The outcome of this process of financial globalization may be that we have created an Automaton, at the core of our economies, decisively conditioning our lives. Humankind’s nightmare of seeing our machines taking control of our world seems on the edge of becoming reality, not in form of robots eliminating our jobs or government computers that police our lives, but as an electronically based system of financial transactions.[1]

While that ending falls a bit flat, it is useful to pick up on that last word — transactions. The point Castells wants to make is that transactions do not equal markets. He says “While capitalists, and capitalist managers, still exist, they are all determined by the Automaton. And this Automaton is the not the market. It does not follow market rules — at least not the kind of rules based on supply and demand which we learned from our economics primers.”

Equilibrium—based market concepts have never worked exactly to basic economic theory in the financial area because speculative forces make rising prices attractive. Instead of reducing demand, as the “invisible hand” dictates, rising prices increase demand. As prices continue to rise, they allow an asset bubble to form. And we know what happens to bubbles.

In a world where banks, hedge, mutual and sovereign wealth funds transact in sums totaling tens of trillions of dollars a day, Castells contends that the motivations involved in financial transactions are complex. “Movements in financial markets are induced by a mixture of market rules, business and political strategies, crowd psychology, rational expectations, irrational behavior, speculative manoeuvres and information turbulences of all sorts.” For Castells, what he calls the “Automaton”, creates a “collective capitalist” system that operates with its own set of conditions.[2]

For Castells, this Automaton increasingly controls the operation of global financial markets. Furthermore, he suggests that this growing dependence on computer systems in the financial world means that the global economy is on the cusp of becoming, for all practical purposes, beyond the control of individuals, corporations, or governments. Felix Stalder has raised questions about the Castells’ analysis of informational capitalism in his Manuel Castells and the Theory of the Network Society (2006). He questions the claim that the economy is beyond the control of anyone and specifically asks “What do we win, and what do we lose, when we call the financial markets an “automaton”?”[3]

To address these concerns it is useful to outline the ways Castells argues financial markets have emerged over the years.

One is that in today’s world, electronic transaction systems allow for the fast movement of capital instruments between countries. With the advent of computer systems and a world networked via fiber optic cables and artificial satellites, computerized transaction systems have allowed fast movements of capital instruments between countries. I would add that this is not just a technological feat but one that required a dramatic transformation in the way telecommunications enterprises are organized and also they way they relate to their respective governments. The privatization of telecom operations around the world has allowed them to modernize with Internet-based technologies and largely transcend national borders. International regulatory bodies, such as the IMF and the World Trade Organization (WTO) have applied considerable pressure on countries to adopt policies that encourage global inter-connectivity and allow for unfettered capital flows.

Second, these global systems permit investors to rapidly make trades and transfer capital from one country to another in the search for optimal returns. Financial traders have always had incentives to invest in the newest and fastest technology. From carrier pigeons to the telegraph and stock ticker to modern computers and satellites, innovations in financial technology can provide a commercial advantage. Speed is a strategic priority for trading activities and high-frequency trading (HFT) is the latest in this historic trend. HFT uses sophisticated tools and proprietary computer algorithms to move in and out of financial positions in fractions of a second.

Third, an important aspect of modern capitalism is that its representational systems and virtual markets allow for nearly instantaneous translation between types of financial instruments. Bonds can be sold quickly and invested in gold, or oil positions can be liquidated to purchase shares of a company. Furthermore, different countries offer different bonds, different currencies, and a range of different types of derivatives as well as traditional shares of listed corporations.

The development of a wide array of new financial instruments, such as the collateralized debt obligations (CDO) and credit default swaps that ruined the housing markets and brought the global economy to its knees in the “Great Recession” of 2008, has added to the global volatility. This instability further intensifies the need for portfolio diversification that involve mixing investments across a range of different countries as risk management scenarios call for the hedging of financial bets across as many global markets and products as possible.

The system is facilitated by networks of global mass media that analyze and broadcast financial information that can instantaneously impact a wide range of financial decisions. I recently gave a presentation about the surveying aspects of financial media in Seoul, South Korea. I pointed out how news in general works to provide a type of surveillance of society and is becoming increasingly sophisticated with representational techniques that convey all sorts of statistical and graphical information relevant to financial transactions. The system provides a variety of general political and macroeconomic information as well as immediately actionable intelligence. Social media has now become part of the financial world, providing tweets and viral shares of news items that are potentially consequential to the pricing of financial instruments.

Another trend is the use of quantitative algorithms to discern patterns out of the frenetic energies of the global markets. Wall Street has increasingly been influenced by “quants”, a new type of financial trader more reliant on computer modeling than the gut-based decision making built intuitively and through years of “pit” experience. Castell’s sums it up. “All these elements are recombined in increasingly unpredictable patterns whose frantic modeling occupies would-be Nobel Prize recipients and addicted financial gamblers (sometimes embodied in the same persons).”

In short, Castells followed Walter Wriston in proposing that interconnected financial news and transaction networks, along with domestic and international deregulation, have created a radical and potentially unstable global system. They both argued that the increased flow of market-related media information across national borders and the torrent of financial transactions totaling trillions of dollars a day make the specter of financial machines taking control of our political economy an unnerving possibility.

Returning to Felix Stalder’s above question; we win in terms of some conceptualization of some relatively invisible global financial networks. This understanding is more political than the traditional narrative of free enterprise and self-regulating markets. However, we lose in terms of allocating responsibility for the system and thus a focus for policy concerns. I plan to stick with the information standard as an integrative concept in this area because I like its linkage to the gold standard and feel it is more flexible in terms of suggesting a path of analysis and reform.

Notes

[1] The “Automaton” was first named in a chapter entitled “Information Technology and Global Capitalism” in a compiled book on Global Capitalism (2000) that was edited by Will Hutton and Anthony Giddens.
[2] Quote on what drives the “collective capitalist” system from M. Castells, “Information Technology and Global Capitalism”. In (2000) Hutton, W. and Giddens, A. (eds.) Global Capitalism. NY: The New Press. p. 57.
[3] Felix Stalder. Manuel Castells and the Theory of the Network Society. Polity Press, 2006.

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Anthony J. Pennings, PhD is a professor of global media at Hannam University in South Korea. Previously, he taught at St. Edwards University in Austin, Texas and was on the faculty of New York University from 2002-2012. His first faculty position was at Victoria University in Wellington, New Zealand.