“It is easy to fall for the aesthetic gyrations of the stock market. Their stylized cycles make them look natural. They “revert to mean,” as Francis Galton would have it. They oscillate within fairly clear boundaries. Their ups and downs seem almost automatic (at least in retrospect). Their regularities are so neat many are tempted to forget David Hume and extrapolate the past into the future.
And here lies the problem. The long-term cycles of the stock market, no matter how stylized and regular they seem, are not self-generating. They don’t just happen on their own. Each cycle has a reason, and that reason is deeply social and historically unique.
Note that, during the twentieth century, every oscillation from a bear to a bull market was accompanied by a systemic societal transformation:
- The crisis of 1905–1920 marked the closing of the American Frontier, the shift from robber-baron capitalism to large-scale business enterprise and the beginning of synchronized finance.
- The crisis of 1928–1948 signaled the end of “unregulated” capitalism and the emergence of large governments and the welfare-warfare state.
- The crisis of 1968–1981 marked the closing of the Keynesian era, the resumption of worldwide capital flow and the onset of neoliberal globalization.
Furthermore, none of these transformations were “in the cards.” Most observers in the 1900s didn’t expect managerial capitalism to take hold; few in the 1920s anticipated the welfare-warfare state; and not too many in the 1960s predicted neoliberal regulation. All three transformations involved a complex set of conflicts, their trajectories were all fuzzy, and their outcomes were all but impossible to anticipate.
In other words, underneath the seemingly repetitive long-term patterns of the market lies an open-ended and inherently unpredictable reordering of the entire political economy. Although past bear markets have always given way to long bull runs, these transitions were never automatic. Each and every one of them reflected a profound transformation of the underlying social structure. And in our view, this correspondence still holds. In order for the current crisis to end and a new upswing to begin, something very big has to happen: the social structure must change.
The precise nature of this transformation—assuming it occurs—is likely to remain opaque until the process is well under way. But one thing seems clear enough. A new upswing means the rekindling of accumulation, and if we are to understand what this upswing might entail, we need to go back to the beginning and start from the entity that matters most: capital.
For more on that issue, stay tuned for the next installment in our series….”