Economics
is can be seen as being primarily concerned with managing resources
when faced with scarcity; the maximisation of expected utility. An
alternative view is that aspects of economics, particularly finance,
are concerned with managing resources when faced with uncertainty.
This distinction is not new, Moses ben Maimon, Maimonides, argued
that the suffering of mankind is not because they were expelled from
the Garden of Eden into a world of scarcity but because they were
expelled into a world of uncertainty. In the Garden of Eden humans
had perfect knowledge, which was lost with the Fall, and it is the
loss of this knowledge which is at the root of suffering: If we know
what will happen we can manage scarcity
The first definition of economics is
conventional, and as far as I can work out goes back to John Stuart Mill’s argument that
[Political economy] is concerned with [mankind] solely as a being who desires to possess wealth, and who is capable of judging of the comparative efficacy of means for obtaining that end. It predicts only such of the phenomena of the social state as take place in consequence of the pursuit of wealth. It makes entire abstraction of every other human passion or motive; except those which may be regarded as perpetually antagonizing principles to the desire of wealth, namely, aversion to labour, and desire of the present enjoyment of costly indulgences.
and
the subsequent definition that Economics is
The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.
Mill
distinguished the ‘science’ of economics from the “art’ of
ethics, and at the end of the nineteenth century, John Neville Keynes
(Maynard Keynes’ father) argued that there were two sides to
economics, the ‘positive, abstract, deductive' science of Mill,
and the 'an ethical, realistic, and inductive science', of the
German Historical School, and the choice of approach was determined
by the nature of the question. Fifty years later, Lionel Robbins, a
robust opponent of Maynard Keynes, offered the following definition
Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses
Robbins
adheres to the English tradition (as described by Neville Keynes) of
separating the ‘science’ of economics from the 'art’ of
ethics but this distinction grew into a dichotomy in the second half
of the twentieth century.
The second definition, less
conventional, is related to John Dewey’s argument for Pragmatism:
that traditional philosophies had focussed on a forlorn ‘Quest for
Certainty’ in an attempt to replace ‘belief’ (or judgement)
with 'knowledge’. In doing this, abstract, deductive approaches
dominated knowledge generated in practice. Whereas academic
scholarship attempted to ignore the issue of uncertainty and
randomness, vernacular knowledge had to face the brute fact head on.
In the context of economics the effect was to start with a 'rational
agent' handling physically tangible objects and then deduce
hypotheses independent of ethical considerations. These hypotheses
rarely stood up to empirical testing, resulting in the emergence of
Behavioural Economics in the final quarter of the century. The
Pragmatic approach to economics is that it should start with society,
infused with morals, and then look to see how society could be
improved. It is because I adopt a Pragmatic approach based on the
axiom that the world is uncertain that I think Credit (associated
with belief, trust), rather than Money (associated with minting
coin), should be at the heart of finance.
These observations are made as a preamble to my case to support the proposition that Credit should be the central topic of Finance, not Money. A while ago I posted a piece on the lack of financial activism, this was read as a case for Credit, which was an afterthought in the original piece.
Theories of money can be categorised
into two classes: commodity theories or representative. theories
Commodity theories hold that money derives its value from some object
with intrinsic value (gold, silver, copper, iron, cigarettes, wheat,
etc). In the European tradition this idea goes back to Aristotle (at
least) who argued that money emerged to facilitate exchange and to
overcome ‘the double coincidence of wants’; that in order for
exchange to take place the two parties must desire what the other
has. In neo-classical economics ‘money’ is simply a technical
device that facilitates transactions and does not represent any
single commodity, or even the labour that goes into a product, but
all components of the economy. As such, while it is all’
commodities it is also totally separate from the ‘real’ economy
(it is as if money is deified, everywhere but nowhere). Money should
be controlled because it represents a measure; allowing it to grow or
shrink is as problematic for economics as allowing the ‘standard
metre’ to grow or shrink would have to physics; this quantity
theory of money dominated the monetarist rhetoric of Margaret
Thatcher and Ronald Reagan.
The narrative that money emerges out
of barter has become part of received wisdom and as with most ‘common
sense’, it has no basis in fact. Just as astrophysicists use
telescopes to look back in time, anthropologists visit isolated
communities to see how society evolved, and the evidence of this
research is summarised by Caroline Humphrey (a.k.a. Lady Rees of Ludlow)
Barter is at once a cornerstone of modern economic theory and an ancient subject of debate about political justice, from Plato and Aristotle onwards. In both discourses, which are distinct though related, barter provides the imagined preconditions for the emergence of money ...[however] No example of a barter economy, pure and simple, has ever been described, let alone the emergence from it of money; all available ethnography suggests that there never has been such a thing. [Humphrey, 1985, p 48]
What
actually happens in practice is that when individuals knew each
other, exchange was based on reciprocity;
a gift would be given in the anticipation of it being reciprocated in
the future (when they don’t know each other there is barter, but in
such situations money cannot emerge because cowrie shells might be
important in one society, and gold in another). One of the most
famous stories illustrating the role of reciprocal exchange has
concerns an anthropologist who after spending some time with bushmen,
gave one of them his knife. When visiting the group some years later,
anthropologists discovered that the knife had been owned, at some
point in time, by every member of the community. The knife had not
been communally owned, its ownership had passed from one person to
the next and its passage was evidence of a social network in the
community, just as the motion of planets is evidence of an, otherwise
invisible, gravitational field.
One of the most studied examples of
these sorts of systems was that of indigenous people around Vancouver
in Canada. A young man would lend five blankets to an older, richer
person, for a year and they would be repaid with ten blankets (going
to an American school in the 1970s I learnt the pejorative term
‘Indian giving’). A similar situation existed in the Southwestern
Pacific were strings of shells, whose value was purely ceremonial,
were lent by a young man, sometimes to an unwilling borrower, at very
high rates of interest Homer
and Sylla [1996,
pp 22—23]. Many cultures had similar systems where by a gift had to
be reciprocated by a greater gift in return these systems played a
critical role in gluing society together by establishing bonds
between the rich and poor, the old and young.
One particular manifestation of gift
giving is sacrifice. Just as gift giving amongst humans creates a
contract between them, giving a gift to a god obliges the deity to
return the favour. Sahlins
[1972
(2003)], Mauss
[1924
(2001] At about
the same time as cities began to appear people started making
ornaments out of electrum (an alloy of gold and silver), copper and
gold, metals found naturally in nature. Metals have an almost unique,
natural, physical property; they reflect light. The only other
material that stone-age humans would have come across that reflected
light would have been water, which along with sunlight is the basis
of life Diamond
[1998,
pp 362—363], Betz
[1995],
Landes
[1999,
pp 70—73]. The first time a human spotted a nugget of gold
sparkling in a river bed they must have experienced a sense of awe,
here was an object that seemed to capture life-giving sunlight and
water.
Religiously significant metals became
important as temple offerings and temples began accumulate large
reserves. Followers of the religion would look to acquire the metal,
to enable them to make an offering to the gods, and so the metal
became the commodity in the most demand. The Ancient Egyptians, who
had easy access to gold, used Cypriot copper for their religious
offerings while the Cypriots used Egyptian gold. In Mesopotamia, the
metal of choice was silver. Pryor
[1985],
Eagleton
and Williams
[1997].
When ‘Currency Cranks’ or ‘Bullionists’ argue that the
economy would be improved by reverting to a Gold Standard because
gold has an ‘inherent value’ they need to explain where is the
value in gold, apart from its inherent symbolic, representative,
value.
We don’t know much about economics
in the ancient cities apart from for Mesopotamia, which has left
hordes of clay tablets describing financial transactions. The economy
was dominated by the temples who received rents and tribute, provided
religious services and loans. The cuneiform tablets recorded the
debits and credits associated with these activities. The transactions
were denominated in shekels,
crude bars of silver. Coins, metal tokens, rarely, if ever, actually
changed hands. Later, we read in Homer that the Greeks priced goods
in terms of oxen, the animal that was reserved for sacrifices to the
gods, and then the treasury of Athens, the richest Greek city after
the Persian Wars, was in the Temple of Athena and Jesus cast the
money-lenders, exchanging worldly Roman money for divine shekels, out
of the Temple.
As states emerged money became defined
by the state, fiat money or chartalism. Fiat money is central to
Modern Monetary Theory that argues money is created when governments
pay for services using tokens, which it then redeems through
taxation. This theory contradicts Monetarism in arguing that national
deficits are not necessarily detrimental to the economy.
There is firm evidence to support
money being a state creation. Money appears in Europe at the time the
Greek city states became reliant on mercenary armies. Cities paid
soldiers in gold to conquer some community, the soldiers then spent
the gold in the colonised lands and the state recovered the gold by
taxing the colonised merchants and innkeepers using the tokens that
the soldiers had paid for food and lodgings. Greek and Roman citizens
never paid tax, only the conquered paid for the privilege and were
bound to the conqueror by having to exchange their resources for the
Imperial currency. The model would survive and drive colonialism in
the modern age, in the 1920s the British taxed Kenya at a rate of
about 75% of wages, forcing the colonised to grow cash-crops to be
consumed by the colonisers. The Belgians did not tax the Congo —
they relied on forced, rather than ‘free’ wage labour Ingham
[2004,
p 76].
Monetarists have long argued that the
fall of the Roman Empire was facilitated by an economic collapse
caused by a dilution of the currency resulting in inflation. The
Monetarist explanation is that the Emperors’ needed more coins to
pay their armies and since they had a fixed amount of gold bullion to
make coins, the coins had to be debased. Since the ‘gold price’
of goods was fixed, the ‘money (coin) price’ had to rise, because
with debasement more coins were needed to deliver a fixed quantity of
gold. Advocate of fiat money theories counter argue that the Emperors
raised taxes in the core provinces of Gaul, Spain and the
Middle-East, and spent these taxes in Rome (public entertainment) and
the frontier provinces (on the army). The core provinces obtained
coins, tokens that enabled them to pay taxes, by selling goods to
Rome. As long as this circulation was maintained all was well.
However a combination of factors, over-reach by the Empire, natural
famine and a decline in the supply of slaves — the main means of
production— began to disrupt the circulation. Since the state still
had to pay the army, coin flowed into the system, but taxes did not
drain it out again and more money chased fewer goods, resulting in
the inflation Ingham
[2004,
pp101—104].
Charlemagne reinvented the Roman empire in the West, and part of this process was the re-introduction of the Roman monetary system into an 'un-monetised' feudal economy where exchange was rare, that is one without currency circulating. Because coin was scarce, Charlemagne's bureaucrats specified the exchange rate between common goods and money in order that the taxpayers could pay there tax. If you were a small holder and had been assessed for one shilling tax, if you did not engage in the market economy you would not have a shilling, so the government told you a shilling equated to a cow. This fixed the prices of cows, an unintended consequence, since Charlemagne's bureaucrats probably couldn't care less about what was happening in the market place. However the impact was enormous - there was no incentive to move goods from places of abundance to places of scarcity.
Charlemagne reinvented the Roman empire in the West, and part of this process was the re-introduction of the Roman monetary system into an 'un-monetised' feudal economy where exchange was rare, that is one without currency circulating. Because coin was scarce, Charlemagne's bureaucrats specified the exchange rate between common goods and money in order that the taxpayers could pay there tax. If you were a small holder and had been assessed for one shilling tax, if you did not engage in the market economy you would not have a shilling, so the government told you a shilling equated to a cow. This fixed the prices of cows, an unintended consequence, since Charlemagne's bureaucrats probably couldn't care less about what was happening in the market place. However the impact was enormous - there was no incentive to move goods from places of abundance to places of scarcity.
Fiat money is representative money but
not necessarily credit money. In the Roman Empire banks did not
exist, and the state could not fund its activity by borrowing from
the market, as states started to do in the medieval period. There was
a credit-debt type relation in the Roman economy, the state was
buying goods with IOUs, in the form of the coin, which it redeemed
through the tax system. If you were living on the Danube and felt the
presence of the Goths more keenly than the Legions, you might well
not bother to trade your produce for Roman tokens, causing scaricty
at the centre and disrupting the circulation of currency.
Credit theories argue that buying and
selling is about exchanging a good for credit. When I do work my
employer gives me an IOU (ideally in the form of fiat money, which is
in demand because I must pay taxes), I then offer this IOU to a
grocer for food. If the grocer trusts the credit’ of the writer of
the IOU, they will accept the IOU. The government can print as many
IOUs as it likes, but if it issues too many, the grocer may lose
faith in the Government’s fidelity to repay its IOU. If the grocer
thinks there is a 50:50 chance of repayment, they might ask for twice
as many IOUs. If the Chines feel the US government will not honour
its promises, the USD/REN exchange rate will fall, an inflation will
appear in the US and Chinese growth will slow.
I may want to buy something, like a
house, that requires a more money than I have, I do not have enough
IOUs to hand. In this case I can go to a bank, which can be seen as a
technology that converts my own credit’ into money: banks make
tangible an agent’s intangible credit Keynes
[1971,
chapter 2] just as machines make energy tangible as heat or motion.
Governments have a role in this process by regulating the interest
rate it will demand to realise banks’ credit, and banks use their
realised credit to realise their customers’ credit.
Banks, in realising their customers’
credit, are often seen as feminine institutions
They create the new money which sets the wheels of production turning again. But they cannot procreate without a spouse. The newly born money must have a father as well as a mother. Someone must take the active, positive role of borrowing, spending, and employing, or the banks will remain barren. Winder [1959, p 81] quoting Strachey
In
the early eighteenth century this identification of femininity with
the concept of credit was widespread, and described in detail by
Daniel Defoe. Between 1706 and 1709 Defoe published various articles
on Lady Credit in
his periodical, the Review
of the State of the English.
In 1706 he introduces her as
Money has a younger sister, a very useful and officious Servant in Trade ...Her name in our Language is call’d CREDIT ...
This is a coy Lass ...a most necessary, useful, industrious creature: ...[and] a World of Good People lose her Favour, before they well know her Name; others are courting her all their days to no purpose and can never come into her books.
If once she is disoblig’d, she’s the most difficult to be Friends again with us de Goede [2005, p28 ]quoting Defoe, 1706
Today,
Defoe’s imagery may appear quaint, but he captures the elusive
nature of ‘credit’.
The use of gender imagery to represent
concepts like ‘credit’ is nothing new, the Greeks represented
luck as the feminine, and unstable, Tyche
and the Romans developed
the idea into the unpredictable Fortuna,
with luck, or good fortune, becoming associated with wealth. This
imagery developed with the sixth-century, Christian, philosopher,
Boethius writing in his Consolation
of Philosophy
I know how Fortune is ever most friendly and alluring to those whom she strives to deceive, until she overwhelms them with grief beyond bearing, by deserting them when least expected Boethius [(2010, Book II]
Defoe’s
Lady Credit is as fickle as Fortuna but has a particular feature, her
coyness;
the more you chase her, the less likely she is to respond,
for as once to want her, is entirely to lose her; so once to be free from Need of her, is absolutely to posses her. de Goede [2005, p29] quoting Defoe, 1709
In
1709 Defoe describes how stock-jobbers, the most speculative of
animals, treated Lady Credit,
The first Violence they committed was downright Rape ...these new-fashion’d thieves seiz’d upon her, took her Prisoner, toss’d her in a Blanket, ravish’d her, and in short us’d her barbarously, and had almost murther’d her de Goede [2005, p34 ] quoting Defoe, 1709
Commodity theories are more popular
than representative theories because they are perceived as simpler,
and hence have the veneer of common sense logic. It is obvious that
if money is a tangible, physical asset its quantity should correspond
to some calculation of tangible of tangible objects. Since the
physical planet is a closed system money is scarce and in this
framework Ayn Rand’s argument that selfishness, the dominance of
one’s own interests, is a virtue and altruism a vice, is
inevitable.
For me, commodity theories are on an
intellectual par with flat-earth theories and the enigma is why they
persist. Society accepts that energy’ exists and its existence is
manifested in heat and work, but are queasy that credit’ exists and
is manifested in money. I think the issue is that most of us are
taught about energy from an early age, there is a widely held
coherent story that has developed over 150 years that we can tell our
children. No such consensus exists with regard to the nature of
money, and I think this is because science’ is uncomfortable about
discussing the idea of credit, which seems tied up with moral
ideology, it is much easier to talk about tangible things’. One
observation a scientist might make is that the problem is energy is
conserved whereas credit is not, but the obvious point to make to
parents is is the love for children conserved (i.e. if a second child
is born, does the familial love divide between the two with a
corresponding loss of welfare)? If science accepts that everything is
ideological but this is not the central issue: a consensus, which is
objective by not being subjective, is what is needed, and consensus
is developed through rational discourse (or Habermas’ communicative
action).
That is the theory, now the practice.
Why did Long Term Capital Management fail? LTCM had a simple business
model, speculate on mis-pricings in the market and then borrow money
in anticipation of the prices correcting themselves. The obvious risk
in this model is that you are not as smart as you think you are, and
that the market gets the prices right and you are wrong. The less
obvious risk is that Lady Credit will abandon you in your hour of
need. Donald MacKenzie MacKenzie
[2003]
summaries five explanations
- The partners in LTCM were guilty of greed and gambling (consciously reckless risk-taking);
- LTCM’s partners had blind faith in the accuracy of finance theory’s mathematical models.
- LTCM was over-levered too high a proportion of its positions were financed by borrowing, rather than by LTCM’s own capital. This third hypothesis, however, explains at most LTCM’s vulnerability to the events of August and September 1998: it does not explain those events. The most common explanation of them is:
- On 17 August 1998, Russia defaulted on its rouble-denominated bonds and devalued the rouble. However, superimposed on the flight-to-quality, and sometimes cutting against it, was a process of a different, more directly sociological kind:
- LTCM’s success led to widespread imitation, and the imitation led to a superportfolio’ of partially overlapping arbitrage positions.
MacKenzie highlights a fax that LTCM
sent to its investors on 2 September
the opportunity set in these trades at this time is believed to be among the best that LTCM has ever seen. But, as we have seen, good convergence trades can diverge further. In August, many of them diverged at a speed and to an extent that had not been seen before. LTCM thus believes that it is prudent and opportunistic to increase the level of the Fund’s capital to take full advantage of this unusually attractive environment.
LTCM were acknowledging that they had
made losses but in the crisis there was opportunity. Unfortunately
this private fax became public and all that was communicated by it
was that LTCM was making losses. This had the immediate effect that
any assets that LTCM had a large holding of were sold in anticipation
of a fire sale by LTCM, this depressed the value of LTCM’s holdings
further. Speculators simultaneously started betting on LTCM’s
failure, further depressing the value of their assets. As a result
LTCM’s credit evaporated, the market lost its faith in the firm to
repaid its loans and the firm could no longer fund its positions and
collapsed. LTCM’s strategy was fine, the assets it held were
mis-priced and eventually converged, but LTCM went bankrupt before
the doubling strategy, the martingale, paid out.
Because the popular narrative, which
created the consensus amongst the public, policy makers and
practitioners alike, focused on the stupidity of LTCM rather than the
collapse of credit in a social network, a decade later the Financial
Crisis occured. Many commentators argued at the time that the Crisis
of 2007-2009 was unusual in that it was a solvency crisis, not a
liquidity crises, but I think this is a bit naive. French and German
banks should have suffered similar losses to US/UK banks at the time
but they did not, probably because they threw away their models that
told them they had made losses. As a result they did not appear
insolvent, and so retained some of their credit. Today finance is
placing greater emphasis on credit risk, but the mainstream has
responded to the Crisis more by a lurch to the empiricism of
behavioural finance rather than engage with the metaphysics of faith,
hope and charity around Lady Credit.
References
O. Betz.
Considerations on the real and the symbolic value of gold. In G.
Morteani and J. P. Northover, editors, Europe:
Mines, Metallurgy and Manufacture,
chapter 2, pages 19—28. B. B. Price, 1995.
Boethius. The
Consolation of Philosophy (Trans. W. V. Cooper, 1902).
University of Virginia Library E-text centre, (2010).
M. de Goede. Virtue,
Fortune and Faith.
University of Minnesota Press, 2005.
J. M. Diamond. Guns,
Germs and Steel: A short history of everybody for the last 13,000
years.
Vintage, 1998.
C. Eagleton and J.
Williams. Money:
A History.
British Museum Press, 1997.
S. Homer and R. Sylla.
A
History of Interest Rates.
Rutgers University Press, 3rd edition, 1996.
C. Humphrey. Barter
and economic disintegration. Man,
20(1):48—72, 1985.
G. Ingham. The
Nature of Money.
Polity Press, 2004.
J. M. Keynes. The
collected writings of John Maynard Keynes. Vol. 5 : Treatise on money
1: The
pure theory of money. Macmillian,
1971.
D. S. Landes. The
Wealth and Poverty of Nations.
Abacus, 1999.
D. MacKenzie.
Long-term capital management and the sociology of arbitrage. Economy
and
Society,
32(3):349—380, 2003.
M. Mauss. The
Gift: Form and Reason for Exchange in Archaic Societies.
(Routledge), 1924 (2001).
F. L. Pryor. The
origins of money. Journal
of Money, Credit and Banking,
9(3):391—409, 1985.
M. Sahlins. Stone
Age Economics.
(Routledge), 1972 (2003).
G. Winder. A
short history of money.
Newman Neame, 1959.
Your discussion of LTCM at the end, reminds me of May's approach to looking at confidence effects in the inter-bank loan network:
ReplyDeleteArinaminpathy, N., Kapadia, S., & May, R. M. (2012). Size and complexity in model financial systems. Proceedings of the National Academy of Sciences, 109(45), 18338-18343.
Do you think this is on the right track for the sort of pragmatic views of finance (and science more broadly) that you have been discussing? I've been a very captivated (although silent) reader so far, looking forward to move. I would love to read your views on May's connection of ecology and finance.
Essentially market has no way of self-correcting itself, the collective wisdom is an ensemble of individual ignorance, that gets hidden by following what others are doing.
ReplyDeleteBandwagon behavior, and coupled to it the 'free-rider' problem has wide scale ramifications from equity and derivatives trading to public accountability in capital raising and deployment and in many other areas including the simple experiment of finding the best candidate for a job amongst a large number of applicants. The behavior in most bourses as the opening bell is sounded till the closing has similarities that can be attributed partially to the effects of information asymmetry or sometimes to potential difficulty to actually get a mathematical solution to a complex problem where unknowns are either large or a simplistic linear model may not be the right fit to get as close to the reality as possible. Relying on availability heuristic or copying the behavior of others is the more ‘sensible’ response, which may not be the more rational one. The engines through which these actions get guided or influenced is a more recent study where market participants could actually be incentivized to act on signals of others rather than actively seek information for a more personal inquiry. Inquisitorial journey into areas where timely information and perfect information could be rarity further compounds this problem plaguing financial markets in particular.
Abhijit Banerjee in his seminal paper in 1992, titled, “A Simple Model of Herd Behavior”, introduced the topic of ‘everyone doing what everyone else is doing although private information suggests doing something quite different’. His simple model brought to the fore the disastrous consequence of such an eventuality, "In equilibrium we find the reduction of informativeness be so severe that in an ex ante welfare sense society may actually be better off by constraining some of the people to use only their own information." The Nash equilibrium that creates the most efficient solution is itself based on sequential acceptance of other’s choices which are themselves based on choices exercised prior to theirs, which may or may not be based on rationale. Lack of informativeness in the final outcome is a very pretentious denouement of the bandwagon effect.
Collective conclusion of the market based on sequential reasoning, where informativeness is itself scarce and on a shaky ground leads to the general argument that when the market as a whole could be taking an irrational decision, the chances of that being deciphered and acted on by an individual participant is remote. When market itself is one third unwise, as individual participants respond seeing the response of others as in the Asch experiment, the self-correcting principle of the market falls flat, or at least the mathematical fallacy is no more on a shaky ground.
This leads us to the conclusion that bubbles can only burst when the crisis is full blown, when the collective conclusion leads to this denouement where the Nash Equilibrium shifts; the collapse of a paradigm only needs one small nudge against a mountain of wisdom that is more unwise.
It may seem like a small point, but I think it is significant.
ReplyDeleteYou say "One particular manifestation of gift giving is sacrifice" - I'd say that works the other way round. That, if you like, gift giving was born of sacrifice.
I think the chronology is important because it tells us something about money. You quote Ingham. The sentence of his that has stayed with me is;
"The very idea of money, which is to say, of abstract accounting for value, is logically anterior and historically prior to market exchange."
Ingham uses this truism to make case for (broadly speaking) State Theory. But for me, the sentence point to something far more profound. It says Money exists at very deep level in our minds.
Perhaps this is why commodity theories are so sticky. They recognise Money as a reality - of which I think it is an aspect - whereas 'social relations' theory abstract it. And this conflicts with something both primal to our nature and also mundane to our lives.
As usual, excellent stuff Tim. Thanks. I've read no Defoe. I really must remedy that. I love the sexualisation/gendering stuff. That's very interesting for a Freud fan like me !
I agree the chronology is important. I have it in my head that anthropologists believe personal relationships precede religious beliefs, but don't know where that comes from
ReplyDeleteCheers
Tim
Credit given is the counterpart of subjective probability, and one could say something about 'rational' constraints on credit. Under stable conditions one would expect credit given by successful lenders to be rational, in some sense. But there are exceptional conditions under which, as for mortgages around 2006-7, credit may be irrational or at least misguided or risky, in some sense.
ReplyDeleteDiscussions around probability under conditions of reflexivity tend to degenerate into quasi-religious wars. A theory of credit would need to address the same technical issues, but may be able to avoid the controversies.