Unlike a healthy market, how does behave an irrational market? The prices of the raw materials (commodities), specially the crude oil, and of the companies shares, are they formed now in an irrational market? It is curious to indicate, that the most abrupt falls, that the differences most accused between prices and real values are forming in the more speculative, less mature, less juridical sure, more financier or socially weak markets. Do we have an irrational market like these ones?
Introduction to the volatile situation in the world irrational market.
From the beginning of October, we are assisting at an abrupt fall of the value of the assets of equity securities in all the stock markets of the world: from New York up to Tokyo, passing through Europe and the so called emergent markets. These last seemed to be relatively immune to these devaluation, initiated at the beginning of 2008, but already they have joined late and intensely the first concerned. The nearness menacing of the world financial crisis, has concerned with unusual strength the collapse of their stock exchanges and the flight of the foreign investors.
The free market, its characteristics and properties and its functioning.
The market in general is the effective meeting of the economic agents, that are all the citizens, as institutions, employees, consumers, companies, pensioners, etc., to realize the economic transactions. The market as philosophy, as economic institution, as idea, concentrates and materializes in the numerous specializing active markets: Of employment, of credit, of supplies and shops, of services, of common stocks and bonds, of long and short distances transport, etc. On every market the agents divide in buyers, borrowers, bidders, employees, etc. and in sellers, lenders, sellers, businessmen, etc.
The money is the accepted payment mean that allows us to subdivide the «value» or cost of the goods and services, in a suitable and manageable number of units and sub units. So that, referred to it, the prices, measured in multiple and sub multiple of the monetary unit, are more precise and acceptable, that the value relations that allow to establish the barters. This is one of the principal functions of the money. And, because of it, happen the claims for its increase (liquidity) in these moments of economic and financial crisis. Really the money is there, neither has gone away, nor has faded away. If the money could vanish or rot, as the smoke or the seeds, it might not be money. What happens is that it does not circulate as it had to, it does not facilitate the transactions; it is stopped, good guarded or hoarded, waiting more benign and clear economic times. For example, neither the iron nor the diamonds, with specific extreme values, can be used as money. The iron oxidizes and its unitary value is so low, that its transport and exhibition would be a problem. The diamonds have a value that is not proportional to its weight, but to the square or something more of it. This way, a big one costs about the double of all its assembled pieces.
The Traditional Economy presupposes that the performers agents are absolutely informed about their selection of goods possibilities, that they buy and sell rationally, that they are not emotionally affected, etc. This happens like the physicochemical law of the ideal gases, which establishes that the molecules that form them, lack a valuable volume or weight and that they do not interact in their seemingly behavior. This was the way that had the Economy approaching in its origins to the Science, translating its expositions, assuming the simplified formulae established in the first moments of the scientific empirical investigations. The economic agents act on the markets by approximation, by successive rough estimates. Seeking to realize, in general, more an acceptable transaction, that to achieve continuous «opportunities» or to manage «to gain the last dollar». If a transaction supposes an advantage suited for both parts, generally it is accepted.
Which are the operational factors that act in the creation and the correct functioning of the markets?
Let’s see a sufficient, but not exhaustive list, of them. With it, we will have another idea of the market. The one that its qualities or needs gives.
The proximity and accessibility of the agents to them.
The economic profit, the usefulness or the efficiency that offers the good or service and its remuneration.
The existence of an effective, less complex as possible logistics (this can increase unnecessarily and inevitably the intermediaries prices), that delivers in time, place, quantity and class or kind the products or services demanded (to do the forecast) and bought. To have the sufficient, suitable and well located storage and manipulation means. To possess the tracking, control and management, computerized or not means, that are sufficiently modern and adapted to the volume and the diversity of the articles and services.
The existence of the sufficient varieties in class and quantities, to allow the transactions in a fluid and constant way. As corollary, the need of enough transactions, according to the offer and the payment means.
The absence of monopolies or oligopolies of offer or demand.
The existence of civil and trade codes sufficiently developed, with their laws and complementary regulations. Which give juridical safety to the transactions. As corollary, the existence of a state and regional effective and collaborator bureaucracy, which, at least, neither squeezes excessively the citizens, nor is indolent.
The existence of a road and railway infrastructure and a net of wire and wireless communications, both sufficient and sure. As corollary, that exists social peace in the country.
The irrational market: the exogenous disturbances in the functioning of the market.
We have not mentioned yet the strange factors to the market. Those that nest, grow and even can rush off in the rational, sensitive and emotional human soul.
In spite of the Traditional Economy, the economic agents are persons, hold to the feelings and yet to the passions or untidy appetites and very vehement desires. And the feelings are the engine that generates the humanized energy, for good or evil. A pure idea can inform the soul, but alone it is cold and does not stimulate or get running it.
When the market disturbs by external factors, which are emotional in this case, that pervert its natural function, specified in «facilitating and attending the transactions», its simple and basic rules are altered. If in the markets, and therefore in the transactions, act agents altered by the greed, the fear and the selfishness, its functioning alters and more yet degenerates. The economic agents are in the habit of anticipating the future that they glimpse, the enjoyment of an object or entity and the menacing misfortune. But the upset ones magnify them, up to the point that they concern or get hold of their spirits. So, the enjoyment turns in too big and the possible threat turns an almost sure catastrophe.
It will buy and sell to speculate, or high over the real present and still future needs, or to hoard, or to alter the prices, removing them from the real value of the things, which is created in a healthy and sufficient market. It is then when we can speak with property, as the good old people did, about the «stock exchange game». Because they buy and sell shares rashly, in the edge of the razor, without a net below. And it is not investing and even taking calculated risks, as in any enterprising and creative investment.
We have left off the healthy market, which already does not exist, on having broken its rules and characteristics. And we enter, without almost realizing, on an irrational, false market, probably still free, but harmful. This one is a pseudo market, a junk open shop, the free meeting of vile people in the thoroughfare, concealing intentions, to buy and sell with deception between them. It is a commercial amorphous, undifferentiated magma, with maelstrom and whirlpool rules, which attract all and everything, in a «chaos born within itself«. And one of the worst thing, always with unpredictable results, consequences and duration. This is what happens in Hydrodynamics, with the laminate flow, turns into whirlwind on having increased enough its speed, within the liquid and gaseous fluids. And what happens in Mechanics, when we raise revolutions, over its design technical characteristics, of a car engine. And in a few dozens of km we can melt it.