Virtue, Fortune and Faith: a Genealogy of Finance
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Virtue, Fortune and Faith: A Genealogy of Finance Marieke de Goede NEWCACTLE UNIVER:3ITY LIGRARY 200 25035 4 Q.S nS ‘0°C):1 Submitted for the degree of Doctor of Philosophy Department of Politics University of Newcastle upon Tyne Newcastle, July 2001 Abstract International finance is often understood to be a rational practice, taking place within an autonomous, coherent and clearly bounded structure. This thesis questions the naturalness implied by such understandings of the international financial system. It argues that the contingencies and ambiguities of financial history have been largely written out of the discipline of International Political Economy (IPE) in general and the study of international finance in particular. The thesis presents a detailed account of the conceptual histories that enable us to think of a domain called finance. It does so in terms of a 'genealogy,' the concept offered by French philosopher Michel Foucault to denote a historical study that resists being a linear and frictionless account of the emergence of modern practices. A genealogy of finance discusses the contingentgent emergence of fin' ancial thought, thus arguing that no logical or evolutionary trajectory for the development of fin' ancial rationality was implicit in history or human nature. The thesis analyses a range of archival materials debating the emerging fin' ancial sphere in London and NewYork, beginning with the birth of the credit economy in seventeenth-century England and proceeding intoto the 1990s. The analysis' looks at political contestations over understandings of time and money, the gendered discourse of credit and credibility, the proper meaning of the free market, understandings of financial crisis, the morality of speculation, the differences between gambling and fin' ance, and the imagination of fin' ance as a rational and scientific practice. The thesis emphasises how these political controversies assume, in' yoke and debate a subject called 'fin' ancial man.' The debates analysed in this thesis have shaped the regulatory and institutional structures of modern in' ternational fin' ance. In an era when fin' ancial practices are closed off from democratic politics through the assertion that fin' ance is too specialist for broad-based public debate, the exposure of contingencies and ambiguities in financial practices must be regarded as a political critique. 1 Summary Table of Contents Abstract 1 Summary Table of Contents 2 Table of Contents 3 List of Figures 6 Preface 7 Introduction. What is Value? 11 Chapter 1. International Political Economy and Cultural History 30 Chapter 2. Mastering Lady Credit: Virtue and Fortune in Eighteenth-Century Finance 72 Chapter 3. Finance, Gambling and Speculation: The Bucketshop Debate in Nineteenth-Century US 103 Chapter 4.Transcendental Finance: Prices and the 'Free Market' in the Nineteenth Century 152 Interlude. The Normalisation of Financial Discourse in the Early Twentieth Century 201 Chapter 5. Scientific Finance and the Failure of Long-Term Capital Management 224 Chapter 6. Repoliticising Financial Rationality 253 Bibliography 299 2 Table of Contents Abstract 1 Summary Table of Contents 2 Table of Contents 3 List of Figures 6 Preface 7 Introduction. What is Value? 11 Money as Performance 11 Practices of Valuation 14 Chapter Outline 24 Notes to the Introduction 28 Chapter 1. International Political Economy and Cultural History 30 Contingent Value 30 International Political Economy 33 Three Models of 'Ideas' in IPE 37 Finance as a Political Rationality 46 The World of the Real and the World of the Ideal 53 A Genealogy of Finance 61 Notes to Chapter 1 69 Chapter 2. Mastering Lady Credit Virtue and Fortune in Eighteenth-Century Finance 72 The Financial Revolution 72 Credit and Fortuna 78 Mastering Lady Credit 84 Accounting as a Technology of the Self 88 Lady Credit and the Asian Crisis 93 Conclusion 99 Notes to Chapter 2 100 3 Chapter 3. Finance, Gambling and Speculation: The Bucketshop Debate in Nineteenth-Century US 103 Casino Capitalism 103 The Moral Problematisation of Gambling 107 The United States Bucketshop Debate 116 The Legal Ambiguity over Speculation 124 The War Again' st Bucketshops 130 The Moral Justification of Speculation 136 Professional Risk Bearers 144 Conclusion 148 Notes to Chapter 3 150 Chapter 4.Transcendental Finance: Prices and the 'Free Market' in the Nineteenth Century 152 The Politics of Counting 152 Governing with State-is' tics 155 The Laws of Society 161 Standardisation and Mechanical Objectivity 164 Economic Science 175 The Origin of Stock Prices 181 The Stock Market Barometer 187 Transcendental Finance 193 Conclusion 197 Notes to Chapter 4 199 Interlude. The Normalisation of Financial Discourse in the Early Twentieth Century 201 Stock Market Regulation 201 Contestation and Examination 202 Theme 1: the Fin' ancial Markets and National Strength 207 Theme 2: Danger and Madness in Fin' ance 212 Theme 3: the Emergence of Financial Rationality and Normality 216 The Legitimate Domain of Fin' ance 220 Notes to the Interlude 222 4 Chapter 5. Scientific Finance and the Failure of Long-Term Capital Management 224 The Sinking of LTCM 224 Scientific Finance and the 'Right' Price 227 Continuous Markets 233 The Calculability of the Future? 237 Conclusion: Questioning Financial Entitlement 246 Notes to Chapter 5 250 Chapter 6. Repoliticising Financial Rationality 253 Contingentgent Fin' ance 253 Regulation and Depoliticisation 256 Repoliticising Fin' ance 262 Performing Fin' ancial Rationality 266 Debt Sanctuaries 271 Knowledge and Security 280 Insecurity 285 Measuring the Market 290 Conclusion 295 Notes to Chapter 6 297 Bibliography 299 5 List of Figures Figure 1. J.S.G. Boggs, Tun Buck' Figure 2. Thomas Nast, The Rag Baby' Figure 3. Bucketshop in New CAstle, Pennsylvania Figure 4. A Corner in Wheat, 1909 Figure 5. Fortune and her Wheel in 1930 6 Preface To, the beast with the pointed tail that passes mountains and breaks through walls and arms! Lo, he that infects all the world!' Thus my Leader began to speak to me... and that foul image of fraud came... His face was the face of a just man so gracious was its outward aspect, and all the rest was a serpent's trunk; he had two paws, hairy to the armpits, and the back and breast and both the flanks were painted with knots and circles. (... ) So I went by myself still farther along the extreme edge of that seventh circle to where the unhappy folk were seated. Through the eyes their pain was bursting forth; on one side and the other they defended themselves with their hands, sometimes from the flames, sometimes from the burning soil, like dogs in the summer that ply, now snout, now paw, when they are bitten by fleas or gnats or gad- flies... I observed that from the neck of each hung a pouch of a certain colour and device, and on these they seemed to feast their eyes. And when I came among them, looking about, I saw, azure on a yellow purse, the face on form of a lion; then, continuing my inspection, I saw another, blood-red, which showed a goose whiter than butter. Dante Alighieri [1314]1 This thesis discusses the development of a modern financial rationality. Dante's description of the moneylenders in the seventh circle of hell with pouches of money around their' necks, decorated with the arms of wealthy Florentine and Paduan families, and under the rule of Geryon, the monster of fraud, makes clear the profound cultural, moral, religious and political transformations necessary for modern financial instruments and institutions to emerge as morally justified and socially beneficial. To Dante, the moneylenders, while appearing behind a just and gracious face, were corrupt and evil by nature. Their practices were contemptible and unnatural, for fraud, in Dante's poem, "is the deliberate use of the distinctively human powers for inhuman ends" (Sinclair 1975:222). This thesis discusses some of the moral, religious and political transformations which have slowly made the domain of 'fin' ance' a legitimate and, above all, a natural practice. These moral and I The Dnine Conrdy: Inferno, translated byJohn D. Sinclair, 1975 [1939], Oxford: Oxford University Press, pp215-217. 7 political transformations should not be seen as secondary to, or separate from, the emergence of material financial networks, but are at the heart of the ways in which modern finance has taken shape. The discussions examined in this thesis have determined the legal, political and moral spaces in which modern finance operates. There are a number of important works which have documented the conceptual and cultural transformations that are at the basis of modern capitalism. The following books have been of particular influence on my project, and have helped me formulate my main ideas: Lorraine Daston's Classical Probability in the Enlightenmmt (1988); Ann Vincent Fabian's Card Shaips and Bucket Shops: Garrbli ng in N ineteenth-Century A nErica, first published in 1990; J.G.A. Pocock's The Mackazellian Moment Florentine. Thaightand the Atlantic RImblican Traclition (1975); and Mary Poovey's A History cf the Modem Fact. Prcblems cf Knozdedge in the Sciences (f Wealth and Society (1998). The object of inquiry in the following pages, however, departs from these books in two main respects. First, whereas these studies are first and foremost historical enquiries, my aim has been to pull the historical discussions concerning the legiuma. cy of finance intoto the present. In other words, I have emphasised that the conceptual and moral struggles and debates documented were not historical aberrations or temporary hurdles on the path to modem finance, but remain unresolved and politically relevant today. Second, my purpose has been to pull the literatures on the conceptual histories of contemporary capitalism intoto the disciplinary domains of International Relations and International Political Economy in particular. I will argue that political economy limits its own scope for criticism of contemporary financial practices when failing to take intoto account the history of economic and fin.