Steven Kelts: GameStop, Bitcoin, and the Old Tale of Self-Regulating Markets

Steven Kelts is a Lecturer at Princeton University’s Politics Department and University Center for Human Values. A historian of political thought, he is now teaching a seminar titled “Money, Markets, and Morals.” In this interview, Prof. Kelts explains the recent saga of GameStop trades, its connections with historical market fluctuations, and the important normative considerations about market fairness and regulation posed by great intellectuals like John Locke, Bertrand Harcourt, Milton Friedman, and Karl Polanyi. 

r/WallStreetBets, a forum hosted on Reddit that is described as 4chan meeting Bloomberg Terminal, was the birthplace of the Gamestop Short Squeeze. What started off as a brilliant way of organizing retail traders to drive up stock prices quickly evolved into a nation-wide political debate posed as a “proletariat revolution” by retail traders against the Wall Street establishment. 

The populist left and populist right have come into agreement that the individual liberty to profit from such pump-and-dump schemes is inalienable. Nevertheless, this moral conclusion, however appealing it may seem to the general public and figureheads on each side of the political aisle, creates a series of normative questions about what truly are the “correct” and “fair” ways to regulate markets. 

We trace all the way back to works by John Locke and the Medieval times when identifiable features of modern markets began to emerge. Prof. Kelts explains why our current way of understanding the market is a new invention. Even though the ballooning of credit and finance is a more recent invention, it is questionable whether markets have indeed become more "free" now than in the past, even though we’re constantly told so. 

Prof. Kelts explains to us that markets have not always been thought of in the way they are by neo-classical economists like Milton Friedman or neoliberals like Gary Becker. To think of markets in that way (self-regulating, almost natural, and “functioning best when they are regulated least”) is a choice, and it may not capture the actual practices of market exchange any better (or worse) than a scholastic thinker of the late 1500’s would have captured actual practices. 

The Gamestop incident generates questions on the moral foundations of market structures. It helps to point out that even if people today harbor some notion that a market is structured around individual choice, they do so because they think that gives life to a norm of fairness.  

People would be appalled if the clearinghouses (as individual businesses) made deals with the hedge funds (as individual businesses) to stop processing orders for “meme stocks” like GameStop. But as in 2008, they also would be appalled if the clearinghouses had extremely low capital requirements for meeting margin calls, essentially allowing players like Robinhood to make uncovered bets and expose us all to systemic risk. So what people want, as Prof. Kelts argues, is a market that’s regulated in the right way, oriented towards fairness to all market participants – not an unregulated market. Nevertheless, it turns out that creating a regulated market also creates all sorts of quirks and oddities within the market, like the capitalization requirements that tripped up the GameStop traders. 

What Prof. Kelts finds most interesting about GameStop are the puzzles people now raise about why markets are structured in the way that they are. People assume that markets are structured around some sort of unfettered choice to exchange individually; and he wants his work to demonstrate that this idea of markets is a very modern, and perhaps unrealistic, conceptualization of what a market really is. 

As people criticize Robinhood for colluding with hedge funds and manipulating markets, maybe the bigger question, though, is whether market structures are always – in some way or other – a manipulation. Done right, they steer market participants towards more fair outcomes. Done wrong, they create less fairness by putting interested parties in the position to create market rules. But no matter what, the rules are manipulated in some way. There exists no “natural” market free from the intervention of human hands that could even provide a model, against which we would compare the “manipulated” market. 

This is a far-reaching conversation that touches on many fundamental issues in political theory and the history of political thought. We hope to show you that while the GameStop incident may seem novel and shocking, it is also an old tale of self-regulating markets. It should not change our faith that markets will hold just fine. 

Steven Kelts