Building real markets for the good of the people

The Bank of England is seeking to build an 'Open Forum' Building real markets for the good of the people. I am participating in this forum and here I seek to address the questions

• Are reforms creating the soft and hard infrastructure to ensure FICC markets are effective and  retain their social licence?
• Where has too little been done?  In some areas, might reform have gone too far?   
• Does the reform agenda form a coherent whole or are there gaps and inconsistencies?
• How should the programme of reform be made dynamic and adaptive to current and future innovations in markets?

In summary I believe the reforms focus on specific actions but do not address fundamental issues around how markets are perceived. This reflects the Bank’s desire to deliver concrete proposals to solve a range of specific problems. The risk is that the reforms tackle situations already identified and are not robust to new phenomena.

The basis of my argument rests on a matter of fact: two hundred years ago banking, and commerce generally, was  conceived of as being conducive to social order; today it is generally perceived as socially destructive.  Before the nineteenth century, in theory, the primary concern of markets was fairness in exchange.  Through the nineteenth century this concern was replaced by profit maximisation.  I would assert that contemporary market malfeasance is a result of this transformation; practices become justified by a consequentialist argument that profits, however generated, are ultimately beneficial to society.  

The Bank and market regulators seek to correct market misconduct, in the main, by creating new rules and regulations; a deontological response.  The weakness of this approach is that rules and regulations, necessarily, relate to specific situations and so are slow to evolve to new technologies.  

Both consequentialist and deontological moralities rely on predictability, something rarely encountered in markets.  Consequentialism rests on an assumption that we are able to calculate the consequences of our actions and deontology that we can identify the set of possible situations that need proscribing.  In the presence of uncertainty the ethicist should turn to character, or virtue, based morality.  The Fair and Efficient Market’s Review recognises this and highlights the need to improve standards, professionalism and accountability, issues of character while the 3 ‘pillars’ of Basel reflect deontological (Pillar I) , character (Pillar II) and consequentialist (Pillar III) approaches.

I believe that the Bank will struggle to actually deliver its objective of ‘Markets for All’ so long as market participants are taught to adhere a consequentialist ethic to maximise profits while the regulator focuses on developing rules to restrain these instincts.  Alongside the work on strengthening rules and regulations in order to deliver ‘Markets for All’ I assert that the Bank of England must undertake a programme of work focussing on the culture of banking.

Character is developed through practice in the context of a culture.  This is reflected in the meaning of the Greek word at the root of ethics and the Latin word at the root of morality, both relate to practice.   Thirty years ago many bankers, including Bank of England employees,  started their careers directly from school as apprentices, learning their trade in practice.  Today, the majority of City bankers will have gone through an academic training  rooted in a consequentialist ethic and built on profit maximisation in the presence of scarcity.

While many see the decline in commercial ethics as being a recent phenomena, Milton Friedman, Reaganomics and Thatcherism are often mentioned, I point to the 1950 English Trust Law case, Buttle v Saunders ([1950] 2 All ER 193), where in the High Court ruled that the fiduciary duty to maximise a client’s profits superceded any conception of commercial ethics, such as ‘my word is my bond’; introducing the practice of ‘gazumping’ into English commercial practice.  I also highlight that at this time, because of the Bretton-Woods system,  exchange rates,  and hence interest rates and commodity prices, were fixed.  That is, in 1950  the FICC markets were broadly predictable and in this environment the ideology of profit maximisation, formulated in the academic sphere, came to dominate financial practice.   

I have argued that the current perception of markets as being competitive arenas designed to maximise profits is misguided.  A truer conception of markets is as a response to radical uncertainty and that markets are forums, centres of discourse, where the aim is to reach a consensus on prices.  This position is developed on the identification of reciprocity (fairness in exchange) as being deeply embedded in contemporary financial mathematics and reflects the origins of mathematical probability theory being in the ethical assessment of contingent contracts.  Reciprocity, I argue, is a key  ‘norm of market discourse’, along with charity and sincerity.

My case is based on the view that in the aftermath of the Enlightenment instrumental mindsets that sought to optimally achieve predetermined ends in the context of an underlying need to control external events emerged and dominated science.  This approach is founded on an assumption of predictability, that emerged in the nineteenth century, and that fails in the face of radical uncertainty.  

Integral to my case is the view that western commercial practice has driven the development of both western science and western democracy.  The explanation is that society learns about discourse in the marketplace, and discourse is at the basis of both democracy and science.  Greek commerce was uniquely based on money and delivered a unique approach to science and politics.  The commercial revolution of twelfth century Europe ended feudalism and resulted in Europe's mathematisation of physics.  Thomas Gresham and Simon Stevin preceded Isaac Newton and Christiaan Huygens. This turns table on the conventional standpoint that commerce is built on science and democracy and emphasises the merit of markets.  

On this basis, my responses to the questions presented are as follows.

• Are reforms creating the soft and hard infrastructure to ensure FICC markets are effective and  retain their social licence?

I cannot see (perhaps based on ignorance) initiatives to address the ‘soft’ infrastructure to the same extent as there are initiatives to address the ‘hard’ infrastructure.  I am not surprised by this given Bank’s desire to deliver concrete actions to solve a range of specific problems, but I think the bones of the hard infrastructure are useless without the meat of the soft infrastructure.

• Where has too little been done?  In some areas, might reform have gone too far?   

I cannot find a clear vision of how the culture of Banking will be improved.  There is a commitment to making the rules and regulations stronger but it is assumed that everyone agrees on what a market is and why it exists.  I believe the Bank should bring clarity to this fundamental issue.  As long as a market is seen by some as a panacea while others see it as demonic the ultimate objective of  markets regaining their social license will be at risk.  I believe the ‘Open Public Forum’ needs to deliver a generally accessible and widely agreed understanding of the role of markets.

New financial technologies, such as crowdfunding, peer-to-peer lending and alternative currencies, are characterised by their distributed, non-centralised, nature.  My case that markets are forums for achieving consensus is more sympathetic to these new technologies than the conventional approach that markets are to maximise profits. The new financial mechanisms have been reviewed by regulators.  There is concern that regulators will force the emergent mechanisms to mimic existing structures, which are profit maximising, destroying their beneficial distinctiveness and the FCA consultation was debated in the UK Parliament (18 December 2013,  `Crowdfunding and the FCA').  and during the debate it was observed that the UK has the potential to be the global leader in crowdfunding  because the US SEC has over-regulated it and “strangled the baby at birth''.

• Does the reform agenda form a coherent whole or are there gaps and inconsistencies?

I don’t think the reform agenda is incoherent and implicit in the agenda is a desire to address the culture of banking.  However I do not think this is explicit and so will be lost.

• How should the programme of reform be made dynamic and adaptive to current and future innovations in markets?

I would argue that the Bank should promote dialogue and research on the how markets are perceived. Whilst finance is in the midst of an ethical crisis it is also undergoing significant change driven by technology and there is significant public interest in finance, unprecedented in recent history.  Because markets are intrinsically unpredictable and it is impossible to identify how they will evolve, what is needed is to harness this interest in honest discourse about how markets should develop.  

Finance, science and democracy are all failing to deliver a robust consensus on important issues, can finance return to its ethical roots and teach the other domains how it is done?

Does the hidden hand need to hold a stake in society?

As the father of a four year old daughter, I have been to the cinema to see the the Disney film, Tinkerbell and the Pirate Fairy.  When I took my daughter to the cinema I had taken an mp3 player as I anticipated I would need a diversion, however I became engrossed in the film.

The film tells the story of how a 'fairy scientist', Zarina,  undertook an experiment, which went wrong.  In response, Zarina left the fairy kingdom, taking pixie dust, and got involved with the young Captain Hook.  Hook had convinced Zarina that they were a team, but in fact the pirate was using the fairy so that he could use Zarina's knowledge of pixie dust to get his ship to fly in order that he could become the most powerful pirate. Eventually, other fairies, led by Tinkerbell, rescued Zarina, by showing who her friends really were, and she was bought back into the fairy-fold.

I saw the film around the time I spoke at the Circling the square: Research, politics, media and impact conference last year and there was coverage of the idea that U.S. high tech firms were considering going 'off-shore' so that they would escape regulation.  On the face of it, there seemed to be a connection between Captain Hook and the Seasteading Institute or Andreessen Horowitz.

These thoughts returned to me while reading Albert Hirschman's The Passions and the Interests: Political Arguments for Capitalism before Its Triumph on the advice of @tcspears.  From the back-cover

In this volume, Albert Hirschman reconstructs the intellectual climate of the seventeenth and eighteenth centuries to illuminate the intricate ideological transformation that occurred, wherein the pursuit of material interests - so long condemned as the deadly sin of avarice - was assigned the role of containing the unruly and destructive passions of man. Hirschman here offers a new interpretation for the rise of capitalism, one that emphasizes the continuities between old and new, in contrast to the assumption of a sharp break that is a common feature of both Marxian and Weberian thinking.

Hirschman begins his story with Machiavelli and highlights the following paragraph in Chapter 15 of The Prince

But since it is my [Machiavelli's] object to write what shall be useful to whosoever understands it, it seems to me better to follow the real truth of things than an imaginary view of them. For many Republics and Princedoms have been imagined that were never seen or known to exist in reality. And the manner in which we live, and that in which we ought to live, are things so wide asunder, that he who quits the one to betake himself to the other is more likely to destroy than to save himself; since any one who would act up to a perfect standard of goodness in everything, must be ruined among so many who are not good. It is essential, therefore, for a Prince who desires to maintain his position, to have learned how to be other than good, and to use or not to use his goodness as necessity requires.

In 1532 Machiavelli appears to be making precisely the same point as behavioural economists make today, it beggars the question: what progress have we made in almost 500 years?

 Hirschman identifies this passage as the start of the 'fact-value dichotomy' that features in Hobbes, Spinoza, Rousseau and, most famously (for English speakers?) in Hume. It reminded me that during the Enlightenment, when the consensus was on the dominance of the passions,  today  the fact-value dichotomy is invoked to ensure policy is guided by positivist, 'rational', arguments.

Before the nineteenth century the view was that humans, as they really are, are governed by their passions (in particular, lust, the excessive passion for love; pride, the excessive passion for honour, and avarice, the excessive passion for wealth) and during the seventeenth century there was discussion of how a damaging passion can be harnessed by another passion: a person sublimates their adulterous lust by their desire to be honoured.

Hirschman notes that these thought processes originate in political theory, where the entity in question is the state, but they become applied to individuals, or in the case of Mandeville, how a skilled politician should be able to harness the passions of the people to the benefit of the state.  In particular, Mandeville identifies how personal avarice can be used to temper the other passions.

In Hirschman's account 'Interests' become the main tamers of passions and by the nineteenth century they are equated with wealth, due mainly to Adam Smith  and from this point individual profit maximisation emerges as a virtue that results in public good. Interests guide the hidden hand.

Hirschman notes that the noun 'interest' is difficult, and this is covered in the current edition of the Oxford English dictionary:

There is much that is obscure in the history of this word, first as to the adoption of Latin interest as a noun, and secondly as to the history of the Old French sense ‘damage, loss’. No other sense is recorded in French until the 16th cent. As this was not the 15th cent. sense of English interess(e), it is curious that the form of the French word should have affected the English. The relations between the sense-development in French and English in 16–17th cent. are also far from clear.

The main meaning of the word 'interest' is

 1. The relation of being objectively concerned in something, by having a right or title to, a claim upon, or a share in.

  a. The fact or relation of being legally concerned; legal concern in a thing; esp. right or title to property, or to some of the uses or benefits pertaining to property;  

with the earliest example coming from 1450 "Noon of youre Liege peple hafuyng interest, right or title, of or in ony of the premisses." and in 1478 we have "He neuer knywe..þat I hadde any clayme or entrest in the maner off Heylesdon.".

Relevant to our discussion is the second definition

 2.a. The relation of being concerned or affected in respect of advantage or detriment; esp. an advantageous relation of this kind.

with a 1533 use "Without interest we commit sinne, seeyng peyne commyng withall."  This is significant as it highlights the role of interests in repressing sin.

 b. That which is to or for the advantage of any one; good, benefit, profit, advantage.

with a 1579 example "Caried with ambicious respectes touching their interests and desires particular."

The OED places the financial meaning as secondary, but older:

II. Senses related to medieval Latin interesse, as used by Matthew Paris a1259, and frequently from 13th c. (see Du Cange), in the phrase damna et interesse, in French legal phraseology dommages et intérêts, the indemnity due to any one for the damage and prejudice done to him. Cf. Old French interest (1290 in Godef.) in sense ‘damage’, also recompense for damage done or caused, ‘damages’. In sense 10   French interest (now intérêt) occurs in Rabelais, 1535.

9.a. Injury, detriment. 

 9.b. Compensation for injury, ‘damages’. (French dommages et intérêts medieval Latin damna et interesse.) Obs. rare.

and the examples are two hundred years older than the common meaning:  1259 Propter usuras, pœnas,et Interesse, or 1274   Tam super principali, quam super custibus, dampnis, et interesse refundendis

and the penultimate meaning is the technical, financial, meaning

10. a. Money paid for the use of money lent (the principal), or for forbearance of a debt, according to a fixed ratio (rate per cent.).

In medieval Latin interesse (Interest) differed from usura (Usury) in that the latter was avowedly a charge for the use of money, which was forbidden by the Canon Law; whereas originally ‘interesse refers to the compensation which under the Roman Law, was due by the debtor who had made default. The measure of compensation was id quod interest, the difference between the creditor's position in consequence of the debtor's laches and the position which might reasonably have been anticipated as the direct consequence of the debtor's fulfilment of his obligation’. This compensation was always permissible when it could be shown that such loss had really arisen (damnum emergens). At a later period, lucrum cessans—loss of profit through inability to reinvest—was also recognized as giving a claim to interesse; both cases appear to be included in the formula damna et interesse. The interesse was originally a fixed sum specified in the contract; but a percentage reckoned periodically, so as to correspond to the creditor's loss, was afterwards substituted (as sometimes in England in the first half of the 13th cent.). Interest in the modern sense was first sanctioned by law (though apparently under cover of the mediæval theory) by 37 Hen. VIII, c. 9 (see quot. 1545); this statute was repealed in 1552, but re-enacted in 1571.

1529   King Henry VIII Instr. Orator Rome,   Which money..shalbe truely repayde with interesse.

1545   Act 37 Hen. VIII c. 9 §3   Be it also enacted..that no person or persons..by way or meane of any corrupte bargayne, loone, eschaunge, chevisaunce, shifte, interest of any wares..accepte or take, in lucre or gaynes, for the forbearinge or givinge daye of payment of one hole yere of and for his or their money..above the sume of tenne poundes in the hundred.

Originally interest was the charge a debtor had to pay a creditor for non-repayment, it was a compensation payment.  In the Middle Ages, this damnum emergens became lucrum cessans, a payment from the borrower to the lender in compensation for the loss of investment opportunities available to the lender.  Over time interest came to indicate "a right or title to, a claim upon, or a share in" something.

It is here that I see the crux, interests imply a stake suggesting that the hidden hand will only work if an individual has a stake in society.

One aspect of Hirschman's account that had me thinking is that the implication was there is an internal dialogue taking place within individuals, there was no reference to the external, cultural pressures, on an individual.

The reason I thought about this is that when faced with a moral decision, I am not concious of sublimating one passion with another, rather I am concious of peer-pressure, what my friends and family might think of me.  I guess in the framework that Hirschman presents this would be covered by 'honour', and maybe  explicitly highlighting the fear of shame, a feature of Calvinism, might not be well received by an 'Enlightened' audience.  Another explanation could be that the likes of Montesquieu, Hume and Smith took it as given that an individual is a part of the society that they will improve by pursuing their personal interests.  None the less, it struck me that if the individual is set adrift from their society and culture, their morals are likely to be compromised (anyone who has experienced working as an ex patriate might be familiar with this phenomenon; I witnessed it working in Abu Dhabi in the 1990s, where adultery was the norm amongst westerners, not the exception).  This to me is a the heart of The Pirate Fairy, and a central risk of Seasteading.

One character whom one might expect to appear in Hirschman's account, but does not, is Hugo Grotius.  Grotius is widely regarded as setting the foundations of international relations in the modern era and Hedley Bull describes a contemporary interpretation of Grotius' theory of 'international society' as

A society of states (or international society) exists when a group of states, conscious of certain common interests and common values, form a society in the sense that they conceive themselves to be bound by a common set of rules in their relations with one another, and share in the working of common institutions. If states today form an international society . . . this is because, recognising certain common interests and perhaps some common values, they regard themselves as bound by certain rules in their dealings with one another, such as that they should respect one another's claims to independence, that they should honour agreements into which they enter, and that they should be subject to certain limitations in exercising force against one another. 

On the basis of Hirschman's claim that during the seventeenth and eighteenth centuries, philosophers adapted state-craft to individual behaviour, I think we can gain insight into the role of interests in guiding the hidden hand by replacing 'state' with 'individual' in the above quotation.

My intuition is that if people become alienated from society then we can't rely on their self-interest promoting the well-being of society, as proposed by Smith and others.  When Zarina becomes alienated from the other fairies she loses here good judgement.  Whether Seasteaders can construct a 'new Jerusalem', as the puritan immigrants to north America set out to do in the seventeenth century, remains to be seen.  But I am doubtful: the 'founding fathers' had a definite moral compass that bound them together, not an infantile desire to do as they see best justified by their personal wealth.

Mark Carney's recent Mansion House speech touches on some of these issues.  For example, when Carney argues that

The Bank of England’s general approach was consistent with the attitude of FICC markets, which historically relied heavily on informal codes and understandings. That informality was well suited to an earlier age. But as markets innovated and grew, it proved wanting. 

can the "informality was well suited to an earlier age" be interpreted as that when the City was less 'global', and market participants closer to each other, they shared 'common interests' which become diluted as traders become separated and potentially alienated (as in the case of Zarina).

Carney goes on to argue that "Real markets are resilient, fair and effective. They maintain their social licence." and "Real markets don’t just happen; they depend on the quality of market infrastructure."  Developing these themes, he highlights the final report the Fair and Effective Markets Review, noting that

Firms’ systems of internal governance and control that were incapable of asserting the interests of firms – let alone the wider market – over those of close-knit trading staff;

highlighting how market participants must share common interests that transcend the local interests of trading cliques.   Carney goes on to observe that the result was

All these factors contributed to an ethical drift. Unethical behaviour went unchecked, proliferated and eventually became the norm. Too many participants neither felt responsible for the system nor recognised the full impact of their actions. For too many, the City stopped at its gates, though its influence extended far beyond. 

I am fairly sure that these comments are relevant as much to those advocating Seasteading as Fixed Income, Currencies and Commodity traders cast adrift from broader society.

Finance and Mathematics: where is the ethical malaise?

This is a draft of an article that has been accepted by The Mathematical Intelligencer and offers an argument very similar to Romer's 'mathiness' argument as discussed in my previous post.

Discussions of the role of mathematics in finance appearing in The Mathematical Intelligencer can be split into two classes. Marc Rogalski [26] and Jonathan Korman [18] capture a widespread fury at a collapse in commercial ethics while Ivar Ekeland [6] and Peter Haggstrom [13] offer economic facts. The conclusions of Rogalski and Korman can be summarised as that mathematicians should spurn the financial world; Haggstrom and Ekeland point to technocratic solutions, characterised by better regulation. I do not buy into the argument that the problems of finance can be solved by regulations, it is, as both the U.K. and U.S. governments have identified¹, an ethical problem. But I also do not think it is virtuous for mathematicians to spurn finance, so I am not completely aligned with Rogalski or Korman. My position is that mathematicians should be forthright in presenting financial mathematics as a discipline centred on the concept of justice, making it explicit that successful finance must be moral finance.

During the Financial Crisis of 2007-2009 I was the U.K. Research Council's ‘Academic Fellow' in Financial Mathematics, meaning my background is, like Ekeland and Haggestrom, that of a financial mathematics ‘insider'. In this role I was expected to explain the discipline I represented to U.K. policy makers, both in government and in the media. As I attempted to meet these expectations I took an unconventional step for a mathematician and started looking into the origins of mathematical probability, both technically and the cultural context. I noticed that in solving the Problem of Points, in 1654, Pascal and Fermat were pricing a derivative contract on a binomial tree, and their solution would today be recognised as the Cox-Ross-Rubinstein option pricing model, published in 1978. There was a difference between the 1654 and 1978 models, CRR give a methodology for identifying the branch probabilities on the tree, Pascal and Fermat assume they are a half. This raised the question: how did Pascal and Fermat conceive the probabilities they used?

The answer came, initially, in some work the historian Edith Dudley Sylla did in the process of translating the Ars Conjectandi. Sylla observes that

equity among associates or partners rather than probabilities in the sense of relative frequencies provided the foundation for the earliest mathematical probability theory.[28, p 13]

and that

the foundations (...) [were] not chance (frequentist probability), but rather sors (expectation) in so far as it was involved in implicit contracts and the just treatment of partners.[28, p 28]

Intrigued by this point, I followed the path of mathematical probability from the origins of western mathematics in Fibonacci's text on financial mathematics, the Liber Abaci, to contemporary mathematics' Fundamental Theorem of Asset Pricing. The Fundamental Theorem is a consequence of Black and Scholes' paper on pricing options [2] that is based on the arbitrage argument, which originates in Aristotle's discussion of justice in commercial exchange in Nicomachean Ethics and features in the Liber Abaci. The novelty of contemporary financial mathematics is not in the techniques used, or the products traded², but in the fact that, today, mathematicians approach the problem of one of ‘positive' science, not ‘normative' ethics. For example, Black and Scholes opens with the observation that “it should not be possible to make sure profits”³, appealing to a consequentialist argument that if you get your price wrong⁴ someone will bankrupt you, where as medieval merchants were conscious of the Catholic Church's injunction that a riskless profit was turpe lucrum (filthy money).

Back in 2009, at the start of this journey, I took a position similar to Ekeland: there are economic laws that “outweigh the puny might of mathematicians” and the solution is in the hands of regulators. Today I have a darker view of the role of mathematics in the markets.

European science is often distinguished from other cultures' science by the fact that it is mathematicised and there is an argument, first offered in 1934⁵ but developed more recently [12, 17], that this came out of Aristotle's examination of ethics in commerce. Justice in exchange is distinguished from distributive and restorative justice by Aristotle as being characterised by equality, “there is no giving in exchange”, it is a reciprocal arrangement essential in binding society together and for social cohesion [17, p 51; 3, 1133a15-30]. It is notable that Aristotle approached this ethical problem mathematically, since he rarely applied mathematics to the physical world elsewhere [12, p 75; 4, p 13; 3, 1094b15-28]. On this basis, the medieval Scholastic scholars realised that money was a universal measure, up until then Hellenic thought (including Islamic scholarship of the time) had considered different physical properties, such as time and space, to be ‘incommensurable' - it was impossible to represent momentum, mass x length/time, mathematically - and it was this property of money as a universal measure that enabled the development of modern physics based on mathematics [4, 17]. To appreciate the point, Copernicus wrote on money before he wrote on the planets; Stevin, founder of the influential Dutch Mathematical School, was a financier; the financier Gresham endowed the first chair of mathematics in England and laid the foundations for the Royal Society. Recently, Bernard Bru has explained the significance of Bachelier's experience of stock-markets in the development of Kolmogorov's ideas on probability [30, pp 20-21]. The close relationship between mathematics and finance is born out of the fact that finance is concerned with relations, measured as prices, between objects. Finance informs mathematics on measurement and uncertainty while mathematics is critical to finance because we cannot perform experiments in the economy. It might not be possible to divorce the two disciplines, even if we wanted to.

The classicist Richard Seaford offers some insight into this account when he goes into the roots of western thought and argues that Greek philosophy, including democracy and mathematics, are a consequence of Archaic Greece's use of money [27]. He notes that other ancient civilisations were based on centralised re-distribution, where as pre-Socratic Greek society was based on exchange, reliant on a conception of equality and reciprocity. He suggests that when the Pythagoreans assigned a number to every object, they were, in fact, pricing the object.

The view that finance is socially corrosive is more novel than the practices of finance. One way of approaching Shakespeare's The Merchant of Venice is as a study of the four natures of love - erotic, familial, friendship and the highest form of love - charity/caritas/agapi - and Shakespeare personifies charity in the form of Antonio, the merchant of Venice. Throughout the seventeenth and eighteenth century, commerce was considered a civilising influence, in The Rights of Man (1792) Thomas Paine writes “commerce is a pacific system, operating to cordialise mankind” following a path laid by Montesquieu, Hume, Condorcet and Adam Smith [15, 8].

After the Industrial Revolution, these attitudes all but disappeared and today it would be inconceivable to personify Christian love in the form of a merchant. An explanation for this cultural shift can be found in Dialectic of Enlightenment [1] where it is argued that the Enlightenment led to the objectification of nature and its mathematisation, which in turn leads to ‘instrumental mindsets' that look to optimally achieve predetermined ends in the context of an underlying need to control external events. Where as during the seventeenth and eighteenth centuries public spaces emerged, the public sphere, which facilitated rational discussion that sought the truth in support of the public good, through the nineteenth century, mass circulation mechanisms came to dominate the public sphere and these were controlled by private interests. As a consequence, the public became consumers of information rather than creators of a consensus through engagement with information [11].

One aspect of this process of alienation for the public is the attitude that mathematics is an almost mystical pursuit that can reveal hidden truths, but only for the initiated, a recurring theme in the presentation of mathematics in popular culture. This is nicely captured in a documentary film on the development of the Black-Scholes-Merton equation where the economist Paul Samulelson describes how he ‘discovered' Bachelier's thesis, much as Indiana Jones might discover a magical artefact,

In the early 1950s I was able to locate by chance this unknown book by a French graduate student in 1900 rotting in the library of the University of Paris and when I opened it up it was as if a whole new world was laid out before me.⁶

This trope might seem benign in the context of popularising mathematics, but when combined with the idea that mathematics is immutable and indubitable, themes of traditional histories and philosophies of mathematics, we are given the impression, to paraphrase William Tait, that

A mathematical proposition is about a certain structure, such as financial markets. It refers to prices and relations among them. If it is true, it is so in virtue of a certain fact about markets. And this fact may obtain even if we do not or cannot know that it does. [29, p 341]

While mathematicians themselves might not make this claim explicitly, mathematics has been used by many to obscure and legitimise financial activity, passing over any consideration of the ethical implications of those activities. Ekeland might see mathematics as ‘puny', but others value its authority and there are too many examples of how mathematics has been employed to prevent democratic oversight of the markets. In their submission to the Parliamentary Commission on Banking Standards in 2013 the Bank of England was highly critical of how some firms have used advanced mathematical techniques to ‘pull the wool' over the eyes of the regulator [22, v. II, para. 89] while U.S. authorities identified that this type of mathematical sleight of hand played a part in the ‘London whale' episode [23, p 14]. The existence of the Gaussian copula as a ‘'truth-teller' of the value of complex debt portfolios played a central role in the Crisis of 2007-2009, justifying the actions of banks, despite its short-comings being known to mathematicians [31, 21, 9]. In the early 1970s, the Black-Scholes-Merton framework played an important part in legitimising the re-emergence of financial derivatives markets [20, p 158]. As long ago as 1877 a large, corporate, insurer defended their actions in undermining fraternal/mutual insurers to legislators with the argument that

There are certain fundamental rules †which can only be understood by actuaries, and it is impossible for me to go into here [19, p 198]

An antidote to the causes and consequences of ‘instrumental mindsets' identified above is to turn away from the philosophical paradigm of Foundationalism, which sees language as being made up of statements that are either true or false and complex statements are valid if they can be deduced from true primitive statements. This approach is exemplified in the standard mathematical technique of axiom-theorem-proof. An alternative approach is to shift the focus from what language says (true or false) to what it does. Specifically, the function of language is to enable different people to come to a shared understanding and achieve a consensus, this is defined as discourse⁷ [10]. Because discourse is based on making a claim, the claim being challenged and then justified, to be successful discourse needs to be governed by rules, or norms. The most basic rules are logical and semantic, on top of these are norms governing procedure, such as sincerity, and finally there are norms to ensure that discourse is not subject to coercion or skewed by inequality. This is why reciprocity is central to financial mathematics, it is a norm of market discourse, embedded in the language of mathematics.

Mathematics has not been passive in recent financial crises and I would argue that if mathematicians are not part of the solution, they are part of the problem. For me, the correct response of mathematicians to the financial crises is to work in support of those who wish to redirect finance from regarding markets as competitive arenas to seeing them as centres of cooperative, democratic, discourse⁸. In this vein I have developed the argument [16] that reciprocity is the central message of financial mathematics and it is one of three norms of market discourse, the others being sincerity and charity. For this case to be coherent I have followed Putnam [25] and abandoned the idea of mathematics being a value-neutral truth-teller, rather it is a means of discourse. This is a significant step if you perceive mathematics as being monogamous with the natural and physical sciences, or even celibate. I believe certain twentieth century mathematicians, such as Poincaré⁹ [14], Ramsey [5] and Putnam, would have sympathy with the approach I take, particularly in the cases where mathematics is employed in the social and human sciences.

Notes

¹In the U.S. Financial Crisis Inquiry Commission’s report of 2011 and the U.K. ‘Changing Banking for Good’ report of 2013.

²Most of these products existed in medieval times, the ‘Triple Contract’ shares the features of ‘structured products’ prominent in the crisis. ‘Mortgage Backed Securities’ were introduced in the U.S. in the late nineteenth century — see [19, Ch 5] for an enlightening account. It is not in the interests of well dressed bankers to tell their clients that what they are charging fat fees for existed before Columbus.

³This is the basis of Ekeland’s argument.

⁴Ramsey’s ‘Dutch book’ argument, which has been described as a modern version of the ‘Golden Rule’, “Do unto others as you would have them do unto you”, Luke 6:31.

⁵By the Marxist theoretician Borkenau in The Transition from the Feudal to the Bourgeois World View.

⁶The programme is ‘The Midas Formula’ also known as ‘The Trillion Dollar Bet’ and is available on YouTube. The relevant section is around 12:20/48:53 minutes. A transcript is available at http://www.bbc.co.uk/science/horizon/1999/midas_script.shtml.

⁷According to a recent translator of Fibonacci, a key feature of the techniques given in the Liber Abaci was that they enabled ideas to be transmitted and improved upon [7, Introduction].

⁸An I.M.F. paper on the crisis, Resolution of Banking Crises: The Good the Bad and the Ugly (WP/10/146) reveals that countries with a significant proportion of ‘not for profit’ mutual banks (e.g. Germany, France, Italy) did not require the public bailouts needed in the U.K. and U.S. — finance is not necessarily capitalist.

⁹Poincaré’s approach is captured in his observation “these two propositions ‘the earth turns round,’ and ‘it is more convenient to suppose that the earth turns round,’ have one and the same meaning” [24, p 91].

References

[1]    T.W. Adorno and M. Horkheimer. Dialectic of Enlightenment. Stanford University Press, 1944 (2002).

[2]    F. Black and M. Scholes. The pricing of options and corporate liabilities. Journal of Political Economy, 81(3):637-654, 1973.

[3]    S. Broadie and C. Rowe. Aristotle: Nicomachean Ethics: Translation, Introduction, Commentary. Oxford University Press, 2011.

[4]    A. W. Crosby. The Measure of Reality. Cambridge University Press, 1997.

[5]    D. Edgington. Ramsey and Pragmatism: Probability, conditionals and truth. Cambridge Workshop on Pragmatism, May 2012.

[6]    I. Ekeland. Response to Rogalski. The Mathematical Intelligencer, 32(2):9-10, 2010.

[7]    L. Fibonacci and L. Sigler. Fibonacci's Liber Abaci: A Translation Into Modern English of Leonardo Pisano's Book of Calculation. Springer, 2003.

[8]    M. Fourcade and K. Healy. Moral views of market society. Annual Review of Sociology, 33:285-311, 2007.

[9]    M. B. Gordy. A risk-factor model foundation for ratings-based bank capital rules. Journal of Financial Intermediation, 12(3):199-232, 2003.

[10]    J. Habermas. The Theory of Communicative Action: Reason and the rationalization of society. Beacon Press, 1985.

[11]    J. Habermas. The Structural Transformation of the Public Sphere: An Inquiry Into a Category of Bourgeois Society. MIT Press, 1991.

[12]    R. W. Hadden. On the Shoulders of Merchants: Exchange and the Mathematical Conception of Nature in Early Modern Europe. State University of New York Press, 1994.

[13]    P. Haggstrom. Mathematicians in the world of finance. The Mathematical Intelligencer, 34(1):6-7, 2012.

[14]    G. Heinzmann. Henri Poincaré and his thoughts on the philosophy of science. In E. Charpentier, E. Ghys, and A. Lesne, editors, The Scientific Legacy of Poincaré. American Mathematical Society / London Mathematical Society, 2010.

[15]    A. O. Hirschman. Rival interpretations of market society: Civilizing, destructive, or feeble? Journal of Economic Literature, 20(4):1463-1484, 1982.

[16]    T. C. Johnson. Reciprocity as a foundation of Financial Economics. The Journal of Business Ethics, Forthcoming, doi: 10.1007/s10551-014-2257-x.

[17]    J. Kaye. Economy and Nature in the Fourteenth Century. Cambridge University Press, 1998.

[18]    J. Korman. Finance and mathematics: A lack of debate. The Mathematical Intelligencer, 33(2):4-6, 2011.

[19]    J. Levy. Freaks of Fortune: The Emerging World of Capitalism and Risk in America. Harvard University Press, 2012.

[20]    D. MacKenzie. An Engine, Not a Camera: How Financial Models Shape Markets. The MIT Press, 2008.

[21]    D. MacKenzie. The credit crisis as a problem in the sociology of knowledge. American Journal of Sociology, 116(6):1778-1841, 2011.

[22]    PCBS. Changing Banking for Good. Technical report, The Parliamentary Commission on Banking Standards, 2013.

[23]    Permanent Subcommittee on Investigations. JPMorgan Chase Whale Trades: A Case History of Derivatives Risks and Abuses. Technical report, Committee on Homeland Security and Governmental Affairs, 2013.

[24]    H. Poincaré. Science and Hypothesis. In S. J. Gould, editor, The Value of Science: Essential Writings of Henri Poincaré. Modern Library, 1902 (2001).

[25]    H. Putnam. The Collapse of the Fact/Value Dichotomy and Other Essays. Harvard University Press, 2002.

[26]    M. Rogalski. Mathematics and finance: An ethical malaise. The Mathematical Intelligencer, 32(2):6-8, 2010.

[27]    R. Seaford. Money and the Early Greek Mind: Homer, Philosophy, Tragedy. Cambridge University Press, 2004.

[28]    E. D. Sylla. Commercial arithmetic, theology and the intellectual foundations of Jacob Bernoulli's Art of Conjecturing. In G. Poitras, editor, Pioneers of Financial Economics: contributions prior to Irving Fisher, pages 11-45. Edward Elgar, 2006.

[29]    W. W. Tait. Truth and proof: The Platonism of mathematics. Synthese, 69(3):341-370, 1986.

[30]    M. S. Taqqu. Bachelier and his times: A conversation with Bernard Bru. Finance and Stochastics, 5(1):3-32, 2001.

[31]    G. Tett. Fools' Gold. Little Brown, 2009.

Mathiness: not just a problem of macro-economics

I was aware of the "mathiness" discussion initiated by the macro-economist Paul Romer, but have only recently read the articles because while the discussion was taking place I was finishing of an article for The Mathematical Intelligencer that presents a remarkably similar argument (noting that mathematicians consider a coffee cup and doughnut to be the same).

Romer's concern is in the field of economic growth - an area I am unfamiliar with -  but two related statements caught my attention

For the last two decades, growth theory has made no scientific progress  toward a consensus. ... The question posed here is why the methods of science have failed to resolve the disagreement between these two groups.

and, postulating on why science has failed to come to a consensus, Romer offers an explanation as "mathiness"

Like mathematical theory, mathiness uses a mixture of words and symbols, but instead of making tight links, it leaves ample room for slippage between statements in natural versus formal language and between statements with theoretical as opposed to empirical content.

My article for the Intelligencer is titled "Finance and Mathematics: where is the ethical malaise" and was written in response to a series of articles  about the role of mathematics in financial crises.  I begin my piece

Discussions of the role of mathematics in finance appearing in The Mathematical Intelligencer can be split into two classes. Marc Rogalski and Jonathan Korman capture a widespread fury at a collapse in commercial ethics while Ivar Ekeland  and Peter Haggstrom off er economic facts. The conclusions of Rogalski and Korman can be summarised as that mathematicians should spurn the financial world; Haggstrom and Ekeland point to technocratic solutions, characterised by better regulation. I do not buy into the argument that the problems of finance can be solved by regulations, it is, as both the U.K. and U.S. governments have identified, an ethical problem.

I go onto to explain that mathematics has not been neutral in recent financial crises

In their submission to the Parliamentary Commission on Banking Standards in 2013 the Bank of England was highly critical of how some fi rms have used advanced mathematical techniques to 'pull the wool' over the eyes of the regulator [para. 89] while U.S. authorities identified that this type of mathematical sleight of hand played a part in the 'London whale' episode [p 14]. The existence of the Gaussian copula as a 'truth-teller' of the value of complex debt portfolios played a central role in the Crisis of 2007-2009, justifying the actions of banks, despite its short-comings being known to mathematicians. In the early 1970s, the Black-Scholes-Merton framework played an important part in legitimising the re-emergence of financial derivatives markets. As long ago as 1877 a large, corporate, insurer defended their actions in undermining fraternal/mutual insurers to legislators with the argument that

 "There are certain fundamental rules . . . which can only be understood by actuaries, and it is impossible for me to go into here [p 198]"

 In my piece, for the mathematics community, I note that while mathematicians might see these abuses, which I am fairly certain could be ascribed to 'mathiness' as coined by Romer, as being abuses of mathematics, we do bear some responsibility.

Many mathematicians, but probably only a minority, argue that there is an issue with mathematics in that it is often used to obscure rather than enlighten.  Part of this trope is the presentation of mathematics as a mystical key that can unlock hidden truths:
In economics, my favourite example is Samuelson's account of how he 'discovered' Bachelier's thesis, much as Indiana Jones might uncover a magical artefact

(From the BBC programme "The Midas Formula/The Trillion dollar Bet")

This all might seem benign in to context of encouraging people to engage with mathematics, but when combined with he dominant philosophical paradigm of Foundationalism and finance, problems emerge.

Foundationalism sees language as being made up of statements that are either true or false and complex statements are valid if they can be deduced from true primitive statements. This approach is exemplified in the standard mathematical technique of axiom-theorem-proof and so arguments presented mathematically are automatically imbued with the quality of 'truth' and so hold authority.

I then give a Habermasian explanation of what happens when mathematics and finance come together.

the Enlightenment led to the objectification of nature and its mathematisation, which in turn leads to 'instrumental mindsets' that look to optimally achieve predetermined ends in the context of an underlying need to control external events. Where as during the seventeenth and eighteenth centuries public spaces emerged, the public sphere, which facilitated rational discussion that sought the truth in support of the public good, through the nineteenth century, mass circulation mechanisms came to dominate the public sphere and these were controlled by private interests. As a consequence, the public became consumers of information rather than creators of a consensus through engagement with information.

Habermas, and Pragmatic philosophy more generally, offer an antidote by switching the emphasis of what language says (whether it is true or false) to what it does

Specifically, the function of language is to enable different people to come to a shared understanding and achieve a consensus, this is de fined as discourse. Because discourse is based on making a claim, the claim being challenged and then justified, to be successful discourse needs to be governed by rules, or norms. The most basic rules are logical and semantic, on top of these are norms governing procedure, such as sincerity, and finally there are norms to ensure that discourse is not subject to coercion or skewed by inequality.

This is the basis of my claim that Reciprocity is a Foundation of Financial Economics.

With regard to the 'mathiness' discussion it is interesting to see that Romer argues the issues are in the collapse of 'economic norms', so are diagnosis and treatment appear aligned.  My criticism of Romer is mild, and it is that he has not presented his case in the context of Pragmatism, which would provide him with a firmer foundation for his case (I recommend Haack and Misak  as bedrocks).

However, I do not see my contribution as calming the criticism there has been for Romer, because my suggestion is the issue is not with one, or another, local mis-understanding but a fundamental issue with the dominant pardigm supporting science.  Economists might disagree on their growth models but they are likely to agree that science is based on Foundationalism.  This said, the problems Romer, and I, identify are pervasive, with science being unable to resolve many problems ranging from finance to climate change.

A moral case for bank money

Finance is a skeleton that supports the development of a healthy society, not a utility that plumbs the economy together. The justification for this observation is historical. Richard Seaford has argued that the culture that emerged in Greece some two and a half thousand years ago, creating a unique approach to science and democratic politics, was a consequence of a peculiar Greek invention; money, a token that signifies trust between citizens. The flowering of European culture, and the genesis of modern science, in thirteenth century Europe followed, and some argue was a consequence of, a period of rapid monetisation of society that initiated the end of feudalism. Similarly, western Europe’s development accelerated ahead of the rest of the world in the seventeenth century powered by financial innovations in the Netherlands and Britain.

Charles Mackay in his classic comparison of England’s South Sea Bubble and France’s, almost simultaneous, Mississippi Bubble, emphasises the different reactions in France and Britain to the credit bubbles. In the aftermath of the crises, the French inhibited the development of private banks but maintained the autocratic political system, whereas the British reformed the political system and enabled the development of finance. The results of Britain’s Financial Revolution were Agricultural and Industrial Revolutions along with the eclipse of France as a global power. For France, dependent on taxation to fund the state, there was the ultimate collapse of the political system in bloody revolution.

Getting the structure of our financial system right is not a trivial matter.

One argument gaining support is that the root of recent problems in finance is the private creation of money by banks, and so the solution is to strip banks of this ability. What this would entail is not clear but a core theme is that transactions would involve minted cash (physical or electronic), not bank money. We can visualise the practical consequence of this in little brown envelopes on pay-day containing coins and Bank of England notes. No bank transfers, certainly not in the foreseeable future, meaning no debit cards at the supermarket checkout and the replacement of cyber-crime by good old-fashioned robbery. This makes concrete part of the problem  Martin Wolf identifies when he makes the observation that "The transition to a system in which money creation is separated from financial intermediation would be feasible, albeit complex."   It might prove impossible to get through the Christmas binge, when there is widespread short-term demand for cash.  Could a computer system cope with the funds transfers associated with Black Fridays and Cyber Mondays without the ability to create money? Banks, in this environment, would come to resemble peer-to-peer lending facilitators and the consequence would be that people who have wealth, or are connected to wealthy networks, could buy expensive things, but for the majority it would be harder to get a mortgage.  While this might sound a bit draconian to the British, Germans still have a preference for cash and traditionally live in rented accommodation, having long connected debts (schulden) and guilt (schuld) and, after all, they have done well economically.

Unfortunately it is not certain that German economic success rests on the German preference for cash. An equally plausible explanation is the structure of the German banking system, which, unlike the British and U.S. systems, is not dominated by private profit seeking banks but has a significant sector of not-for-profit, regional, financial institutions. An IMF paper highlights how countries with this type of financial system, including France and Spain, did not require the massive government bailouts that British and U.S. banks did in 2008-2009. Mutuals and public banks create money in the same way as privately owned banks and so preventing banks from creating money seems to be a rather extreme solution when the problem might be elsewhere.

Calls to prevent banks from creating money to ensure financial stability resemble calls to ban the internal combustion engine to prevent climate change. It would clearly go a long way to solving the problem, in theory, but is totally impractical. One group who would like to see the debate on banking reform focus in on money creation are the banks themselves, because they can be confident that if this is where the debate is centred, nothing will change. Most voters need bank credit just as they need cars.

I cannot offer a straightforward alternative to preventing banks, or anyone else, making money. I do have an alternative idea of where the problem lies though. If you read about eighteenth century finance it is striking how engaged people were with financial innovations. Well before the South Sea Bubble Daniel Defoe wrote about the problem of banking

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 … 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.

Lady Credit was seen as a coy mistress, much as Boethius had perceived Fortuna

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

Right up until the mid twentieth century credit was represented in this way, with John Strachey writing

The banks are essentially 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.

In this conception commerce is a marriage between credit and opportunity with the objective of producing growth. However, Lady Credit is attractive and, as Defoe observed in 1709, sometimes her relations are not so benign

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

If women run the risk of sexual assault, the civilised response is not to lock them away out of harm’s reach, but focus on the perpetrators. The problems of finance are not in creating money but in lending money to unsuitable projects.

Through the nineteenth century science became confident that it had tamed fortuna and a consequence was the mechanisation of finance. Credit was no longer a prize to be wooed but a servant to be controlled. As finance became de-humanised the morality of the Quakers, who established many of Britain's financial institutions, was replaced by the profit maximising principle. In the process, people have become alienated from finance and lost the capacity to make their own financial judgements; we need to employ professionals to plan our future.

I have argued that profit maximisation should not be at the heart of commerce, rather the norms (virtues, if you prefer) of reciprocity, sincerity and charity. In this framework mutual mechanisms, including peer-to-peer and crowdfunding, are as legitimate as profit maximising private banks. I believe the advantage of this approach is that it takes as given that the economy is capricious and beyond the control of wise men observing nature and pulling controls. Preventing banks from creating money reflects a desire to freeze the economy in order to stop it becoming chaotic. This is a forlorn hope, to which the collapse of Bretton-Woods is testimony.

If you feel my claim that reciprocity, sincerity and charity should be, or even could be, at the heart of finance is as absurd as preventing banks creating money I would point you to Shakespeare’s The Merchant of Venice. One reading of the play is as a study of the four classical loves: friendship (philia), affection (storge), romantic (eros) and unconditional (agape/caritas/charity). Shakespeare personified charity in the form of Antonio, the Merchant of Venice; why did he do that?




I wrote this piece, arguing against removing banks' ability to create money,  for Res Publica's Disraeli Room blog in response to a post Money Creation and Society: The beginning of the debate on how money is created. 

The case I present is not technical but moral,  in the sense of mores/moeurs.  I admire Izabella Kaminska's review of the case to strip banks of their money creation powers, and agree with her analysis of the issues, in particular I support the trilateral monetary system, based on sovereign, bank and private money, that she describes.  Specifically, I like her comment that

A more prudent path [to stripping banks of their ability to create money]might just be encouraging both the central bank and the market to get better at identifying over or under issuance where and when it happens, something which could be made easier if private money’s price signal was detached from the state peg.

This lays the foundation, in part, for presenting a moral case, I don't think the solution to credit bubbles lies in how finance is plumbed together, rather the ethical context under which finance is conducted

A further motivation for presenting a moral case originated in my experience of the Scottish Independence referendum, particularly the dismal performance of Alistair Darling, leader of the unionist campaign, in the final TV debate with the leader of the nationalist campaign, Alex Salmond.  A central issue in the campaign was the currency an independent Scotland would use, and Salmond advocated retaining the pound, controlled by the Bank of England. Darling, as a former Chancellor of the Exchequer had a deep understanding of the technical problems this presented, but Salmond, relying on the public's indifference to these problems and Darling's inability to articulate them, won the debate. 

A common irritant with the Independence Referendum debate was that both parties claimed a vote for them would change everything, but change nothing.  It struck me that the case presented by Positive Money was similar; stripping the bank's of their ability to create money will end the boom and bust cycle, to the benefit of the public, without changing individuals' experience of banking.  The recent Greek election, similarly, centred on the claim that the Greeks can re-negotiate their rescue package, to the benefit of the electorate, without the negative consequences of leaving the Eurozone.  Personally I feel the chance of this turning to tragedy or comedy are about equal, but the most likely outcome will be a yawn: the debt will be re-negotiated, the ECB having had five years to ring-fence the problem.  However, in the context of discussions of bank money it is worth highlighting that the Greek bankruptcy was a consequence of Greek government mis-management, and the austerity was imposed by a troika of public institutions.  Boom and bust is as likely to be caused by public bodies as private banks.

So, my aim in this piece was to side-step the complex technical problems and present a moral argument that might be more accessible to a general audience.

My piece survived on the Res Pubica blog for around two weeks and then was pulled at the request of Ben Dyson, the author of the original piece.  Mr Dyson objected to two 'inaccuracies' in the piece. Since both relate to what might happen if banks are prevented from creating money, and given these are contingent events, I don't think they can, in fact, be described as inaccurate; we have differing opinions. I invited Mr Dyson to engage in public deliberation on the points, through the Disraeli Room blog, but his response was to persuade Res Publica to pull my piece.  An interesting outcome given the claim that the original article was to be the the start of a debate.  What follows, not perfect but an honest attempt to continue the debate, is my original piece. The points of contention were the following in the original,

No bank transfers, certainly not in the foreseeable future, meaning no debit cards at the supermarket checkout and the replacement of cyber-crime by good old-fashioned robbery.  People who have wealth can buy expensive things, but for the majority it would be difficult to get a mortgage and impossible to use a credit card to get through the Christmas binge. While this might sound a bit draconian to the British, Germans still have a preference for cash and live in rented accommodation, having long connected debts (schulden) and guilt (schuld) and, after all, they have done well economically.

which has been clarified in this version.