Recently China’s stock market has been wildly up and down. After an unprecedented “stock-market crash,” the central authorities have again stepped in with unprecedented force to maintain stability.
The reason I thought of writing this article is not to play the prophet and predict market movements. On the one hand, I want to gather together some of my previous statements and thoughts; on the other hand, the stock market also has relations to political philosophy and natural philosophy. Besides, I believe this stock-market crash will have very far-reaching historical significance; in any case, it will become a landmark event.
Although I have all along been promoting Bitcoin, and have always opposed investing in China’s stock market, I do not want to predict market trends in any way. Aside from occasionally trying to persuade my own parents with a few words, which is basically of no use, giving investment advice to others is a deeply thankless task. Especially when the stock market is in a manic state, telling others to get out is dangerous business. If they really do get out, it is also nearly impossible that they will be getting out at the top. They exit the market, the market will most likely keep rising, and they will most likely be unhappy. Even if the market collapses ten days or half a month later, they will most likely only remember the profits they missed because they listened to me, and not thank me for helping them avoid the crash, because in their imagination they were originally able to exit at the peak.
By the same token, talking people into buying Bitcoin is even more dangerous. If Bitcoin goes up, I gain nothing at all; if it goes down, some people will be chasing after me and cursing me for years. If someone were to go bankrupt buying Bitcoin and lose everything (I have always only advised investing spare money), I might even be in danger of my life.
On May 24, I posted this on Weibo: “Actually, now is precisely when we need Bitcoin the most. If I am unwilling to become the bagholder for the nation, and don’t have the guts to go into the stock market and be slaughtered like leeks, but I also don’t want to watch helplessly as paper money rots away in my hands, then I urgently need the safest possible investment channel. Yes, the more timid and cautious you are, the more suitable Bitcoin is for you. Bitcoin users only need to be open-minded in their outlook, but in terms of investment philosophy can be extremely conservative, just like me”
On July 11 I posted another one: “At any time, abandoning A-shares or buying Bitcoin is wise; even if you get out of A-shares at 1,800 points and buy Bitcoin at 8,000 yuan, it is still wise. It is like how, at any time, a person giving up gambling is wise; even if the very first bet he gives up turns out to be a jackpot, or the first real-world business he starts after quitting gambling eventually goes bankrupt, that still cannot prove that giving up gambling was the wrong thing to do. If one truly sees the road clearly, one will no longer be swayed by temporary luck.”
For a long time I have hardly been promoting Bitcoin. Recently I mainly wrote just these two posts. Rather than saying I was trying to talk others into buying it, it would be more accurate to say I was merely airing my own thoughts. Bitcoin’s significance has already been talked about enough. Although Bitcoin has been in a slump these past two years, its principles and significance have not changed, and there is no need to keep repeating them.
I have always merely been analyzing the reasoning, and talking about my own thoughts and actions. I myself have also been steadily buying Bitcoin in small amounts, and never even thought of selling it to anyone. Yet still there are all sorts of inexplicable people cursing me on Weibo as a pyramid-scheme dog. I really do not know where their hatred comes from. Is it because they lost money buying Bitcoin back then and still have not recovered? If they bought because they thought what I said about Bitcoin made sense at the time, then which piece of reasoning has now gone wrong? Even if my judgment is not accurate, they paid for the coins themselves; I never put money into my own pocket. What does their loss have to do with me? Or, as I always say, so many people urge you to learn from Lei Feng and you don’t, but when I tell you to buy Bitcoin, why do you go and buy it?
That is human nature. When things succeed, everyone thinks they are something special, with such great vision and such accurate judgment. When they fail, they always want to find the reason on someone else. In the recent stock-market turmoil, this human nature has been especially obvious. When stocks were soaring, every stock investor fancied himself a stock god; when they were crashing, it was either the government that got cursed, or some “hostile forces” no one knows where.
Not only ordinary investors, but the entire country is like this. In a bull market, everyone is immensely confident, and some even come out with claims like “the bull market is a manifestation of China’s status as a great power.” The official media went even further, shouting slogans like “4,000 points is only the starting point of the bull market.” This is also the sentence that has most tangled up investors after the market’s plunge. But what investors care about is that the state has not kept its word: the so-called policy bottom that had been promised failed to hold. The problem is, has the official media not spun enough grandiose, nonsense, and false statements over the years? When the official media tells you to learn from Lei Feng, you don’t; but when it talks you into speculating in stocks, you go? Who exactly is to blame here?
Obviously, making market order a complete mess is the government’s problem; investment failure, however, ought to be each investor’s own business.
I say “ought to be” because in reality it is not like that at all. The failure of Chinese stock investors does, in a certain sense, really have to be blamed on the government, because from the very beginning the government never tried to maintain a free market, never made an effort to cultivate free market participants. On the contrary, they reject and even fear individual freedom. They think the market is “useful,” and the people are useful too, but they never once thought that the market ought to be free.
That is why China’s stock market has what is called a “policy market,” and why there is the logic of “becoming the bagholder for the nation,” as well as the logic of using political means to prop up the market.
Whether it was the earlier bull market or the later rescue operation, the various logics proclaimed officially and passed around among the public were completely incoherent. For example, during the bull market, Xinhua pointed out that “the economy needs a bull market; market confidence should be cherished.” At the time I mocked this on Weibo: “Once upon a time we said the stock market was a barometer of the market economy; now it has been turned upside down, and the market economy has to rely on the stock market for support. This is like saying, ‘we must carefully cherish the thermometer in order to resist the cold wave.’ It looks as if it makes sense, but in fact it is utterly absurd.” Immediately someone came to lecture me, saying that the stock market is the economy’s “blood transfusion machine.” What does that mean? In any case, it means that when the economy is good, the stock market is a barometer and therefore should rise; when the economy is bad, the stock market is a blood transfusion machine and therefore should rise. I would like to know when, then, the stock market is supposed to fall?
What does it mean if a bull market is needed because the economy is sluggish? It means stock investors need to share the pressure of economic decline. Does that mean that because the economy is bad, the masses must be given money? Since the mission of stock investors is to share the nation’s worries, how could everyone possibly make money? Of course, there is one especially stupid argument, namely that money must be given to the people in order to stimulate consumption, but this argument is in fact utterly absurd. In a national bull market, as soon as ordinary people have a little money, they rush into the stock market, and the effect is not to stimulate consumption but to delay it. On the other hand, if one really wants to give money to the people, the simplest way is to cut taxes—cut taxes, simplify administration, and leave wealth with the people. That is the proper path. As long as taxes are lowered a little, goods will naturally become cheaper, the money in the public’s hands will naturally increase, and the economy will naturally become more active. So why have those rulers in history, when facing economic difficulties, often raised taxes instead of cutting them? The reasoning is very simple: because they are rulers. Perhaps someone will attack me, saying that I, an outsider who knows nothing about economics, am talking nonsense, but some truths are really too simple. Just as understanding the Pythagorean theorem does not require you to be a mathematician, and understanding the lever principle does not require you to be an engineer, I think that the fact that a “national bull market” cannot save the economy is something the average person can understand. By contrast, believing in the logic that “the economy needs a bull market” is something that does require the level of an “expert.”
The rescue operation was even more absurd. Not to mention that at this point it had completely overturned the logic of the earlier bull market, just look at the measures used to rescue it: they were simply playing rogue. They issued a blank check directly. What does that mean? It means direct handouts: you go gamble, and if you lose, it’s on me. Using the power of the whole country to support a group of people who are only allowed to win and not allowed to lose, running a casino in which one may only bet on big and not on small, and where not even cheating is necessary—this is nakedly putting the rules of the game on display. The tragedy is that retail investors especially welcome it; if a few people occasionally come out betting small and winning small, the crowd immediately erupts in rage, wishing they could beat him to death on the spot.
Whether from the official side or among the public, much of the blame is aimed at the so-called bears, or even at nonexistent hostile forces. But even if there really were a group of clever bears, so what? Is only the whole people allowed to be smart bulls, and others not allowed to be bears? Besides, bulls and bears are inherently relative. When a bull goes all in, he naturally becomes a force for the bears, because the stocks he is all in on will eventually have to be sold. In China’s stock market, where dividend yields are extremely low, the vast majority of investors obviously make money by “selling” stocks rather than by “buying” them. Everyone fantasizes about buying low and selling high, but when you buy low, you are putting out money; only when you sell high are you making money. So in a certain sense, everyone who hopes to buy low and sell high is a “bear.” You can sell; why not allow others to sell? It is merely that others may time their sales better than you. Leveraged trading works by a similar logic. When a bull closes a position, he becomes a short-seller; when a bear closes a position, he becomes a long-buyer. No leveraged trader can forever avoid closing positions. In the long run, bulls and bears are symmetrical; there is no participant who is purely a bear or purely a bull, only the difference between choosing to go short first and then long, or long first and then short.
Some people say that rescuing the market is an international practice, that Americans also rescue markets, and so on. My reply is this: first, when Americans rescue markets—QE and the like—I certainly do not support that either. The problem is that the dollar is an international currency: when Americans mess around, the people of the world pay the bill; when Chinese people mess around, the ones who ultimately suffer are still China’s ordinary people. Moreover, the result of America’s QE has been a worsening of the gap between rich and poor, with the biggest beneficiaries being the 1 percent financial giants. What results will China’s market rescue produce? Obviously, the people closer to the “printing press” benefit the most; China will be no exception.
What is “exceptional” about China is the means of rescuing the market. No matter how Westerners rescue markets, aside from special cases like Cyprus and Greece, they basically do so on the premise of respecting market rules and the independence of the various participants. In the final analysis, America’s QE is nothing more than increasing the supply of banknotes; it still works by relying on changes in supply and demand within the market to play a regulatory role. China’s market rescue, however, no longer uses market means but political means: through “propaganda,” through “being summoned for talks,” through restricting the freedom of certain market participants, through nationwide mobilization…
In short, whether it is a bull market or a rescue operation, what the authorities talk about is political discourse: “state needs,” “great-power status,” “stability overrides everything,” “hidden agendas,” “the enemy is targeting the Five-Star Red Flag,” “confidence”… People’s Daily even claimed: “The stock market’s ultimate direction still depends on our confidence in the country and our confidence in ourselves.”
If emphasizing “confidence in the country” still has some reason to it, then “confidence in ourselves” is a classic line of a pyramid scheme. Only pyramid schemes would pin market prospects on confidence. During the Great Leap Forward, too, the rush to surpass Britain and catch up with America was pinned on the confidence of united determination. But fundamentally, the direction of a market obviously depends on supply and demand and on the social environment. If a market has strayed too far from the fundamentals, confidence alone cannot sustain it.
If a twisted political system can still be held together by the people’s confidence, a twisted market is hard to maintain by confidence. Collective frenzy will only drive a market into madness; it will not make it stable.
It is not that Chinese stock market became politicized only after the government used absurd methods to rescue it. Rather, this stock-market crash has fully exposed the nature of China’s stock market. Under this logic, the rescue operation is indeed correct, because China’s stock market has never been a market in which independent investors freely compete through wisdom and foresight; it is a tool for securing benefits for the government and vested interests. The reason it had to be rescued was that their interests were threatened. Wu Jinglian said that China’s stock market is not even as good as a casino, and that is obviously true; they are not comparable at all. In a certain sense, China’s stock market is not even as good as a lottery; its hidden manipulation is greater, and its deception more powerful.
Nor is it true that only China’s market is politicized, while Western markets have nothing to do with politics. Western markets are also political, and they also reflect particular patterns of power relations.
What is the purpose of a political system? Freedom, or stability? The two are linked. Without a relatively stable environment, freedom is easily suppressed; but if freedom is suppressed too much, it will in turn become a major source of instability. Yet which comes first? In an authoritarian society, of course stability is more important, because for the rulers the worst outcome is losing their ruling position. Therefore, in order to maintain their rule, they must naturally give priority to ensuring the system’s stability. In such a society, freedom is not something to be safeguarded; it is something bestowed. The people are first stripped of all freedom, and only then does the state grant them a portion of it, so at any time one must “thank the state,” because without the freedom the state gives, how could an individual possibly achieve success? But in another kind of society, freedom is the first thing to be safeguarded. The reason a political system needs to be established is precisely to protect individual freedom in a better way. To “safeguard freedom” means that freedom is something everyone already possesses by nature. The logic of such a society is that, in order to handle collective affairs better, each person needs to give up part of his individual freedom. Relinquishing freedom is also for the sake of safeguarding freedom. So in such a society, stability serves freedom.
I do not want to become too involved in political philosophy. Some left-leaning scholars are very quick to point out that I know too little and think too shallowly, but in fact many concepts are very simple and very everyday. Philosophical discussions of what freedom is can continue for thousands of years without reaching a definite result, but in fact everyone understands his or her own freedom. Although the Chinese public, because of social background and indoctrination, has many misunderstandings about the concept of “freedom,” these too can all be clarified through everyday language.
I’ve strayed too far afield… Returning to the stock market, there is also a contradiction between freedom and stability in the market. Some people ask: what use is the stock market? What meaning does leverage have? If there’s no benefit, why not shut it down altogether? What I want to say is that the stock market does indeed have all kinds of benefits—promoting entrepreneurship, sharing risk, and so on—but that is not important. The key point is that the stock market did not come into being in order to be “used” for something; rather, it is the inevitable product of a free market. If everyone has the freedom to dispose of their own assets, if everyone has the freedom to conclude contracts, then things like stocks will naturally emerge. What is called a “security” is, in fact, a contractual certificate issued by some entity to unspecified parties. With this security one can enjoy certain rights and interests—for example, receiving repayment at a specified time, or collecting dividends, and so on. And a security itself is something of value, and can also be traded as a commodity; a market specifically for trading securities is therefore a securities market. The formation of a securities market does not depend on whether it is useful or useless, but arises naturally from the free conduct of contracts and transactions. What managers do is nothing more than standardize contracts—for example, requiring that stocks traded on a certain market all comply with certain norms—but securities issued by a company that do not follow the norms of that stock market may still be traded on another stock market. Stocks that are not publicly traded may also be freely traded among shareholders, so long as the original contract allows such transactions. Therefore, the significance of managers to stocks should in principle be extremely secondary; the managers of a securities market merely provide a platform for free trading. As for the value and rights embodied in these securities themselves, that is a matter for the enterprise and its shareholders.
But in China, the stock market was never from the outset naturally formed through free contracts and free transactions. From the very beginning, people have been entangled in whether the stock market is good or not, whether it is useful or not, whether it should be stopped. Even now, the issue is still whether margin trading and short selling are good or not, whether they should be stopped. The market is not regarded as a platform for safeguarding free transactions, but is instead taken as a whole to be a tool for promoting economic development or for whatever other purpose.
Of course, China’s performance is only especially typical; the Western financial system has long since gone astray as well. Western markets are also treated as tools rather than as natural phenomena, and thus there have come to be all kinds of monetary policies claimed to “maintain stability.” This is also why I have always emphasized the revolutionary significance of Bitcoin; I won’t go into that here.
The attitude toward the market is similar to the attitude toward “nature.” In the eyes of modern people, nature is no longer natural; it is instead viewed as a tool for whatever purpose, and so people also use the logic of maintaining stability to “protect the ecological environment,” trying to “control” nature as a whole. The technical logic of “pollute first, clean up later” and the financial logic of “borrow new money to pay old debts” are likewise much the same. Human beings have no reverence at all for nature, and blindly trust their own ability to control things; this is the common cause of both ecological crisis and financial crisis.
Translated from the Chinese original with AI assistance. The original text is authoritative.
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