In "The Financier," his great novel of American capitalism, Theodore Dreiser describes the thinking of his hero, Frank Cowperwood, who exploited banks, the state and investors. It isn't wise to steal outright, Cowperwood concludes; that would be wrong. But "there were so many situations wherein what one might do in the way of taking or profiting was open to discussion and doubt. Morality varied, in his mind at least, with conditions, if not climates."
This observation, in a novel published in 1912, offers a useful way to begin thinking about today's furor over high-frequency stock trading, an ultra-fast, algorithm-driven process that has mushroomed in recent years. The fires of indignation were lit in recent days with the publication of "Flash Boys," a book by Michael Lewis that vividly describes the practice in a depth not seen before. Mr. Lewis has made a startling claim that U.S. stock markets are "rigged."
He gets some things right. The old image of the stock exchange as a floor of unruly traders shouting and bustling is largely gone. In the past decade, partly as a result of government regulatory decisions, the markets in the United States fragmented into a dozen or more exchanges. The idea was to create more competition. And in some ways, that has worked to everyone's benefit.