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Postby Jonathan Nitzan » Thu Nov 17, 2016 9:06 pm

A CasP Model of the Stock Market
Shimshon Bichler and Jonathan Nitzan

Working Papers on Capital as Power, November 2016 (No. 2016/07)


Most explanations of stock market booms and busts are based on contrasting the underlying ‘fundamental’ logic of the economy with the exogenous, non-economic factors that presumably distort it. Our paper offers a radically different model, examining the stock market not from the mechanical viewpoint of a distorted economy, but from the dialectical perspective of capitalized power. The model demonstrates that (1) the valuation of equities represents capitalized power; (2) capitalized power is dialectically intertwined with systemic fear; and (3) systemic fear and capitalized power are mediated through strategic sabotage. This triangular model, we posit, can offer a basis for examining the asymptotes, or limits, of capitalized power and the ways in which these asymptotes relate to the historical and ongoing transformation of the capitalist mode of power.

1. Introduction

The purpose of this paper is to outline a capital-as-power, or CasP, model of the stock market. There are two reasons why such a model is needed: first, the stock market has become the main compass of the capitalist mode of power; and, second, so far, we have not developed a CasP theory to describe it.

Surprising as it may sound, all long-term modeling of the stock market derives from a single meta-dogma that we have previously dubbed the ‘mismatch thesis’ (Bichler and Nitzan 2009, 2015a). The basic premise of this dogma is the general bifurcation between economics and politics (a shorthand for all non-economic realms of society) and the further division, within economics, between the so-called ‘real’ and ‘nominal’ spheres. Finance in this dogma is a symbolic nominal mirror that reflects the underlying real economy, but that reflection – and this is the key point here – is imperfect. Financial magnitudes tend to mismatch reality, and the purpose of the model is to explain this mismatch and predict its consequences.

Our CasP model begins not by negating these conventional findings and predictions, but by giving them a totally different interpretation. The model suggests that underneath the economic veneer of the mismatch thesis lies a power process, and that it is this power process – and not economic productivity and utility – that drives the stock market. This alternative interpretation is important for three reasons: first, it gives rise to questions that conventional theories are unable to ask; second, it leads to findings that contradict some of the underlying assumptions of both mainstream and heterodox political economy; and, third, it might open the door for a better understanding of the capitalist mode of power and how it might be resisted and transformed.

The paper consists of eight sections. The substantive discussion begins in Section 2 with a bird’s eye view of stock-market booms and busts over the past two centuries. This section identifies some of the market’s quantitative patterns along with the qualitative power transformations that underlie them. Section 3 explains the mainstream mismatch thesis, while Section 4 describes the valuation model of John Hussman, President of the Hussman Investment Trust, which, as far as we know, offers the best consistent predictions of long-term stock market returns. The remainder of the paper outlines our own model, illustrated by the enclosed Penrose triangle. Section 5 shows that one can reproduce Hussman’s results by looking not at the utilitarian economics of production and consumption, but directly at capitalized power. Section 6 explores how capitalized power is dialectically intertwined with what we call systemic fear. Section 7 suggests that the driving force behind both capitalized power and systemic fear is what Thorstein Veblen called strategic sabotage and speculates on how economic policy has been integrated into the CasP-driven stock market. Section 8 concludes with a brief summary and some thoughts about the future.


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Jonathan Nitzan
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Postby rsalisbury » Fri Nov 18, 2016 12:20 pm

I enjoyed this presentation and I will be reading the paper today.

Do you think there is a component of systemic fear on the part of the public which gives rise, or at least contributes, to capitalized power? That is, it seems to me that much of the power of capitalists depends on our fear that we will either be punished for disobeying capitalist norms (e.g. for "seizing the means of production"), or we will be unable to survive without them (e.g. because of the "economic calculation problem"). It's quite rare for capitalists to engage in open, physical violence, and most obedience to them, especially outside of the "developed" world, relies on the fear of the alternative.

Systemic fear on the part of capitalists could thus come from the overcoming of this public fear. The first example that comes to mind is the Arab Spring uprisings; It seems there is actually quite a bit of research into the effect of the Arab Spring on the stock markets there and those that I have read so far indicate that there is a very clear negative effect on them which seems to be persisting through at least 2014 (and interestingly, they admit that the "pure economic" influence is second to the political). So more generally, we could perhaps say that fear and power are opposing forces that both the rulers and the subjects exert on one another.

We could then consider systemic fear on the part of capitalists to manifest not just in terms of capitalization, but in political events such as the Red Scare or the Space Race. As far as I know, there was no monetary basis for these events, rather they were motivated by the fear that the ideology of capitalism itself would be sufficiently challenged by communism to disrupt capitalist power. Had the capitalists not succeeded in these endeavors, we might see it reflected quantitatively, but the forward-looking capitalists foresaw this and worked to prevent it.

I hope I'm not rambling, here.

Edit: Here's a couple of examples I found related to the Arab Spring:
https://papers.ssrn.com/sol3/papers.cfm ... id=2416467
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Postby Jonathan Nitzan » Fri Nov 18, 2016 7:59 pm

I think that your understanding of "fear" here is much broader than our concept/measure of "systemic fear". In principle, any process can affect the systemic fear of capitalists as we understand it; but to qualify, the impact needs to register on the short-term price/EPS correlation.

See also our earlier paper: "Systemic Fear, Modern Finance and the Future of Capitalism" (2010) http://bnarchives.yorku.ca/289/

And the debate that followed: "Systemic Crisis, Systemic Fear: An Exchange" (2012) http://bnarchives.yorku.ca/314/
Jonathan Nitzan
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Postby Jonathan Nitzan » Mon Dec 12, 2016 9:10 am

The paper is now published in Real-World Economics Review:

Bichler, Shimshon, and Jonathan Nitzan. 2016. A CasP Model of the Stock Market. Real-World Economics Review (77, December): 119-154.

Download from:

The Bichler & Nitzan Archives: http://bnarchives.yorku.ca/494/
RWER site: http://www.paecon.net/PAEReview/issue77 ... tzan77.pdf
Academia.edu: https://www.academia.edu/30367640/A_Cas ... ock_Market
Jonathan Nitzan
Posts: 79
Joined: Sat Dec 06, 2008 2:39 pm

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