People's Voice -January 1-15, 2008

The capitalist class and the upper echelons of the petty bourgeoisie follow the movement of stock prices on a daily basis. The news media reports regularly on the ups and downs of stock indices every day. Economists write about it as if the health of the stock market is a thermometer that reflects the health of the economy and the whole country. This shows how parasitic the capitalist system has become.

Stock markets originally emerged as one of the mechanisms for centralising money capital for the benefit of the capitalist class. By establishing joint stock companies, it became possible for capitalists to invest and control assets far beyond their own individual wealth, and at the same time limit their liabilities when companies go bankrupt.

Wealth of the richest Indians

The total wealth of the richest 40 Indians is Rs 13,80,000 crore ($ 350 billion). One year back, their wealth was only Rs 6,80,000 crore, less than half of what it is today.
The wealth of the four richest together is Rs 7,20,000 crore, more than the wealth of the 36 richest Indians.
The wealth of the two richest together is Rs 4,00,000 crore. Their wealth is more than the total debt of the Government of India.

“Finance capital, concentrated in a few hands and exercising a virtual monopoly, exacts enormous and ever-increasing profits from the floating of companies, issue of stock, state loans, etc., and strengthens the domination of the financial oligarchy and levies tribute on the whole of society for the benefit of the monopolies.” – Imperialism, the Highest Stage of Capitalism, V. I. Lenin.

Today, stock markets have come to play a dominant role in all capitalist economies, including in India. They have become instruments for the monopoly capitalists to multiply their wealth, literally out of thin air, increase their own weight in the economy, and their capacity to levy tribute on the rest of society.

The book value of a company is based on the capital invested and profits re-invested in that company. The book value of the country’s largest company in terms of market capitalization, Reliance Industries, is about Rs 460 per share of Rs 10. However, its market price today is over Rs 2500. In other words, out of this market price of Rs. 2500 more than 2000, over 80%, is the speculative component.

The issuing of new shares allows capitalist companies to raise very cheap money. If a Rs. 10 share is issued at Rs 2000, the capitalist gets Rs 1990 free capital because the return to investor is to be given only on Rs 10. The small investor who is paying Rs 2000 is doing so in the hope that the share price will go up to, say, Rs 2500 over the next few months, so that he could sell and make a profit of Rs 500 on his investment of Rs 2000. He could thereby earn a return of 25% in just a few months, whereas keeping money in banks earns at best 5% in the whole year. Playing on such hopes and dreams of millions of small savers, the big bourgeoisie makes a killing through the stock market.

The idea of a capitalist acquiring his capital by saving or by risking his own money is a myth in modern conditions. Capitalists gain control of other people’s savings through the banking system and through the stock market. In the stock markets they are not betting with their own individual fortunes but with wealth that belongs to others. When the stock market crashes, as it frequently does, the small investors realise that they have been taken for a ride.

Over the past one year, the value of shares of companies listed in the Indian stock market has risen by about 50%. Total value created in the Indian economy, called GDP, rose by less than 10%. This means that the bulk of the increase in the value of shares reflects a redistribution of the wealth already created, in favour of those who own these shares. The boom in the stock market has led to rapid expansion in the wealth of the richest Indians – the Tatas, Ambanis and others.

The higher the value of shares of a company, the more it can borrow from the lending institutions. That is one of the reasons why the big capitalists are extremely interested in finding ways to boost the market price of their companies’ shares.

Share prices are manipulated all over the world by the biggest players in the stock market – the big banks, insurance companies, mutual funds and other financial giants. The history of all major stock markets in the world is replete with frauds, scandals, bubbles and busts.

Who pays for the windfall gains of the big bourgeoisie? It is the working class and petty bourgeoisie who are made to pay. Workers and peasants keep whatever meager savings they may have in banks, provident funds, pension funds, sometimes in mutual funds, but rarely in the stock market. One of the results of the manipulation of stock prices by the big bourgeoisie is that small savers never earn enough return on their savings, even to take care of inflation. Many times they completely lose their saving. The bigger the bust after the boom is, the more is the suffering for the small savers.

Every time a stock market or a financial institution collapses and a crisis is created, the bourgeoisie calls it an aberration. The truth is that financial crises are endemic to capitalism at its highest stage of imperialism. Only the overthrow of the capitalist system will get rid of the parasitic instruments of finance capital, such as the stock market, and guarantee a secure livelihood and a bright future for the working people.