I don't normally read a Sunday paper as the Saturday one takes me all weekend to digest, but a friend (dubbed a "Thoroughly good egg" by a reader of this blog and designated a "member of the Liberal élite" by his Tory MP) has alerted me to an article in the Observer a couple of weeks ago in which the writer, Simon Neville, reveals how traders now operate on the US Stock Market.
Apparently 75% of all trades are initiated by algorithms on computers. The shock statistic, to me at any rate, is that the average purchase is held for just 22 seconds (my emphasis).
I was taught that the "invention" of the limited liability joint stock company was as important to the industrial revolution as the invention of the steam engine, in that it enabled capital to be brought into economic and industrial development without endangering the entire assets of the investor. Stock exchanges are a natural extension of the concept, in that they enable stock to be sold without delay, though perhaps at a loss, should the investor need access to his or her capital.
All good ideas are open to abuse, and it has long been the case that stock exchanges function as gambling casinos for those with wealth. It has long been known that investors can act irrationally (the fall in the share prices when Harold Wilson caught a train to visit his sick father was a good example from my earlier teaching days) but it is surely outrageous that the gambling can now be devolved to machines capable of acting with such speed.
I am insufficiently inducted into the mysteries of share and asset dealing to have precise solutions as to how to return stock exchanges to their original function, but something should be done. For starters I suggest either a whopping capital transactions tax, not just the faction of 1% advocated by Tobin, or regulation that would require stock to be held for a minimum period, say six months, before it can be re-sold.
More informed suggestions welcomed.