Banking on Words: The Failure of Language in the Age of Derivative Finance - Softcover

Appadurai, Arjun

Softcover

ISBN 10: 022631877X ISBN 13: 9780226318776

Publisher: University of Chicago Press, 2015

Synopsis

In this provocative look at one of the most important events of our time, renowned scholar Arjun Appadurai argues that the economic collapse of 2008—while indeed spurred on by greed, ignorance, weak regulation, and irresponsible risk-taking—was, ultimately, a failure of language. To prove this sophisticated point, he takes us into the world of derivative finance, which has become the core of contemporary trading and the primary target of blame for the collapse and all our subsequent woes. With incisive argumentation, he analyzes this challengingly technical world, drawing on thinkers such as J. L. Austin, Marcel Mauss, and Max Weber as theoretical guides to showcase the ways language—and particular failures in it—paved the way for ruin.

Appadurai moves in four steps through his analysis. In the first, he highlights the importance of derivatives in contemporary finance, isolating them as the core technical innovation that markets have produced. In the second, he shows that derivatives are essentially written contracts about the future prices of assets—they are, crucially, a promise. Drawing on Mauss’s The Gift and Austin’s theories on linguistic performatives, Appadurai, in his third step, shows how the derivative exploits the linguistic power of the promise through the special form that money takes in finance as the most abstract form of commodity value. Finally, he pinpoints one crucial feature of derivatives (as seen in the housing market especially): that they can make promises that other promises will be broken. He then details how this feature spread contagiously through the market, snowballing into the systemic liquidity crisis that we are all too familiar with now.

With his characteristic clarity, Appadurai explains one of the most complicated—and yet absolutely central—aspects of our modern economy. He makes the critical link we have long needed to make: between the numerical force of money and the linguistic force of what we say we will do with it.

About this title

About the Author

Arjun Appadurai is the Goddard Professor of Media, Culture, and Communication at New York University and a senior fellow of the Institute of Public Knowledge. A Fellow of the American Academy of Arts and Sciences, he is the author of editor of numerous books, including The Social Life of Things, Modernity at Large, Fear of Small Numbers, and The Future as a Cultural Fact.

Excerpt. © Reprinted by permission. All rights reserved.

Banking on Words

The Failure of Language in the Age of Derivative Finance

By Arjun Appadurai

The University of Chicago Press

Copyright © 2016 The University of Chicago
All rights reserved.

ISBN: 978-0-226-31877-6

Contents

Preface, 
CHAPTER ONE The Logic of Promissory Finance, 
CHAPTER TWO The Entrepreneurial Ethic and the Spirit of Financialism, 
CHAPTER THREE The Ghost in the Financial Machine, 
CHAPTER FOUR The Sacred Market, 
CHAPTER FIVE Sociality, Uncertainty, and Ritual, 
CHAPTER SIX The Charismatic Derivative, 
CHAPTER SEVEN The Wealth of Dividuals, 
CHAPTER EIGHT The Global Ambitions of Finance, 
CHAPTER NINE The End of the Contractual Promise, 
Notes, 
References, 
Index, 

CHAPTER 1

The Logic of Promissory Finance

The Argument in Brief

The principal argument of this book is that the failure of the financial system in 2007–8 in the United States was primarily a failure of language. This argument does not deny that greed, ignorance, weak regulation, and irresponsible risk-taking were important factors in the collapse. But the new role of language in the marketplace is the condition of possibility for all these more easily identifiable flaws.

To make this case requires understanding how language takes on a new life in contemporary finance, and this argument takes us into a realm not usually explored when financial markets are discussed. To understand how language takes on the role it does in finance today, four steps are involved. The first is to show how derivatives are the core technical innovation that characterizes contemporary finance. Edward LiPuma and Benjamin Lee took an initial step in this direction in their important book on Financial Derivatives and the Globalization of Risk (LiPuma and Lee 2004). Since then, there have been several efforts to define and explain derivatives, both within and outside the community of finance experts. The second step is to show how derivatives are, essentially, written contracts about the future prices of various types of financial assets, the essence of which are promises by the losing party to pay the winning party an agreed-upon sum of money in the event of a specific future price outcome. Thus the contract is a promise, and to understand it fully requires a new look at contracts, seen as promises about the uncertain future. This requires a re-examination of Marcel Mauss's classic study of The Gift (1990) and a rereading of J. L. Austin's work (1962) on performatives and their conditions of felicity. This analysis of derivative contracts brings out the special importance of language in the financial marketplace. A third step is to show how the derivative form exploits the linguistic power of the contract through the special form that money takes in the financial world, given that money is by definition the most abstract form in which the value of commodities can be expressed. A fourth and final step is to understand that the failure of the derivatives market (especially in the domain of housing mortgages) is primarily about failed promises (promises being the most important in Austin's typology of performatives), a type of failure that was neither occasional nor ad hoc but became systematic and contagious, thus bringing the entire financial market to the brink of disaster.

This introductory chapter elaborates this argument schematically and sequentially. The subsequent chapters look more closely at ideas about risk, ritual, salvation, performative failure, and (in)dividuality, by strategic rereadings of Emile Durkheim, Marcel

Edition details

• Publisher: University of Chicago Press
• Publication date: 2015
• Language: English
• ISBN 10: 022631877X
• ISBN 13: 9780226318776
• Binding: Paperback
• Edition number: 1
• Number of pages: 188