It has been an enduring enigma to me as to why there is so little public activism around finance, given that there is activism in domains such as energy and agriculture. Yesterday, Brett Scott, one of the few financial activists I think achieves anything, spoke as part of the Dangerous Ideas series.
Brett and I have very different backgrounds, exemplified the fact that I come from the oil exploration business while Brett has a background in “deep ecology activism. Our point of contact appears to be that we agree that the financial system is a useful (natural) technology that needs to be well managed, rather than an “alien” and unnatural system that should destroyed. I think the focus of this contact is that we share the view that finance should be “open source”, open to public participation. As an activist Brad shows how individuals can ’hack’ finance, as an academic I try to help individuals understand the financial system in a coherent manner.
After his talk a small group continued the discussion in the sunshine. A post doc psychologist and I discussed why there weren’t more financial activists It has long perplexed me why finance does not attract the sort of public scrutiny that the energy and agricultural domains (for example) do. The technological threats associated with climate change and GMOs are abstract in that the risks are yet to materialise, the risks of finace repeatedly realise themselves causing actual discomfort to millions of westerners (i.e. there is no issue that “it doesn’t matter they’re Belgians”). It can’t be because finance is “complicated”, hydraulic fracturing, nuclear waste storage and genetic modification are not exactly trivial. It cannot be that finance is too close to power, until recently the energy industry was much wealthier and tighter with governments than finance.
To highlight one aspect of my confusion, I have just found a post asking "Can Scientists Engage Critically with Capitalism?", focussing on the domain of synthetic biology - why isn't the question asked focusing on the core domain of finance (the author comes from Manchester University which hosts Karel Williams who does do this)?
Brett was of the opinion that finance is closely associated with maths and there is massive public anxiety around approaching mathematical issues (even Tim Harford, the presenter of the BBC’s statistics show More or Less, struggled with stats at university and failed maths at A-level). I think it is uncontroversial to argue that people who are good at maths tend not to be the “activist type”, which raises the question why should this be so. Some really significant probabilists, including Poincare (attacked the case against Dreyfus), Borel (politicialn after 1924) and Markov (actively opposed the Tsarist regime before 1917), were highly political, but we don’t hear of mathematicians being at the fore of protest movements these days.
I think the reason is there has been a massive cultural change in mathematics since the First World War. The rise of Bourbaki and Formalism, encapsulated in Hardy’s claim that mathematicians don’t do anything useful (which I think is mis-interpreted out of context, I think his point was subtle) has created an “insincerity” in mathematics. The result is that toda mathematicians often pride themselves in being incomprehensible (this is not a new claim). I speak with bitter personal experience, I am currently re-writing a paper that I submitted for a middle ranking applied mathematics journal and was rejected because it did not conform to the right “style”, the maths is fine but I had not presented it in the right way. I work in a branch of Probability, which is now classed as “Pure Mathematics” and had presented my work in the context of a practical problem, this is not what ”mathematicians” do, we should present our work in abstract generality with a brief mention (at the end) of possible specific applications. Anyone who has come across contemporary “Financial Mathematics” will know what I am talking about and will appreciate how this approach makes it difficult to understand/follow the mathematics because of the peculiar narrative structure of Pure Mathematics.
Most mathematicians are Realists, who might claim that “2 + 2 = 4 was true at the time of the dinosaurs”, implying the mathematics is independent of human thought (synthetic a priori); or Formalists who argue that the statement is a tautology: 2 := 1 + 1, 4 := 1 + 1 + 1 + 1 and so 2 + 2 = (1 + 1) + (1 + 1) = 4 (analytic a posterior). Neither position allows much room for debate and people are left thinking that if its mathematical it must be true. These two philosophies for the foundations of mathematics uniquely alienates the discipline from people's lives. I take a more Pragmatic / Intuitive approach, following Poincare, to mathematics and see the discipline as being"socially constructed" and so containing the potential for error (a accessible account can be found in Hersh, for example).
Mathematicians frequently argue that the financial crisis was a consequence of bankers not knowing "enough" maths, maybe the problem is that the general population have been cowered into not engaging with anything mathematical.
Brett’s observation was comforting in that it suggests to me that there is a point in this blog, whose use of the word “Magic” in its title is a nod to Mauss’ association of “magic” with that which is hidden and captures the similarity in one of the key issues facing both mathematics and finance, the veil that its practitioners draw over the subject.
Another feature linking mathematics and finance are their abstract nature. With most technologies there are artefacts that can be handled. I first appreciated this talking to the curator of the Museum on the Mound, Edinburgh’s museum of money. He pointed out that it it is difficult to curate financial exhibitions because there are so few objects to present, and he imagined the same would be true of mathematics. The central object in finance is a contract, a piece of text, and the central objects in mathematics are theorems, again texts. finance is actually harder to curate because people can connect to the handwriting of a genius, the writers of financial contracts are typically anonymous clerks.
Brett and I discussed a well known British financial activists group, which I think of as the UKIP of finance, while Brett appreciated my point but I think he felt it a bit harsh. What we agreed on is that it is supported by “angry people who want answers”, and will support anyone who can offer them solutions. This is not uncommon but another point of contact between Brett and myself is that we cannot see any clear cut solutions, I take the standard academic position that “it is a bit more nuanced” while Brett’s activism is about individual responsibility rather than directing mass movements and I think the people who left Brett’s talk left in disappointment in that he was not telling them what to do. In essence I think Brett and I conform to the Enlightenment ideal of the rational individual engaged in discourse.
Brett did mention he was thinking of moving on to the energy domain. On my way home it occurred to me that there is something missing in finance that is present in energy, the very concept of energy. Everyone knows what is meant by energy, or at least they think they do. Energy is actually quite an elusive concept. Poincare remarked that
As we can not give a general definition of energ, the principle of the conservation of energy signifies simply that there is something which remains constant.
Today physicists regard energy is an unobservable quantity that represents a system’s capacity for work and all that we can observe is the manifestation of energy. As a trained physicist I have often thought tht finance focuses on the observable, in particular wealth, in the form of property, when it should place an unobservable quantity at its heart, and I think the right unobservable is “credit”. This might bring me into disagreement with Brett who (I think) suggested money was a way of storing capital/labour, I think of money as the manifestation of a system’s capacity for “credit”. “Credit” is, for me, the key unobservable in finance that equates to energy in physics (though I do not think credit is a conserved scalar) and by redirecting finance to concentrate on the ebb and flow of credit, rather than the more apparent ebb and flow of money. This point was lost on someone who discussed wealth differences and I remarked the issue was not so much an exclusion from wealth but anexclusion from credit. This is my motivation for focusing on the importance of the "silver rule of reciprocity and the golden rule of benevolence" to finance and, less unorthodox, why I think the issue of uncertainty is central to finance.
An unexplored area of disagreement between Brett and myself could be in how we regard scarcity and uncertainty. As a deep ecologist I suspect Brett is fundamentally concerned with scarcity, as an oil explorer I have long been focused on problems with uncertainty. I think if there is a fundamental difference between Brett and myself, it will be here.