to ban short selling operations for public debt market. But this initiative will be effective if it is applied consistently by all countries, in particular by the United Kingdom, the largest financial haven in Europe. So it is likely that this will be vetoed by the new government which will want to protect their hedge funds and other instruments alike.

Furthermore, the European Union should ban financial speculation operated via sophisticated computer systems which are able to detect in some fractions of second market fluctuations worldwide. More than 40% of financial transactions are operated in that way, which bring huge and quick gains for the investors.

The US Senate has adopted recently a bill** for financial regulation to' protect consumers and investors from financial abuse' and pledges for enhanced international cooperation. The G-20 will have to agree on measures to increase transparency and regulation of financial markets.

But if we want to put an end to a casino economy, not simply because it is immoral or irrational but also because it is not economically viable nor socially desirable, we also need to set the right institutions to orient markets gradually towards the genuine aims of the economy. As Keynes put it (p 157): 'there is no clear evidence that the investment policy which is socially advantageous coincides with that which is most profitable. It needs more intelligence to defeat the forces of time and our ignorance of the future than to beat the gun'.

* J.M.Keynes (1936), The General Theory of Employment, Interest and Money, in The Collected writings of John Maynard Keynes, Vol.VII, Mac Millan - Cambridge University Press for the Royal Economic Society 1973

**http://s3.amazonaws.com/nytdocs/docs/78/78.pdf