The book concerns two interconnected stories that MacKenzie illustrates with an example from the October 1987 stock market crash. First the growth of markets that exchange not stocks but ‘derivatives’. As we all know, the percentage of our economy build on such derivatives is huge – MacKenzie quotes the market being worth $273 trillion. Second the “emergence of modern theories of financial markets” rendered in elegant mathematics that had begun in the 1950s, and become significant in the 1960s and 70s. MacKenzie details the snobbery directed towards such models by economics departments and as a result such theories were largely developed in business schools. The book is about the relationship between these two stories – “What were the effects on financial markets of the emergence of an authoritative theory of those markets?”.
In a series of posts I will be providing reading notes for Donald MacKenzie’s book An Engine Not A Camera: How Financial Models Shape Markets. MacKenzie has been author of a number of excellent analyses of the recent financial crisis for the London Review of Books and is an expert on the sociology of financial markets.
This book centres around close empirical and sociological study of a concept that in left-wing or anti-capitalist circles has always been suspected. Rather than neutrally describe the world in a positive manner, the models that economists use effect the object, the economies or markets, that they are supposed to scrutinise. Economics makes markets gradually conform to its models with the resultant political and moral questions this implies. This is claim one hears a great deal from myriad critics of capitalism. Economics (here broadly neo-classical economics) assumes individualist, self-interested individuals dedicated to narrowly pursuit of utility maximisation and this causes people to operate in this way, coldly calculating amorally. Economics is a self-fulfilling prophecy, economics makes markets. These statements seem to have some truth in them, but also seem to be philosophically problematic to some extent – for example, if this were really the case then markets would actually become more efficient as people slowly become the model in question. After almost two-hundred years of capitalism, and around hundred of neoclassical economics we would surely expect the system to now be running entirely perfectly, since people have become fully absorbant of the descriptions, which are widespread and fully absorbed culturally. MacKenzie is fully conscious of these kind of philosophical and empirical question and his book discusses them in detail.
It is hoped that these notes might provoke discussion as well as bringing this work to a wider audience it well deserves. I noted that in his paper of the Militant Dysphoria event in London (pdf) Nick Srnicek mentions the work of Michel Callon. The first chapter of MacKenzie’s book deals with precisely the book, Callon’s The Laws of Markets, that Nick discusses, so this first chapters notes should be interesting in an immediate sense for those intrigued by what Nick said there.