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Is Economic Speculation a Form of Structural Violence?

by Rene Steenbock Tuesday, Jan. 16, 2018 at 6:07 AM

According to neoclassical economic theory, the financial markets return to equilibrium. Problems only occur because of state intervention. The roaring twenties led to an enormous stock euphoria. In 2018, companies inflate their stocks in a billion stock buy back program.


By Rene Steenbock

[This reading sample of Rene Steenbock's 2003 essay is translated from the German on the Internet,]

Definition of terms

Is economic speculation structural violence? Can economic speculation be structural violence when it has certain characteristics? To discuss these questions, the terms "economic speculation" [1] and "structural violence" should be first clarified.

The historical economic literature is full of articles about speculative bubbles, systemic inconsistencies and panic capital flight to financial markets. During the time of the gold standard, several financial crises were triggered by speculation. The situation in the time between the world wars – when the international financial system was not subject to fixed rules – was felt to be extremely deficient by many market actors. Up to the 1970s, the use of capital controls was regarded as essential to protect national currencies. An important reason for developing a European community currency was the desire to prevent speculations against exchange rates within the common domestic market of the EU – as happened in 1992/93. [2]

Under this perspective, the current situation on the worldwide financial markets is very astonishing. A fundamental rethinking occurred since the collapse of the last official international order – the Bretton Woods system created after the Second World War. Leading academics and many nation states propagate opening and liberalizing national capital markets. Capital controls are abolished with amazing speed. International capital probably flows more unhindered than ever in history. The theory of capital markets is defined by a concept – formulated 50 years ago – that is promoted as the predominant paradigm of economics: the theory of efficient markets. [3] It propagates a nearly perfect functioning of liberalized financial markets where speculation has an important, positive market-stabilizing function.

Two opposite positions are marked out: those theoreticians who see blessings of the modern market economy in speculation [4] and those who consider the harm from speculations as more grievous than their potential benefits. [5] In Part 2, I will show with historical examples that the negative effects of speculation were momentous and who the protagonists were.

The second term to be clarified is structural violence. Violence – according to Galtung [6] – means negatively affecting another by resorting to certain means. The intention of violence is to subjugate others, make them submissive and exercise power. Another is damaged or impaired. Thus a disparity prevails between current human realization and potential realization. Violence can be personal [7] or structural. In both cases, individuals can be killed or mutilated, beaten, wounded or manipulated by the strategic use of carrots and whips. While the consequences in the first case can be referred back to concrete persons as actors, that is impossible in the second case. Here no one seems to directly do harm to another. Violence is inbuilt in the system and is manifest in unequal power relations and therefore in unequal life chances… [8]

In the next section, actual speculations in history will be briefly described. In Part 3, the question whether these speculations can be understood as structural violence will be tackled.

A brief history of speculation

Kindleberger's basic idea is that economic phenomena can only be analyzed by including history. The main focus will be on the structural characteristics of speculations and their individual or political-economic effects. Here I analyze different forms of speculation: with tulips (tulip mania), stocks (1929) and currencies (Southeast Asian crisis). [9]

Tulip bulbs were first an object of speculation at the start of the 17th century. The demand rose and the price always climbed upwards. By 1636, a bulb that had no appreciable value in the past could be exchanged for a new wagon, two grey horses, and complete tableware. All rationality was quickly overcome where exorbitant profits beckoned. Merchants sold off their goods dirt cheap to buy tulip bulbs with the returns. Where massive riches were promised, enormous credits were taken and used for speculation. Under the whispers of alleged experts, many liquidated their assets to gain investment capital. Houses, property, and land were offered for sale at ruinously low prices or handed over for payment on the tulip exchanges – as fast as bull markets followed bear markets. The clever and the nervous began selling although no one knew the reason. Others dropped out. The exit led to panic selling; the prices fell incredibly. Those who made purchases, many by impounding property for credit, suddenly had nothing any more or were bankrupt.

An economic disaster led to the first stock market crash of history. The collapse of tulip prices and the resulting impoverishment had a paralyzing effect on economic life in Holland in the following years. A marked depression occurred. Only isolated individuals who bought and sold at the right moment were winners. The great multitude lost.

The stock market crash of 1929 was very similar. The roaring twenties at the end of the 1920s led to an enormous stock euphoria. A time of boundless optimism erupted that was far ahead of the very positive economic numbers. The prices climbed because private investors and their advisors were persuaded that they would continue climbing.

These whispers and insinuations actually ensured the rise. Celebrated financial gurus propagated another upswing. Critics and admonishers were ignored or mocked and warning signals largely overlooked. This was not the time for reflections. However, the return to reality followed the irrationality. At the end of the inevitable bull market, losers were more numerous than the winners. The stock market crash that shook vast parts of the world in 1929 starting from Wall Street rang in the longest and most intense crisis for the US and industrial nations that capitalism ever experienced.

The EWS-crisis in 1992 is another example. Speculators (led by George Soros) recognized the weaknesses of exchange rate parities within the EWS and began to systematically exploit them. The speculators made enormous profits. [10] The British pound broke out of the EWS. The profits were ultimately paid by European taxpayers. These cost the currency speculators around 100 billion German marks since the losses of the Central Banks had to be paid from the budget of the respective governments.

The Southeast Asian crisis may be the most striking example of negative effects of speculative eruptions. [11] In the second half of 1997, currencies of Asian states were the target of speculative transactions. Speculators exploited structural weaknesses or first created these weaknesses. The models followed the currency speculations of 1992. As a result, the attacked currencies had to yield to the superior currencies. Financially bled white, they ultimately capitulated to the Central Banks. The real economic effects were enormous. Here is only one example of illustration. In Indonesia, 32 million people suffered bitter hunger in 1998 according to the National Statistic Office – four times as many as before the beginning of the crisis. A few had the power to attack whole political economies. Instead of generating stability, the speculators sought economic disharmonies and inconsistencies and tried to destabilize economies up to their collapse. They were focused on what benefited them: chaos. Since a defenseless victim is an easier prey, they had a penchant for attacking the seemingly weak. In profiting from the decline of others, they hardly intended their recovery.

This quick glance at history has shown that phases of excessive speculation occurred again and again. Economic damage was clear in the impacted countries. Sometimes the short-term effects were the most vehement; at other times, the harm was long-term. One time, the speculators wrecked havoc through their conduct; another time, dubious experts artificially extended a bear market and did damage through unrealistic forecasts. [13]

Is economic speculation structural violence?

If one considers the characteristics of structural violence and applies them to the above examples, economic speculation can be described as structural violence.

The (empirical) analysis of real social conditions shows a clear asymmetry of resource distribution [14] that can be termed unjust since a living standard above the current standard was prevented by speculations. This unequal distribution imperils the social reproduction. Naming persons that have better life chances on account of their social position and carry out profit-maximization goals is not simple. In the last section, I identified two groups of persons: speculators and dubious experts. These are not the only beneficiaries of structural inconsistencies. There is something false in a system when individuals can bring whole political economies into serious problems with the clever use of money. There is something wrong in a system when these shortcomings are known but not removed. There is something misguided in a system in which academics give blessings to speculation while millions of persons suffer under the effects of this speculation.

Can it be in the interest of powerful groups to maintain inadequacies to make profit "in the name of the dumbest law of the world, profit maximization"? [15] This question cannot be answered here because of the limits of this essay. However, several characteristics could help us answer this question.

Clear inconsistencies appear in the academic substantiation of the usefulness of speculation. Although the model of efficient markets including rational expectations is mathematically elegant and conclusive, massive problems result in their application. So the hypothesis of the rationally-acting homo oeconomicus cannot be easily applied as an axiom for actors on capital markets. [16] The counter-arguments about irrational human actions as a basis of conduct are too extensive. Substantiating a theory with an axiom that hardly occurs or only in the rarest cases must be termed dishonest.

At times, the political will can be regulative on the market. Contrary to the prevailing opinion, the unregulated market is not inevitably better suited for guaranteeing efficient resource allocation than through political decisions. Rather, intervening in a market-regulating way can be in the interest of an optimum welfare – since the market tends to a Darwinism where the stronger market actors ultimately have the upper hand.

We are not only plagued with academic inconsistencies. Political decision-makers decide under the influence of a developed lobbyism for a neoliberal economic model whose dangers are greater than its benefits. I think I showed that in this essay. [17]

Concluding remarks

The arguments put forward in this essay imply that speculative conduct, as a rule, leads to damages and is not market-optimizing. I regard a potential and observable anarchy of the currency markets as harmful as in social life where the state should have a monopoly on force and legislation. Speculation by definition aims at a profit, not at maximizing welfare. When it is not regulated, the law of the stronger threatens the market. This development leads back to the age of imperialism and not to a globalized world.

Currency speculation has positive effects. Still, the harmful aspects outweigh under present (sub-optimal) conditions, in my opinion. For that reason, changing the framing conditions is vital. Both the Tobin tax (and similar initiatives like the Two-Tier Tobin tax, UNDROP and Basel II) and the possibility of capital controls for developing countries are practical proposals. The necessity of controls through bank- and financial market monitoring is pressing where these institution s always exist in a race with evasive reactions of the market. Difficulties and problems in implementing mechanisms of control and regulations as well as the lobbyism of financial institutions should not lead to ignoring the intensified negative phenomena of currency speculation.


[1] Für eine grundlegende Definition des Begriffs vgl. Gabler, 1993, 3050.

[2] Vgl. Eichengreen, Barry, 2000, insbesondere Kapitel 2, 3, 4.

[3] Zu diesem wissenschaftlichen Paradigma vgl. insbesondere Butler, Eamonn, Milton Friedman, 1985 und Shiller, Robert J., 1998.

[4] Allen voran Milton Friedman und seine Chicago-School. Vgl. Friedman, Milton, 1953.

[5] Zu den Kritikern von Spekulationen, vor allem auf internationalen Finanzmärkten zählen Charles Kindleberger, John Kenneth Galbraith sowie Peter N. Martin. Werke dieser drei Theoretiker, die sich mit den negativen Folgen von Spekulation beschäftigen sind im Literaturverzeichnis aufgeführt.

[6] Literaturhinweise zu Johann Galtung finden sich im Literaturverzeichnis.

[7] Auf die personale Form von Gewalt kann und soll hier nicht näher eingegangen werden.

[8] Galtung, Johann, 1975.

[9] Literatur zu diesen Themenbereichen findet sich im Literaturverzeichnis.

[10] Allein George Soros erzielte nach eigenen Angaben knapp 1 Milliarde US-Dollar Gewinn.

[11] Die Südostasienkrise ließ viele Befürworter einer stabilisierenden Spekulation verstummen.

[12] Vornehmlich während der EWS- und der Südostasienkrise der Fall.

[13] Vornehmlich während der Tulpenmanie und der Krise von 1929. Weiteres Beispiel, das in diesem Essay keinen Platz mehr fand, war die sog. new economy -Krise, bei der unseriöse Berater einen Großteil der Krise mitverschuldeten.

[14] Erinnert sei noch mal an die 1 Milliarde US-Dollar Reingewinn eines George Soros.

[15] Pierre Bourdieu, zitiert nach: „Der Spiegel", Nr. 50/96. Dazu passend: "Quid non mortalia pectora cogis, auri sacra fames?" (Wozu treibst du die sterblichen Herzen nicht, verfluchter Hunger nach Gold?) Vergil.

[16] Vgl. insbesondere Ribhegge, H., 1987 und Shleifer, Andrei, 1999.

[17] Nicht zuletzt der IMF verbindet die Vergabe seiner Kredite an genau dieses Kriterium.


Olesya Kazantseva, “Base Erosion and Profit Shifting,” 2015,,

Matthew Yglesias, “Apple could get a staggering billion windfall from the tax bill,” Dec 8, 2017,

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