Metaphors, Models and Financial Crises
By Tony Bennett
15 September 2010
As we struggle to come terms with the financial crisis that has wracked the global economy since 2007 and, in the process made millions homeless, unemployed or destitute, scholars from across the social sciences and humanities have drawn on their different toolkits to throw what light they can on these events. On 4 August, in a public lecture hosted by the Art Gallery of New South Wales and organised by CCR and UWS’s Writing and Society Program, Professor Mary Poovey, the Director of the Institute for the History of the Production of Knowledge at New York University, presented a unique insight into our current difficulties by placing them in a longer history of liberal economic, social and social thought.
In speaking to her title, ‘Stories We Tell about Financial Markets: From Victorian Metaphors to Modern Financial Models’, Professor Poovey told a full house packed into the Gallery’s Centenary Auditorium that there are two kinds of stories that liberalism has told about the operation of markets. But they are stories that pull in different directions. One asserts that, no matter what individuals do, the financial market as a whole will achieve equilibrium; the other assumes that individuals have agency and can operate freely within complex systems, including the market.
In nineteenth-century political economy, Poovey argued, the relations between these were conceptualized loosely in terms of an organic metaphor of the ‘social body’ which mediated the relations between individuals and the larger wholes of which they formed a part. In the twentieth century, and particularly over the period since the 1939-1945 war, various forms of financial modeling have taken on this role. They have done so, however, with the significant difference that such models have shaped the methods financiers and governments have used to simulate the economy by affecting how financial markets work. In the autumn of 2007, because such models had taken on a life of their own – and because they diverged so widely from what they claimed to represent – the world was pushed to the brink of financial ruin. By placing models use for the portfolio management of derivatives in a longer historical perspective, Professor Poovey showed how the sub-prime mortgage crisis had its roots in a much broader range of financial instruments and modeling techniques which, if not addressed through root-and-branch reforms, will, she argued, continue to engender major financial crises.
You can watch the public lecture below.