Robotic Market Volume is Not Market Liquidity

What is a "market"? What exactly is the purpose of the light-speed buying and selling of abstract contracts in a so-called marketplace? The reason proponents of algorithmic trading, and high-frequency trading (HFT) in particular, do not acknowledge a distinction between market volume and market liquidity is because they do not ask those basic existential questions about the nature of markets, the nature of economic systems, and the nature of capitalism. Most importantly, they don't ask: What do humans actually need from markets, economic systems, and capitalism?

Billions of Selfish Actions Don’t Magically Produce Efficient Market Outcomes. Politicians and our colleagues on Wall Street, Bank Street, Bay Street, and other banking centers of the world should ask themselves the questions above if they want to understand what a truly free human market means. Sadly, we can expect that very few of them will ever ask those questions because those questions are inconvenient obstacles to what they really care about: self-serving profit. And no, markets don’t magically become efficient at the macro level from 7.5 billion individuals acting in their own self-interest. There’s no evidence whatsoever for that nonsensical assumption. In fact, Adam Smith never actually believed that himself, which is discussed in the Gini book.

What’s the Purpose of Any Market in Human Existence? Puritanical libertarian philosophy tends to compel people to demonize anybody who asks these important existential questions. Looking at the world through the lens of puritanical libertarian ideology, these questions are irrelevant. They claim we are missing the point of free markets, economic systems, and capitalism. No, we are not missing anything. They are missing the point of human markets: to serve actual humans! This is a core principle at the heart of the Gini Decentralized Exchange and everything we do at Gini.

The Libertarian Magic Trick. Looking at the world from within that puritanical libertarian ideological box, all we need to do is just let the market function freely and everything will take care of itself. They don’t acknowledge that the phrase “free market” is meaningless because markets are never “free” for many reasons discussed in the Gini book. They blindly believe that market failures don't really exist; and what we perceive as market failures are really just inefficiencies in price discovery and capital formation caused by the government. There, in a single sentence, a puritanical ideology can magically wave away the entire universe of sociological, economic, geopolitical, philosophical, technological, and existential dynamics that actually drive real-world market pricing and supply and demand in every human market.

The Structural Flaw in All Modern Financial Markets. Because they do not acknowledge the distinction between market liquidity and market volume, they are able to conveniently ignore a fundamental flaw in the structure of modern financial markets: Automated high-frequency trading (HFT) market liquidity usually evaporates when the financial system needs it most. This fundamental reality is at the heart of every major crash in modern history since the October 1987 “Black Monday” crash. And these problems are magnified in modern financial markets that are driven by artificial intelligence.

Naive Human Traders Fall Into the Zombie Trap. The flaw above creates the illusion of market growth, which attracts more zombie regrowth from other algorithmic robots, which feeds off of itself in a self-reinforcing cycle of trading volume, but that trading volume is not liquidity. It is merely a relatively small number of very large algorithmically controlled pools of ephemeral trading capital that are swapping digital bits of information between one another and pushing the prices of all markets up or down. In the meantime, the gigantic banks and hedge funds controlling the HFT zombies siphon money from the real economy, while naive and uninformed human traders fall right into their toxic trap.

HFT Does Not Create Any Meaningful Value in the Real World. As these artificial fantasy markets continue to inflate themselves through these digital orgies of meaningless exchange, it makes the entire global economy ever-more unstable. Humans cannot understand how or why these artificially intelligent trading robots are making their decisions, nor can the human brain even come close to comprehending all the information that is processed just within the span of a single microsecond (1-millionth of a second). So, there is no meaningful human value derived from these meaningless transactions, except for the tiny number of institutional traders who know how to siphon money from the real economy as they siphon the wealth from billions of humans on Earth.

To put this into perspective, on any major computerized financial market exchange today, there are more trades executed in a single second than all the trades in all markets throughout human history combined before the 1980s. If all of that trading volume is not real liquidity, and the human brain cannot possibly comprehend why or how all those trades are being executed, then what exactly are all those trades doing for real humans in the real world? Nothing. Actually, it’s worse than nothing. . . .

HFT is Destructive to Human Wealth & Welfare. HFT creates the illusion of wealth creation so that a small number of technically sophisticated institutional traders can siphon USD billions out of the real economy every year by manipulating markets and exploiting a toxic economic system that is built upon a perpetual expansion of unsustainable debt. This toxic system creates market structures and market failures that are enslaving billions of humans on Earth for generations to come. How is this acceptable? How is this preferable to any of the worst, most reviled forms of despotism and communism and all the other nasty ideologies that puritanical libertarian ideologues are so quick to demonize?

We’ve Seen the World from Many Perspectives. To be clear, everybody at Gini was a libertarian for most of our lives until we started doing the research for our books, which led to a new perspective on many aspects of human existence. That led to the creation of an egalitarian, decentralized socioeconomic operating system for humanity that we call Gini Capitalism. (See the whitepaper for details.) So, we certainly don’t embrace communism or any form of central planning by any fallible humans.

The Global Economy is Hyper-Centralized Today. It is impossible for too-big-to-fail banks and transnational cannibals to gobble up the overwhelming majority of our planet's natural resources and human market opportunities without an overwhelming amount of centralized planning and control over the distribution, the pre-distribution, and the post-distribution of wealth, income, and political power. Make no mistake, we have a highly centralized, centrally planned economy in every large country on Earth today, which collectively results in a substantially centralized, centrally planned global economy dominated by a tiny number of ruling elites who control a tiny number of gigantic banks. That's one of the biggest reason why bank capitalism is destroying capitalism on Earth today.

Why Doesn’t Central Planning Work? Central planning by a tiny cartel of self-serving humans (the essence of Soviet-style communism) never works because the volume of information required to make good decisions across a virtually infinite number of decision domains is impossible for the human brain to comprehend. But let's assume for a moment that humans can create an artificial intelligence that can keep track of enough market information in our world to at least theoretically make good decisions about every significant aspect of financial and commodity markets. That would still be a problem because the gigantic banks and corporations that would inevitably control that artificial intelligence will use the technology to serve there own interests first, while only secondarily giving lip-service to other interests within the economy.

For all those reasons, Gini has created the most egalitarian form of democratic governance humanly possible for the Gini ecosystem in the form of the Community Governance System. Combined with the Ecosystem Stability Mechanism and the Gini Trust Protocol, these systems ensure that nobody—not even the Gini Foundation—can dominate the Gini ecosystem, regardless of how powerful their A.I. and political connections might be now or in the future.