by Sophia Garbarino, August 30, 2021
Introduction
They swarmed, racing towards the deepest abyss of the hive. At the heart lay the queen, helplessly defenseless and stuck in the combs of her own making. Her workers, revolting against the monarchy with newfound passion and invigorating spirit, pushed past her and into the forbidden fortress of honey. There, they proudly paraded in hexagonal patterns, vicious and victorious, herding their hard-earned profits into the deepest chambers of their hearts: the wealth of Wall Street. A decade in the making, the reddit revolution quickly accelerated into its final stage within months. At the beginning of 2021, young and hungry reddit traders forced the queen brokers and hedge funds into submission, inflating the failing GameStop’s net worth into the double-digit billions. GameStop, a video game retailer primarily based on brick-and-mortar stores, had lost a significant number of sales due to the COVID-19 pandemic and was well on its way to bankruptcy before the rapid inflation. The long-term results remain to be seen. In this essay, I will explain this reddit-Gamestop phenomenon and analyze it using two key sociological theories by Karl Marx and Max Weber. Further, I will discuss the limitations of these theories using intersectionality theory.
The reddit GameStop phenomenon explained
According to The New York Times, GameStop stocks started rising in value after a new investment in mid-2020 (Phillips and Lorenz, 2021). For reference, a stock is an investment that represents partial ownership of a company, and its price fluctuates with that company’s overall value (U.S. S.E.C., “Stocks”). If the company is “public,” that means anyone in the general population can buy partial ownership if they have enough money (U.S. S.E.C., “Going Public”). GameStop is one such public company, and in January 2021, GameStop’s total market value went from $2 billion to over $24 billion in just a few days, meaning its stock prices also skyrocketed (Phillips and Lorenz, 2021). This sharp increase was primarily caused by amateur traders, or people who buy and sell stocks, in the subreddit social media community called WallStreetBets (hereafter referred to as “WSB”). WSB’s amateur traders, also known as retail investors, started a trading frenzy and forced seasoned professionals to participate in order to minimize financial losses. In turn, the increase in trading drove the stock price up (Phillips and Lorenz, 2021). While this obsession with GameStop seemed random and spanned only a few weeks, it was actually a profound reflection of the accumulating consequences of the COVID-19 pandemic and the 2008 Recession.
The 2008 Recession, COVID-19, and financial ruin
The majority of the WSB day traders are Millennials and Generation Z. These groups were children and teenagers during the 2008 Recession, when thousands of Americans lost millions of dollars due to the U.S. real estate catastrophe, which began a decade earlier in 2001. At that time, because banks and mortgage firms were issuing loans with low interest rates to borrowers who didn’t qualify, demand for houses rose. Years later, when interest rates started to increase again, home prices plummeted by a third (Duignan). As a result, the Recession saw the S&P 500 index1 drop by half, while the unemployment rate rose to 10 percent by the end of 2009 (Rich, 2013). This triad of financial ruin was an enormous blow to the national economy, and children watched helplessly as their parents lost their life savings to corporate greed. Many still blame Wall Street for this and saw the GameStop situation as an opportunity for revenge for the Recession, wanting to “punish” the ones responsible for their “pain” (Sarlin, 2021).
GameStop’s stock inflation may have been near instantaneous, but the animosity between the public and Wall Street’s finance magnates is nothing new. America’s wealth gap has increased every year since the Recession, leaving its people sharply divided into two distinct economic classes: the wealthy and the not-wealthy (Horowitz et al., 2020). Over a decade later, COVID-19 further increased the wealth gap as many people struggled to choose between paying their rents and feeding their families. On the other hand, the world’s wealthiest men, like Amazon founder Jeff Bezos and Tesla CEO Elon Musk, actually increased their wealth by more than five hundred billion dollars, collectively (“Wealth Increase,” 2021). In essence, wealth flowed from the poor to the rich. In recent years, however, investing has become more accessible than ever thanks to apps like Robinhood (Morrow, 2021). Now, the honey-sweet wealth of Wall Street is within reach of more people, and Millennials and Gen Z are breaking into the stock market at earlier ages (Dimock, 2019). With many WSB traders using these apps, the reddit-GameStop phenomenon is a powerful demonstration of the people’s ability to manipulate the market.
Karl Marx and Friedrich Engels: Class divides and social change
Despite the increasing accessibility of stocks, sharp social and economic divides remain in American capitalism. In The Communist Manifesto (1848), Karl Marx and Friedrich Engels categorize all of society into two economic-based groups: the bourgeoisie (rich bosses) and the proletarians (poor laborers). In other words, the bourgeoisie is the queen bee, and the proletarians are the worker bees. Unlike bees, though, human laborers are not biologically bound to their bosses; as such, according to Marx and Engels, these groups are in constant conflict with each other because the bourgeoisie use the wage-labor system to profit from and oppress the proletarians, whose values are based on how much their labor increases these capital benefits (Marx and Engels, 1848). This conflict always leads to social change as explained by Marx’s materialist theory of dialectical social change, which consists of three main parts: 1) “species being,” meaning humans are unique for their creativity and productive labor; 2) dialectical change, meaning change is caused by the synthesis/resolution of contradicting ideas, known as the theses and antitheses; and 3) historical materialism, meaning material things shape people’s ideas and cultures (Marx and Engels, 1848).
We can use Marx’s theory to explain the reddit-GameStop phenomenon. First, the non-wealthy were involved in a class struggle with the wealthy as a result of the Recession and the COVID-19 pandemic. The rich got richer and the poor got poorer. This prevented the non-wealthy from achieving their “species being” purpose, meaning they were forced into wage-labor because they could not afford to be creatively productive on their own. Historically, this conflict between the thesis—proletarians—and the antithesis—bourgeoisie—has always been ongoing, but the COVID-19 pandemic exacerbated it to the point of change. The dire need for basic resources, like food and shelter, all acquired using money, created a new environment that required elimination of the previous system, in which the wealthy had increasing control of financial resources. The synthesis of this conflict, or the resolution, was the reddit-GameStop phenomenon: redistributing Wall Street’s wealth to the people. They had the means—apps like Robinhood—so all they needed was a personal reason.
Max Weber: instrumental rational action and value-rational action
According to German sociologist Max Weber, people’s reasons for doing things, or rationality, can be divided into two types: instrumental rational action and value-rational action. Instrumental rational action is when an individual person or a group strategizes and uses the most efficient means to achieve a goal, often of financial nature. On the other hand, value-rational action is when a person or a group prioritizes a value rather than a goal, often incurring additional costs that would not be considered most efficient by the instrumental rational action (Weber, “The Protestant Ethic,” 1905).
The motivations behind the mass, organized action of the GameStop inflation can be divided according to these two types of action. For those who were purely motivated by financial gain, the stock market was the most efficient method of achieving their goal: more wealth. For those who prioritized their anger and vengeance for the Recession, the stock market made the most sense given the prioritized values. Regardless of motivation, both behaviors necessarily involved a certain level of risk that comes with investing, but for those utilizing instrumental rational action, the benefits outweighed the costs—GameStop’s stock prices increased over 1,700 percent, enabling some traders to pay off student loan debt or become millionaires (Morrow, 2021; Sarlin, 2021). For those utilizing value-rational action, the stock market’s volatile nature and susceptibility to manipulation allowed them to beat Wall Street at its own game, regardless of risk of financial loss. For others, it was a mix of both.
Limitations of Marx and Engels’ theory and intersectional race hierarchies
As with any theory, both Marx and Weber’s ideas have limitations. The most significant fault in their theories is the lack of intersectionality. Coined in 1989 by Black law scholar Kimberlé Crenshaw, intersectionality explores how people’s experiences, including oppression and privilege, are a result of several social factors interacting with each other (Crenshaw, 1989). For example, a common intersectional analysis involving race and gender argues that Black women experience racism differently than Black men because of its connections to sexism. Intersectionality largely coincides with feminist Patricia Hill Collins’ standpoint theory, which views knowledge as subjective and socially constructed (Collins, 1990). Every person’s experiences are unique but can be similar based on belonging in certain groups.
With this in mind, we cannot homogenize the WSB traders the way Marx and Engels would. Modern America is not composed of identical, black and yellow fuzzy bees; it is increasingly diverse. Financial consequences of the Recession varied depending on social factors such as race, gender, age, education, and geographic location, among others. The same is true of the COVID-19 pandemic over a decade later, in which BIPOC are disproportionately affected by both unemployment and COVID-related death rates (“Tracking the COVID-19 Recession’s Effects,” 2021; APM Research Lab Staff, 2021). This is largely due to systemic racism, which puts BIPOC at an economic disadvantage by default. Analyzed through a racial lens, Wall Street and WSB can be subdivided into their own bourgeois and proletariat groups: Whites and BIPOC, respectively. While many middle to upper-middle class White Americans discovered were unaffected by COVID-19 and even gained wealth, hundreds of thousands of BIPOCs lost their jobs and steady income.
Furthermore, financial education is highly determined by access to resources, which is notoriously lower in communities predominantly of color and/or lower income. Whites are overrepresented in the upper class, giving them a predetermined advantage in achieving financial success (Reeves and Joo, 2017). So when COVID-19 drove stock prices down at incredible rates and millions of new brokerage accounts were opened, race/ethnicity, class, and education were crucial factors in determining who opened those accounts and who profited from them (Fitzgerald, 2020; Zarroli, 2020). Therefore, the reddit traders were privileged themselves in that a) they had to have ready access to technology in order to place the trades; b) they had to have some sort of basic financial education, whether it was self-taught or learned from others; and c) they had money with which to trade, whether it was borrowed, essential income, saved retirement funds, or extra cash. As such, this proletariat group has an internal, sociological hierarchy within itself.
Finally, we must also consider the professional traders. The division between the WSB and Wall Street investors is not as clear as one may initially think. While WSB certainly has intersectional differences, so does Wall Street, which is what Marx would consider the privileged bourgeois group. Wall Street firms severely lack racial and ethnic diversity, with over seventy-five percent of senior managers being White in 2018 (Hoffman and Pulliam, 2020). Additionally, the ratio of male to female fund managers is nine to one despite women’s performance being equal to men’s (Sargis and Wing, 2018). So who was really making all the money during the Recession and COVID-19? White men. Even within the privileged bourgeois there’s hierarchies of privilege, just like the proletariat group. Therefore, they cannot be so easily and clearly divided the way Marx and Engels imagined.
Limitations of Weber’s theory and intersectional age privilege
Within the WSB divisions of class, gender, race/ethnicity, etc., there are also complex, intersectional components of rationality. Weber’s two types of action, instrumental rational action and value-rational action, are also oversimplified, much like Marx and Engels’ economic groups. Socioeconomic status (SES), which Weber categorized into the “property” class and “lack of property” class, contributed to how severely the Recession and the COVID-19 pandemic affected people (Weber, “The Distribution of Power” 311, 1921). Investors with less money to begin with lost more, meaning different levels of wealth privilege impacted risk tolerance, or how much money the reddit traders were willing and/or able to risk losing on the market (U.S. S.E.C., “Assessing Your Risk Tolerance”). Furthermore, younger traders may have prioritized repaying student loan debt and had more long-term risk tolerance, while older traders may have prioritized increasing their retirement funds and had less risk tolerance. Therefore, while the means to achieve the goal of financial gain were the same (stock trading), the values differed according to SES and/or age. After all, worker bees have different priorities within the hive depending on their age (Farrar, 1968).
However, age can also affect political views, particularly those regarding fiscal conservatism. According to the Pew Research Center, conservatism grows with age (Desilver, 2014). This may explain why young people, including most of WSB’s traders, have consistently been accused by older generations of having a “lax work ethic” and masquerading lazy entitlement as socialism (Shapira, 2010; Ingram and Bayly, 2021). In fact, socialism has become quite popular among young voters during the past decade (Saad, 2019). It is important to recognize, though, that supporting socialism and engaging in wage-labor are not mutually exclusive. Perhaps young people are embracing the classic “work smarter, not harder” mantra and finding non-traditional ways to make money, like starting side hustles and capitalizing on social media. Generation Z faces record-high student debt, rising tuition costs, and an increasingly difficult job market, particularly during COVID-19. Therefore, age is an important intersectional factor in rational action which Weber’s original theory failed to account for, and traders’ differing levels of GameStop profits are indicative of age and wealth privilege.
Conclusion
The GameStop situation occurring during the pandemic is no coincidence. The COVID-19 climate created stay-at-home free time, an investment goldmine, an outlet for post-Recession anger, and increased support for socialist policies. The reddit retail investors were simply exploiting pandemic conditions for revolutionary purposes, similar to a Marxist proletariat group revolting against the bourgeoisie. However, the diversity within the proletarians is critical, too, since they were not all trading for the same reason, nor were they all affected the same way. As such, instrumental rational and value-rational action are also necessary to explore. Though the stock market seemed to be the most efficient and effective method for everyone, the motivations differed. Some wanted revenge for the Recession while others wanted quick and easy money. For many, it was a mix of both; therefore, we must consider both Marx and Engels’ and Weber’s theories to achieve a full, robust understanding of the GameStop sociological phenomenon. The honey-sweet wealth of Wall Street was now in the hands of the worker bees, who had previously served the queen hedge funds while receiving minimal benefits. The WSB traders shamelessly demonstrated the power of the people en masse. Ultimately, though, their billion-dollar victory was short-lived. After a few days of halted trades, GameStop shares returned to the market as its price dropped back into the low triple-digits (Reuters Staff, 2021). As Marx and Engels’ wrote, “Now and then the workers are victorious, but only for a time” (Marx and Engels 162, 1848).
1 The S&P 500 measures the stock performance of the 500 largest publicly-traded companies in the United States (Kenton, 2020).
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