In my first book, The Metaphysics of Markets, I argue that finance as we understand it has no philosophical underpinning. But what does this mean exactly? And why should it matter?
Almost any subject studied professionally or academically today has a ‘branch’ dedicated to the ‘philosophy’ of that subject. This branch asks reflexive and abstract questions about the nature of the subject. So for example, the philosophy of mathematics, concerns itself with questions relating to how mathematics ought to be studied, the extent of what can be known about mathematics, and of what mathematical concepts consist. The philosophy of law (jurisprudence) asks what is meant by law and justice and how the judiciary ought to operate.
Such questions can seem remote and intangible. They can seem not to matter pragmatically, as we muddle on regardless of whether or not these issues have been settled. And yet, as soon as our regular or prosaic way of dealing with certain unusual situations seems inadequate, very swiftly we proceed with retort to these fundamentals.
The recent financial crisis has been just one such occasion. Seeing a near melt-down of financial institutions and markets, it is natural to expect discourse to turn towards the fundamentals. However, there is very little in the way of substantial research in this field. In consequence, we see politicians and commentators resorting to mere name-calling (‘greedy bankers’,’reckless speculators’). We see ad hoc solutions to the on-going problems; liquidity provision here, bonus capping or super-taxing there. In short, an amateurish response to a global crisis. And this response is necessarily inadequate given that our understanding of finance and the financial markets is so shallow. The philosophy of finance simply hasn’t been given proper consideration.
In The Metaphysics of Markets I offer an explanation of why, historically, this gap in our understanding exists. Briefly, it is a result of the direction taken by economists and their descendants, finance theorists. This path has been to over-emphasize pseudo-scientific methods and mathematical modelling. Finance theorists have played at mathematicians, forgetting they are to be found in Humanities faculties.
I suggest that finance theorists, regulators and financial market participants should give thought to matters that underlie their subject, as have other thinkers in other fields. It is time to consider what exists in the financial markets, instead of assuming that this is known. It must be asked whether the markets have a purpose other than that currently presumed. It must be asked what can be known of the markets. Is there an ethical basis to the markets or is the Friedmanite concept of a value-free corporate structure the right answer? I offer several possible answers to these questions as well as outline many of the other branches that the philosophy of finance ought to encompass. It is a matter I consider of grave and pressing importance if we are to understand and deal with financial crises which, modern history suggests, will continue to occur only too readily.
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The Metaphysics of Markets