Until the advent of the Internet, coordination at scale required formal bureaucratic organizations, whether they be Wall Street firms for investing or insurrectionist armies for overthrowing governments. Now, subreddits such as r/The_Donald and r/WallStreetBets have upset the applecart. The former was one of the online platforms used by supporters of Donald Trump to plan and execute the storming of the Capitol (now removed from Reddit) and the latter is the amateur day trader platform used to undermine an effort by big institutional investors to “short” Gamestop.

Theoretically speaking, the Internet lowers transaction costs for social mobilization, and thus collective action becomes attainable for even poorly resourced non-institutional agents. The result is that the Internet tends to redistribute power from functional elites down to “ordinary folk” – be it in politics or in stock markets. Some call this the "democratizing effect" of the Internet. Yet are all forms of democracy desirable? James Madison, for one, did not think so. Writing in Federalist #10, Madison warned against what he called "pure democracy", i.e. direct self-rule by the population: “A common passion or interest will, in almost every case, be felt by a majority of the whole; a communication and concert result from the form of government itself; and there is nothing to check the inducements to sacrifice the weaker party or an obnoxious individual.” He therefore espoused a republic with institutional arrangements designed to filter ideas and check uncontrolled political passions. Democracy’s tendencies toward mob rule, that's the core of Madison's argument, must be checked by intermediary institutions. From this perspective, social media platforms today are "democratizing" in exactly the way Madison feared. Our current “post truth” world can thus be seen as the consequence of a legitimacy crisis of intermediary institutions fueled by Internet-based communications. What happens when one applies the same logic not to politics but to globalized and digitized financial markets? Do internet-enabled political mobs find their counterparts in "money mobs" involved in financial speculation? And even if they do, in which way are hedge funds "intermediary institutions" worthy of preservation?

The Gamestop episode stands for exactly the same logic that we observe in the political realm: the weakening of intermediaries. Hedge and pension funds pool and manage funds from various smaller investors and thus gain significant market power. The reddit crowd did the same. They also pooled money for market power but without big financial institutions acting as intermediaries. This was possible because of two elements: an online forum for coordination and an online trading app for the actual deals – both with the extremely low transaction cost typical for Internet-based interaction. The trading app calls itself "Robinhood" and describes its mission as "democratizing finance."

Hedge funds do not command much public sympathy. Understandably so. In the last 30 years, the world's financial markets have degenerated into "Casino Capitalism" (Susan Strange). Hedge funds are the "high rollers" in this global casino. While the crash of 2008 has made it clear that this is an extremely dangerous development for the entire global economy, the casino has reemerged afterwards – largely unchanged. The danger of the Gamestop episode thus lies not in the weakening of hedge funds. The danger lies in the universalization of gambling. The implication is that we used to have a risky global casino for the professional few; and now we might have a risky global casino for the amateur many. When looked at from this vantage point, the Gamestop episode might actually be the prelude to something much more significant.

Unfortunately, however, the parallels to the events on January 6th do not stop with weakening intermediaries. Unlike their fund manager counterparts, the Gamestop reddit crowd was not only motivated by profit. At least some of the gamblers also had an agenda. They wanted to save a company they liked – they shared a “common passion” as Madison would have put it. The avarice of hedge fund managers may be despicable but they are at least transparent in their motivations. That might be less true of decentralized Internet groups gambling on global financial markets. Consider the implications: What if QAnon or white supremacist groups began using r/WallStreetBets instead of r/The_Donald to target perceived enemies in the business world? Dozens of U.S. corporations recently cut off support for Republicans who supported the Stop the Steal conspiracy theory. Might their passionate grassroots supporters retaliate using the market power of online collective action? Will the world (and pension funds) be safer in a financial market that is not only a global casino, but a politicized global casino?

Early on, the Internet's tendency to lower transaction cost for collective action was cheered on by many. It looked as if a new era of progressive politics was ushered in as the mobilization of social groups became easier than ever before. Things have gotten significantly more complicated. For better or worse, intermediary institutions are eroding – in politics as well as in the business world. It is telling for the state of affairs in Washington that some political leaders are cheering on a process that might well sweep them away. In rare unity, Ted Cruz and Alexandria Ocasio-Cortez have asked for hearings in support of the amateur traders. As the New York Times aptly put it: "leaders in Washington (…) recognize a populist uprising when they see one." What they fail to recognize is the secular trend to exactly the kind of "pure democracy" James Madison feared -- with good reason.

Gregor Walter-Drop is Director of the Knowledge Exchange Lab of the Cluster of Excellence "Contestations of the Liberal Script" at Freie Universität Berlin, Germany. 

Steven Livingston is the Founding Director of the Institute for Data, Democracy, and Politics (IDDP) and Professor of Media and Public Affairs at George-Washington-University, Washington DC.